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., 4400 Easton Commons, Suite 200, 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, 2016
Item 1. Reports to Stockholders.
AZL® BlackRock Global Allocation Fund
Annual Report
December 31, 2016
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 21
Consolidated Statement of Operations
Page 21
Consolidated Statements of Changes in Net Assets
Page 22
Consolidated Financial Highlights
Page 23
Notes to the Consolidated Financial Statements
Page 24
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® 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, 2016?
For the year ended December 31, 2016, the AZL® BlackRock Global Allocation Fund (the “Fund”) returned 4.35%. That compared to a 8.65%, 11.96%, 4.82%, 0.54%, 1.81% and 6.02% total return for its benchmarks, the FTSE World Index1, the S&P 500 Index1, the FTSE World ex U.S. Index1, the BofA Merrill Lynch 5-Year U.S. Treasury Bond Index1, the Citigroup Non-USD World Government Bond Index1, and the Reference Benchmark1, respectively.
U.S. equity markets generally outperformed international equities for the 12-month period; the S&P 500 Index gained 11.96% while the FTSE World Ex U.S. Index posted a more modest advance of 4.82%. These gains came despite a weak start to the year, when investors grew concerned about slowing global economic growth, particularly in China, and falling commodity prices. Markets rebounded in mid-February as China’s central banks announced stimulus measures and the U.S. Federal Reserve (the Fed) adopted a cautious tone on interest rates. Equity market gains were briefly interrupted in late June when the U.K. voted to leave the European Union, and again prior to the U.S. elections in November. However, domestic equities rallied strongly following the election of Donald Trump in anticipation of stronger economic growth.
In fixed income markets, the year began with risk-averse investors driving credit spreads (the difference in yield between U.S. Treasuries and other bonds) wider. As sentiment recovered in the middle of the first quarter, spreads narrowed once again, pushing volatility to its lowest level since August 2015.
For much of the period, investors flocked to U.S. investment-grade bonds in search of yield amid historically low interest rates fueled in part by continued quantitative easing efforts by the European Central Bank and Bank of Japan. This shift drove up bond prices and further squeezed credit spreads. In November, the surprise victory of President Trump fueled inflation expectations on stronger economic growth. In this environment, the Fed decided to raise interest rates in December and strike a slightly more hawkish tone for 2017.
The Fund underperformed its reference benchmark for the 12-month period under review. A higher-than-benchmark exposure to Japanese stocks dragged on relative performance as that country’s equities underperformed. An underweight position to U.S. equities also detracted, as domestic stocks largely outperformed their international counterparts. Stock selection in the telecom services, utilities, real estate and consumer discretionary sectors also weighed on relative results. Other detractors included exposure to commodity-related securities. The Fund’s currency management strategy—particularly an underweight position to the Brazilian real, Japanese yen, and Canadian dollar—also detracted from relative performance.*
Within equities, the Fund’s relative performance benefited from lower-than-benchmark exposure to both financials and consumer staples stocks, which struggled for much of the period under review. Stock selection among financials also contributed to relative results. The Fund’s stock selection and overweight position in the energy sector added to relative performance, as that sector benefited from the rebound in oil prices that began midway through the first quarter.*
Among fixed income holdings, the Fund’s tilt toward corporate bonds contributed to relative returns; the sector outperformed for much of the period as credit spreads narrowed.*
The Fund uses derivatives, which may include options, futures, swaps and forward contracts both to seek 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 detracted from 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, 2016. |
1 | For a complete description of the Fund’s performance benchmarks please refer to page 2 of this report. |
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. | ||
Emerging market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries. | ||
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. | ||
Debt securities held by the Fund may decline in value due to rising interest rates. Interest rates are at, or near, historic lows, which may increase the Fund’s exposure to risks related to rising rates. | ||
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. | ||
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, 2016 | ||||||||||||
1 Year | 3 Year | Since Inception (1/10/12) | ||||||||||
AZL® BlackRock Global Allocation Fund | 4.35 | % | 1.63 | % | 5.14 | % | ||||||
FTSE World Index | 8.65 | % | 3.93 | % | 9.94 | % | ||||||
S&P 500 Index | 11.96 | % | 8.87 | % | 14.10 | % | ||||||
FTSE World ex U.S. Index | 4.82 | % | -1.11 | % | 5.63 | % | ||||||
BofA Merrill Lynch 5-Year U.S. Treasury Bond Index | 0.54 | % | 1.65 | % | 0.96 | % | ||||||
Citigroup Non-U.S. Dollar World Government Bond Index | 1.81 | % | -2.18 | % | -1.78 | % | ||||||
Reference Benchmark | 6.02 | % | 3.09 | % | 6.46 | % |
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 Global Allocation Fund | 1.11 | % |
The above expense ratio is based on the current Fund prospectus dated April 25, 2016, as supplemented October 14, 2016. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.19% through April 30, 2018. Additional information pertaining to the December 31, 2016 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 The FTSE World Index that is a market-capitalization weighted index representing the performance of the large- and mid-capitalization stocks from the FTSE Global Equity Index Series and covers 90-95% of the investable market capitalization. Standard & Poor’s 500 Index (“S&P 500”), which 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 is comprised of (84%) large- and (16%) mid-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, 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 U.S. The Reference Benchmark is comprised of (36%) 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. 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL BlackRock Global Allocation Fund | $ | 1,000.00 | $ | 1,043.50 | $ | 5.80 | 1.13 | % |
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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL BlackRock Global Allocation Fund | $ | 1,000.00 | $ | 1,019.46 | $ | 5.74 | 1.13 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
Consolidated Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Common Stocks | 54.4 | % | |||
U.S. Treasury Obligations | 15.3 | ||||
Foreign Bonds | 14.1 | ||||
Securities Held as Collateral for Securities on Loan | 4.3 | ||||
Corporate Bonds | 3.0 | ||||
Exchange Traded Funds | 2.8 | ||||
Yankee Dollars | 2.8 | ||||
Money Markets | 1.9 | ||||
Preferred Stocks | 1.8 | ||||
Bank Loans | 1.2 | ||||
Convertible Bonds | 1.1 | ||||
Purchased Options | 1.1 | ||||
Convertible Preferred Stocks | 0.3 | ||||
Collateralized Mortgage Obligations | 0.1 | ||||
Mutual Funds | 0.1 | ||||
Purchased Swaptions | 0.1 | ||||
Private Placements | — | ^ | |||
Warrants | — | ^ | |||
Rights | — | ^ | |||
|
| ||||
Total Investment Securities | 104.4 | ||||
Net other assets (liabilities) | (4.4 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
Investments | Percent of Net Assets | ||||
United States | 59.5 | % | |||
Japan | 16.6 | ||||
United Kingdom | 4.1 | ||||
France | 2.7 | ||||
Canada | 2.3 | ||||
Germany | 2.3 | ||||
Netherlands | 2.0 | ||||
Australia | 1.6 | ||||
Switzerland | 1.2 | ||||
Italy | 1.0 | ||||
All other countries | 11.1 | ||||
|
| ||||
Total Investment Securities | 104.4 | ||||
Net other assets (liabilities) | (4.4 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks (54.3%): | ||||||||
Aerospace & Defense (1.3%): | ||||||||
149,433 | BAE Systems plc | $ | 1,085,029 | |||||
382 | Boeing Co. (The) | 59,470 | ||||||
530 | Dassault Aviation SA | 591,292 | ||||||
21,926 | European Aeronautic Defence & Space Co. NV | 1,446,877 | ||||||
493 | General Dynamics Corp. | 85,121 | ||||||
3,382 | Hexcel Corp.^ | 173,971 | ||||||
42,667 | Meggitt plc | 240,906 | ||||||
349 | Northrop Grumman Corp. | 81,170 | ||||||
398 | Raytheon Co. | 56,516 | ||||||
19,213 | Safran SA | 1,383,087 | ||||||
|
| |||||||
5,203,439 | ||||||||
|
| |||||||
Airlines (1.2%): | ||||||||
20,251 | Delta Air Lines, Inc. | 996,147 | ||||||
41,500 | Japan Airlines Co., Ltd. | 1,211,172 | ||||||
20,195 | Southwest Airlines Co. | 1,006,519 | ||||||
24,735 | United Continental Holdings, Inc.* | 1,802,686 | ||||||
|
| |||||||
5,016,524 | ||||||||
|
| |||||||
Auto Components (1.1%): | ||||||||
9,700 | Aisin Sieki Co., Ltd. | 419,832 | ||||||
16,600 | Bridgestone Corp. | 597,214 | ||||||
95,683 | Cheng Shin Rubber Industry Co., Ltd. | 179,910 | ||||||
21,500 | Denso Corp. | 928,896 | ||||||
1,800 | Exedy Corp. | 50,563 | ||||||
13,400 | Futaba Industrial Co., Ltd. | 78,150 | ||||||
1,317 | Goodyear Tire & Rubber Co.^ | 40,656 | ||||||
5,300 | Koito Manufacturing Co., Ltd. | 279,903 | ||||||
956 | Lear Corp. | 126,546 | ||||||
3,800 | Stanley Electric Co., Ltd. | 103,593 | ||||||
30,500 | Sumitomo Electric Industries, Ltd. | 437,993 | ||||||
23,000 | Toyota Industries Corp. | 1,092,453 | ||||||
|
| |||||||
4,335,709 | ||||||||
|
| |||||||
Automobiles (1.3%): | ||||||||
158,000 | Brilliance China Automotive Holdings, Ltd. | 216,861 | ||||||
47,720 | Ford Motor Co. | 578,844 | ||||||
31,600 | Fuji Heavy Industries, Ltd. | 1,285,535 | ||||||
2,258 | Hero MotoCorp, Ltd. | 100,896 | ||||||
17,800 | Honda Motor Co., Ltd. | 518,281 | ||||||
4,381 | Hyundai Motor Co. | 526,433 | ||||||
9,300 | Isuzu Motors, Ltd. | 117,420 | ||||||
3,683 | Maruti Suzuki India, Ltd. | 286,925 | ||||||
37,100 | Suzuki Motor Corp. | 1,302,484 | ||||||
4,100 | Toyota Motor Corp. | 239,387 | ||||||
144 | Volkswagen AG | 20,679 | ||||||
|
| |||||||
5,193,745 | ||||||||
|
| |||||||
Banks (4.1%): | ||||||||
60,829 | Banco Bilbao Vizcaya Argentaria SA | 410,313 | ||||||
109,951 | Banco Santander SA | 573,887 | ||||||
137,809 | Bank of America Corp. | 3,045,579 | ||||||
12,581 | BNP Paribas SA | 801,312 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
30,626 | Citigroup, Inc. | $ | 1,820,103 | |||||
1,328 | Fifth Third Bancorp^ | 35,816 | ||||||
206,417 | HSBC Holdings plc | 1,668,733 | ||||||
66,782 | ING Groep NV | 939,682 | ||||||
29,178 | JPMorgan Chase & Co. | 2,517,770 | ||||||
115,400 | Mitsubishi UFJ Financial Group, Inc. | 709,566 | ||||||
38,200 | Sumitomo Mitsui Financial Group, Inc. | 1,448,350 | ||||||
11,507 | SunTrust Banks, Inc. | 631,159 | ||||||
50,560 | Svenska Handelsbanken AB, Class A | 702,799 | ||||||
13,358 | Toronto-Dominion Bank (The) | 658,895 | ||||||
17,783 | Wells Fargo & Co. | 980,021 | ||||||
|
| |||||||
16,943,985 | ||||||||
|
| |||||||
Beverages (0.7%): | ||||||||
12,737 | Anheuser-Busch InBev NV | 1,344,922 | ||||||
13,900 | Asahi Breweries, Ltd. | 438,318 | ||||||
477 | Constellation Brands, Inc., Class C | 73,129 | ||||||
6,820 | Diageo plc, ADR^ | 708,871 | ||||||
1,475 | PepsiCo, Inc. | 154,329 | ||||||
|
| |||||||
2,719,569 | ||||||||
|
| |||||||
Biotechnology (1.0%): | ||||||||
983 | AbbVie, Inc. | 61,555 | ||||||
2,834 | Amgen, Inc. | 414,359 | ||||||
1,599 | Biogen Idec, Inc.* | 453,444 | ||||||
28,639 | Gilead Sciences, Inc. | 2,050,840 | ||||||
15,263 | Invitae Corp.* | 121,188 | ||||||
16,063 | Shire plc | 910,077 | ||||||
2,812 | Vertex Pharmaceuticals, Inc.* | 207,160 | ||||||
|
| |||||||
4,218,623 | ||||||||
|
| |||||||
Building Products (0.5%): | ||||||||
12,025 | Compagnie de Saint-Gobain SA | 559,880 | ||||||
4,900 | Daikin Industries, Ltd. | 448,798 | ||||||
8,066 | Fortune Brands Home & Security, Inc.^ | 431,208 | ||||||
16,733 | Masco Corp. | 529,098 | ||||||
|
| |||||||
1,968,984 | ||||||||
|
| |||||||
Capital Markets (1.0%): | ||||||||
503 | Ameriprise Financial, Inc. | 55,803 | ||||||
762 | Bank of New York Mellon Corp. (The) | 36,104 | ||||||
1,070 | Brookfield Asset Management, Inc., Class A | 35,308 | ||||||
20,018 | Charles Schwab Corp. (The) | 790,110 | ||||||
533 | CME Group, Inc. | 61,482 | ||||||
19,000 | Daiwa Securities Group, Inc. | 116,733 | ||||||
5,239 | Goldman Sachs Group, Inc. (The) | 1,254,478 | ||||||
26,170 | Morgan Stanley | 1,105,682 | ||||||
34,837 | UBS Group AG | 545,532 | ||||||
|
| |||||||
4,001,232 | ||||||||
|
| |||||||
Chemicals (2.5%): | ||||||||
8,422 | Air Products & Chemicals, Inc. | 1,211,252 | ||||||
11,287 | AkzoNobel NV | 704,788 | ||||||
2,657 | Arkema SA | 259,535 | ||||||
55,000 | Asahi Kasei Corp. | 478,896 |
Continued
4
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Chemicals, continued | ||||||||
46,960 | Axalta Coating Systems, Ltd.* | $ | 1,277,312 | |||||
6,032 | BASF SE | 562,469 | ||||||
21,823 | E.I. du Pont de Nemours & Co. | 1,601,808 | ||||||
11,250 | Evonik Industries AG | 334,919 | ||||||
20,000 | Formosa Chemicals & Fibre Corp. | 59,545 | ||||||
22,000 | Formosa Plastics Corp. | 60,712 | ||||||
16,200 | Hitachi Chemical Co., Ltd. | 404,310 | ||||||
342 | LG Chem, Ltd. | 73,758 | ||||||
28,000 | Nan Ya Plastics Corp. | 61,699 | ||||||
8,400 | Nitto Denko Corp. | 643,262 | ||||||
47,800 | PTT Global Chemical Public Co., Ltd. | 83,768 | ||||||
772 | Sherwin Williams Co. | 207,467 | ||||||
19,700 | Shin-Etsu Chemical Co., Ltd. | 1,518,486 | ||||||
54,000 | Toray Industries, Inc. | 436,510 | ||||||
150,000 | Ube Industries, Ltd. | 313,718 | ||||||
5,429 | Umicore SA | 308,969 | ||||||
|
| |||||||
10,603,182 | ||||||||
|
| |||||||
Commercial Services & Supplies (0.0%): | ||||||||
1,700 | SECOM Co., Ltd. | 124,074 | ||||||
|
| |||||||
Communications Equipment (0.5%): | ||||||||
1,583 | Cisco Systems, Inc. | 47,838 | ||||||
31,923 | CommScope Holding Co., Inc.* | 1,187,536 | ||||||
210,228 | Nokia OYJ | 1,010,887 | ||||||
|
| |||||||
2,246,261 | ||||||||
|
| |||||||
Construction & Engineering (0.4%): | ||||||||
12,000 | Chiyoda Corp. | 82,959 | ||||||
4,700 | ComSys Holdings Corp. | 85,968 | ||||||
11,100 | JGC Corp. | 201,021 | ||||||
10,800 | Kinden Corp. | 134,331 | ||||||
3,000 | Maeda Road Construction Co., Ltd. | 50,106 | ||||||
4,000 | Nippo Corp. | 74,562 | ||||||
42,000 | Okumura Corp. | 235,965 | ||||||
1,000 | Sho-Bond Holdings Co., Ltd.^ | 41,572 | ||||||
44,000 | Toda Corp. | 231,796 | ||||||
7,084 | Vinci SA | 481,778 | ||||||
|
| |||||||
1,620,058 | ||||||||
|
| |||||||
Construction Materials (0.0%): | ||||||||
12,200 | The Siam Cement Public Co., Ltd. | 168,719 | ||||||
|
| |||||||
Consumer Finance (0.2%): | ||||||||
997 | Capital One Financial Corp. | 86,978 | ||||||
10,825 | Discover Financial Services | 780,375 | ||||||
|
| |||||||
867,353 | ||||||||
|
| |||||||
Containers & Packaging (0.2%): | ||||||||
1,028 | Crown Holdings, Inc.* | 54,042 | ||||||
1,425 | International Paper Co. | 75,611 | ||||||
893 | Packaging Corp. of America | 75,744 | ||||||
12,496 | WestRock Co. | 634,422 | ||||||
|
| |||||||
839,819 | ||||||||
|
| |||||||
Distributors (0.0%): | ||||||||
3,700 | Canon Marketing Japan, Inc. | 62,146 | ||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Diversified Consumer Services (0.1%): | ||||||||
15,078 | H&R Block, Inc.^ | $ | 346,643 | |||||
|
| |||||||
Diversified Financial Services (0.8%): | ||||||||
6 | Berkshire Hathaway, Inc., Class A* | 1,464,726 | ||||||
9,090 | Berkshire Hathaway, Inc., Class B* | 1,481,488 | ||||||
65,000 | Fubon Financial Holdings Co., Ltd. | 102,989 | ||||||
2,400 | Zenkoku Hosho Co., Ltd. | 77,025 | ||||||
|
| |||||||
3,126,228 | ||||||||
|
| |||||||
Diversified Telecommunication Services (1.0%): | ||||||||
42,356 | Cellnex Telecom SAU | 608,224 | ||||||
31,000 | Chunghwa Telecom Co., Ltd. | 97,812 | ||||||
54,167 | Deutsche Telekom AG, Registered Shares | 930,435 | ||||||
13,794 | El Towers SpA* | 743,086 | ||||||
58,000 | HKT Trust & HKT, Ltd. | 70,987 | ||||||
13,000 | Nippon Telegraph & Telephone Corp. | 546,535 | ||||||
37,600 | Singapore Telecommunications, Ltd. | 94,384 | ||||||
1,134,637 | Telecom Italia SpA* | 998,874 | ||||||
32,883 | Telecom Italia SpA | 23,763 | ||||||
3,876 | Verizon Communications, Inc. | 206,901 | ||||||
|
| |||||||
4,321,001 | ||||||||
|
| |||||||
Electric Utilities (0.7%): | ||||||||
4,352 | CEZ | 72,863 | ||||||
9,000 | Cheung Kong Infrastructure Holdings, Ltd. | 71,585 | ||||||
17,700 | Chubu Electric Power Co., Inc. | 246,940 | ||||||
10,500 | CLP Holdings, Ltd. | 95,947 | ||||||
145,084 | Enel SpA | 638,368 | ||||||
8,500 | Hongkong Electric Holdings, Ltd. | 74,888 | ||||||
14,009 | NextEra Energy, Inc. | 1,673,515 | ||||||
4,133 | Vistra Energy Corp.^ | 64,062 | ||||||
|
| |||||||
2,938,168 | ||||||||
|
| |||||||
Electrical Equipment (0.4%): | ||||||||
42,000 | GS Yuasa Corp. | 174,297 | ||||||
2,300 | Mabuchi Motor Co., Ltd. | 119,458 | ||||||
89,100 | Mitsubishi Electric Corp. | 1,238,792 | ||||||
364 | Rockwell Automation, Inc. | 48,922 | ||||||
|
| |||||||
1,581,469 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (0.6%): | ||||||||
36,188 | Fitbit, Inc., Class A*^ | 264,896 | ||||||
800 | Hirose Electric Co., Ltd. | 98,942 | ||||||
43,400 | Hon Hai Precision Industry Co., Ltd. | 112,442 | ||||||
500 | Keyence Corp. | 342,633 | ||||||
3,800 | Kyocera Corp. | 188,501 | ||||||
6,900 | Murata Manufacturing Co., Ltd. | 918,971 | ||||||
29,763 | VeriFone Systems, Inc.*^ | 527,698 | ||||||
|
| |||||||
2,454,083 | ||||||||
|
| |||||||
Energy Equipment & Services (0.2%): | ||||||||
788 | Helmerich & Payne, Inc. | 60,991 | ||||||
7,741 | Schlumberger, Ltd.^ | 649,857 | ||||||
|
| |||||||
710,848 | ||||||||
|
|
Continued
5
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Equity Real Estate Investment Trusts (0.7%): |
| ||||||
1,288 | American Tower Corp. | $ | 136,116 | |||||
7,206 | Crown Castle International Corp. | 625,265 | ||||||
189,350 | Fibra UNO Amdinistracion SA | 289,486 | ||||||
8,000 | Link REIT (The) | 51,663 | ||||||
7,207 | Simon Property Group, Inc. | 1,280,467 | ||||||
1,766 | Unibail-Rodamco SE | 420,916 | ||||||
|
| |||||||
2,803,913 | ||||||||
|
| |||||||
| Food & Staples Retailing (0.6%): |
| ||||||
7,003 | CVS Health Corp. | 552,607 | ||||||
15,000 | Seven & I Holdings Co., Ltd. | 570,916 | ||||||
6,104 | Walgreens Boots Alliance, Inc. | 505,167 | ||||||
28,136 | Whole Foods Market, Inc.^ | 865,463 | ||||||
|
| |||||||
2,494,153 | ||||||||
|
| |||||||
| Food Products (1.3%): |
| ||||||
37,500 | Ajinomoto Co., Inc. | 754,306 | ||||||
25,960 | Danone SA | 1,642,910 | ||||||
5,590 | Mead Johnson Nutrition Co. | 395,549 | ||||||
3,116 | Mondelez International, Inc., Class A | 138,132 | ||||||
33,335 | Nestle SA, Registered Shares | 2,391,694 | ||||||
690 | Tyson Foods, Inc., Class A | 42,559 | ||||||
44,000 | Uni-President Enterprises Corp. | 72,646 | ||||||
89,000 | Want Want China Holdings, Ltd.^ | 56,881 | ||||||
|
| |||||||
5,494,677 | ||||||||
|
| |||||||
| Gas Utilities (0.3%): |
| ||||||
13,556 | Gas Natural SDG SA | 255,338 | ||||||
2,641 | Italgas SpA* | 10,390 | ||||||
176,000 | Tokyo Gas Co., Ltd. | 794,605 | ||||||
|
| |||||||
1,060,333 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (0.8%): |
| ||||||
14,560 | Baxter International, Inc. | 645,590 | ||||||
27,800 | HOYA Corp. | 1,165,297 | ||||||
2,377 | Medtronic plc | 169,314 | ||||||
403 | Stryker Corp.^ | 48,283 | ||||||
12,768 | Zimmer Holdings, Inc. | 1,317,658 | ||||||
|
| |||||||
3,346,142 | ||||||||
|
| |||||||
| Health Care Providers & Services (1.7%): |
| ||||||
13,395 | Aetna, Inc. | 1,661,113 | ||||||
4,600 | Alfresa Holdings Corp. | 75,848 | ||||||
8,497 | Anthem, Inc. | 1,221,613 | ||||||
33,609 | Brookdale Senior Living, Inc.*^ | 417,424 | ||||||
1,042 | Cardinal Health, Inc. | 74,993 | ||||||
8,059 | Centene Corp.* | 455,414 | ||||||
11,606 | HCA Holdings, Inc.* | 859,076 | ||||||
330 | McKesson Corp. | 46,349 | ||||||
5,300 | Medipal Holdings Corp. | 83,221 | ||||||
39,182 | NMC Health plc | 743,920 | ||||||
482,998 | PT Siloam International Hospital Tbk* | 390,772 | ||||||
103,489 | Spire Healthcare Group plc | 429,803 | ||||||
2,200 | Suzuken Co., Ltd. | 71,770 | ||||||
35,378 | Tenet Healthcare Corp.* | 525,010 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Health Care Providers & Services, continued |
| ||||||
449 | UnitedHealth Group, Inc. | $ | 71,858 | |||||
|
| |||||||
7,128,184 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (0.6%): |
| ||||||
12,770 | Accor SA | 476,011 | ||||||
2,997 | Chipotle Mexican Grill, Inc.*^ | 1,130,828 | ||||||
665 | McDonald’s Corp. | 80,944 | ||||||
6,452 | Norwegian Cruise Line Holdings, Ltd.*^ | 274,404 | ||||||
8,397 | Starbucks Corp. | 466,201 | ||||||
877 | Wyndham Worldwide Corp. | 66,976 | ||||||
|
| |||||||
2,495,364 | ||||||||
|
| |||||||
| Household Durables (0.3%): |
| ||||||
3,000 | Alpine Electronics, Inc. | 38,875 | ||||||
11,726 | Berkeley Group Holdings plc (The) | 405,252 | ||||||
1,262 | Coway Co., Ltd. | 92,187 | ||||||
2,639 | Mohawk Industries, Inc.* | 526,956 | ||||||
2,700 | Rinnai Corp. | 217,528 | ||||||
|
| |||||||
1,280,798 | ||||||||
|
| |||||||
| Household Products (0.2%): |
| ||||||
1,859 | Colgate-Palmolive Co. | 121,653 | ||||||
5,377 | Kimberly-Clark Corp. | 613,624 | ||||||
|
| |||||||
735,277 | ||||||||
|
| |||||||
| Independent Power & Renewable Electricity Producers (0.1%): |
| ||||||
13,439 | NextEra Energy Partners LP | 343,232 | ||||||
|
| |||||||
| Industrial Conglomerates (0.9%): |
| ||||||
308 | 3M Co., Class C | 55,000 | ||||||
8,500 | CK Hutchison Holdings, Ltd. | 95,962 | ||||||
1,300 | Jardine Matheson Holdings, Ltd. | 71,712 | ||||||
36,543 | Koninklijke Philips Electronics NV | 1,113,707 | ||||||
6,778 | Roper Industries, Inc.^ | 1,240,916 | ||||||
4,446 | Siemens AG, Registered Shares | 546,432 | ||||||
24,066 | Smiths Group plc | 417,987 | ||||||
|
| |||||||
3,541,716 | ||||||||
|
| |||||||
| Insurance (2.0%): |
| ||||||
75,000 | AIA Group, Ltd. | 419,742 | ||||||
12,790 | Allstate Corp. (The) | 947,994 | ||||||
615 | American International Group, Inc. | 40,166 | ||||||
23,743 | AXA SA | 599,042 | ||||||
1,057 | Axis Capital Holdings, Ltd. | 68,990 | ||||||
65,289 | Cathay Financial Holding Co., Ltd. | 97,773 | ||||||
6,959 | Chubb, Ltd. | 919,423 | ||||||
742 | Fairfax Financial Holdings, Ltd. | 358,426 | ||||||
2,372 | Hartford Financial Services Group, Inc. (The) | 113,026 | ||||||
11,704 | Marsh & McLennan Cos., Inc. | 791,073 | ||||||
13,950 | MetLife, Inc. | 751,766 | ||||||
10,700 | MS&AD Insurance Group Holdings, Inc. | 330,636 | ||||||
21,600 | NKSJ Holdings, Inc. | 729,464 | ||||||
719 | Prudential Financial, Inc. | 74,819 | ||||||
612 | Reinsurance Group of America, Inc. | 77,008 | ||||||
20,900 | Sony Financial Holdings, Inc. | 323,990 |
Continued
6
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Insurance, continued |
| ||||||
20,400 | Tokio Marine Holdings, Inc. | $ | 834,273 | |||||
1,235 | Travelers Cos., Inc. (The) | 151,189 | ||||||
9,783 | UnumProvident Corp. | 429,767 | ||||||
|
| |||||||
8,058,567 | ||||||||
|
| |||||||
| Internet & Direct Marketing Retail (0.9%): |
| ||||||
4,020 | Amazon.com, Inc.* | 3,014,477 | ||||||
4,221 | Expedia, Inc. | 478,155 | ||||||
|
| |||||||
3,492,632 | ||||||||
|
| |||||||
| Internet Software & Services (2.4%): |
| ||||||
13,587 | Alibaba Group Holding, Ltd., ADR*^ | 1,193,074 | ||||||
5,373 | Alphabet, Inc., Class C* | 4,146,989 | ||||||
95,700 | Dropbox, Inc.*(a)(b) | 1,042,173 | ||||||
27,248 | Facebook, Inc., Class A* | 3,134,882 | ||||||
5,547 | Lookout, Inc.*(a)(b) | 30,786 | ||||||
982 | VeriSign, Inc.*^ | 74,701 | ||||||
|
| |||||||
9,622,605 | ||||||||
|
| |||||||
| IT Services (1.1%): |
| ||||||
905 | Accenture plc, Class C | 106,003 | ||||||
246 | Alliance Data Systems Corp. | 56,211 | ||||||
1,418 | Amdocs, Ltd. | 82,599 | ||||||
11,975 | Cognizant Technology Solutions Corp., Class A* | 670,959 | ||||||
1,326 | Computer Sciences Corp. | 78,791 | ||||||
7,572 | Global Payments, Inc. | 525,573 | ||||||
37,607 | Infosys, Ltd. | 559,201 | ||||||
6,707 | MasterCard, Inc., Class A | 692,498 | ||||||
21,172 | Sabre Corp.^ | 528,241 | ||||||
29,557 | Square, Inc., Class A*^ | 402,862 | ||||||
7,868 | Visa, Inc., Class A | 613,861 | ||||||
|
| |||||||
4,316,799 | ||||||||
|
| |||||||
| Leisure Products (0.0%): |
| ||||||
3,100 | Yamaha Corp. | 94,488 | ||||||
|
| |||||||
| Life Sciences Tools & Services (0.1%): |
| ||||||
11,156 | Patheon NV*^ | 320,289 | ||||||
904 | Thermo Fisher Scientific, Inc. | 127,554 | ||||||
|
| |||||||
447,843 | ||||||||
|
| |||||||
| Machinery (1.0%): |
| ||||||
21,659 | Doosan Bobcat, Inc.* | 642,991 | ||||||
11,408 | GEA Group AG | 457,205 | ||||||
104,090 | Haitian International Holdings, Ltd. | 202,911 | ||||||
8,100 | Hino Motors, Ltd. | 82,209 | ||||||
417 | Illinois Tool Works, Inc. | 51,065 | ||||||
26,300 | Komatsu, Ltd. | 593,698 | ||||||
30,800 | Kubota Corp. | 438,517 | ||||||
3,300 | Kurita Water Industries, Ltd. | 72,501 | ||||||
1,300 | Makita Corp. | 86,975 | ||||||
3,400 | Nabtesco Corp. | 78,943 | ||||||
82,098 | SKF AB, Class B | 1,507,613 | ||||||
444 | WABCO Holdings, Inc.* | 47,131 | ||||||
|
| |||||||
4,261,759 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Media (1.7%): |
| ||||||
2,542 | Charter Communications, Inc., Class A* | $ | 731,893 | |||||
28,344 | Comcast Corp., Class A | 1,957,152 | ||||||
615,711 | Delta Topco, Ltd.*(a)(b) | 30,786 | ||||||
10,520 | DISH Network Corp., Class A* | 609,424 | ||||||
2,903 | Liberty Broadband Corp., Class A* | 210,351 | ||||||
5,632 | Liberty Broadband Corp., Class C*^ | 417,162 | ||||||
9,071 | Liberty Global plc, Class A* | 277,482 | ||||||
10,623 | Liberty SiriusXM Group, Class A* | 366,706 | ||||||
19,918 | Liberty SiriusXM Group, Class C* | 675,619 | ||||||
5,500 | Nippon Television Holdings, Inc. | 99,703 | ||||||
432 | Omnicom Group, Inc.^ | 36,768 | ||||||
41,172 | Pearson plc | 413,119 | ||||||
8,173 | Publicis Groupe SA | 563,738 | ||||||
68,858 | RAI Way SpA^ | 259,449 | ||||||
561 | Scripps Networks Interactive, Class C^ | 40,039 | ||||||
8,600 | SKY Perfect JSAT Holdings, Inc. | 39,520 | ||||||
3,500 | Toho Co., Ltd. | 98,926 | ||||||
3,100 | TV Asahi Holdings Corp. | 61,116 | ||||||
37,820 | Zon Multimedia Servicos de Telecommunicacoes e Multimedia SGPS SA | 224,374 | ||||||
|
| |||||||
7,113,327 | ||||||||
|
| |||||||
| Metals & Mining (0.1%): |
| ||||||
17,183 | Platinum Group Metals, Ltd.* | 24,831 | ||||||
81,742 | Platinum Group Metals, Ltd.* | 116,891 | ||||||
462 | POSCO | 97,677 | ||||||
5,800 | Tokyo Steel Manufacturing Co., Ltd. | 44,426 | ||||||
2,300 | Yamato Kogyo Co., Ltd. | 63,799 | ||||||
|
| |||||||
347,624 | ||||||||
|
| |||||||
| Multiline Retail (0.2%): |
| ||||||
10,918 | Target Corp. | 788,607 | ||||||
|
| |||||||
| Multi-Utilities (0.5%): |
| ||||||
35,663 | Innogy Se* | 1,239,787 | ||||||
4,211 | National Grid plc | 49,241 | ||||||
7,685 | Sempra Energy | 773,418 | ||||||
|
| |||||||
2,062,446 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (4.4%): |
| ||||||
34,884 | Anadarko Petroleum Corp. | 2,432,461 | ||||||
38,452 | BP plc, ADR | 1,437,335 | ||||||
19,672 | BP plc | 122,212 | ||||||
19,757 | Cenovus Energy, Inc. | 298,746 | ||||||
284 | Chevron Corp. | 33,427 | ||||||
94,227 | Coal India, Ltd. | 415,935 | ||||||
101,639 | EnCana Corp.^ | 1,193,242 | ||||||
7,645 | EQT Corp. | 499,983 | ||||||
16,000 | Formosa Petrochemical Corp. | 55,385 | ||||||
77,100 | INPEX Corp. | 769,840 | ||||||
73,962 | Marathon Oil Corp. | 1,280,282 | ||||||
68,545 | Marathon Petroleum Corp. | 3,451,241 | ||||||
32,131 | Oil & Natural Gas Corp., Ltd. | 90,520 | ||||||
778 | Phillips 66 | 67,227 |
Continued
7
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Oil, Gas & Consumable Fuels, continued |
| ||||||
98,439 | Reliance Industries, Ltd. | $ | 1,567,944 | |||||
37,124 | Royal Dutch Shell plc, ADR | 2,018,802 | ||||||
11,288 | Royal Dutch Shell plc, Class A | 306,785 | ||||||
14,022 | Snam SpA | 57,669 | ||||||
27,800 | Thai Oil Public Co., Ltd. | 55,953 | ||||||
862 | Total SA, ADR | 43,936 | ||||||
18,499 | Total SA | 944,196 | ||||||
1,620 | Valero Energy Corp. | 110,678 | ||||||
23,284 | Williams Cos., Inc. (The) | 725,064 | ||||||
|
| |||||||
17,978,863 | ||||||||
|
| |||||||
| Personal Products (0.8%): |
| ||||||
19,489 | Edgewell Personal Care Co.*^ | 1,422,502 | ||||||
42,167 | Unilever NV | 1,732,797 | ||||||
|
| |||||||
3,155,299 | ||||||||
|
| |||||||
| Pharmaceuticals (2.6%): |
| ||||||
5,500 | Astellas Pharma, Inc. | 76,246 | ||||||
20,930 | AstraZeneca plc | 1,134,914 | ||||||
4,909 | Bayer AG, Registered Shares | 512,062 | ||||||
16,132 | Catalent, Inc.* | 434,919 | ||||||
30,058 | GlaxoSmithKline plc | 573,927 | ||||||
11,716 | Johnson & Johnson Co. | 1,349,800 | ||||||
8,433 | Merck & Co., Inc. | 496,451 | ||||||
22,669 | Mylan NV* | 864,822 | ||||||
6,357 | Novartis AG, Registered Shares | 462,536 | ||||||
3,100 | Otsuka Holdings Co., Ltd. | 134,896 | ||||||
14,609 | Perrigo Co. plc^ | 1,215,907 | ||||||
71,983 | Pfizer, Inc. | 2,338,008 | ||||||
12,350 | Sanofi-Aventis SA | 998,673 | ||||||
1,500 | Sawai Pharmaceutical Co., Ltd. | 80,423 | ||||||
|
| |||||||
10,673,584 | ||||||||
|
| |||||||
| Professional Services (0.1%): |
| ||||||
9,235 | Randstad Holding NV | 500,119 | ||||||
|
| |||||||
| Real Estate Management & Development (1.5%): |
| ||||||
505,700 | CapitaLand, Ltd. | 1,050,698 | ||||||
630,200 | Global Logistic Properties, Ltd. | 954,936 | ||||||
20,000 | Hang Lung Properties, Ltd. | 41,879 | ||||||
68,000 | Mitsubishi Estate Co., Ltd. | 1,348,111 | ||||||
38,000 | Sino Land Co., Ltd. | 56,250 | ||||||
72,666 | Sun Hung Kai Properties, Ltd. | 909,834 | ||||||
6,500 | Swire Pacific, Ltd., Class A | 62,051 | ||||||
49,034 | The St. Joe Co.*^ | 931,646 | ||||||
14,940 | Vonovia SE | 486,582 | ||||||
13,000 | Wharf Holdings, Ltd. (The) | 85,435 | ||||||
|
| |||||||
5,927,422 | ||||||||
|
| |||||||
| Road & Rail (0.8%): |
| ||||||
39,900 | ComfortDelGro Corp., Ltd. | 67,795 | ||||||
16,600 | East Japan Railway Co. | 1,432,138 | ||||||
12,738 | Kansas City Southern | 1,080,819 | ||||||
10,200 | Kyushu Railway Co.* | 266,385 | ||||||
5,700 | Seino Holdings Co., Ltd. | 63,172 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Road & Rail, continued |
| ||||||
7,000 | West Japan Railway Co. | $ | 429,011 | |||||
|
| |||||||
3,339,320 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (0.6%): |
| ||||||
1,835 | Intel Corp. | 66,555 | ||||||
734 | KLA-Tencor Corp. | 57,751 | ||||||
15,183 | QUALCOMM, Inc. | 989,932 | ||||||
10,000 | ROHM Co., Ltd. | 573,963 | ||||||
11,094 | SK Hynix, Inc. | 405,589 | ||||||
27,800 | SUMCO Corp. | 357,209 | ||||||
|
| |||||||
2,450,999 | ||||||||
|
| |||||||
| Software (1.7%): |
| ||||||
685 | Adobe Systems, Inc.* | 70,521 | ||||||
7,228 | Electronic Arts, Inc.* | 569,277 | ||||||
5,202 | Intuit, Inc. | 596,201 | ||||||
2,297 | Microsoft Corp. | 142,736 | ||||||
3,000 | Nintendo Co., Ltd. | 627,217 | ||||||
37,810 | Nuance Communications, Inc.* | 563,369 | ||||||
4,400 | Trend Micro, Inc. | 156,061 | ||||||
68,532 | Uber Technologies, Inc.*(a)(b) | 3,386,166 | ||||||
12,536 | UbiSoft Entertainment SA* | 445,899 | ||||||
6,208 | VMware, Inc., Class A*^ | 488,756 | ||||||
|
| |||||||
7,046,203 | ||||||||
|
| |||||||
| Specialty Retail (1.1%): |
| ||||||
12,924 | Bed Bath & Beyond, Inc.^ | 525,231 | ||||||
626 | Dick’s Sporting Goods, Inc. | 33,241 | ||||||
4,788 | Home Depot, Inc. (The) | 641,975 | ||||||
23,537 | Lowe’s Cos., Inc. | 1,673,951 | ||||||
1,100 | Shimamura Co., Ltd. | 137,254 | ||||||
5,288 | Tiffany & Co.^ | 409,450 | ||||||
13,008 | Williams-Sonoma, Inc.^ | 629,457 | ||||||
65,200 | Yamada Denki Co., Ltd. | 350,727 | ||||||
|
| |||||||
4,401,286 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (1.9%): |
| ||||||
58,767 | Apple, Inc.(c) | 6,806,394 | ||||||
3,000 | Fujifilm Holdings Corp. | 113,684 | ||||||
130,000 | NEC Corp. | 343,476 | ||||||
36,155 | Pure Storage, Inc., Class A*^ | 408,913 | ||||||
1,580 | Western Digital Corp. | 107,361 | ||||||
|
| |||||||
7,779,828 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (0.7%): |
| ||||||
4,821 | Compagnie Financiere Richemont SA | 319,301 | ||||||
5,565 | Hugo Boss AG | 343,333 | ||||||
11,588 | Luxottica Group SpA | 624,075 | ||||||
3,259 | LVMH Moet Hennessy Louis Vuitton SA | 621,328 | ||||||
16,220 | Michael Kors Holdings, Ltd.*^ | 697,136 | ||||||
406 | PVH Corp. | 36,637 | ||||||
3,093 | Ralph Lauren Corp.^ | 279,360 | ||||||
|
| |||||||
2,921,170 | ||||||||
|
|
Continued
8
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Tobacco (0.1%): | ||||||||
1,451 | Altria Group, Inc. | $ | 98,117 | |||||
3,300 | Japan Tobacco, Inc. | 108,430 | ||||||
963 | KT&G Corp. | 80,505 | ||||||
|
| |||||||
287,052 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.1%): | ||||||||
6,751 | HD Supply Holdings, Inc.* | 286,985 | ||||||
574 | United Rentals, Inc.* | 60,603 | ||||||
|
| |||||||
347,588 | ||||||||
|
| |||||||
Transportation Infrastructure (0.0%): | ||||||||
8,000 | Kamigumi Co., Ltd. | 76,127 | ||||||
|
| |||||||
Wireless Telecommunication Services (0.8%): | ||||||||
23,500 | Advanced Information Service plc | 96,192 | ||||||
1,777 | China Mobile, Ltd., ADR | 93,168 | ||||||
40,000 | Far EasTone Telecommunications Co., Ltd. | 89,931 | ||||||
52,700 | Intouch Holdings Public Co., Ltd. | 73,150 | ||||||
13,900 | KDDI Corp. | 350,991 | ||||||
10,200 | NTT DoCoMo, Inc. | 231,985 | ||||||
405 | SK Telecom Co., Ltd. | 75,361 | ||||||
33,000 | Taiwan Mobile Co., Ltd. | 106,386 | ||||||
22,277 | Vodafone Group plc, ADR | 544,227 | ||||||
595,287 | Vodafone Group plc | 1,463,851 | ||||||
|
| |||||||
3,125,243 | ||||||||
|
| |||||||
Total Common Stocks (Cost $198,175,651) | 222,952,452 | |||||||
|
| |||||||
Preferred Stocks (1.8%): | ||||||||
Automobiles (0.1%): | ||||||||
3,540 | Volkswagen AG, 0.13% | 495,891 | ||||||
|
| |||||||
Banks (0.2%): | ||||||||
12,428 | Citigroup Capital XIII, Series A, 7.41%^ | 320,892 | ||||||
2,611 | U.S. Bancorp, Series G, 6.00% | 65,823 | ||||||
7,094 | U.S. Bancorp, Series F, 6.50% | 200,689 | ||||||
84,000 | USB Capital IX, 3.50% | 68,985 | ||||||
|
| |||||||
656,389 | ||||||||
|
| |||||||
Commercial Services & Supplies (0.0%): | ||||||||
3,136 | Stericycle, Inc., 5.25%^ | 198,415 | ||||||
|
| |||||||
Consumer Finance (0.1%): | ||||||||
16,911 | GMAC Capital Trust I, Series 2, 6.82% | 429,539 | ||||||
|
| |||||||
Equity Real Estate Investment Trusts (0.1%): | ||||||||
1,639 | American Tower Corp., Series A, 5.25% | 171,685 | ||||||
6,282 | Welltower, Inc., Series I, 6.50% | 378,051 | ||||||
|
| |||||||
549,736 | ||||||||
|
| |||||||
Health Care Providers & Services (0.3%): | ||||||||
19,771 | Anthem, Inc., 5.25% | 929,829 | ||||||
143,925 | Grand Rounds, Inc.*(a)(b) | 395,794 | ||||||
|
| |||||||
1,325,623 | ||||||||
|
| |||||||
Internet Software & Services (0.2%): | ||||||||
63,925 | Lookout, Inc.*(a)(b) | 613,680 | ||||||
|
| |||||||
Multi-Utilities (0.2%): | ||||||||
13,401 | Dominion Resources, Inc., 6.75% | 678,091 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Preferred Stocks, continued | ||||||||
Pharmaceuticals (0.4%): | ||||||||
1,410 | Teva Pharmaceutical Industries, 7.00% | $ | 909,450 | |||||
867 | Allergan plc, Series A, 5.50% | 661,053 | ||||||
|
| |||||||
1,570,503 | ||||||||
|
| |||||||
Software (0.2%): | ||||||||
116,157 | Palantir Technologies, Inc., Series I*(a)(b) | 939,710 | ||||||
|
| |||||||
Total Preferred Stocks (Cost $7,793,069) | 7,457,577 | |||||||
|
| |||||||
Warrant (0.0%): | ||||||||
Paper & Forest Products (0.0%): | ||||||||
157,250 | TFS Corp., Ltd. | 50,365 | ||||||
|
| |||||||
Total Warrant (Cost $—) | 50,365 | |||||||
|
| |||||||
Convertible Preferred Stocks (0.3%): | ||||||||
Banks (0.0%): | ||||||||
131 | Wells Fargo & Co., Series L, Class A, 7.50% | 155,890 | ||||||
|
| |||||||
Internet Software & Services (0.3%): | ||||||||
144,482 | Domo, Inc., Series E*(a)(b) | 1,174,638 | ||||||
|
| |||||||
Total Convertible Preferred Stocks (Cost $1,361,004) | 1,330,528 | |||||||
|
| |||||||
Right (0.0%): | ||||||||
Oil, Gas & Consumable Fuels (0.0%): | ||||||||
9,579 | TOTAL SA, Expires on 1/05/17(b)^ | 6,150 | ||||||
|
| |||||||
Total Right (Cost $6,080) | 6,150 | |||||||
|
| |||||||
Private Placements (0.0%): | ||||||||
Household Durables (0.0%): | ||||||||
3,065,000 | AliphCom, Inc., 0.00%, 4/1/20(a)(b)(d) | 138,231 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.0%): | ||||||||
268,000 | Project Samson BND Corp., 0.00%, 4/1/20(a)(b)(d) | 12,087 | ||||||
|
| |||||||
Total Private Placements (Cost $3,333,000) | 150,318 | |||||||
|
| |||||||
Convertible Bonds (1.1%): | ||||||||
Diversified Telecommunication Services (0.2%): | ||||||||
300,000 | Telefonica SA, Series TIT, 6.00%, 7/24/17+(e) | 297,752 | ||||||
500,000 | Telefonica SA, Series TEF, 4.90%, 9/25/17+ | 461,521 | ||||||
|
| |||||||
759,273 | ||||||||
|
| |||||||
Electrical Equipment (0.1%): | ||||||||
478,000 | Suzlon Energy, Ltd., Series SUEL, 5.75%, 7/16/19(d)(e) | 475,610 | ||||||
|
| |||||||
Food Products (0.0%): | ||||||||
400,000 | REI Agro, Ltd., Registered Shares, 5.50%, 11/13/14(a)(b)(f) | 2,000 | ||||||
|
| |||||||
Multi-Utilities (0.0%): | ||||||||
3,561 | Dominion Resources, Inc., 6.38%, 7/1/17 | 178,264 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.3%): | ||||||||
486,000 | Cobalt International Energy, Inc., 2.63%, 12/1/19 | 190,755 | ||||||
596,000 | Cobalt International Energy, Inc., 3.13%, 5/15/24 | 166,880 | ||||||
631,620 | Dana Gas Sukuk, Ltd., 7.00%, 10/31/17(e) | 566,879 | ||||||
|
| |||||||
924,514 | ||||||||
|
|
Continued
9
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2016
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Convertible Bonds, continued | ||||||||
Pharmaceuticals (0.2%): | ||||||||
$ | 800,000 | Bayer Capital Corp. BV, 5.63%, 11/22/19+(e) | $ | 918,621 | ||||
|
| |||||||
Real Estate Management & Development (0.0%): | ||||||||
250,000 | CapitaLand, Ltd., 1.95%, 10/17/23+(e) | 170,776 | ||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (0.1%): | ||||||||
113,000 | Intel Corp., 3.25%, 8/1/39 | 199,233 | ||||||
|
| |||||||
Wireless Telecommunication Services (0.2%): | ||||||||
6,388 | Mandatory Exchange Trust, 0.00%, 6/1/19(e) | 697,888 | ||||||
|
| |||||||
Total Convertible Bonds (Cost $5,651,750) | 4,326,179 | |||||||
|
| |||||||
Bank Loans (1.2%): | ||||||||
Capital Markets (0.4%): | ||||||||
857,857 | Promontoria Blue Holding 2 BV, 7.00%, 4/15/20(b)(d)(g) | 902,894 | ||||||
102,751 | Sheridan Production Partners, 4.50%, 12/16/20(d)(g) | 82,029 | ||||||
38,331 | Sheridan Production Partners, 4.50%, 12/16/20(d)(g) | 30,601 | ||||||
738,483 | Sheridan Production Partners, 4.50%, 12/16/20(d)(g) | 589,554 | ||||||
|
| |||||||
1,605,078 | ||||||||
|
| |||||||
Energy Equipment & Services (0.3%): | ||||||||
369,419 | Drillships Financing Holdings, Inc., 6.00%, 3/31/21(d) | 237,906 | ||||||
1,273,508 | Seadrill, Ltd., 4.00%, 2/21/21(d) | 867,258 | ||||||
|
| |||||||
1,105,164 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure (0.1%): | ||||||||
523,723 | Hilton Worldwide Finance LLC, 3.50%, 10/26/20(d) | 529,459 | ||||||
|
| |||||||
Marine (0.1%): | ||||||||
469,620 | Drillships Ocean Ventures, Inc., 5.50%, 7/25/21(d) | 369,140 | ||||||
|
| |||||||
Media (0.1%): | ||||||||
430,160 | Univision Communications, Inc., 4.00%, 3/1/20(d) | 432,311 | ||||||
|
| |||||||
Metals & Mining (0.0%): | ||||||||
166,625 | Novelis, Inc., 4.25%, 6/2/22(d) | 167,510 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.1%): | ||||||||
405,533 | Fieldwood Energy LLC, 8.38%, 9/20/20(d) | 283,873 | ||||||
111,961 | Fieldwood Holdings LLC, 8.00%, 8/31/20(d) | 105,803 | ||||||
|
| |||||||
389,676 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.1%): | ||||||||
279,150 | Univar USA, Inc., 4.25%, 7/1/22(d) | 281,534 | ||||||
|
| |||||||
Total Bank Loans (Cost $5,785,124) | 4,879,872 | |||||||
|
| |||||||
Collateralized Mortgage Obligations (0.1%): | ||||||||
459,000 | Logistics UK, Class F, Series 2015-1A, 0.66%, 8/20/25(a)(b)(d) | 543,067 | ||||||
|
| |||||||
Total Collateralized Mortgage Obligations (Cost $689,595) | 543,067 | |||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds (3.0%): | ||||||||
Banks (0.6%): | ||||||||
$ | 168,000 | Bank of America Corp., 2.00%, 1/11/18, MTN | $ | 168,387 | ||||
163,000 | Bank of America Corp., 2.60%, 1/15/19 | 164,393 | ||||||
473,000 | Citigroup, Inc., 1.80%, 2/5/18 | 472,735 | ||||||
389,000 | Citigroup, Inc., Series O, 5.87%, 12/29/49, Callable 3/27/20 @ 100^(d) | 392,890 | ||||||
451,000 | JPMorgan Chase & Co., 2.30%, 8/15/21, Callable 8/15/20 @ 100 | 442,645 | ||||||
137,000 | JPMorgan Chase & Co., 4.35%, 8/15/21 | 146,562 | ||||||
386,000 | JPMorgan Chase & Co., 1.94%, 1/15/23, Callable 1/15/22 @ 100(d) | 387,377 | ||||||
162,000 | Merrill Lynch & Co., 6.88%, 4/25/18, MTN | 172,191 | ||||||
|
| |||||||
2,347,180 | ||||||||
|
| |||||||
Biotechnology (0.2%): | ||||||||
353,000 | AbbVie, Inc., 2.50%, 5/14/20, Callable 4/14/20 @ 100 | 353,092 | ||||||
286,000 | AbbVie, Inc., 2.30%, 5/14/21, Callable 4/14/21 @ 100 | 280,219 | ||||||
|
| |||||||
633,311 | ||||||||
|
| |||||||
Capital Markets (0.2%): | ||||||||
321,000 | Goldman Sachs Group, Inc. (The), Series L, 5.70%, 12/29/49, Callable 5/10/19 @ 100^(d) | 328,961 | ||||||
337,000 | Goldman Sachs Group, Inc. (The), Series M, 5.38%, 12/31/49, Callable 5/10/20 @ 100^(d) | 340,370 | ||||||
238,000 | Morgan Stanley, Series H, 5.45%, 7/29/49, Callable 7/15/19 @ 100^(d) | 235,620 | ||||||
|
| |||||||
904,951 | ||||||||
|
| |||||||
Communications Equipment (0.1%): | ||||||||
229,000 | Cisco Systems, Inc., 2.20%, 2/28/21 | 228,507 | ||||||
|
| |||||||
Consumer Finance (0.3%): | ||||||||
292,000 | Ally Financial, Inc., 2.75%, 1/30/17 | 292,057 | ||||||
203,000 | Ally Financial, Inc., 3.50%, 1/27/19 | 204,015 | ||||||
209,000 | American Express Co., Series C, 4.93%, 12/29/49, Callable 3/15/20 @ 100^(d) | 198,289 | ||||||
264,000 | Ford Motor Credit Co. LLC, 5.00%, 5/15/18 | 274,357 | ||||||
250,000 | General Motors Financial Co., 3.50%, 7/10/19 | 254,564 | ||||||
122,000 | Hyundai Capital America, 2.00%, 3/19/18(e) | 121,978 | ||||||
87,000 | Synchrony Financial, 3.75%, 8/15/21, Callable 6/15/21 @ 100 | 89,420 | ||||||
|
| |||||||
1,434,680 | ||||||||
|
| |||||||
Diversified Financial Services (0.1%): | ||||||||
231,000 | Berkshire Hathaway, Inc., 2.75%, 3/15/23, Callable 1/15/23 @ 100 | 230,133 | ||||||
|
| |||||||
Diversified Telecommunication Services (0.3%): | ||||||||
412,000 | AT&T, Inc., 2.38%, 11/27/18 | 415,600 | ||||||
660,000 | AT&T, Inc., 3.00%, 6/30/22, Callable 4/30/22 @ 100 | 647,862 | ||||||
53,000 | Hughes Satellite Systems Corp., 7.63%, 6/15/21^ | 58,168 |
Continued
10
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2016
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Diversified Telecommunication Services, continued | ||||||||
$ | 71,000 | Verizon Communications, Inc., 1.75%, 8/15/21, Callable 7/15/21 @ 100^ | $ | 68,110 | ||||
156,000 | Verizon Communications, Inc., 2.63%, 8/15/26^ | 143,606 | ||||||
|
| |||||||
1,333,346 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (0.0%): | ||||||||
80,000 | American Tower Corp., 3.40%, 2/15/19 | 81,756 | ||||||
|
| |||||||
Health Care Equipment & Supplies (0.1%): | ||||||||
370,000 | Medtronic, Inc., 3.15%, 3/15/22 | 378,962 | ||||||
|
| |||||||
Industrial Conglomerates (0.1%): | ||||||||
38,000 | General Electric Capital Corp., Series A, 5.55%, 5/4/20, MTN^ | 41,980 | ||||||
196,000 | General Electric Capital Corp., 6.38%, 11/15/67, Callable 11/15/17 @ 100(d) | 197,225 | ||||||
332,000 | General Electric Co., Series D, 5.00%, 12/29/49, Callable 1/21/21 @ 100(d) | 344,516 | ||||||
|
| |||||||
583,721 | ||||||||
|
| |||||||
Internet Software & Services (0.0%): | ||||||||
163,000 | eBay, Inc., 3.80%, 3/9/22, Callable 2/9/22 @ 100^ | 168,400 | ||||||
|
| |||||||
Media (0.3%): | ||||||||
114,000 | Cablevision Systems Corp., 5.88%, 9/15/22 | 111,150 | ||||||
624,776 | Delta Topco, Ltd., 10.00%, 11/24/60(a)(b) | 643,519 | ||||||
300,000 | NBCUniversal Enterprise, Inc., 5.25%, 12/31/99, Callable 3/19/21 @ 100(e) | 315,000 | ||||||
|
| |||||||
1,069,669 | ||||||||
|
| |||||||
Metals & Mining (0.1%): | ||||||||
319,000 | Freeport-McMoRan, Inc., 3.88%, 3/15/23, Callable 12/15/22 @ 100^ | 292,683 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.0%): | ||||||||
136,000 | Sabine Pass Liquefaction LLC, 5.63%, 4/15/23, Callable 1/15/23 @ 100 | 144,500 | ||||||
|
| |||||||
Personal Products (0.1%): | ||||||||
179,000 | Edgewell Personal Care Co., 4.70%, 5/19/21^ | 188,413 | ||||||
167,000 | Edgewell Personal Care Co., 4.70%, 5/24/22 | 172,010 | ||||||
|
| |||||||
360,423 | ||||||||
|
| |||||||
Pharmaceuticals (0.1%): | ||||||||
149,000 | Forest Laboratories, Inc., 5.00%, 12/15/21, Callable 9/16/21 @ 100(e) | 161,096 | ||||||
228,000 | Mylan, Inc., 2.55%, 3/28/19^ | 227,511 | ||||||
|
| |||||||
388,607 | ||||||||
|
| |||||||
Real Estate Management & Development (0.1%): | ||||||||
473,000 | Global Logistic Properties, Ltd., 3.88%, 6/4/25(b)(e) | 459,176 | ||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (0.1%): | ||||||||
388,000 | QUALCOMM, Inc., 3.00%, 5/20/22^ | 393,155 | ||||||
|
| |||||||
Software (0.1%): | ||||||||
80,000 | Activision Blizzard, 2.30%, 9/15/21, Callable 8/15/21 @ 100(e) | 78,068 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Software, continued | ||||||||
$ | 511,000 | Oracle Corp., 1.90%, 9/15/21, Callable 8/15/21 @ 100 | $ | 499,345 | ||||
|
| |||||||
577,413 | ||||||||
|
| |||||||
Wireless Telecommunication Services (0.1%): | ||||||||
210,000 | T-Mobile USA, Inc., 6.00%, 4/15/24, Callable 4/15/19 @ 104.5 | 221,288 | ||||||
|
| |||||||
Total Corporate Bonds (Cost $11,994,446) | 12,231,861 | |||||||
|
| |||||||
Foreign Bonds (14.1%): | ||||||||
Banks (0.2%): | ||||||||
330,000 | Lloyds TSB Bank plc, Series E, 13.00%, 1/29/49, Callable 1/21/29 @ 126+(d) | 712,990 | ||||||
|
| |||||||
Metals & Mining (0.0%): | ||||||||
139,000 | Constellium NV, 7.00%, 1/15/23+(e) | 147,029 | ||||||
|
| |||||||
Sovereign Bonds (13.9%): | ||||||||
2,093,000 | Australian Government, Series 124, 5.75%, 5/15/21+ | 1,734,336 | ||||||
3,758,000 | Australian Government, Series 128, 5.75%, 7/15/22+ | 3,191,852 | ||||||
609,000 | Australian Government, Series 133, 5.50%, 4/21/23+ | 517,693 | ||||||
3,209,000 | Brazil Nota do Tesouro Nacional, Series NTNF, 0.94%, 1/1/21+(h)(i) | 949,944 | ||||||
209,000 | Brazil Nota do Tesouro Nacional, Series NTNB, 0.00%, 8/15/22+(i) | 194,487 | ||||||
582,959 | Bundesobligation, Series 173, 0.00%, 4/9/21+ | 629,786 | ||||||
1,804,831 | Bundesrepub. Deutshland, 0.20%, 8/15/26+(e) | 1,864,244 | ||||||
1,155,000 | Canada Housing Trust, 1.25%, 6/15/21+(e) | 852,850 | ||||||
1,774,000 | Canadian Government, 0.25%, 5/1/18+ | 1,313,844 | ||||||
4,518,000 | Canadian Government, 0.50%, 8/1/18+ | 3,353,584 | ||||||
1,126,000 | Canadian Government, 0.75%, 3/1/21+ | 827,755 | ||||||
128,000 | Federative Republic of Brazil, 2.88%, 4/1/21+ | 137,246 | ||||||
79,850,000 | Government of Japan, Series 350, 0.10%, 3/15/17+ | 683,822 | ||||||
1,789,000 | Government of Poland, 5.75%, 10/25/21+ | 481,855 | ||||||
470,000,000 | Japan Treasury Discount Bill, Series 638, 0.00%, 1/16/17+(h) | 4,021,987 | ||||||
240,000,000 | Japan Treasury Discount Bill, Series 641, 0.00%, 1/30/17+(h) | 2,054,140 | ||||||
490,000,000 | Japan Treasury Discount Bill, Series 643, 0.00%, 2/13/17+(h) | 4,194,079 | ||||||
510,000,000 | Japan Treasury Discount Bill, Series 647, 0.00%, 2/27/17+(h) | 4,366,034 | ||||||
230,000,000 | Japan Treasury Discount Bill, Series 631, 0.00%, 3/10/17+(h) | 1,969,072 | ||||||
520,000,000 | Japan Treasury Discount Bill, Series 651, 0.00%, 3/21/17+(h) | 4,452,559 | ||||||
520,000,000 | Japan Treasury Discount Bill, Serries 650, 0.00%, 6/12/17+(h) | 4,455,403 | ||||||
218,500,000 | Japan Treasury Discount Bill, Series 362, 0.10%, 3/15/18+ | 1,877,686 |
Continued
11
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2016
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Foreign Bonds, continued | ||||||||
Sovereign Bonds, continued | ||||||||
$ | 273,450,000 | Japan Treasury Discount Bill, Series 369, 0.10%, 10/15/18+ | $ | 2,352,077 | ||||
63,750,500 | Mexican Bonos Desarr, Series M, 6.50%, 6/10/21+(d)(j) | 2,999,995 | ||||||
2,503,000 | New Zealand Government, Series 0521, 6.00%, 5/15/21+ | 1,973,841 | ||||||
2,485,000 | Nota Do Tesouro Nacional, Series NTNF, 1.23%, 1/1/18+(i) | 754,504 | ||||||
2,118,000 | Poland Government Bond, Series 1020, 5.25%, 10/25/20+ | 553,149 | ||||||
4,046,000 | Poland Government Bond, Series 0725, 3.25%, 7/25/25+ | 949,335 | ||||||
4,234,000 | Poland Government Bond, Series 0726, 2.50%, 7/25/26+ | 919,709 | ||||||
100,000 | Republic of Argentina, 3.88%, 1/15/22+(e) | 100,724 | ||||||
488,000 | Republic of Indonesia, 2.63%, 6/14/23+(e) | 515,945 | ||||||
1,520,000 | Romania Government Bond, 4.75%, 2/24/25+ | 382,455 | ||||||
1,113,373 | United Kingdom Treasury, 2.00%, 9/7/25+ | 1,474,236 | ||||||
|
| |||||||
57,100,228 | ||||||||
|
| |||||||
Total Foreign Bonds (Cost $62,205,898) | 57,960,247 | |||||||
|
| |||||||
Yankee Dollars (2.8%): | ||||||||
Banks (0.4%): | ||||||||
494,000 | BNP Paribas SA, 2.40%, 12/12/18 | 497,879 | ||||||
273,000 | Export-Import Bank of Korea, 2.63%, 12/30/20 | 272,490 | ||||||
614,000 | HSBC Holdings plc, 6.38%, 12/29/49, Callable 9/17/24 @ 100(d) | 604,023 | ||||||
403,000 | Intesa Sanpaolo SpA, 3.88%, 1/15/19 | 410,221 | ||||||
|
| |||||||
1,784,613 | ||||||||
|
| |||||||
Capital Markets (0.1%): | ||||||||
207,000 | UBS Group AG, 4.13%, 9/24/25(e) | 210,988 | ||||||
|
| |||||||
Diversified Telecommunication Services (0.1%): | ||||||||
272,000 | Intelsat Jackson Holdings SA, 7.50%, 4/1/21, Callable 2/6/17 @ 103.75^ | 207,399 | ||||||
89,000 | Intelsat Jackson Holdings SA, 8.00%, 2/15/24, Callable 2/15/19 @ 104^(e) | 91,448 | ||||||
289,000 | Telecom Italia SpA, 5.30%, 5/30/24^(e) | 282,498 | ||||||
|
| |||||||
581,345 | ||||||||
|
| |||||||
Industrial Conglomerates (0.0%): | ||||||||
200,000 | Odebrecht Finance, Ltd., 4.38%, 4/25/25(e) | 115,500 | ||||||
|
| |||||||
Internet Software & Services (0.1%): | ||||||||
314,000 | Alibaba Group Holding, Ltd., 3.13%, 11/28/21, Callable 9/28/21 @ 100 | 313,779 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.4%): | ||||||||
355,000 | Petroleos Mexicanos, 4.61%, 3/11/22^(d)(e) | 366,094 | ||||||
368,000 | Petroleos Mexicanos, 4.63%, 9/21/23(e) | 357,990 | ||||||
753,000 | YPF SA, 8.50%, 7/28/25^(e) | 763,542 | ||||||
|
| |||||||
1,487,626 | ||||||||
|
| |||||||
Paper & Forest Products (0.3%): | ||||||||
1,018,000 | TFS Corp., Ltd., 8.75%, 8/1/23, Callable 8/1/19 @ 106.56(e) | 1,079,080 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Pharmaceuticals (0.1%): | ||||||||
$ | 287,000 | Actavis Funding SCS, 3.00%, 3/12/20, Callable 2/12/20 @ 100 | $ | 290,979 | ||||
|
| |||||||
Real Estate Management & Development (0.0%): | ||||||||
167,500 | IRSA Propiedades Comerciales SA, 8.75%, 3/23/23, Callable 3/23/20 @ 104.38(e) | 177,341 | ||||||
|
| |||||||
Road & Rail (0.0%): | ||||||||
527,380 | Inversiones Alsacia SA, 8.00%, 12/31/18, Callable 1/23/17 @ 100 | 27,687 | ||||||
|
| |||||||
Sovereign Bonds (1.3%): | ||||||||
234,000 | Federal Republic of Brazil, 4.88%, 1/22/21 | 241,020 | ||||||
257,000 | Federal Republic of Brazil, 2.63%, 1/5/23 | 228,730 | ||||||
736,000 | Republic of Argentina, 6.88%, 4/22/21^(e) | 783,840 | ||||||
630,000 | Republic of Argentina, 7.50%, 4/22/26(e) | 661,500 | ||||||
631,000 | Republic of Argentina, 7.13%, 7/6/36^(e) | 600,239 | ||||||
338,000 | Republic of Hungary, 6.25%, 1/29/20 | 369,688 | ||||||
934,000 | Republic of Hungary, 6.38%, 3/29/21 | 1,045,856 | ||||||
233,000 | Republic of Indonesia, 6.88%, 1/17/18(e) | 245,078 | ||||||
200,000 | Republic of Indonesia, 3.70%, 1/8/22(e) | 200,449 | ||||||
154,000 | Republic of Poland, 5.00%, 3/23/22 | 167,760 | ||||||
309,000 | Republic of Turkey, 6.75%, 4/3/18 | 322,457 | ||||||
461,000 | Saudi International Bond, 2.38%, 10/26/21(e) | 447,602 | ||||||
|
| |||||||
5,314,219 | ||||||||
|
| |||||||
Total Yankee Dollars (Cost $11,858,838) | 11,383,157 | |||||||
|
| |||||||
U.S. Government Agency Mortgages (0.6%): | ||||||||
Federal National Mortgage Association (0.6%) | ||||||||
2,574,283 | 3.00%,1/25/46 | 2,557,328 | ||||||
|
| |||||||
Total U.S. Government Agency Mortgages (Cost $2,563,021) | 2,557,328 | |||||||
|
| |||||||
U.S. Treasury Obligations (15.3%): | ||||||||
U.S. Treasury Bills (8.2%) | ||||||||
7,000,000 | 0.35%, 1/19/17(h) | 6,998,712 | ||||||
4,000,000 | 0.37%, 1/26/17(h) | 3,998,924 | ||||||
4,000,000 | 0.38%, 2/2/17(h) | 3,998,592 | ||||||
9,000,000 | 0.41%, 2/9/17(h) | 8,995,861 | ||||||
6,000,000 | 0.46%, 3/9/17(h) | 5,994,804 | ||||||
4,000,000 | 0.48%, 3/23/17(h) | 3,995,612 | ||||||
|
| |||||||
33,982,505 | ||||||||
|
| |||||||
U.S. Treasury Inflation Index Notes (2.7%) | ||||||||
3,623,800 | 0.13%, 4/15/21 | 3,717,138 | ||||||
3,584,200 | 0.63%, 1/15/26 | 3,678,332 | ||||||
3,622,700 | 0.13%, 7/15/26 | 3,532,791 | ||||||
|
| |||||||
10,928,261 | ||||||||
|
| |||||||
U.S. Treasury Notes (4.4%) | ||||||||
1,140,500 | 0.88%, 1/31/17(k) | 1,140,954 | ||||||
946,500 | 1.13%, 7/31/21 | 914,926 | ||||||
16,379,900 | 1.25%, 10/31/21 | 15,883,393 | ||||||
|
| |||||||
17,939,273 | ||||||||
|
| |||||||
Total U.S. Treasury Obligations (Cost $63,664,591) | 62,850,039 | |||||||
|
| |||||||
Purchased Swaptions (0.1%): | ||||||||
Total Purchased Swaptions (Cost $165,464) | 405,711 | |||||||
|
|
Continued
12
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2016
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Purchased Options (1.1%): | ||||||||
Total Purchased Options (Cost $1,793,484) | $ | 4,651,266 | ||||||
|
| |||||||
Exchange Traded Funds (2.8%): | ||||||||
2,334 | ETFS Platinum Trust(k) | 201,681 | ||||||
2,764 | ETFS Physical Palladium Shares(k) | 180,240 | ||||||
61,700 | iShares Gold Trust(k) | 683,636 | ||||||
96,776 | SPDR Gold Trust*(c)(k) | 10,607,618 | ||||||
|
| |||||||
Total Exchange Traded Fund (Cost $12,809,626) | 11,673,175 | |||||||
|
| |||||||
Mutual Fund (0.1%): | ||||||||
4,496 | iShares Iboxx $ High Yield Corporate Bond Fund, 5.27% | 389,129 | ||||||
|
| |||||||
Total Mutual Fund (Cost $376,034) | 389,129 | |||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Securities Held as Collateral for Securities on Loan (4.3%): | ||||||||
$ | 17,802,661 | AZL BlackRock Global Allocation Fund Securities Lending Collateral Account(l) | $ | 17,802,661 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 17,802,661 | ||||||
|
| |||||||
Unaffiliated Investment Company (1.0%): | ||||||||
4,125,473 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(h) | 4,125,473 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $4,125,473) | 4,125,473 | |||||||
|
| |||||||
Total Investment Securities (Cost $412,153,680)(m) — 104.4% | 427,726,555 | |||||||
Net other assets (liabilities) — (4.4)% | (17,625,341 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 410,101,214 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
ADR—American Depositary Receipt
MTN—Medium Term Note
SPDR—Standard & Poor’s Depository Receipts
TBA—To Be Announced Security
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2016. The total value of securities on loan as of December 31, 2016, was $16,807,862 |
+ | 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, 2016, these securities represent 2.18% 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, 2016. The total of all such securities represent 2.51% of the net assets of the fund. |
(c) | All or a portion of this security has been pledged as collateral for open derivative positions. |
(d) | Variable rate security. The rate presented represents the rate in effect at December 31, 2016. The date presented represents the final maturity date. |
(e) | 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. |
(f) | Defaulted bond. |
(g) | The sub-adviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2016, these securities represent 0.39% of the net assets of the Fund. |
(h) | The rate represents the effective yield at December 31, 2016. |
(i) | Principal amount is stated in 1,000 Brazilian Real Units. |
(j) | Principal amount is stated in 100 Mexican Peso Units. |
(k) | All or a portion of these securities are held by the AZL Cayman Global Allocation Fund I, Ltd. (the “Subsidiary”). |
(l) | 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, 2016. |
(m) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Continued
13
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2016
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, 2016: (Unaudited)
Country | Percentage | |||
Argentina | 0.8 | % | ||
Australia | 1.6 | % | ||
Belgium | 0.4 | % | ||
Bermuda | — | %NM | ||
Brazil | 0.6 | % | ||
Canada | 1.8 | % | ||
Cayman Islands | 0.1 | % | ||
Chile | — | %NM | ||
China | 0.3 | % | ||
Czech Republic | — | %NM | ||
European Community | — | %NM | ||
Finland | 0.2 | % | ||
France | 2.6 | % | ||
Germany | 2.2 | % | ||
Guernsey | — | %NM | ||
Hong Kong | 0.7 | % | ||
Hungary | 0.3 | % | ||
India | 0.8 | % | ||
Indonesia | 0.3 | % | ||
Ireland (Republic of) | 0.5 | % | ||
Israel | 0.2 | % | ||
Italy | 1.0 | % |
Country | Percentage | |||
Japan | 15.7 | % | ||
Jersey | 0.1 | % | ||
Luxembourg | 0.1 | % | ||
Mexico | 1.0 | % | ||
Netherlands | 1.9 | % | ||
New Zealand | 0.5 | % | ||
Poland | 0.7 | % | ||
Portugal | 0.1 | % | ||
Republic of Korea (South) | 0.6 | % | ||
Romania | 0.1 | % | ||
Saudi Arabia | 0.1 | % | ||
Singapore | 0.5 | % | ||
Spain | 0.6 | % | ||
Sweden | 0.5 | % | ||
Switzerland | 1.0 | % | ||
Taiwan, Province Of China | 0.3 | % | ||
Thailand | 0.1 | % | ||
Turkey | 0.1 | % | ||
United Arab Emirates | 0.2 | % | ||
United Kingdom | 4.0 | % | ||
United States | 57.4 | % | ||
|
| |||
100.0 | % | |||
|
|
NM | Not meaningful, amount is less than 0.05%. |
Securities Sold Short (0.8%):
Security Description | Proceeds Received | Fair Value | Unrealized Appreciation/ Deprecation | ||||||||||||
Bank of Montreal | $ | (493,793 | ) | $ | (552,517 | ) | $ | (58,724 | ) | ||||||
Ecolab, Inc. | (552,580 | ) | (550,465 | ) | 2,115 | ||||||||||
LafargeHolcim, Ltd., Registered Shares | (238,257 | ) | (253,745 | ) | (15,488 | ) | |||||||||
Procter & Gamble Co. (The) | (599,100 | ) | (567,036 | ) | 32,064 | ||||||||||
ProLogis, Inc. | (787,708 | ) | (835,032 | ) | (47,324 | ) | |||||||||
Royal Bank of Canada | (621,331 | ) | (648,781 | ) | (27,450 | ) | |||||||||
|
|
|
|
|
| ||||||||||
$ | (3,292,769 | ) | $ | (3,407,576 | ) | $ | (114,807 | ) | |||||||
|
|
|
|
|
|
Futures Contracts
Cash of $685,430 has been segregated to cover margin requirements for the following open contracts as of December 31, 2016:
Description | Type | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
DJ EURO STOXX 50 March Futures (Euro) | Short | 3/17/17 | (25 | ) | $ | (862,259 | ) | $ | (24,088 | ) | |||||||||||||||
Mini MSCI Emerging Markets Index Future (U.S. Dollar) | Short | 3/17/17 | (14 | ) | (601,230 | ) | 1,285 | ||||||||||||||||||
NASDAQ 100 E-Mini March Futures (U.S. Dollar) | Short | 3/17/17 | (35 | ) | (3,404,800 | ) | 2,288 | ||||||||||||||||||
S&P 500 Index E-Mini March Futures (U.S. Dollar) | Short | 3/17/17 | (76 | ) | (8,497,560 | ) | 19,566 | ||||||||||||||||||
ASX SPI 200 Index March Futures (Australian Dollar) | Long | 3/16/17 | 1 | 101,569 | 1,570 | ||||||||||||||||||||
Tokyo Price Index March Futures (Japanese Yen) | Long | 3/9/17 | 8 | 1,039,192 | 23,755 | ||||||||||||||||||||
|
| ||||||||||||||||||||||||
Total | $ | 24,376 | |||||||||||||||||||||||
|
|
Continued
14
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2016
Option Contracts
Over-the-counter options purchased as of December 31, 2016 were as follows:
Description | Counterparty | Put/ Call | Strike Price | Expiration Date | Contracts | Fair Value | ||||||||||||||||||
AFLAC, Inc. | Goldman Sachs | Call | 85.00 | USD | 1/19/18 | 11,464 | $ | 9,498 | ||||||||||||||||
Allstate Corp. | Goldman Sachs | Call | 80.00 | USD | 1/19/18 | 7,300 | 19,638 | |||||||||||||||||
Apple, Inc. | UBS Warburg | Call | 110.00 | USD | 9/15/17 | 13,425 | 161,153 | |||||||||||||||||
BB&T Corp. | Goldman Sachs | Call | 40.00 | USD | 1/19/18 | 15,939 | 135,819 | |||||||||||||||||
Capital One Financial Corp. | Goldman Sachs | Call | 80.00 | USD | 1/19/18 | 16,317 | 230,521 | |||||||||||||||||
CIT Group, Inc. | Goldman Sachs | Call | 42.00 | USD | 1/19/18 | 9,806 | 51,825 | |||||||||||||||||
Citigroup, Inc. | Goldman Sachs | Call | 55.00 | USD | 1/19/18 | 22,361 | 221,517 | |||||||||||||||||
CME Group, Inc. | Goldman Sachs | Call | 115.00 | USD | 1/19/18 | 7,846 | 79,329 | |||||||||||||||||
Comerica, Inc. | Goldman Sachs | Call | 55.00 | USD | 1/19/18 | 13,712 | 223,693 | |||||||||||||||||
E*Trade Financial Corp. | Goldman Sachs | Call | 35.00 | USD | 1/19/18 | 20,308 | 89,071 | |||||||||||||||||
Euro Stoxx 50 Index | Morgan Stanley | Call | 3025.00 | EUR | 3/17/17 | 69 | 21,159 | |||||||||||||||||
Euro Stoxx 50 Index | Morgan Stanley | Call | 3025.00 | EUR | 3/17/17 | 69 | 21,159 | |||||||||||||||||
Euro Stoxx 50 Index | Morgan Stanley | Call | 3125.00 | EUR | 3/17/17 | 150 | 33,218 | |||||||||||||||||
Euro Stoxx 50 Index | Citigroup Global Markets | Call | 3150.00 | EUR | 6/16/17 | 256 | 53,266 | |||||||||||||||||
Euro Stoxx 50 Index | Deutsche Bank | Call | 3426.55 | EUR | 9/21/18 | 106 | 20,831 | |||||||||||||||||
Fifth Third BanCorp | Goldman Sachs | Call | 25.00 | USD | 1/19/18 | 22,361 | 91,876 | |||||||||||||||||
Franklin Resources, Inc. | Goldman Sachs | Call | 45.00 | USD | 1/19/18 | 20,188 | 50,628 | |||||||||||||||||
JPMorgan Chase & Co. | Goldman Sachs | Call | 70.00 | USD | 1/19/18 | 22,361 | 419,033 | |||||||||||||||||
KeyCorp | Goldman Sachs | Call | 15.00 | USD | 1/19/18 | 22,361 | 92,147 | |||||||||||||||||
Lincoln Natl Corp. | Goldman Sachs | Call | 55.00 | USD | 1/19/18 | 13,582 | 203,318 | |||||||||||||||||
MetLife, Inc. | Goldman Sachs | Call | 52.50 | USD | 1/19/18 | 22,361 | 135,857 | |||||||||||||||||
Morgan Stanley | Goldman Sachs | Call | 35.00 | USD | 1/19/18 | 22,361 | 215,397 | |||||||||||||||||
Munulife Financial Corp. | Goldman Sachs | Call | 22.00 | CAD | 1/19/18 | 22,361 | 49,369 | |||||||||||||||||
Qualcomm, Inc. | Deutsche Bank | Call | 52.50 | USD | 5/19/17 | 12,183 | 163,663 | |||||||||||||||||
Regions Financial Corp. | Goldman Sachs | Call | 12.00 | USD | 1/19/18 | 22,361 | 71,665 | |||||||||||||||||
SPDR Gold Shares(a) | Societe Generale | Call | 120.00 | USD | 2/17/17 | 8,975 | 2,330 | |||||||||||||||||
SPDR Gold Trust(a) | Societe Generale | Call | 121.00 | USD | 1/20/17 | 11,238 | 641 | |||||||||||||||||
State Street Corp. | Goldman Sachs | Call | 72.50 | USD | 1/19/18 | 15,129 | 172,310 | |||||||||||||||||
Stoxx Europe 600 Index | Credit Suisse First Boston | Call | 355.61 | EUR | 3/17/17 | 2,250 | 32,228 | �� | ||||||||||||||||
SunTrust Banks, Inc. | Goldman Sachs | Call | 55.00 | USD | 1/19/18 | 22,361 | 123,814 | |||||||||||||||||
Synchrony Financial | Goldman Sachs | Call | 35.00 | USD | 1/19/18 | 22,361 | 113,976 | |||||||||||||||||
TD Ameritrade Holdg Corp. | Goldman Sachs | Call | 40.00 | USD | 1/19/18 | 19,059 | 128,557 | |||||||||||||||||
The Charles Schwab Corp. | Goldman Sachs | Call | 40.00 | USD | 1/19/18 | 22,361 | 103,029 | |||||||||||||||||
Tokyo Stock Exchange Price Index | Goldman Sachs | Call | 1550.00 | JPY | 1/13/17 | 88,794 | 4,961 | |||||||||||||||||
Tokyo Stock Exchange Price Index | Societe Generale | Call | 1500.00 | JPY | 2/10/17 | 66,195 | 26,799 | |||||||||||||||||
Tokyo Stock Exchange Price Index | Citigroup | Call | 1550.00 | JPY | 2/10/17 | 88,014 | 15,543 | |||||||||||||||||
Tokyo Stock Exchange Price Index | Bank of America | Call | 1520.00 | JPY | 3/10/17 | 72,815 | 29,337 | |||||||||||||||||
Tokyo Stock Exchange Price Index | UBS Warburg | Call | 1560.00 | JPY | 3/10/17 | 84,447 | 20,145 | |||||||||||||||||
Tokyo Stock Exchange Price Index | BNP Paribas | Call | 1438.66 | JPY | 4/14/17 | 89,082 | 111,449 | |||||||||||||||||
Travelers Companies, Inc. | Goldman Sachs | Call | 135.00 | USD | 1/19/18 | 6,915 | 25,405 | |||||||||||||||||
Wells Fargo & Co. | Goldman Sachs | Call | 55.00 | USD | 1/19/18 | 22,361 | 122,909 | |||||||||||||||||
Zions Bancorporation | Goldman Sachs | Call | 35.00 | USD | 1/19/18 | 18,333 | 181,193 | |||||||||||||||||
Euro Stoxx 50 Index | Barclays Bank | Put | 3000.00 | EUR | 1/20/17 | 507 | 1,544 | |||||||||||||||||
Ibovespa Brasil Sao Paulo Index | Bank of America | Put | 59177.00 | BRL | 4/12/17 | 76 | 43,256 | |||||||||||||||||
Russell 2000 Index | Goldman Sachs | Put | 1340.00 | USD | 1/20/17 | 1,140 | 17,337 | |||||||||||||||||
S&P 500 Index | BNP Paribas | Put | 2225.00 | USD | 1/20/17 | 1,270 | 23,967 | |||||||||||||||||
S&P 500 Index | JPMorgan Chase | Put | 2150.00 | USD | 2/17/17 | 759 | 13,577 | |||||||||||||||||
S&P 500 Index | Citigroup | Put | 2195.00 | USD | 2/17/17 | 710 | 18,872 | |||||||||||||||||
S&P 500 Index | Morgan Stanley | Put | 2150.00 | USD | 3/17/17 | 761 | 23,693 | |||||||||||||||||
|
| |||||||||||||||||||||||
Total |
| $ | 4,221,522 | |||||||||||||||||||||
|
|
Continued
15
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2016
Over-the-counter options written as of December 31, 2016 were as follows:
Description | Counterparty | Put/ Call | Strike Price | Expiration Date | Contracts | Fair Value | ||||||||||||||||||
Apple, Inc. | UBS Warburg | Call | 130.00 | USD | 9/15/17 | 13,425 | $ | (45,713 | ) | |||||||||||||||
Euro Stoxx 50 Index | Morgan Stanley | Call | 3450.00 | EUR | 3/17/17 | 150 | (5,188 | ) | ||||||||||||||||
Ibovespa Brasil Sao Paulo Index | Bank of America | Call | 64946.76 | BRL | 4/12/17 | 76 | (37,467 | ) | ||||||||||||||||
Johnson & Johnson | Barclays Bank | Call | 110.00 | USD | 1/20/17 | 10,152 | (57,405 | ) | ||||||||||||||||
Qualcomm, Inc. | Deutsche Bank | Call | 70.00 | USD | 5/19/17 | 12,183 | (25,946 | ) | ||||||||||||||||
Russell 2000 Index | Barclays Bank | Call | 1400.00 | USD | 1/20/17 | 1,140 | (6,007 | ) | ||||||||||||||||
S&P 500 Index | BNP Paribas | Call | 2265.00 | USD | 1/20/17 | 1,270 | (14,988 | ) | ||||||||||||||||
S&P 500 Index | JPMorgan Chase | Call | 2275.00 | USD | 2/17/17 | 759 | (15,304 | ) | ||||||||||||||||
S&P 500 Index | Morgan Stanley | Call | 2290.00 | USD | 3/17/17 | 761 | (19,467 | ) | ||||||||||||||||
Tokyo Stock Exchange Price Index | Citigroup | Call | 1650.00 | JPY | 2/10/17 | 88,014 | (1,618 | ) | ||||||||||||||||
Apple, Inc. | UBS Warburg | Put | 100.00 | USD | 9/15/17 | 13,425 | (49,573 | ) | ||||||||||||||||
Euro Stoxx 50 Index | Citigroup Global Markets | Put | 2350.00 | EUR | 6/16/17 | 256 | (4,742 | ) | ||||||||||||||||
Euro Stoxx 50 Index | Deutsche Bank | Put | 2586.07 | EUR | 9/21/18 | 106 | (19,555 | ) | ||||||||||||||||
Ibovespa Brasil Sao Paulo Index | Bank of America | Put | 50300.45 | BRL | 4/12/17 | 76 | (8,889 | ) | ||||||||||||||||
Qualcomm, Inc. | Deutsche Bank | Put | 40.00 | USD | 5/19/17 | 12,183 | (1,573 | ) | ||||||||||||||||
S&P 500 Index | Citigroup | Put | 2195.00 | USD | 2/17/17 | 710 | (18,872 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Total (Premiums $445,985) |
| $ | (332,307 | ) | ||||||||||||||||||||
|
|
Exchange-traded options written as of December 31, 2016 were as follows:
Description | Put/ Call | Strike Price | Expiration Date | Contracts | Fair Value | |||||||||||||||||||
Tiffany & Co. | Call | 72.50 | USD | 2/17/17 | 26 | $ | (16,900 | ) | ||||||||||||||||
Tiffany & Co. | Call | 75.00 | USD | 2/17/17 | 26 | (12,285 | ) | |||||||||||||||||
Whole Foods Market, Inc. | Call | 33.00 | USD | 2/17/17 | 91 | (5,188 | ) | |||||||||||||||||
SPDR Gold Shares(a) | Put | 110.00 | USD | 2/17/17 | 90 | (22,590 | ) | |||||||||||||||||
|
| |||||||||||||||||||||||
Total (Premiums $48,069) |
| $ | (56,963 | ) | ||||||||||||||||||||
|
|
Over-the-counter currency options purchased as of December 31, 2016 were as follows:
Description | Counterparty | Strike Price | Expiration Date | Notional Amount | Fair Value | |||||||||||||||||||||||||||
European Dollar Call Currency Option (USD/EUR) | Morgan Stanley | 1.12 EUR | 4/06/17 | 25,604 | $ | 12,914 | ||||||||||||||||||||||||||
European Dollar Call Currency Option (USD/EUR) | Goldman Sachs | 1.10 EUR | 4/20/17 | 17,270 | 14,663 | |||||||||||||||||||||||||||
European Dollar Call Currency Option (USD/EUR) | Deutsche Bank | 1.11 EUR | 5/04/17 | 18,194 | 16,085 | |||||||||||||||||||||||||||
Japanese Yen Call Currency Option (USD/JPY) | JPMorgan Chase | 111.25 USD | 2/17/17 | 25,397 | 126,805 | |||||||||||||||||||||||||||
Japanese Yen Call Currency Option (USD/JPY) | Deutsche Bank | 110.25 USD | 3/15/17 | 25,401 | 149,905 | |||||||||||||||||||||||||||
Japanese Yen Call Currency Option (USD/JPY) | UBS Warburg | 112.75 USD | 3/22/17 | 25,430 | 109,372 | |||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Total |
| $ | 429,744 | |||||||||||||||||||||||||||||
|
|
Over-the-counter currency options written as of December 31, 2016 were as follows:
Description | Counterparty | Strike Price | Expiration Date | Notional Amount | Fair Value | |||||||||||||||
Japanese Yen Call Currency Option (USD/JPY) | JPMorgan Chase | 116.50 USD | 2/17/17 | (25,397 | ) | $ | (47,622 | ) | ||||||||||||
Japanese Yen Call Currency Option (USD/JPY) | Deutsche Bank | 117.00 USD | 3/15/17 | (25,401 | ) | (51,810 | ) | |||||||||||||
Japanese Yen Call Currency Option (USD/JPY) | UBS Warburg | 118.00 USD | 3/22/17 | (25,431 | ) | (44,918 | ) | |||||||||||||
Maxican Call Currency Option (USD/MXN) | Goldman Sachs | 21.75 USD | 4/05/17 | (12,910 | ) | (19,282 | ) | |||||||||||||
New Zealand Call Currency Option (USD/NZD) | Goldman Sachs | 0.73 NZD | 5/04/17 | (18,074 | ) | (11,795 | ) | |||||||||||||
Norwegian Call Currency Option (USD/NOK) | UBS Warburg | 9.05 USD | 4/05/17 | (12,896 | ) | (10,874 | ) | |||||||||||||
South African Call Currency Option (USD/ZAR) | UBS Warburg | 15.75 USD | 2/17/17 | (12,698 | ) | (2,922 | ) | |||||||||||||
European Dollar Call Currency Option (USD/EUR) | Morgan Stanley | 1.05 EUR | 4/06/17 | (25,604 | ) | (43,852 | ) | |||||||||||||
European Dollar Call Currency Option (USD/EUR) | Goldman Sachs | 1.03 EUR | 4/20/17 | (17,270 | ) | (23,037 | ) | |||||||||||||
European Dollar Call Currency Option (USD/EUR) | Deutsche Bank | 1.04 EUR | 5/04/17 | (18,194 | ) | (29,086 | ) | |||||||||||||
Japanese Yen Call Currency Option (USD/JPY) | JPMorgan Chase | 103.00 USD | 2/17/17 | (25,397 | ) | (1,541 | ) |
Continued
16
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2016
Description | Counterparty | Strike Price | Expiration Date | Notional Amount | Fair Value | |||||||||||||||
Japanese Yen Call Currency Option (USD/JPY) | Deutsche Bank | 103.00 USD | 3/15/17 | (25,401 | ) | $ | (3,406 | ) | ||||||||||||
Japanese Yen Call Currency Option (USD/JPY) | UBS Warburg | 105.00 USD | 3/22/17 | (25,431 | ) | (6,402 | ) | |||||||||||||
New Zealand Call Currency Option (USD/NZD) | Goldman Sachs | 0.66 NZD | 5/04/17 | (18,075 | ) | (14,742 | ) | |||||||||||||
South African Call Currency Option (USD/ZAR) | UBS Warburg | 13.60 USD | 2/17/17 | (12,698 | ) | (22,011 | ) | |||||||||||||
|
| |||||||||||||||||||
Total (Premiums $281,021) |
| $ | (333,300 | ) | ||||||||||||||||
|
|
Over-the-counter interest rate swaptions purchased as of December 31, 2016 were as follows:
Description | Counterparty | Put/ Call | Exercise Rate | Expiration Date | Notional Amount | Fair Value | ||||||||||||||
MC RTR 2Y X 2Y C2.1 4/12/17 | Goldman Sachs | Call | 2.10 USD | 4/12/17 | 2,069 | $ | 51,560 | |||||||||||||
5-Year Interest Rate, Pay 6-Month JPY LIBOR | Deutsche Bank | Put | 1.07 JPY | 4/04/18 | 1,006,979 | 519 | ||||||||||||||
MC 5YX5Y RTP PUT 1.956 4/11/2017 | Goldman Sachs | Put | 1.96 USD | 4/11/17 | 471 | 165,619 | ||||||||||||||
MC USD 5Y P1.986 4/12/2017 | Goldman Sachs | Put | 1.99 USD | 4/12/17 | 472 | 160,484 | ||||||||||||||
RTP EUR 30Y P1.5 06/09/17 | Goldman Sachs | Put | 1.50 EUR | 6/09/17 | 95 | 27,529 | ||||||||||||||
|
| |||||||||||||||||||
Total |
| $ | 405,711 | |||||||||||||||||
|
|
Over-the-counter interest rate swaptions written as of December 31, 2016 were as follows:
Description | Counterparty | Put/ Call | Exercise Rate | Expiration Date | Notional Amount | Fair Value | ||||||||||||||
RTR EUR 5Y C0.10 06/09/17 | Goldman Sachs | Call | 0.10 EUR | 6/09/17 | 478 | $ | (19,669 | ) | ||||||||||||
MC RTP 2Y X 2Y P3 4/12/17 | Goldman Sachs | Put | 3.00 USD | 4/12/17 | 2,068 | (15,430 | ) | |||||||||||||
MC USD 5Y P2.1585 04/11/17 | Goldman Sachs | Put | 2.16 USD | 4/11/17 | 471 | (128,503 | ) | |||||||||||||
MC USD 5Y P2.361 4/11/17 | Goldman Sachs | Put | 2.36 USD | 4/11/17 | 471 | (94,014 | ) | |||||||||||||
MC USD 5YR P2.186 04/12/17 | Goldman Sachs | Put | 2.19 USD | 4/12/17 | 472 | (124,067 | ) | |||||||||||||
MC USD 5YX5Y RTP PUT 2.386 4/12/17 | Goldman Sachs | Put | 2.39 USD | 4/12/17 | 472 | (90,441 | ) | |||||||||||||
RTP EUR 5Y P0.45 06/09/17 | Goldman Sachs | Put | 0.45 EUR | 6/09/17 | 479 | (9,256 | ) | |||||||||||||
|
| |||||||||||||||||||
Total (Premiums $127,229) |
| $ | (481,380 | ) | ||||||||||||||||
|
|
Forward Currency Contracts
At December 31, 2016, 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 | Deutsche Bank | 1/5/17 | 530,000 | $ | 399,101 | $ | 382,343 | $ | 16,758 | |||||||||||||||
Australian Dollar | Citigroup Global Markets | 5/10/17 | 1,315,000 | 1,012,938 | 945,763 | 67,175 | ||||||||||||||||||
Australian Dollar | Goldman Sachs | 5/10/17 | 1,296,000 | 997,881 | 932,098 | 65,783 | ||||||||||||||||||
British Pound | UBS Warburg | 1/13/17 | 1,159,000 | 1,448,634 | 1,428,625 | 20,009 | ||||||||||||||||||
British Pound | Deutsche Bank | 2/9/17 | 185,000 | 230,974 | 228,188 | 2,786 | ||||||||||||||||||
Emirati Dirham | BNP Paribas | 1/19/17 | 2,788,058 | 753,000 | 759,166 | (6,166 | ) | |||||||||||||||||
Emirati Dirham | Goldman Sachs | 1/19/17 | 2,790,242 | 753,000 | 759,761 | (6,761 | ) | |||||||||||||||||
Emirati Dirham | BNP Paribas | 1/25/17 | 2,766,290 | 747,000 | 753,231 | (6,231 | ) | |||||||||||||||||
European Euro | Credit Suisse First Boston | 1/6/17 | 695,000 | 742,072 | 731,723 | 10,349 | ||||||||||||||||||
European Euro | Deutsche Bank | 1/26/17 | 561,000 | 600,663 | 591,277 | 9,386 | ||||||||||||||||||
European Euro | Morgan Stanley | 1/26/17 | 491,000 | 529,362 | 517,499 | 11,863 | ||||||||||||||||||
European Euro | Morgan Stanley | 2/2/17 | 874,000 | 942,609 | 921,486 | 21,123 | ||||||||||||||||||
European Euro | UBS Warburg | 2/24/17 | 578,000 | 605,363 | 609,979 | (4,616 | ) | |||||||||||||||||
European Euro | Deutsche Bank | 3/9/17 | 580,000 | 606,402 | 612,506 | (6,104 | ) | |||||||||||||||||
Japanese Yen | BNP Paribas | 1/12/17 | 123,847,200 | 1,200,000 | 1,060,566 | 139,434 | ||||||||||||||||||
Japanese Yen | Deutsche Bank | 1/12/17 | 113,284,025 | 1,025,000 | 970,108 | 54,892 | ||||||||||||||||||
Japanese Yen | Goldman Sachs | 1/17/17 | 950,000,000 | 9,176,749 | 8,137,806 | 1,038,943 | ||||||||||||||||||
Japanese Yen | UBS Warburg | 1/30/17 | 480,000,000 | 4,597,745 | 4,114,986 | 482,759 | ||||||||||||||||||
Japanese Yen | UBS Warburg | 2/2/17 | 63,539,000 | 557,883 | 544,773 | 13,110 |
Continued
17
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2016
Type of Contract | Counterparty | Delivery Date | Contract Amount (Local Currency) | Contract Value | Value | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Japanese Yen | BNP Paribas | 2/13/17 | 240,000,000 | $ | 2,332,577 | $ | 2,058,548 | $ | 274,029 | |||||||||||||||
Japanese Yen | HSBC Bank | 2/13/17 | 3,510,006 | 32,399 | 30,106 | 2,293 | ||||||||||||||||||
Japanese Yen | UBS Warburg | 2/13/17 | 250,000,000 | 2,433,801 | 2,144,321 | 289,480 | ||||||||||||||||||
Japanese Yen | Goldman Sachs | 2/16/17 | 112,054,634 | 1,027,000 | 961,230 | 65,770 | ||||||||||||||||||
Japanese Yen | Goldman Sachs | 2/17/17 | 121,460,730 | 1,042,000 | 1,041,956 | 44 | ||||||||||||||||||
Japanese Yen | UBS Warburg | 2/24/17 | 73,046,230 | 620,000 | 626,790 | (6,790 | ) | |||||||||||||||||
Japanese Yen | Morgan Stanley | 2/27/17 | 510,000,000 | 4,682,508 | 4,376,656 | 305,852 | ||||||||||||||||||
Japanese Yen | Barclays Bank | 3/2/17 | 116,243,049 | 1,027,000 | 997,691 | 29,309 | ||||||||||||||||||
Japanese Yen | UBS Warburg | 3/2/17 | 117,059,514 | 1,027,000 | 1,004,698 | 22,302 | ||||||||||||||||||
Japanese Yen | Barclays Bank | 3/3/17 | 116,295,584 | 1,028,000 | 998,199 | 29,801 | ||||||||||||||||||
Japanese Yen | JPMorgan Chase | 3/3/17 | 116,580,812 | 1,029,000 | 1,000,647 | 28,353 | ||||||||||||||||||
Japanese Yen | Deutsche Bank | 3/9/17 | 73,399,248 | 624,000 | 630,224 | (6,224 | ) | |||||||||||||||||
Japanese Yen | BNP Paribas | 3/10/17 | 480,000,000 | 4,753,369 | 4,121,637 | 631,732 | ||||||||||||||||||
Japanese Yen | JPMorgan Chase | 3/21/17 | 520,000,000 | 4,575,330 | 4,467,928 | 107,402 | ||||||||||||||||||
Japanese Yen | Credit Suisse First Boston | 4/7/17 | 116,412,660 | 1,030,000 | 1,001,179 | 28,821 | ||||||||||||||||||
Japanese Yen | Goldman Sachs | 4/7/17 | 117,520,597 | 1,031,000 | 1,010,708 | 20,292 | ||||||||||||||||||
Japanese Yen | Credit Suisse First Boston | 6/12/17 | 520,000,000 | 4,609,888 | 4,487,634 | 122,254 | ||||||||||||||||||
New Zealand Dollar | UBS Warburg | 5/4/17 | 1,421,000 | 1,040,740 | 983,053 | 57,687 | ||||||||||||||||||
New Zealand Dollar | JPMorgan Chase | 5/10/17 | 1,430,000 | 1,045,674 | 989,089 | 56,585 | ||||||||||||||||||
Taiwanese Dollar | Citibank | 1/9/17 | 65,071,070 | 1,943,000 | 2,020,177 | (77,177 | ) | |||||||||||||||||
Taiwanese Dollar | Goldman Sachs | 1/9/17 | 65,604,850 | 1,945,000 | 2,036,748 | (91,748 | ) | |||||||||||||||||
Taiwanese Dollar | JPMorgan Chase | 1/9/17 | 64,779,873 | 1,943,000 | 2,011,136 | (68,136 | ) | |||||||||||||||||
Taiwanese Dollar | Credit Suisse First Boston | 1/11/17 | 64,579,900 | 1,925,000 | 2,005,127 | (80,127 | ) | |||||||||||||||||
Taiwanese Dollar | Deutsche Bank | 2/16/17 | 24,630,540 | 737,000 | 766,105 | (29,105 | ) | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
$ | 70,410,662 | $ | 66,773,471 | $ | 3,637,191 | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Long Contracts: | ||||||||||||||||||||||||
Emirati Dirham | BNP Paribas | 1/19/17 | 1,461,000 | $ | 397,662 | $ | 397,819 | $ | 157 | |||||||||||||||
Emirati Dirham | Goldman Sachs | 1/19/17 | 1,462,000 | 397,942 | 398,091 | 149 | ||||||||||||||||||
Emirati Dirham | BNP Paribas | 1/25/17 | 1,451,000 | 394,921 | 395,092 | 171 | ||||||||||||||||||
European Euro | Credit Suisse First Boston | 1/6/17 | 695,000 | 738,560 | 731,723 | (6,837 | ) | |||||||||||||||||
European Euro | Deutsche Bank | 1/26/17 | 561,000 | 620,634 | 591,277 | (29,357 | ) | |||||||||||||||||
European Euro | Morgan Stanley | 1/26/17 | 491,000 | 543,326 | 517,499 | (25,827 | ) | |||||||||||||||||
European Euro | BNP Paribas | 2/2/17 | 874,000 | 929,232 | 921,486 | (7,746 | ) | |||||||||||||||||
European Euro | UBS Warburg | 2/24/17 | 578,000 | 606,827 | 609,979 | 3,152 | ||||||||||||||||||
European Euro | Deutsche Bank | 3/9/17 | 580,000 | 608,901 | 612,506 | 3,605 | ||||||||||||||||||
Japanese Yen | BNP Paribas | 1/12/17 | 62,819,000 | 600,672 | 537,951 | (62,721 | ) | |||||||||||||||||
Japanese Yen | Deutsche Bank | 1/12/17 | 113,284,025 | 1,021,727 | 970,108 | (51,619 | ) | |||||||||||||||||
Japanese Yen | Goldman Sachs | 1/17/17 | 480,000,000 | 4,619,635 | 4,111,733 | (507,902 | ) | |||||||||||||||||
Japanese Yen | UBS Warburg | 1/30/17 | 240,000,000 | 2,310,591 | 2,057,493 | (253,098 | ) | |||||||||||||||||
Japanese Yen | BNP Paribas | 3/10/17 | 250,000,000 | 2,411,000 | 2,146,686 | (264,314 | ) | |||||||||||||||||
Norwegian Krone | Morgan Stanley | 1/27/17 | 3,475,000 | 422,210 | 402,809 | (19,401 | ) | |||||||||||||||||
Taiwanese Dollar | Citibank | 1/9/17 | 65,071,070 | 1,992,927 | 2,020,176 | 27,249 | ||||||||||||||||||
Taiwanese Dollar | Goldman Sachs | 1/9/17 | 65,585,400 | 2,012,439 | 2,036,144 | 23,705 | ||||||||||||||||||
Taiwanese Dollar | JPMorgan Chase | 1/9/17 | 64,779,873 | 1,985,258 | 2,011,136 | 25,878 | ||||||||||||||||||
Taiwanese Dollar | Credit Suisse First Boston | 1/11/17 | 64,579,900 | 1,982,316 | 2,005,127 | 22,811 | ||||||||||||||||||
Taiwanese Dollar | Deutsche Bank | 2/16/17 | 24,630,540 | 768,743 | 766,104 | (2,639 | ) | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
$ | 25,365,523 | $ | 24,240,939 | $ | (1,124,584 | ) | ||||||||||||||||||
|
|
|
|
|
|
At December 31, 2016, 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/Japanese Yen | HSBC Bank | 668,000 EUR | 83,094,190 JPY | $ | 762,378 | $ | 754,282 | $ | (8,096 | ) | ||||||||||
Japanese Yen/European Euro | HSBC Bank | 86,604,196 JPY | 668,000 EUR | 764,503 | 802,705 | 38,202 | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
$ | 1,526,881 | $ | 1,556,987 | $ | 30,106 | |||||||||||||||
|
|
|
|
|
|
Continued
18
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2016
Centrally Cleared Credit Default Swap Agreements—Sell Protection(b)
At December 31, 2016, the Fund’s open centrally cleared credit default swap agreements were as follows:
Underlying Instrument | Clearing Agent | Expiration Date | Implied (%)(c) | Notional Amount ($)(d) | Fixed Rate (%) | Value ($) | Premiums ($) | Unrealized Appreciation/ (Depreciation) ($) | ||||||||||||||||||||
CDX North America High Yield Index Swap Agreement with JPMorgan Chase Bank, N.A., Series 27 | JPMorgan Chase | 12/20/21 | 1.06 | 138,759 | 5.00 | 8,592 | 5,557 | 3,035 | ||||||||||||||||||||
CDX North America Investment Grade Index Swap Agreement with JPMorgan Chase Bank, N.A., Series 27 | JPMorgan Chase | 12/20/21 | 0.67 | 3,533,328 | 1.00 | 53,493 | 41,505 | 11,988 | ||||||||||||||||||||
iTraxx Crossover Swap Agreement with JPMorgan Chase Bank, N.A., Series 26 | JPMorgan Chase | 12/20/21 | 2.89 | 2,056,328 | 5.00 | 205,680 | 167,081 | 38,599 | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
267,765 | 214,143 | 53,622 | ||||||||||||||||||||||||||
|
|
|
|
|
|
Over-the-Counter Currency Swap Agreements
At December 31, 2016, the Fund’s open over-the-counter currency swap agreements were as follows:
Pay/Receive Fixed Rate | Fixed Rate (%) | Expiration Date | Counterparty | Notional Amount (Local) | Value ($) | Unrealized Appreciation/ (Depreciation) ($) | ||||||||||||||||
Pay | 1.230 | 3/15/17 | Bank of America | 798,500 JPY | (22,493 | ) | (22,493 | ) | ||||||||||||||
Pay | 1.963 | 3/15/18 | Bank of America | 131,550,000 JPY | 30,535 | 30,535 | ||||||||||||||||
Pay | 1.838 | 3/15/18 | Bank of America | 86,950,000 JPY | 24,631 | 24,631 | ||||||||||||||||
Pay | 2.012 | 10/15/18 | Bank of America | 273,450,000 JPY | 289,478 | 289,478 | ||||||||||||||||
|
|
|
| |||||||||||||||||||
322,151 | 322,151 | |||||||||||||||||||||
|
|
|
|
Centrally Cleared Interest Rate Swap Agreements
At December 31, 2016, the Fund’s open centrally cleared interest rate swap agreements were as follows:
Pay/ Receive Fixed Rate | Floating Rate Index | Fixed Rate (%) | Expiration Date | Clearing Agent | Notional Amount (Local) | Upfront Premiums Paid/ (Received) ($) | Value ($) | Unrealized Appreciation/ (Depreciation) ($) | ||||||||||||||||||||
Pay | 6-Month Sterling LIBOR BBA | 0.568 | 7/2/20 | JPMorgan Chase | 2,189,680 GBP | 34 | 14,833 | 14,799 | ||||||||||||||||||||
Pay | 6-Month Sterling LIBOR BBA | 0.563 | 7/2/20 | JPMorgan Chase | 2,188,934 GBP | 34 | 15,096 | 15,062 | ||||||||||||||||||||
Pay | 6-Month Sterling LIBOR BBA | 0.584 | 7/2/20 | JPMorgan Chase | 2,189,624 GBP | 35 | 13,976 | 13,941 | ||||||||||||||||||||
Pay | 6-Month Sterling LIBOR BBA | 0.537 | 7/2/20 | JPMorgan Chase | 2,189,747 GBP | — | 16,494 | 16,494 | ||||||||||||||||||||
Receive | 3-Month U.S. Dollar LIBOR BBA | 0.989 | 7/5/20 | JPMorgan Chase | 2,860,162 USD | — | (62,541 | ) | (62,541 | ) | ||||||||||||||||||
Receive | 3-Month U.S. Dollar LIBOR BBA | 1.015 | 7/5/20 | JPMorgan Chase | 2,860,266 USD | — | (61,107 | ) | (61,107 | ) | ||||||||||||||||||
Receive | 3-Month U.S. Dollar LIBOR BBA | 1.058 | 7/5/20 | JPMorgan Chase | 2,910,347 USD | 34 | (59,760 | ) | (59,794 | ) | ||||||||||||||||||
Receive | 3-Month U.S. Dollar LIBOR BBA | 1.018 | 7/5/20 | JPMorgan Chase | 2,860,125 USD | 34 | (60,966 | ) | (61,000 | ) | ||||||||||||||||||
Pay | 6-Month Sterling LIBOR BBA | 0.638 | 7/16/20 | JPMorgan Chase | 2,221,848 GBP | — | 11,688 | 11,688 | ||||||||||||||||||||
Pay | 6-Month Sterling LIBOR BBA | 0.608 | 7/16/20 | JPMorgan Chase | 2,221,876 GBP | 35 | 13,291 | 13,256 | ||||||||||||||||||||
Pay | 6-Month Sterling LIBOR BBA | 0.604 | 7/16/20 | JPMorgan Chase | 2,221,731 GBP | — | 13,508 | 13,508 | ||||||||||||||||||||
Receive | 3-Month U.S. Dollar LIBOR BBA | 1.219 | 7/19/20 | JPMorgan Chase | 2,933,552 USD | — | (51,770 | ) | (51,770 | ) | ||||||||||||||||||
Receive | 3-Month U.S. Dollar LIBOR BBA | 1.183 | 7/19/20 | JPMorgan Chase | 2,933,279 USD | — | (53,803 | ) | (53,803 | ) | ||||||||||||||||||
Receive | 3-Month U.S. Dollar LIBOR BBA | 1.208 | 7/19/20 | JPMorgan Chase | 2,933,432 USD | — | (52,419 | ) | (52,419 | ) | ||||||||||||||||||
Pay | 6-Month Euro Interbank Offer Rate (EURIBOR) | 0.016 | 4/9/21 | JPMorgan Chase | 582,500 EUR | 8 | (756 | ) | (764 | ) |
Continued
19
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2016
Pay/ Receive Fixed Rate | Floating Rate Index | Fixed Rate (%) | Expiration Date | Clearing Agent | Notional Amount (Local) | Upfront Premiums Paid/ (Received) ($) | Value ($) | Unrealized Appreciation/ (Depreciation) ($) | ||||||||||||||||||||
Pay | 6-Month Euro Interbank Offer Rate (EURIBOR) | 0.373 | 8/15/26 | JPMorgan Chase | 1,804,831 EUR | 32 | 41,821 | 41,790 | ||||||||||||||||||||
Pay | 3-Month U.S. Dollar LIBOR BBA | 3.027 | 4/19/27 | JPMorgan Chase | 7,110,414 USD | — | (72,140 | ) | (72,140 | ) | ||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||
(334,555 | ) | (334,800 | ) | |||||||||||||||||||||||||
|
|
|
|
Over-the-Counter Total Return Swaps at December 31, 2016
Pay/ Receive | Reference Entity | Expiration Date | Counterparty | Notional Amount (Local) | Unrealized (Depreciation) | |||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/18/20 | BNP Paribas SA | 67,410 EUR | $ | 8,252 | ||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/18/20 | BNP Paribas SA | 106,900 EUR | 632 | |||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/18/20 | BNP Paribas SA | 106,700 EUR | 12,156 | |||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/18/20 | BNP Paribas SA | 28,860 EUR | 3,568 | |||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/18/20 | BNP Paribas SA | 28,920 EUR | 3,505 | |||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/18/20 | BNP Paribas SA | 29,100 EUR | 3,315 | |||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/23/20 | BNP Paribas SA | 28,800 EUR | 3,631 | |||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/17/21 | BNP Paribas SA | 51,650 EUR | 53 | |||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/15/17 | BNP Paribas SA | 57,636 EUR | 488 | |||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/21/18 | BNP Paribas SA | 101,700 EUR | 3,221 | |||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/21/18 | BNP Paribas SA | 181,560 EUR | 4,926 | |||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/21/18 | BNP Paribas SA | 89,520 EUR | 3,789 | |||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/20/19 | BNP Paribas SA | 131,430 EUR | 15,598 | |||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/20/19 | BNP Paribas SA | 122,040 EUR | 13,640 | |||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/20/19 | BNP Paribas SA | 60,300 EUR | 7,578 | |||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/18/20 | BNP Paribas SA | 109,300 EUR | 7,473 | |||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/27/19 | BNP Paribas SA | 92,430 EUR | 9,283 | |||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/31/17 | BNP Paribas SA | 11,340,000 JPY | 15,266 | |||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/31/17 | BNP Paribas SA | 13,925,000 JPY | 21,222 | |||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/30/18 | BNP Paribas SA | 19,830,600 JPY | 8,723 | |||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/30/18 | BNP Paribas SA | 20,025,000 JPY | 7,060 | |||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/29/19 | BNP Paribas SA | 10,312,500 JPY | 7,894 | |||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/29/19 | BNP Paribas SA | 20,514,000 JPY | 16,738 | |||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/29/19 | BNP Paribas SA | 10,560,000 JPY | 5,776 | |||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/31/20 | BNP Paribas SA | 13,960,000 JPY | 11,398 | |||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/31/20 | BNP Paribas SA | 17,000,000 JPY | 18,099 | |||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/31/20 | BNP Paribas SA | 10,488,000 JPY | 8,395 | |||||||||||
Pay | S&P 500 Index Dividends December Futures | 12/21/18 | BNP Paribas SA | 257,125 USD | 23,925 | |||||||||||
Pay | S&P 500 Index Dividends December Futures | 12/17/20 | Goldman Sachs | 107,944 USD | 12,656 | |||||||||||
Pay | S&P 500 Index Dividends December Futures | 12/17/21 | BNP Paribas SA | 133,513 USD | 17,738 | |||||||||||
|
| |||||||||||||||
$ | 275,998 | |||||||||||||||
|
|
(a) | All or a portion of these securities are held by the AZL Cayman Global Allocation Fund I, 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.
20
AZL BlackRock Global Allocation Fund
Consolidated Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investment securities, at cost | $ | 412,153,680 | |||
|
| ||||
Investment securities, at value* | $ | 427,726,555 | |||
Cash | 6,094 | ||||
Segregated cash for collateral | 1,112,315 | ||||
Deposits with brokers for securities sold short | 3,342,801 | ||||
Interest and dividends receivable | 1,225,757 | ||||
Foreign currency, at value (cost $120,678) | 121,616 | ||||
Unrealized appreciation on forward currency contracts | 4,171,455 | ||||
Unrealized appreciation on swap agreements | 620,642 | ||||
Receivable for investments sold | 3,774,177 | ||||
Receivable for capital shares issued | 92 | ||||
Receivable for variation margin on swap agreements | 18,435 | ||||
Receivable for variation margin on futures contracts | 78,277 | ||||
Reclaims receivable | 158,869 | ||||
Prepaid expenses | 3,617 | ||||
|
| ||||
Total Assets | 442,360,702 | ||||
|
| ||||
Liabilities: | |||||
Cash received as collateral for derivatives | 3,991,000 | ||||
Written options (Premiums received $902,304) | 1,203,950 | ||||
Unrealized depreciation on swap agreements | 22,493 | ||||
Unrealized depreciation on forward currency contracts | 1,628,742 | ||||
Payable for investments purchased | 3,610,550 | ||||
Payable for collateral received on loaned securities | 17,802,661 | ||||
Securities sold short (Proceeds received $3,292,769) | 3,407,576 | ||||
Payable for variation margin on futures contracts | 18,304 | ||||
Payable for variation margin on swap agreements | 28,189 | ||||
Interest payable on securities sold short | 1,866 | ||||
Manager fees payable | 258,645 | ||||
Administration fees payable | 13,322 | ||||
Distribution fees payable | 87,232 | ||||
Custodian fees payable | 173,720 | ||||
Administrative and compliance services fees payable | 1,100 | ||||
Trustee fees payable | 836 | ||||
Other accrued liabilities | 9,302 | ||||
|
| ||||
Total Liabilities | 32,259,488 | ||||
|
| ||||
Net Assets | $ | 410,101,214 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 393,775,905 | |||
Accumulated net investment income/(loss) | 3,650,621 | ||||
Accumulated net realized gains/(losses) from investment transactions | (4,963,379 | ) | |||
Net unrealized appreciation/(depreciation) on investments | 17,638,067 | ||||
|
| ||||
Net Assets | $ | 410,101,214 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 36,755,250 | ||||
Net Asset Value (offering and redemption price per share) | $ | 11.16 | |||
|
|
* | Includes securities on loan of $16,807,862. |
Consolidated Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Dividends | $ | 10,066,093 | |||
Interest | 6,308,491 | ||||
Income from securities lending | 265,067 | ||||
Foreign withholding tax | (564,841 | ) | |||
|
| ||||
Total Investment Income | 16,074,810 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 5,431,432 | ||||
Administration fees | 240,876 | ||||
Distribution fees — Class 2 | 1,810,477 | ||||
Custodian fees | 360,933 | ||||
Administrative and compliance services fees | 12,232 | ||||
Trustee fees | 43,866 | ||||
Professional fees | 30,509 | ||||
Shareholder reports | 8,992 | ||||
Dividends on securities sold short | 55,117 | ||||
Other expenses | 116,609 | ||||
|
| ||||
Total expenses before reductions | 8,111,043 | ||||
Less expense contractually waived/reimbursed by the Manager | (3,050 | ) | |||
|
| ||||
Net expenses | 8,107,993 | ||||
|
| ||||
Net Investment Income/(Loss) | 7,966,817 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 3,784,809 | ||||
Net realized gains/(losses) on futures contracts | (911,344 | ) | |||
Net realized gains/(losses) on options contracts | (4,218,481 | ) | |||
Net realized gains (losses) on securities transactions held short | 169,844 | ||||
Net realized gains/(losses) on swap agreements | 1,419,038 | ||||
Net realized gains/(losses) on forward currency contracts | (4,773,939 | ) | |||
Change in net unrealized appreciation/depreciation on investments | 23,084,572 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 18,554,499 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 26,521,316 | |||
|
|
See accompanying notes to the financial statements.
21
Consolidated Statements of Changes in Net Assets
AZL BlackRock Global Allocation Fund | ||||||||||
For the Year Ended December 31, | For the Year Ended December 31, | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 7,966,817 | $ | 6,656,344 | ||||||
Net realized gains/(losses) on investment transactions | (4,530,073 | ) | 14,779,142 | |||||||
Change in unrealized appreciation/depreciation on investments | 23,084,572 | (33,079,064 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 26,521,316 | (11,643,578 | ) | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (1,776,291 | ) | (18,041,917 | ) | ||||||
From net realized gains | (19,597,851 | ) | (35,236,418 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (21,374,142 | ) | (53,278,335 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 7,472,851 | 43,228,733 | ||||||||
Proceeds from dividends reinvested | 21,374,142 | 53,278,335 | ||||||||
Value of shares redeemed | (413,213,063 | ) | (20,008,427 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (384,366,070 | ) | 76,498,641 | |||||||
|
|
|
| |||||||
Change in net assets | (379,218,896 | ) | 11,576,728 | |||||||
Net Assets: | ||||||||||
Beginning of period | 789,320,110 | 777,743,382 | ||||||||
|
|
|
| |||||||
End of period | $ | 410,101,214 | $ | 789,320,110 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 3,650,621 | $ | 263,811 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 692,738 | 3,610,756 | ||||||||
Dividends reinvested | 1,944,872 | 4,878,968 | ||||||||
Shares redeemed | (37,704,698 | ) | (1,658,225 | ) | ||||||
|
|
|
| |||||||
Change in shares | (35,067,088 | ) | 6,831,499 | |||||||
|
|
|
|
See accompanying notes to the financial statements.
22
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, | Year Ended December 31, | Year Ended December 31, | Year Ended December 31, | January 10, 2012 to December 31, 2012(a) | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.99 | $ | 11.97 | $ | 12.05 | $ | 10.58 | $ | 10.00 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.20 | 0.10 | 0.12 | 0.07 | 0.13 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.27 | (0.27 | ) | 0.12 | 1.42 | 0.58 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 0.47 | (0.17 | ) | 0.24 | 1.49 | 0.71 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.02 | ) | (0.28 | ) | (0.08 | ) | — | (b) | (0.13 | ) | |||||||||||||||
Net Realized Gains | (0.28 | ) | (0.53 | ) | (0.24 | ) | (0.02 | ) | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.30 | ) | (0.81 | ) | (0.32 | ) | (0.02 | ) | (0.13 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 11.16 | $ | 10.99 | $ | 11.97 | $ | 12.05 | $ | 10.58 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(c) | 4.35 | % | (1.41 | )% | 1.78 | % | 14.11 | % | 7.13 | %(d) | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 410,101 | $ | 789,320 | $ | 777,743 | $ | 646,689 | $ | 309,063 | |||||||||||||||
Net Investment Income/(Loss)(e) | 1.10 | % | 0.84 | % | 1.14 | % | 0.72 | % | 1.09 | % | |||||||||||||||
Expenses Before Reductions(e)(f) | 1.12 | % | 1.11 | % | 1.11 | % | 1.14 | % | 1.15 | % | |||||||||||||||
Expenses Net of Reductions(e) | 1.12 | % | 1.11 | % | 1.11 | % | 1.14 | % | 1.14 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(e)(g) | 1.12 | % | 1.11 | % | 1.11 | % | 1.14 | % | 1.15 | % | |||||||||||||||
Portfolio Turnover Rate(h) | 140 | % | 82 | % | 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. |
(h) | 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.
23
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 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 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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 I, 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, 2016, the Fund’s aggregate investment in the Subsidiary was $12,787,661, representing 3.12% 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.
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 variable 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.
24
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2016
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, 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 differing treatment on certain investments) 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.
Bank Loans
The Fund may invest in bank loans, which generally have interest rates which are reset periodically by reference to a base lending rate plus a premium. These base rates are primarily the London-Interbank Offered Rate and, secondarily, the prime rate offered by one or more major U.S. banks and the certificate of deposit rate or other base lending rates used by commercial lenders. Bank loans often require prepayments from excess cash flows or allow the borrower to repay at its election. The rate at which the borrower repays cannot be predicted with accuracy. Therefore, the anticipated or actual maturity may be considerably earlier than the stated maturity shown in the Portfolio of Investments.
All or a portion of any bank loans may be unfunded. The Portfolio is obligated to fund any commitments at the borrower’s discretion. Therefore, the Portfolio must have funds sufficient to cover its contractual obligation.
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, 2016 are presented on the Fund’s Consolidated Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $32.3 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $26,557 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Consolidated Statement of Operations.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (“ASU No. 2014-11”), “Transfers & Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
25
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2016
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged, and the remaining contractual maturity of those transactions as of December 31, 2016.
Overnight and Continuous | Less than 30 Days | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions |
| ||||||||||||||||||||||||
Common Stocks | $ | 12,839,117 | $ | — | $ | — | $ | — | $ | 12,839,117 | |||||||||||||||
Corporate Debt Securities | 4,963,544 | — | — | — | 4,963,544 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Securities Lending Transactions | 17,802,661 | — | — | — | 17,802,661 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Borrowings | $ | 17,802,661 | $ | — | $ | — | $ | — | $ | 17,802,661 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Gross Amount of Recognized Liabilities for Securities Lending Transactions | 17,802,661 | ||||||||||||||||||||||||
|
|
TBA Purchase and Sale Commitments
The Fund may enter into to-be-announced (TBA) purchase or sale commitments, pursuant to which it agrees to purchase or sell, respectively, mortgage-backed securities for a fixed unit price, with payment and delivery at a scheduled future date beyond the customary settlement period for such securities. With TBA transactions, the particular securities to be delivered are not identified at the trade date; however, delivered securities must meet specified terms, including issuer, rate, and mortgage term, and be within industry-accepted “good delivery” standards. The Fund may enter into TBA purchase transactions with the intention of taking possession of the underlying securities, may elect to extend the settlement by “rolling” the transaction, and/or may use TBAs to gain interim exposure to underlying securities. Until settlement, the Fund maintains liquid assets sufficient to settle its TBA commitments.
To mitigate counterparty risk, the Fund has entered into agreements with TBA counterparties that provide for collateral and the right to offset amounts due to or from those counterparties under specified conditions. Subject to minimum transfer amounts, collateral requirements are determined and transfers made based on the net aggregate unrealized gain or loss on all TBA commitments with a particular counterparty. At any time, the Fund’s risk of loss from a particular counterparty related to its TBA commitments is the aggregate unrealized gain on appreciated TBAs in excess of unrealized loss on depreciated TBAs and collateral held, if any, by such counterparty. As of December 31, 2016, no collateral had been posted by the Fund to counterparties for TBAs.
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.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and sub-adviser. Any such purchase or sale transaction must be effected without a brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security’s last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. During the year, the Fund engaged in such affiliated transactions at the current market price.
The Fund is permitted to purchase and sell securities (“crosstrade”) from and to other Allianz Funds as well as other funds and client accounts for which the Adviser or an affiliate of the Adviser serves as investment adviser, pursuant to procedures approved by the Trustees in compliance with Rule 17a-7 under the Act (the “Rule”). Each cross-trade is executed at the current market price in compliance with provisions of the Rule. For the year ended December 31, 2016, the Fund participated in the following cross-trade transactions:
Purchases | Sales | Realized (Gain/Loss) | |||||||||||||
AZL BlackRock Global Allocation Fund | $ | (797,100 | ) | $ | 273,400 | $ | 24,029 |
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, 2016, 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 $98.8 million as of December 31, 2016. The monthly average for these contracts was $124.2 million for the year ended December 31, 2016.
26
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2016
Futures Contracts
During the year ended December 31, 2016, 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 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 $14.5 million as of December 31, 2016. The monthly average notional amount for these contracts was $16.1 million for the year ended December 31, 2016. 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, 2016, 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 options that expire are treated as realized losses. When an option is exercised or closed, premiums paid for purchasing 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 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, 2016:
Number of Contracts | Notional Amount(a) | Cost | |||||||||||||
Options outstanding at December 31, 2015 | 3,440,218 | $ | 2,993,098 | $ | 6,078,719 | ||||||||||
Options purchased | 3,736,809 | 609,711 | 10,829,342 | ||||||||||||
Options exercised | (110,832 | ) | — | (397,930 | ) | ||||||||||
Options expired | (855,172 | ) | (2,158,595 | ) | (4,204,115 | ) | |||||||||
Options closed | (5,203,502 | ) | (296,831 | ) | (10,347,068 | ) | |||||||||
|
|
|
|
|
| ||||||||||
Options outstanding at December 31, 2016 | 1,007,521 | $ | 1,147,383 | $ | 1,958,948 | ||||||||||
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|
|
|
|
|
The Fund had the following transactions in written call and put options during the year ended December 31, 2016:
Number of Contracts | Notional Amount(a) | Premiums Received | |||||||||||||
Options outstanding at December 31, 2015 | (3,749,332 | ) | $ | (4,536 | ) | $ | (3,251,054 | ) | |||||||
Options written | (1,795,391 | ) | (1,486,755 | ) | (5,484,108 | ) | |||||||||
Options exercised | 60,695 | — | 122,202 | ||||||||||||
Options expired | 997,734 | 624,006 | 1,625,843 | ||||||||||||
Options closed | 4,331,375 | 561,496 | 6,084,813 | ||||||||||||
|
|
|
|
|
| ||||||||||
Options outstanding at December 31, 2016 | (154,919 | ) | $ | (305,789 | ) | $ | (902,304 | ) | |||||||
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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, foreign currencies 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.
27
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2016
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 the 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 a 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, 2016, 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 $48.4 million as of December 31, 2016. The monthly average gross notional amount for interest rate swaps was $61.9 for the year ended December 31, 2016.
Currency swaps are interest rate swaps in which one party pays a stream of interest payments, either fixed or floating, in exchange for another party’s stream of interest payments, either fixed or floating, based on the notional amounts of two different currencies. The notional amounts are typically determined based on the spot exchange rates at the inception of the trade. Currency swaps may also involve an exchange of notional amounts at the start, during and/or at expiration of the contract, either at the current spot rate or another specified rate. The gross notional amount of currency swaps outstanding was $4.2 million as of December 31, 2016. The monthly average gross notional amount for currency swaps was $3.6 million for the year ended December 31, 2016.
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 $3.4 million as of December 31, 2016. The monthly average gross notional amount for total return swaps was $4.5 million for the year ended December 31, 2016.
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 owed 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, 2016, 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 $5.7 million as of December 31, 2016. The monthly average gross notional amount for credit default swaps was $20.2 million for the year ended December 31, 2016.
28
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2016
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, 2016:
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 Risk Exposure | ||||||||||||
Futures Contracts | Receivable for variation margin on futures contracts* | $ | 48,464 | Payable for variation margin on futures contracts* | $ | 24,088 | ||||||
Option Contracts | Investment securities, at value (purchased options) | 4,221,522 | Written options | 389,270 | ||||||||
Total Return Swap Agreements | Unrealized appreciation on swap agreements | 275,998 | Unrealized depreciation on swap agreements | — | ||||||||
Credit Risk Exposure | ||||||||||||
Credit Default Swap Agreements | Unrealized appreciation on swap agreements* | 53,622 | Unrealized depreciation on swap agreements* | — | ||||||||
Interest Rate Risk | ||||||||||||
Interest Rate Swap Agreements | Unrealized appreciation on swap agreements* | 140,538 | Unrealized depreciation on swap agreements* | 475,338 | ||||||||
Swaption Contracts | Investment securities, at value (purchased options) | 405,711 | Written options | 481,380 | ||||||||
Foreign Exchange Risk Exposure | ||||||||||||
Currency Swap Agreements | Unrealized appreciation on swap agreements | 344,644 | Unrealized depreciation on swap agreements | 22,493 | ||||||||
Forward Currency Contracts | Unrealized appreciation on forward currency contracts | 4,171,455 | Unrealized depreciation on forward currency contracts | 1,628,742 | ||||||||
Option Contracts | Investment securities, at value (purchased options) | 429,744 | Written options | 333,300 |
* | Includes cumulative appreciation/depreciation of futures contracts and cumulative unrealized gain (loss) on these swap agreements as reported in the Consolidated Schedule of Portfolio Investments. Only current day’s variation margin for both futures contracts and these swap agreements are reported within the Consolidated Statement of Assets and Liabilities. |
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, 2016:
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 | Change in Net Unrealized Appreciation/Depreciation | |||||||||||||||||||||
Equity Risk Exposure | $ | (911,344 | ) | $ | 102,257 | $ | (3,918,888 | ) | $ | — | $ | 4,570,008 | |||||||||||||
Credit Risk Exposure | — | 147,862 | — | — | 25,800 | ||||||||||||||||||||
Interest Rate Risk Exposure | — | 1,095,410 | (701,664 | ) | — | (153,561 | ) | ||||||||||||||||||
Foreign Exchange Rate Risk Exposure | — | 73,509 | 402,071 | (4,773,939 | ) | 3,238,846 |
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 transact net amounts in accordance with the master netting agreements at December 31, 2016. 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, 2016.
29
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2016
At December 31, 2016, the Fund’s derivative assets and liabilities by type were as follows:
Assets | Liabilities | |||||||||
Derivative Financial Instruments: | ||||||||||
Futures contracts | $ | 78,277 | $ | 18,304 | ||||||
Forward currency contracts | 4,171,455 | 1,628,742 | ||||||||
Option contracts* | 5,056,977 | 1,203,950 | ||||||||
Swap agreements | 639,077 | 50,682 | ||||||||
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|
|
| |||||||
Total derivative assets and liabilities in the Consolidated Statement of Assets and Liabilities | 9,945,786 | 2,901,678 | ||||||||
Derivatives not subject to a master netting agreement or similar agreement (“MNA”) | (96,712 | ) | (103,456 | ) | ||||||
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|
|
| |||||||
Total assets and liabilities subject to a MNA | $ | 9,849,074 | $ | 2,798,222 | ||||||
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|
|
|
* | Includes option contracts purchased at value as reported in the Consolidated Statement of Assets and Liabilities. |
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, 2016:
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 | ||||||||||||||||||||
Bank of America | $ | 417,237 | $ | (68,849 | ) | $ | — | $ | — | $ | 348,388 | ||||||||||||||
Barclays Bank | 60,654 | (60,654 | ) | — | — | — | |||||||||||||||||||
BNP Paribas | 1,444,281 | (362,166 | ) | — | — | 1,082,115 | |||||||||||||||||||
Citibank | 182,105 | (102,409 | ) | — | — | 79,696 | |||||||||||||||||||
Credit Suisse First Boston | 216,463 | (86,964 | ) | (35,000 | ) | 94,499 | |||||||||||||||||||
Deutsche Bank | 438,430 | (256,424 | ) | — | 182,006 | ||||||||||||||||||||
Goldman Sachs | 5,030,889 | (1,156,647 | ) | — | (3,874,242 | ) | — | ||||||||||||||||||
HSBC Bank | 40,495 | (8,096 | ) | — | — | 32,399 | |||||||||||||||||||
JPMorgan Chase | 358,600 | (132,603 | ) | — | 225,997 | ||||||||||||||||||||
Morgan Stanley | 450,981 | (113,735 | ) | — | — | 337,246 | |||||||||||||||||||
Societe Generale | 29,770 | — | — | — | 29,770 | ||||||||||||||||||||
UBS Warburg | 1,179,169 | (446,917 | ) | — | — | 732,252 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total | $ | 9,849,074 | $ | (2,795,464 | ) | $ | — | $ | (3,909,242 | ) | $ | 3,144,368 | |||||||||||||
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|
|
|
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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, 2016:
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 | $ | 68,849 | $ | (68,849 | ) | $ | — | $ | — | $ | — | ||||||||||||||
Barclays Bank | 63,412 | (60,654 | ) | — | — | 2,758 | |||||||||||||||||||
BNP Paribas | 362,166 | (362,166 | ) | — | — | — | |||||||||||||||||||
Citibank | 102,409 | (102,409 | ) | — | — | — | |||||||||||||||||||
Credit Suisse First Boston | 86,964 | (86,964 | ) | — | — | — | |||||||||||||||||||
Deutsche Bank | 256,424 | (256,424 | ) | — | — | — | |||||||||||||||||||
Goldman Sachs | 1,156,647 | (1,156,647 | ) | — | — | — | |||||||||||||||||||
HSBC Bank | 8,096 | (8,096 | ) | — | — | — | |||||||||||||||||||
JPMorgan Chase | 132,603 | (132,603 | ) | — | — | — | |||||||||||||||||||
Morgan Stanley | 113,735 | (113,735 | ) | — | — | — | |||||||||||||||||||
Societe Generale | — | — | — | — | — | ||||||||||||||||||||
UBS Warburg | 446,917 | (446,917 | ) | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total | $ | 2,798,222 | $ | (2,795,464 | ) | $ | — | $ | — | $ | 2,758 | ||||||||||||||
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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 Consolidated Statement of Assets and Liabilities. |
3. Fees and Transactions with Affiliates and Other Parties
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
30
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2016
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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, 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, 2016, the reimbursements that are subject to repayment by the Fund in subsequent years were as follows:
Expires 12/31/2019 | Total | |||||||||
AZL BlackRock Global Allocation Fund | $ | 3,050 | $ | 3,050 |
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, 2016, 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 (“SEC”). 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 Consolidated 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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Consolidated Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $8,584 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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.
31
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2016
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. 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.
The following is a summary of the valuation inputs used as of December 31, 2016 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 | $ | 456,248 | $ | 4,747,191 | $ | — | $ | 5,203,439 | ||||||||||||
Airlines | 3,805,352 | 1,211,172 | — | 5,016,524 | ||||||||||||||||
Auto Components | 167,202 | 4,168,507 | — | 4,335,709 | ||||||||||||||||
Automobiles | 578,844 | 4,614,901 | — | 5,193,745 | ||||||||||||||||
Banks | 9,689,343 | 7,254,642 | — | 16,943,985 | ||||||||||||||||
Beverages | 936,329 | 1,783,240 | — | 2,719,569 | ||||||||||||||||
Biotechnology | 3,308,546 | 910,077 | — | 4,218,623 | ||||||||||||||||
Building Products | 960,306 | 1,008,678 | — | 1,968,984 | ||||||||||||||||
Capital Markets | 3,338,967 | 662,265 | — | 4,001,232 | ||||||||||||||||
Chemicals | 4,297,839 | 6,305,344 | — | 10,603,183 | ||||||||||||||||
Commercial Services & Supplies | — | 124,074 | — | 124,074 | ||||||||||||||||
Communications Equipment | 1,235,374 | 1,010,887 | — | 2,246,261 | ||||||||||||||||
Construction & Engineering | — | 1,620,058 | — | 1,620,058 | ||||||||||||||||
Construction Materials | — | 168,719 | — | 168,719 | ||||||||||||||||
Distributors | — | 62,146 | — | 62,146 | ||||||||||||||||
Diversified Financial Services | 2,946,214 | 180,014 | — | 3,126,228 | ||||||||||||||||
Diversified Telecommunication Services | 206,901 | 4,114,100 | — | 4,321,001 | ||||||||||||||||
Electric Utilities | 1,737,577 | 1,200,591 | — | 2,938,168 | ||||||||||||||||
Electrical Equipment | 48,922 | 1,532,547 | — | 1,581,469 | ||||||||||||||||
Electronic Equipment, Instruments & Components | 792,594 | 1,661,489 | — | 2,454,083 | ||||||||||||||||
Equity Real Estate Investment Trusts | 2,331,334 | 472,579 | — | 2,803,913 | ||||||||||||||||
Food & Staples Retailing | 1,923,237 | 570,916 | — | 2,494,153 | ||||||||||||||||
Food Products | 576,240 | 4,918,437 | — | 5,494,677 | ||||||||||||||||
Gas Utilities | 10,390 | 1,049,943 | — | 1,060,333 | ||||||||||||||||
Health Care Equipment & Supplies | 2,180,845 | 1,165,297 | — | 3,346,142 |
32
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2016
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Health Care Providers & Services | $ | 5,332,850 | $ | 1,795,334 | $ | — | $ | 7,128,184 | ||||||||||||
Hotels, Restaurants & Leisure | 2,019,353 | 476,011 | — | 2,495,364 | ||||||||||||||||
Household Durables | 526,956 | 753,842 | — | 1,280,798 | ||||||||||||||||
Industrial Conglomerates | 1,295,916 | 2,245,800 | — | 3,541,716 | ||||||||||||||||
Insurance | 4,723,647 | 3,334,920 | — | 8,058,567 | ||||||||||||||||
Internet Software & Services | 8,549,646 | — | 1,072,959 | 9,622,605 | ||||||||||||||||
IT Services | 3,757,598 | 559,201 | — | 4,316,799 | ||||||||||||||||
Leisure Products | — | 94,488 | — | 94,488 | ||||||||||||||||
Machinery | 741,187 | 3,520,572 | — | 4,261,759 | ||||||||||||||||
Media | 5,322,596 | 1,759,945 | 30,786 | 7,113,327 | ||||||||||||||||
Metals & Mining | 141,722 | 205,902 | — | 347,624 | ||||||||||||||||
Multi-Utilities | 773,418 | 1,289,028 | — | 2,062,446 | ||||||||||||||||
Oil, Gas & Consumable Fuels | 13,592,424 | 4,386,439 | — | 17,978,863 | ||||||||||||||||
Personal Products | 1,422,502 | 1,732,797 | — | 3,155,299 | ||||||||||||||||
Pharmaceuticals | 6,699,907 | 3,973,677 | — | 10,673,584 | ||||||||||||||||
Professional Services | — | 500,119 | — | 500,119 | ||||||||||||||||
Real Estate Management & Development | 931,646 | 4,995,776 | — | 5,927,422 | ||||||||||||||||
Road & Rail | 1,080,819 | 2,258,501 | — | 3,339,320 | ||||||||||||||||
Semiconductors & Semiconductor Equipment | 1,114,238 | 1,336,761 | — | 2,450,999 | ||||||||||||||||
Software | 2,430,860 | 1,229,177 | 3,386,166 | 7,046,203 | ||||||||||||||||
Specialty Retail | 3,913,305 | 487,981 | — | 4,401,286 | ||||||||||||||||
Technology Hardware, Storage & Peripherals | 7,322,668 | 457,160 | — | 7,779,828 | ||||||||||||||||
Textiles, Apparel & Luxury Goods | 1,013,133 | 1,908,037 | — | 2,921,170 | ||||||||||||||||
Tobacco | 98,117 | 188,935 | — | 287,052 | ||||||||||||||||
Transportation Infrastructure | — | 76,127 | — | 76,127 | ||||||||||||||||
Wireless Telecommunication Services | 637,396 | 2,487,847 | — | 3,125,243 | ||||||||||||||||
Other Common Stocks+ | 8,919,842 | — | — | 8,919,842 | ||||||||||||||||
Preferred Stocks | ||||||||||||||||||||
Automobiles | — | 495,891 | — | 495,891 | ||||||||||||||||
Banks | 587,404 | 68,985 | — | 656,389 | ||||||||||||||||
Equity Real Estate Investment Trusts | 378,051 | 171,685 | — | 549,736 | ||||||||||||||||
Health Care Providers & Services | — | 929,829 | 395,794 | 1,325,623 | ||||||||||||||||
Internet Software & Services | — | — | 613,680 | 613,680 | ||||||||||||||||
Software | — | — | 939,710 | 939,710 | ||||||||||||||||
Other Preferred Stocks+ | 2,876,548 | — | — | 2,876,548 | ||||||||||||||||
Warrant | — | 50,365 | — | 50,365 | ||||||||||||||||
Convertible Preferred Stocks | ||||||||||||||||||||
Banks | — | 155,890 | — | 155,890 | ||||||||||||||||
Internet Software & Services | — | — | 1,174,638 | 1,174,638 | ||||||||||||||||
Right | — | 6,150 | — | 6,150 | ||||||||||||||||
Private Placements | ||||||||||||||||||||
Household Durables | — | — | 138,231 | 138,231 | ||||||||||||||||
Oil, Gas & Consumable Fuels | — | — | 12,087 | 12,087 | ||||||||||||||||
Convertible Bonds | ||||||||||||||||||||
Multi-Utilities | 178,264 | — | — | 178,264 | ||||||||||||||||
Other Convertible Bonds+ | — | 4,147,915 | — | 4,147,915 | ||||||||||||||||
Bank Loans+ | — | 4,879,872 | — | 4,879,872 | ||||||||||||||||
Collateralized Mortgage Obligations | — | 543,067 | — | 543,067 | ||||||||||||||||
Corporate Bonds | ||||||||||||||||||||
Media | — | 426,150 | 643,519 | 1,069,669 | ||||||||||||||||
Other Corporate Bonds+ | — | 11,162,192 | — | 11,162,192 | ||||||||||||||||
Foreign Bonds+ | — | 57,960,247 | — | 57,960,247 | ||||||||||||||||
Yankee Dollars+ | — | 11,383,157 | — | 11,383,157 | ||||||||||||||||
U.S. Government Agency Mortgages | �� | — | 2,557,328 | — | 2,557,328 | |||||||||||||||
U.S. Treasury Obligations | — | 62,850,039 | — | 62,850,039 | ||||||||||||||||
Purchased Swaptions | — | 405,711 | — | 405,711 | ||||||||||||||||
Purchased Options | — | 4,651,266 | — | 4,651,266 | ||||||||||||||||
Exchange Traded Fund | 11,673,175 | — | — | 11,673,175 | ||||||||||||||||
Mutual Fund | 389,129 | — | — | 389,129 |
33
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2016
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | $ | — | $ | 17,802,661 | $ | — | $ | 17,802,661 | ||||||||||||
Unaffiliated Investment Company | 4,125,473 | — | — | 4,125,473 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investment Securities | $ | 144,098,394 | $ | 275,220,591 | $ | 8,407,570 | $ | 427,726,555 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Securities Sold Short | (3,153,831 | ) | (253,745 | ) | — | (3,407,576 | ) | |||||||||||||
Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | 24,376 | — | — | 24,376 | ||||||||||||||||
Written Options | — | (722,570 | ) | — | (722,570 | ) | ||||||||||||||
Written Swaptions | — | (481,380 | ) | — | (481,380 | ) | ||||||||||||||
Forward Currency Contracts | — | 2,542,713 | — | 2,542,713 | ||||||||||||||||
Centrally Cleared Credit Default Swaps | — | 53,622 | — | 53,622 | ||||||||||||||||
Over-the-Counter Currency Swaps | — | 322,151 | — | 322,151 | ||||||||||||||||
Centrally Cleared Interest Rate Swaps | — | (334,800 | ) | — | (334,800 | ) | ||||||||||||||
Over-the-Counter Total Return Swaps | — | 275,998 | — | 275,998 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investments | $ | 140,968,939 | $ | 276,622,580 | $ | 8,407,570 | $ | 425,999,089 | ||||||||||||
|
|
|
|
|
|
|
|
+ | 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, 2016, 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 | $ | 908,565,485 | $ | 1,190,739,472 |
For the year ended December 31, 2016, cost of purchases and proceeds from sales of long-term U.S. government securities included above were as follows:
Purchases | Sales | |||||||||
AZL BlackRock Global Allocation Fund | $ | 367,792,050 | $ | 394,310,027 |
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, 2016 are identified below.
Security | Acquisition Date(a) | Acquisition Cost | Shares or Principal Amount | Fair Value | Percentage of Net Assets | ||||||||||||||||||||
AliphCom, Inc., 0.00%, 4/1/20 | 4/27/15 | $ | 3,065,000 | $ | 3,065,000 | $ | 138,231 | 0.03 | % | ||||||||||||||||
Delta Topco, Ltd. | 5/2/12 | 379,997 | 615,711 | 30,786 | 0.01 | % | |||||||||||||||||||
Delta Topco, Ltd., 10.00%, 11/24/60 | 5/2/12 | 758,660 | 624,776 | 643,519 | 0.16 | % | |||||||||||||||||||
Domo, Inc., Series E | 4/1/15 | 1,218,214 | 144,482 | 1,174,638 | 0.29 | % | |||||||||||||||||||
Dropbox, Inc. | 1/28/14 | 1,827,985 | 95,700 | 1,042,173 | 0.25 | % | |||||||||||||||||||
Grand Rounds, Inc. | 3/31/15 | 399,608 | 143,925 | 395,794 | 0.10 | % | |||||||||||||||||||
Logistics UK, Series 2015-1A, Class F, 0.66%, 8/20/25 | 8/3/15 | 440,732 | 459,000 | 543,067 | 0.13 | % | |||||||||||||||||||
Lookout, Inc., Preferred Shares | 9/19/14 | 730,222 | 63,925 | 613,680 | 0.15 | % | |||||||||||||||||||
Lookout, Inc. | 3/4/15 | 63,364 | 5,547 | 30,786 | 0.01 | % | |||||||||||||||||||
Palantir Technologies, Inc., Series I | 3/27/14 | 712,042 | 116,157 | 939,710 | 0.23 | % | |||||||||||||||||||
Project Samson BND Corp., 0.00%, 4/1/20 | 11/11/15 | 268,000 | 268,000 | 12,087 | 0.00 | % | |||||||||||||||||||
REI Agro, Ltd., Registered Shares, 5.50%, 11/13/14 | 2/7/12 | 300,000 | 400,000 | 2,000 | 0.00 | % | |||||||||||||||||||
Uber Technologies, Inc. | 3/21/14 | 1,063,120 | 68,532 | 3,386,166 | 0.83 | % |
(a) | Acquisition date represents the initial purchase date of the security. |
34
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2016
7. Investment Risks
Bank Loan Risk: There are a number of risks associated with an investment in bank loans including credit risk, interest rate risk, liquidity risk and prepayment risk. Lack of an active trading market, restrictions on resale, irregular trading activity, wide bid/ask spreads and extended trade settlement periods may impair the Fund’s ability to sell bank loans within its desired time frame or at an acceptable price and its ability to accurately value existing and prospective investments. Extended trade settlement periods may result in cash not being immediately available to the Fund. As a result, the Fund may have to sell other investments or engage in borrowing transactions to raise cash to meet its obligations. The risk of holding bank loans is also directly tied to the risk of insolvency or bankruptcy of the issuing banks. These risks could cause the Fund to lose income or principal on a particular investment, which in turn could affect the Fund’s returns. The value of bank loans can be affected by and sensitive to changes in government regulation and to economic downturns in the United States and abroad. Bank loans generally are floating rate loans, which are subject to interest rate risk as the interest paid on the floating rate loans adjusts periodically based on changes in widely accepted reference rates.
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”) and 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 policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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 of securities for federal income tax purposes at December 31, 2016 is $417,655,923. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 36,172,964 | ||
Unrealized (depreciation) | (26,102,332 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 10,070,632 | ||
|
|
As of the end of its tax year ended December 31, 2016, the Fund has capital loss carry forwards (“CLCFs”) as summarized in the table 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.
35
AZL BlackRock Global Allocation Fund
Notes to the Financial Statements
December 31, 2016
CLCFs not subject to expiration:
Short Term Amount | Long Term Amount | Total Amount | |||||||||||||
AZL BlackRock Global Allocation Fund | $ | — | $ | 312,218 | $ | 312,218 |
The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL BlackRock Global Allocation Fund | $ | 4,181,574 | $ | 17,192,568 | $ | 21,374,142 |
(a) | Total distributions paid may differ from that presented in 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, 2015 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL BlackRock Global Allocation Fund | $ | 22,920,136 | $ | 30,358,199 | $ | 53,278,335 |
(a) | Total distributions paid may differ from that presented in the Consolidated Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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 Depreciation(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL BlackRock Global Allocation Fund | $ | 7,366,569 | $ | — | $ | (312,218 | ) | $ | 9,272,444 | $ | 16,326,795 |
(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, 2016, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 90% of the Fund.
10. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies – Form N-PORT and Form N-CEN – also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
11. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
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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, 2016, 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 years or periods in the five-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, 2016, 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 AZL BlackRock Global Allocation Fund and Subsidiary as of December 31, 2016, the results of their operations for the year then ended, the changes in their net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Columbus, Ohio
February 24, 2017
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2016, 92.18% 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, 2016, the Fund declared net long-term capital gain distributions of $17,192,568.
During the year ended December 31, 2016, the Fund declared net short-term capital gain distributions of $2,399,883.
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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 — October 25, 2016 (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 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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 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 the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held October 25, 2016, the Manager reported that for the three year period ended June 30, 2016, seven Funds were in the top 40%, two were in the middle 20% and three were in the bottom 40%, and for the one year period ended June 30, 2016, twelve Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2016, six Funds were in the top 40%, one was in the middle 20%, and three were in the bottom 40%. At the Board of Trustees meeting held October 25, 2016, 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 twenty Funds reviewed by the Board of Trustees in the fall of 2016, seventeen 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 2016 for the twenty-one Funds was as follows; (1) eighteen of the Funds had total expense rankings below the 65th percentile (with eleven Funds at or below the 50th percentile); (2) the AZL Russell 1000 Growth Index Fund had a total expense ranking in the 66th percentile, but there was only a very limited peer group for such Fund, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; (3) the AZL International Index Fund had a total expense ranking in the 75th percentile, but there was only a limited peer group for such Fund, the actual management fee was in the 37th percentile, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; and (4) for the AZL Morgan Stanley Global Real Estate Fund, which had a total expense ranking in the 70th percentile, the Manager recommended a temporary management fee waiver of 5 basis points, effective November 1, 2016, which would move the management fee ranking from the 80th to the 60th percentile.
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 2013 through June 30, 2016. 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, all of which currently are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. 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, 2016 were approximately $6.4 billion, and that no single Fund had assets in excess of $1,289 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, 2017, 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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 5701 Golden Hills Drive | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 5701 Golden Hills Drive | 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 5701 Golden Hills Drive | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
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Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 45 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 53 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 47 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
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The Allianz VIP Fund of Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® DFA Emerging Markets Core Equity Fund
Annual Report
December 31, 2016
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 20
Statement of Operations
Page 20
Statements of Changes in Net Assets
Page 21
Financial Highlights
Page 22
Notes to the Financial Statements
Page 23
Report of Independent Registered Public Accounting Firm
Page 29
Other Information
Page 30
Approval of Investment Advisory and Subadvisory Agreements
Page 31
Information about the Board of Trustees and Officers
Page 33
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® DFA Emerging Markets Core Equity Fund (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® DFA Emerging Markets Core Equity Fund and Dimensional Fund Advisors LP serves as Subadviser to the Fund. | ||
What factors affected the Fund’s performance during the year ended December 31, 2016?
For the year ended December 31, 2016, the AZL® DFA Emerging Markets Core Equity Fund (the “Fund”) returned 12.63%. That compared to a 11.60% total return for its benchmark, the MSCI Emerging Markets Index1.
Over the course of the year, the U.S. dollar depreciated against some emerging markets currencies, such as the Brazilian real and Russian ruble, but appreciated against others, particularly the Turkish lira and Mexican peso. Overall, the positive contribution from appreciating currencies more than offset the drag on results generated by the depreciating currencies. These currency movements had a positive impact on the U.S. dollar-denominated returns of emerging markets.
Among emerging market equities, small-cap stocks underperformed large-caps, while value stocks outperformed growth stocks.
The Fund outperformed the benchmark for the 12-month period, due in large part to its greater emphasis on value stocks. A greater-than-benchmark allocation to materials stocks, one of the strongest sectors during the period, also boosted relative performance. Country allocation differences also contributed positively: The Fund benefited from an underweight position in China, which underperformed during the period, as well as an above-benchmark allocation to Brazil, which outperformed.*
Gains were somewhat offset by the Fund’s underweight allocation to energy stocks, a sector that also outperformed during the period. A below-benchmark allocation to Russia, one of the strongest-performing countries during the period, also detracted from 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, 2016. |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
1
AZL® DFA Emerging Markets Core Equity 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 emerging markets equity investments. | ||
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. | ||
Emerging market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries. | ||
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. | ||
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 Total Returns as of December 31, 2016 | ||||||||
1 Year | Since Inception (4/27/15) | |||||||
AZL® DFA Emerging Markets Core Equity Fund | 12.63 | % | -9.30 | % | ||||
MSCI Emerging Markets Index (gross of withholding taxes) | 11.60 | % | -9.16 | % | ||||
MSCI Emerging Markets Index (net of withholding taxes) | 11.19 | % | -9.53 | % |
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® DFA Emerging Markets Core Equity Fund | 2.05 | % |
The above expense ratio is based on the current Fund prospectus dated April 25, 2016, as supplemented October 14, 2016. The Manager voluntarily reduced the management fee to 0.95% on all assets. 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 1.50% through April 30, 2018. Additional information pertaining to the December 31, 2016 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.
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 2.00%.
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 Indexes do not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Index noted as “gross of withholding taxes” reflects the maximum possible reinvestment of dividends with no adjustment for withholding tax deductions or tax credits. 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 DFA Emerging Markets Core Equity Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL DFA Emerging Markets Core 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL DFA Emerging Markets Core Equity Fund | $ | 1,000.00 | $ | 1,018.10 | $ | 7.61 | 1.50 | % |
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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL DFA Emerging Markets Core Equity Fund | $ | 1,000.00 | $ | 1,017.60 | $ | 7.61 | 1.50 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 22.4 | % | |||
Financials | 18.3 | ||||
Consumer Discretionary | 10.1 | ||||
Materials | 9.7 | ||||
Consumer Staples | 9.0 | ||||
Industrials | 8.6 | ||||
Energy | 6.3 | ||||
Telecommunication Services | 5.2 | ||||
Utilities | 3.9 | ||||
Real Estate | 3.2 | ||||
Health Care | 3.0 | ||||
|
| ||||
Total Common Stocks and Preferred Stocks | 99.7 | ||||
Securities Held as Collateral for Securities on Loan | 0.9 | ||||
Money Market | 0.1 | ||||
|
| ||||
Total Investment Securities | 100.7 | ||||
Net other assets (liabilities) | (0.7 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks (99.2%): |
| ||||||
| Aerospace & Defense (0.3%): |
| ||||||
1,236 | Aselsan Elektronik Sanayi Ve Ticaret AS | $ | 4,457 | |||||
20,000 | AviChina Industry & Technology Co.,Ltd. | 13,738 | ||||||
4,100 | Embraer SA, ADR | 78,925 | ||||||
3,789 | Embraer SA | 18,635 | ||||||
650 | Korea Aerospace Industries, Ltd. | 35,967 | ||||||
174 | S&T Dynamics Co., Ltd. | 1,338 | ||||||
2 | Samsung Techwin Co., Ltd. | 72 | ||||||
|
| |||||||
153,132 | ||||||||
|
| |||||||
| Air Freight & Logistics (0.1%): | |||||||
39 | Blue Dart Express, Ltd. | 2,513 | ||||||
287 | Hanjin Transportation Co., Ltd. | 6,832 | ||||||
247 | Hyundai Glovis Co., Ltd. | 31,529 | ||||||
1,500 | Pos Malaysia Berhad | 1,306 | ||||||
26,000 | Sinotrans, Ltd. | 11,552 | ||||||
|
| |||||||
53,732 | ||||||||
|
| |||||||
| Airlines (0.7%): | |||||||
20,000 | Air China, Ltd. | 12,756 | ||||||
60,200 | AirAsia Berhad | 30,711 | ||||||
92,600 | Asia Aviation Public Co., Ltd. | 15,566 | ||||||
3,987 | Asiana Airlines, Inc.* | 13,904 | ||||||
15,130 | Cebu Air, Inc. | 28,268 | ||||||
70,000 | China Airlines, Ltd. | 20,159 | ||||||
66,000 | China Eastern Airlines Corp., Ltd., Class H | 30,149 | ||||||
443 | China Southern Airlines Co., Ltd., ADR^ | 11,390 | ||||||
18,000 | China Southern Airlines Co., Ltd., Class H | 9,304 | ||||||
14,200 | Controladora Vuela Compania de Aviacion SAB de C.V., Class A* | 21,271 | ||||||
48,300 | Eva Airways Corp. | 21,829 | ||||||
26,797 | Grupo Aeromexico SAB de C.V.* | 50,421 | ||||||
472 | Hanjin Kal Corp. | 5,995 | ||||||
1,054 | Korean Air Lines Co., Ltd.* | 23,836 | ||||||
5,331 | Latam Airlines Group SA, ADR* | 43,608 | ||||||
37,400 | Thai Airways International Public Co., Ltd.* | 23,579 | ||||||
23,346 | Turk Hava Yollari Anonim Ortakligi* | 33,189 | ||||||
|
| |||||||
395,935 | ||||||||
|
| |||||||
| Auto Components (1.4%): |
| ||||||
6,717 | Apollo Tyres, Ltd. | 18,276 | ||||||
1,368 | Balkrishna Industries, Ltd. | 22,203 | ||||||
2,589 | Bharat Forge, Ltd. | 34,501 | ||||||
50 | Bosch, Ltd. | 15,447 | ||||||
1,215 | Ceat, Ltd. | 20,741 | ||||||
22,000 | Chaowei Power Holdings, Ltd. | 18,760 | ||||||
28,000 | Cheng Shin Rubber Industry Co., Ltd. | 52,646 | ||||||
1,000 | Cub Elecparts, Inc. | 7,775 | ||||||
5,000 | Depo Auto Parts Industries Co., Ltd. | 13,261 | ||||||
6,474 | Exide Industries, Ltd. | 17,126 | ||||||
49 | Global & Yuasa Battery Co., Ltd. | 1,517 | ||||||
1,436 | Hankook Tire Co., Ltd. | 68,920 | ||||||
5,000 | Hota Industrial Manufacturing Co., Ltd. | 19,292 | ||||||
7,000 | Hu Lane Associate, Inc. | 31,035 | ||||||
503 | Hyundai Mobis Co.,Ltd. | 109,722 | ||||||
434 | Hyundai Wia Corp. | 26,181 | ||||||
13,923 | Kenda Rubber Industrial Co., Ltd. | 20,960 | ||||||
3,107 | Kumho Tire Co., Inc.* | 21,787 | ||||||
133 | Mando Corp. | 6,667 | ||||||
274 | Mando Corp. | 53,143 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Auto Components, continued |
| ||||||
10,537 | Metair Investments, Ltd. | $ | 16,814 | |||||
2,000 | Minth Group, Ltd. | 6,206 | ||||||
6,237 | Motherson Sumi Systems, Ltd. | 29,969 | ||||||
33 | Mrf, Ltd. | 23,709 | ||||||
13,000 | Nan Kang Rubber Tire Co., Ltd. | 11,823 | ||||||
446 | Nexen Tire Corp. | 4,798 | ||||||
25,000 | Nexteer Automotive Group, Ltd. | 29,518 | ||||||
5,900 | Rassini, S.A.B. de C.V., Class A* | 10,962 | ||||||
209 | S&T Motiv Co., Ltd. | 8,431 | ||||||
18,200 | Sri Trang Agro-Industry Public Co., Ltd. | 11,657 | ||||||
24,000 | Tianneng Power International, Ltd. | 21,978 | ||||||
10,000 | Tong Yang Industry Co., Ltd. | 19,614 | ||||||
1,581 | Tube Investments of India, Ltd. | 13,594 | ||||||
2,000 | Tung Thih Electronic Co., Ltd. | 17,755 | ||||||
26 | WABCO India, Ltd. | 1,993 | ||||||
|
| |||||||
808,781 | ||||||||
|
| |||||||
| Automobiles (2.1%): |
| ||||||
1,846 | Bajaj Auto, Ltd. | 71,413 | ||||||
18,000 | Brilliance China Automotive Holdings, Ltd. | 24,706 | ||||||
4,000 | BYD Co., Ltd., Class H^ | 20,992 | ||||||
14,000 | China Motor Corp. | 11,377 | ||||||
32,000 | Dongfeng Motor Corp., Series H | 31,134 | ||||||
46,000 | DRB-HICOM Berhad | 11,756 | ||||||
2,890 | Ford Otomotiv Sanayi AS | 25,062 | ||||||
60,000 | Geely Automobile Holdings, Ltd. | 57,059 | ||||||
28,500 | Great Wall Motor Co. | 26,432 | ||||||
530 | Hero MotoCorp, Ltd. | 23,682 | ||||||
1,493 | Hyundai Motor Co. | 179,403 | ||||||
2,261 | Kia Motors Corp. | 73,376 | ||||||
10,108 | Mahindra & Mahindra, Ltd., GDR | 177,800 | ||||||
1,232 | Maruti Suzuki India, Ltd. | 95,979 | ||||||
160,100 | PT Astra International TbK | 97,927 | ||||||
10,000 | Sanyang Industry Co., Ltd. | 6,419 | ||||||
29,039 | Tata Motors, Ltd. | 201,752 | ||||||
4,665 | Tvs Motor Co., Ltd. | 24,695 | ||||||
14,900 | UMW Holdings Berhad | 15,182 | ||||||
18,000 | Yulon Motor Co., Ltd. | 14,950 | ||||||
|
| |||||||
1,191,096 | ||||||||
|
| |||||||
| Banks (11.9%): |
| ||||||
16,900 | Affin Holdings Berhad | 9,003 | ||||||
173,000 | Agricultural Bank of China, Ltd. | 70,641 | ||||||
21,127 | Akbank T.A.S. | 46,846 | ||||||
1,674 | Alior Bank SA* | 21,689 | ||||||
28,700 | Alliance Financial Group Berhad | 23,776 | ||||||
58,200 | AMMB Holdings Berhad | 55,872 | ||||||
3,360 | Axis Bank, Ltd. | 110,208 | ||||||
28,393 | Banco Bradesco SA, ADR | 247,303 | ||||||
5,505 | Banco Bradesco SA | 49,310 | ||||||
433 | Banco de Chile, ADR | 30,505 | ||||||
564 | Banco de Credito e Inversiones | 28,562 | ||||||
11,100 | Banco do Brasil SA | 95,844 | ||||||
5,800 | Banco do Esrado do Rio Grande do Sul SA, Class B | 18,399 | ||||||
1,391 | Banco Santander Brasil SA | 12,626 | ||||||
1,433 | Banco Santander Chile, ADR | 31,340 | ||||||
1,301 | Bancolombia SA, ADR | 47,721 | ||||||
11,490 | Bank Millennium SA* | 14,257 |
Continued
4
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Banks, continued |
| ||||||
8,715 | Bank of Baroda* | $ | 19,700 | |||||
546,000 | Bank of China, Ltd. | 240,911 | ||||||
20,000 | Bank of Chongqing Co., Ltd., Class H | 16,891 | ||||||
49,000 | Bank of Communications Co., Ltd., Class H | 35,078 | ||||||
11,030 | Bank of India* | 17,314 | ||||||
3,440 | Bank of the Philippine Islands | 6,144 | ||||||
502 | Bank Pekao SA | 15,099 | ||||||
165,100 | Bank Pembangunan Daerah Jawa Barat Dan Banten Tbk | 41,577 | ||||||
341 | Bank Zachodni WBK SA | 25,763 | ||||||
11,009 | Banregio Grupo Financiero SAB de C.V. | 61,363 | ||||||
8,434 | Barclays Africa Group, Ltd. | 102,972 | ||||||
22,310 | BDO Unibank, Inc. | 50,265 | ||||||
15,900 | BIMB Holdings Berhad | 14,938 | ||||||
7,896 | BNK Financial Group, Inc. | 56,748 | ||||||
6,971 | Canara Bank, Ltd.* | 26,817 | ||||||
1,055 | Capitec Bank Holdings, Ltd. | 53,469 | ||||||
52,173 | Chang Hwa Commercial Bank | 27,771 | ||||||
61,000 | China Citic Bank Co., Ltd. | 38,532 | ||||||
685,000 | China Construction Bank | 524,814 | ||||||
159,000 | China Development Financial Holding Corp. | 39,649 | ||||||
31,000 | China Everbright Bank Co., Series H | 14,099 | ||||||
34,000 | China Merchants Bank Co., Ltd. | 79,013 | ||||||
53,000 | China Minsheng Banking Corp., Ltd. | 56,273 | ||||||
159,944 | Chinatrust Financial Holding Co., Ltd. | 87,383 | ||||||
32,000 | Chongqing Rural Commercial Bank Co., Ltd. | 18,787 | ||||||
17,600 | CIMB Group Holdings Berhad | 17,691 | ||||||
18,301 | Commercial International Bank Egypt SAE, GDR | 66,779 | ||||||
1,120 | Credicorp, Ltd. | 176,803 | ||||||
2,129 | DGB Financial Group, Inc. | 17,204 | ||||||
59,541 | E.Sun Financial Holding Co., Ltd. | 33,921 | ||||||
9,000 | EnTie Commercial Bank | 4,050 | ||||||
78,458 | Far Eastern International Bank | 22,139 | ||||||
25,419 | Federal Bank, Ltd. | 25,034 | ||||||
97,399 | First Financial Holdings Co., Ltd. | 51,909 | ||||||
2,676 | Grupo Aval Acciones y Valores SA, ADR | 21,247 | ||||||
1,028 | Grupo Elektra, SAB de C.V. | 12,907 | ||||||
17,880 | Grupo Financiero Banorte SAB de C.V. | 88,098 | ||||||
27,019 | Grupo Financiero Inbursa SAB de C.V., Class O | 40,969 | ||||||
5,152 | Grupo Financiero Interacciones SAB de C.V. | 20,099 | ||||||
2,961 | Grupo Financiero Santander Mexico SAB de C.V., Class B, ADR | 21,290 | ||||||
39,050 | Grupo Security SA | 13,185 | ||||||
2,866 | Hana Financial Holdings Group, Inc. | 73,997 | ||||||
7,684 | Hong Leong Bank Berhad | 23,091 | ||||||
6,680 | Hong Leong Financial Group Berhad | 21,149 | ||||||
100,378 | Hua Nan Financial Holdings Co., Ltd. | 50,522 | ||||||
42,000 | Huishang Bank Corp., Ltd., Class H | 21,380 | ||||||
33,503 | ICICI Bank, Ltd. | 125,640 | ||||||
22,777 | Idbi Bank, Ltd.* | 23,201 | ||||||
3,235 | IndusInd Bank, Ltd. | 52,811 | ||||||
582,000 | Industrial & Commercial Bank of China | 347,139 | ||||||
3,544 | Industrial Bank of Korea (IBK) | 37,208 | ||||||
412 | ING Bank Slaski SA | 15,899 | ||||||
2,289 | Itau Corpbanca, ADR | 28,475 | ||||||
39,597 | Itau Unibanco Banco Multiplo SA, ADR | 407,057 | ||||||
3,960 | Itau Unibanco Holding SA | 36,518 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Banks, continued |
| ||||||
4,150 | JB Financial Group Co., Ltd. | $ | 19,841 | |||||
1,585 | Karur Vysya Bank, Ltd. | 1,904 | ||||||
15,100 | Kasikornbank Public Co., Ltd. | 74,568 | ||||||
2,372 | KB Financial Group, Inc., ADR | 83,708 | ||||||
704 | KB Financial Group, Inc. | 24,879 | ||||||
25,000 | King’s Town Bank | 21,788 | ||||||
620 | Komercni Banka AS | 21,366 | ||||||
3,158 | Kotak Mahindra Bank, Ltd. | 33,499 | ||||||
54,800 | Krung Thai Bank Public Co., Ltd. | 27,001 | ||||||
124,300 | LH Financial Group Public Co., Ltd. | 5,954 | ||||||
41,778 | Malayan Banking Berhad | 76,314 | ||||||
234 | mBank SA* | 18,755 | ||||||
64,871 | Mega Financial Holdings Co., Ltd. | 46,280 | ||||||
10,930 | Metropolitan Bank & Trust | 15,981 | ||||||
4,710 | Nedcor, Ltd. | 81,179 | ||||||
2,817 | OTP Bank Nyrt | 80,482 | ||||||
30,390 | Philippine National Bank | 33,394 | ||||||
6,345 | Powszechna Kasa Oszczednosci Bank Polski SA | 42,690 | ||||||
118,700 | PT Bank Central Asia Tbk | 135,972 | ||||||
86,000 | PT Bank Danamon Indonesia Tbk | 23,697 | ||||||
78,900 | PT Bank Mandiri Tbk | 67,479 | ||||||
66,500 | PT Bank Negara Indonesia Tbk | 27,186 | ||||||
80,800 | PT Bank Pan Indonesia Tbk* | 4,496 | ||||||
138,000 | PT Bank Rakyat Indonesia Tbk | 119,695 | ||||||
293,200 | PT Bank Tabungan Negara Tbk | 37,604 | ||||||
39,700 | Public Bank Berhad | 174,487 | ||||||
18,519 | RHB Capital Berhad(a) | 19,422 | ||||||
11,873 | Sberbank of Russia, ADR | 137,490 | ||||||
17,000 | Security Bank Corp. | 64,889 | ||||||
3,341 | Shinhan Finnancial Group Co., Ltd., ADR | 125,755 | ||||||
7,800 | Siam Commercial Bank Public Co., Ltd. | 33,086 | ||||||
66,399 | SinoPac Financial Holdings Co., Ltd. | 18,677 | ||||||
6,355 | South Indian Bank, Ltd. | 1,834 | ||||||
13,292 | Standard Bank Group, Ltd. | 147,163 | ||||||
1,013 | State Bank of India, GDR | 37,344 | ||||||
80,074 | Taichung Commercial Bank Co., Ltd. | 22,806 | ||||||
89,006 | Taishin Financial Holding Co., Ltd. | 32,510 | ||||||
112,665 | Taiwan Business Bank | 28,454 | ||||||
68,480 | Taiwan Cooperative Financial Holding Co., Ltd. | 29,806 | ||||||
20,600 | Thanachart Capital Public Co., Ltd. | 25,253 | ||||||
3,859 | The Jammu & Kashmir Bank, Ltd. | 3,370 | ||||||
18,300 | Tisco Financial Group Public Co., Ltd. | 30,739 | ||||||
304,300 | TMB Bank Public Co., Ltd. | 17,803 | ||||||
28,257 | Turkiye Garanti Bankasi AS | 61,139 | ||||||
10,334 | Turkiye Halk Bankasi AS | 27,405 | ||||||
19,903 | Turkiye Is Bankasi AS, Class C | 29,272 | ||||||
62,576 | Turkiye Sinai Kalkinma Bankasi AS | 25,057 | ||||||
17,464 | Turkiye Vakiflar Bankasi T.A.O., Class D | 21,576 | ||||||
4,181 | UCO Bank* | 2,048 | ||||||
10,503 | Union Bank of India | 18,916 | ||||||
27,560 | Union Bank of Taiwan | 7,657 | ||||||
15,477 | VTB Bank OJSC, GDR | 36,869 | ||||||
5,313 | Woori Bank | 55,986 | ||||||
11,245 | Yapi ve Kredi Bankasi AS* | 10,952 | ||||||
3,122 | Yes Bank, Ltd. | 52,971 | ||||||
|
| |||||||
6,909,132 | ||||||||
|
|
Continued
5
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Beverages (1.6)%: |
| ||||||
70,617 | Ambev SA, ADR | $ | 346,729 | |||||
2,470 | Anadolu Efes Biracilik ve Malt Sanayii AS | 12,353 | ||||||
7,426 | Arca Continental SAB de C.V. | 38,647 | ||||||
8,100 | Carlsberg Brewery Malaysia Berhad | 25,133 | ||||||
29,333 | China Resources Enterprises, Ltd.* | 57,954 | ||||||
692 | Coca-Cola Femsa SAB de C.V., ADR | 43,970 | ||||||
2,108 | Coca-Cola Icecek AS | 19,787 | ||||||
1,728 | Compania Cervecerias Unidas SA, ADR | 36,253 | ||||||
763 | Distell Group, Ltd. | 8,039 | ||||||
1,581 | Embotelladora Andina SA, Class B, ADR | 35,525 | ||||||
2,243 | Fomento Economico Mexicano SAB de C.V., ADR | 170,938 | ||||||
7,400 | Guinness Anchor Berhad | 26,995 | ||||||
1,102 | Hite Jinro | 19,243 | ||||||
3 | Lotte Chilsung Beverage Co., Ltd. | 3,627 | ||||||
106 | Muhak Co., Ltd. | 2,006 | ||||||
21,020 | Organizacion Cultiba SAB de C.V. | 19,152 | ||||||
2,000 | Tsingtao Brewery Co., Ltd., Class H | 7,534 | ||||||
570 | United Breweries, Ltd. | 6,541 | ||||||
925 | United Spirits, Ltd.* | 26,457 | ||||||
1,100 | Vina Concha y Toro SA, ADR | 35,629 | ||||||
|
| |||||||
942,512 | ||||||||
|
| |||||||
| Biotechnology (0.2%): |
| ||||||
2,125 | Biocon, Ltd. | 29,605 | ||||||
37 | Cell Biotech Co., Ltd. | 1,487 | ||||||
660 | Celltrion, Inc.* | 58,560 | ||||||
55 | Green Cross Corp. | 7,154 | ||||||
130 | Medy-Tox, Inc. | 38,299 | ||||||
|
| |||||||
135,105 | ||||||||
|
| |||||||
| Building Products (0.3%): |
| ||||||
31,000 | China Lesso Group Holdings, Ltd. | 20,036 | ||||||
714 | IS Dongseo Co., Ltd. | 26,305 | ||||||
1,328 | Kajaria Ceramics, Ltd. | 9,077 | ||||||
55 | KCC Corp. | 16,367 | ||||||
241 | LG Hausys, Ltd. | 19,076 | ||||||
20,964 | Sintex Industries, Ltd. | 23,072 | ||||||
30,444 | Taiwan Glass Industry Corp.* | 12,531 | ||||||
29,979 | Trakya Cam Sanayii AS | 24,145 | ||||||
|
| |||||||
150,609 | ||||||||
|
| |||||||
| Capital Markets (1.3%): |
| ||||||
9,897 | BM&F Bovespa SA | 50,197 | ||||||
18,116 | Bolsa Mexicana de Valores SA | 23,832 | ||||||
15,800 | Bursa Malaysia Berhad | 31,175 | ||||||
79,000 | Capital Securities Corp. | 23,738 | ||||||
20,000 | Central China Securities Co., Ltd., Class H | 10,873 | ||||||
38,000 | China Bills Finance Corp. | 15,326 | ||||||
94,000 | China Cinda Asset Management Co., Ltd., Class H | 33,913 | ||||||
18,000 | China Everbright, Ltd. | 33,964 | ||||||
39,500 | China Galaxy Securities Co. | 35,465 | ||||||
6,000 | Citic Securities Co., Ltd. | 12,094 | ||||||
9,732 | Coronation Fund Managers, Ltd. | 49,750 | ||||||
137 | Credit Analysis & Research, Ltd. | 2,628 | ||||||
264 | Crisil, Ltd. | 8,558 | ||||||
1,388 | Daewoo Securities Co., Ltd. | 8,309 | ||||||
1,533 | Daishin Securities Co., Ltd. | 13,189 | ||||||
10,902 | Edelweiss Financial Services, Ltd. | 15,649 | ||||||
16,800 | Haitong Securities Co., Ltd. | 28,681 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Capital Markets, continued |
| ||||||
2,603 | Hanwha Investment & Securities Co., Ltd.* | $ | 4,486 | |||||
4,000 | Huatai Securities Co., Ltd., Class H(b) | 7,600 | ||||||
4,088 | IIFL Holdings, Ltd. | 15,683 | ||||||
7,272 | Investec, Ltd. | 48,071 | ||||||
37,459 | Jih Sun Financial Holdings Co., Ltd. | 8,023 | ||||||
2,838 | JSE, Ltd. | 33,961 | ||||||
877 | Korea Investment Holdings Co., Ltd. | 30,409 | ||||||
5,845 | Macquarie Korea Infrastructure Fund | 39,440 | ||||||
38,295 | MasterLink Securities Corp. | 10,665 | ||||||
6,404 | Meritz Securities Co., Ltd. | 18,307 | ||||||
1,018 | Mirae Asset Securities Co., Ltd.(a)(c) | 18,109 | ||||||
2,377 | NH Investment & Securities Co., Ltd. | 18,974 | ||||||
42,800 | OSK Holdings Berhad | 13,365 | ||||||
11,682 | Peregrine Holdings, Ltd. | 25,528 | ||||||
5,156 | President Securities Corp. | 1,886 | ||||||
751 | Samsung Securities Co., Ltd. | 19,694 | ||||||
22 | Shinyoung Securities Co., Ltd. | 910 | ||||||
22,580 | Waterland Financial Holdings Co., Ltd. | 5,766 | ||||||
47,965 | Yuanta Financial Holding Co., Ltd. | 17,803 | ||||||
1,321 | Yuanta Securities Korea Co., Ltd.* | 3,418 | ||||||
|
| |||||||
739,439 | ||||||||
|
| |||||||
| Chemicals (3.0%): |
| ||||||
1,032 | Aarti Industries Limited | 10,404 | ||||||
2,422 | AECI, Ltd. | 17,786 | ||||||
202 | AK Holdings, Inc. | 9,351 | ||||||
22,113 | Alpek SAB de C.V. | 26,423 | ||||||
4,280 | Asian Paints, Ltd. | 56,157 | ||||||
2,536 | Berger Paints India, Ltd. | 7,838 | ||||||
2,276 | Castrol (India), Ltd. | 12,725 | ||||||
50,000 | China BlueChemical, Ltd., Class H | 13,824 | ||||||
53,000 | China Petrochemical Development Corp.* | 16,187 | ||||||
3,000 | China Steel Chemical Corp. | 11,053 | ||||||
28,340 | China Synthetic Rubber Corp. | 25,021 | ||||||
1,811 | Coromandel International, Ltd. | 7,771 | ||||||
138,600 | D&L Industries, Inc. | 31,772 | ||||||
52,000 | Dongyue Group, Ltd.*(a)(c) | 3,446 | ||||||
23,760 | Eternal Materials Co., Ltd. | 24,287 | ||||||
543 | Finolex Industries, Ltd. | 3,470 | ||||||
23,000 | Formosa Chemicals & Fibre Corp. | 68,478 | ||||||
15,000 | Formosa Plastics Corp. | 41,394 | ||||||
8,100 | Formosan Rubber Group, Inc. | 4,014 | ||||||
27,000 | Fufeng Group, Ltd. | 13,195 | ||||||
22,000 | Grand Pacific Petrochemical Corp. | 14,292 | ||||||
1,098 | Grupa Azoty SA, ADR | 16,450 | ||||||
140 | Hansol Chemical Co., Ltd. | 9,637 | ||||||
2,777 | Hanwha Chemical Corp. | 56,631 | ||||||
47,000 | Huabao International Holdings, Ltd.* | 19,892 | ||||||
191 | Huchems Fine Chemical Corp. | 3,429 | ||||||
486 | Hyosung Corp. | 58,461 | ||||||
23,600 | Indorama Ventures Public Co., Ltd. | 21,946 | ||||||
1,072 | Kansai Nerolac Paints, Ltd. | 5,029 | ||||||
478 | Kolon Industries, Inc. | 29,141 | ||||||
74 | Korea Petrochemical Industry Co., Ltd. | 16,842 | ||||||
179 | Kumho Petrochemical Co., Ltd. | 12,127 | ||||||
11,000 | LCY Chemical Corp. | 15,159 | ||||||
366 | LG Chem, Ltd. | 78,933 |
Continued
6
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Chemicals, continued |
| ||||||
185 | Lotte Chemical Corp. | $ | 56,208 | |||||
23,536 | Mexichem SAB de C.V. | 53,417 | ||||||
30,000 | Nan Ya Plastics Corp. | 66,107 | ||||||
343 | OCI Co., Ltd. | 22,286 | ||||||
200 | OCI Materials Co., Ltd. | 29,574 | ||||||
2,670 | Omnia Holdings, Ltd. | 36,054 | ||||||
9,000 | Oriental Union Chemical Corp. | 6,436 | ||||||
18,756 | Petkim Petrokimya Holding AS | 19,666 | ||||||
37,900 | Petronas Chemicals Group Berhad | 58,972 | ||||||
1,007 | PI Industries, Ltd. | 12,300 | ||||||
2,178 | Pidilite Industries, Ltd. | 18,846 | ||||||
18,400 | PTT Global Chemical Public Co., Ltd. | 32,245 | ||||||
614 | Samsung Fine Chemicals Co., Ltd. | 15,578 | ||||||
6,443 | Sasol, Ltd., ADR | 184,205 | ||||||
11,600 | Scientex Berhad | 17,325 | ||||||
24,000 | Shinkong Synthetic Fibers Corp. | 6,735 | ||||||
82,000 | Sinofert Holdings, Ltd. | 11,068 | ||||||
418 | Sinopec Shanghai Petrochemical Co., Ltd., ADR | 22,626 | ||||||
78 | SK Chemicals Co., Ltd. | 4,320 | ||||||
1,114 | SKC Co., Ltd. | 30,409 | ||||||
1,616 | Sociedad Quimica y Minera de Chile SA, ADR | 46,298 | ||||||
483 | Soulbrain Co., Ltd. | 24,037 | ||||||
1,005 | Supreme Industries, Ltd. | 13,406 | ||||||
1,000 | Swancor Holdings Co., Ltd.* | 2,282 | ||||||
18,165 | Synthos SA | 19,790 | ||||||
22 | Taekwang Industrial Co., Ltd. | 17,222 | ||||||
14,000 | Taiwan Fertilizer Co., Ltd. | 17,415 | ||||||
22,000 | TSRC Corp. | 22,527 | ||||||
7,103 | UPL, Ltd. | 67,461 | ||||||
33,000 | USI Corp. | 16,180 | ||||||
27,500 | Yingde Gases Group Co., Ltd. | 10,117 | ||||||
|
| |||||||
1,723,677 | ||||||||
|
| |||||||
| Commercial Services & Supplies (0.2%): |
| ||||||
63 | 3M India, Ltd.* | 10,323 | ||||||
32,000 | China Everbright International, Ltd. | 36,106 | ||||||
5,000 | Cleanaway Co., Ltd. | 25,514 | ||||||
275 | KEPCO Plant Service & Engineering Co., Ltd. | 12,329 | ||||||
155 | S1 Corp. | 11,244 | ||||||
9,000 | Taiwan Secom Co., Ltd. | 24,742 | ||||||
8,000 | Taiwan-Sogo ShinKong Security Corp. | 9,902 | ||||||
1,800 | Valid Solucoes e Servicos de Seguranca em Meios de Pagamento e Identificacao SA | 13,628 | ||||||
|
| |||||||
143,788 | ||||||||
|
| |||||||
| Communications Equipment (0.2%): |
| ||||||
16,000 | Accton Technology Corp. | 25,091 | ||||||
17,000 | BYD Electronic International Co., Ltd. | 13,310 | ||||||
69,600 | China Fiber Optic Network System Group, Ltd.*(a)(c) | 6,283 | ||||||
42,000 | D-Link Corp. | 13,994 | ||||||
13,000 | Sercomm Corp. | 30,992 | ||||||
7,354 | Wistron NeWeb Corp. | 19,609 | ||||||
13,800 | ZTE Corp., Class H | 23,918 | ||||||
|
| |||||||
133,197 | ||||||||
|
| |||||||
| Construction & Engineering (1.3%): |
| ||||||
971 | Ashoka Buildcon, Ltd. | 2,255 | ||||||
24,450 | Aveng, Ltd.* | 14,140 | ||||||
28,000 | BES Engineering Corp. | 5,381 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Construction & Engineering, continued |
| ||||||
515 | Budimex SA | $ | 24,375 | |||||
39,000 | China Communications Construction Co., Ltd. | 44,674 | ||||||
21,000 | China Machinery Engineering Corp. | 13,287 | ||||||
16,500 | China Railway Contstruction Corp., Ltd. | 21,140 | ||||||
15,000 | China Railway Group, Ltd. | 12,273 | ||||||
15,600 | China Singyes Solar Technologies Holdings, Ltd. | 7,376 | ||||||
22,000 | China State Construction International Holdings, Ltd. | 32,806 | ||||||
16,000 | CTCI Corp. | 24,148 | ||||||
363 | Daelim Industrial Co., Ltd. | 26,125 | ||||||
37,002 | Empresas ICA SAB de C.V.* | 5,000 | ||||||
30,400 | Gamuda Berhad | 32,376 | ||||||
1,205 | GS Engineering & Construction Corp.* | 26,368 | ||||||
320 | Hyandai Development Co. | 11,886 | ||||||
1,628 | Hyundai Engineering & Construction Co., Ltd. | 57,278 | ||||||
70,500 | IJM Corporation Berhad | 50,298 | ||||||
28,675 | Impulsora del Desarrollo y el Empleo en America Latina SAB de C.V.* | 38,470 | ||||||
3,941 | IRB Infrastructure Developers, Ltd. | 11,300 | ||||||
142,300 | Italian-Thai Development PCL* | 19,439 | ||||||
4,020 | Larsen & Tourbo, Ltd., Class S, GDR | 79,908 | ||||||
2,000 | Metallurgical Corporation of China, Ltd., Series H | 775 | ||||||
20,858 | Murray & Roberts Holdings, Ltd. | 17,509 | ||||||
5,084 | NCC, Ltd. | 6,017 | ||||||
120,300 | PT Adhi Karya Persero Tbk | 18,508 | ||||||
117,918 | PT Pembangunan Perumahan Persero Tbk | 33,283 | ||||||
211,300 | PT Surya Semesta Internusa Tbk | 6,807 | ||||||
14,001 | Raubex | 25,069 | ||||||
4,248 | Sadbhav Engineering, Ltd. | 17,188 | ||||||
2,990 | Sunway Construction Group Berhad | 1,133 | ||||||
1,031 | Taeyoung Engineering & Construction* | 4,626 | ||||||
24,900 | Unique Engineering & Construction Public Co., Ltd. | 13,714 | ||||||
1,000 | United Integrated Services Co., Ltd. | 1,526 | ||||||
3,558 | Voltas, Ltd. | 17,131 | ||||||
27,595 | WCT Holdings Berhad | 10,622 | ||||||
2,230 | Wilson Bayly Holmes-Ovcon, Ltd. | 24,929 | ||||||
|
| |||||||
759,140 | ||||||||
|
| |||||||
| Construction Materials (1.3%): |
| ||||||
669 | ACC, Ltd. | 13,089 | ||||||
3,011 | Akcansa Cimento AS | 11,705 | ||||||
11,945 | Ambuja Cements, Ltd. | 36,195 | ||||||
5,000 | Anhui Conch Cement Co., Ltd. | 13,494 | ||||||
35,000 | Asia Cement Corp. | 28,525 | ||||||
37,000 | BBMG Corp. | 12,736 | ||||||
21,000 | Cahya Mata Sarawak Berhad | 18,721 | ||||||
6,902 | Cemex Latam Holdings SA* | 25,985 | ||||||
13,742 | Cemex SAB de C.V., ADR* | 110,348 | ||||||
70,000 | China National Buildings Material Co., Ltd. | 34,001 | ||||||
63,000 | China National Materials Co., Ltd., Class H | 14,616 | ||||||
50,000 | China Resources Cement Holdings, Ltd. | 19,345 | ||||||
2,324 | Cimsa Cimento Sanayi ve Ticaret AS | 10,400 | ||||||
568 | Dalmia Bharat, Ltd. | 11,262 | ||||||
63,000 | Goldsun Building Materials Co., Ltd. | 12,989 | ||||||
30 | Hanil Cement Co., Ltd. | 1,887 | ||||||
22 | Hyundai Cement Co.* | 499 | ||||||
17,770 | India Cements, Ltd. | 30,316 | ||||||
9,900 | Lafarge Malaysia Berhad | 15,842 |
Continued
7
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Construction Materials, continued |
| ||||||
73,801 | PPC, Ltd. | $ | 29,562 | |||||
20,300 | PT Indocement Tunggal Prakarsa Tbk | 23,172 | ||||||
63,300 | PT Semen Indonesia (Persero) Tbk | 42,932 | ||||||
34 | Shree Cement, Ltd. | 7,358 | ||||||
4,800 | Siam City Cement Public Co., Ltd. | 36,460 | ||||||
984 | Ssangyong Cement Industrial Co., Ltd.* | 12,038 | ||||||
36,000 | Taiwan Cement Corp. | 39,060 | ||||||
78,000 | TCC International Holdings, Ltd. | 18,133 | ||||||
1,782 | The Ramco Cements, Ltd. | 14,353 | ||||||
5,700 | The Siam Cement Public Co., Ltd. | 78,828 | ||||||
7,780 | Tongyang, Inc. | 19,192 | ||||||
11,110 | Universal Cement Corp. | 8,488 | ||||||
|
| |||||||
751,531 | ||||||||
|
| |||||||
| Consumer Finance (0.3%): |
| ||||||
720 | Bajaj Finance, Ltd. | 8,933 | ||||||
165 | Bharat Financial Inclusion, Ltd.* | 1,427 | ||||||
297 | Cholamandalam Investment And Finance Co., Ltd. | 4,135 | ||||||
13,000 | Gentera SAB de C.V. | 20,916 | ||||||
666 | Kruk SA | 37,740 | ||||||
5,400 | Krungthai Card Public Co., Ltd. | 20,742 | ||||||
3,968 | Mahindra & Mahindra Financial Services | 15,696 | ||||||
9,321 | Manappuram Finance, Ltd. | 9,133 | ||||||
653 | Muthoot Finance, Ltd. | 2,711 | ||||||
209 | Samsung Card Co., Ltd. | 6,866 | ||||||
680 | Shriram City Union Finance, Ltd. | 18,150 | ||||||
1,293 | Shriram Transport Finance | 16,170 | ||||||
188 | Sundaram Finance, Ltd. | 3,180 | ||||||
5,000 | Taiwan Acceptance Corp. | 11,958 | ||||||
|
| |||||||
177,757 | ||||||||
|
| |||||||
| Containers & Packaging (0.2%): |
| ||||||
37,000 | Greatview Aspetic Packaging Co., Ltd. | 18,917 | ||||||
5,100 | Klabin SA | 27,779 | ||||||
5,146 | Mpact, Ltd. | 10,657 | ||||||
22,427 | Nampak, Ltd. | 30,094 | ||||||
15,000 | Taiwan Hon Chuan Enterprise Co., Ltd. | 24,494 | ||||||
|
| |||||||
111,941 | ||||||||
|
| |||||||
| Distributors (0.2%): |
| ||||||
8,529 | Imperial Holdings, Ltd. | 112,763 | ||||||
23,000 | MBM Resources Berhad | 10,982 | ||||||
|
| |||||||
123,745 | ||||||||
|
| |||||||
| Diversified Consumer Services (0.2%): |
| ||||||
7,283 | Advtech, Ltd. | 9,118 | ||||||
6,218 | Estacio Participacoes SA | 30,199 | ||||||
18,000 | Fu Shou Yuan International Group, Ltd. | 10,640 | ||||||
14,587 | Kroton Educacional SA | 59,771 | ||||||
200 | TAL Education Group, ADR*^ | 14,030 | ||||||
|
| |||||||
123,758 | ||||||||
|
| |||||||
| Diversified Financial Services (1.1%): |
| ||||||
1,970 | Ayala Corp. | 28,984 | ||||||
533 | Bajaj Holdings And Investment, Ltd. | 14,311 | ||||||
18,680 | Chailease Holding Co., Ltd. | 31,891 | ||||||
30,000 | Far East Horizon, Ltd. | 25,616 | ||||||
65,414 | FirstRand, Ltd. | 251,735 | ||||||
75,000 | Fubon Financial Holdings Co., Ltd. | 118,833 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Diversified Financial Services, continued |
| ||||||
7,641 | IFCI, Ltd. | $ | 3,059 | |||||
17,967 | L&t Finance Holdings, Ltd. | 23,072 | ||||||
348 | Meritz Financial Group, Inc. | 3,199 | ||||||
232,500 | Metro Pacific Investments Corp. | 31,099 | ||||||
422 | NICE Holdings Co., Ltd. | 6,144 | ||||||
1,950 | Nice Information Service Co., Ltd. | 11,177 | ||||||
17,218 | Power Finance Corp., Ltd. | 30,926 | ||||||
2,235 | PSG Group, Ltd. | 35,642 | ||||||
3,693 | Reliance Capital, Ltd. | 23,265 | ||||||
13,298 | Rural Electrification Corp., Ltd. | 24,334 | ||||||
2,402 | SREI Infrastucture Finance, Ltd. | 2,602 | ||||||
|
| |||||||
665,889 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (1.7%): |
| ||||||
63,000 | Asia Pacific Telecom Co., Ltd.* | 20,220 | ||||||
33,142 | Axtel SAB de C.V.* | 5,630 | ||||||
1,630 | Bharti Infratel, Ltd. | 8,241 | ||||||
637 | China Telecom Corp., Ltd., ADR | 29,385 | ||||||
18,000 | China Telecom Corp., Ltd., Class H | 8,290 | ||||||
80,000 | China Unicom (Hong Kong), Ltd. | 92,939 | ||||||
4,785 | China Unicom (Hong Kong), Ltd., ADR^ | 55,267 | ||||||
5,055 | Chunghwa Telecom Co., Ltd., ADR | 159,485 | ||||||
70,754 | Jasmine International PCL | 15,566 | ||||||
4,168 | LG Uplus Corp. | 39,496 | ||||||
3,992 | Magyar Telekom Telecommunications plc | 6,772 | ||||||
11,536 | Netia SA | 12,688 | ||||||
1,985 | O2 Czech Republic AS | 20,103 | ||||||
27,003 | Orange Polska SA | 35,545 | ||||||
6,376 | PT Telekomunik Indonesia Persero Tbk, ADR | 185,924 | ||||||
78,300 | PT Tower Bersama Infrastructure Tbk | 28,957 | ||||||
2,225 | Rostelecom, ADR | 18,370 | ||||||
5,200 | Samart Telcoms Public Co., Ltd. | 1,442 | ||||||
939 | Tata Communications, Ltd. | 8,656 | ||||||
4,040 | Telefonica Brasil SA, ADR^ | 54,055 | ||||||
21,900 | Telekom Malaysia Berhad | 29,050 | ||||||
27,916 | Telesites SAB* | 15,169 | ||||||
14,405 | Telkom SA SOC, Ltd. | 77,620 | ||||||
33,400 | Thaicom Public Co., Ltd. | 18,019 | ||||||
166,924 | True Corp. Public Co., Ltd. | 33,193 | ||||||
|
| |||||||
980,082 | ||||||||
|
| |||||||
| Electric Utilities (1.9%): |
| ||||||
2,000 | Alupar Investimento SA* | 10,513 | ||||||
3,266 | Centrais Electricas Brasileiras SA, ADR*^ | 24,920 | ||||||
3,489 | Centrais Electricas Brasileiras SA, ADR* | 24,214 | ||||||
1,597 | CESC, Ltd. | 14,990 | ||||||
1,023 | CEZ | 17,128 | ||||||
28,074 | Companhia Energetica de Minas Gerais, ADR | 64,009 | ||||||
4,205 | Companhia Paranaense de Energia, ADR^ | 35,658 | ||||||
1,769 | CPFL Energia SA, ADR | 27,243 | ||||||
17,871 | E.CL SA | 28,304 | ||||||
10,066 | EDP – Energias do Brasil SA | 41,462 | ||||||
9,559 | Enea SA* | 21,713 | ||||||
4,132 | Energa SA | 8,990 | ||||||
15,097 | Enersis Chile SA, ADR | 68,691 | ||||||
10,156 | Enersis SA, ADR | 83,381 | ||||||
4,700 | Equatorial Energia SA | 78,592 | ||||||
20,840 | First Philippine Holdings Corp. | 28,481 |
Continued
8
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Electric Utilities, continued |
| ||||||
8,067 | Interconexion Electrica SA ESP | $ | 26,823 | |||||
5,734 | Korea Electric Power Corp., ADR | 105,964 | ||||||
2,200 | Light SA | 11,740 | ||||||
3,800 | Manila Electric Co. | 20,287 | ||||||
19,536 | PGE SA | 48,763 | ||||||
16,884 | Power Grid Corp. of India, Ltd. | 45,617 | ||||||
3,165 | Reliance Infrastructure, Ltd. | 21,676 | ||||||
24,460 | Tata Power Co., Ltd. | 27,337 | ||||||
56,027 | Tauron Polska Energia SA* | 38,178 | ||||||
45,100 | Tenega Nasional Berhad | 139,563 | ||||||
2,361 | Torrent Power, Ltd. | 6,218 | ||||||
7,240 | Transmissora Alianca de Energia Eletrica SA | 46,157 | ||||||
|
| |||||||
1,116,612 | ||||||||
|
| |||||||
| Electrical Equipment (0.6%): |
| ||||||
947 | Amara Raja Batteries, Ltd. | 12,134 | ||||||
10,265 | Bharat Heavy Electricals, Ltd. | 18,277 | ||||||
10,196 | Crompton Greaves, Ltd.* | 8,911 | ||||||
1,407 | Doosan Heavy Industries & Construction Co., Ltd. | 31,591 | ||||||
1,360 | Finolex Cables, Ltd. | 8,273 | ||||||
26,000 | Harbin Electric Co., Ltd. | 12,093 | ||||||
2,971 | Havells India, Ltd. | 14,917 | ||||||
6,000 | Jiangnan Group, Ltd. | 841 | ||||||
156 | Korea Electric Terminal Co., Ltd. | 10,161 | ||||||
4,000 | Kung Long Batteries Industrial Co., Ltd. | 19,490 | ||||||
451 | LG Industrial Systems Co., Ltd. | 14,819 | ||||||
738 | LS Corp. | 36,162 | ||||||
1,000 | Shihlin Electric & Engineering Corp. | 1,255 | ||||||
88,553 | Suzlon Energy, Ltd.* | 17,971 | ||||||
34,000 | Teco Electric & Machinery Co., Ltd. | 29,321 | ||||||
2,000 | Voltronic Power Technology Corp. | 27,612 | ||||||
90,000 | Walsin Lihwa Corp. | 32,961 | ||||||
7,500 | Zhuzhou CSR Times Electric Co., Ltd. | 37,919 | ||||||
|
| |||||||
334,708 | ||||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (3.9%): |
| ||||||
9,000 | AAC Technologies Holdings, Inc. | 80,973 | ||||||
23,085 | AU Optronics Corp., ADR | 81,721 | ||||||
127,800 | Cal-comp Electronics (Thailand) Public Co., Ltd., Class F | 9,633 | ||||||
3,000 | Career Technology(MFG.) Co., Ltd. | 1,658 | ||||||
13,000 | Cheng Uei Precision Industry Co., Ltd. | 14,747 | ||||||
13,000 | Chin-Poon Industrial Co., Ltd. | 24,366 | ||||||
40,000 | Compeq Manufacturing Co., Ltd. | 19,162 | ||||||
24,800 | Coretronic Corp. | 26,024 | ||||||
296 | Daeduck Electronics Co., Ltd. | 1,996 | ||||||
10,712 | Datatec, Ltd. | 38,633 | ||||||
10,600 | Delta Electronics (Thailand) Public Co., Ltd. | 24,022 | ||||||
13,682 | Delta Electronics, Inc. | 67,066 | ||||||
28,000 | Digital China Holdings, Ltd. | 21,166 | ||||||
36,000 | E Ink Holdings, Inc. | 25,418 | ||||||
11,000 | Elite Material Co., Ltd. | 30,523 | ||||||
13,909 | Flexium Interconnect, Inc. | 36,310 | ||||||
6,000 | Flytech Technology Co., Ltd. | 17,479 | ||||||
14,500 | Hana Microelectronics Public Co., Ltd. | 15,950 | ||||||
119,000 | HannStar Display Corp.* | 28,731 | ||||||
14,031 | Hon Hai Precision Industry Co., Ltd., GDR | 70,857 | ||||||
184,800 | Hon Hai Precision Industry Co., Ltd. | 478,785 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Electronic Equipment, Instruments & Components, continued |
| ||||||
27,875 | Inari Amertron Berhad | $ | 20,635 | |||||
107,000 | Innolux Corp. | 38,320 | ||||||
32,000 | JU Teng International Holdings, Ltd. | 9,859 | ||||||
9,500 | KCE Electronics Public Co., Ltd. | 32,327 | ||||||
18,000 | Kingboard Chemical Holdings, Ltd. | 54,318 | ||||||
25,000 | Kingboard Laminates Holdings, Ltd. | 24,407 | ||||||
1,000 | Largan Precision Co., Ltd. | 116,386 | ||||||
16,250 | LG Display Co., Ltd., ADR | 208,813 | ||||||
413 | LG Innotek Co., Ltd. | 30,085 | ||||||
2,000 | Merry Electronics Co., Ltd. | 7,452 | ||||||
11,000 | Min Aik Technology Co., Ltd. | 10,224 | ||||||
1,213 | PARTRON Co., Ltd. | 10,339 | ||||||
10,000 | PAX Global Technology, Ltd. | 6,600 | ||||||
3,261 | Redington India, Ltd. | 4,545 | ||||||
36,200 | Samart Corporation Public Co., Ltd. | 12,606 | ||||||
1,112 | Samsung Electro-Mechanics Co., Ltd., Series L | 46,707 | ||||||
612 | Samsung SDI Co., Ltd. | 55,007 | ||||||
260 | Sfa Engineering Corp. | 13,873 | ||||||
2,000 | Simplo Technology Co., Ltd. | 5,751 | ||||||
10,299 | Sinbon Electronics Co., Ltd. | 22,364 | ||||||
14,000 | Sunny Optical Technology Group Co., Ltd. | 61,004 | ||||||
23,100 | Synnex Technology International Corp. | 23,194 | ||||||
13,000 | Taiwan PCB Techvest Co., Ltd. | 12,062 | ||||||
2,000 | Test Research, Inc. | 2,366 | ||||||
9,000 | Tong Hsing Electronic Industries, Ltd. | 30,609 | ||||||
100,000 | Tongda Group Holdings, Ltd. | 25,690 | ||||||
12,000 | TPK Holding Co., Ltd.* | 21,996 | ||||||
13,000 | Tripod Technology Corp. | 29,243 | ||||||
42,000 | Truly International Holdings, Ltd., Series L | 16,296 | ||||||
4,000 | TXC Corp. | 5,043 | ||||||
35,000 | Unimicron Technology Corp. | 13,403 | ||||||
69,600 | V.S. Industry Berhad | 21,868 | ||||||
11,000 | Wah Lee Industrial Corp. | 15,634 | ||||||
2,000 | Waison Group Holdings, Ltd. | 1,071 | ||||||
23,125 | Walsin Technology Corp. | 25,127 | ||||||
1,339 | Wisol Co., Ltd. | 16,994 | ||||||
27,000 | WPG Holdings, Ltd. | 31,700 | ||||||
21,945 | WT Microelectronics Co., Ltd. | 29,164 | ||||||
15,208 | Yageo Corp. | 27,645 | ||||||
9,000 | Zhen Ding Technology Holding, Ltd. | 17,627 | ||||||
|
| |||||||
2,273,574 | ||||||||
|
| |||||||
| Energy Equipment & Services (0.2%): |
| ||||||
91,600 | Bumi Armada Berhad | 12,338 | ||||||
28,000 | China Oilfield Services, Ltd. | 25,864 | ||||||
160,000 | Sapurakencana Petroleum Berhad* | 57,669 | ||||||
33,200 | UMW Oil & Gas Corp. Berhad* | 6,469 | ||||||
6,400 | Yinson Holdings BHD | 4,124 | ||||||
|
| |||||||
106,464 | ||||||||
|
| |||||||
| Food & Staples Retailing (2.2%): |
| ||||||
4,656 | Bid Corp., Ltd. | 82,739 | ||||||
2,846 | BIM Birlesik Magazalar AS | 39,549 | ||||||
5,859 | Cencosud SA, ADR | 49,216 | ||||||
91 | CJ Freshway Corp. | 2,936 | ||||||
12,960 | Clicks Group, Ltd. | 109,001 | ||||||
3,233 | Companhia Brasileira de Distribuicao Grupo Pao de Acucar, ADR | 53,506 |
Continued
9
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Food & Staples Retailing, continued |
| ||||||
157,900 | Cosco Capital, Inc. | $ | 27,008 | |||||
41,900 | CP ALL Public Co., Ltd. | 73,030 | ||||||
183 | E-Mart Co., Ltd. | 27,692 | ||||||
2,923 | Eurocash SA | 27,494 | ||||||
12,811 | Grupo Comercial Chedraui SAB de C.V. | 22,869 | ||||||
245 | GS Retail Co., Ltd. | 9,641 | ||||||
1,487 | Hyundai Greenfood Co., Ltd. | 18,966 | ||||||
25,927 | La comer,SAB de C.V.* | 19,556 | ||||||
5,868 | Massmart Holdings, Ltd. | 53,856 | ||||||
2,386 | Migros Ticaret AS* | 11,903 | ||||||
9,708 | Organizacion Soriana SAB de C.V.* | 21,073 | ||||||
13,353 | Pickn Pay Stores, Ltd. | 61,963 | ||||||
8,000 | President Chain Store Corp. | 57,232 | ||||||
34,500 | Puregold Price Club, Inc. | 27,038 | ||||||
2,563 | Raia Drogasil SA | 48,208 | ||||||
12,272 | Shoprite Holdings, Ltd. | 153,245 | ||||||
39,000 | Sun Art Retail Group, Ltd. | 34,151 | ||||||
16,000 | Taiwan Tea Corp. | 6,947 | ||||||
6,066 | The Spar Group, Ltd. | 87,635 | ||||||
62,376 | Wal-Mart de Mexico SAB de C.V. | 111,678 | ||||||
1,349 | X5 Retail Group NV, GDR* | 43,789 | ||||||
|
| |||||||
1,281,921 | ||||||||
|
| |||||||
| Food Products (3.3%): |
| ||||||
2,860 | Astral Foods, Ltd. | 26,851 | ||||||
13,707 | AVI, Ltd. | 91,082 | ||||||
14,338 | BRF SA, ADR | 211,629 | ||||||
518 | Britannia Industries, Ltd. | 21,990 | ||||||
190,000 | C.P. Pokphand Co., Ltd. | 23,511 | ||||||
48,200 | Charoen Pokphand Foods Public Co., Ltd. | 39,532 | ||||||
55,000 | China Agri-Industries Holdings, Ltd.* | 21,399 | ||||||
16,000 | China Mengniu Dairy Co., Ltd. | 30,591 | ||||||
52,000 | China Modern Dairy Holdings, Ltd.* | 14,239 | ||||||
2,557 | China Ocean Resources Co., Ltd.* | 2,713 | ||||||
61,000 | China Yurun Food Group, Ltd.* | 8,990 | ||||||
198 | CJ CheilJedang Corp. | 58,501 | ||||||
13,775 | Clover Industries, Ltd. | 18,984 | ||||||
603 | Daesang Corp. | 13,161 | ||||||
716 | Daesang Holdings Co., Ltd. | 6,098 | ||||||
37 | Dongwon F&B Co., Ltd. | 6,060 | ||||||
65 | Glaxo SmithKline Consumer Healthcare, Ltd. | 4,780 | ||||||
26,000 | Great Wall Enterprise Co., Ltd. | 23,414 | ||||||
6,338 | Gruma, SAB de C.V., Class B | 80,565 | ||||||
17,799 | Grupo Bimbo SAB de C.V., Series A | 40,268 | ||||||
12,529 | Grupo Herdez SAB de C.V. | 22,686 | ||||||
1,920 | Grupo Nutresa SA | 15,928 | ||||||
6,838 | Industrias Bachoco, SAB de C.V. | 27,983 | ||||||
40,200 | IOI Corp. Berhad | 39,329 | ||||||
12,000 | JBS SA | 42,051 | ||||||
2,092 | Kernel Holding SA | 31,937 | ||||||
2,569 | KRBL, Ltd. | 11,256 | ||||||
4,800 | Kuala Lumpur Kepong Berhad | 25,650 | ||||||
19,188 | Lien Hwa Industrial Corp. | 13,106 | ||||||
43 | Lotte Confectionery Co., Ltd. | 6,347 | ||||||
8 | Lotte Food Co., Ltd. | 4,295 | ||||||
600 | M Dias Branco SA | 21,212 | ||||||
19,100 | Marfrig Global Foods SA* | 38,808 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Food Products, continued |
| ||||||
7,000 | Minerva SA* | $ | 26,143 | |||||
3,000 | Namchow Chemical Industrial Co., Ltd. | 5,684 | ||||||
240 | Nestle India, Ltd. | 21,281 | ||||||
50 | NongShim Co., Ltd. | 13,756 | ||||||
353 | Oceana Group, Ltd. | 3,086 | ||||||
53 | Orion Corp. | 28,696 | ||||||
3,462 | Pioneer Foods, Ltd. | 38,828 | ||||||
6,500 | PPB Group Berhad | 22,984 | ||||||
24,688 | PT Astra Agro Lestari Tbk | 30,756 | ||||||
96,300 | PT Charoen Pokphand Indonesia Tbk | 22,018 | ||||||
2,000 | PT Indofood CBP Sukses Makmur Tbk | 1,272 | ||||||
147,200 | PT Indofood Sukses Makmur Tbk | 86,521 | ||||||
163,300 | PT Japfa Comfeed Indonesia Tbk | 17,606 | ||||||
212,100 | PT Perusahaan Perkebunan London Sumatra Indonesia Tbk | 27,323 | ||||||
600 | PT Sawit Sumbermas Sarana TbK | 62 | ||||||
33,700 | PT Tiga Pilar Sejahtera Food Tbk* | 4,857 | ||||||
1,800 | Qinqin Foodstuffs Group* | 612 | ||||||
21,400 | QL Resources Berhad | 20,804 | ||||||
32 | Samyang Holdings Corp. | 3,162 | ||||||
3,900 | Sao Martinho SA | 23,377 | ||||||
48,000 | Shenguan Holdings Group, Ltd. | 3,634 | ||||||
7,326 | Standard Foods Corp. | 17,371 | ||||||
10,893 | Tata Global Beverages, Ltd. | 19,555 | ||||||
48,000 | Thai Union Group Public Co., Ltd. | 28,184 | ||||||
18,300 | Thai Vegetable Oil Public Co., Ltd. | 20,611 | ||||||
3,028 | Tiger Brands, Ltd.^ | 87,688 | ||||||
34,000 | Tingyi (Caymen Is) Holding Corp. | 41,159 | ||||||
1,918 | Tongaat Hulett, Ltd. | 18,177 | ||||||
31,800 | TSH Resources Berhad | 13,171 | ||||||
5,919 | Ulker Biskuvi Sanayi AS | 27,138 | ||||||
28,000 | Uni-President China Holdings, Ltd. | 19,742 | ||||||
67,600 | Uni-President Enterprises Corp. | 111,611 | ||||||
12,130 | Universal Robina Corp. | 39,838 | ||||||
51,000 | Want Want China Holdings, Ltd. | 32,595 | ||||||
|
| |||||||
1,924,248 | ||||||||
|
| |||||||
| Gas Utilities (0.6%): |
| ||||||
24,000 | China Gas Holdings, Ltd. | 32,523 | ||||||
36,000 | China Oil & Gas Group, Ltd.* | 2,825 | ||||||
20,000 | China Resources Gas Group, Ltd. | 56,057 | ||||||
400 | Cia de Gas de Sao Paulo | 5,644 | ||||||
10,000 | ENN Energy Holdings, Ltd. | 40,966 | ||||||
2,424 | GAIL India, Ltd., GDR | 94,117 | ||||||
1,851 | Gujarat State Petronet, Ltd. | 3,798 | ||||||
7,465 | Infraestructura Energetica Nova, SAB de C.V. | 32,531 | ||||||
501 | Korea Gas Corp. | 20,071 | ||||||
10,000 | Petronas Gas Berhad | 47,479 | ||||||
130,200 | PT Perusahaan Gas Negara Tbk | 26,008 | ||||||
20,000 | Towngas China Co., Ltd. | 10,492 | ||||||
|
| |||||||
372,511 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (0.3%): |
| ||||||
44 | Dio Corp.* | 1,437 | ||||||
3,000 | Ginko International Co., Ltd. | 31,009 | ||||||
29,000 | Hartalega Holdings Berhad | 31,209 | ||||||
190 | Huons Co., Ltd. | 5,386 | ||||||
580 | Inbody Co., Ltd. | 12,933 |
Continued
10
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Health Care Equipment & Supplies, continued |
| ||||||
22,300 | Kossan Rubber Industries Berhad | $ | 32,747 | |||||
348 | Osstem Implant Co., Ltd.* | 17,335 | ||||||
12,000 | Shandong Weigao Group Medical Polymer Co., Ltd., Class H | 7,982 | ||||||
1,000 | St.Shine Optical Co., Ltd. | 19,005 | ||||||
21,600 | Top Glove Corp. Berhad | 25,750 | ||||||
357 | Vieworks Co., Ltd. | 17,651 | ||||||
|
| |||||||
202,444 | ||||||||
|
| |||||||
| Health Care Providers & Services (0.7%): |
| ||||||
1,802 | Apollo Hospitals Enterprise, Ltd. | 31,275 | ||||||
39,600 | Bangkok Dusit Medical Services Public Co., Ltd., Class F | 25,497 | ||||||
5,800 | Bumrungrad Hospital Public Co., Ltd. | 29,257 | ||||||
93,300 | Chularat Hospital Public Co., Ltd. | 7,416 | ||||||
18,400 | IHH Healthcare Berhad | 26,055 | ||||||
22,200 | KPJ Healthcare Berhad | 20,679 | ||||||
27,117 | Life Healthcare Group Holdings Pte, Ltd. | 64,154 | ||||||
39,623 | Netcare, Ltd. | 91,840 | ||||||
6,700 | OdontoPrev SA | 25,950 | ||||||
5,066 | Qualicorp SA | 29,977 | ||||||
6,700 | Shanghai Pharmaceuticals Holding Co., Ltd. | 15,313 | ||||||
13,600 | Sinopharm Group Co., Series H | 55,800 | ||||||
37,000 | Universal Health International Group Holding, Ltd.* | 1,691 | ||||||
|
| |||||||
424,904 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (1.1%): |
| ||||||
22,435 | Alsea SAB de C.V. | 64,117 | ||||||
34,444 | Berjaya Sports Toto Berhard | 22,736 | ||||||
33,400 | Central Plaza Hotel Public Co., Ltd. | 36,984 | ||||||
72,000 | China Travel International Investment Hong Kong, Ltd. | 19,732 | ||||||
2,525 | City Lodge Hotels, Ltd. | 27,173 | ||||||
3,400 | Cvc Brasil Operadora E Agenc | 24,769 | ||||||
3,511 | Famous Brands, Ltd. | 40,028 | ||||||
51,200 | Genting Berhard | 91,233 | ||||||
41,400 | Genting Malaysia Berhad | 42,224 | ||||||
694 | Grand Korea Leisure Co., Ltd. | 11,744 | ||||||
179 | Hana Tour Service, Inc. | 9,789 | ||||||
9,410 | Jollibee Foods Corp. | 36,648 | ||||||
1,170 | Jubilant Foodworks, Ltd. | 14,645 | ||||||
884 | Kangwon Land, Inc. | 26,166 | ||||||
31,800 | Magnum Berhad | 15,381 | ||||||
28,900 | MINI International Public Co., Ltd. | 28,858 | ||||||
8,900 | MK Restaurants Group Public Co., Ltd. | 14,542 | ||||||
197 | Modetour Network, Inc. | 4,720 | ||||||
14,674 | Net Holding AS* | 11,781 | ||||||
275,000 | Rexlot Holdings, Ltd.* | 4,077 | ||||||
7,724 | Sun International, Ltd. | 48,639 | ||||||
15,271 | Tsogo Sun Holdings, Ltd. | 30,603 | ||||||
|
| |||||||
626,589 | ||||||||
|
| |||||||
| Household Durables (1.2%): |
| ||||||
384 | Amica Wronki SA | 17,119 | ||||||
11,000 | Amtran Technology Co., Ltd. | 7,530 | ||||||
6,055 | Arcelik AS | 36,404 | ||||||
589 | Coway Co., Ltd. | 43,026 | ||||||
10,196 | Crompton Greaves Consumer Electricals, Ltd.* | 21,895 | ||||||
12,000 | Cyrela Brazil Realty SA Empreendimentos e Participacoes | 37,884 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Household Durables, continued |
| ||||||
12,000 | Even Construtora e Incorporadora SA | $ | 13,648 | |||||
544 | Fabryki Mebli “Forte” SA | 9,879 | ||||||
18,000 | Gafisa SA | 10,291 | ||||||
29,000 | Haier Electronics Group Co., Ltd. | 45,537 | ||||||
121 | Hanssem Co., Ltd. | 19,812 | ||||||
49 | Hyundai Livart Furniture Co., Ltd. | 957 | ||||||
27,000 | Kinpo Electronics, Inc. | 9,949 | ||||||
3,396 | LG Electronics, Inc. | 144,475 | ||||||
8,200 | MRV Engenharia e Participacoes SA | 27,575 | ||||||
44,771 | Skyworth Digital Holdings, Ltd. | 25,445 | ||||||
40,213 | Steinhoff International Holdings NV | 207,807 | ||||||
55,000 | Tatung Co., Ltd.* | 16,210 | ||||||
363 | Whirlpool of India, Ltd.* | 4,749 | ||||||
3,000 | Zeng Hsing Industrial Co., Ltd. | 14,925 | ||||||
|
| |||||||
715,117 | ||||||||
|
| |||||||
| Household Products (0.5%): |
| ||||||
9,507 | Hindustan Unilever, Ltd. | 115,725 | ||||||
47,435 | Kimberl- Clark de Mexico SAB de C.V. | 85,454 | ||||||
20,800 | PT Unilever Indonesia Tbk | 59,896 | ||||||
|
| |||||||
261,075 | ||||||||
|
| |||||||
| Independent Power & Renewable Electricity Producers (1.0%): |
| ||||||
40,100 | Aboitiz Power Corp. | 33,652 | ||||||
10,952 | Adani Power, Ltd.* | 4,825 | ||||||
25,005 | AES Gener SA | 8,937 | ||||||
7,121 | AES Tiete Energia SA | 30,645 | ||||||
46,000 | Beijing Jingneng Clean Energy Co., Ltd., Series H | 14,263 | ||||||
37,000 | China Longyuan Power Group Corp. | 28,631 | ||||||
59,000 | China Power International Develpoment, Ltd. | 21,321 | ||||||
14,000 | China Resources Power Holdings Co. | 22,163 | ||||||
118,755 | Colbun SA | 23,382 | ||||||
34,000 | Datang International Power Generation Co., Ltd. | 8,874 | ||||||
3,700 | Electricity Generating Public Co., Ltd. | 20,533 | ||||||
1,528 | Empresa Nacional de Electricidad SA, ADR | 29,705 | ||||||
446,900 | Energy Development Corp. | 46,319 | ||||||
2,800 | Engie Brasil Energia SA | 30,124 | ||||||
68,600 | First Gen Corp. | 30,418 | ||||||
14,300 | Glow Energy Public Co., Ltd. | 31,548 | ||||||
38,000 | Huadian Fuxin Energy Corp., Class H | 9,366 | ||||||
20,000 | Huadian Power International Corp., Ltd.^ | 9,034 | ||||||
708 | Huaneng Power International, Inc., ADR | 18,436 | ||||||
132,000 | Huaneng Renewables Corp., Ltd. | 42,698 | ||||||
10,150 | JSW Energy, Ltd. | 9,056 | ||||||
208,800 | Lopez Holdings Corp. | 32,787 | ||||||
25,620 | NHPC, Ltd. | 9,956 | ||||||
11,558 | NTPC, Ltd. | 28,000 | ||||||
9,799 | PTC India, Ltd. | 10,590 | ||||||
11,263 | Reliance Power, Ltd.* | 6,798 | ||||||
33,200 | SPCG Public Co., Ltd. | 19,831 | ||||||
6,000 | Taiwan Cogeneration Corp. | 4,152 | ||||||
|
| |||||||
586,044 | ||||||||
|
| |||||||
| Industrial Conglomerates (2.2%): |
| ||||||
20,580 | Aboitiz Equity Ventures, Inc. | 29,316 | ||||||
906 | Aditya Birla Nuvo, Ltd. | 17,002 | ||||||
114,747 | Alfa SAB de C.V., Class A | 142,094 | ||||||
119,100 | Alliance Global Group, Inc. | 30,623 |
Continued
11
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Industrial Conglomerates, continued |
| ||||||
6,000 | Beijing Enterprises Holdings, Ltd. | $ | 28,274 | |||||
10,650 | Berli Jucker Public Co., Ltd. | 14,870 | ||||||
10,712 | Bidvest Group, Ltd. | 140,813 | ||||||
33,516 | Boustead Holdings Berhad | 19,929 | ||||||
62,000 | Citic, Ltd. | 88,456 | ||||||
239 | CJ Corp. | 36,940 | ||||||
167,000 | DMCI Holdings, Inc. | 44,511 | ||||||
234 | Doosan Corp. | 20,205 | ||||||
4,536 | Enka Insaat ve Sanayi AS | 6,923 | ||||||
31,620 | Far Eastern New Century Corp. | 23,683 | ||||||
15,000 | Fosun International, Ltd. | 21,012 | ||||||
10,759 | Grupo Carso SAB de C.V. | 43,287 | ||||||
21,847 | GRUPO KUO SAB de C.V., Series B | 36,901 | ||||||
699 | Hanwha Corp. | 20,261 | ||||||
15,100 | Hap Seng Consolidated Berhad | 29,831 | ||||||
47,440 | JG Summit Holdings, Inc. | 64,499 | ||||||
72,431 | KAP Industrial Holdings, Ltd. | 39,326 | ||||||
10,575 | KOC Holdings AS | 41,386 | ||||||
770 | LG Corp. | 38,225 | ||||||
7,416 | Reunert, Ltd. | 36,606 | ||||||
221 | Samsung C&T Corp. | 22,816 | ||||||
21,330 | San Miguel Corp. | 39,627 | ||||||
13,000 | Shanghai Industrial Holdings, Ltd. | 35,080 | ||||||
21,995 | Sime Darby Berhad | 39,714 | ||||||
313 | SK C&C Co., Ltd. | 59,392 | ||||||
1,290 | SM Investments Corp. | 16,970 | ||||||
25,919 | Turkiye Sise ve Cam Fabrikalari AS | 28,149 | ||||||
|
| |||||||
1,256,721 | ||||||||
|
| |||||||
| Insurance (2.8%): |
| ||||||
595 | Bajaj Finserv, Ltd. | 25,277 | ||||||
7,200 | Bangkok Life Assurance Public Co., Ltd. | 10,627 | ||||||
6,175 | BB Seguridade Participacoes SA | 53,717 | ||||||
55,000 | Cathay Financial Holding Co., Ltd. | 82,364 | ||||||
59,488 | China Life Insurance Co., Ltd. | 58,974 | ||||||
11,000 | China Life Insurance Co., Ltd. | 28,458 | ||||||
2,673 | China Life Insurance Co., Ltd., ADR^ | 34,402 | ||||||
7,200 | China Pacific Insurance Group Co., Ltd., Class H | 24,902 | ||||||
13,600 | China Taiping Insurance Holdings Co., Ltd.* | 27,921 | ||||||
10,800 | Dhipaya Insurance Public Co., Ltd. | 15,151 | ||||||
8,993 | Discovery, Ltd. | 74,983 | ||||||
1,507 | Dongbu Insurance Co., Ltd. | 77,930 | ||||||
2,194 | Hanwha General Insurance Co., Ltd. | 13,120 | ||||||
3,119 | Hanwha Life Insurance Co., Ltd. | 16,844 | ||||||
2,150 | Hyundai Marine & Fire Insurance Co., Ltd. | 55,982 | ||||||
2,724 | Korean Reinsurance Co. | 25,710 | ||||||
5,916 | Liberty Holding, Ltd. | 47,615 | ||||||
1,558 | LIG Insurance Co., Ltd. | 33,707 | ||||||
10,400 | LPI Capital Berhad | 37,986 | ||||||
1,787 | Max Financial Services, Ltd. | 14,398 | ||||||
3,465 | Mercuries Life Insurance Co., Ltd.* | 1,825 | ||||||
1,882 | Meritz Fire & Marine Insurance Co., Ltd. | 23,840 | ||||||
28,993 | MMI Holdings, Ltd. | 49,541 | ||||||
68,000 | People’s Insurance Co. Group of China, Ltd. | 26,740 | ||||||
48,000 | Picc Property & Casuality Co., Ltd., Class H | 74,069 | ||||||
47,500 | Ping An Insurance Group Co. of China, Ltd. | 236,339 | ||||||
2,500 | Porto Seguro SA | 20,672 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Insurance, continued |
| ||||||
7,140 | Powszechny Zaklad Ubezpieczen SA | $ | 56,695 | |||||
518,000 | PT Panin Financial Tbk* | 6,620 | ||||||
250 | Samsung Fire & Marine Insurance Co., Ltd. | 55,549 | ||||||
520 | Samsung Life Insurance Co., Ltd. | 48,382 | ||||||
31,280 | Sanlam, Ltd. | 143,218 | ||||||
2,021 | Santam, Ltd. | 34,365 | ||||||
232,105 | Shin Kong Financial Holdings Co., Ltd.* | 56,893 | ||||||
5,847 | Sul America SA | 32,352 | ||||||
675 | Tongyang Life Insurance | 7,087 | ||||||
|
| |||||||
1,634,255 | ||||||||
|
| |||||||
| Internet & Direct Marketing Retail (0.2%): |
| ||||||
8,500 | B2w Cia Digital* | 26,651 | ||||||
108 | CJ O Shopping Co., Ltd. | 14,514 | ||||||
19,000 | Cogobuy Group*(b) | 28,548 | ||||||
239 | Ctrip.com International, ADR* | 9,560 | ||||||
91 | GS Home Shopping, Inc. | 12,912 | ||||||
1,712 | Interpark Holdings Corp. | 7,104 | ||||||
959 | JD.com, Inc., ADR* | 24,397 | ||||||
1,918 | Vipshop Holdings, Ltd., ADR* | 21,117 | ||||||
|
| |||||||
144,803 | ||||||||
|
| |||||||
| Internet Software & Services (2.4%): |
| ||||||
725 | 58.com, Inc., ADR*^ | 20,300 | ||||||
1,817 | Alibaba Group Holding, Ltd., ADR* | 159,551 | ||||||
436 | Baidu, Inc., ADR* | 71,682 | ||||||
1,139 | Daou Technology, Inc. | 16,931 | ||||||
194 | Daum Kakao Corp. | 12,336 | ||||||
103 | NetEase, Inc., ADR | 22,180 | ||||||
234 | NHN Corp. | 149,895 | ||||||
2,505 | Pchome Online, Inc. | 21,862 | ||||||
37,400 | Tencent Holdings, Ltd. | 907,750 | ||||||
399 | Yy, Inc., ADR* | 15,729 | ||||||
|
| |||||||
1,398,216 | ||||||||
|
| |||||||
| IT Services (2.3%): |
| ||||||
10,000 | Chinasoft International, Ltd.* | 4,674 | ||||||
6,280 | Cielo SA | 53,839 | ||||||
639 | eClerx Services, Ltd. | 13,189 | ||||||
3,739 | EOH Holdings, Ltd. | 44,587 | ||||||
10,448 | HCL Technologies, Ltd. | 127,371 | ||||||
2,719 | Hexaware Technologies, Ltd. | 8,295 | ||||||
37,860 | Infosys, Ltd., ADR | 561,465 | ||||||
495 | KCP Co., Ltd. | 5,220 | ||||||
3,450 | Mindtree, Ltd. | 26,396 | ||||||
1,344 | Mphasis, Ltd. | 11,186 | ||||||
110,700 | MyEG Services Berhad | 37,181 | ||||||
954 | Persistent Systems, Ltd. | 8,660 | ||||||
7 | Samsung SDS Co., Ltd. | 807 | ||||||
12,199 | Sonda SA | 21,675 | ||||||
7,000 | Systex Corp. | 12,563 | ||||||
7,763 | Tata Consultancy Services, Ltd. | 269,890 | ||||||
5,583 | Tech Mahindra, Ltd. | 40,079 | ||||||
14,000 | Travelsky Technology, Ltd., Series H | 29,314 | ||||||
5,423 | Vakrangee, Ltd. | 21,849 | ||||||
3,818 | Wipro, Ltd. | 26,683 | ||||||
|
| |||||||
1,324,923 | ||||||||
|
|
Continued
12
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Leisure Products (0.1%): |
| ||||||
6,000 | Giant Manufacturing Co., Ltd. | $ | 34,004 | |||||
6,000 | Merida Industry Co., Ltd. | 26,707 | ||||||
|
| |||||||
60,711 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (0.0%): |
| ||||||
1,081 | Divi’s Laboratories, Ltd. | 12,453 | ||||||
|
| |||||||
| Machinery (1.0%): |
| ||||||
816 | AIA Engineering, Ltd. | 15,562 | ||||||
3,000 | AirTac International Group | 23,784 | ||||||
15,517 | Ashok Leyland, Ltd. | 18,252 | ||||||
28,600 | Changsha Zoomlion Heavy Industry Science & Technology | 12,524 | ||||||
10,500 | China Conch Venture Holdings, Ltd. | 18,611 | ||||||
7,600 | China International Marine Containers Group Co., Ltd. | 10,959 | ||||||
29,000 | CRRC Corp., Ltd., Class H | 25,940 | ||||||
26,000 | CSBC Corp. Taiwan | 11,128 | ||||||
1,465 | Cummins India, Ltd. | 17,664 | ||||||
3,522 | Daewoo Shipbuilding & Marine Engineering Co., Ltd.*(a)(c) | 9,800 | ||||||
4,412 | Doosan Infracore Co., Ltd.* | 32,044 | ||||||
176 | Eicher Motors, Ltd. | 56,403 | ||||||
8,000 | Haitian International Holdings, Ltd. | 15,595 | ||||||
1,855 | Hanjin Heavy Industries & Contruction Co., Ltd.* | 5,156 | ||||||
4,202 | Hiwin Technologies Corp. | 19,193 | ||||||
167 | Hyundai Elevator Co., Ltd.* | 7,928 | ||||||
468 | Hyundai Heavy Industries Co.* | 56,187 | ||||||
337 | Hyundai Mipo Dockyard Co., Ltd.* | 18,701 | ||||||
50 | Hyundai Rotem Co., Ltd.* | 749 | ||||||
3,800 | Iochpe-Maxion SA | 13,620 | ||||||
1,000 | King Slide Works Co., Ltd. | 12,912 | ||||||
92,000 | Lonking Holdings, Ltd. | 19,616 | ||||||
136 | Otokar Otomotiv Ve Savunma Sanayi AS | 5,148 | ||||||
7,000 | Rechi Precision Co., Ltd. | 6,847 | ||||||
6,230 | Samsung Heavy Industries Co., Ltd.* | 47,599 | ||||||
2,000 | Shin Zu Shing Co., Ltd. | 5,119 | ||||||
29,500 | Sinotruk Hong Kong, Ltd. | 20,937 | ||||||
837 | Turk Traktor ve Ziraat Makineleri AS | 17,808 | ||||||
6,446 | WEG SA | 30,712 | ||||||
10,000 | Weichai Power Co., Ltd., Class H | 15,337 | ||||||
11,000 | Yungtay Engineering Co., Ltd. | 15,292 | ||||||
|
| |||||||
587,127 | ||||||||
|
| |||||||
| Marine (0.2%): |
| ||||||
24,000 | China Shipping Development Co., Ltd., Class H | 13,385 | ||||||
38,380 | Evergreen Marine Corp. (Taiwan), Ltd.* | 13,180 | ||||||
33,207 | Grindrod, Ltd. | 32,536 | ||||||
16,500 | MISC Berhad | 27,056 | ||||||
4,000 | U-Ming Marine Transport Corp. | 3,106 | ||||||
5,000 | Wan HAI Lines, Ltd. | 2,524 | ||||||
22,304 | Wisdom Marine Lines Co., Ltd. | 21,041 | ||||||
37,000 | Yang Ming Marine Transport* | 5,524 | ||||||
|
| |||||||
118,352 | ||||||||
|
| |||||||
| Media (1.4%): |
| ||||||
30,000 | Alibaba Pictures Group, Ltd.* | 4,859 | ||||||
52,700 | Astro Malaysia Holdings Berhad | 30,540 | ||||||
47,000 | BEC World Public Co., Ltd. | 21,764 | ||||||
748 | Cheil Worldwide, Inc. | 9,744 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Media, continued |
| ||||||
408 | CJ CGV Co., Ltd. | $ | 23,713 | |||||
301 | CJ E&M Corp. | 17,677 | ||||||
546 | CJ Hellovision Co., Ltd. | 4,232 | ||||||
4,478 | Cyfrowy Polsat SA* | 26,339 | ||||||
13,912 | Dish Tv India, Ltd.* | 17,241 | ||||||
8,036 | Grupo Televisa SA, ADR | 167,872 | ||||||
2,348 | Jagran Prakashan, Ltd.* | 6,191 | ||||||
940 | KT Skylife Co., Ltd. | 13,399 | ||||||
193 | Loen Entertainment, Inc.* | 12,124 | ||||||
15,972 | Megacable Holdings SAB de C.V. | 53,917 | ||||||
800 | Multiplus SA | 8,312 | ||||||
1,229 | Naspers, Ltd. | 179,203 | ||||||
327,000 | PT Global MediaCom Tbk | 14,844 | ||||||
177,400 | PT Media Nusantara Citra Tbk | 23,023 | ||||||
190,700 | PT Surya Citra Media Tbk | 39,560 | ||||||
750 | PVR, Ltd. | 12,652 | ||||||
25,700 | RS Public Co., Ltd. | 5,596 | ||||||
413 | S.M.Entertainment Co.* | 8,798 | ||||||
1,500 | Smiles SA | 20,624 | ||||||
4,534 | Sun Tv Network, Ltd. | 32,642 | ||||||
20,498 | Tv18 Broadcast, Ltd.* | 10,982 | ||||||
81,100 | Vgi Global Media plc | 12,669 | ||||||
6,072 | ZEE Entertainment Enterprises, Ltd. | 40,437 | ||||||
|
| |||||||
818,954 | ||||||||
|
| |||||||
| Metals & Mining (4.0%): |
| ||||||
4,055 | African Rainbow Minerals, Ltd. | 28,900 | ||||||
26,000 | Angang Steel Co., Ltd.* | 15,370 | ||||||
16,621 | AngloGold Ashanti, Ltd., ADR* | 174,686 | ||||||
2,033 | ArcelorMittal South Africa, Ltd.* | 1,702 | ||||||
2,498 | Assore, Ltd. | 42,697 | ||||||
3,325 | Capital SA | 23,682 | ||||||
29,500 | China Hongqiao Group, Ltd. | 25,754 | ||||||
3,000 | China Metal Products Co., Ltd. | 2,960 | ||||||
56,000 | China Steel Corp. | 42,658 | ||||||
44,400 | China Zhongwang Holdings, Ltd. | 18,838 | ||||||
24,250 | Companhia Siderurgica Nacional SA, ADR*^ | 78,328 | ||||||
3,972 | Dongkuk Steel Mill Co., Ltd.* | 36,111 | ||||||
14,863 | Eregli Demir ve Celik Fabrikalari T.A.S. | 21,627 | ||||||
21,000 | Feng Hsin Steel Co., Ltd. | 29,408 | ||||||
23,807 | Gerdau SA, ADR | 74,754 | ||||||
41,553 | Gold Field, Ltd., ADR | 125,075 | ||||||
471 | Grupa Kety SA | 43,639 | ||||||
84,574 | Grupo Mexico SAB de C.V., Series B | 229,745 | ||||||
4,210 | Grupo Simec SA de C.V., Series B* | 20,175 | ||||||
19,883 | Hindalco Industries, Ltd. | 45,140 | ||||||
1,195 | Hyundai Steel Co. | 56,095 | ||||||
18,316 | Impala Platinum Holdings, Ltd.* | 56,640 | ||||||
7,412 | Industrias CH, SAB de C.V., Series B* | 47,391 | ||||||
2,595 | Industrias Penoles SAB de C.V. | 48,126 | ||||||
15,000 | Jiangxi Copper Co., Ltd. | 20,778 | ||||||
20,933 | Jindal Steel & Power, Ltd.* | 21,237 | ||||||
2,531 | JSW Steel, Ltd. | 60,479 | ||||||
43,143 | Kardemir Karabuk Demir Celik Sanayi VE Ticaret AS, Class D* | 14,042 | ||||||
1,235 | KGHM Polska Miedz SA | 27,241 | ||||||
40 | KISWIRE, Ltd. | 1,328 |
Continued
13
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Metals & Mining, continued |
| ||||||
115 | Korea Zinc Co. | $ | 45,186 | |||||
1,878 | Koza Altin Isletmeleri AS* | 8,704 | ||||||
1,922 | Kumba Iron Ore, Ltd.* | 22,175 | ||||||
166 | Kumkang Kind Co., Ltd. | 5,371 | ||||||
52,000 | Maanshan Iron & Steel Co., Ltd.* | 15,109 | ||||||
23,056 | Minera Frisco SAB de C.V.* | 17,357 | ||||||
3,766 | MMC Norilsk Nickel PJSC, ADR | 63,720 | ||||||
78,000 | MMG, Ltd.* | 19,796 | ||||||
30,384 | National Aluminum Co., Ltd. | 29,135 | ||||||
12,766 | Northam Platinum, Ltd.*^ | 37,694 | ||||||
1,832 | POSCO, ADR | 96,272 | ||||||
75,040 | Press Metal Berhad | 26,540 | ||||||
449,100 | PT Aneka Tambang Persero Tbk* | 29,732 | ||||||
71,800 | PT Vale Indonesia Tbk* | 14,934 | ||||||
3,505 | Royal Bafokeng Platinum, Ltd.* | 9,054 | ||||||
697 | Seah Besteel Corp. | 14,743 | ||||||
2,792 | Severstal PAO, GDR | 42,339 | ||||||
88,000 | Shougang Fushan Resources Group, Ltd. | 17,138 | ||||||
43,737 | Sibanye Gold, Ltd. | 78,461 | ||||||
11,722 | Steel Authority of India, Ltd.* | 8,474 | ||||||
9,813 | Tata Steel, Ltd., GDR | 55,034 | ||||||
7,000 | Ton Yi Industrial Corp. | 3,006 | ||||||
22,000 | Tung Ho Steel Enterprise Corp. | 14,400 | ||||||
7,991 | Vale SA, ADR | 60,891 | ||||||
7,373 | Vedanta, Ltd., ADR | 91,573 | ||||||
3,000 | Yeong Guan Energy Technology Group Co., Ltd. | 9,555 | ||||||
36,050 | Yieh Phui Enterprise Co., Ltd.* | 12,513 | ||||||
3,500 | Zhaojin Mining Industry Co., Ltd. | 2,942 | ||||||
|
| |||||||
2,286,454 | ||||||||
|
| |||||||
| Multiline Retail (0.9%): |
| ||||||
59,000 | Far Eastern Department Stores, Ltd. | 29,242 | ||||||
15,000 | Golden Eagle Retail Group, Ltd.^ | 21,352 | ||||||
23,569 | Grupo Sanborsn SAB de C.V. | 24,636 | ||||||
295 | Hyundai Department Store Co., Ltd. | 26,598 | ||||||
23,500 | Intime Retail Group Co., Ltd.(c) | 21,180 | ||||||
7,200 | Lojas Americanas SA | 27,599 | ||||||
11,686 | Lojas Renner SA | 83,230 | ||||||
214 | Lotte Shopping Co., Ltd. | 39,190 | ||||||
48,500 | Mitra Adiperkasa TBK PT* | 19,346 | ||||||
3,060 | Poya International Co., Ltd. | 35,431 | ||||||
8,500 | PT Matahari Department Store Tbk | 9,490 | ||||||
489,200 | PT Multipolar Tbk* | 12,371 | ||||||
39,838 | Ripley Corp SA | 23,769 | ||||||
1,378 | S.A.C.I. Falabella | 10,911 | ||||||
130 | Shinsegae Department Store Co. | 18,938 | ||||||
20,564 | Woolworths Holdings, Ltd. | 105,834 | ||||||
|
| |||||||
509,117 | ||||||||
|
| |||||||
| Multi-Utilities (0.1%): |
| ||||||
151,000 | YTL Corporation Berhad | 52,156 | ||||||
65,800 | YTL Power International Berhad | 21,841 | ||||||
|
| |||||||
73,997 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (6.0%): |
| ||||||
30,900 | Bangchak Petroleum Public Co., Ltd. | 28,808 | ||||||
3,242 | Bharat Pertoleum Corp., Ltd. | 30,307 | ||||||
5,402 | Cairn India, Ltd. | 19,226 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Oil, Gas & Consumable Fuels, continued |
| ||||||
186,000 | China Petroleum & Chemical Corp., Class H | $ | 131,631 | |||||
23,000 | China Shenhua Energy Co., Ltd. | 42,898 | ||||||
58,000 | CNOOC, Ltd. | 71,611 | ||||||
517 | CNOOC, Ltd., ADR | 64,087 | ||||||
2,482 | Coal India, Ltd. | 10,956 | ||||||
1,750 | Cosan sa industria e Comercio | 20,522 | ||||||
7,445 | Ecopetrol SA, ADR*^ | 67,377 | ||||||
1,700 | Empresas Copec SA | 16,303 | ||||||
31,400 | Energy Absolute Public Co., Ltd. | 25,989 | ||||||
70,800 | Esso Thailand Public Co., Ltd.* | 25,308 | ||||||
8,460 | Exxaro Resources, Ltd. | 54,890 | ||||||
7,000 | Formosa Petrochemical Corp. | 24,231 | ||||||
15,137 | Gazprom OAO, ADR | 76,326 | ||||||
4,041 | Grupa Lotos SA* | 36,957 | ||||||
1,737 | GS Holdings | 77,536 | ||||||
20 | Hankook Shell Oil Co., Ltd. | 7,334 | ||||||
3,050 | Hindustan Petroleum Corp., Ltd. | 19,757 | ||||||
15,536 | Indian Oil Corp., Ltd. | 74,219 | ||||||
279,900 | IRPC Public Co., Ltd. | 37,433 | ||||||
64,000 | Kunlun Energy Co., Ltd. | 47,780 | ||||||
340 | Lubelski Wegiel Bogdanka SA* | 5,653 | ||||||
3,328 | LUKOIL PJSC, ADR | 186,768 | ||||||
698 | MOL Hungarian Oil & Gas plc | 49,020 | ||||||
288 | NovaTek OAO, Registered Shares, GDR | 37,309 | ||||||
7,632 | Oil & Natural Gas Corp., Ltd. | 21,501 | ||||||
407 | PetroChina Co., Ltd., ADR | 29,996 | ||||||
48,000 | PetroChina Co., Ltd., Class H | 35,421 | ||||||
19,311 | Petroleo Brasileiro SA, ADR* | 195,234 | ||||||
26,379 | Petroleo Brasileiro SA, ADR* | 232,399 | ||||||
144,200 | Petron Corp. | 28,845 | ||||||
3,800 | Petronas Dagangan Berhad | 20,159 | ||||||
5,372 | Petronet LNG, Ltd. | 29,060 | ||||||
7,038 | Polski Koncern Naftowy Orlen SA | 143,448 | ||||||
25,218 | Polskie Gornictwo Naftowe i Gazownictwo SA | 33,927 | ||||||
490,000 | PT Adaro Energy Tbk | 61,513 | ||||||
19,800 | PT Indo Tambangraya Megah Tbk | 24,709 | ||||||
475,000 | PT Sugih Energy Tbk*(a)(c) | 1,834 | ||||||
49,500 | PT United Tractors Tbk | 78,018 | ||||||
34,600 | PTT Exploration & Production Public Co., Ltd. | 92,884 | ||||||
29,100 | PTT Public Co., Ltd. | 301,559 | ||||||
5,739 | Reliance Industries, Ltd., GDR(b) | 183,053 | ||||||
10,622 | Rosneft Oil Co., Registered Shares, GDR | 68,877 | ||||||
12,270 | Semirara Mining and Power Corp. | 32,110 | ||||||
607 | SK Energy Co., Ltd. | 73,214 | ||||||
352 | SK Gas, Ltd. | 37,732 | ||||||
585 | S-Oil Corp. | 40,812 | ||||||
25,300 | Tambang Batubara Bukit Asam Tbk PT | 23,382 | ||||||
867 | Tatneft Pjsc, ADR | 36,145 | ||||||
22,600 | Thai Oil Public Co., Ltd. | 45,487 | ||||||
376 | The Great Eastern Shipping Co., Ltd. | 2,009 | ||||||
2,548 | Tupras-Turkiye Petrol Rafine | 51,132 | ||||||
11,402 | Ultrapar Participacoes SA, ADR | 236,478 | ||||||
252,000 | United Energy Group, Ltd.* | 12,634 | ||||||
2,362 | Yanzhou Coal Mining Co., Ltd., ADR^ | 15,778 | ||||||
|
| |||||||
3,479,586 | ||||||||
|
|
Continued
14
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Paper & Forest Products (0.8%): |
| ||||||
7,803 | Duratex SA* | $ | 16,310 | |||||
5,996 | Empresas CMPC SA | 12,268 | ||||||
10,650 | Fibria Celulose SA, ADR | 102,346 | ||||||
1,954 | Hansol Holdings Co., Ltd.* | 10,814 | ||||||
146 | Hansol Paper Co., Ltd. | 2,379 | ||||||
19,000 | Lee & Man Paper Manufacturing, Ltd. | 14,679 | ||||||
4,549 | Mondi, Ltd. | 92,489 | ||||||
43,000 | Nine Dragons Paper Holdings, Ltd. | 38,838 | ||||||
24,247 | Sappi, Ltd.* | 158,341 | ||||||
6,600 | Suzano Papel e Celulose SA, Class A | 28,809 | ||||||
47,000 | YFY, Inc. | 14,109 | ||||||
|
| |||||||
491,382 | ||||||||
|
| |||||||
| Personal Products (0.9%): |
| ||||||
267 | Amorepacific Corp. | 71,003 | ||||||
384 | Amorepacific Group | 42,220 | ||||||
926 | Bajaj Corp., Ltd. | 5,062 | ||||||
945 | Colgate-Palmolive India, Ltd. | 12,574 | ||||||
173 | Cosmax, Inc. | 17,105 | ||||||
8,409 | Dabur India, Ltd. | 34,455 | ||||||
16,425 | Eis Eczacibasi Ilac Sanayi VE Finansal Yatirimlar | 14,530 | ||||||
1,393 | Emami, Ltd. | 19,489 | ||||||
101 | Gillette India, Ltd. | 6,406 | ||||||
1,015 | Godrej Consumer Products, Ltd. | 22,552 | ||||||
3,000 | Grape King BIO, Ltd. | 17,332 | ||||||
9,000 | Hengan International Group Co., Ltd. | 65,991 | ||||||
499 | Korea Kolmar Co., Ltd. | 27,146 | ||||||
127 | LG Household & Health Care, Ltd. | 89,999 | ||||||
8,551 | Marico, Ltd. | 32,786 | ||||||
4,000 | Natura Cosmeticos SA | 28,304 | ||||||
57 | Procter & Gamble Hygiene & Healthcare, Ltd. | 5,948 | ||||||
261 | Sansung Life & Science Co., Ltd.* | 4,728 | ||||||
|
| |||||||
517,630 | ||||||||
|
| |||||||
| Pharmaceuticals (1.6%): |
| ||||||
510 | Ajanta Pharma, Ltd. | 13,380 | ||||||
840 | Alembic Pharmaceuticals, Ltd. | 7,332 | ||||||
3,947 | Aspen Pharmacare Holdings, Ltd. | 81,506 | ||||||
7,287 | Aurobindo Pharma, Ltd. | 71,784 | ||||||
3,311 | Cadila Healthcare, Ltd. | 17,350 | ||||||
21,000 | China Medical System Holdings, Ltd. | 33,132 | ||||||
22,000 | China Pharmaceutical Enterprise & Investment Corp. | 23,402 | ||||||
3,000 | China Shineway Pharmaceutical Group, Ltd. | 3,400 | ||||||
12,000 | China Traditional Chinese Medicine Co., Ltd. | 5,536 | ||||||
181 | Chong Kun Dang Pharmaceutical Corp. | 15,622 | ||||||
6,394 | Cipla, Ltd. | 53,608 | ||||||
12,000 | Dawnrays Pharmaceutical Holdings, Ltd. | 7,175 | ||||||
2,231 | Dr. Reddy’s Laboratories, Ltd., ADR | 101,019 | ||||||
8 | Glaxo smithkline Pharmaceuticals, Ltd. | 322 | ||||||
3,004 | Glenmark Pharmaceuticals, Ltd. | 39,277 | ||||||
116 | Hanmi Pharm Co., Ltd. | 29,265 | ||||||
320 | Hanmi Science Co., Ltd. | 16,156 | ||||||
204,000 | Hua Han Bio-Pharmaceutical Holdings, Ltd.*(a)(c) | 13,944 | ||||||
2,700 | Hypermarcas SA | 21,687 | ||||||
35 | Ipca Laboratories, Ltd.* | 274 | ||||||
2,206 | Jubilant Life Sciences, Ltd. | 20,495 | ||||||
1,201 | Jw Holdings Corp. | 8,807 | ||||||
3,131 | Lupin, Ltd. | 68,535 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Pharmaceuticals, continued |
| ||||||
898 | Piramal Enterprises, Ltd. | $ | 21,396 | |||||
287,900 | PT Kalbe Farma Tbk | 32,178 | ||||||
697 | Richter Gedeon Nyrt | 14,724 | ||||||
57 | Sanofi India, Ltd. | 3,607 | ||||||
91,000 | Sihuan Pharmaceutical Holdings Group, Ltd. | 25,233 | ||||||
60,000 | Sino Biopharmaceutical, Ltd. | 42,169 | ||||||
40,172 | SSY Group, Ltd. | 12,767 | ||||||
803 | Strides Shasun, Ltd. | 12,526 | ||||||
5,115 | Sun Pharmaceutical Industries, Ltd. | 47,229 | ||||||
11,000 | Tong Ren Tang Technologies Co., Ltd. | 20,393 | ||||||
695 | Torrent Pharmaceuticals, Ltd. | 13,442 | ||||||
5,000 | TTY Biopharm Co., Ltd. | 15,821 | ||||||
1,348 | Wockhardt, Ltd. | 13,021 | ||||||
91 | Yuhan Corp. | 15,070 | ||||||
|
| |||||||
942,584 | ||||||||
|
| |||||||
| Professional Services (0.1%): |
| ||||||
5,146 | Sporton International, Inc. | 27,212 | ||||||
|
| |||||||
| Real Estate Management & Development (3.2%): |
| ||||||
42,000 | Agile Property Holdings, Ltd. | 21,369 | ||||||
3,615 | Aliansce Shopping Centers SA | 16,057 | ||||||
38,800 | Ayala Land, Inc. | 24,950 | ||||||
438,000 | Bangkok Land Public Co., Ltd. | 21,004 | ||||||
30,000 | Beijing Capital Land, Ltd. | 11,229 | ||||||
268,000 | Belle Corp. | 17,297 | ||||||
16,890 | BR Malls Participacoes SA* | 62,043 | ||||||
62,000 | C C Land Holdings, Ltd. | 18,001 | ||||||
15,400 | Cathay Real Estate Development Co., Ltd. | 8,690 | ||||||
20,700 | Central Pattana Public Co., Ltd. | 32,686 | ||||||
107,000 | China Evergrande Group | 66,487 | ||||||
62,000 | China Merchants Land, Ltd. | 8,883 | ||||||
38,000 | China Overseas Grand Oceans Group, Ltd.* | 12,275 | ||||||
30,000 | China Overseas Land & Investment, Ltd. | 79,130 | ||||||
12,000 | China Overseas Property Holdings, Ltd. | 2,052 | ||||||
30,000 | China Resources Land, Ltd. | 67,642 | ||||||
15,000 | China Sce Property Holdings, Ltd. | 4,508 | ||||||
50,000 | China South City Holdings, Ltd. | 10,397 | ||||||
16,300 | China Vanke Co., Ltd., Class H | 36,850 | ||||||
8,400 | Chong Hong Construction Co., Ltd. | 16,552 | ||||||
112,000 | CIFI Holdings Group Co., Ltd. | 30,063 | ||||||
22,208 | Corporacion Inmobiliaria Vesta SAB de C.V. | 26,686 | ||||||
110,000 | Country Garden Holdings Co., Ltd. | 61,254 | ||||||
13,178 | DLF, Ltd. | 21,638 | ||||||
2,544 | Etalon Group, Ltd. | 8,120 | ||||||
16,000 | Farglory Land Development Co., Ltd. | 18,338 | ||||||
754,000 | Filinvest Land, Inc. | 23,266 | ||||||
96,000 | Franshion Properties China, Ltd. | 25,788 | ||||||
65,000 | Fullshare Holdings, Ltd. | 30,260 | ||||||
159,000 | Glorious Property Holdings, Ltd.* | 15,595 | ||||||
16,000 | Greenland Hong Kong Holdings, Ltd.* | 3,968 | ||||||
12,500 | Greentown China Holdings, Ltd.* | 10,080 | ||||||
26,800 | Guangzhou R&F Properties Co., Ltd., Class H | 32,386 | ||||||
15,600 | Highwealth Construction Corp. | 21,917 | ||||||
20,000 | Hopson Development Holdings, Ltd. | 17,745 | ||||||
18,760 | Housing Development & Infrastructure, Ltd.* | 16,386 | ||||||
4,000 | Huaku Development Co., Ltd. | 7,500 | ||||||
19,000 | Hung Sheng Construction, Ltd. | 11,035 |
Continued
15
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Real Estate Management & Development, continued |
| ||||||
14,324 | Indiabulls Real Estate, Ltd.* | $ | 14,942 | |||||
31,500 | KWG Property Holding, Ltd. | 17,825 | ||||||
36,400 | L.P.N. Development Public Co., Ltd. | 12,325 | ||||||
18,500 | Longfor Properties Co., Ltd. | 23,407 | ||||||
83,375 | Mah Sing Group Berhad | 26,579 | ||||||
29,166 | Matrix Concepts Holdings Berhad | 15,733 | ||||||
190,500 | Megaworld Corp. | 13,653 | ||||||
59,000 | Mingfa Group International Co., Ltd.*(a)(c) | 5,393 | ||||||
1,200 | Multiplan Empreendimentos Imobiliarios SA | 21,903 | ||||||
1,554 | New Europe Property Investment plc | 18,005 | ||||||
938 | Oberoi Realty, Ltd. | 4,071 | ||||||
15,342 | Parque Arauco SA | 35,060 | ||||||
53,000 | Poly Property Group Co., Ltd.* | 17,506 | ||||||
1,252 | Prestige Estates Projects, Ltd. | 3,131 | ||||||
33,000 | Prince Housing & Development Corp. | 10,740 | ||||||
49,600 | Pruksa Holding PCL* | 31,170 | ||||||
417,700 | PT Alam Sutera Realty Tbk* | 10,876 | ||||||
271,500 | PT Bumi Serpong Damai | 35,223 | ||||||
434,245 | PT Ciputra Development Tbk | 43,027 | ||||||
2,256,500 | PT Hanson International Tbk* | 28,309 | ||||||
397,700 | PT Intiland Development Tbk | 14,766 | ||||||
23,200 | PT Lippo Cikarang Tbk* | 8,684 | ||||||
577,600 | PT Lippo Karawaci Tbk | 30,823 | ||||||
177,300 | PT Modernland Realty Tbk* | 4,500 | ||||||
817,900 | PT Pakuwon Jati Tbk | 34,166 | ||||||
251,500 | PT Summarecon Agung Tbk | 24,632 | ||||||
53,040 | Radium Life Tech Co., Ltd.* | 15,411 | ||||||
20,000 | Redco Properties Group, Ltd.*(b) | 8,124 | ||||||
464,000 | Renhe Commercial Holdings Co., Ltd.* | 11,866 | ||||||
38,900 | Robinsons Land Corp. | 20,326 | ||||||
13,000 | Ruentex Development Co., Ltd.* | 14,801 | ||||||
75,023 | Shenzhen Investment, Ltd. | 29,868 | ||||||
41,500 | Shimao Property Holdings, Ltd. | 54,092 | ||||||
95,500 | Shui On Land, Ltd. | 20,578 | ||||||
48,500 | Sino-Ocean Land Holdings, Ltd. | 21,628 | ||||||
65,700 | SM Prime Holdings, Inc. | 37,401 | ||||||
707 | Sobha, Ltd. | 2,547 | ||||||
36,500 | Soho China, Ltd. | 17,939 | ||||||
32,000 | Sunac China Holdings, Ltd. | 26,646 | ||||||
29,900 | Sunway Berhad | 20,194 | ||||||
51,800 | Supalai Public Co., Ltd. | 36,076 | ||||||
83,000 | UEM Sunrise Berhad | 19,382 | ||||||
41,000 | UOA Development Berhad | 21,466 | ||||||
245,700 | Vista Land & Lifescapes, Inc. | 24,504 | ||||||
236,000 | Yuexiu Property Co., Ltd. | 32,156 | ||||||
24,000 | Yuzhou Properties Co., Ltd. | 8,341 | ||||||
|
| |||||||
1,869,922 | ||||||||
|
| |||||||
| Road & Rail (0.2%): |
| ||||||
3,000 | CAR, Inc.* | 2,903 | ||||||
1,030 | Container Corporation of India, Ltd. | 16,822 | ||||||
34,000 | Guangshen Railway Co., Ltd. | 20,453 | ||||||
3,800 | Localiza Rent a Car SA | 39,972 | ||||||
821 | PKP Cargo SA* | 9,227 | ||||||
|
| |||||||
89,377 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Semiconductors & Semiconductor Equipment (6.0%): |
| ||||||
30,191 | Advanced Semiconductor Engineering, Inc., ADR | $ | 152,163 | |||||
5,000 | Advanced Wireless Semiconductor Co. | 7,869 | ||||||
5,100 | Ardentec Corp. | 3,769 | ||||||
13,000 | Chipbond Technology Corp. | 18,463 | ||||||
483 | Dongbu Hitek Co., Ltd.* | 6,349 | ||||||
8,400 | Elite Advanced Laser Corp. | 33,506 | ||||||
2,000 | eMemory Technology, Inc. | 24,271 | ||||||
23,000 | Epistar Corp.* | 16,373 | ||||||
20,000 | Everlight Electronics Co., Ltd. | 28,576 | ||||||
369,000 | GCL-Poly Energy Holdings, Ltd.* | 44,085 | ||||||
1,000 | Gigasolar Materials Corp. | 11,834 | ||||||
9,000 | Gigastorage Corp.* | 6,819 | ||||||
14,000 | Gintech Energy Corp.* | 8,360 | ||||||
13,200 | Globetronics Technology Berhad | 10,224 | ||||||
2,000 | Greatek Electronics, Inc. | 2,414 | ||||||
11,000 | Holtek Semiconductor, Inc. | 16,828 | ||||||
227 | Jusung Engineering Co., Ltd.* | 1,928 | ||||||
737 | KC Tech Co., Ltd. | 9,755 | ||||||
31,000 | King Yuan Electronics Co., Ltd. | 24,155 | ||||||
9,000 | Kinsus Interconnect Technology Corp. | 19,759 | ||||||
121 | LEENO Industrial, Inc. | 4,334 | ||||||
70,000 | Macronix International Co., Ltd.* | 10,034 | ||||||
10,000 | MediaTek, Inc. | 66,711 | ||||||
10,000 | Motech Industries, Inc.* | 8,746 | ||||||
25,424 | Nanya Technology Corp. | 37,697 | ||||||
26,430 | Neo Solar Power Corp.* | 12,351 | ||||||
9,000 | Novatek Microelectronics Corp. | 29,618 | ||||||
48,000 | Orient Semiconductor Electronics, Ltd.* | 16,847 | ||||||
3,000 | Phison Electronics Corp. | 23,673 | ||||||
15,000 | Powertech Technology, Inc. | 40,335 | ||||||
9,000 | Radiant Opto-Electronics Corp. | 15,585 | ||||||
6,000 | Realtek Semiconductor Corp. | 18,869 | ||||||
10,057 | Semiconductor Manufacturing International Corp., ADR*^ | 76,634 | ||||||
1,476 | Seoul Semiconductor Co., Ltd. | 18,968 | ||||||
24,000 | Shunfeng International Clean Energy, Ltd.* | 1,493 | ||||||
4,000 | Sigurd Microelectronics Corp. | 2,884 | ||||||
10,138 | Siliconware Precision Industries Co., ADR^ | 74,007 | ||||||
14,000 | Sino-American Silicon Products, Inc. | 14,458 | ||||||
5,000 | Sitronix Technology Corp. | 15,847 | ||||||
7,483 | SK Hynix, Inc. | 273,573 | ||||||
66,031 | Taiwan Semiconductor Manufacturing Co., Ltd., ADR | 1,898,390 | ||||||
14,000 | Taiwan Surface Mounting Technology Corp. | 11,431 | ||||||
3,000 | Topco Scientific Co., Ltd. | 7,827 | ||||||
35,700 | Unisem (M) Berhad | 18,784 | ||||||
102,670 | United Microelectronics Corp., ADR | 179,673 | ||||||
20,000 | Vanguard International Semiconductor Corp. | 34,680 | ||||||
5,250 | Visual Photonics Epitaxy Co., Ltd. | 8,023 | ||||||
15,153 | Win Semiconductors Corp. | 42,403 | ||||||
121,000 | Winbond Electronics Corp. | 37,219 | ||||||
750 | Wonik Ips Co., Ltd.* | 16,179 | ||||||
713 | WONIK IPS Co., Ltd.* | 3,950 | ||||||
74,000 | Xinyi Solar Holdings, Ltd. | 23,932 | ||||||
|
| |||||||
3,492,655 | ||||||||
|
| |||||||
| Software (0.3%): |
| ||||||
368 | Asseco Poland SA | 4,744 |
Continued
16
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Software, continued |
| ||||||
4,677 | CD Projekt SA* | $ | 58,373 | |||||
244 | Com2uS Corp. | 17,575 | ||||||
517 | Cyient, Ltd. | 3,836 | ||||||
333 | DuzonBIzon Co., Ltd. | 5,892 | ||||||
4,341 | Kpit Technologies, Ltd. | 8,546 | ||||||
171 | Ncsoft Corp. | 34,969 | ||||||
522 | NHN Entertainment Corp.* | 21,684 | ||||||
548 | NIIT Technologies, Ltd. | 3,426 | ||||||
34 | Oracle Financial Services Software, Ltd. | 1,562 | ||||||
2,500 | Totvs SA | 18,474 | ||||||
989 | Webzen, Inc.* | 12,228 | ||||||
|
| |||||||
191,309 | ||||||||
|
| |||||||
| Specialty Retail (1.0%): |
| ||||||
331 | Cashbuild, Ltd. | 8,313 | ||||||
11,000 | China Harmony New Energy Auto Holding, Ltd. | 3,929 | ||||||
32,500 | China Zhentong Auto Services Holdings, Ltd. | 9,447 | ||||||
2,900 | Cia. Hering | 13,478 | ||||||
255,000 | GOME Electrical Appliances Holdings, Ltd. | 30,805 | ||||||
147,000 | Home Product Center Public Co., Ltd. | 41,729 | ||||||
1,000 | Hotai Motor Co., Ltd. | 11,419 | ||||||
729 | Hotel Shilla Co., Ltd. | 29,015 | ||||||
6,696 | Lewis Group, Ltd. | 20,556 | ||||||
291 | Lotte Himart Co., Ltd. | 10,159 | ||||||
6,092 | Mr.Price Group, Ltd. | 70,498 | ||||||
16,800 | Padini Holdings Berhad | 9,554 | ||||||
347,300 | PT ACE Hardware Indonesia Tbk | 21,518 | ||||||
21,783 | Super Group, Ltd.* | 61,171 | ||||||
9,034 | The Foschini Group, Ltd. | 104,079 | ||||||
18,143 | Truworths International, Ltd. | 104,785 | ||||||
4,908 | Via Varejo SA | 16,219 | ||||||
|
| |||||||
566,674 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (6.8%): |
| ||||||
57,000 | Acer, Inc. | 23,029 | ||||||
4,000 | Advantech Co., Ltd. | 31,387 | ||||||
13,000 | Asia Vital Components Co., Ltd. | 10,067 | ||||||
5,000 | Asustek Computer, Inc. | 40,872 | ||||||
3,000 | Casetek Holdings, Ltd. | 7,921 | ||||||
13,000 | Catcher Technology Co., Ltd. | 89,310 | ||||||
8,045 | Chicony Electronics Co., Ltd. | 18,634 | ||||||
14,000 | Clevo Co. | 12,045 | ||||||
99,967 | CMC Magnetics Corp.* | 10,798 | ||||||
87,000 | Compal Electronics, Inc. | 49,549 | ||||||
92,000 | Coolpad Group, Ltd.* | 9,451 | ||||||
16,220 | Foxconn Technology Co., Ltd. | 42,549 | ||||||
23,000 | Getac Technology Corp. | 26,950 | ||||||
11,000 | Gigabyte Technology Co., Ltd. | 14,691 | ||||||
9,000 | High Tech Computer Corp.* | 21,884 | ||||||
20,000 | Inventec Corp. | 13,622 | ||||||
352 | Kona I Co., Ltd. | 3,521 | ||||||
122,000 | Lenovo Group, Ltd. | 73,478 | ||||||
46,460 | Lite-On Technology Corp. | 69,437 | ||||||
20,000 | Micro-Star International Co., Ltd. | 45,258 | ||||||
26,119 | Mitac Holding Corp. | 24,910 | ||||||
37,000 | Pegatron Corp. | 87,301 | ||||||
82,000 | Qisda Corp. | 38,140 | ||||||
22,000 | Quanta Computer, Inc. | 40,939 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Technology Hardware, Storage & Peripherals, continued |
| ||||||
49,360 | Ritek Corp.* | $ | 7,730 | |||||
4,031 | Samsung Electronics Co., Ltd., GDR | 3,001,894 | ||||||
22 | Samsung Electronics Co., Ltd. | 32,511 | ||||||
2,000 | Tsc Auto Id Technology Co., Ltd. | 15,067 | ||||||
67,339 | Wistron Corp. | 51,814 | ||||||
|
| |||||||
3,914,759 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (1.0%): |
| ||||||
6,255 | Aksa Akrilik Kimya Sanayii AS | 16,303 | ||||||
4,500 | Alpargatas SA | 13,847 | ||||||
16,000 | Anta Sports Products, Ltd. | 47,442 | ||||||
1,300 | Arezzo Industria E Comercio SA | 10,014 | ||||||
3,289 | Arvind, Ltd. | 17,001 | ||||||
92,000 | Belle International Holdings, Ltd. | 51,466 | ||||||
150,000 | Bosideng International Holdings, Ltd. | 12,879 | ||||||
970 | CCC SA | 47,191 | ||||||
76,000 | China Dongxiang Group Co., Ltd. | 13,696 | ||||||
23,000 | China Lilang, Ltd. | 12,911 | ||||||
10,000 | Cosmo Lady China Holdings Co., Ltd.(b) | 3,862 | ||||||
2,045 | Eclat Textile Co., Ltd. | 21,251 | ||||||
8,075 | Feng Tay Enterprise Co., Ltd. | 30,020 | ||||||
585 | Hansae Co., Ltd. | 12,410 | ||||||
51 | Ilshin Spinning Co., Ltd. | 5,221 | ||||||
1,315 | Indo Count Industies, Ltd. | 3,159 | ||||||
459 | LF Corp. | 8,185 | ||||||
4 | LPP SA | 5,431 | ||||||
3,212 | Makalot Industrial Co., Ltd. | 12,246 | ||||||
68 | Page Industries, Ltd. | 13,697 | ||||||
20,000 | Pou Chen Corp. | 24,821 | ||||||
776,900 | PT Sri Rejeki Isman Tbk | 13,253 | ||||||
2,940 | Rajesh Exports, Ltd. | 19,896 | ||||||
7,000 | Shenzhou International Group | 44,087 | ||||||
388 | SRF, Ltd. | 8,812 | ||||||
34,140 | Tainan Spinning Co., Ltd. | 12,916 | ||||||
7,000 | Taiwan Paiho, Ltd. | 20,610 | ||||||
4,591 | Titan Co., Ltd. | 22,026 | ||||||
16,000 | Weiqiao Textile Co., Ltd. | 9,986 | ||||||
5,586 | Welspun India, Ltd. | 5,455 | ||||||
337 | Youngone Corp. | 8,545 | ||||||
264 | Youngone Holdings Co., Ltd. | 12,979 | ||||||
|
| |||||||
561,618 | ||||||||
|
| |||||||
| Thrifts & Mortgage Finance (0.4%): |
| ||||||
5,015 | Dewan Housing Finance Corp., Ltd. | 17,886 | ||||||
786 | Gruh Finance, Ltd. | 3,743 | ||||||
4,628 | Housing Development Finance Corp., Ltd. | 86,042 | ||||||
4,313 | Indiabulls Housing Finance, Ltd. | 41,068 | ||||||
7,284 | LIC Housing Finance, Ltd. | 59,973 | ||||||
|
| |||||||
208,712 | ||||||||
|
| |||||||
| Tobacco (0.5%): |
| ||||||
3,300 | British American Tobacco Malaysia Berhad | 32,813 | ||||||
42,598 | ITC, Ltd. | 151,345 | ||||||
1,092 | KT&G Corp. | 91,290 | ||||||
7,000 | PT Gudang Garam Tbk | 33,152 | ||||||
|
| |||||||
308,600 | ||||||||
|
| |||||||
| Trading Companies & Distributors (0.3%): |
| ||||||
709 | Adani Enterprises, Ltd. | 798 |
Continued
17
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Trading Companies & Distributors, continued |
| ||||||
9,275 | Barloworld, Ltd.^ | $ | 79,635 | |||||
447 | Daewoo International Corp. | 9,964 | ||||||
1,664 | Hudaco Industries, Ltd. | 13,849 | ||||||
590 | LG International Corp. | 14,281 | ||||||
47,200 | PT AkR Corporindo Tbk | 21,047 | ||||||
2,473 | SK Network Co., Ltd. | 14,098 | ||||||
88 | Trencor, Ltd. | 183 | ||||||
|
| |||||||
153,855 | ||||||||
|
| |||||||
| Transportation Infrastructure (1.4%): |
| ||||||
11,046 | Adani Ports & Special Economic Zone, Ltd. | 43,472 | ||||||
6,100 | Airports of Thailand Public Co., Ltd. | 67,683 | ||||||
13,600 | Bangkok Aviation Fuel Services Public Co., Ltd. | 13,755 | ||||||
269,182 | Bangkok Exressway & Metro Public Co., Ltd. | 55,719 | ||||||
20,000 | Beijing Capital International Airport Co., Ltd. | 20,177 | ||||||
20,000 | China Merchants Holdings International Co., Ltd. | 49,461 | ||||||
11,900 | Companhia de Concessoes Rodoviarias | 58,380 | ||||||
48,000 | Cosco Pacific, Ltd. | 48,101 | ||||||
3,700 | Ecorodovias Infraestrutura e Logistica SA | 9,372 | ||||||
1,854 | Gateway Distriparks, Ltd. | 6,678 | ||||||
8,915 | Grupo Aeroportuario del Centro Norte, SAb de C.V. | 38,389 | ||||||
455 | Grupo Aeroportuario del Sureste SAB de C.V., ADR | 65,470 | ||||||
8,645 | Grupo Aeroporturaio del Pacifico SAB de C.V. | 71,091 | ||||||
19,750 | International Container Terminal Services, Inc. | 28,440 | ||||||
16,000 | Jiangsu Expressway Co., Ltd., Series H | 20,174 | ||||||
12,000 | Malaysia Airports Holdings Berhad | 16,220 | ||||||
24,684 | OHL Mexico SAB de C.V. | 24,289 | ||||||
1,675 | Promotora y Operadora de Infraestructura SAB de C.V. | 13,984 | ||||||
57,956 | PT Jasa Marga Persero Tbk | 18,556 | ||||||
20,000 | Shenzhen Expressway Co., Ltd. | 17,051 | ||||||
22,000 | Shenzhen International Holdings, Ltd. | 32,019 | ||||||
58,253 | Sociedad Matriz SAAM SA | 4,492 | ||||||
6,974 | TAV Havalimanlari Holding AS | 27,761 | ||||||
70,000 | Tianjin Port Development Holdings, Ltd. | 10,700 | ||||||
29,300 | Westports Holding Berhad | 28,046 | ||||||
20,000 | Zhejiang Expressway Co., Ltd. | 19,080 | ||||||
|
| |||||||
808,560 | ||||||||
|
| |||||||
| Water Utilities (0.5%): |
| ||||||
36,941 | Aguas Andinas SA, Class A | 19,248 | ||||||
22,000 | Beijing Enterprises Water Group, Ltd. | 14,509 | ||||||
38,000 | China Water Affairs Group, Ltd. | 24,823 | ||||||
8,623 | Companhia de Saneamento Basico do Estado de Sao Paulo, ADR | 74,847 | ||||||
1,200 | Companhia de Saneamento de Minas Gerais- Copasa MG | 13,464 | ||||||
64,000 | CT Environmental Group, Ltd. | 12,833 | ||||||
22,000 | Guangdong Investment, Ltd. | 28,876 | ||||||
16,068 | Inversiones Aguas Metropolitanas SA | 23,194 | ||||||
67,400 | Manila Water Co. | 39,364 | ||||||
95,500 | TTW Public Co., Ltd. | 28,531 | ||||||
|
| |||||||
279,689 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Wireless Telecommunication Services (3.5%): |
| ||||||
15,900 | Advanced Information Service plc | $ | 65,083 | |||||
22,316 | America Movil SAB de C.V., Series L, ADR | 280,513 | ||||||
54,584 | Axiata Group Berhad | 57,344 | ||||||
9,056 | Bharti Airtel, Ltd. | 40,742 | ||||||
19,500 | China Mobile, Ltd. | 204,483 | ||||||
7,027 | China Mobile, Ltd., ADR | 368,425 | ||||||
52,600 | DIGI.com Berhad | 56,668 | ||||||
2,969 | Empresa Nacional de Telecomunicaciones SA* | 31,527 | ||||||
18,000 | Far EasTone Telecommunications Co., Ltd. | 40,469 | ||||||
520 | Globe Telecom, Inc. | 15,802 | ||||||
14,021 | Idea Cellular, Ltd. | 15,283 | ||||||
30,200 | Maxis Berhad | 40,229 | ||||||
2,220 | MegaFon PJSC, Registered Shares, GDR | 20,959 | ||||||
42,372 | MTN Group, Ltd. | 387,313 | ||||||
1,112 | PLDT, Inc., ADR | 30,635 | ||||||
30,600 | PT Indosat Tbk* | 14,652 | ||||||
68,700 | PT XL Axiata Tbk* | 11,773 | ||||||
25,752 | Reliance Communications, Ltd.* | 12,834 | ||||||
1,682 | SK Telecom Co., Ltd., ADR | 35,154 | ||||||
14,000 | Taiwan Mobile Co., Ltd. | 45,134 | ||||||
5,489 | Tim Participacoes SA, ADR | 64,770 | ||||||
34,600 | Total Access Communication Public Co., Ltd. | 36,290 | ||||||
5,607 | Turkcell Iletisim Hizmetleri AS, ADR* | 38,688 | ||||||
11,621 | Vimpelcom, Ltd., ADR | 44,741 | ||||||
4,438 | Vodacom Group, Ltd. | 49,152 | ||||||
|
| |||||||
2,008,663 | ||||||||
|
| |||||||
| Total Common Stocks (Cost $64,615,308) | 57,539,059 | ||||||
|
| |||||||
| Preferred Stocks (0.5%): |
| ||||||
| Chemicals (0.1%): |
| ||||||
2,900 | Braskem SA, Class A, 7.34% | 30,531 | ||||||
|
| |||||||
| Electric Utilities (0.0%): |
| ||||||
723 | Companhia de Transmissao de Energia Eletrica Paulista, 2.32% | 14,417 | ||||||
|
| |||||||
| Independent Power & Renewable Electricity Producers (0.0%): |
| ||||||
4,100 | Companhia Energetica de Sao Paulo, Class B, 0.64% | 17,001 | ||||||
|
| |||||||
| Machinery (0.0%): |
| ||||||
17,000 | Marcopolo SA, 1.20% | 14,318 | ||||||
|
| |||||||
| Metals & Mining (0.3%): |
| ||||||
48,600 | Usinas Siderurgicas de Minas Gerais SA, Class A, 0.78%* | 61,251 | ||||||
15,235 | Vale SA, ADR, 1.32% | 104,970 | ||||||
|
| |||||||
166,221 | ||||||||
|
| |||||||
| Multiline Retail (0.1%): |
| ||||||
5,400 | Lojas Americanas SA, 0.09% | 28,218 | ||||||
|
| |||||||
| Total Preferred Stocks (Cost $199,184) | 270,706 | ||||||
|
|
Continued
18
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Securities Held as Collateral for Securities on Loan (0.9%): | ||||||||
$ | 526,829 | AZL DFA Emerging Markets Core Equity Fund Securities Lending Collateral Account(d) | $ | 526,829 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 526,829 | ||||||
|
| |||||||
Unaffiliated Investment Company (0.1%): | ||||||||
70,244 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(e) | 70,244 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $70,244) | 70,244 | |||||||
|
| |||||||
Total Investment Securities (Cost $65,411,565)(f) — 100.7% | 58,406,838 | |||||||
Net other assets (liabilities) — (0.7)% | (405,250 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 58,001,588 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
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, 2016. The total value of securities on loan as of December 31, 2016, was $499,423. |
(a) | The sub-adviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2016, these securities represent 0.13% 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 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, 2016. The total of all such securities represent 0.14% of the net assets of the fund. |
(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, 2016. |
(e) | The rate represents the effective yield at December 31, 2016. |
(f) | 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, 2016: (Unaudited)
Country | Percentage | ||||
Bermuda | 0.3 | % | |||
Brazil | 7.8 | % | |||
Cayman Islands | 0.5 | % | |||
Chile | 1.2 | % | |||
China | 9.2 | % | |||
Colombia | 0.3 | % | |||
Czech Republic | 0.1 | % | |||
Egypt | 0.1 | % | |||
Guernsey | — | %NM | |||
Hong Kong | 5.7 | % | |||
Hungary | 0.3 | % | |||
India | 10.5 | % | |||
Indonesia | 3.3 | % | |||
Korea, Republic Of | 15.5 | % | |||
Malaysia | 3.9 | % |
Country | Percentage | ||||
Mexico | 4.8 | % | |||
Philippines | 2.0 | % | |||
Poland | 1.7 | % | |||
Romania | — | %NM | |||
Russian Federation | 1.4 | % | |||
South Africa | 9.6 | % | |||
Spain | — | %NM | |||
Switzerland | — | %NM | |||
Taiwan, Province Of China | 14.7 | % | |||
Thailand | 3.6 | % | |||
Turkey | 1.4 | % | |||
Ukraine | 0.1 | % | |||
United States | 2.0 | % | |||
|
| ||||
100.0% | |||||
|
|
NM | Not meaningful, amount is less than 0.05%. |
See accompanying notes to the financial statements.
19
AZL DFA Emerging Markets Core Equity Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investment securities, at cost | $ | 65,411,565 | |||
|
| ||||
Investment securities, at value* | $ | 58,406,838 | |||
Cash | 13,831 | ||||
Interest and dividends receivable | 118,219 | ||||
Foreign currency, at value (cost $239,715) | 238,485 | ||||
Reclaims receivable | 4,037 | ||||
Prepaid expenses | 6,183 | ||||
|
| ||||
Total Assets | 58,787,593 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 63,167 | ||||
Payable for collateral received on loaned securities | 526,829 | ||||
Accrued foreign taxes | 56,534 | ||||
Manager fees payable | 22,828 | ||||
Administration fees payable | 16,178 | ||||
Distribution fees payable | 12,231 | ||||
Custodian fees payable | 87,934 | ||||
Administrative and compliance services fees payable | 153 | ||||
Trustee fees payable | 116 | ||||
Other accrued liabilities | 35 | ||||
|
| ||||
Total Liabilities | 786,005 | ||||
|
| ||||
Net Assets | $ | 58,001,588 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 69,485,154 | |||
Accumulated net investment income/(loss) | 646,397 | ||||
Accumulated net realized gains/(losses) from investment transactions | (5,067,701 | ) | |||
Net unrealized appreciation/(depreciation) on investments | (7,062,262 | ) | |||
|
| ||||
Net Assets | $ | 58,001,588 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 6,898,275 | ||||
Net Asset Value (offering and redemption price per share) | $ | 8.41 | |||
|
|
* | Includes securities on loan of $499,423. |
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Dividends | $ | 1,711,873 | |||
Income from securities lending | 12,759 | ||||
Foreign withholding tax | (159,480 | ) | |||
|
| ||||
Total Investment Income | 1,565,152 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 773,619 | ||||
Administration fees | 165,137 | ||||
Distribution fees | 154,724 | ||||
Custodian fees | 149,753 | ||||
Administrative and compliance services fees | 964 | ||||
Trustee fees | 3,217 | ||||
Professional fees | 2,871 | ||||
Shareholder reports | 838 | ||||
Other expenses | 4,092 | ||||
|
| ||||
Total expenses before reductions | 1,255,215 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (185,668 | ) | |||
Less expense contractually waived/reimbursed by the Manager | (144,438 | ) | |||
|
| ||||
Net expenses | 925,109 | ||||
|
| ||||
Net Investment Income/(Loss) | 640,043 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | (2,939,678 | ) | |||
Change in net unrealized appreciation/depreciation on investments | 10,299,508 | ||||
Net Change in foreign taxes on unrealized gains/losses | (56,534 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 7,303,296 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 7,943,339 | |||
|
|
See accompanying notes to the financial statements.
20
Statements of Changes in Net Assets
AZL DFA Emerging Markets Core Equity Fund | ||||||||||
For the Year Ended December 31, 2016 | April 27, 2015 to December 31, | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 640,043 | $ | 457,808 | ||||||
Net realized gains/(losses) on investment transactions | (2,939,678 | ) | (2,104,154 | ) | ||||||
Change in unrealized appreciation/depreciation on investments | 10,242,974 | (17,305,236 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 7,943,339 | (18,951,582 | ) | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (518,993 | ) | — | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (518,993 | ) | — | |||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 1,543,548 | 82,903,550 | ||||||||
Proceeds from dividends reinvested | 518,993 | — | ||||||||
Value of shares redeemed | (13,176,648 | ) | (2,260,619 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (11,114,107 | ) | 80,642,931 | |||||||
|
|
|
| |||||||
Change in net assets | (3,689,761 | ) | 61,691,349 | |||||||
Net Assets: | ||||||||||
Beginning of period | 61,691,349 | — | ||||||||
|
|
|
| |||||||
End of period | $ | 58,001,588 | $ | 61,691,349 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 646,397 | $ | 518,993 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 189,276 | 8,427,140 | ||||||||
Dividends reinvested | 60,069 | — | ||||||||
Shares redeemed | (1,548,664 | ) | (229,546 | ) | ||||||
|
|
|
| |||||||
Change in shares | (1,299,319 | ) | 8,197,594 | |||||||
|
|
|
|
(a) | For the period April 27, 2015 (commencement of operations) to December 31, 2015. |
See accompanying notes to the financial statements.
21
AZL DFA Emerging Markets Core Equity Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, 2016 | April 27, 2015 to | |||||||||
Net Asset Value, Beginning of Period | $ | 7.53 | $ | 10.00 | ||||||
|
|
|
| |||||||
Investment Activities: | ||||||||||
Net Investment Income/(Loss) | 0.10 | 0.06 | ||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.85 | (2.53 | ) | |||||||
|
|
|
| |||||||
Total from Investment Activities | 0.95 | (2.47 | ) | |||||||
|
|
|
| |||||||
Dividends to Shareholders From: | ||||||||||
Net Investment Income | (0.07 | ) | — | |||||||
|
|
|
| |||||||
Total Dividends | (0.07 | ) | — | |||||||
|
|
|
| |||||||
Net Asset Value, End of Period | $ | 8.41 | $ | 7.53 | ||||||
|
|
|
| |||||||
Total Return(b) | 12.63 | % | (24.70 | )%(c) | ||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||
Net Assets, End of Period (000’s) | $ | 58,002 | $ | 61,691 | ||||||
Net Investment Income/(Loss)(d) | 1.03 | % | 1.02 | % | ||||||
Expenses Before Reductions(d)(e) | 2.03 | % | 2.00 | % | ||||||
Expenses Net of Reductions(d) | 1.50 | % | 1.60 | % | ||||||
Portfolio Turnover Rate | 16 | % | 26 | %(c) |
(a) | For the period April 27, 2015 (commencement of operations) to December 31, 2015. |
(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.
22
AZL DFA Emerging Markets Core Equity Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL DFA Emerging Markets Core Equity Fund (the “Fund”), and 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding or similar taxes imposed by such countries. The Fund may be subject to foreign taxes on gains in investments or currency repatriation. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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.
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 differing treatment on certain investments) 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.
23
AZL DFA Emerging Markets Core Equity Fund
Notes to the Financial Statements
December 31, 2016
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, 2016 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $1.5 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $1,256 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (“ASU No. 2014-11”), “Transfers & Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged, and the remaining contractual maturity of those transactions as of December 31, 2016.
Overnight and Continuous | Less than 30 Days | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions | $ | 388,373 | $ | 99,675 | $ | — | $ | 38,781 | $ | 526,829 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Securities Lending Transactions | 388,373 | 99,675 | — | 38,781 | 526,829 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Borrowings | $ | 388,373 | $ | 99,675 | $ | — | $ | 38,781 | $ | 526,829 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Gross Amount of Recognized Liabilities for Securities Lending Transactions | $ | 526,829 | |||||||||||||||||||||||
|
|
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and sub-adviser. Any such purchase or sale transaction must be effected without a brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security’s last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. During the year ended December 31, 2016, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
3. Fees and Transactions with Affiliates and Other Parties
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 Dimensional Fund Advisors LP (“DFA”), DFA 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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL DFA Emerging Markets Core Equity Fund | 1.25 | % | 1.50 | % |
* | The Manager voluntarily reduced the management fee to 0.95% on all assets. The manager reserves the right to increase the management fee to the amount shown in the table at any time. |
24
AZL DFA Emerging Markets Core Equity Fund
Notes to the Financial Statements
December 31, 2016
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, 2016, the reimbursements that are subject to repayment by the Fund in subsequent years were as follows:
Expires 12/31/2018 | Expires 12/31/2019 | Total | |||||||||||||
AZL DFA Emerging Markets Core Equity Fund | $ | 44,947 | $ | 144,438 | $ | 189,385 |
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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the Fund’s average daily net assets, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $703 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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 (the “Board” or “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.
25
AZL DFA Emerging Markets Core Equity Fund
Notes to the Financial Statements
December 31, 2016
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, 2016, 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, 2016 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks | |||||||||||||||
Aerospace & Defense | $ | 97,560 | $ | 55,572 | $ | 153,132 | |||||||||
Airlines | 126,690 | 269,245 | 395,935 | ||||||||||||
Auto Components | 10,962 | 797,819 | 808,781 | ||||||||||||
Automobiles | 177,800 | 1,013,296 | 1,191,096 | ||||||||||||
Banks | 1,938,297 | 4,970,835 | 6,909,132 | ||||||||||||
Beverages | 726,843 | 215,669 | 942,512 | ||||||||||||
Capital Markets | 74,029 | 665,410 | 739,439 | ||||||||||||
Chemicals | 332,969 | 1,390,708 | 1,723,677 | ||||||||||||
Commercial Services & Supplies | 13,628 | 130,160 | 143,788 | ||||||||||||
Communications Equipment | 6,283 | 126,914 | 133,197 | ||||||||||||
Construction & Engineering | 67,845 | 691,295 | 759,140 | ||||||||||||
Construction Materials | 136,333 | 615,198 | 751,531 | ||||||||||||
Consumer Finance | 58,656 | 119,101 | 177,757 | ||||||||||||
Containers & Packaging | 27,779 | 84,162 | 111,941 | ||||||||||||
Diversified Consumer Services | 104,000 | 19,758 | 123,758 | ||||||||||||
Diversified Telecommunication Services | 535,973 | 444,109 | 980,082 | ||||||||||||
Electric Utilities | 746,552 | 370,060 | 1,116,612 | ||||||||||||
Electronic Equipment, Instruments & Components | 361,391 | 1,912,183 | 2,273,574 | ||||||||||||
Food & Staples Retailing | 353,600 | 928,321 | 1,281,921 | ||||||||||||
Food Products | 582,587 | 1,341,661 | 1,924,248 | ||||||||||||
Gas Utilities | 38,175 | 334,336 | 372,511 | ||||||||||||
Health Care Providers & Services | 55,927 | 368,977 | 424,904 | ||||||||||||
Hotels, Restaurants & Leisure | 88,886 | 537,703 | 626,589 | ||||||||||||
Household Durables | 89,398 | 625,719 | 715,117 | ||||||||||||
Household Products | 85,454 | 175,621 | 261,075 | ||||||||||||
Independent Power & Renewable Electricity Producers | 141,229 | 444,815 | 586,044 | ||||||||||||
Industrial Conglomerates | 222,281 | 1,034,440 | 1,256,721 | ||||||||||||
Insurance | 197,838 | 1,436,417 | 1,634,255 | ||||||||||||
Internet & Direct Marketing Retail | 81,725 | 63,078 | 144,803 | ||||||||||||
Internet Software & Services | 289,442 | 1,108,774 | 1,398,216 | ||||||||||||
IT Services | 636,979 | 687,944 | 1,324,923 | ||||||||||||
Machinery | 44,332 | 542,795 | 587,127 | ||||||||||||
Media | 277,064 | 541,890 | 818,954 | ||||||||||||
Metals & Mining | 1,151,775 | 1,134,679 | 2,286,454 | ||||||||||||
Multiline Retail | 170,145 | 338,972 | 509,117 | ||||||||||||
Oil, Gas & Consumable Fuels | 1,138,044 | 2,341,542 | 3,479,586 | ||||||||||||
Paper & Forest Products | 159,733 | 331,649 | 491,382 | ||||||||||||
Personal Products | 28,304 | 489,326 | 517,630 | ||||||||||||
Pharmaceuticals | 122,707 | 819,877 | 942,584 | ||||||||||||
Real Estate Management & Development | 192,919 | 1,677,003 | 1,869,922 | ||||||||||||
Road & Rail | 39,972 | 49,405 | 89,377 | ||||||||||||
Semiconductors & Semiconductor Equipment | 2,380,867 | 1,111,788 | 3,492,655 | ||||||||||||
Software | 76,847 | 114,462 | 191,309 | ||||||||||||
Specialty Retail | 29,697 | 536,977 | 566,674 | ||||||||||||
Textiles, Apparel & Luxury Goods | 23,861 | 537,757 | 561,618 |
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AZL DFA Emerging Markets Core Equity Fund
Notes to the Financial Statements
December 31, 2016
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Transportation Infrastructure | $ | 285,467 | $ | 523,093 | $ | 808,560 | |||||||||
Water Utilities | 130,753 | 148,936 | 279,689 | ||||||||||||
Wireless Telecommunication Services | 894,453 | 1,114,210 | 2,008,663 | ||||||||||||
All Other Common Stocks+ | — | 6,651,347 | 6,651,347 | ||||||||||||
Preferred Stocks+ | 270,706 | — | 270,706 | ||||||||||||
Securities Held as Collateral for Securities on Loan | — | 526,829 | 526,829 | ||||||||||||
Unaffiliated Investment Company | 70,244 | — | 70,244 | ||||||||||||
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Total Investment Securities | $ | 15,895,001 | $ | 42,511,837 | $ | 58,406,838 | |||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
For the period ended December 31, 2016, there have been no significant changes to the Funds’ fair valuation methodologies. Changes in valuation techniques may result in transfers out of an investment’s assigned level within the hierarchy during the reporting period. The Trust defines a significant transfer as aggregate transfers that are greater than 2% of a Fund’s net assets. There were significant total transfers between Level 1 and Level 2 during the reporting period. Level 1 securities were valued using quoted prices from stock exchanges. Level 2 securities were valued using fair valuation methodologies. These transfers were as follows:
Transfer from Level 1 to Level 2 | Transfer from Level 2 to Level 1 | Total Transfers* | |||||||||||||
AZL DFA Emerging Markets Core Equity Fund | $ | 411,254 | $ | 875,503 | $ | 1,286,757 |
* | Represents 2.2% of net assets as of December 31, 2016. |
5. Security Purchases and Sales
For the year ended December 31, 2016, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL DFA Emerging Markets Core Equity Fund | $ | 9,870,009 | $ | 20,624,910 |
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 policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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 of securities for federal income tax purposes at December 31, 2016 is $65,444,533. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 4,061,386 | ||
Unrealized (depreciation) | (11,099,081 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | (7,037,695 | ) | |
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As of the end of its tax year ended December 31, 2016, the Fund has capital loss carry forwards (“CLCFs”) as summarized in the table 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.
27
AZL DFA Emerging Markets Core Equity Fund
Notes to the Financial Statements
December 31, 2016
CLCFs not subject to expiration:
Short Term Amount | Long Term Amount | Total Amount | |||||||||||||
AZL DFA Emerging Markets Core Equity Fund | $ | 3,272,175 | $ | 1,784,284 | $ | 5,056,459 |
The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL DFA Emerging Markets Core Equity Fund | $ | 518,993 | $ | — | $ | 518,993 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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/ | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL DFA Emerging Markets Core Equity Fund | $ | 668,123 | $ | — | $ | (5,056,459 | ) | $ | (7,095,230 | ) | $ | (11,483,566 | ) |
(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, 2016, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 90% of the Fund.
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies – Form N-PORT and Form N-CEN – also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
10. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
28
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 DFA Emerging Markets Core Equity Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2016, and the related statement of operations for the year then ended and the statements of changes in net assets and the financial highlights for each of the years or periods in the two-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2016, 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 AZL DFA Emerging Markets Core Equity Fund as of December 31, 2016, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the years or periods in the two-year period then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Columbus, Ohio
February 24, 2017
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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 — October 25, 2016 (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 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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
31
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 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 the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held October 25, 2016, the Manager reported that for the three year period ended June 30, 2016, seven Funds were in the top 40%, two were in the middle 20% and three were in the bottom 40%, and for the one year period ended June 30, 2016, twelve Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2016, six Funds were in the top 40%, one was in the middle 20%, and three were in the bottom 40%. At the Board of Trustees meeting held October 25, 2016, 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 twenty Funds reviewed by the Board of Trustees in the fall of 2016, seventeen 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 2016 for the twenty-one Funds was as follows; (1) eighteen of the Funds had total expense rankings below the 65th percentile (with eleven Funds at or below the 50th percentile); (2) the AZL Russell 1000 Growth Index Fund had a total expense ranking in the 66th percentile, but there was only a very limited peer group for such Fund, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; (3) the AZL International Index Fund had a total expense ranking in the 75th percentile, but there was only a limited peer group for such Fund, the actual management fee was in the 37th percentile, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; and (4) for the AZL Morgan Stanley Global Real Estate Fund, which had a total expense ranking in the 70th percentile, the Manager recommended a temporary management fee waiver of 5 basis points, effective November 1, 2016, which would move the management fee ranking from the 80th to the 60th percentile.
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 2013 through June 30, 2016. 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, all of which currently are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. 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.
32
(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, 2016 were approximately $6.4 billion, and that no single Fund had assets in excess of $1,289 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, 2017, 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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/Length | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 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 | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 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 | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
34
Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
35
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® DFA Five-Year Global Fixed Income Fund
Annual Report
December 31, 2016
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 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® DFA Five-Year Global Fixed Income Fund (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® DFA Five-Year Global Fixed Income Fund and Dimensional Fund Advisors LP serves as Subadviser to the Fund. | ||
What factors affected the Fund’s performance during the year ended December 31, 2016?
For the year ended December 31, 2016, the AZL® DFA Five-Year Global Fixed Income Fund (the “Fund”) returned 1.28%. That compared to a 1.49% total return for its benchmark, the Citi World Government Bond 1-5 Year Hedged Index1.
Both U.S. and non-U.S. fixed income markets posted positive returns during the period. Yield curves were generally upwardly sloped in many developed markets, indicating positive expected term premiums. Indeed, realized term premiums were positive in the U.S. and globally as longer-term maturities outperformed their shorter-term counterparts. Credit premiums were also positive in the U.S. and globally as lower-quality investment-grade corporates outperformed their higher-quality investment-grade counterparts. Corporate bonds were the best-performing sector in both the U.S. and globally.
While interest rates increased in the U.S., they generally decreased globally. Major markets such as Japan, Germany, and the United Kingdom all experienced decreases in interest rates. Yields on Japanese and German government bonds with maturities as long as eight years finished the year in negative territory.
Over the course of the year, U.S. interest rates increased the most on the short end of the yield curve and were relatively unchanged on the long end. The yield on the 3-month U.S. Treasury bill increased 0.35% to end the year at 0.51%. The yield on the 2-year U.S. Treasury note increased 0.14% to 1.20%. The yield on the 10-year U.S. Treasury note closed at a record low of 1.37% in July yet increased 0.18% for the year to end at 2.45%. The yield on the 30-year U.S. Treasury bond increased 0.05% to end the year at 3.06%.
The Fund slightly underperformed its benchmark for the period. The Fund was hurt by a relative lack of exposure to the Italian and Spanish government bond markets due to the Fund’s focus on higher-quality securities.*
The Fund’s underweight position in shorter-term securities of 1-3 years and its overweight exposure to 3-5 year securities benefited performance, as longer-dated securities outperformed shorter-dated alternatives during the period. The Fund’s greater exposure to U.S. dollar-denominated bonds relative to its benchmark boosted relative performance during the period.*
The Fund hedged exposure to bonds not denominated in U.S. dollars with currency forward contracts. These derivatives added to absolute performance, but given that the benchmark index is also currency hedged, these derivatives did not impact 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, 2016. |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
1
AZL® DFA Five-Year Global Fixed Income Fund (unaudited)
Fund Objective
The Fund’s investment objective is to seek to provide a market rate of return for a fixed income portfolio with low relative volatility of returns, and seeks to focus the eligible universe on securities with relatively less expected upward or downward movement in market value. 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 fixed income securities that mature within five years from the date of settlement. | ||
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. | ||
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. | ||
Debt securities held by the Fund may decline in value due to rising interest rates. Interest rates in the U.S. are at, or near, historic lows, which may increase the Fund’s exposure to risks related to rising rates. | ||
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 Total Returns as of December 31, 2016 | ||||||||
Since Inception (4/27/15) | ||||||||
1 Year | ||||||||
AZL® DFA Five-Year Global Fixed Income Fund | 1.28 | % | 0.22 | % | ||||
Citi World Government Bond 1-5 Year Hedged Index | 1.49 | % | 1.05 | % |
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® DFA Five-Year Global Fixed Income Fund | 0.91 | % |
The above expense ratio is based on the current Fund prospectus dated April 25, 2016, as supplemented October 14, 2016. The Manager voluntarily reduced the management fee to 0.50% on all assets. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 0.95% through April 30, 2018. Additional information pertaining to the December 31, 2016 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 Citi World Government Bond 1-5 Year Hedged Index, an unmanaged index that measures the performance of fixed-rate; local currency, investment-grade sovereign bonds, and currently comprises sovereign debt from over 20 countries. This index follows the same inclusion criteria and methodology as the Citi World Government Bond Index (WGBI), but only includes the securities from the WGBI with a weighted average life of greater than or equal to 1 and less than 5 years. 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 DFA Five-Year Global Fixed Income Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL DFA Five-Year Global Fixed 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL DFA Five-Year Global Fixed Income Fund | $ | 1,000.00 | $ | 981.10 | $ | 3.98 | 0.80 | % |
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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL DFA Five-Year Global Fixed Income Fund | $ | 1,000.00 | $ | 1,021.11 | $ | 4.06 | 0.80 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Yankee Dollars | 61.8 | % | |||
Corporate Bonds | 35.6 | ||||
Securities Held as Collateral for Securities on Loan | 4.4 | ||||
Money Market | 1.1 | ||||
Foreign Bonds | 1.1 | ||||
|
| ||||
Total Investment Securities | 104.0 | ||||
Net other assets (liabilities) | (4.0 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL DFA Five-Year Global Fixed Income Fund
Schedule of Portfolio Investments
December 31, 2016
Contracts, Shares, Notional | Fair Value | |||||||
| Corporate Bonds (35.6%): |
| ||||||
| Banks (1.7%): |
| ||||||
$ | 8,000,000 | U.S. Bank NA Cincinnati, Series BKNT, 2.13%, 10/28/19, Callable 9/28/19 @ 100 | $ | 8,028,904 | ||||
|
| |||||||
| Beverages (2.2%): |
| ||||||
8,895,000 | Coca-Cola Co. (The), 1.88%, 10/27/20 | 8,819,410 | ||||||
2,000,000 | Coca-Cola Co. (The), 2.45%, 11/1/20^ | 2,020,652 | ||||||
|
| |||||||
10,840,062 | ||||||||
|
| |||||||
| Communications Equipment (2.5%): |
| ||||||
12,000,000 | Cisco Systems, Inc., 2.20%, 2/28/21^ | 11,974,140 | ||||||
|
| |||||||
Consumer Finance (2.9%): | ||||||||
14,000,000 | Toyota Motor Credit Corp., 2.15%, 3/12/20 | 13,975,024 | ||||||
|
| |||||||
Diversified Financial Services (1.7%): | ||||||||
1,200,000 | Berkshire Hathaway Finance, 4.25%, 1/15/21 | 1,293,286 | ||||||
6,810,000 | Berkshire Hathaway, Inc., 2.20%, 3/15/21, Callable 2/15/21 @ 100 | 6,795,835 | ||||||
|
| |||||||
8,089,121 | ||||||||
|
| |||||||
Food & Staples Retailing (1.1%): | ||||||||
3,922,000 | Wal-Mart Stores, Inc., 3.25%, 10/25/20 | 4,087,536 | ||||||
1,000,000 | Wal-Mart Stores, Inc., 4.25%, 4/15/21 | 1,081,467 | ||||||
|
| |||||||
5,169,003 | ||||||||
|
| |||||||
| Household Products (2.1%): |
| ||||||
10,015,000 | Procter & Gamble Co. (The), 1.85%, 2/2/21 | 9,910,123 | ||||||
|
| |||||||
| Internet Software & Services (0.2%): |
| ||||||
1,000,000 | Alphabet, Inc., 3.63%, 5/19/21 | 1,060,474 | ||||||
|
| |||||||
| IT Services (2.7%): |
| ||||||
10,500,000 | Automatic Data Processing, Inc., 2.25%, 9/15/20, Callable 8/15/20 @ 100 | 10,554,264 | ||||||
1,500,000 | IBM Corp., 1.63%, 5/15/20^ | 1,481,751 | ||||||
1,000,000 | IBM Corp., 2.25%, 2/19/21^ | 998,784 | ||||||
|
| |||||||
13,034,799 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (5.6%): |
| ||||||
14,000,000 | Chevron Corp., 1.96%, 3/3/20, Callable 2/3/20 @ 100^ | 13,953,422 | ||||||
13,331,000 | Exxon Mobil Corp., 1.91%, 3/6/20, Callable 2/6/20 @ 100^ | 13,317,029 | ||||||
|
| |||||||
27,270,451 | ||||||||
|
| |||||||
| Pharmaceuticals (6.7%): |
| ||||||
2,500,000 | Johnson & Johnson Co., 2.95%, 9/1/20^ | 2,582,113 | ||||||
4,900,000 | Johnson & Johnson Co., 1.65%, 3/1/21, Callable 2/1/21 @ 100^ | 4,823,653 | ||||||
11,500,000 | Merck & Co., Inc., 1.85%, 2/10/20^ | 11,507,198 | ||||||
4,000,000 | Pfizer, Inc., 2.10%, 5/15/19 | 4,037,096 | ||||||
10,000,000 | Pfizer, Inc., 1.95%, 6/3/21^ | 9,890,320 | ||||||
|
| |||||||
32,840,380 | ||||||||
|
| |||||||
| Software (3.6%): |
| ||||||
9,000,000 | Microsoft Corp., 1.85%, 2/12/20, Callable 1/12/20 @ 100^ | 8,994,258 | ||||||
4,000,000 | Microsoft Corp., 3.00%, 10/1/20 | 4,134,920 | ||||||
700,000 | Microsoft Corp., 2.00%, 11/3/20, Callable 10/3/20 @ 100 | 700,725 |
Contracts, Shares, Notional | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Software, continued |
| ||||||
$ | 2,500,000 | Oracle Corp., 2.80%, 7/8/21 | $ | 2,548,005 | ||||
1,000,000 | Oracle Corp., 1.90%, 9/15/21, Callable 8/15/21 @ 100 | 977,193 | ||||||
|
| |||||||
17,355,101 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (2.4%): |
| ||||||
11,605,000 | Apple, Inc., 2.25%, 2/23/21, Callable 1/23/21 @ 100 | 11,595,345 | ||||||
|
| |||||||
| Thrifts & Mortgage Finance (0.2%): |
| ||||||
1,000,000 | USAA Capital Corp., 2.00%, 6/1/21(a) | 978,850 | ||||||
|
| |||||||
| Total Corporate Bonds (Cost $173,895,977) | 172,121,777 | ||||||
|
| |||||||
| Foreign Bonds (1.1%): |
| ||||||
| Sovereign Bonds (1.1%): |
| ||||||
3,500,000 | Singapore Government, 2.25%, 6/1/21+ | 2,461,459 | ||||||
4,000,000 | Singapore Government, 1.25%, 10/1/21+ | 2,686,034 | ||||||
|
| |||||||
5,147,493 | ||||||||
|
| |||||||
| Total Foreign Bonds (Cost $5,632,882) | 5,147,493 | ||||||
|
| |||||||
| Yankee Dollars (61.8%): |
| ||||||
| Banks (30.0%): |
| ||||||
4,750,000 | Australia & New Zealand Banking Group, Ltd., Regisetred Shares, 2.25%, 6/13/19 | 4,765,376 | ||||||
8,000,000 | Australia & New Zealand Banking Group, Ltd., Registered Shares, 5.10%, 1/13/20 | 8,600,648 | ||||||
2,500,000 | Bank of Montreal, 1.90%, 8/27/21 | 2,422,560 | ||||||
4,000,000 | BK Nederlandse Gemeenten, Registered Shares, 1.63%, 4/19/21 | 3,892,620 | ||||||
1,568,000 | Commonwealth Bank of Australia NY, 2.30%, 9/6/19 | 1,572,693 | ||||||
12,000,000 | Commonwealth Bank of Australia NY, Series G, 2.30%, 3/12/20 | 11,939,256 | ||||||
13,650,000 | Dexia Credit Local SA NY, Registered Shares, 1.88%, 1/29/20 | 13,470,325 | ||||||
2,000,000 | KFW, Series G, 2.75%, 9/8/20 | 2,055,458 | ||||||
1,000,000 | KFW, 1.63%, 3/15/21 | 981,950 | ||||||
2,000,000 | National Australia Bank, Ltd., 1.88%, 7/12/21 | 1,935,782 | ||||||
4,810,000 | National Australia Bank, Ltd., Registered Shares, 2.25%, 7/1/19 | 4,825,329 | ||||||
600,000 | National Australian Bank of New York, Series G, 2.63%, 1/14/21 | 599,691 | ||||||
8,612,000 | Nederlandse Waterschapsbank NV, Registed Shares, 1.75%, 9/5/19 | 8,588,739 | ||||||
3,000,000 | Nordea Bank AB, Registered Shares, 4.88%, 1/27/20^ | 3,205,662 | ||||||
2,000,000 | Nordea Bank AB, Registered Shares, 2.50%, 9/17/20(a) | 2,001,544 | ||||||
8,000,000 | NRW.Bank, Series E, 2.00%, 9/23/19 | 8,018,312 | ||||||
5,000,000 | Oekb OEST. Kontrollbank, 2.38%, 10/1/21 | 5,021,395 | ||||||
5,000,000 | Oesterreichische Kontrollbank AG, 1.38%, 2/10/20 | 4,926,375 | ||||||
4,000,000 | Oesterreichische Kontrollbank AG, 1.88%, 1/20/21 | 3,954,816 |
Continued
4
AZL DFA Five-Year Global Fixed Income Fund
Schedule of Portfolio Investments
December 31, 2016
Contracts, Shares, Notional | Fair Value | |||||||
| Yankee Dollars, continued |
| ||||||
| Banks, continued |
| ||||||
$ | 3,000,000 | Rabobank Nederland NY, Series G, 2.50%, 1/19/21 | $ | 2,999,520 | ||||
3,000,000 | Royal Bank of Canada, Series G, 2.15%, 3/15/19 | 3,011,811 | ||||||
6,500,000 | Royal Bank of Canada, Series G, 2.15%, 3/6/20 | 6,465,252 | ||||||
2,500,000 | Royal Bank of Canada, 2.50%, 1/19/21 | 2,506,115 | ||||||
4,630,000 | Svenska Handelsbanken AB, 2.50%, 1/25/19 | 4,678,958 | ||||||
9,327,000 | Svenska Handelsbanken AB, Series G, 2.40%, 10/1/20 | 9,307,236 | ||||||
1,500,000 | Toronto-Dominion Bank (The), Series BKNT, 2.13%, 7/2/19 | 1,503,756 | ||||||
2,411,000 | Toronto-Dominion Bank (The), 2.25%, 11/5/19 | 2,425,345 | ||||||
2,700,000 | Toronto-Dominion Bank (The), Series G, 2.50%, 12/14/20 | 2,709,793 | ||||||
5,000,000 | Toronto-Dominion Bank (The), 2.13%, 4/7/21 | 4,923,560 | ||||||
2,000,000 | Toronto-Dominion Bank (The), 1.80%, 7/13/21^ | 1,936,736 | ||||||
2,000,000 | Westpac Banking Corp., 2.30%, 5/26/20^ | 1,990,804 | ||||||
7,500,000 | Westpac Banking Corp., 2.60%, 11/23/20 | 7,530,315 | ||||||
|
| |||||||
144,767,732 | ||||||||
|
| |||||||
| Diversified Financial Services (13.2%): |
| ||||||
4,978,000 | Agence Francaise Develop, 1.63%, 1/21/20 | 4,906,217 | ||||||
334,000 | Asian Development Bank, Series G, 1.63%, 3/16/21 | 328,497 | ||||||
13,000,000 | Council of Europe Development Bank, 1.63%, 3/16/21 | 12,710,789 | ||||||
11,500,000 | European Investment Bank, 2.88%, 9/15/20 | 11,883,468 | ||||||
1,000,000 | Export Development Canada, 1.38%, 10/21/21 | 965,560 | ||||||
1,000,000 | Inter-American Development Bank, 2.13%, 11/9/20 | 1,009,195 | ||||||
2,000,000 | Japan Finance Organization for Municipalities, Registered Shares, 2.13%, 3/6/19 | 1,993,264 | ||||||
1,000,000 | Kommunalbanken AS, Registered Shares, 1.63%, 2/10/21 | 977,353 | ||||||
13,000,000 | Kommuninvest I Sverige AB, Registered Shares, 2.00%, 11/12/19 | 13,065,949 | ||||||
1,000,000 | Municipality Finance plc, 1.50%, 3/23/20 | 985,926 | ||||||
2,000,000 | Swedish Export Credit Corp., Series G, 1.75%, 8/28/20 | 1,987,182 | ||||||
11,000,000 | Swedish Export Credit Corp., Series G, 1.75%, 3/10/21 | 10,795,037 | ||||||
2,264,000 | The International Bank for Reconstruction and Development, 2.13%, 11/1/20 | 2,288,238 | ||||||
|
| |||||||
63,896,675 | ||||||||
|
|
Contracts, Shares, Notional | Fair Value | |||||||
| Yankee Dollars, continued |
| ||||||
| Industrial Conglomerates (2.8%): |
| ||||||
$ | 13,706,000 | GE Capital International Funding, 2.34%, 11/15/20 | $ | 13,699,462 | ||||
|
| |||||||
| Oil, Gas & Consumable Fuels (7.0%): |
| ||||||
4,845,000 | Shell International Finance BV, 4.38%, 3/25/20 | 5,175,705 | ||||||
2,700,000 | Shell International Finance BV, 2.13%, 5/11/20 | 2,696,774 | ||||||
5,000,000 | Shell International Finance BV, 1.75%, 9/12/21^ | 4,858,865 | ||||||
13,500,000 | Statoil ASA, 2.25%, 11/8/19 | 13,612,091 | ||||||
7,000,000 | Total Capital SA, 4.45%, 6/24/20 | 7,531,972 | ||||||
|
| |||||||
33,875,407 | ||||||||
|
| |||||||
| Sovereign Bonds (8.8%): |
| ||||||
1,000,000 | Caisse D’amortissement de La Dette Sociale, 2.00%, 3/22/21 | 988,000 | ||||||
14,000,000 | Land Nordrhein-Westfalen, 1.63%, 1/22/20 | 13,857,312 | ||||||
1,000,000 | Ontario (Province of), 2.50%, 9/10/21 | 1,007,699 | ||||||
1,000,000 | Province of Alberta, Registered Shares, 1.75%, 8/26/20 | 990,504 | ||||||
2,000,000 | Province of Manitoba, 2.05%, 11/30/20^ | 2,006,626 | ||||||
9,400,000 | Province of Ontario, 4.00%, 10/7/19 | 9,931,683 | ||||||
1,500,000 | Province of Ontario, 1.88%, 5/21/20^ | 1,495,097 | ||||||
11,700,000 | Province of Quebec, 3.50%, 7/29/20 | 12,331,799 | ||||||
|
| |||||||
42,608,720 | ||||||||
|
| |||||||
| Total Yankee Dollars (Cost $301,578,997) | 298,847,996 | ||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (4.4%): | ||||||||
21,015,414 | AZL DFA Five-Year Global Fixed Income Fund Securities Lending Collateral Account(b) | 21,015,414 | ||||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 21,015,414 | ||||||
|
| |||||||
| Unaffiliated Investment Company (1.1%): |
| ||||||
5,124,463 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(c) | 5,124,463 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $5,124,463) | 5,124,463 | ||||||
|
| |||||||
| Total Investment Securities (Cost $507,247,733)(d) — 104.0% | 502,257,143 | ||||||
| Net other assets (liabilities) — (4.0)% | (19,427,274 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 482,829,869 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
^ | This security or a partial position of this security was on loan as of December 31, 2016. The total value of securities on loan as of December 31, 2016, was $20,459,288. |
+ | 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) | 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, 2016. |
(c) | The rate represents the effective yield at December 31, 2016. |
(d) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Continued
5
AZL DFA Five-Year Global Fixed Income Fund
Schedule of Portfolio Investments
December 31, 2016
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, 2016: (Unaudited)
Country | Percentage | |||
Australia | 8.7 | % | ||
Austria | 2.8 | % | ||
Belgium | 2.7 | % | ||
Canada | 11.3 | % | ||
Denmark | 1.0 | % | ||
Finland | 0.2 | % | ||
France | 2.7 | % | ||
Germany | 5.0 | % | ||
Japan | 3.2 | % | ||
Netherlands | 5.6 | % | ||
Norway | 2.9 | % | ||
Singapore | 1.0 | % | ||
SNAT | 5.6 | % | ||
Sweden | 7.9 | % | ||
United States | 39.4 | % | ||
|
| |||
100.0 | % | |||
|
|
Forward Currency Contracts
At December 31, 2016, 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: | ||||||||||||||||||||||||
Singapore Dollar | State Street | 2/14/17 | 7,468,838 | $ | 5,245,512 | $ | 5,158,340 | $ | 87,172 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
$ | 5,245,512 | $ | 5,158,340 | $ | 87,172 | |||||||||||||||||||
|
|
|
|
|
|
See accompanying notes to the financial statements.
6
AZL DFA Five-Year Global Fixed Income Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investment securities, at cost | $ | 507,247,733 | |||
|
| ||||
Investment securities, at value* | $ | 502,257,143 | |||
Cash | 1,161 | ||||
Interest and dividends receivable | 3,298,992 | ||||
Foreign currency, at value (cost $31) | 29 | ||||
Unrealized appreciation on forward currency contracts | 87,172 | ||||
Prepaid expenses | 2,573 | ||||
|
| ||||
Total Assets | 505,647,070 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 1,461,956 | ||||
Payable for collateral received on loaned securities | 21,015,414 | ||||
Manager fees payable | 203,276 | ||||
Administration fees payable | 9,940 | ||||
Distribution fees payable | 101,638 | ||||
Custodian fees payable | 12,920 | ||||
Administrative and compliance services fees payable | 1,268 | ||||
Trustee fees payable | 963 | ||||
Other accrued liabilities | 9,826 | ||||
|
| ||||
Total Liabilities | 22,817,201 | ||||
|
| ||||
Net Assets | $ | 482,829,869 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 484,884,370 | |||
Accumulated net investment income/(loss) | 5,705,970 | ||||
Accumulated net realized gains/(losses) from investment transactions | (2,856,786 | ) | |||
Net unrealized appreciation/(depreciation) on investments | (4,903,685 | ) | |||
|
| ||||
Net Assets | $ | 482,829,869 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 48,462,741 | ||||
Net Asset Value (offering and redemption price per share) | $ | 9.96 | |||
|
|
* | Includes securities on loan of $20,459,288. |
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Interest | $ | 8,683,613 | |||
Dividends | 6,771 | ||||
Income from securities lending | 109,647 | ||||
|
| ||||
Total Investment Income | 8,800,031 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,927,988 | ||||
Administration fees | 134,331 | ||||
Distribution fees | 1,219,998 | ||||
Custodian fees | 23,730 | ||||
Administrative and compliance services fees | 7,499 | ||||
Trustee fees | 25,428 | ||||
Professional fees | 23,805 | ||||
Shareholder reports | 6,898 | ||||
Other expenses | 12,841 | ||||
|
| ||||
Total expenses before reductions | 4,382,518 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (487,992 | ) | |||
|
| ||||
Net expenses | 3,894,526 | ||||
|
| ||||
Net Investment Income/(Loss) | 4,905,505 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | (132,780 | ) | |||
Net realized gains/(losses) on forward currency contracts | 1,780,770 | ||||
Change in net unrealized appreciation/depreciation on investments | 44,979 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 1,692,969 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 6,598,474 | |||
|
|
See accompanying notes to the financial statements.
7
Statements of Changes in Net Assets
AZL DFA Five-Year Global Fixed Income Fund | ||||||||||
For the 2016 | April 27, 2015 to December 31, | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 4,905,505 | $ | 3,361,852 | ||||||
Net realized gains/(losses) on investment transactions | 1,647,990 | (3,700,561 | ) | |||||||
Change in unrealized appreciation/depreciation on investments | 44,979 | (4,948,664 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 6,598,474 | (5,287,373 | ) | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (3,717,956 | ) | — | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (3,717,956 | ) | — | |||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 19,877,421 | 625,605,065 | ||||||||
Proceeds from dividends reinvested | 3,717,956 | — | ||||||||
Value of shares redeemed | (60,694,755 | ) | (103,268,963 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (37,099,378 | ) | 522,336,102 | |||||||
|
|
|
| |||||||
Change in net assets | (34,218,860 | ) | 517,048,729 | |||||||
Net Assets: | ||||||||||
Beginning of period | 517,048,729 | — | ||||||||
|
|
|
| |||||||
End of period | $ | 482,829,869 | $ | 517,048,729 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 5,705,970 | $ | 3,717,925 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 1,974,006 | 62,564,793 | ||||||||
Dividends reinvested | 367,750 | — | ||||||||
Shares redeemed | (6,041,451 | ) | (10,402,357 | ) | ||||||
|
|
|
| |||||||
Change in shares | (3,699,695 | ) | 52,162,436 | |||||||
|
|
|
|
(a) | For the period April 27, 2015 (commencement of operations) to December 31, 2015. |
See accompanying notes to the financial statements.
8
AZL DFA Five-Year Global Fixed Income Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, 2016 | April 27, 2015 December 31, | |||||||||
Net Asset Value, Beginning of Period | $ | 9.91 | $ | 10.00 | ||||||
|
|
|
| |||||||
Investment Activities: | ||||||||||
Net Investment Income/(Loss) | 0.11 | 0.06 | ||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.02 | (0.15 | ) | |||||||
|
|
|
| |||||||
Total from Investment Activities | 0.13 | (0.09 | ) | |||||||
|
|
|
| |||||||
Dividends to Shareholders From: | ||||||||||
Net Investment Income | (0.08 | ) | — | |||||||
|
|
|
| |||||||
Total Dividends | (0.08 | ) | — | |||||||
|
|
|
| |||||||
Net Asset Value, End of Period | $ | 9.96 | $ | 9.91 | ||||||
|
|
|
| |||||||
Total Return(b) | 1.28 | % | 0.90 | %(c) | ||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||
Net Assets, End of Period (000’s) | $ | 482,830 | $ | 517,049 | ||||||
Net Investment Income/(Loss)(d) | 1.01 | % | 0.90 | % | ||||||
Expenses Before Reductions(d)(e) | 0.90 | % | 0.91 | % | ||||||
Expenses Net of Reductions(d) | 0.80 | % | 0.81 | % | ||||||
Portfolio Turnover Rate | 52 | % | 127 | %(c) |
(a) | For the period April 27, 2015 (commencement of operations) to December 31, 2015. |
(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 DFA Five-Year Global Fixed Income Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL DFA Five-Year Global Fixed Income Fund (the “Fund”), and 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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.
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 DFA Five-Year Global Fixed Income Fund
Notes to the Financial Statements
December 31, 2016
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, 2016 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $31.9 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $10,817 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (“ASU No. 2014-11”), “Transfers & Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged, and the remaining contractual maturity of those transactions as of December 31, 2016.
Overnight and Continuous | Less than 30 Days | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions |
| ||||||||||||||||||||||||
Corporate Debt Securities | $ | 21,015,414 | $ | — | $ | — | $ | — | $ | 21,015,414 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Securities Lending Transactions | 21,015,414 | — | — | — | 21,015,414 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Borrowings | $ | 21,015,414 | $ | — | $ | — | $ | — | $ | 21,015,414 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Gross Amount of Recognized Liabilities for Securities Lending Transactions |
| $ | 21,015,414 | ||||||||||||||||||||||
|
|
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and sub-adviser. Any such purchase or sale transaction must be effected without a brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security’s last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. During the year ended December 31, 2016, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
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, 2016, the Fund entered into forward currency contracts in connections 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 $5.2 million as of December 31, 2016. The monthly average for these contracts was $15.4 million for the year ended December 31, 2016.
11
AZL DFA Five-Year Global Fixed Income Fund
Notes to the Financial Statements
December 31, 2016
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, 2016:
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* | ||||||||
Foreign Exchange Risk Exposure | ||||||||||||
Foreign Currency Contracts | Unrealized appreciation on forward currency contracts | $ | 87,172 | Unrealized depreciation on forward currency 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, 2016:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives Recognized | Change in Net Unrealized Appreciation/Depreciation on Derivatives Recognized | |||||||
Foreign Exchange Risk Exposure | ||||||||||
Foreign Currency Contracts | Net Realized gains/(losses) on forward currency contracts/Change in unrealized appreciation/depreciation on investments | $ | 1,780,770 | $ | 87,172 |
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 transact net amounts in accordance with the master netting agreements at December 31, 2016. 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, 2016.
As of December 31, 2016, the Fund’s derivative assets and liabilities by type are as follows:
Assets | Liabilities | |||||||||
Derivative Financial Instruments: | ||||||||||
Forward currency contracts | $ | 87,172 | $ | — | ||||||
|
|
|
| |||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | 87,172 | — | ||||||||
Derivatives not subject to a master netting agreement or similar agreement (“MNA”) | — | — | ||||||||
|
|
|
| |||||||
Total assets and liabilities subject to a MNA | $ | 87,172 | $ | — | ||||||
|
|
|
|
The following table presents the Fund’s derivative assets by counterparty net of amounts available for offset under MNA and net of the related collateral received by the Fund as of December 31, 2016:
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 | ||||||||||||||||||||
State Street | $ | 87,172 | $ | — | $ | — | $ | — | $ | 87,172 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total | $ | 87,172 | $ | — | $ | — | $ | — | $ | 87,172 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
* | 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. Fees and Transactions with Affiliates and Other Parties
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 Dimensional Fund Advisors LP (“DFA”), DFA 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, acquired fund fees and expenses, 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, 2018.
12
AZL DFA Five-Year Global Fixed Income Fund
Notes to the Financial Statements
December 31, 2016
For the year ended December 31, 2016, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL DFA Five-Year Global Fixed Income Fund | 0.60 | % | 0.95 | % |
* | The Manager voluntarily reduced the management fee to 0.50% on all assets. The manager reserves the right to increase the management fee to the amount shown in the table 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, 2016, 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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the Fund’s average daily net assets, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $5,523 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee received an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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 (the “Board” or “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.
13
AZL DFA Five-Year Global Fixed Income Fund
Notes to the Financial Statements
December 31, 2016
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, 2016, 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, 2016 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Corporate Bonds+ | $ | — | $ | 172,121,777 | $ | 172,121,777 | |||||||||
Foreign Bonds+ | — | 5,147,493 | 5,147,493 | ||||||||||||
Securities Held as Collateral for Securities on Loan | — | 21,015,414 | 21,015,414 | ||||||||||||
Yankee Dollars+ | — | 298,847,996 | 298,847,996 | ||||||||||||
Unaffiliated Investment Company | 5,124,463 | — | 5,124,463 | ||||||||||||
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Total Investment Securities | $ | 5,124,463 | $ | 497,132,680 | $ | 502,257,143 | |||||||||
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Other Financial Instruments:* | |||||||||||||||
Forward Currency Contracts | — | 87,172 | 87,172 | ||||||||||||
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Total Investments | $ | 5,124,463 | $ | 497,219,852 | $ | 502,344,315 | |||||||||
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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, 2016, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL DFA Five-Year Global Fixed Income Fund | $ | 252,186,405 | $ | 279,656,843 |
For the year ended December 31, 2016, cost of purchases and proceeds from sales of long-term U.S. government securities included above were as follows:
Purchases | Sales | |||||||||
AZL DFA Five-Year Global Fixed Income Fund | $ | 13,724,281 | $ | 15,959,218 |
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
14
AZL DFA Five-Year Global Fixed Income Fund
Notes to the Financial Statements
December 31, 2016
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 policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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 of securities for federal income tax purposes at December 31, 2016 is $507,247,733. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 123,985 | ||
Unrealized (depreciation) | (5,114,575 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | (4,990,590 | ) | |
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As of the end of its tax year ended December 31, 2016, the Fund has capital loss carry forwards (“CLCFs”) as summarized in the table 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 DFA Five-Year Global Fixed Income Fund | $ | 2,856,785 | $ | — | $ | 2,856,785 |
During the year ended December 31, 2016, the Fund utilized $847,495 in capital loss carry forwards to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL DFA Five-Year Global Fixed Income Fund | $ | 3,717,956 | $ | — | $ | 3,717,956 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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 DFA Five-Year Global Fixed Income Fund | $ | 5,705,969 | $ | — | $ | (2,856,786 | ) | $ | (4,903,684 | ) | $ | (2,054,501 | ) |
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, 2016, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 90% of the Fund.
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies — Form N-PORT and Form N-CEN — also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
15
AZL DFA Five-Year Global Fixed Income Fund
Notes to the Financial Statements
December 31, 2016
10. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
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 DFA Five-Year Global Fixed Income Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2016, and the related statement of operations for the year then ended and the statements of changes in net assets and the financial highlights for each of the years or periods in the two-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2016, 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 AZL DFA Five-Year Global Fixed Income Fund as of December 31, 2016, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the years or periods in the two-year period then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Columbus, Ohio
February 24, 2017
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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 — October 25, 2016 (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 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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 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 the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held October 25, 2016, the Manager reported that for the three year period ended June 30, 2016, seven Funds were in the top 40%, two were in the middle 20% and three were in the bottom 40%, and for the one year period ended June 30, 2016, twelve Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2016, six Funds were in the top 40%, one was in the middle 20%, and three were in the bottom 40%. At the Board of Trustees meeting held October 25, 2016, 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 twenty Funds reviewed by the Board of Trustees in the fall of 2016, seventeen 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 2016 for the twenty-one Funds was as follows; (1) eighteen of the Funds had total expense rankings below the 65th percentile (with eleven Funds at or below the 50th percentile); (2) the AZL Russell 1000 Growth Index Fund had a total expense ranking in the 66th percentile, but there was only a very limited peer group for such Fund, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; (3) the AZL International Index Fund had a total expense ranking in the 75th percentile, but there was only a limited peer group for such Fund, the actual management fee was in the 37th percentile, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; and (4) for the AZL Morgan Stanley Global Real Estate Fund, which had a total expense ranking in the 70th percentile, the Manager recommended a temporary management fee waiver of 5 basis points, effective November 1, 2016, which would move the management fee ranking from the 80th to the 60th percentile.
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 2013 through June 30, 2016. 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, all of which currently are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. 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, 2016 were approximately $6.4 billion, and that no single Fund had assets in excess of $1,289 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, 2017, 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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 5701 Golden Hills Drive | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 5701 Golden Hills Drive | 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 5701 Golden Hills Drive | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
22
Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
23
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® DFA International Core Equity Fund
Annual Report
December 31, 2016
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 30
Statement of Operations
Page 30
Statements of Changes in Net Assets
Page 31
Financial Highlights
Page 32
Notes to the Financial Statements
Page 33
Report of Independent Registered Public Accounting Firm
Page 39
Other Federal Income Tax Information
Page 40
Other Information
Page 41
Approval of Investment Advisory and Subadvisory Agreements
Page 42
Information about the Board of Trustees and Officers
Page 45
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® DFA International Core Equity Fund (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® DFA International Core Equity Fund and Dimensional Fund Advisors LP serves as Subadviser to the Fund. | ||
What factors affected the Fund’s performance during the year ended December 31, 2016?
For the year ended December 31, 2016, the AZL® DFA International Core Equity Fund (the “Fund”) returned 3.17%. That compared to a 1.51% and 3.29% total return for its benchmarks, the MSCI EAFE Index1 and the MSCI World Ex-USA Index1.
Developed market equities posted positive returns for the 12-month period, but trailed both the U.S. market and emerging markets. The U.S. dollar appreciated against a number of major developed market currencies during the period, negatively impacting returns in dollar-denominated terms.
Within the developed ex-U.S. equity universe, small-cap stocks outperformed large-caps, while value stocks outperformed growth stocks.
The Fund outperformed the MSCI EAFE for the period under review due in large part to its exposure to small-cap stocks. The benchmark is primarily a large- to mid-cap index while the Fund is more heavily weighted toward small-cap stocks, which outperformed for the period. The Fund’s overweight position among value stocks also boosted returns. A greater allocation to materials stocks, which outperformed during the period as commodities prices rebounded, helped relative performance, as did an underweight in the underperforming health care sector.*
At the country level, the Fund’s greater emphasis on small-cap and value stocks had a particularly positive impact in Japan, as those segments outperformed within the country for the period.*
A below-benchmark allocation to energy detracted from the Fund’s relative performance, as that was the strongest performing sector for the period. The Fund’s greater emphasis on small-cap securities in the U.K. also weighed on relative results, as small-cap companies underperformed their large-cap counterparts in that market.*
The Fund utilized futures on a temporary basis in connection with a large cash flow event. These futures were used for the purpose of maintaining exposure to equity markets and are not part of the Fund’s investment strategy.*
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, 2016. |
1 | For a complete description of the Fund’s performance benchmarks please refer to page 2 of this report. |
1
AZL® DFA International Core Equity 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.
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.
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 Total Returns as of December 31, 2016 | ||||||||
1 Year | Since Inception (4/27/15) | |||||||
AZL® DFA International Core Equity Fund | 3.17 | % | -4.11 | % | ||||
MSCI EAFE Index (gross of withholding taxes) | 1.51 | % | -5.38 | % | ||||
MSCI EAFE Index (net of withholding taxes) | 1.00 | % | -5.81 | % | ||||
MSCI World Ex-USA Index (gross of withholding taxes) | 3.29 | % | -5.22 | % | ||||
MSCI World Ex-USA Index (net of withholding taxes) | 2.75 | % | -5.66 | % |
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® DFA International Core Equity Fund | 1.39 | % |
The above expense ratio is based on the current Fund prospectus dated April 25, 2016, as supplemented October 14, 2016. The Manager voluntarily reduced the management fee to 0.75% on all assets. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.39% through April 30, 2018. Additional information pertaining to the December 31, 2016 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 World Ex-USA (“MSCI World Ex-USA”) 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 World Ex-USA Index captures a large- and mid-capitalization representation across 22 of 23 developed markets countries, excluding the United States. The Indexes do not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Index noted as “gross of withholding taxes” reflects the maximum possible reinvestment of dividends with no adjustment for withholding tax deductions or tax credits. 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 DFA International Core Equity Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL DFA International Core 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL DFA International Core Equity Fund | $ | 1,000.00 | $ | 1,070.90 | $ | 6.30 | 1.21 | % |
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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL DFA International Core Equity Fund | $ | 1,000.00 | $ | 1,019.05 | $ | 6.14 | 1.21 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Financials | 18.5 | % | |||
Industrials | 17.6 | ||||
Consumer Discretionary | 16.1 | ||||
Materials | 13.2 | ||||
Consumer Staples | 7.7 | ||||
Energy | 6.0 | ||||
Health Care | 5.6 | ||||
Information Technology | 5.4 | ||||
Telecommunication Services | 3.7 | ||||
Utilities | 2.9 | ||||
Real Estate | 2.8 | ||||
|
| ||||
Total Common Stocks and Preferred Stocks | 99.5 | ||||
Right | — | ^ | |||
Securities Held as Collateral for Securities on Loan | 0.2 | ||||
Money Market | — | ^ | |||
|
| ||||
Total Investment Securities | 99.7 | ||||
Net other assets (liabilities) | 0.3 | ||||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks (99.1%): |
| ||||||
| Aerospace & Defense (1.2%): |
| ||||||
15,989 | Austal, Ltd. | $ | 20,054 | |||||
44,779 | BAE Systems plc | 325,139 | ||||||
5,900 | Bombardier, Inc., Class B* | 9,493 | ||||||
11,887 | CAE, Inc. | 166,284 | ||||||
17,625 | Chemring Group plc* | 36,864 | ||||||
102,577 | Cobham plc | 206,677 | ||||||
504 | Elbit Systems, Ltd. | 50,924 | ||||||
3,429 | European Aeronautic Defence & Space Co. NV | 226,277 | ||||||
14,340 | Finmeccanica SpA* | 201,013 | ||||||
2,535 | Heroux-Devtek, Inc.* | 27,758 | ||||||
1,776 | Kongsberg Gruppen ASA | 25,627 | ||||||
1,132 | LiSi | 36,512 | ||||||
539 | Macdonald Dettwiler & Associates, Ltd. | 26,856 | ||||||
41,242 | Meggitt plc | 232,861 | ||||||
3,010 | MTU Aero Engines AG | 347,215 | ||||||
37,946 | QinetiQ Group plc | 122,760 | ||||||
25,323 | Rolls-Royce Holdings plc | 208,218 | ||||||
2,744 | Saab AB | 102,423 | ||||||
1,661 | Safran SA | 119,570 | ||||||
31,537 | Senior plc | 75,166 | ||||||
17,700 | Singapore Technologies Engineering, Ltd. | 39,300 | ||||||
1,426 | Thales SA | 138,152 | ||||||
4,635 | Ultra Electronics Holdings plc | 110,730 | ||||||
3,131 | Zodiac Aerospace | 71,866 | ||||||
|
| |||||||
2,927,739 | ||||||||
|
| |||||||
| Air Freight & Logistics (0.5%): |
| ||||||
18,051 | Bollore, Inc. | 63,591 | ||||||
7,355 | BPOST SA | 173,874 | ||||||
1,468 | Compania de Distribucion Integral Logista Holdings SA | 33,979 | ||||||
19,100 | Cwt, Ltd. | 25,452 | ||||||
7,375 | Deutsche Post AG | 242,147 | ||||||
5,804 | Freightways, Ltd. | 27,142 | ||||||
37,500 | Kerry Network, Ltd. | 47,229 | ||||||
2,300 | Kintetsu World Express, Inc. | 31,824 | ||||||
1,800 | Konoike Transport Co., Ltd. | 23,631 | ||||||
5,936 | Mainfreight, Ltd. | 85,341 | ||||||
4,000 | Mitsui-Soko Holdings Co., Ltd. | 11,755 | ||||||
1,146 | Oesterreichische Post AG | 38,459 | ||||||
552 | Panalpina Welttransport Holdings | 68,980 | ||||||
21,658 | PostNL NV* | 93,531 | ||||||
38,600 | Royal Mail plc | 219,590 | ||||||
58,500 | Singapore Post, Ltd. | 59,109 | ||||||
3,900 | Yamato Holdings Co., Ltd. | 79,070 | ||||||
|
| |||||||
1,324,704 | ||||||||
|
| |||||||
| Airlines (0.3%): |
| ||||||
2,930 | Air Canada* | 29,835 | ||||||
4,229 | Air France-KLM* | 23,019 | ||||||
26,921 | Air New Zealand, Ltd. | 40,988 | ||||||
12,000 | All Nippon Airways Co., Ltd. | 32,281 | ||||||
91,046 | Cathay Pacific Airways, Ltd. | 119,687 | ||||||
6,491 | Deutsche Lufthansa AG, Registered Shares | 83,860 | ||||||
2,130 | easyJet plc | 26,341 | ||||||
28,658 | El Al Israel Airlines | 18,972 | ||||||
2,128 | Exchange Income Corp. | 66,178 | ||||||
13,156 | International Consolidated Airlines Group SA | 71,336 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Airlines, continued |
| ||||||
28,692 | Qantas Airways, Ltd. | $ | 68,736 | |||||
21,400 | Singapore Airlines, Ltd. | 142,569 | ||||||
|
| |||||||
723,802 | ||||||||
|
| |||||||
| Auto Components (2.6%): |
| ||||||
6,300 | Aisin Sieki Co., Ltd. | 272,675 | ||||||
2,288 | Arb Corp., Ltd. | 29,082 | ||||||
266 | Autoneum Holding AG | 69,815 | ||||||
1,387 | Brembo SpA | 83,881 | ||||||
12,900 | Bridgestone Corp. | 464,101 | ||||||
13,000 | Calsonic Kansei Corp. | 198,724 | ||||||
3,874 | CIE Automotive SA | 75,472 | ||||||
7,997 | Compagnie Generale des Establissements Michelin SCA, Class B | 889,367 | ||||||
887 | Continental AG | 172,643 | ||||||
2,800 | Daido Metal Co., Ltd. | 27,859 | ||||||
2,400 | Daikyonishikawa Corp. | 30,719 | ||||||
4,700 | Denso Corp. | 203,061 | ||||||
1,800 | Eagle Industry Co., Ltd. | 23,871 | ||||||
1,724 | ElringKlinger AG | 28,777 | ||||||
1,700 | Exedy Corp. | 47,754 | ||||||
5,121 | Faurecia | 198,440 | ||||||
2,300 | FCC Co., Ltd. | 41,283 | ||||||
70,607 | GKN plc | 287,583 | ||||||
874 | Grammer AG | 43,724 | ||||||
1,400 | G-Tekt Corp. | 27,091 | ||||||
2,186 | Hella KGAA Hueck & Co. | 82,362 | ||||||
1,600 | Hi-Lex Corp. | 40,302 | ||||||
2,500 | Keihin Corp. | 43,704 | ||||||
1,600 | Koito Manufacturing Co., Ltd. | 84,499 | ||||||
31,203 | Kongsberg Automotive ASA* | 20,513 | ||||||
2,493 | Leoni AG | 88,628 | ||||||
2,233 | Linamar Corp. | 95,957 | ||||||
8,141 | Magna International, Inc., ADR | 353,319 | ||||||
2,966 | Martinrea International, Inc. | 18,978 | ||||||
1,027 | Mgi Coutier | 30,806 | ||||||
2,000 | Mitsuba Corp. | 32,387 | ||||||
1,600 | Musashi Seimitsu Industry Co. L | 41,434 | ||||||
6,000 | NGK Spark Plug Co., Ltd. | 132,835 | ||||||
12,000 | NHK SPRING Co., Ltd. | 113,930 | ||||||
1,800 | Nifco, Inc./Japan | 94,757 | ||||||
4,000 | Nippon Seiki Co., Ltd. | 85,078 | ||||||
2,700 | NOK Corp. | 54,540 | ||||||
6,062 | Nokian Renkaat OYJ | 225,925 | ||||||
2,600 | Pacific Industrial Co., Ltd. | 32,998 | ||||||
600 | Piolax, Inc. | 39,805 | ||||||
2,839 | Plastic Omnium SA | 90,598 | ||||||
6,300 | Press Kogyo Co., Ltd. | 27,753 | ||||||
4,382 | Saf-Holland SA | 62,992 | ||||||
8,000 | Sanden Holdings Corp. | 25,426 | ||||||
3,200 | Showa Corp. | 22,236 | ||||||
2,500 | Stanley Electric Co., Ltd. | 68,153 | ||||||
17,200 | Sumitomo Electric Industries, Ltd. | 246,999 | ||||||
2,900 | Sumitomo Riko Co., Ltd. | 28,421 | ||||||
7,600 | Sumitomo Rubber Industries, Ltd. | 120,238 | ||||||
2,000 | Tachi-S Co., Ltd. | 33,470 | ||||||
3,900 | Tokai Rika Co., Ltd. | 77,993 |
Continued
4
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Auto Components, continued |
| ||||||
2,500 | Topre Corp. | $ | 62,456 | |||||
7,500 | Toyo Tire & Rubber Co., Ltd. | 92,981 | ||||||
4,500 | Toyoda Gosei Co., Ltd. | 104,961 | ||||||
3,500 | Toyota Boshoku Corp. | 80,262 | ||||||
1,600 | Toyota Industries Corp. | 75,997 | ||||||
1,500 | TPR Co., Ltd. | 42,122 | ||||||
3,600 | TS Tech Co., Ltd. | 92,452 | ||||||
2,000 | Unipres Corp. | 39,719 | ||||||
2,847 | Valeo SA | 163,564 | ||||||
82,000 | Xinyi Glass Holdings, Ltd. | 66,707 | ||||||
6,500 | Yokohama Rubber Co., Ltd. (The) | 115,887 | ||||||
|
| |||||||
6,670,066 | ||||||||
|
| |||||||
| Automobiles (3.5%): |
| ||||||
9,641 | Bayerische Motoren Werke AG (BMW) | 902,488 | ||||||
17,431 | Daimler AG, Registered Shares | 1,293,462 | ||||||
958 | Ferrari NV | 55,698 | ||||||
72,307 | Fiat Chrysler Automobiles NV | 656,686 | ||||||
4,300 | Fuji Heavy Industries, Ltd. | 174,930 | ||||||
23,400 | Honda Motor Co., Ltd. | 681,335 | ||||||
12,200 | Isuzu Motors, Ltd. | 154,035 | ||||||
23,400 | Mazda Motor Corp. | 380,126 | ||||||
27,800 | Mitsubishi Motors Corp. | 158,057 | ||||||
48,200 | Nissan Motor Co., Ltd. | 483,629 | ||||||
4,800 | Nissan Shatai Co., Ltd. | 46,549 | ||||||
14,678 | Piaggio & C SpA | 24,476 | ||||||
27,636 | PSA Peugeot Citroen SA* | 450,463 | ||||||
3,686 | Renault SA | 327,704 | ||||||
5,000 | Suzuki Motor Corp. | 175,537 | ||||||
45,438 | Toyota Motor Corp. | 2,652,987 | ||||||
794 | Volkswagen AG | 114,020 | ||||||
4,800 | Yamaha Motor Co., Ltd. | 105,327 | ||||||
|
| |||||||
8,837,509 | ||||||||
|
| |||||||
| Banks (9.6%): |
| ||||||
23,000 | 77th Bank | 110,642 | ||||||
500 | Aichi Bank, Ltd. (The) | 28,002 | ||||||
12,000 | Aomori Bank, Ltd. (The) | 40,153 | ||||||
42,103 | Australia & New Zealand Banking Group, Ltd. | 921,518 | ||||||
10,000 | Awa Bank, Ltd. (The) | 61,256 | ||||||
23,992 | Banca Popolare dell’Emilia Romarna | 127,618 | ||||||
205,446 | Banca Popolare di Milano SCARL(BPML) | 77,440 | ||||||
32,273 | Banca Popolare di Sondrio SCARL | 106,161 | ||||||
28,497 | Banco Bilbao Vizcaya Argentaria SA | 192,222 | ||||||
80,020 | Banco de Sabadell SA | 111,371 | ||||||
28,854 | Banco Popolare SC | 69,571 | ||||||
23,927 | Banco Popular Espanol SA | 23,105 | ||||||
162,078 | Banco Santander SA | 845,964 | ||||||
6,708 | Bank Hapoalim BM | 39,840 | ||||||
28,290 | Bank Leumi Le-Israel Corp.* | 116,322 | ||||||
2,674 | Bank of Georgia Holdings | 98,499 | ||||||
480,052 | Bank of Ireland* | 118,044 | ||||||
900 | Bank of Iwate, Ltd. (The) | 36,209 | ||||||
14,000 | Bank of Kyoto, Ltd. (The) | 103,662 | ||||||
15,317 | Bank of Montreal | 1,101,599 | ||||||
900 | Bank of Nagoya, Ltd. (The) | 31,817 | ||||||
13,051 | Bank of Nova Scotia | 726,680 | ||||||
1,320 | Bank of Okinawa, Ltd. (The) | 48,073 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Banks, continued |
| ||||||
17,843 | Bank of Queensland, Ltd. | $ | 152,434 | |||||
11,000 | Bank of Saga, Ltd. (The) | 28,094 | ||||||
58,973 | Bankia SA | 60,240 | ||||||
28,095 | Bankinter SA | 217,553 | ||||||
84 | Banque Cantonale Vaudoise,Registered Shares | 53,214 | ||||||
38,909 | Barclays plc, ADR | 427,999 | ||||||
21,655 | Bendigo & Adelaide Bank, Ltd. | 198,104 | ||||||
206 | Berner Kantonalbank AG | 37,234 | ||||||
15,979 | BNP Paribas SA | 1,017,737 | ||||||
66,542 | BOC Hong Kong Holdings, Ltd. | 238,246 | ||||||
6,760 | Canadian Imperial Bank of Commerce | 551,616 | ||||||
5,927 | Canadian Western Bank | 133,948 | ||||||
16,000 | Chiba Bank, Ltd. (The) | 97,808 | ||||||
7,900 | Chugoku Bank, Ltd. (The) | 113,107 | ||||||
3,500 | Chuo Mitsui Trust Holdings, Inc. | 124,372 | ||||||
9,830 | Commerzbank AG | 74,961 | ||||||
10,374 | Commonwealth Bank of Australia | 615,166 | ||||||
15,000 | Concordia Financial Group, Ltd. | 71,946 | ||||||
11,349 | Credit Agricole SA | 140,680 | ||||||
4,185 | Credito Emiliano SpA | 25,104 | ||||||
55,201 | Credito Valtellinese SC | 21,615 | ||||||
42,231 | Criteria Caixacorp SA | 139,487 | ||||||
5,046 | CYBG plc* | 17,420 | ||||||
34,400 | Dah Sing Banking Group, Ltd. | 63,093 | ||||||
11,200 | Dah Sing Financial Holdings, Ltd. | 75,626 | ||||||
13,000 | Daishi Bank, Ltd. (The) | 58,241 | ||||||
6,316 | Danske Bank A/S | 191,595 | ||||||
23,000 | DBS Group Holdings, Ltd. | 274,472 | ||||||
13,482 | DnB NOR ASA | 200,640 | ||||||
900 | Ehime Bank, Ltd. (The) | 10,601 | ||||||
6,408 | Erste Group Bank AG | 187,590 | ||||||
6,500 | Fidea Holdings Co., Ltd. | 11,601 | ||||||
1,816 | First International Bank of Israel | 26,588 | ||||||
15,000 | Fukui Bank, Ltd. (The) | 37,769 | ||||||
35,000 | Fukuoka Financial Group, Inc. | 154,961 | ||||||
21,000 | Gunma Bank, Ltd. (The) | 114,650 | ||||||
18,100 | Hachijuni Bank, Ltd. (The) | 104,676 | ||||||
2,805 | Hang Seng Bank, Ltd. | 51,990 | ||||||
25,589 | Heartland Bank, Ltd. | 26,595 | ||||||
26,000 | Hiroshima Bank, Ltd. (The) | 121,038 | ||||||
10,000 | Hokkoku Bank, Ltd. (The) | 35,510 | ||||||
1,400 | Hokuetsu Bank, Ltd. (The) | 31,615 | ||||||
7,700 | Hokuhoku Financial Group, Inc. | 132,482 | ||||||
36,877 | HSBC Holdings plc, ADR | 1,481,719 | ||||||
11,000 | Hyakugo Bank, Ltd. (The) | 44,575 | ||||||
13,000 | Hyakujushi Bank, Ltd. (The) | 44,059 | ||||||
38,582 | ING Groep NV | 542,883 | ||||||
29,970 | Intesa Sanpaolo SpA | 76,496 | ||||||
24,232 | Isreal Discount Bank* | 50,331 | ||||||
15,100 | Iyo Bank, Ltd. (The) | 103,900 | ||||||
12,000 | Juroku Bank, Ltd. (The) | 41,989 | ||||||
4,411 | Jyske Bank A/S | 209,940 | ||||||
200 | Kansai Urban Banking Corp. | 2,491 | ||||||
4,614 | KBC Groep NV | 285,558 | ||||||
8,000 | Keiyo Bank, Ltd. (The) | 36,182 | ||||||
5,300 | Kiyo Bank, Ltd. (The) | 84,676 |
Continued
5
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Banks, continued |
| ||||||
15,790 | Kyushu Financial Group, Inc. | $ | 106,804 | |||||
2,101 | Laurentian Bank of Canada | 90,347 | ||||||
8,880 | Liberbank SA* | 9,200 | ||||||
696 | Liechtensteinische Landesbank AG, Class BR | 27,588 | ||||||
143,580 | Lloyds TSB Group plc, ADR | 445,098 | ||||||
210 | Luzerner Kantonalbank AG | 82,723 | ||||||
12,870 | Mebuki Financial Group, Inc. | 47,563 | ||||||
28,052 | Mediobanca SpA | 228,916 | ||||||
36,600 | Mitsubishi UFJ Financial Group, Inc. | 225,045 | ||||||
8,000 | Miyazaki Bank, Ltd. (The) | 24,655 | ||||||
5,533 | Mizrahi Tefahot Bank, Ltd. | 80,830 | ||||||
70,500 | Mizuho Financial Group, Inc. | 126,231 | ||||||
1,700 | Musashino Bank, Ltd. (The) | 48,792 | ||||||
1,300 | Nanto Bank, Ltd. (The) | 49,392 | ||||||
28,207 | National Australia Bank, Ltd. | 622,438 | ||||||
11,556 | National Bank of Canada | 469,384 | ||||||
18,651 | Natixis | 105,153 | ||||||
5,000 | Nishi-Nippon Holdings, Inc.* | 51,875 | ||||||
29,816 | Nordea Bank AB | 331,623 | ||||||
23,900 | North Pacific Bank, Ltd. | 98,288 | ||||||
9,000 | Ogaki Kyoritsu Bank, Ltd. (The) | 34,959 | ||||||
30,252 | Oversea-Chinese Banking Corp., Ltd. | 185,671 | ||||||
7,725 | Raiffeisen International Bank-Holding AG* | 141,296 | ||||||
59,200 | Resona Holdings, Inc. | 304,728 | ||||||
302 | Ringkjoebing Landbobank A/S | 62,568 | ||||||
10,304 | Royal Bank of Canada | 697,684 | ||||||
12,603 | Royal Bank of Scotland, ADR* | 69,695 | ||||||
16,600 | Senshu Ikeda Holdings, Inc. | 76,371 | ||||||
24,500 | Seven Bank, Ltd. | 70,398 | ||||||
19,000 | Shiga Bank, Ltd. (The) | 102,893 | ||||||
13,000 | Shikoku Bank, Ltd. (The) | 31,630 | ||||||
43,000 | Shinsei Bank, Ltd. | 72,327 | ||||||
5,000 | Shizuoka Bank, Ltd. (The) | 41,890 | ||||||
18,395 | Skandinaviska Enskilda Banken AB, Class A | 192,985 | ||||||
11,363 | Societe Generale | 557,736 | ||||||
7,170 | Spar Nord Bank A/S | 82,174 | ||||||
8,827 | Sparebank 1 Sr-Bank ASA | 62,149 | ||||||
121 | St. Galler Kantonalbank AG | 47,072 | ||||||
26,003 | Standard Chartered plc* | 212,939 | ||||||
3,600 | Sumitomo Mitsui Financial Group, Inc. | 136,494 | ||||||
1,500 | Suruga Bank, Ltd. | 33,398 | ||||||
4,946 | Svenska Handelsbanken AB, Class A | 68,751 | ||||||
6,195 | Swedbank AB, Class A | 149,794 | ||||||
4,558 | Sydbank A/S | 141,147 | ||||||
12,000 | Toho Bank, Ltd. (The) | 44,772 | ||||||
1,700 | Tokyo Ty Financial Group, Inc. | 59,059 | ||||||
7,500 | Tomony Holdings, Inc. | 38,705 | ||||||
19,576 | Toronto-Dominion Bank (The) | 965,880 | ||||||
21,000 | Towa Bank, Ltd. (The) | 19,913 | ||||||
31,027 | UBI Banca – Unione di Banche Italiane SCPA^ | 85,267 | ||||||
34,017 | UniCredit SpA | 97,778 | ||||||
8,279 | United Overseas Bank, Ltd. | 116,214 | ||||||
782 | Valiant Holding AG | 77,898 | ||||||
6,876 | Virgin Money Holdings UK | 25,605 | ||||||
582 | Walliser Kantonalbank, Registered Shares | 43,696 | ||||||
55,779 | Westpac Banking Corp. | 1,306,410 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Banks, continued |
| ||||||
8,000 | Yamagata Bank, Ltd. (The) | $ | 33,741 | |||||
3,000 | Yamaguchi Financial Group, Inc. | 32,603 | ||||||
9,000 | Yamanashi Chuo Bank, Ltd. (The) | 42,793 | ||||||
8 | Zuger Kantonalbank AG | 39,065 | ||||||
|
| |||||||
24,488,078 | ||||||||
|
| |||||||
| Beverages (1.3%): |
| ||||||
10,537 | A.G. Barr plc | 65,091 | ||||||
5,386 | Anheuser-Busch InBev NV | 568,716 | ||||||
2,300 | Asahi Breweries, Ltd. | 72,527 | ||||||
8,796 | Britvic plc | 61,409 | ||||||
20,424 | C&C Group plc | 82,674 | ||||||
1,856 | Carlsberg A/S, Class B | 160,204 | ||||||
5,367 | Coca-Cola Amatil, Ltd. | 39,132 | ||||||
2,600 | Coca-Cola East Japan Co., Ltd. | 57,169 | ||||||
7,885 | Coca-Cola European Partners plc | 248,755 | ||||||
7,048 | Coca-Cola HBC AG | 153,596 | ||||||
3,500 | Coca-Cola West Co., Ltd. | 103,014 | ||||||
9,750 | Cott Corp. | 110,391 | ||||||
7,493 | Davide Campari – Milano SpA | 73,231 | ||||||
4,154 | Diageo plc, ADR | 431,766 | ||||||
1,867 | Heineken NV | 139,824 | ||||||
2,200 | ITO EN, Ltd. | 73,060 | ||||||
10,600 | Kirin Holdings Co., Ltd. | 172,116 | ||||||
938 | Olvi OYJ | 27,640 | ||||||
854 | Pernod Ricard SA | 92,502 | ||||||
1,800 | Refresco Group NV(a) | 27,330 | ||||||
2,807 | Royal Unibrew A/S | 108,380 | ||||||
4,000 | Sapporo Breweries, Ltd. | 102,888 | ||||||
14,566 | Stock Spirits Group plc | 32,422 | ||||||
1,000 | Suntory Beverage & Food, Ltd. | 41,374 | ||||||
24,033 | Treasury Wine Estates, Ltd. | 184,885 | ||||||
|
| |||||||
3,230,096 | ||||||||
|
| |||||||
| Biotechnology (0.5%): |
| ||||||
999 | Actelion, Ltd., Registered Shares | 215,995 | ||||||
1,594 | Bavarian Nordic A/S* | 55,999 | ||||||
2,219 | CSL, Ltd. | 160,268 | ||||||
3,618 | Galapagos NV* | 231,333 | ||||||
370 | Genmab A/S* | 61,341 | ||||||
3,624 | Genus plc | 80,141 | ||||||
2,522 | Grifols SA | 50,102 | ||||||
7,447 | Knight Therapeutics, Inc.* | 59,576 | ||||||
700 | Peptidream, Inc.* | 36,289 | ||||||
6,165 | Shire plc | 349,289 | ||||||
3,118 | Sirtex Medical, Ltd. | 31,758 | ||||||
|
| |||||||
1,332,091 | ||||||||
|
| |||||||
| Building Products (1.0%): |
| ||||||
1,800 | AICA Kogyo Co., Ltd. | 47,409 | ||||||
2,028 | Arbonia AG* | 32,605 | ||||||
28,000 | Asahi Glass Co., Ltd. | 190,258 | ||||||
6,700 | Assa Abloy AB, Class B | 124,339 | ||||||
15 | Belimo Holding AG, Registered Shares | 45,354 | ||||||
3,700 | Bunka Shutter Co., Ltd. | 28,496 | ||||||
11,000 | Central Glass Co., Ltd. | 51,185 | ||||||
3,178 | Compagnie de Saint-Gobain SA | 147,967 | ||||||
1,500 | Daikin Industries, Ltd. | 137,387 |
Continued
6
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Building Products, continued |
| ||||||
119 | dorma+kaba Holding AG | $ | 88,502 | |||||
434 | Geberit AG, Registered Shares | 173,734 | ||||||
12,489 | Gwa Group, Ltd. | 26,596 | ||||||
2,938 | Inwido AB | 30,482 | ||||||
10,573 | Kingspan Group plc | 286,619 | ||||||
3,279 | Lindab International AB | 26,256 | ||||||
5,800 | Lixil Group Corp. | 131,454 | ||||||
9,809 | Nibe Industrier AB, Class B | 77,316 | ||||||
8,000 | Nichias Corp. | 76,954 | ||||||
1,500 | Nichiha Corp. | 37,017 | ||||||
10,000 | Nitto Boseki Co., Ltd. | 39,041 | ||||||
1,500 | Noritz Corp. | 25,271 | ||||||
12,336 | Polypipe Group plc | 49,164 | ||||||
435 | Rockwool International A/S | 76,578 | ||||||
22 | Rockwool International A/S | 3,704 | ||||||
1,900 | Sankyo Tateyama, Inc. | 25,747 | ||||||
11,100 | Sanwa Holdings Corp. | 105,670 | ||||||
70 | Schweiter Technologies AG | 79,028 | ||||||
1,700 | Sekisui Jushi Corp. | 26,803 | ||||||
1,800 | Takara Standard Co., Ltd. | 29,359 | ||||||
1,348 | Tarkett SA | 48,350 | ||||||
2,500 | TOTO, Ltd. | 98,674 | ||||||
2,051 | Uponor OYJ | 35,588 | ||||||
638 | Zehnder Group AG* | 20,151 | ||||||
|
| |||||||
2,423,058 | ||||||||
|
| |||||||
| Capital Markets (2.4%): |
| ||||||
19,529 | 3i Group plc | 169,620 | ||||||
33,955 | Aberdeen Asset Management plc | 107,893 | ||||||
1,200 | Alaris Royalty Corp. | 21,408 | ||||||
2,199 | Altamir | 29,555 | ||||||
17,351 | Ashmore Group plc | 60,533 | ||||||
851 | Avanza Bank Holding AB | 34,466 | ||||||
3,389 | Azimut Holding SpA | 56,438 | ||||||
1,975 | Banca Generali SpA | 47,071 | ||||||
1,725 | Binckbank NV | 9,979 | ||||||
3,505 | Bolsas y Mercados Espanoles | 103,242 | ||||||
25,002 | Brewin Dolphin Holdings plc | 94,105 | ||||||
3,984 | Brookfield Asset Management, Inc., Class A | 131,512 | ||||||
4,759 | BT Investment Management, Ltd. | 36,458 | ||||||
2,895 | Bure Equity AB | 32,900 | ||||||
8,265 | Canaccord Genuity Group, Inc.* | 29,366 | ||||||
940,000 | China Lng Group, Ltd. | 21,844 | ||||||
2,455 | CI Financial Corp. | 52,794 | ||||||
10,072 | Close Brothers Group plc | 178,708 | ||||||
8,233 | Credit Suisse Group AG | 117,594 | ||||||
20,000 | Daiwa Securities Group, Inc. | 122,877 | ||||||
6,978 | Deutsche Bank AG, Registered Shares* | 126,302 | ||||||
10,365 | Deutsche Bank AG, Registered Shares* | 187,546 | ||||||
547 | Deutsche Beteiligungs AG | 17,711 | ||||||
1,634 | Deutsche Boerse AG* | 133,100 | ||||||
2,513 | EFG International AG | 15,204 | ||||||
258,000 | Emperor Capital Group, Ltd. | 23,180 | ||||||
2,185 | Euronext NV(a) | 90,105 | ||||||
1,300 | Fiera Capital Corp. | 12,375 | ||||||
7,427 | GAM Holding AG | 86,046 | ||||||
1,199 | Gimv NV | 66,430 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Capital Markets, continued |
| ||||||
1,675 | Guardian Capital Group, Ltd., Class A | $ | 31,254 | |||||
142,000 | Guotai Junan International Hol | 43,510 | ||||||
66,000 | Haitong International Securiti | 37,642 | ||||||
5,422 | Hargreaves Lansdown plc | 80,923 | ||||||
40,803 | Henderson Group plc | 118,003 | ||||||
6,057 | Hong Kong Exchanges & Clearing, Ltd. | 142,540 | ||||||
22,233 | IG Group Holdings plc | 135,131 | ||||||
2,132 | IGM Financial, Inc. | 60,665 | ||||||
13,922 | Intermediate Capital Group plc | 119,666 | ||||||
29,861 | Investec plc | 197,402 | ||||||
8,734 | IOOF Holdings, Ltd. | 57,843 | ||||||
20,157 | Ip Group plc* | 44,436 | ||||||
2,200 | Jafco Co., Ltd. | 71,969 | ||||||
7,200 | Japan Exchange Group, Inc. | 103,141 | ||||||
4,058 | Julius Baer Group, Ltd. | 180,218 | ||||||
25,444 | Jupiter Fund Management plc | 138,627 | ||||||
186,000 | Kingston Financial Group, Ltd. | 79,876 | ||||||
3,928 | London Stock Exchange Group plc | 141,107 | ||||||
3,369 | Macquarie Group, Ltd. | 212,323 | ||||||
4,411 | Magellan Financial Group, Ltd. | 75,364 | ||||||
63,933 | Man Group plc | 93,034 | ||||||
3,600 | Matsui Securities Co., Ltd. | 31,072 | ||||||
12,700 | Monex Group, Inc. | 35,238 | ||||||
13,351 | Nex Group plc | 76,418 | ||||||
34,000 | Nomura Holdings, Inc. | 200,441 | ||||||
10,000 | Okasan Securities Group, Inc. | 61,589 | ||||||
226 | Partners Group Holding AG | 105,800 | ||||||
1,867 | Perpetual, Ltd. | 65,481 | ||||||
5,913 | Platinum Asset Management, Ltd. | 22,563 | ||||||
3,209 | Rathbone Brothers plc | 78,217 | ||||||
9,785 | Ratos AB, Class B | 46,339 | ||||||
1,124 | Rothschild & Co. | 30,392 | ||||||
11,400 | SBI Holdings, Inc. | 144,705 | ||||||
2,324 | Schroders plc | 85,704 | ||||||
559 | Schroders PLC | 15,436 | ||||||
9,000 | Singapore Exchange, Ltd. | 44,488 | ||||||
2,878 | Thomson Reuters Corp. | 125,999 | ||||||
2,731 | TMX Group, Ltd. | 145,491 | ||||||
20,870 | Tullett Prebon plc | 111,306 | ||||||
12,335 | UBS Group AG | 193,160 | ||||||
3,019 | UBS Group AG | 47,308 | ||||||
1,793 | Vontobel Holding AG | 94,120 | ||||||
122 | Vp Bank AG, Registered Shares | 12,946 | ||||||
96 | VZ Holding AG | 28,811 | ||||||
|
| |||||||
6,184,060 | ||||||||
|
| |||||||
| Chemicals (5.1%): |
| ||||||
5,100 | Adeka Corp. | 69,189 | ||||||
705 | Agrium, Inc. | 70,888 | ||||||
2,927 | Air Liquide SA | 324,888 | ||||||
6,000 | Air Water, Inc. | 108,043 | ||||||
9,129 | AkzoNobel NV | 570,037 | ||||||
4,212 | Arkema SA | 411,427 | ||||||
24,000 | Asahi Kasei Corp. | 208,973 | ||||||
15,764 | BASF SE | 1,469,952 | ||||||
7,920 | Borregaard ASA | 77,505 | ||||||
1,529 | Christian Hansen Holding A/S | 84,593 |
Continued
7
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Chemicals, continued |
| ||||||
4,200 | Chugoku Marine Paints, Ltd. | $ | 30,863 | |||||
16,684 | Clariant AG | 287,609 | ||||||
4,087 | Corbion NV | 109,300 | ||||||
2,800 | Croda International plc | 109,824 | ||||||
9,800 | Daicel Chemical Industries, Ltd. | 107,568 | ||||||
2,000 | Dainichiseika Color & Chemical | 10,732 | ||||||
5,100 | Dainippon Ink & Chemicals, Inc. | 154,419 | ||||||
28,000 | Denka Co., Ltd. | 123,277 | ||||||
17,121 | DuluxGroup, Ltd. | 76,894 | ||||||
35,867 | Elementis plc | 122,286 | ||||||
88 | EMS-Chemie Holding AG | 44,726 | ||||||
8,260 | Essentra plc | 46,772 | ||||||
5,499 | Evonik Industries AG | 163,709 | ||||||
905 | Frutarom Industries, Ltd. | 46,205 | ||||||
679 | Fuchs Petrolub Se | 26,393 | ||||||
1,815 | Fuchs Petrolub SE | 76,203 | ||||||
1,100 | Fujimori Kogyo Co., Ltd. | 27,370 | ||||||
1,400 | Fuso Chemical Co., Ltd. | 30,027 | ||||||
100 | Givaudan SA, Registered Shares | 183,257 | ||||||
29 | Gurit Holding AG | 23,075 | ||||||
4,570 | Hexpol AB | 42,269 | ||||||
3,500 | Hitachi Chemical Co., Ltd. | 87,351 | ||||||
78,064 | Incitec Pivot, Ltd. | 201,826 | ||||||
10,087 | Israel Chemicals, Ltd. | 41,214 | ||||||
2,998 | Johnson Matthey plc | 117,125 | ||||||
6,800 | JSR Corp. | 107,007 | ||||||
9,502 | K+S AG, Registered Shares | 227,106 | ||||||
16,000 | Kaneka Corp. | 130,084 | ||||||
2,000 | Kansai Paint Co., Ltd. | 36,785 | ||||||
5,000 | Kanto Denka Kogyo Co., Ltd. | 45,003 | ||||||
7,358 | Kemira OYJ | 93,927 | ||||||
1,143 | Koninklijke DSM NV | 68,417 | ||||||
300 | Konishi Co., Ltd. | 3,226 | ||||||
11,300 | Kuraray Co., Ltd. | 169,114 | ||||||
900 | Kureha Corp. | 33,800 | ||||||
5,438 | Lanxess AG | 356,258 | ||||||
294 | Lenzing AG | 35,553 | ||||||
1,230 | Linde AG | 201,659 | ||||||
3,100 | Lintec Corp. | 67,585 | ||||||
2,350 | Methanex Corp. | 102,930 | ||||||
53,900 | Mitsubishi Chemical Holdings Corp. | 347,376 | ||||||
9,400 | Mitsubishi Gas Chemical Co., Inc. | 160,079 | ||||||
40,000 | Mitsui Chemicals, Inc. | 179,230 | ||||||
3,600 | Nihon Parkerizing Co., Ltd. | 42,116 | ||||||
8,000 | Nippon Kayaku Co., Ltd. | 98,341 | ||||||
1,200 | Nippon Shokubai Co., Ltd. | 74,736 | ||||||
8,000 | Nippon Soda Co., Ltd. | 37,517 | ||||||
2,300 | Nissan Chemical Industries, Ltd. | 76,684 | ||||||
2,100 | Nitto Denko Corp. | 160,815 | ||||||
10,000 | NOF Corp. | 95,418 | ||||||
7,650 | Novozymes A/S, Class B | 263,335 | ||||||
7,758 | Nufarm, Ltd./Australia | 51,133 | ||||||
15,898 | Orica, Ltd. | 201,903 | ||||||
27,635 | Potash Corp. of Saskatchewan, Inc. | 499,917 | ||||||
2,400 | Sakata Inx Corp. | 29,631 | ||||||
700 | Sanyo Chemical Industries, Ltd. | 29,780 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Chemicals, continued |
| ||||||
2,500 | Shin-Etsu Chemical Co., Ltd. | $ | 192,701 | |||||
8,800 | Showa Denko K.K. | 125,732 | ||||||
29 | Sika AG, Class B | 139,343 | ||||||
1,754 | Sol SpA | 14,703 | ||||||
631 | Solvay SA | 73,838 | ||||||
11,000 | Sumitomo Bakelite Co., Ltd. | 61,536 | ||||||
68,000 | Sumitomo Chemical Co., Ltd. | 321,769 | ||||||
2,206 | Symrise AG | 134,159 | ||||||
1,106 | Syngenta AG | 437,200 | ||||||
22,357 | Synthomer plc | 105,202 | ||||||
1,200 | Taiyo Holdings Co., Ltd. | 46,530 | ||||||
5,700 | Taiyo Nippon Sanso Corp. | 65,809 | ||||||
1,000 | Takasago International Corp. | 26,397 | ||||||
9,600 | Teijin, Ltd. | 194,147 | ||||||
1,223 | Tessenderlo Chemie NV* | 44,786 | ||||||
1,434 | Tikkurila OYJ | 28,357 | ||||||
3,700 | Toagosei Co., Ltd. | 36,360 | ||||||
12,000 | Tokai Carbon Co., Ltd. | 38,726 | ||||||
11,000 | Tokuyama Corp.* | 41,680 | ||||||
1,700 | Tokyo Ohka Kogyo Co., Ltd. | 57,214 | ||||||
11,000 | Toray Industries, Inc. | 88,919 | ||||||
27,000 | Tosoh Corp. | 190,623 | ||||||
63,000 | Toyobo Co., Ltd. | 93,463 | ||||||
72,000 | Ube Industries, Ltd. | 150,585 | ||||||
4,419 | Umicore SA | 251,488 | ||||||
6,476 | Victrex plc | 153,466 | ||||||
1,157 | Wacker Chemie AG | 120,252 | ||||||
1,514 | Yara International ASA | 59,660 | ||||||
10,000 | Zeon Corp. | 98,488 | ||||||
|
| |||||||
13,105,387 | ||||||||
|
| |||||||
| Commercial Services & Supplies (1.6%): |
| ||||||
1,200 | AEON Delight Co., Ltd. | 33,419 | ||||||
17,026 | Aggreko plc | 192,328 | ||||||
25,551 | Babcock International Group plc | 299,707 | ||||||
12,295 | Berendsen plc | 131,317 | ||||||
1,644 | Bilfinger SE* | 62,756 | ||||||
1,670 | Black Diamond Group, Ltd. | 5,623 | ||||||
14,490 | Brambles, Ltd. | 129,226 | ||||||
3,615 | Caverion Corp. | 30,122 | ||||||
282 | Cewe Stiftung & Co. KGAA | 25,080 | ||||||
71,156 | Cleanaway Waste Management, Ltd. | 63,078 | ||||||
5,000 | Dai Nippon Printing Co., Ltd. | 49,307 | ||||||
1,500 | Daiseki Co., Ltd. | 30,718 | ||||||
4,203 | De La Rue plc | 31,768 | ||||||
24,068 | Downer EDI, Ltd. | 105,408 | ||||||
2,400 | Duskin Co., Ltd. | 49,277 | ||||||
8,150 | Edenred | 161,492 | ||||||
1,912 | Elis SA | 34,083 | ||||||
90,603 | G4S plc | 262,155 | ||||||
18,123 | HomeServe plc | 137,501 | ||||||
2,747 | Intrum Justitia AB | 92,709 | ||||||
7,191 | ISS A/S | 242,345 | ||||||
34,804 | IWG plc | 105,498 | ||||||
3,638 | Lassila & Tikanoja OYJ | 73,493 | ||||||
5,185 | Loomis AB | 154,213 | ||||||
5,449 | Mears Group plc | 30,563 |
Continued
8
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Commercial Services & Supplies, continued |
| ||||||
27,717 | Mitie Group plc | $ | 76,605 | |||||
2,100 | Nissha Printing | 50,369 | ||||||
3,300 | Okamura Corp. | 29,621 | ||||||
2,100 | Park24 Co., Ltd. | 56,908 | ||||||
2,696 | PayPoint plc | 33,278 | ||||||
1,400 | Pilot Corp. | 57,699 | ||||||
10,575 | Programmed Maintenance Service | 14,664 | ||||||
11,442 | Prosegur Compania de Seguridad SA | 71,412 | ||||||
58,477 | Rentokil Initial plc | 159,941 | ||||||
2,308 | Ritchie Brothers Auctioneers, Inc. | 78,471 | ||||||
9,539 | RPS Group plc | 26,021 | ||||||
1,600 | Sato Holdings Corp. | 31,995 | ||||||
1,000 | SECOM Co., Ltd. | 72,984 | ||||||
9,943 | Securitas AB, Class B | 156,443 | ||||||
71,306 | Serco Group plc* | 125,832 | ||||||
30,276 | Shanks Group plc | 34,207 | ||||||
659 | Societe BIC SA | 89,562 | ||||||
700 | Sohgo Security Services Co., Ltd. | 26,852 | ||||||
61,914 | Spotless Group Holdings, Ltd. | 44,137 | ||||||
5,578 | Tomra Systems ASA | 58,483 | ||||||
2,900 | Toppan Forms Co., Ltd. | 30,196 | ||||||
5,000 | Toppan Printing Co., Ltd. | 47,657 | ||||||
4,920 | Tox Free Solutions, Ltd. | 9,186 | ||||||
3,070 | Transcontinental, Inc. | 50,744 | ||||||
|
| |||||||
3,966,453 | ||||||||
|
| |||||||
| Communications Equipment (0.2%): |
| ||||||
2,792 | Adva Optical Networking Se* | 22,621 | ||||||
2,052 | Ascom Holding AG | 32,252 | ||||||
991 | Evs Broadcast Equipment SA | 34,623 | ||||||
3,860 | Mitel Networks Corp.* | 26,222 | ||||||
12,971 | Nokia OYJ | 62,371 | ||||||
11,829 | Sandvine Corp. | 24,759 | ||||||
2,231 | Sierra Wireless, Inc.* | 34,932 | ||||||
26,263 | Spirent Communications plc | 31,898 | ||||||
17,805 | Telefonaktiebolaget LM Ericsson, Class B | 103,841 | ||||||
6,200 | VTech Holdings, Ltd. | 82,795 | ||||||
|
| |||||||
456,314 | ||||||||
|
| |||||||
| Construction & Engineering (2.2%): |
| ||||||
6,488 | ACS, Actividades de Construccion y Servicios SA | 204,506 | ||||||
3,353 | Aecon Group, Inc. | 38,088 | ||||||
3,006 | Arcadis NV | 42,111 | ||||||
4,202 | Astaldi SpA | 23,869 | ||||||
2,110 | Badger Daylighting, Ltd. | 50,451 | ||||||
11,705 | Balfour Beatty plc | 38,650 | ||||||
3,563 | Bird Construction, Inc. | 24,045 | ||||||
7,647 | Bouygues SA | 273,653 | ||||||
209 | Burkhalter Holding AG | 28,165 | ||||||
25,120 | Carillion plc | 72,685 | ||||||
6,000 | Chiyoda Corp. | 41,480 | ||||||
1,900 | Chudenko Corp. | 41,863 | ||||||
589 | CIE d’Entreprises CFE SA | 64,119 | ||||||
2,966 | Cimic Group, Ltd. | 74,552 | ||||||
6,098 | Costain Group plc | 26,445 | ||||||
6,000 | Daiho Corp. | 28,342 | ||||||
2,773 | Eiffage SA | 193,310 | ||||||
2,783 | Elecnor SA | 26,299 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Construction & Engineering, continued |
| ||||||
3,095 | Eltel AB(a) | $ | 21,231 | |||||
4,203 | Ferrovial SA | 75,157 | ||||||
2,220 | FLSmidth & Co. A/S | 92,041 | ||||||
5,231 | Galliford Try plc | 83,118 | ||||||
14,200 | Hazama Ando Corp. | 93,553 | ||||||
832 | Hochtief AG | 116,322 | ||||||
1,093 | Implenia AG | 80,779 | ||||||
9,361 | Interserve plc | 39,404 | ||||||
23,374 | John Laing Group plc(a) | 78,025 | ||||||
15,000 | Kajima Corp. | 103,566 | ||||||
3,000 | Kandenko Co., Ltd. | 27,010 | ||||||
5,690 | Keller Group plc | 58,890 | ||||||
5,442 | Kier Group plc | 91,794 | ||||||
2,800 | Kinden Corp. | 34,827 | ||||||
18,806 | Koninklijke BAM Groep NV | 86,779 | ||||||
6,049 | Koninklijke Boskalis Westminster NV | 209,732 | ||||||
27,000 | Kumagai Gumi Co., Ltd. | 69,184 | ||||||
5,300 | Kyowa Exeo Corp. | 76,136 | ||||||
1,300 | Kyudenko Corp. | 34,805 | ||||||
9,000 | Maeda Corp. | 78,330 | ||||||
3,000 | Maeda Road Construction Co., Ltd. | 50,106 | ||||||
3,300 | Mirait Holdings Corp. | 29,766 | ||||||
8,858 | Monadelphous Group, Ltd. | 71,482 | ||||||
3,820 | NCC AB | 94,528 | ||||||
3,000 | Nippo Corp. | 55,921 | ||||||
1,600 | Nippon Densetsu Kogyo Co., Ltd. | 25,536 | ||||||
21,000 | Nishimatsu Construction Co., Ltd. | 101,594 | ||||||
20,800 | Obayashi Corp. | 198,245 | ||||||
4,863 | Obrascon Huarte Lain SA | 16,853 | ||||||
12,582 | Peab AB | 99,875 | ||||||
18,100 | Penta-Ocean Construction Co., Ltd. | 87,377 | ||||||
703 | Per Aarsleff Holding A/S | 17,513 | ||||||
2,500 | Raito Kogyo Co., Ltd. | 25,628 | ||||||
22,504 | Sacyr SA* | 52,397 | ||||||
12,041 | Salini Impregilo SpA | 38,017 | ||||||
3,300 | Sanki Engineering Co., Ltd. | 27,456 | ||||||
5,399 | Shikun & Binui, Ltd. | 10,312 | ||||||
19,000 | Shimizu Corp. | 173,494 | ||||||
6,203 | Skanska AB, Class B | 146,261 | ||||||
5,582 | SNC-Lavalin Group, Inc. | 240,287 | ||||||
2,700 | Spie SA | 56,865 | ||||||
881 | Strabag Se | 31,152 | ||||||
61,900 | Sumitomo Mitsui Construction | 65,055 | ||||||
2,479 | Sweco AB-B Shs | 49,037 | ||||||
1,300 | Taikisha, Ltd. | 31,569 | ||||||
14,000 | TAISEI Corp. | 97,869 | ||||||
16,300 | Tobishima Corp. | 25,611 | ||||||
6,000 | Toda Corp. | 31,609 | ||||||
5,100 | Tokyu Construction Co., Ltd. | 41,047 | ||||||
2,000 | Toshiba Plant Systems & Servic | 26,299 | ||||||
1,100 | Totetsu Kogyo Co., Ltd. | 28,456 | ||||||
10,000 | Toyo Engineering Corp. | 26,652 | ||||||
22,100 | United Engineers, Ltd. | 39,071 | ||||||
3,109 | Veidekke ASA | 44,498 | ||||||
3,693 | Vinci SA | 251,159 | ||||||
4,785 | WSP Global, Inc. | 159,286 |
Continued
9
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Construction & Engineering, continued |
| ||||||
5,431 | YIT OYJ | $ | 43,371 | |||||
2,500 | Yokogawa Bridge Holdings Corp. | 29,062 | ||||||
|
| |||||||
5,483,632 | ||||||||
|
| |||||||
| Construction Materials (0.8%): |
| ||||||
20,647 | Adelaide Brighton, Ltd. | 80,741 | ||||||
39,458 | Boral, Ltd. | 153,482 | ||||||
3,157 | Brickworks, Ltd. | 30,919 | ||||||
5,522 | Buzzi Unicem SpA | 130,654 | ||||||
8,480 | CRH plc, ADR | 291,543 | ||||||
22,791 | CSR, Ltd. | 75,911 | ||||||
12,804 | Fletcher Building, Ltd. | 94,024 | ||||||
2,721 | HeidelbergCement AG | 253,818 | ||||||
175 | Imerys SA | 13,258 | ||||||
7,436 | James Hardie Industries SE | 117,718 | ||||||
2,481 | LafargeHolcim, Ltd., Registered Shares | 129,948 | ||||||
4,288 | LafargeHolcim, Ltd., Registered Shares | 225,318 | ||||||
20,000 | Sumitomo Osaka Cement Co., Ltd. | 75,215 | ||||||
72,000 | Taiheiyo Cement Corp. | 227,229 | ||||||
1,196 | Vicat | 72,568 | ||||||
6,509 | Wienerberger AG | 112,928 | ||||||
|
| |||||||
2,085,274 | ||||||||
|
| |||||||
| Consumer Finance (0.3%): |
| ||||||
3,600 | Aeon Credit Service Co., Ltd. | 63,686 | ||||||
9,830 | Arrow Global Group plc | 36,014 | ||||||
1,360 | Cembra Money Bank AG | 99,136 | ||||||
1,847 | Credit Corp. Group, Ltd. | 23,848 | ||||||
6,500 | Credit Saison Co., Ltd. | 115,666 | ||||||
18,226 | Eclipx Group, Ltd. | 49,397 | ||||||
18,254 | Flexigroup, Ltd./Australia | 29,817 | ||||||
4,100 | Hitachi Capital Corp. | 100,614 | ||||||
2,988 | Hoist Finance AB(a) | 27,770 | ||||||
17,800 | Hong Leong Finance, Ltd. | 26,309 | ||||||
14,415 | International Personal Finance | 30,451 | ||||||
4,300 | J Trust Co., Ltd. | 43,430 | ||||||
9,000 | Jaccs Co., Ltd. | 39,834 | ||||||
15,200 | Orient Corp.* | 27,636 | ||||||
2,776 | Provident Financial plc | 97,581 | ||||||
823 | Sixt Leasing Se | 15,487 | ||||||
38,000 | Sun Hung Kai Properties, Ltd. | 23,477 | ||||||
|
| |||||||
850,153 | ||||||||
|
| |||||||
| Containers & Packaging (0.7%): |
| ||||||
11,159 | Amcor, Ltd. | 120,179 | ||||||
10,464 | BillerudKorsnas AB | 175,567 | ||||||
4,231 | Cascades, Inc. | 38,134 | ||||||
356 | CCL Industries, Inc. | 69,954 | ||||||
46,684 | DS Smith plc | 234,142 | ||||||
1,400 | FP Corp. | 64,158 | ||||||
2,200 | Fuji Seal International, Inc. | 46,907 | ||||||
3,226 | Huhtamaki OYJ | 119,745 | ||||||
2,589 | Intertape Polymer Group, Inc. | 48,559 | ||||||
314 | Mayr Melnhof Karton AG | 33,277 | ||||||
69,097 | Orora, Ltd. | 148,602 | ||||||
5,946 | Pact Group Holdings, Ltd. | 28,887 | ||||||
11,000 | Rengo Co., Ltd. | 59,789 | ||||||
15,159 | RPC Group plc | 198,287 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Containers & Packaging, continued |
| ||||||
16,255 | Smurfit Kappa Group plc | $ | 372,620 | |||||
2,000 | Toyo Seikan Kaisha, Ltd. | 37,249 | ||||||
1,101 | Vidrala SA | 56,769 | ||||||
|
| |||||||
1,852,825 | ||||||||
|
| |||||||
| Distributors (0.3%): |
| ||||||
6,216 | Bapcor, Ltd. | 26,448 | ||||||
3,600 | Canon Marketing Japan, Inc. | 60,466 | ||||||
5,572 | Connect Group plc | 10,478 | ||||||
1,783 | D’ieteren SA/NV | 78,789 | ||||||
1,500 | Doshisha Co., Ltd. | 26,911 | ||||||
4,313 | Headlam Group plc | 25,926 | ||||||
25,837 | Inchcape plc | 222,558 | ||||||
1,000 | Jardine Cycle & Carriage, Ltd. | 28,313 | ||||||
7,157 | John Menzies plc | 52,487 | ||||||
1,400 | Paltac Corp. | 33,022 | ||||||
3,025 | Uni-Select, Inc. | 66,449 | ||||||
|
| |||||||
631,847 | ||||||||
|
| |||||||
| Diversified Consumer Services (0.2%): |
| ||||||
23,128 | Aa plc | 78,879 | ||||||
2,300 | Benesse Holdings, Inc. | 63,288 | ||||||
2,634 | Dignity plc | 80,097 | ||||||
5,045 | EnerCare, Inc. | 67,041 | ||||||
11,540 | G8 Education, Ltd. | 29,824 | ||||||
6,026 | InvoCare, Ltd. | 60,201 | ||||||
8,365 | Navitas, Ltd. | 29,992 | ||||||
13,423 | Slater & Gordon, Ltd.* | 2,175 | ||||||
|
| |||||||
411,497 | ||||||||
|
| |||||||
| Diversified Financial Services (0.7%): |
| ||||||
1,573 | Ackermans & Van Haaren NV | 218,672 | ||||||
1,091 | AKER ASA | 40,836 | ||||||
52,095 | AMP, Ltd. | 188,933 | ||||||
15,834 | Banca Mediolanum SpA | 113,720 | ||||||
2,300 | Century Tokyo Leasing Corp. | 78,504 | ||||||
6,399 | Cerved Information Solutions S | 53,020 | ||||||
4,937 | Challenger, Ltd. | 39,910 | ||||||
5,700 | Ecn Capital Corp. | 14,011 | ||||||
17,537 | Element Fleet Management Corp. | 162,764 | ||||||
3,300 | Financial Products Group Co. LT | 28,551 | ||||||
158,669 | First Pacific Co., Ltd. | 110,828 | ||||||
1,200 | Fuyo General Lease Co., Ltd. | 57,275 | ||||||
1,236,000 | G-Resources Group, Ltd. | 22,617 | ||||||
1,800 | Ibj Leasing Co., Ltd. | 40,161 | ||||||
6,500 | Japan Securities Finance Co. LT | 35,333 | ||||||
23,000 | Mitsubishi UFJ Lease & Finance Co., Ltd. | 118,521 | ||||||
772 | Onex Corp. | 52,548 | ||||||
17,600 | ORIX Corp. | 272,703 | ||||||
1,100 | Ricoh Leasing Co., Ltd. | 33,878 | ||||||
1,000 | Zenkoku Hosho Co., Ltd. | 32,094 | ||||||
|
| |||||||
1,714,879 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (2.2%): |
| ||||||
974 | BCE, Inc. | 42,116 | ||||||
5,708 | Belgacom SA | 164,327 | ||||||
20,307 | Bezeq Israeli Telecommunication Corp., Ltd. (The) | 38,585 | ||||||
29,763 | BT Group plc | 134,754 | ||||||
5,828 | Cellnex Telecom SAU(a) | 83,689 |
Continued
10
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Diversified Telecommunication Services, continued |
| ||||||
18,127 | Chorus, Ltd. | $ | 49,917 | |||||
94,000 | CITIC Telecom International Holdings, Ltd. | 28,211 | ||||||
7,863 | Com Hem Holding AB | 75,010 | ||||||
67,539 | Deutsche Telekom AG, Registered Shares | 1,160,128 | ||||||
1,160 | El Towers SpA* | 62,489 | ||||||
4,973 | Elisa OYJ | 161,590 | ||||||
40,490 | France Telecom SA | 614,379 | ||||||
34,000 | Hkbn, Ltd. | 37,245 | ||||||
61,295 | HKT Trust & HKT, Ltd. | 75,020 | ||||||
88,000 | Hutchison Telecommunications Holdings, Ltd. | 28,359 | ||||||
271 | Iliad SA | 52,047 | ||||||
11,262 | Infrastrutture Wireless Ital(a) | 52,144 | ||||||
16,506 | Inmarsat plc | 152,231 | ||||||
62,383 | KCOM Group plc | 72,839 | ||||||
53,529 | Koninklijke (Royal) KPN NV | 158,488 | ||||||
1,947 | Manitoba Telecom Services, Inc. | 55,052 | ||||||
3,000 | Nippon Telegraph & Telephone Corp. | 126,124 | ||||||
275,553 | PCCW, Ltd. | 148,504 | ||||||
37,800 | Singapore Telecommunications, Ltd. | 94,886 | ||||||
2,262 | Sunrise Communications Group(a) | 148,905 | ||||||
230 | Swisscom AG, Registered Shares | 102,868 | ||||||
29,050 | Talktalk Telecom Group plc | 60,482 | ||||||
50,356 | TDC A/S* | 258,583 | ||||||
61,847 | Telecom Corp. of New Zealand, Ltd. | 146,189 | ||||||
337,063 | Telecom Italia SpA* | 296,733 | ||||||
15,102 | Telefonica Deutschland Holding AG | 64,528 | ||||||
38,812 | Telefonica SA | 359,852 | ||||||
4,768 | Telekom Austria AG | 28,148 | ||||||
5,872 | Telenor ASA | 87,610 | ||||||
43,030 | Telia Co AB | 173,182 | ||||||
24,040 | Telstra Corp., Ltd. | 88,334 | ||||||
5,536 | TPG Telecom, Ltd. | 27,164 | ||||||
8,402 | Vocus Communications, Ltd. | 23,385 | ||||||
|
| |||||||
5,534,097 | ||||||||
|
| |||||||
| Electric Utilities (1.1%): |
| ||||||
2,033 | Acciona SA | 149,589 | ||||||
53,654 | AusNet Services | 61,100 | ||||||
588 | Bkw AG | 28,449 | ||||||
5,430 | Cheung Kong Infrastructure Holdings, Ltd. | 43,190 | ||||||
4,700 | Chubu Electric Power Co., Inc. | 65,572 | ||||||
2,800 | Chugoku Electric Power Co., Inc. (The) | 32,802 | ||||||
8,064 | CLP Holdings, Ltd. | 73,687 | ||||||
23,712 | EDP – Energias de Portugal SA | 72,200 | ||||||
14,309 | Electricite de France | 145,375 | ||||||
531 | Elia System Operator SA/NV | 27,764 | ||||||
4,746 | Endesa SA | 100,479 | ||||||
40,556 | Enel SpA | 178,446 | ||||||
2,692 | Fortis, Inc. | 83,136 | ||||||
8,144 | Fortum OYJ | 124,632 | ||||||
18,530 | Genesis Energy, Ltd. | 26,970 | ||||||
53,000 | HK Electric Investments, Ltd.(a) | 43,700 | ||||||
7,700 | �� | Hokkaido Electric Power Co., Inc. | 60,074 | |||||
5,600 | Hokuriku Electric Power Co. | 62,670 | ||||||
12,461 | Hongkong Electric Holdings, Ltd. | 109,786 | ||||||
73,220 | Iberdrola SA | 480,072 | ||||||
8,200 | Kansai Electric Power Co., Inc. (The)* | 89,515 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Electric Utilities, continued |
| ||||||
3,800 | Kyushu Electric Power Co., Inc. | $ | 41,105 | |||||
1,655 | Oesterreichische Elektrizitaetswirtschafts AG, Class A | 26,394 | ||||||
1,400 | Okinawa Electric Power Co., Inc./ | 31,444 | ||||||
4,360 | Red Electrica Corporacion SA | 82,202 | ||||||
25 | Romande Energie Holding SA, Registered Shares | 31,557 | ||||||
14,487 | Scottish & Southern Energy plc | 276,891 | ||||||
3,300 | Shikoku Electric Power Co., Inc. | 33,371 | ||||||
60,953 | Spark Infrastructure Group | 104,526 | ||||||
13,794 | Terna SpA | 63,094 | ||||||
5,600 | Tohoku Electric Power Co., Inc. | 70,669 | ||||||
17,100 | Tokyo Electric Power Co., Inc. (The)* | 68,927 | ||||||
|
| |||||||
2,889,388 | ||||||||
|
| |||||||
| Electrical Equipment (1.2%): |
| ||||||
25,335 | ABB, Ltd. | 533,493 | ||||||
6,000 | Daihen Corp. | 36,995 | ||||||
22,000 | Fuji Electric Holdings Co., Ltd. | 113,834 | ||||||
4,400 | Furukawa Electric Co., Ltd. (The) | 128,571 | ||||||
2,000 | Futaba Corp./Chiba | 33,473 | ||||||
11,535 | Gamesa Corporacion Tecnologica SA | 233,841 | ||||||
26,000 | GS Yuasa Corp. | 107,898 | ||||||
784 | Huber & Suhner AG | 43,518 | ||||||
29,500 | Johnson Electric Holdings, Ltd. | 77,637 | ||||||
2,829 | Legrand SA | 160,190 | ||||||
400 | Mabuchi Motor Co., Ltd. | 20,775 | ||||||
62,530 | Melrose Industries plc | 152,235 | ||||||
13,000 | Mitsubishi Electric Corp. | 180,744 | ||||||
1,976 | Nexans SA* | 102,169 | ||||||
1,000 | Nidec Corp. | 86,011 | ||||||
2,700 | Nissin Electric Co., Ltd. | 29,734 | ||||||
2,100 | Nitto Kogyo Corp. | 28,591 | ||||||
1,460 | Nordex Se*^ | 31,348 | ||||||
2,914 | OSRAM Licht AG | 152,963 | ||||||
1,731 | Pkc Group OYJ | 28,772 | ||||||
7,024 | Prysmian SpA | 180,276 | ||||||
2,549 | Schneider Electric SA | 177,098 | ||||||
38 | Somfy SA | 15,502 | ||||||
2,958 | TKH Group NV | 117,004 | ||||||
7,100 | Ushio, Inc. | 90,315 | ||||||
3,491 | Vestas Wind Systems A/S | 226,926 | ||||||
170 | Xp Power, Ltd. | 3,639 | ||||||
|
| |||||||
3,093,552 | ||||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (1.8%): |
| ||||||
1,300 | Ai Holdings Corp. | 25,815 | ||||||
3,100 | ALPS Electric Co., Ltd. | 74,631 | ||||||
306 | Also Holding AG, Registered Shares | 27,027 | ||||||
4,600 | Amano Corp. | 80,663 | ||||||
5,400 | Anritsu Corp. | 29,070 | ||||||
2,800 | Azbil Corp. | 78,638 | ||||||
564 | Barco NV | 47,471 | ||||||
900 | Canon Electronics, Inc. | 13,537 | ||||||
8,410 | Celestica, Inc.* | 99,667 | ||||||
18,000 | Citizen Holdings Co., Ltd. | 107,360 | ||||||
3,500 | Dexerials Corp. | 33,215 | ||||||
14,699 | E2v Technologies plc | 49,421 | ||||||
28,281 | Electrocomponents plc | 166,009 |
Continued
11
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Electronic Equipment, Instruments & Components, continued |
| ||||||
800 | Enplas Corp. | $ | 23,486 | |||||
202,000 | FIH Mobile, Ltd. | 63,641 | ||||||
7,452 | Fingerprint Cards AB* | 51,422 | ||||||
466,000 | Gcl New Energy Holdings, Ltd.* | 27,208 | ||||||
19,182 | Halma plc | 211,385 | ||||||
1,000 | Hamamatsu Photonics K.K. | 26,235 | ||||||
2,590 | Hexagon AB, Class B | 92,403 | ||||||
200 | Hirose Electric Co., Ltd. | 24,735 | ||||||
1,600 | Hitachi High-Technologies Corp. | 64,408 | ||||||
99,000 | Hitachi, Ltd. | 533,483 | ||||||
1,600 | Horiba, Ltd. | 73,902 | ||||||
4,100 | Hosiden Corp. | 33,094 | ||||||
7,400 | IBIDEN Co., Ltd. | 99,301 | ||||||
91 | Inficon Holding AG | 32,812 | ||||||
942 | Ingenico Group | 75,202 | ||||||
700 | Iriso Electronics Co., Ltd. | 40,015 | ||||||
6,000 | Japan Aviation Electronics Industry, Ltd. | 84,353 | ||||||
21,200 | Japan Display, Inc.* | 59,954 | ||||||
2,322 | Jenoptik AG | 40,090 | ||||||
1,300 | Kaga Electronics Co., Ltd. | 21,010 | ||||||
200 | Keyence Corp. | 137,053 | ||||||
2,388 | Kudelski SA | 41,392 | ||||||
3,100 | Kyocera Corp. | 153,777 | ||||||
684 | Lagercrantz Group AB, Class B* | 6,276 | ||||||
12,062 | Laird plc | 22,668 | ||||||
26 | Lem Holding SA, Registered Shares | 24,316 | ||||||
2,600 | Macnica Fuji Electronics Holdings | 34,185 | ||||||
2,366 | Micronic Mydata AB | 25,410 | ||||||
4,800 | Mitsumi Electric Co.* | 26,272 | ||||||
900 | Murata Manufacturing Co., Ltd. | 119,866 | ||||||
3,500 | Nichicon Corp. | 30,472 | ||||||
21,000 | Nippon Electric Glass Co., Ltd. | 113,314 | ||||||
3,400 | Nippon Signal Co., Ltd. | 28,701 | ||||||
5,200 | OKI Electric Industry Co., Ltd. | 72,917 | ||||||
2,600 | Omron Corp. | 99,519 | ||||||
2,587 | Oxford Instruments plc | 23,295 | ||||||
2,859 | Renishaw plc | 88,549 | ||||||
1,100 | Ryosan Co., Ltd. | 33,169 | ||||||
4,000 | Shimadzu Corp. | 63,585 | ||||||
1,000 | Siix Corp. | 33,727 | ||||||
7,420 | Spectris plc | 211,221 | ||||||
8,200 | Taiyo Yuden Co., Ltd. | 98,036 | ||||||
4,100 | TDK Corp. | 281,174 | ||||||
3,900 | Topcon Corp. | 58,450 | ||||||
200 | V Technology Co., Ltd. | 22,315 | ||||||
156 | Vaisala OYJ, Class A | 5,530 | ||||||
14,000 | Venture Corp., Ltd. | 95,424 | ||||||
4,000 | Yaskawa Electric Corp. | 62,053 | ||||||
6,200 | Yokogawa Electric Corp. | 89,535 | ||||||
|
| |||||||
4,612,864 | ||||||||
|
| |||||||
| Energy Equipment & Services (1.1%): |
| ||||||
5,393 | AKER Solutions ASA* | 25,825 | ||||||
23,615 | AMEC plc | 136,137 | ||||||
1,801 | Calfrac Well Services, Ltd.* | 6,386 | ||||||
6,691 | Canadian Energy Services & Technology Corp. | 38,177 | ||||||
6,519 | Canyon Services Group, Inc. | 34,137 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Energy Equipment & Services, continued |
| ||||||
1,554 | CGG SA* | $ | 22,260 | |||||
6,026 | Enerflex, Ltd. | 76,531 | ||||||
8,606 | Ensign Energy Services, Inc. | 60,130 | ||||||
106,730 | Ezion Holdings, Ltd.* | 28,253 | ||||||
3,192 | Fugro NV* | 48,844 | ||||||
8,071 | Hunting plc | 62,205 | ||||||
16,787 | John Wood Group plc | 180,718 | ||||||
7,196 | Mullen Group, Ltd. | 106,292 | ||||||
3,324 | Ocean Yield ASA | 25,040 | ||||||
1,946 | Pason Systems, Inc. | 28,469 | ||||||
2,723 | Petrofac, Ltd. | 29,095 | ||||||
17,853 | Petroleum Geo-Services ASA* | 60,271 | ||||||
19,962 | Precision Drilling Corp.* | 108,843 | ||||||
398 | ProSafe SE* | 1,705 | ||||||
412,106 | Saipem SpA* | 230,553 | ||||||
11,967 | SBM Offshore NV | 187,312 | ||||||
36 | Schoeller-Blackman Oilfield Equipment AG | 2,890 | ||||||
14,951 | Seadrill, Ltd.*^ | 51,442 | ||||||
7,277 | Secure Energy Services, Inc. | 63,474 | ||||||
2,335 | ShawCor, Ltd. | 62,336 | ||||||
11,430 | Subsea 7 SA* | 144,580 | ||||||
6,668 | Technip-Coflexip SA | 473,110 | ||||||
1,492 | Tecnicas Reunidas SA | 61,034 | ||||||
4,107 | Tenaris SA | 73,198 | ||||||
5,547 | TGS NOPEC Geophysical Co. ASA | 123,105 | ||||||
900 | Total Energy Services, Inc. | 9,774 | ||||||
15,229 | Trican Well Service, Inc.* | 52,181 | ||||||
18,254 | Trinidad Drilling, Ltd.* | 45,414 | ||||||
23,653 | Vallourec SA* | 161,456 | ||||||
12,295 | WorleyParsons, Ltd.* | 85,932 | ||||||
|
| |||||||
2,907,109 | ||||||||
|
| |||||||
| Food & Staples Retailing (2.5%): |
| ||||||
24,500 | Aeon Co., Ltd. | 346,709 | ||||||
500 | Ain Holdings, Inc. | 33,053 | ||||||
2,144 | Alimentation Couche-Tard, Inc. | 97,227 | ||||||
1,309 | Amsterdam Commodities NV | 28,794 | ||||||
2,800 | Arcs Co., Ltd. | 62,989 | ||||||
1,200 | Axial Retailing, Inc. | 41,206 | ||||||
900 | Belc Co., Ltd. | 34,663 | ||||||
97,527 | Booker Group plc | 210,372 | ||||||
20,128 | Carrefour SA | 484,160 | ||||||
1,795 | Casino Guichard-Perrachon SA | 86,106 | ||||||
1,100 | Cawachi, Ltd. | 27,397 | ||||||
1,000 | Cocokara Fine, Inc. | 36,654 | ||||||
4,130 | Colruyt SA | 204,276 | ||||||
300 | Cosmos Pharmaceutical Corp. | 55,299 | ||||||
1,300 | Create SD Holdings Co., Ltd. | 27,804 | ||||||
24,356 | Distribuidora Internacional de Alimentacion SA | 119,541 | ||||||
8,335 | Empire Co., Ltd., Class A | 97,599 | ||||||
1,100 | FamilyMart Co., Ltd. | 73,090 | ||||||
8,283 | Greggs plc | 98,893 | ||||||
1,600 | Heiwado Co., Ltd. | 37,643 | ||||||
1,831 | ICA Gruppen AB | 55,793 | ||||||
84,986 | J Sainsbury plc | 260,345 | ||||||
819 | Jean Coutu Group, Inc., Class A | 12,762 | ||||||
1,300 | Kato Sangyo Co., Ltd. | 30,374 |
Continued
12
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Food & Staples Retailing, continued |
| ||||||
1,366 | Kesko OYJ, Class A | $ | 63,033 | |||||
3,948 | Kesko OYJ, Class B | 197,251 | ||||||
28,566 | Koninklijke Ahold Delhaize NV | 601,165 | ||||||
900 | LAWSON, Inc. | 63,189 | ||||||
1,111 | Loblaw Cos., Ltd. | 58,624 | ||||||
1,430 | Marr SpA | 26,095 | ||||||
1,500 | Matsumotokiyoshi Holdings Co., Ltd. | 73,690 | ||||||
54,594 | Metcash, Ltd.* | 89,596 | ||||||
6,476 | Metro AG | 214,885 | ||||||
1,658 | Metro, Inc. | 49,598 | ||||||
1,000 | Mitsubishi Shokuhin Co., Ltd. | 29,677 | ||||||
600 | Nihon Chouzai Co., Ltd. | 22,349 | ||||||
201 | North West Co., Inc. (The) | 4,120 | ||||||
947 | Rallye SA | 18,355 | ||||||
600 | San-A Co., Ltd. | 29,000 | ||||||
4,300 | Seven & I Holdings Co., Ltd. | 163,662 | ||||||
1,668 | Sligro Food Group NV | 58,057 | ||||||
900 | Sogo Medical Co., Ltd. | 32,964 | ||||||
13,265 | Sonae SGPS SA* | 12,187 | ||||||
500 | Sugi Holdings Co., Ltd. | 23,696 | ||||||
900 | Sundrug Co., Ltd. | 62,196 | ||||||
276,116 | Tesco plc* | 702,732 | ||||||
800 | Tsuruha Holdings, Inc. | 75,727 | ||||||
3,100 | United Supermarkets Holdings | 26,105 | ||||||
2,200 | Valor Co., Ltd. | 57,325 | ||||||
500 | Welcia Holdings Co., Ltd. | 30,502 | ||||||
5,821 | Wesfarmers, Ltd. | 176,688 | ||||||
1,644 | Weston (George), Ltd. | 139,100 | ||||||
110,386 | William Morrison Supermarkets plc | 313,543 | ||||||
11,834 | Woolworths, Ltd. | 205,296 | ||||||
1,200 | Yaoko Co., Ltd. | 47,706 | ||||||
2,800 | Yokohama Reito Co., Ltd. | 24,538 | ||||||
|
| |||||||
6,255,400 | ||||||||
|
| |||||||
| Food Products (2.8%): |
| ||||||
823 | AAK AB | 54,098 | ||||||
1,425 | Agt Food and Ingredients, Inc. | 38,892 | ||||||
4,400 | Ajinomoto Co., Inc. | 88,505 | ||||||
500 | Ariake Japan Co., Ltd. | 26,663 | ||||||
5,493 | Aryzta AG | 241,938 | ||||||
1,675 | Associated British Foods plc | 56,600 | ||||||
5,111 | Austevoll Seafood ASA | 49,587 | ||||||
23,247 | Australian Agricultural Co., Ltd.* | 28,354 | ||||||
1,362 | Bakkafrost P/F | 54,110 | ||||||
101 | Barry Callebaut AG, Registered Shares | 123,644 | ||||||
81 | Bell AG | 34,896 | ||||||
2,999 | Bellamy’s Australia, Ltd.(b)(c) | 14,454 | ||||||
567 | Bonduelle S.C.A. | 14,918 | ||||||
1,100 | Calbee, Inc. | 34,418 | ||||||
11,579 | Cloetta AB | 36,487 | ||||||
3,395 | Cranswick plc | 98,047 | ||||||
7,971 | Dairy Crest Group plc | 60,856 | ||||||
3,437 | Danone SA | 217,515 | ||||||
10,087 | Devro plc | 23,455 | ||||||
500 | Dydo Drinco, Inc. | 25,979 | ||||||
1,596 | Ebro Foods SA | 33,424 | ||||||
111 | Emmi AG | 67,231 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Food Products, continued |
| ||||||
500 | Ezaki Glico Co., Ltd. | $ | 23,430 | |||||
16,300 | First Resources, Ltd. | 21,362 | ||||||
3,900 | Fuji Oil Co., Ltd./Osaka | 76,551 | ||||||
7,007 | Glanbia plc | 116,364 | ||||||
409,600 | Golden Agri-Resources, Ltd. | 121,006 | ||||||
8,318 | GrainCorp, Ltd. | 57,284 | ||||||
42,184 | Greencore Group plc | 128,231 | ||||||
3,373 | Grieg Seafood ASA | 31,894 | ||||||
1,119 | Hilton Food Group plc | 8,569 | ||||||
1,600 | Hokuto Corp. | 28,850 | ||||||
3,300 | House Foods Group, Inc. | 68,308 | ||||||
700 | J-Oil Mills, Inc. | 23,831 | ||||||
1,200 | Kagome Co., Ltd. | 29,989 | ||||||
1,567 | Kerry Group plc, Class A | 112,036 | ||||||
1,100 | Kewpie Corp. | 26,721 | ||||||
1,000 | Kikkoman Corp. | 31,948 | ||||||
88 | Kws Saat Se | 26,111 | ||||||
613 | Leroy Seafood Group ASA | 34,148 | ||||||
3,564 | Maple Leaf Foods, Inc. | 74,652 | ||||||
5,482 | Marine Harvest | 98,923 | ||||||
6,000 | Marudai Food Co., Ltd. | 25,294 | ||||||
2,600 | Maruha Nichiro Corp. | 70,047 | ||||||
900 | Megmilk Snow Brand Co., Ltd. | 24,775 | ||||||
1,600 | Meiji Holdings Co., Ltd. | 125,532 | ||||||
1,000 | Mitsui Sugar Co., Ltd. | 21,424 | ||||||
700 | Morinaga & Co., Ltd./Japan | 29,115 | ||||||
15,000 | Morinaga Milk Industry Co., Ltd. | 107,774 | ||||||
30,347 | Nestle SA, Registered Shares | 2,177,314 | ||||||
7,500 | Nichirei Corp. | 155,210 | ||||||
2,500 | Nippon Flour Mills Co., Ltd. | 34,677 | ||||||
4,000 | Nippon Meat Packers, Inc. | 108,006 | ||||||
20,100 | Nippon Suisan Kaisha, Ltd. | 96,588 | ||||||
9,000 | Nisshin Oillio Group, Ltd. (The) | 41,312 | ||||||
3,000 | Nisshin Seifun Group, Inc. | 44,985 | ||||||
500 | Nissin Foods Holdings Co., Ltd. | 26,241 | ||||||
326 | Orior AG | 23,938 | ||||||
2,710 | Orkla ASA, Class A | 24,535 | ||||||
11,559 | Parmalat SpA | 36,033 | ||||||
1,700 | Petra Foods, Ltd. | 2,607 | ||||||
51,099 | Premier Foods PLC* | 29,543 | ||||||
988 | Premium Brands Holdings Corp. | 50,750 | ||||||
10,000 | Prima Meat Packers, Ltd. | 35,584 | ||||||
6,968 | Rogers Sugar, Inc. | 35,346 | ||||||
1,029 | Salmar ASA | 30,764 | ||||||
2,923 | Saputo, Inc. | 103,442 | ||||||
127 | Savencia SA | 8,937 | ||||||
3,767 | Scandi Standard AB | 23,570 | ||||||
713 | Schouw & Co. | 53,113 | ||||||
4,718 | Select Harvests, Ltd. | 22,569 | ||||||
6,000 | Showa Sangyo Co., Ltd. | 30,817 | ||||||
4,721 | Suedzucker AG | 112,606 | ||||||
5,361 | SunOpta, Inc.* | 38,216 | ||||||
8,915 | Tassal Group, Ltd. | 26,685 | ||||||
19,288 | Tate & Lyle plc | 167,953 | ||||||
800 | Toyo Suisan Kaisha, Ltd. | 28,940 | ||||||
432 | Vilmorin & CIE SA | 27,202 |
Continued
13
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Food Products, continued |
| ||||||
3,689 | Viscofan SA | $ | 181,858 | |||||
42,000 | Vitasoy International Holdings, Ltd. | 84,189 | ||||||
3,198 | Wessanen | 44,709 | ||||||
94,112 | WH Group, Ltd.(a) | 75,778 | ||||||
600 | Yakult Honsha Co., Ltd. | 27,782 | ||||||
2,000 | Yamazaki Baking Co., Ltd. | 38,606 | ||||||
|
| |||||||
7,018,645 | ||||||||
|
| |||||||
| Gas Utilities (0.5%): |
| ||||||
11,879 | APA Group | 73,381 | ||||||
8,774 | Enagas SA | 222,639 | ||||||
12,238 | Gas Natural SDG SA | 230,513 | ||||||
44,035 | Hong Kong & China Gas Co., Ltd. | 77,845 | ||||||
4,557 | Italgas SpA* | 17,928 | ||||||
21,000 | Osaka Gas Co., Ltd. | 80,672 | ||||||
1,636 | Rubis SA | 134,848 | ||||||
13,000 | Saibu Gas Co., Ltd. | 28,004 | ||||||
3,700 | Shizuoka Gas Co. Limited | 26,012 | ||||||
10,212 | Superior Plus Corp. | 96,985 | ||||||
10,000 | Toho Gas Co., Ltd. | 81,225 | ||||||
11,000 | Tokyo Gas Co., Ltd. | 49,663 | ||||||
1,798 | Valener, Inc. | 28,072 | ||||||
|
| |||||||
1,147,787 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (1.0%): |
| ||||||
750 | Ambu A/S | 30,032 | ||||||
8,671 | Ansell, Ltd. | 154,434 | ||||||
1,400 | Asahi Intecc Co., Ltd. | 56,615 | ||||||
567 | bioMerieux | 84,671 | ||||||
1,072 | Cochlear, Ltd. | 94,615 | ||||||
1,014 | Coloplast A/S, Class B | 68,247 | ||||||
1,992 | Consort Medical plc | 25,985 | ||||||
1,218 | DiaSorin SpA | 72,093 | ||||||
509 | Draegerwerk AG & Co. KGaA | 42,509 | ||||||
5,484 | Elekta AB, Class B | 48,470 | ||||||
1,745 | Essilor International SA Compagnie Generale d’Optique | 197,113 | ||||||
13,820 | Fisher & Paykel Healthcare Corp., Ltd. | 81,544 | ||||||
5,613 | Getinge AB, Class B | 89,946 | ||||||
7,376 | GN Store Nord A/S | 152,794 | ||||||
405 | Guerbet | 30,341 | ||||||
600 | Hogy Medical Co., Ltd. | 36,980 | ||||||
2,000 | HOYA Corp. | 83,834 | ||||||
726 | Ion Beam Applications | 31,812 | ||||||
6,000 | JEOL, Ltd. | 26,127 | ||||||
900 | Nakanishi, Inc. | 34,817 | ||||||
1,500 | Nihon Kohden Corp. | 33,106 | ||||||
4,000 | Nikkiso Co., Ltd. | 37,944 | ||||||
8,900 | Nipro Corp. | 97,188 | ||||||
1,300 | Olympus Co., Ltd. | 44,831 | ||||||
900 | Paramount Bed Holdings Co., Ltd. | 35,907 | ||||||
1,192 | Sartorius AG | 88,246 | ||||||
876 | Sartorius Stedim Biotech | 55,273 | ||||||
10,538 | Smith & Nephew plc | 156,976 | ||||||
1,344 | Sonova Holding AG, Registered Shares | 162,660 | ||||||
268 | Straumann Holding AG, Registered Shares | 104,515 | ||||||
1,700 | Sysmex Corp. | 98,278 | ||||||
2,400 | Terumo Corp. | 88,432 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Health Care Equipment & Supplies, continued |
| ||||||
5,988 | William Demant Holding A/S* | $ | 104,136 | |||||
|
| |||||||
2,550,471 | ||||||||
|
| |||||||
| Health Care Providers & Services (0.7%): |
| ||||||
4,943 | Al Noor Hospitals Group plc | 46,705 | ||||||
3,800 | Alfresa Holdings Corp. | 62,657 | ||||||
3,417 | Amplifon SpA | 32,537 | ||||||
18,377 | Australian Pharmaceutical Industries, Ltd. | 27,234 | ||||||
1,100 | Bml, Inc. | 26,178 | ||||||
4,556 | Ebos Group, Ltd. | 52,779 | ||||||
4,012 | Extendicare, Inc. | 29,525 | ||||||
1,513 | Fagron* | 15,433 | ||||||
699 | Fresenius Medical Care AG & Co., KGaA | 59,255 | ||||||
2,812 | Fresenius SE & Co. KGaA | 219,625 | ||||||
23,959 | Healthscope, Ltd. | 39,458 | ||||||
1,000 | Japan Lifeline Co., Ltd. | 19,853 | ||||||
2,680 | Korian-Medica | 78,510 | ||||||
1,284 | Lifco AB-B Shs | 32,816 | ||||||
1,404 | Medical Facilities Corp. | 18,375 | ||||||
7,584 | Metlifecare, Ltd. | 29,201 | ||||||
1,900 | Miraca Holdings, Inc. | 85,108 | ||||||
1,507 | Orpea | 121,665 | ||||||
14,512 | Primary Health Care, Ltd. | 42,635 | ||||||
24,900 | Raffles Medical Group, Ltd. | 24,568 | ||||||
1,233 | Ramsay Health Care, Ltd. | 60,769 | ||||||
37,800 | Religare Health Trust | 23,888 | ||||||
1,312 | Rhoen-Klinikum AG | 35,405 | ||||||
2,200 | Ship Healthcare Holdings, Inc. | 56,414 | ||||||
2,371 | Sienna Senior Living, Inc. | 28,788 | ||||||
1,446 | Sigma Pharmaceuticals, Ltd. | 1,344 | ||||||
3,860 | Sonic Healthcare, Ltd. | 59,558 | ||||||
14,366 | Spire Healthcare Group plc(a) | 59,664 | ||||||
10,895 | Summerset Group Holdings, Ltd. | 35,430 | ||||||
3,700 | Suzuken Co., Ltd. | 120,704 | ||||||
2,700 | Toho Holdings Co., Ltd. | 53,791 | ||||||
9,162 | UDG Healthcare plc | 75,427 | ||||||
2,800 | Vital Ksk Holdings, Inc. | 23,682 | ||||||
|
| |||||||
1,698,981 | ||||||||
|
| |||||||
| Health Care Technology (0.1%): |
| ||||||
14,160 | AGFA-Gevaert NV* | 54,649 | ||||||
857 | Compugroup Medical Se | 35,126 | ||||||
2,100 | M3, Inc. | 52,866 | ||||||
1,213 | Raysearch Laboratories AB | 24,571 | ||||||
|
| |||||||
167,212 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (2.0%): |
| ||||||
2,757 | Accor SA | 102,769 | ||||||
3,700 | Accordia Golf Co., Ltd. | 37,929 | ||||||
16,663 | Ainsworth Game Technology, Ltd. | 25,297 | ||||||
21,328 | Ardent Leisure Group | 35,831 | ||||||
8,600 | Aristocrat Leisure, Ltd. | 95,937 | ||||||
4,300 | Atom Corp. | 26,477 | ||||||
7,557 | Autogrill SpA | 68,256 | ||||||
14,000 | Cafe de Coral Holdings, Ltd. | 45,377 | ||||||
1,939 | Carnival plc, ADR | 99,257 | ||||||
7,831 | Collins Foods, Ltd. | 37,032 | ||||||
2,000 | Colowide Co., Ltd. | 33,217 |
Continued
14
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Hotels, Restaurants & Leisure, continued |
| ||||||
9,167 | Compass Group plc | $ | 168,941 | |||||
2,022 | Corporate Travel Management, Ltd. | 26,675 | ||||||
5,145 | Crown, Ltd. | 42,886 | ||||||
1,951 | Domino’s Pizza Enterprises, Ltd. | 90,848 | ||||||
23,341 | Domino’s Pizza Group plc | 103,447 | ||||||
1,600 | Doutor Nichires Holdings Co. LT | 29,363 | ||||||
6,151 | Elior Group(a) | 140,461 | ||||||
20,405 | Enterprise Inns plc* | 30,545 | ||||||
1,133 | Flight Centre, Ltd. | 25,487 | ||||||
557 | Fuller Smith & Turner plc, Class A | 6,682 | ||||||
25,010 | Galaxy Entertainment Group, Ltd. | 107,602 | ||||||
49,700 | Genting Singapore plc | 30,897 | ||||||
2,773 | Great Canadian Gaming Corp.* | 51,597 | ||||||
8,500 | Greene King plc | 73,043 | ||||||
12,797 | GVC Holdings plc* | 101,196 | ||||||
2,400 | HIS Co., Ltd. | 62,709 | ||||||
31,000 | Hongkong & Shanghai Hotels (The) | 34,359 | ||||||
1,803 | Intercontinental Hotels Group plc, ADR | 79,927 | ||||||
9,004 | JD Wetherspoon plc | 98,455 | ||||||
1,000 | Kyoritsu Maintenance Co., Ltd. | 58,052 | ||||||
23,554 | Ladbrokes plc | 33,543 | ||||||
11,110 | Mantra Group, Ltd. | 24,631 | ||||||
38,907 | Marston’s plc | 65,149 | ||||||
49,000 | Melco International Development Limited | 66,280 | ||||||
2,209 | Melia Hotels International SA | 25,751 | ||||||
25,795 | Merlin Entertainments plc | 142,508 | ||||||
15,327 | MGM China Holdings, Ltd. | 31,642 | ||||||
6,833 | Millennium & Copthorne Hotels | 38,727 | ||||||
14,000 | Miramar Hotel & Investment | 29,430 | ||||||
17,282 | Mitchells & Butlers plc | 53,387 | ||||||
902 | Mty Food Group, Inc. | 33,970 | ||||||
122,000 | NagaCorp, Ltd. | 70,249 | ||||||
10,509 | NH Hotel Group SA* | 42,496 | ||||||
900 | Oriental Land Co., Ltd. | 50,815 | ||||||
17,900 | Oue, Ltd. | 21,690 | ||||||
1,016 | Paddy Power Betfair plc | 109,773 | ||||||
1,718 | Paddy Power plc | 183,541 | ||||||
2,047 | Pandox AB | 31,768 | ||||||
12,439 | Rank Group plc | 29,877 | ||||||
3,000 | Resorttrust, Inc. | 55,301 | ||||||
1,092 | Restaurant Brands International, Inc. | 52,018 | ||||||
18,602 | Restaurant Group plc (The) | 74,105 | ||||||
6,437 | Rezidor Hotel Group AB | 25,084 | ||||||
4,600 | Round One Corp. | 31,821 | ||||||
1,200 | Saint Marc Holdings Co., Ltd. | 36,463 | ||||||
1,300 | Saizeriya Co., Ltd. | 29,203 | ||||||
16,988 | Sands China, Ltd. | 73,065 | ||||||
64,000 | Shangri-La Asia, Ltd. | 67,415 | ||||||
115,868 | SJM Holdings, Ltd. | 90,550 | ||||||
705 | Skistar AB | 11,780 | ||||||
28,970 | Sky City Entertainment Group, Ltd. | 79,121 | ||||||
2,200 | Skylark Co., Ltd. | 29,043 | ||||||
1,092 | Sodexo SA | 125,466 | ||||||
36,825 | Ssp Group plc | 175,543 | ||||||
32,367 | Star Entertainment Group, Ltd. (The) | 120,414 | ||||||
30,186 | Tabcorp Holdings, Ltd. | 104,708 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Hotels, Restaurants & Leisure, continued |
| ||||||
17,600 | Tatts Group, Ltd. | $ | 56,815 | |||||
50,634 | Thomas Cook Group plc* | 54,028 | ||||||
4,500 | Tokyo Dome Corp. | 44,272 | ||||||
1,100 | Toridoll Holding Corp. | 23,680 | ||||||
8,666 | TUI AG | 123,801 | ||||||
6,856 | Unibet Group plc | 64,319 | ||||||
2,777 | Whitbread plc | 129,066 | ||||||
24,720 | William Hill plc | 88,091 | ||||||
16,830 | Wynn Macau, Ltd. | 26,648 | ||||||
5,600 | Zensho Holdings Co., Ltd. | 92,204 | ||||||
|
| |||||||
4,939,802 | ||||||||
|
| |||||||
| Household Durables (1.8%): |
| ||||||
2,000 | Alpine Electronics, Inc. | 25,917 | ||||||
2,536 | Bang & Olufsen A/S* | 28,709 | ||||||
43,258 | Barratt Developments plc | 246,057 | ||||||
5,911 | Bellway plc | 179,827 | ||||||
5,073 | Berkeley Group Holdings plc (The) | 175,324 | ||||||
5,170 | Bonava AB* | 80,053 | ||||||
10,237 | Bovis Homes Group plc | 103,272 | ||||||
3,865 | Breville Group, Ltd. | 24,094 | ||||||
7,900 | Casio Computer Co., Ltd. | 111,363 | ||||||
1,200 | Chofu Seisakusho Co., Ltd. | 26,910 | ||||||
9,906 | Crest Nicholson Holdings plc | 54,994 | ||||||
2,921 | De’Longhi | 69,358 | ||||||
2,152 | Duni AB | 29,503 | ||||||
266 | Ekornes ASA | 3,283 | ||||||
3,583 | Electrolux AB, Series B | 89,000 | ||||||
2,053 | Fiskars OYJ Abp | 38,022 | ||||||
63 | Forbo Holding AG | 81,270 | ||||||
1,600 | Foster Electric Co., Ltd. | 30,203 | ||||||
1,000 | Fujitsu General, Ltd. | 21,170 | ||||||
17,100 | Haseko Corp. | 173,101 | ||||||
187 | Hunter Douglas NV | 10,521 | ||||||
15,466 | Husqvarna AB, Class B | 120,142 | ||||||
4,300 | Iida Group Holdings Co., Ltd. | 81,417 | ||||||
5,228 | JM AB | 151,039 | ||||||
62,400 | Man Wah Holdings, Ltd. | 42,097 | ||||||
13 | Metall Zug AG | 41,309 | ||||||
6,800 | Nikon Corp. | 105,362 | ||||||
5,000 | Nissei Build Kogyo Co., Ltd. | 22,687 | ||||||
9,589 | Nobia AB | 89,326 | ||||||
5,000 | Panahome Corp. | 40,383 | ||||||
17,300 | Panasonic Corp. | 175,600 | ||||||
14,040 | Persimmon plc | 306,315 | ||||||
31,200 | Pioneer Corp.* | 62,509 | ||||||
15,445 | Redrow plc | 81,563 | ||||||
500 | Rinnai Corp. | 40,283 | ||||||
2,500 | Sangetsu Co., Ltd. | 43,269 | ||||||
1,136 | SEB SA | 153,909 | ||||||
13,000 | Sekisui Chemical Co., Ltd. | 206,919 | ||||||
9,100 | Sekisui House, Ltd. | 151,161 | ||||||
55,000 | Sharp Corp.* | 126,722 | ||||||
9,500 | Sony Corp. | 264,048 | ||||||
2,200 | Starts Corp., Inc. | 37,175 | ||||||
6,900 | Sumitomo Forestry Co., Ltd. | 90,790 | ||||||
137,884 | Taylor Wimpey plc | 258,910 |
Continued
15
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Household Durables, continued |
| ||||||
20,687 | Techtronic Industries Co., Ltd. | $ | 74,110 | |||||
400 | Token Corp. | 28,288 | ||||||
4,830 | Tomtom NV* | 43,427 | ||||||
2,000 | Zojirushi Corp. | 26,834 | ||||||
|
| |||||||
4,467,545 | ||||||||
|
| |||||||
| Household Products (0.3%): |
| ||||||
316 | Henkel AG & Co. KGaA | 32,817 | ||||||
4,000 | Lion Corp. | 65,573 | ||||||
14,255 | Mcbride PLC* | 31,802 | ||||||
2,100 | Pigeon Corp. | 53,625 | ||||||
12,670 | PZ Cussons plc | 52,073 | ||||||
2,504 | Reckitt Benckiser Group plc | 211,638 | ||||||
7,429 | Svenska Cellulosa AB, Class B | 209,569 | ||||||
1,800 | Unicharm Corp. | 39,317 | ||||||
|
| |||||||
696,414 | ||||||||
|
| |||||||
| Independent Power & Renewable Electricity Producers (0.3%): |
| ||||||
1,967 | Albioma SA | 34,244 | ||||||
8,418 | Algonquin Power & Utilities Corp. | 71,420 | ||||||
3,382 | Boralex, Inc., Class A | 48,242 | ||||||
3,696 | Capital Power Corp. | 63,954 | ||||||
26,679 | Drax Group plc | 124,056 | ||||||
1,951 | Edp Renovaveis SA | 12,391 | ||||||
1,300 | Electric Power Development Co., Ltd. | 29,876 | ||||||
5,373 | ERG SpA | 57,640 | ||||||
45,075 | Infigen Energy* | 29,261 | ||||||
3,741 | Innergex Renewable Energy, Inc. | 39,096 | ||||||
14,231 | Meridian Energy, Ltd. | 25,641 | ||||||
4,661 | Northland Power, Inc. | 80,895 | ||||||
12,748 | Transalta Corp. | 70,553 | ||||||
3,789 | Transalta Renewables, Inc. | 40,472 | ||||||
2,170 | Uniper SE* | 29,772 | ||||||
|
| |||||||
757,513 | ||||||||
|
| |||||||
| Industrial Conglomerates (1.1%): |
| ||||||
26,645 | Cir-Compagnie Industriali Riun | 28,954 | ||||||
46,430 | CK Hutchison Holdings, Ltd. | 524,180 | ||||||
566 | Daetwyler Holding AG | 76,941 | ||||||
1,493 | DCC plc | 110,660 | ||||||
6,000 | Guoco Group, Ltd. | 66,083 | ||||||
40,000 | Hopewell Holdings, Ltd. | 137,959 | ||||||
980 | Indus Holding AG | 53,229 | ||||||
570 | Italmobiliare SpA | 26,774 | ||||||
11,000 | Keihan Electric Railway Co., Ltd. | 72,066 | ||||||
23,600 | Keppel Corp., Ltd. | 93,799 | ||||||
6,404 | Koninklijke Philips Electronics NV | 195,172 | ||||||
3,787 | Koninklijke Philips Electronics NV, NY Shares, NYS | 115,769 | ||||||
10,700 | Nisshinbo Holdings, Inc. | 103,049 | ||||||
1,487 | Nolato AB | 42,908 | ||||||
40,096 | NWS Holdings, Ltd. | 65,196 | ||||||
2,675 | Rheinmetall AG | 179,709 | ||||||
2,400 | Seibu Holdings, Inc. | 42,955 | ||||||
57,400 | SembCorp Industries, Ltd. | 112,625 | ||||||
70,000 | Shun Tak Holdings, Ltd. | 23,996 | ||||||
5,565 | Siemens AG, Registered Shares | 683,962 | ||||||
5,436 | Smiths Group plc | 94,414 | ||||||
5,400 | Tokai Holdings Corp. | 37,668 | ||||||
|
| |||||||
2,888,068 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Insurance (4.5%): |
| ||||||
5,489 | Admiral Group plc | $ | 123,065 | |||||
16,558 | AEGON NV | 91,040 | ||||||
4,135 | Ageas NV | 163,619 | ||||||
67,040 | AIA Group, Ltd. | 375,193 | ||||||
4,109 | Alm Brand A/S | 31,423 | ||||||
25,977 | Assicurazioni Generali SpA | 385,757 | ||||||
19,830 | Aviva plc, ADR | 234,192 | ||||||
8,915 | AXA SA | 224,928 | ||||||
2,261 | Baloise Holding AG, Registered Shares | 284,397 | ||||||
28,048 | Beazley plc | 133,742 | ||||||
7,384 | Chesnara plc | 33,198 | ||||||
2,500 | CNP Assurances SA | 46,299 | ||||||
3,800 | Coface SA | 24,794 | ||||||
10,200 | Dai-ichi Life Insurance Co., Ltd. | 169,018 | ||||||
3,895 | Delta Lloyd NV | 21,782 | ||||||
62,583 | Direct Line Insurance Group plc | 283,782 | ||||||
182 | E-L Financial Corp., Ltd. | 98,965 | ||||||
20,019 | Esure Group plc | 49,662 | ||||||
889 | Euler Hermes Group | 78,120 | ||||||
774 | Fairfax Financial Holdings, Ltd. | 373,884 | ||||||
1,983 | Gjensidige Forsikring ASA | 31,485 | ||||||
1,405 | Great-West Lifeco, Inc. | 36,807 | ||||||
2,030 | Grupo Catalana Occidente SA | 66,442 | ||||||
1,103 | Hannover Rueck SE | 119,394 | ||||||
5,987 | Harel Insurance Investments & | 27,464 | ||||||
197 | Helvetia Patria Holding AG | 106,165 | ||||||
15,112 | Hiscox, Ltd. | 189,180 | ||||||
5,554 | Industrial Alliance Insurance & Financial Services, Inc. | 220,878 | ||||||
19,579 | Insurance Australia Group, Ltd. | 84,361 | ||||||
1,291 | Intact Financial Corp. | 92,413 | ||||||
6,623 | Jardine Lloyd Thompson Group plc | 80,290 | ||||||
29,819 | Jrp Group plc | 54,898 | ||||||
10,687 | Lancashire Holdings, Ltd. | 91,107 | ||||||
205,220 | Legal & General Group plc | 624,951 | ||||||
5,565 | Manulife Financial Corp. | 99,113 | ||||||
13,895 | Manulife Financial Corp. | 247,609 | ||||||
44,734 | MAPFRE SA | 136,487 | ||||||
26,388 | Medibank Private, Ltd. | 53,640 | ||||||
4,900 | MS&AD Insurance Group Holdings, Inc. | 151,413 | ||||||
1,555 | Muenchener Rueckversicherungs-Gesellschaft AG | 294,059 | ||||||
19,627 | NIB Holdings, Ltd. | 67,319 | ||||||
5,000 | NKSJ Holdings, Inc. | 168,857 | ||||||
6,129 | NN Group NV | 207,516 | ||||||
3,854 | Novae Group PLC | 32,648 | ||||||
105,053 | Old Mutual plc | 266,458 | ||||||
14,781 | Phoenix Group Holdings | 133,706 | ||||||
2,827 | Protector Forsikring ASA | 22,527 | ||||||
10,211 | Prudential plc, ADR | 406,296 | ||||||
11,206 | QBE Insurance Group, Ltd. | 100,632 | ||||||
39,451 | RSA Insurance Group plc | 284,489 | ||||||
56,602 | Saga plc | 135,770 | ||||||
3,945 | Sampo OYJ, Class A | 176,384 | ||||||
9,116 | SCOR SA | 314,879 | ||||||
9,598 | Societa Cattolica di Assicuraz | 56,237 | ||||||
14,023 | St. James Place plc | 174,394 |
Continued
16
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Insurance, continued |
| ||||||
41,146 | Standard Life plc | $ | 187,569 | |||||
19,717 | Steadfast Group, Ltd. | 31,425 | ||||||
20,895 | Storebrand ASA* | 111,210 | ||||||
8,920 | Sun Life Financial, Inc. | 342,617 | ||||||
24,273 | Suncorp-Metway, Ltd. | 236,051 | ||||||
1,469 | Swiss Life Holding AG, Registered Shares | 415,758 | ||||||
1,311 | Swiss Re AG | 124,242 | ||||||
10,600 | T&D Holdings, Inc. | 139,600 | ||||||
2,754 | Talanx AG | 92,125 | ||||||
6,400 | Tokio Marine Holdings, Inc. | 261,733 | ||||||
3,403 | Topdanmark A/S* | 86,410 | ||||||
5,039 | Tryg A/S | 91,129 | ||||||
16,849 | Unipol Gruppo Finanziario SpA | 60,660 | ||||||
34,458 | UnipolSai SpA | 73,555 | ||||||
8,311 | Uniqa Insurance Group AG | 62,954 | ||||||
2,764 | Vienna Insurance Group Weiner Staeditische Versicherung AG | 61,950 | ||||||
1,274 | Zurich Insurance Group AG | 350,022 | ||||||
|
| |||||||
11,312,138 | ||||||||
|
| |||||||
| Internet & Direct Marketing Retail (0.1%): |
| ||||||
7,431 | N Brown Group plc | 20,296 | ||||||
13,793 | Ocado Group plc* | 44,856 | ||||||
3,500 | Rakuten, Inc. | 34,254 | ||||||
4,800 | Start Today Co., Ltd. | 82,364 | ||||||
3,151 | Takkt AG | 71,402 | ||||||
19,250 | Trade Me Group, Ltd. | 66,820 | ||||||
3,021 | Webjet, Ltd. | 23,014 | ||||||
895 | Yoox SpA* | 25,278 | ||||||
|
| |||||||
368,284 | ||||||||
|
| |||||||
| Internet Software & Services (0.4%): |
| ||||||
22,069 | Auto Trader Group plc(a) | 111,101 | ||||||
9,425 | Carsales.com, Ltd. | 77,048 | ||||||
2,900 | Cookpad, Inc. | 26,627 | ||||||
1,300 | DeNA Co., Ltd. | 28,323 | ||||||
1,200 | Dip Corp. | 24,784 | ||||||
3,000 | GMO Internet, Inc. | 38,170 | ||||||
20,019 | Gocompare.com Group plc* | 17,514 | ||||||
2,200 | Gree, Inc. | 11,598 | ||||||
1,200 | Gurunavi, Inc. | 23,716 | ||||||
4,400 | Infomart Corp. | 25,695 | ||||||
2,100 | Internet Initiative Japan, Inc. | 31,655 | ||||||
9,063 | Isentia Group, Ltd. | 18,691 | ||||||
8,839 | Just Eat plc* | 63,483 | ||||||
3,100 | Kakaku.com, Inc. | 51,260 | ||||||
22,749 | Moneysupermarket.com Group plc | 82,356 | ||||||
8,615 | Netent AB* | 66,402 | ||||||
3,213 | Rightmove plc | 154,389 | ||||||
1,200 | Sms Co., Ltd. | 26,571 | ||||||
2,596 | United Internet AG, Registered Shares | 101,030 | ||||||
135 | Xing AG | 24,879 | ||||||
8,400 | Yahoo! Japan Corp. | 32,240 | ||||||
6,786 | Zoopla Property Group plc(a) | 26,673 | ||||||
|
| |||||||
1,064,205 | ||||||||
|
| |||||||
| IT Services (1.0%): |
| ||||||
1,856 | Alten SA | 130,309 | ||||||
6,137 | Altran Technologies SA | 89,587 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| IT Services, continued |
| ||||||
5,280 | Amadeus IT Holding SA | $ | 239,832 | |||||
6,183 | Atea ASA | 56,939 | ||||||
3,113 | Atos Origin SA | 328,351 | ||||||
544 | Cancom Se | 25,663 | ||||||
1,519 | Cap Gemini SA | 128,090 | ||||||
1,045 | CGI Group, Inc., Class A* | 50,191 | ||||||
3,428 | Computacenter plc | 33,598 | ||||||
10,943 | Computershare, Ltd. | 98,354 | ||||||
1,168 | DH Corp. | 19,384 | ||||||
1,400 | DTS Corp. | 29,784 | ||||||
4,312 | Econocom Group SA/NV | 63,250 | ||||||
3,891 | Fdm Group Holdings plc | 27,079 | ||||||
457 | Formula Systems 1985, Ltd. | 18,497 | ||||||
32,000 | Fujitsu, Ltd. | 177,280 | ||||||
600 | Gmo Payment Gateway, Inc. | 26,657 | ||||||
2,064 | Indra Sistemas SA* | 22,607 | ||||||
7,617 | IRESS, Ltd. | 65,038 | ||||||
4,300 | IT Holdings Corp. | 91,823 | ||||||
1,900 | Itochu Techno-Solutions Corp. | 49,355 | ||||||
1,600 | NEC Networks & System Integrat | 28,849 | ||||||
3,900 | Nihon Unisys, Ltd. | 49,008 | ||||||
1,452 | Nomura Research Institute, Ltd. | 44,144 | ||||||
1,700 | NS Solutions Corp. | 30,502 | ||||||
1,100 | NTT Data Corp. | 53,087 | ||||||
600 | OBIC Co., Ltd. | 26,174 | ||||||
700 | Otsuka Corp. | 32,634 | ||||||
15,977 | Paysafe Group plc* | 72,708 | ||||||
208 | Reply SpA | 25,851 | ||||||
1,500 | SCSK Corp. | 52,406 | ||||||
900 | Sopra Steria Group | 102,148 | ||||||
4,001 | Tieto OYJ | 109,128 | ||||||
1,100 | Tkc Corp. | 29,925 | ||||||
855 | Wirecard AG^ | 36,743 | ||||||
1,237 | Worldline SA*(a) | 34,861 | ||||||
|
| |||||||
2,499,836 | ||||||||
|
| |||||||
| Leisure Products (0.4%): |
| ||||||
1,452 | Accell Group | 33,467 | ||||||
7,303 | Amer Sports OYJ | 193,953 | ||||||
1,506 | Brp, Inc.* | 31,803 | ||||||
3,600 | Heiwa Corp. | 82,369 | ||||||
6,000 | Mizuno Corp. | 29,101 | ||||||
3,300 | Namco Bandai Holdings, Inc. | 90,858 | ||||||
26,132 | Photo-Me International plc | 52,740 | ||||||
5,700 | Sega Sammy Holdings, Inc. | 84,647 | ||||||
400 | Shimano, Inc. | 62,617 | ||||||
3,689 | Thule Group AB (The)(a) | 57,712 | ||||||
2,800 | Tomy Co., Ltd. | 29,684 | ||||||
385 | Trigano SA | 30,115 | ||||||
1,100 | Universal Entertainment Corp.* | 31,727 | ||||||
2,800 | Yamaha Corp. | 85,344 | ||||||
|
| |||||||
896,137 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (0.4%): |
| ||||||
823 | AddLife AB* | 12,455 | ||||||
2,200 | Eps Holdings, Inc. | 25,603 | ||||||
306 | Eurofins Scientific SE | 130,343 | ||||||
1,884 | Gerresheimer AG | 139,813 |
Continued
17
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Life Sciences Tools & Services, continued |
| ||||||
1,400 | Lonza Group AG, Registered Shares | $ | 242,108 | |||||
1,908 | QIAGEN NV* | 53,522 | ||||||
14,471 | QIAGEN NV* | 405,477 | ||||||
202 | Siegfried Holding AG | 42,248 | ||||||
428 | Tecan Group AG | 66,684 | ||||||
|
| |||||||
1,118,253 | ||||||||
|
| |||||||
| Machinery (3.9%): |
| ||||||
6,065 | Aalberts Industries NV | 196,528 | ||||||
4,185 | Alfa Laval AB | 69,165 | ||||||
5,842 | Alstom SA* | 160,727 | ||||||
2,790 | Andritz AG | 140,026 | ||||||
2,900 | Asahi Diamond Industrial Co., Ltd. | 21,110 | ||||||
3,946 | Atlas Copco AB, Class A | 120,001 | ||||||
2,774 | Atlas Copco AB, Class B | 75,534 | ||||||
4,049 | Ats Automation Tooling Systems, Inc.* | 37,761 | ||||||
1,300 | Bando Chemical Industries, Ltd. | 11,508 | ||||||
1,558 | Beijer Alma AB | 39,863 | ||||||
506 | Bobst Group SA | 35,187 | ||||||
12,886 | Bodycote plc | 102,129 | ||||||
433 | Bucher Industries AG | 106,665 | ||||||
87 | Burckhardt Compression Holding | 22,883 | ||||||
2,579 | Cargotec OYJ | 116,390 | ||||||
2,600 | CKD Corp. | 29,423 | ||||||
17,805 | CNH Industrial NV | 154,781 | ||||||
2,050 | Concentric AB | 25,561 | ||||||
1,110 | Construcc y Aux de Ferrocarr SA | 44,729 | ||||||
94 | Conzzeta AG | 66,476 | ||||||
1,900 | Daifuku Co., Ltd. | 40,333 | ||||||
5,736 | Deutz AG | 32,225 | ||||||
8,100 | DMG Mori Co., Ltd. | 97,999 | ||||||
1,230 | Duerr AG | 98,675 | ||||||
4,500 | Ebara Corp. | 127,864 | ||||||
800 | FANUC Corp. | 135,298 | ||||||
9,997 | Fenner plc | 29,015 | ||||||
2,900 | Fuji Machine MFG. Co., Ltd. | 33,074 | ||||||
3,400 | Fujitec Co., Ltd. | 39,783 | ||||||
1,000 | Fukushima Industries Corp. | 28,767 | ||||||
19,000 | Furukawa Co., Ltd. | 34,544 | ||||||
303 | Georg Fischer AG | 248,178 | ||||||
2,900 | Glory, Ltd. | 91,391 | ||||||
2,253 | Haldex AB | 28,822 | ||||||
26,103 | Heidelberger Druckmaschinen AG* | 69,558 | ||||||
9,700 | Hino Motors, Ltd. | 98,448 | ||||||
3,100 | Hitachi Construction Machinery Co., Ltd. | 66,937 | ||||||
12,300 | Hitachi Zosen Corp. | 64,221 | ||||||
500 | Hoshizaki Electric Co., Ltd. | 39,530 | ||||||
48,000 | IHI Corp. | 124,468 | ||||||
16,053 | IMI plc | 204,683 | ||||||
614 | Industria Macchine Automatiche | 37,213 | ||||||
3,766 | Interpump Group SpA | 61,603 | ||||||
40 | Interroll Holding AG, Registered Shares | 43,588 | ||||||
13,000 | Iseki & Co., Ltd. | 24,960 | ||||||
4,000 | Japan Steel Works, Ltd. (The) | 70,804 | ||||||
8,700 | JTEKT Corp. | 138,732 | ||||||
2,600 | Juki Corp. | 23,450 | ||||||
3,751 | Jungheinrich AG | 107,369 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Machinery, continued |
| ||||||
419 | Kardex AG | $ | 39,114 | |||||
54,000 | Kawasaki Heavy Industries, Ltd. | 168,580 | ||||||
2,997 | Kion Group AG | 166,537 | ||||||
5,100 | Kitz Corp. | 27,831 | ||||||
572 | Koenig & Bauer AG* | 25,683 | ||||||
5,600 | Komatsu, Ltd. | 126,415 | ||||||
153 | Komax Holding AG | 37,803 | ||||||
2,900 | Komori Corp. | 37,904 | ||||||
3,618 | Kone OYJ, Class B | 162,064 | ||||||
1,652 | Konecranes OYJ | 58,716 | ||||||
438 | Krones AG | 40,021 | ||||||
8,000 | Kubota Corp. | 113,901 | ||||||
478 | Kuka AG | 44,358 | ||||||
4,500 | Kurita Water Industries, Ltd. | 98,865 | ||||||
1,000 | Kyokuto Kaihatsu Kogyo Co., Ltd. | 13,417 | ||||||
4,000 | Makino Milling Machine Co., Ltd. | 31,210 | ||||||
1,100 | Makita Corp. | 73,594 | ||||||
474 | MAN AG | 47,075 | ||||||
13,000 | Meidensha Corp. | 44,617 | ||||||
4,077 | Metso Corp. OYJ | 116,035 | ||||||
7,800 | Minebea Co., Ltd. | 72,871 | ||||||
55,000 | Mitsubishi Heavy Industries, Ltd. | 249,884 | ||||||
57,000 | Mitsui Engineering & Shipbuilding Co., Ltd. | 87,854 | ||||||
12,802 | Morgan Advanced Materials plc | 44,917 | ||||||
2,100 | Morita Holdings Corp. | 29,717 | ||||||
2,100 | Nabtesco Corp. | 48,759 | ||||||
11,000 | Nachi-Fujikoshi Corp. | 47,569 | ||||||
3,900 | Namura Shipbuilding Co., Ltd. | 26,590 | ||||||
1,637 | New Flyer Industries, Inc. | 49,798 | ||||||
4,300 | NGK Insulators, Ltd. | 83,181 | ||||||
1,200 | Nitta Corp. | 32,555 | ||||||
1,544 | NKT Holding A/S | 109,089 | ||||||
2,186 | Norma Group SE | 93,141 | ||||||
14,000 | NSK, Ltd. | 161,495 | ||||||
34,000 | NTN Corp. | 136,980 | ||||||
700 | Obara Group, Inc. | 31,175 | ||||||
13,063 | OC Oerlikon Corp. AG | 128,291 | ||||||
9,000 | Okuma Corp. | 85,568 | ||||||
5,200 | OSG Corp. | 102,031 | ||||||
290 | Pfeiffer Vacuum Technology AG | 27,093 | ||||||
118 | Rational AG | 52,589 | ||||||
70 | Rieter Holding AG | 12,172 | ||||||
51,599 | Rotork plc | 152,557 | ||||||
9,000 | Ryobi, Ltd. | 35,269 | ||||||
16,351 | Sandvik AB | 201,943 | ||||||
214 | Schindler Holding AG, Registered Shares | 37,392 | ||||||
15,600 | SembCorp Marine, Ltd. | 14,839 | ||||||
767 | Semperit AG | 20,788 | ||||||
1,010 | Sfs Group AG | 82,435 | ||||||
4,000 | Shinmaywa Industries, Ltd. | 35,851 | ||||||
3,300 | Sintokogio, Ltd. | 28,635 | ||||||
5,919 | SKF AB, Class B | 108,694 | ||||||
2,300 | Sodick Co., Ltd. | 18,969 | ||||||
2,119 | Spirax-Sarco Engineering plc | 108,806 | ||||||
891 | Stabilus SA* | 47,816 | ||||||
2,000 | Star Micronics Co., Ltd. | 27,195 |
Continued
18
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Machinery, continued |
| ||||||
1,147 | Sulzer AG, Registered Shares | $ | 118,152 | |||||
29,000 | Sumitomo Heavy Industries, Ltd. | 186,263 | ||||||
8,000 | Tadano, Ltd. | 100,406 | ||||||
3,600 | Takeuchi Manufacturing Co., Ltd. | 79,810 | ||||||
5,000 | Takuma Co., Ltd. | 42,695 | ||||||
5,654 | Talgo SA*(a) | 26,871 | ||||||
5,000 | THK Co., Ltd. | 110,217 | ||||||
8,000 | Toshiba Machine Co., Ltd. | 31,946 | ||||||
1,884 | Trelleborg AB | 37,030 | ||||||
9,000 | Tsubakimoto Chain Co. | 72,968 | ||||||
7,579 | Valmet Corp. | 111,482 | ||||||
15,471 | Vesuvius plc | 75,338 | ||||||
6,338 | Volvo AB, Class A | 74,458 | ||||||
27,562 | Volvo AB, Class B | 321,297 | ||||||
454 | Vossloh AG* | 28,458 | ||||||
1,388 | Wacker Neuson SE | 22,464 | ||||||
2,713 | Wartsila Corp. OYJ, Class B | 121,844 | ||||||
560 | Washtec AG | 29,153 | ||||||
6,011 | Weir Group plc (The) | 139,245 | ||||||
3,000 | Yamabiko Corp. | 41,671 | ||||||
3,876 | Zardoya Otis SA | 32,748 | ||||||
|
| |||||||
9,730,743 | ||||||||
|
| |||||||
| Marine (0.4%): |
| ||||||
42 | A.P. Moeller – Maersk A/S, Class A | 63,244 | ||||||
67 | A.P. Moeller – Maersk A/S, Class B | 106,625 | ||||||
1,396 | Clarkson plc | 37,375 | ||||||
1,843 | D/S Norden A/S* | 28,841 | ||||||
1,685 | DFDS A/S | 76,846 | ||||||
3,300 | Iino Kaiun Kaisha, Ltd. | 12,982 | ||||||
7,971 | Irish Continental Group | 37,720 | ||||||
48,000 | Kawasaki Kisen Kaisha, Ltd. | 108,380 | ||||||
727 | Kuehne & Nagel International AG, Registered Shares | 96,005 | ||||||
51,000 | Mitsui O.S.K. Lines, Ltd. | 140,887 | ||||||
71,000 | Nippon Yusen Kabushiki Kaisha | 131,444 | ||||||
16,000 | Orient Overseas International, Ltd. | 66,214 | ||||||
273,000 | Pacific Basin Shipping, Ltd.* | 43,835 | ||||||
89,000 | Sitc International Holdings Co., Ltd. | 54,004 | ||||||
1,962 | Stolt-Nielsen, Ltd. | 24,101 | ||||||
|
| |||||||
1,028,503 | ||||||||
|
| |||||||
| Media (2.1%): |
| ||||||
1,267 | 4imprint Group plc | 27,696 | ||||||
5,715 | Aimia, Inc. | 37,802 | ||||||
3,249 | Altice NV, Class A* | 64,256 | ||||||
1,460 | Altice NV, Class B* | 29,030 | ||||||
65 | Apg Sga SA | 28,540 | ||||||
4,886 | Atresmedia Corp. de Medios de Comuicacion SA | 53,397 | ||||||
2,500 | Avex Group Holdings, Inc. | 35,919 | ||||||
2,895 | Axel Springer AG | 140,351 | ||||||
2,465 | Cineplex, Inc. | 94,046 | ||||||
12,985 | Cineworld Group plc | 90,185 | ||||||
546 | Cogeco Communications, Inc. | 26,940 | ||||||
7,694 | Corus Entertainment, Inc. | 72,212 | ||||||
2,160 | CTS Eventim AG & Co. KGaA | 67,941 | ||||||
2,400 | Cyberagent, Inc. | 59,231 | ||||||
1,600 | Daiichikosho Co., Ltd. | 62,886 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Media, continued |
| ||||||
16,354 | Daily Mail & General Trust plc | $ | 156,763 | |||||
2,200 | Dentsu, Inc. | 103,644 | ||||||
5,339 | Dhx Media, Ltd. | 28,037 | ||||||
2,163 | Euromoney Institutional Investor plc | 30,575 | ||||||
6,151 | Eutelsat Communications SA | 119,055 | ||||||
6,450 | Event Hospitality And Entertainment, Ltd. | 63,999 | ||||||
2,200 | Fuji Media Holdings, Inc. | 30,750 | ||||||
969 | GFK SE | 44,168 | ||||||
2,500 | Hakuhodo DY Holdings, Inc. | 30,731 | ||||||
5,909 | Havas SA | 49,744 | ||||||
30,130 | Informa plc | 252,288 | ||||||
1,600 | Intage Holdings, Inc. | 27,059 | ||||||
1,711 | Ipsos | 53,728 | ||||||
33,776 | ITE Group plc | 64,067 | ||||||
40,885 | ITV plc | 103,618 | ||||||
1,949 | JCDecaux SA | 57,207 | ||||||
109,074 | John Fairfax Holdings, Ltd. | 69,837 | ||||||
2,300 | Kadokawa Dwango Corp. | 33,173 | ||||||
594 | Kinepolis Group NV | 26,567 | ||||||
8,410 | Lagardere SCA | 233,578 | ||||||
3,548 | Liberty Global plc, Series C* | 105,375 | ||||||
180 | Liberty Global plc, Class A* | 3,953 | ||||||
1,449 | Liberty Global plc, Class A* | 44,325 | ||||||
442 | Liberty Global plc, Class C* | 9,357 | ||||||
3,440 | M6 Metropole Television SA | 63,968 | ||||||
11,389 | Mediaset Espana Comunicacion SA | 133,618 | ||||||
15,032 | Mediaset SpA | 64,956 | ||||||
1,809 | Modern Times Group, Class B | 53,615 | ||||||
21,188 | Nine Entertainment Co. Holdings, Ltd. | 16,263 | ||||||
14,608 | Pearson plc, ADR | 145,934 | ||||||
2,882 | Publicis Groupe SA | 198,788 | ||||||
2,013 | Quebecor, Inc., Class B | 55,959 | ||||||
1,012 | REA Group, Ltd. | 40,194 | ||||||
414 | RTL Group | 30,340 | ||||||
5,428 | Sanoma OYJ | 47,093 | ||||||
1,013 | Schibsted ASA, Class A | 23,255 | ||||||
5,562 | SES Global, Class A | 122,464 | ||||||
33,424 | Seven West Media, Ltd. | 19,393 | ||||||
7,456 | Shaw Communications, Inc. | 149,568 | ||||||
21,700 | Singapore Press Holdings, Ltd. | 52,785 | ||||||
18,618 | Sky Network Television, Ltd. | 58,696 | ||||||
13,400 | SKY Perfect JSAT Holdings, Inc. | 61,578 | ||||||
19,081 | Sky plc | 232,104 | ||||||
4,175 | Societe Television Francaise 1 | 41,519 | ||||||
44,663 | Southern Cross Media Group, Ltd. | 49,606 | ||||||
983 | Stroeer Media SE | 43,048 | ||||||
41 | Tamedia AG, Registered Shares | 6,288 | ||||||
13,788 | Technicolor SA | 74,572 | ||||||
1,586 | Telenet Group Holding NV* | 87,984 | ||||||
26,300 | Television Broadcasts, Ltd. | 86,482 | ||||||
5,000 | Toei Co., Ltd. | 43,305 | ||||||
1,000 | Toho Co., Ltd. | 28,265 | ||||||
1,900 | Tokyo Broadcasting System Hold | 30,165 | ||||||
13,261 | Trinity Mirror plc | 17,447 | ||||||
1,600 | TV Asahi Holdings Corp. | 31,544 | ||||||
14,255 | Ubm plc | 128,109 |
Continued
19
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Media, continued |
| ||||||
6,948 | Village Roadshow, Ltd. | $ | 22,808 | |||||
7,971 | Vivendi Universal SA | 151,408 | ||||||
8,417 | WPP plc | 188,137 | ||||||
1,895 | Yellow Pages, Ltd.* | 24,970 | ||||||
719 | Zon Multimedia Servicos de Telecommunicacoes e Multimedia SGPS SA | 4,266 | ||||||
|
| |||||||
5,262,524 | ||||||||
|
| |||||||
| Metals & Mining (5.2%): |
| ||||||
8,736 | Acacia Mining plc | 39,674 | ||||||
4,992 | Acerinox SA | 66,184 | ||||||
1,753 | Agnico Eagle Mines, Ltd. | 73,626 | ||||||
2,800 | Agnico Eagle Mines, Ltd. | 117,736 | ||||||
900 | Aichi Steel Corp. | 37,581 | ||||||
16,681 | Alacer Gold Corp.* | 27,833 | ||||||
16,761 | Alamos Gold, Inc., Class A | 115,610 | ||||||
113,854 | Alumina, Ltd.^ | 149,754 | ||||||
1,580 | Amg Advanced Metallurgical Group N.V. | 24,536 | ||||||
23,363 | Anglo American plc* | 327,629 | ||||||
20,858 | Antofagasta plc | 171,706 | ||||||
3,276 | Aperam SA | 149,727 | ||||||
33,689 | ArcelorMittal* | 248,343 | ||||||
12,400 | Argonaut Gold, Inc.* | 19,581 | ||||||
1,900 | Asahi Holdings, Inc. | 32,977 | ||||||
8,215 | Asanko Gold, Inc.* | 25,211 | ||||||
1,158 | AuRico Metals, Inc.* | 871 | ||||||
2,249 | Aurubis AG | 129,527 | ||||||
42,442 | B2Gold Corp.* | 100,849 | ||||||
2,708 | Bekaert NV | 109,314 | ||||||
62,786 | BHP Billiton, Ltd. | 1,120,496 | ||||||
17,844 | Billiton plc, ADR | 561,373 | ||||||
25,458 | BlueScope Steel, Ltd. | 169,363 | ||||||
9,186 | Boliden AB | 239,411 | ||||||
17,700 | Capstone Mining Corp.* | 16,612 | ||||||
73,572 | Centamin plc | 124,184 | ||||||
11,119 | Centerra Gold, Inc. | 52,096 | ||||||
16,254 | China Gold International Resources Corp., Ltd.* | 23,972 | ||||||
21,000 | Daido Steel Co., Ltd. | 86,782 | ||||||
7,325 | Detour Gold Corp.* | 99,795 | ||||||
4,038 | Dominion Diamond Corp. | 39,088 | ||||||
15,000 | DOWA Mining Co. | 114,438 | ||||||
44,911 | Eldorado Gold Corp.* | 144,518 | ||||||
3,320 | Endeavour Mining Corp.* | 49,608 | ||||||
40,854 | Evolution Mining, Ltd. | 60,105 | ||||||
20,239 | EVRAZ plc* | 54,940 | ||||||
31,602 | First Quantum Minerals, Ltd. | 314,254 | ||||||
83,540 | Fortescue Metals Group, Ltd. | 352,698 | ||||||
1,168 | Franco Nevada Corp. | 69,800 | ||||||
3,312 | Fresnillo plc | 49,176 | ||||||
167,686 | Glencore International plc* | 563,515 | ||||||
3,548 | Goldcorp, Inc. | 48,311 | ||||||
6,771 | Goldcorp, Inc. | 92,086 | ||||||
4,758 | Granges AB | 44,915 | ||||||
5,096 | Guyana Goldfields, Inc.* | 23,231 | ||||||
7,250 | Hill & Smith Holdings plc | 106,844 | ||||||
6,200 | Hitachi Metals, Ltd. | 83,792 | ||||||
9,182 | Hochschild Mining plc | 23,914 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Metals & Mining, continued |
| ||||||
18,195 | Hudbay Minerals, Inc. | $ | 104,088 | |||||
29,242 | IAMGOLD Corp.* | 113,047 | ||||||
13,673 | Iluka Resources, Ltd. | 71,454 | ||||||
22,741 | Independence Group NL | 70,096 | ||||||
37,081 | Ivanhoe Mines, Ltd., Class A* | 70,157 | ||||||
9,600 | JFE Holdings, Inc. | 145,705 | ||||||
18,872 | Kazakhmys plc* | 82,811 | ||||||
84,792 | Kinross Gold Corp.* | 264,638 | ||||||
4,744 | Kirkland Lake Gold, Ltd.* | 24,807 | ||||||
5,400 | Klondex Mines, Ltd.* | 25,140 | ||||||
16,400 | Kobe Steel, Ltd.* | 155,710 | ||||||
1,600 | Kyoei Steel, Ltd. | 30,412 | ||||||
3,792 | Labrador Iron Ore Royalty Corp. | 52,594 | ||||||
17,782 | Lonmin PLC* | 30,930 | ||||||
14,207 | Lucara Diamond Corp. | 32,171 | ||||||
42,535 | Lundin Mining Corp.* | 202,774 | ||||||
6,045 | Major Drilling Group International, Inc.* | 31,610 | ||||||
2,000 | Maruichi Steel Tube, Ltd. | 64,951 | ||||||
7,616 | Mineral Resources, Ltd. | 66,249 | ||||||
6,000 | Mitsubishi Materials Corp. | 183,184 | ||||||
42,000 | Mitsui Mining & Smelting Co., Ltd. | 106,055 | ||||||
17,856 | Nevsun Resources, Ltd. | 55,197 | ||||||
34,410 | New Gold, Inc.* | 120,723 | ||||||
11,518 | Newcrest Mining, Ltd. | 162,365 | ||||||
37,000 | Nippon Light Metal Holdings Co. | 77,904 | ||||||
8,600 | Nippon Steel Corp. | 191,311 | ||||||
6,500 | Nisshin Steel Co., Ltd. | 80,103 | ||||||
22,329 | Norsk Hydro ASA | 106,664 | ||||||
28,837 | Northern Star Resources, Ltd. | 72,908 | ||||||
4,300 | Nyrstar NV* | 35,249 | ||||||
39,028 | OceanaGold Corp. | 113,668 | ||||||
3,068 | Osisko Gold Royalties, Ltd. | 29,914 | ||||||
18,826 | Outokumpu OYJ* | 168,420 | ||||||
5,593 | Outotec OYJ* | 29,375 | ||||||
17,375 | OZ Minerals, Ltd. | 98,519 | ||||||
11,000 | Pacific Metals Co., Ltd.* | 34,945 | ||||||
6,957 | Pan American Silver Corp. | 104,938 | ||||||
73,744 | Perseus Mining, Ltd.* | 17,219 | ||||||
35,638 | Petra Diamonds, Ltd.* | 68,413 | ||||||
6,434 | Pretium Resources, Inc.* | 53,293 | ||||||
1,563 | Randgold Resources, Ltd. | 119,498 | ||||||
15,628 | Regis Resources, Ltd. | 32,340 | ||||||
21,763 | Resolute Mining, Ltd. | 19,538 | ||||||
12,983 | Rio Tinto plc, Registered Shares, ADR | 499,327 | ||||||
1,547 | Rio Tinto, Ltd. | 66,533 | ||||||
2,811 | Salzgitter AG | 98,985 | ||||||
7,017 | Sandfire Resources Nl | 28,483 | ||||||
9,442 | Sandstorm Gold, Ltd.* | 37,065 | ||||||
8,000 | Sanyo Special Steel Co., Ltd. | 37,842 | ||||||
29,450 | Saracen Mineral Holdings, Ltd.* | 20,311 | ||||||
21,110 | Semafo, Inc.* | 69,502 | ||||||
21,200 | Sherritt International Corp.* | 21,003 | ||||||
7,535 | Silver Standard Resources, Inc.* | 67,408 | ||||||
2,702 | Silver Wheaton Corp. | 52,203 | ||||||
10,033 | Sims Metal Management, Ltd. | 92,437 | ||||||
83,964 | South32, Ltd. | 165,659 |
Continued
20
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Metals & Mining, continued |
| ||||||
3,228 | South32, Ltd., ADR | $ | 31,957 | |||||
16,043 | SSAB AB, Class A* | 60,695 | ||||||
35,222 | SSAB AB, Class B* | 111,066 | ||||||
17,694 | St Barbara, Ltd.* | 25,244 | ||||||
26,500 | Stornoway Diamond Corp.* | 19,739 | ||||||
3,000 | Sumitomo Metal & Mining Co., Ltd. | 38,591 | ||||||
9,125 | Syrah Resources, Ltd.* | 20,050 | ||||||
5,574 | Tahoe Resources, Inc. | 52,522 | ||||||
9,084 | Tahoe Resources, Inc. | 85,571 | ||||||
6,487 | Teck Cominco, Ltd., Class B | 129,837 | ||||||
3,720 | Teck Resources, Ltd., Class B | 74,512 | ||||||
3,912 | ThyssenKrupp AG | 93,203 | ||||||
4,900 | Tokyo Steel Manufacturing Co., Ltd. | 37,533 | ||||||
1,300 | Topy Industries, Ltd. | 33,458 | ||||||
1,885 | Torex Gold Resources, Inc.* | 29,191 | ||||||
45,501 | Turquoise Hill Resources, Ltd.* | 146,078 | ||||||
15,000 | UACJ Corp. | 40,988 | ||||||
4,032 | Vedanta Resources plc | 43,194 | ||||||
6,764 | Voestalpine AG | 265,518 | ||||||
14,139 | Western Areas, Ltd.* | 31,151 | ||||||
44,268 | Yamana Gold, Inc. | 124,313 | ||||||
2,900 | Yamato Kogyo Co., Ltd. | 80,441 | ||||||
1,600 | Yodogawa Steel Works, Ltd. | 41,736 | ||||||
|
| |||||||
13,292,019 | ||||||||
|
| |||||||
| Multiline Retail (0.6%): |
| ||||||
24,445 | B&m European Value Retail SA | 83,611 | ||||||
747 | Canadian Tire Corp., Class A | 77,493 | ||||||
53,885 | Debenhams plc | 38,007 | ||||||
1,503 | Dollarama, Inc. | 110,142 | ||||||
1,400 | Don Quijote Co., Ltd. | 51,726 | ||||||
5,300 | H2O Retailing Corp. | 80,723 | ||||||
16,147 | Harvey Norman Holdings, Ltd. | 59,825 | ||||||
3,882 | Hudson’s Bay Co. | 38,140 | ||||||
6,600 | Isetan Mitsukoshi Holdings, Ltd. | 70,972 | ||||||
1,900 | Izumi Co., Ltd. | 81,684 | ||||||
10,600 | J. Front Retailing Co., Ltd. | 142,467 | ||||||
24,500 | Lifestyle China Group, Ltd.* | 5,845 | ||||||
24,500 | Lifestyle International Holdings, Ltd. | 31,444 | ||||||
29,029 | Marks & Spencer Group plc | 124,968 | ||||||
2,900 | MARUI GROUP Co., Ltd. | 42,255 | ||||||
47,139 | Myer Holdings, Ltd. | 46,855 | ||||||
1,643 | Next plc | 100,539 | ||||||
300 | Ryohin Keikaku Co., Ltd. | 58,668 | ||||||
400 | Seria Co., Ltd. | 27,229 | ||||||
16,000 | Takashimaya Co., Ltd. | 131,740 | ||||||
8,000 | Wing On Company International, Ltd. | 24,596 | ||||||
|
| |||||||
1,428,929 | ||||||||
|
| |||||||
| Multi-Utilities (0.8%): |
| ||||||
2,276 | Acea SpA | 27,646 | ||||||
6,424 | AGL Energy, Ltd. | 102,187 | ||||||
1,705 | Atco, Ltd. | 56,719 | ||||||
1,466 | Canadian Utilities, Ltd., Class A | 39,519 | ||||||
89,794 | Centrica plc | 258,659 | ||||||
55,941 | Duet Group | 110,525 | ||||||
21,702 | E.ON AG | 151,345 | ||||||
21,960 | Engie Group | 279,723 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Multi-Utilities, continued |
| ||||||
30,113 | Hera SpA | $ | 69,389 | |||||
23,167 | Iren SpA | 37,921 | ||||||
65,748 | ITL AEM SpA | 85,068 | ||||||
98,500 | Keppel Infrastructure Trust | 32,334 | ||||||
3,099 | National Grid plc, ADR | 180,765 | ||||||
3,914 | Ren – Redes Energeticas Nacion | 11,112 | ||||||
27,984 | RWE AG* | 347,967 | ||||||
5,539 | Suez Environnement Co. | 81,682 | ||||||
4,827 | Telecom Plus plc | 69,922 | ||||||
3,162 | Veolia Environnement SA | 53,745 | ||||||
|
| |||||||
1,996,228 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (4.6%): |
| ||||||
12,481 | Advantage Oil & Gas, Ltd.* | 84,787 | ||||||
24,155 | Africa Oil Corp.* | 47,860 | ||||||
2,191 | AKER BP ASA | 39,196 | ||||||
6,175 | AltaGas, Ltd. | 155,927 | ||||||
4,305 | ARC Resources, Ltd. | 74,107 | ||||||
18,809 | Athabasca Oil Corp.* | 28,721 | ||||||
11,743 | Baytex Energy Corp.* | 57,381 | ||||||
2,064 | Baytex Energy Corp.* | 10,072 | ||||||
89,740 | Beach Energy, Ltd. | 54,861 | ||||||
5,835 | Bellatrix Exploration, Ltd.* | 5,563 | ||||||
9,541 | Birchcliff Energy, Ltd.* | 66,592 | ||||||
15,440 | Bonavista Energy Corp. | 55,319 | ||||||
1,208 | Bonterra Energy Corp. | 26,176 | ||||||
32,497 | BP plc, ADR | 1,214,739 | ||||||
173,000 | Brightoil Petroleum Holdings, Ltd.* | 49,015 | ||||||
34,847 | Cairn Energy plc* | 100,960 | ||||||
2,676 | Caltex Australia, Ltd. | 58,739 | ||||||
5,227 | Cameco Corp. | 54,727 | ||||||
4,858 | Cameco Corp. | 50,805 | ||||||
7,012 | Canadian Natural Resources, Ltd. | 223,543 | ||||||
11,375 | Cenovus Energy, Inc. | 172,104 | ||||||
4,334 | Cenovus Energy, Inc. | 65,535 | ||||||
8,781 | Crescent Point Energy | 119,334 | ||||||
6,461 | Crescent Point Energy Corp. | 87,831 | ||||||
8,223 | Crew Energy, Inc.* | 46,000 | ||||||
54 | Delek Group, Ltd. | 11,515 | ||||||
26,109 | Dno ASA* | 25,616 | ||||||
5,952 | Enbridge Income Fund Holding | 154,153 | ||||||
4,263 | Enbridge, Inc. | 179,558 | ||||||
1,055 | EnCana Corp. | 12,386 | ||||||
15,537 | EnCana Corp. | 182,393 | ||||||
3,933 | Enerplus Corp. | 37,323 | ||||||
21,419 | ENI SpA | 347,218 | ||||||
9,848 | Etablissements Maurel et Prom SA* | 43,739 | ||||||
5,510 | Euronav NV | 43,836 | ||||||
2,803 | Freehold Royalties, Ltd. | 29,585 | ||||||
7,892 | Frontline, Ltd. | 56,702 | ||||||
591 | Gaztransport et Technigaz SA | 25,503 | ||||||
29,807 | Gran Tierra Energy, Inc.* | 90,143 | ||||||
78 | Granite Oil Corp. | 342 | ||||||
7,767 | Husky Energy, Inc.* | 94,245 | ||||||
4,500 | Idemitsu Kosan Co., Ltd. | 119,301 | ||||||
12,200 | INPEX Corp. | 121,816 | ||||||
4,194 | Inter Pipeline, Ltd. | 92,596 | ||||||
9,800 | Ithaca Energy, Inc.* | 12,337 |
Continued
21
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Oil, Gas & Consumable Fuels, continued |
| ||||||
3,600 | ITOCHU Enex Co., Ltd. | $ | 28,259 | |||||
4,263 | James Fisher & Sons plc | 81,879 | ||||||
1,300 | Japan Petroleum Exploration Co., Ltd. | 28,827 | ||||||
547 | Jerusalem Oil Exploration* | 23,406 | ||||||
37,800 | JX Holdings, Inc. | 159,418 | ||||||
4,200 | Keyera Corp. | 126,579 | ||||||
3,106 | Koninklijke Vopak NV | 146,503 | ||||||
10,707 | MEG Energy Corp.* | 73,613 | ||||||
5,186 | Neste Oil OYJ | 199,054 | ||||||
64,000 | NewOcean Energy Holdings, Ltd. | 16,961 | ||||||
1,300 | Nippon Gas Co., Ltd. | 37,210 | ||||||
7,654 | Nuvista Energy, Ltd.* | 39,567 | ||||||
54,541 | Oil Refineries, Ltd.* | 19,194 | ||||||
19,545 | Oil Search, Ltd. | 100,891 | ||||||
44,010 | Ophir Energy plc* | 52,169 | ||||||
31,951 | Origin Energy, Ltd. | 151,512 | ||||||
7,550 | Painted Pony Petroleum* | 51,852 | ||||||
4,012 | Parex Resources, Inc.* | 50,505 | ||||||
3,148 | Parkland Fuel Corp. | 65,961 | ||||||
260 | Paz Oil Co., Ltd. | 38,152 | ||||||
2,884 | Pembina Pipeline Corp. | 90,327 | ||||||
40,966 | Pengrowth Energy Corp.* | 58,893 | ||||||
32,810 | Penn West Petroleum, Ltd.* | 57,922 | ||||||
3,828 | Peyto Exploration & Development Corp. | 94,695 | ||||||
43,203 | Premier Oil plc* | 39,231 | ||||||
3,769 | Raging River Exploration, Inc.* | 29,647 | ||||||
20,956 | Repsol SA | 294,714 | ||||||
15,001 | Royal Dutch Shell plc, ADR | 815,754 | ||||||
12,247 | Royal Dutch Shell plc, Class B, ADR | 709,959 | ||||||
4,000 | San-Ai Oil Co., Ltd. | 28,501 | ||||||
12,292 | Santos, Ltd. | 35,500 | ||||||
1,772 | Santos, Ltd.*(c) | 5,118 | ||||||
27,521 | Saras SpA | 49,676 | ||||||
2,242 | Seven Generations Energy* | 52,288 | ||||||
22,787 | Snam SpA | 93,717 | ||||||
12,892 | Soco International plc | 25,304 | ||||||
14,416 | Spartan Energy Corp.* | 35,758 | ||||||
20,345 | Statoil ASA | 370,967 | ||||||
13,430 | Stobart Group, Ltd. | 29,477 | ||||||
4,384 | Suncor Energy, Inc. | 143,358 | ||||||
8,674 | Suncor Energy, Inc. | 283,554 | ||||||
11,456 | Surge Energy, Inc. | 28,245 | ||||||
8,990 | Torc Oil & Gas, Ltd. | 55,380 | ||||||
25,320 | Total SA | 1,292,341 | ||||||
5,452 | Transcanada Corp. | 246,158 | ||||||
2,255 | Trilogy Energy Corp.* | 12,682 | ||||||
47,720 | Tullow Oil plc*^ | 182,865 | ||||||
12,527 | Veresen, Inc. | 122,331 | ||||||
19,728 | Whitecap Resources, Inc. | 178,691 | ||||||
32,833 | Whitehaven Coal, Ltd.* | 61,612 | ||||||
3,445 | Woodside Petroleum, Ltd. | 77,302 | ||||||
5,501 | Z Energy, Ltd. | 27,760 | ||||||
|
| |||||||
11,751,440 | ||||||||
|
| |||||||
| Paper & Forest Products (0.8%): |
| ||||||
1,381 | Ahlstrom OYJ | 21,979 | ||||||
3,129 | Canfor Corp.* | 35,590 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Paper & Forest Products, continued |
| ||||||
1,251 | Canfor Pulp Products, Inc. | $ | 9,421 | |||||
6,000 | Daio Paper Corp. | 63,373 | ||||||
6,700 | Hokuetsu Kishu Paper Co., Ltd. | 37,867 | ||||||
1,022 | Holmen ABN AB, Class B | 36,621 | ||||||
4,627 | Interfor Corp.* | 51,802 | ||||||
7,061 | Metsa Board OYJ | 50,484 | ||||||
6,301 | Mondi plc | 128,736 | ||||||
7,950 | Navigator Co. SA (The) | 27,312 | ||||||
5,800 | Nippon Paper Industries Co., Ltd. | 98,114 | ||||||
1,614 | Norbord, Inc. | 40,768 | ||||||
37,000 | OYI Paper Co., Ltd. | 150,423 | ||||||
37,839 | Stora Enso OYJ, Registered Shares | 405,285 | ||||||
23,088 | TFS Corp., Ltd. | 27,640 | ||||||
24,703 | UPM-Kymmene OYJ | 605,307 | ||||||
4,046 | West Fraser Timber Co., Ltd. | 144,691 | ||||||
17,518 | Western Forest Products, Inc. | 24,662 | ||||||
|
| |||||||
1,960,075 | ||||||||
|
| |||||||
| Personal Products (0.4%): |
| ||||||
300 | Beiersdorf AG | 25,452 | ||||||
1,100 | Ci:z Holdings Co., Ltd. | 30,941 | ||||||
2,300 | Kao Corp. | 108,834 | ||||||
400 | KOSE Corp. | 33,187 | ||||||
724 | L’Oreal SA | 131,964 | ||||||
4,476 | Ontex Group NV | 133,056 | ||||||
1,486 | Oriflame Holding AG | 44,880 | ||||||
2,100 | Shiseido Co., Ltd. | 53,058 | ||||||
8,564 | Unilever NV, NYS | 351,638 | ||||||
4,976 | Unilever plc, ADR | 202,523 | ||||||
|
| |||||||
1,115,533 | ||||||||
|
| |||||||
| Pharmaceuticals (2.8%): |
| ||||||
194 | Alk-Abello A/S | 25,245 | ||||||
1,732 | Almirall SA | 26,891 | ||||||
6,600 | Astellas Pharma, Inc. | 91,495 | ||||||
16,897 | AstraZeneca plc, ADR | 461,627 | ||||||
3,059 | Bayer AG, Registered Shares | 319,088 | ||||||
314 | Boiron SA | 27,779 | ||||||
1,734 | Btg plc* | 12,574 | ||||||
3,900 | Daiichi Sankyo Co., Ltd. | 79,660 | ||||||
1,600 | Dainippon Sumitomo Pharma Co., Ltd. | 27,477 | ||||||
5,108 | Dechra Pharmaceuticals plc | 84,612 | ||||||
500 | Eisai Co., Ltd. | 28,586 | ||||||
7,273 | Faes Farma SA | 25,713 | ||||||
211 | Galenica AG | 237,647 | ||||||
9,143 | GlaxoSmithKline plc, ADR | 352,097 | ||||||
1,522 | H. Lundbeck A/S* | 61,963 | ||||||
7,200 | Haw Par Corp., Ltd. | 45,151 | ||||||
4,811 | Hikma Pharmaceuticals plc | 111,577 | ||||||
700 | Hisamitsu Pharmaceutical Co., Inc. | 34,924 | ||||||
26,202 | Indivior PLC | 95,472 | ||||||
1,661 | Ipsen SA | 120,087 | ||||||
1,000 | Kaken Pharmaceutical Co., Ltd. | 52,954 | ||||||
1,300 | Kissei Pharmaceutical Co., Ltd. | 32,353 | ||||||
1,900 | Kyorin Holdings, Inc. | 40,675 | ||||||
3,400 | Kyowa Hakko Kogyo Co., Ltd. | 46,774 | ||||||
30,175 | Mayne Pharma Group, Ltd.* | 29,139 | ||||||
869 | Merck KGaA | 90,676 |
Continued
22
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Pharmaceuticals, continued |
| ||||||
400 | Mochida Pharmaceutical Co., Ltd. | $ | 27,712 | |||||
3,200 | Nichi-Iko Pharmaceutical Co., Ltd. | 45,710 | ||||||
600 | Nippon Shinyaku Co., Ltd. | 29,516 | ||||||
22,726 | Novartis AG, Registered Shares | 1,653,545 | ||||||
8,066 | Novo Nordisk A/S, Class B | 289,781 | ||||||
1,000 | Ono Pharmaceutical Co., Ltd. | 21,806 | ||||||
1,259 | Orion OYJ | 56,050 | ||||||
3,799 | Orion OYJ, Class B | 169,060 | ||||||
1,695 | Recipharm AB | 22,514 | ||||||
3,141 | Recordati SpA | 88,955 | ||||||
3,082 | Roche Holding AG | 702,451 | ||||||
127 | Roche Holding AG | 29,700 | ||||||
2,700 | Rohto Pharmaceutical Co., Ltd. | 42,258 | ||||||
3,486 | Sanofi-Aventis SA | 281,893 | ||||||
5,800 | Santen Pharmaceutical Co., Ltd. | 70,842 | ||||||
1,200 | Sawai Pharmaceutical Co., Ltd. | 64,339 | ||||||
600 | Shionogi & Co., Ltd. | 28,633 | ||||||
3,646 | Stada Arzneimittel AG | 188,359 | ||||||
500 | Taisho Pharmaceutical Holdings Co., Ltd. | 41,422 | ||||||
3,900 | Takeda Pharmacuetical Co., Ltd. | 161,091 | ||||||
490 | Teva Pharmaceutical Industries, Ltd., ADR | 17,763 | ||||||
3,961 | Teva Pharmaceutical Industries, Ltd. | 143,157 | ||||||
800 | Torii Pharmaceutical Co., Ltd. | 17,673 | ||||||
600 | Towa Pharmaceutical Co., Ltd. | 23,503 | ||||||
3,600 | Tsumura & Co. | 99,013 | ||||||
1,152 | UCB SA | 73,727 | ||||||
46,000 | United Laboratories International Holdings, Ltd.* | 31,243 | ||||||
1,145 | Valeant Pharmaceuticals International, Inc.* | 16,625 | ||||||
16,134 | Vectura Group plc* | 27,262 | ||||||
178 | Virbac SA* | 31,283 | ||||||
1,700 | Zeria Pharmaceutical Co., Ltd. | 26,190 | ||||||
|
| |||||||
7,085,312 | ||||||||
|
| |||||||
| Professional Services (1.3%): |
| ||||||
4,530 | Adecco SA, Registered Shares | 295,848 | ||||||
2,780 | AF AB | 50,970 | ||||||
734 | Akka Technologies SA | 26,731 | ||||||
18,370 | ALS, Ltd. | 79,840 | ||||||
9,096 | Applus Services SA | 92,197 | ||||||
900 | Benefit One, Inc. | 22,268 | ||||||
372 | Bertrandt AG | 37,806 | ||||||
5,622 | Bureau Veritas SA | 108,911 | ||||||
2,111 | Capita Group plc | 13,818 | ||||||
1,480 | DKSH Holding, Ltd. | 101,674 | ||||||
1,400 | EN-Japan, Inc. | 24,954 | ||||||
11,350 | Experian plc | 219,656 | ||||||
89,376 | Hays plc | 164,019 | ||||||
6,806 | Intertek Group plc | 290,328 | ||||||
2,947 | McMillan Shakespeare, Ltd. | 23,053 | ||||||
1,100 | Meitec Corp. | 42,046 | ||||||
10,129 | Michael Page International plc | 48,548 | ||||||
3,497 | Morneau Shepell, Inc. | 49,987 | ||||||
2,600 | Nihon M&A Center, Inc. | 72,297 | ||||||
1,800 | Nomura Co., Ltd. | 26,010 | ||||||
600 | Outsourcing, Inc. | 18,658 | ||||||
3,772 | Randstad Holding NV | 204,272 | ||||||
11,910 | RELX NV | 200,172 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Professional Services, continued |
| ||||||
5,236 | RELX plc, ADR | $ | 94,091 | |||||
3,973 | Ricardo plc | 47,121 | ||||||
6,390 | Robert Walters plc | 27,112 | ||||||
7,390 | Seek, Ltd. | 79,120 | ||||||
58 | SGS SA, Registered Shares | 117,820 | ||||||
2,421 | Stantec, Inc. | 61,130 | ||||||
1,200 | Technopro Holdings, Inc. | 38,357 | ||||||
2,255 | Teleperformance | 226,137 | ||||||
1,700 | Temp Holdings Co., Ltd. | 26,313 | ||||||
10,595 | Wolters Kluwer NV | 383,100 | ||||||
5,987 | WS Atkins plc | 107,372 | ||||||
|
| |||||||
3,421,736 | ||||||||
|
| |||||||
| Real Estate Management & Development (2.7%): |
| ||||||
2,400 | AEON Mall Co., Ltd. | 33,684 | ||||||
858 | Airport City, Ltd.* | 8,550 | ||||||
893 | Allreal Holding AG | 132,688 | ||||||
4,786 | Amot Investments, Ltd. | 20,363 | ||||||
35,500 | Ascendas India Trust | 24,829 | ||||||
7,405 | Atrium European Real Estate, Ltd. | 30,624 | ||||||
1,733 | Atrium Ljungberg AB, Class B | 27,076 | ||||||
15,881 | Aveo Group | 38,356 | ||||||
121 | Azrieli Group | 5,240 | ||||||
11,200 | Bukit Sembawang Estates, Ltd. | 34,598 | ||||||
5,460 | BUWOG-Bauen Und Wohnen Gesellschaft mbH | 126,989 | ||||||
1,503 | CA Immobilien Anlagen AG | 27,624 | ||||||
8,076 | Capital & Counties Properties plc | 29,506 | ||||||
2,035 | Castellum AB | 27,902 | ||||||
13,430 | Cheung Kong Property Holdings, Ltd. | 81,446 | ||||||
12,500 | Chinese Estates Holdings, Ltd. | 21,748 | ||||||
6,400 | City Developments, Ltd. | 36,464 | ||||||
16,359 | Citycon OYJ | 40,250 | ||||||
1,625 | Colliers International Group | 59,719 | ||||||
2,867 | Conwert Immobilien Invest AG | 48,940 | ||||||
5,265 | Countrywide plc | 11,422 | ||||||
394 | Daejan Holdings plc | 30,000 | ||||||
3,400 | Daibiru Corp. | 29,029 | ||||||
16,000 | Daikyo, Inc. | 32,006 | ||||||
900 | Daito Trust Construction Co., Ltd. | 135,189 | ||||||
9,500 | Daiwa House Industry Co., Ltd. | 259,190 | ||||||
1,698 | Deutsche Euroshop AG | 69,148 | ||||||
6,254 | Deutsche Wohnen AG | 196,091 | ||||||
3,019 | Entra ASA(a) | 30,001 | ||||||
5,183 | Fabege AB | 84,628 | ||||||
68,000 | Far East Consortium Internatio | 28,959 | ||||||
1,175 | Fastighets AB Balder* | 23,717 | ||||||
3,003 | First Capital Realty, Inc. | 46,236 | ||||||
1,529 | FirstService Corp. | 72,597 | ||||||
25,500 | Frasers Centrepoint, Ltd. | 27,735 | ||||||
15,974 | Gateway Lifestyle | 24,861 | ||||||
20,800 | Global Logistic Properties, Ltd. | 31,518 | ||||||
1,100 | Goldcrest Co., Ltd. | 19,764 | ||||||
17,826 | Grainger Trust plc | 52,225 | ||||||
18,000 | Great Eagle Holdings, Ltd. | 85,729 | ||||||
46,000 | Hang Lung Group, Ltd. | 159,918 | ||||||
25,984 | Hang Lung Properties, Ltd. | 54,409 | ||||||
2,300 | Heiwa Real Estate Co., Ltd. | 31,237 |
Continued
23
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Real Estate Management & Development, continued |
| ||||||
7,545 | Hemfosa Fastigheter AB | $ | 70,313 | |||||
19,878 | Henderson Land Development Co., Ltd. | 104,940 | ||||||
274 | Hiag Immobilien AG | 28,172 | ||||||
4,100 | Hongkong Land Holdings, Ltd. | 25,874 | ||||||
2,450 | Hufvudstaden AB | 38,652 | ||||||
3,000 | Hulic Co., Ltd. | 26,614 | ||||||
15,025 | Hysan Development Co., Ltd. | 61,945 | ||||||
6,500 | Ichigo, Inc. | 24,031 | ||||||
30,173 | Immofinanz Immobilien Anlagen AG | 58,841 | ||||||
9,640 | Inmobiliaria Colonial SA | 66,843 | ||||||
31,725 | Kerry Properties, Ltd. | 85,487 | ||||||
24,648 | Klovern AB | 25,806 | ||||||
26,000 | Kowloon Development Co., Ltd. | 24,617 | ||||||
8,998 | Kungsleden AB | 56,968 | ||||||
2,425 | LEG Immobilien AG | 188,096 | ||||||
8,061 | Lend Lease Group | 84,772 | ||||||
14,300 | Leopalace21 Corp. | 78,925 | ||||||
4,644 | LSL Property Services plc | 13,187 | ||||||
578 | Melisron, Ltd. | 24,558 | ||||||
6,000 | Mitsubishi Estate Co., Ltd. | 118,951 | ||||||
8,000 | Mitsui Fudosan Co., Ltd. | 184,627 | ||||||
410 | Mobimo Holding AG, Registered Shares | 102,588 | ||||||
204 | Morguard Corp. | 26,729 | ||||||
269,112 | New World Development Co., Ltd. | 282,097 | ||||||
1,947 | Nexity SA | 91,098 | ||||||
6,600 | Nomura Real Estate Holdings, Inc. | 112,046 | ||||||
3,300 | NTT Urban Development Corp. | 28,960 | ||||||
2,200 | Open House Co., Ltd. | 52,262 | ||||||
1,440 | Patrizia Immobilien AG* | 23,848 | ||||||
52 | Plazza AG | 11,463 | ||||||
1,556 | PSP Swiss Property AG | 134,486 | ||||||
400 | Relo Holdings, Inc. | 57,127 | ||||||
2,615 | S Immo AG | 27,520 | ||||||
2,892 | Sagax AB, Class B | 25,916 | ||||||
9,229 | Savills plc | 79,458 | ||||||
1,300 | Shinoken Group Co., Ltd. | 22,927 | ||||||
100,800 | Sinarmas Land, Ltd. | 29,564 | ||||||
63,879 | Sino Land Co., Ltd. | 94,558 | ||||||
9,751 | Sponda Oyj | 44,898 | ||||||
15,105 | St. Modwen Properties plc | 56,540 | ||||||
900 | Sumitomo Real Estate Sales Co., Ltd. | 20,948 | ||||||
5,000 | Sumitomo Realty & Development Co., Ltd. | 132,509 | ||||||
3,921 | Sun Hung Kai Properties, Ltd. | 49,094 | ||||||
10,646 | Swire Pacific, Ltd., Class A | 101,629 | ||||||
17,500 | Swire Pacific, Ltd., Class B | 30,049 | ||||||
10,000 | Swire Properties, Ltd. | 27,403 | ||||||
1,502 | Swiss Prime Site AG | 122,956 | ||||||
5,511 | Tag Immobilien AG | 72,433 | ||||||
4,200 | Takara Leben Co., Ltd. | 24,434 | ||||||
7,842 | Technopolis OYJ | 25,795 | ||||||
2,762 | Tlg Immobilien AG | 51,950 | ||||||
10,000 | Tokyo Tatemono Co., Ltd. | 133,450 | ||||||
26,300 | Tokyu Fudosan Holdings Corp. | 154,957 | ||||||
11,081 | Unite Group plc | 82,824 | ||||||
13,900 | United Industrial Corp., Ltd. | 26,555 | ||||||
1,200 | Unizo Holdings Co., Ltd. | 31,613 | ||||||
28,800 | UOL Group, Ltd. | 118,663 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Real Estate Management & Development, continued |
| ||||||
3,960 | Vonovia SE | $ | 128,974 | |||||
7,673 | Wallenstam AB | 59,668 | ||||||
16,324 | Wharf Holdings, Ltd. (The) | 107,280 | ||||||
23,829 | Wheelock & Co., Ltd. | 133,766 | ||||||
2,966 | Wihlborgs Fastigheter AB | 55,111 | ||||||
20,700 | Wing Tai Holdings, Ltd. | 22,705 | ||||||
17 | Zug Estates Holding AG | 27,604 | ||||||
|
| |||||||
6,830,879 | ||||||||
|
| |||||||
| Road & Rail (1.4%): |
| ||||||
13,493 | Aurizon Holdings, Ltd. | 49,090 | ||||||
5,353 | Canadian National Railway Co. | 360,793 | ||||||
883 | Canadian Pacific Railway, Ltd. | 126,066 | ||||||
800 | Central Japan Railway Co. | 131,411 | ||||||
44,100 | ComfortDelGro Corp., Ltd. | 74,931 | ||||||
8,346 | DSV A/S | 371,369 | ||||||
1,400 | East Japan Railway Co. | 120,783 | ||||||
79,447 | FirstGroup plc* | 101,200 | ||||||
8,000 | Fukuyama Transporting Co., Ltd. | 45,284 | ||||||
2,158 | Go-Ahead Group plc | 59,230 | ||||||
5,000 | Hankyu Hanshin Holdings, Inc. | 160,179 | ||||||
3,700 | Hitachi Transport System, Ltd. | 74,975 | ||||||
102 | Jungfraubahn Holding AG, Registered Shares | 9,770 | ||||||
5,000 | Keihin Electric Express Railway Co., Ltd. | 57,878 | ||||||
6,000 | Keio Corp. | 49,267 | ||||||
1,500 | Keisei Electric Railway Co., Ltd. | 36,356 | ||||||
15,000 | Kintetsu Corp. | 57,159 | ||||||
15,830 | MTR Corp., Ltd. | 76,526 | ||||||
18,000 | Nagoya Railroad Co., Ltd. | 86,953 | ||||||
12,000 | Nankai Electric Railway Co., Ltd. | 60,728 | ||||||
29,502 | National Express Group plc | 128,444 | ||||||
20,000 | Nippon Express Co., Ltd. | 107,442 | ||||||
4,200 | Nippon Konpo Unyu Soko Co., Ltd. | 87,353 | ||||||
13,000 | Nishi-Nippon Railroad Co., Ltd. | 59,302 | ||||||
8,429 | Northgate plc | 51,296 | ||||||
2,800 | Odakyu Electric Railway Co., Ltd. | 55,324 | ||||||
20,000 | Sankyu, Inc. | 120,587 | ||||||
7,700 | Seino Holdings Co., Ltd. | 85,338 | ||||||
11,100 | Senko Co., Ltd. | 74,826 | ||||||
1,659 | Sixt SE | 68,084 | ||||||
1,209 | Sixt SE | 64,834 | ||||||
10,000 | Sotetsu Holdings, Inc. | 49,228 | ||||||
6,338 | Stagecoach Group plc | 16,863 | ||||||
80 | Stef S.A. | 6,718 | ||||||
4,596 | Student Transportation, Inc., Class BR | 25,710 | ||||||
6,961 | Tfi International, Inc. | 180,908 | ||||||
10,000 | Tobu Railway Co., Ltd. | 49,564 | ||||||
10,000 | Tokyu Corp. | 73,376 | ||||||
400 | Trancom Co., Ltd. | 19,550 | ||||||
20,000 | Transport International Holdings, Ltd. | 56,781 | ||||||
824 | VTG AG | 24,609 | ||||||
1,400 | West Japan Railway Co. | 85,802 | ||||||
|
| |||||||
3,601,887 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (0.9%): |
| ||||||
2,200 | Advantest Corp. | 36,951 | ||||||
4,797 | Aixtron SE* | 15,642 | ||||||
3,379 | AMS AG | 95,743 |
Continued
24
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Semiconductors & Semiconductor Equipment, continued |
| ||||||
1,526 | ASM International NV | $ | 68,394 | |||||
5,119 | ASM Pacific Technology, Ltd. | 54,195 | ||||||
1,629 | ASML Holding NV, NYS | 182,774 | ||||||
1,837 | BE Semiconductor Industries NV | 61,161 | ||||||
4,515 | Dialog Semiconductor plc* | 190,374 | ||||||
400 | Disco Corp. | 48,297 | ||||||
2,300 | Ferrotec Corp. | 29,784 | ||||||
10,836 | Infineon Technologies AG | 187,781 | ||||||
1,090 | Melexis NV | 72,998 | ||||||
4,926 | Meyer Burger Technology AG* | 3,242 | ||||||
1,200 | ROHM Co., Ltd. | 68,876 | ||||||
8,000 | Sanken Electric Co., Ltd.* | 34,813 | ||||||
1,600 | Screen Holdings Co., Ltd. | 98,983 | ||||||
6,000 | Shindengen Electric Manufacturing Co. Limited | 22,270 | ||||||
4,800 | Shinko Electric Industries Co., Ltd. | 32,341 | ||||||
992 | Siltronic AG* | 45,923 | ||||||
32,038 | STMicroelectronics NV | 363,192 | ||||||
7,900 | SUMCO Corp. | 101,509 | ||||||
700 | Tokyo Electron, Ltd. | 66,004 | ||||||
2,000 | Tokyo Seimitsu Co., Ltd. | 59,150 | ||||||
2,312 | Tower Semiconductor, Ltd.* | 43,997 | ||||||
372 | U-Blox AG | 69,860 | ||||||
3,400 | ULVAC, Inc. | 103,871 | ||||||
|
| |||||||
2,158,125 | ||||||||
|
| |||||||
| Software (1.0%): |
| ||||||
1,917 | Aveva Group plc | 44,170 | ||||||
2,500 | Capcom Co., Ltd. | 58,703 | ||||||
2,000 | Colopl, Inc. | 16,948 | ||||||
2,326 | Computer Modelling Group, Ltd. | 15,784 | ||||||
301 | Constellation Software, Inc./Canada | 136,795 | ||||||
1,252 | Dassault Systemes SA | 95,365 | ||||||
1,571 | Descartes Systems Group, Inc.* | 33,619 | ||||||
2,942 | Fidessa Group plc | 82,497 | ||||||
1,200 | Fuji Soft, Inc. | 28,265 | ||||||
5,123 | Gemalto NV | 295,742 | ||||||
15,900 | Gungho Online Enetertainment, Inc. | 33,740 | ||||||
7,918 | Hansen Technology, Ltd. | 22,337 | ||||||
38,000 | Igg, Inc. | 25,444 | ||||||
2,500 | Konami Corp. | 100,742 | ||||||
7,403 | Micro Focus International plc | 198,568 | ||||||
1,541 | Myob Group, Ltd. | 4,052 | ||||||
518 | Nemetschek Se | 30,119 | ||||||
2,000 | Nexon Co., Ltd. | 28,908 | ||||||
339 | NICE Systems, Ltd. | 23,265 | ||||||
300 | Nintendo Co., Ltd. | 62,721 | ||||||
1,409 | Open Text Corp. | 87,090 | ||||||
700 | Oracle Corp. | 35,230 | ||||||
8,199 | PlayTech plc | 83,374 | ||||||
19,513 | Sage Group plc | 156,888 | ||||||
2,404 | SAP AG | 210,068 | ||||||
2,151 | SimCorp A/S | 104,744 | ||||||
1,330 | Software AG | 48,354 | ||||||
8,525 | Technology One, Ltd. | 34,628 | ||||||
2,386 | �� | Temenos Group AG | 166,206 | |||||
1,300 | Trend Micro, Inc. | 46,109 | ||||||
5,915 | UbiSoft Entertainment SA* | 210,393 | ||||||
|
| |||||||
2,520,868 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Specialty Retail (1.4%): |
| ||||||
2,400 | Adastria Co., Ltd. | $ | 61,939 | |||||
900 | Alpen Co., Ltd. | 16,141 | ||||||
2,600 | Aoki Holdings, Inc. | 31,916 | ||||||
3,100 | Aoyama Trading Co., Ltd. | 107,834 | ||||||
1,900 | Arcland Sakamoto Co., Ltd. | 22,049 | ||||||
2,900 | Autobacs Seven Co., Ltd. | 43,473 | ||||||
1,813 | Autocanada, Inc. | 31,223 | ||||||
20,415 | Automotive Holdings Group, Ltd. | 58,100 | ||||||
7,300 | BIC Camera, Inc. | 66,760 | ||||||
2,464 | Bilia AB | 56,667 | ||||||
18,000 | Chow Sang Sang Holdings International, Ltd. | 33,382 | ||||||
38,400 | Chow Tai Fook Jewellery Group, Ltd. | 29,249 | ||||||
2,205 | Clas Ohlson AB | 32,444 | ||||||
4,700 | DCM Holdings Co., Ltd. | 41,718 | ||||||
32,869 | Dixons Carphone plc | 143,271 | ||||||
2,047 | Dufry AG, Registered Shares* | 255,314 | ||||||
5,850 | Dunelm Group plc | 57,947 | ||||||
4,900 | Edion Corp. | 45,922 | ||||||
94,600 | Esprit Holdings, Ltd.* | 73,808 | ||||||
400 | Fast Retailing Co., Ltd. | 142,729 | ||||||
534 | Fielmann AG | 35,204 | ||||||
2,300 | Geo Holdings Corp. | 26,767 | ||||||
130,000 | Giordano International, Ltd. | 69,945 | ||||||
1,436 | Grandvision BV(a) | 31,564 | ||||||
3,936 | Greencross, Ltd. | 19,426 | ||||||
991 | Groupe FNAC SA* | 66,990 | ||||||
13,359 | Halfords Group plc | 60,122 | ||||||
4,280 | Hennes & Mauritz AB, Class B | 118,864 | ||||||
300 | Hikari Tsushin, Inc. | 27,928 | ||||||
5,100 | Idom, Inc. | 28,059 | ||||||
4,686 | Industria de Diseno Textil SA | 159,889 | ||||||
4,647 | JB Hi-Fi, Ltd. | 93,798 | ||||||
20,850 | JD Sports Fashion plc | 81,562 | ||||||
700 | Jin Co., Ltd. | 32,128 | ||||||
3,000 | Joshin Denki Co., Ltd. | 25,375 | ||||||
1,300 | Joyful Honda Co., Ltd. | 34,938 | ||||||
45,977 | Kingfisher plc | 197,961 | ||||||
1,600 | Komeri Co., Ltd. | 36,006 | ||||||
4,200 | K’s Holding Corp. | 73,457 | ||||||
2,366 | Leon’s Furniture, Ltd. | 31,864 | ||||||
25,750 | L’occitane International SA | 48,709 | ||||||
19,046 | Lookers plc | 27,478 | ||||||
31,000 | Luk Fook Holdings International, Ltd. | 80,714 | ||||||
2,347 | Matas A/S | 32,027 | ||||||
900 | Nitori Co., Ltd. | 102,860 | ||||||
2,300 | Nojima Corp. | 24,763 | ||||||
76,677 | Pendragon plc | 29,433 | ||||||
19,618 | Pets At Home Group plc | 57,776 | ||||||
1,500 | Sanrio Co., Ltd. | 28,262 | ||||||
3,400 | Shimachu Co., Ltd. | 90,469 | ||||||
500 | Shimamura Co., Ltd. | 62,388 | ||||||
9,000 | Sports Direct International* | 30,883 | ||||||
4,622 | Super Retail Group, Ltd. | 34,422 | ||||||
3,968 | Supergroup plc | 80,418 | ||||||
1,900 | United Arrows, Ltd. | 52,316 | ||||||
2,400 | USS Co., Ltd. | 38,159 |
Continued
25
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Specialty Retail, continued |
| ||||||
155 | Valora Holding AG | $ | 44,039 | |||||
8,200 | VT Holdings Co., Ltd. | 40,392 | ||||||
4,080 | WHSmith plc | 78,132 | ||||||
1,900 | Xebio Holdings Co., Ltd. | 29,314 | ||||||
1,990 | XXL ASA(a) | 22,602 | ||||||
12,300 | Yamada Denki Co., Ltd. | 66,165 | ||||||
|
| |||||||
3,705,454 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (0.8%): |
| ||||||
20,488 | BlackBerry, Ltd.* | 141,012 | ||||||
6,400 | Brother Industries, Ltd. | 115,106 | ||||||
10,800 | Canon, Inc. | 302,477 | ||||||
1,200 | EIZO Corp. | 35,676 | ||||||
4,500 | Fujifilm Holdings Corp. | 170,526 | ||||||
2,300 | Hitachi Maxell, Ltd. | 39,126 | ||||||
12,300 | Konica Minolta Holdings, Inc. | 121,861 | ||||||
6,508 | Logitech International SA | 161,203 | ||||||
3,100 | Mcj Co., Ltd. | 30,422 | ||||||
95,000 | NEC Corp. | 251,001 | ||||||
2,343 | Neopost | 73,261 | ||||||
23,500 | Ricoh Co., Ltd. | 198,298 | ||||||
8,300 | Seiko Epson Corp. | 175,349 | ||||||
9,000 | Toshiba Tec Corp.* | 43,068 | ||||||
4,372 | Xaar plc | 21,468 | ||||||
|
| |||||||
1,879,854 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (1.4%): |
| ||||||
1,597 | Adidas AG | 252,355 | ||||||
1,500 | ASICS Corp. | 29,903 | ||||||
1,383 | Brunello Cucinelli SpA | 29,603 | ||||||
6,313 | Burberry Group plc | 116,346 | ||||||
528 | Christian Dior SA | 110,604 | ||||||
3,902 | Compagnie Financiere Richemont SA | 258,434 | ||||||
485 | Delta-Galil Industries, Ltd. | 14,070 | ||||||
2,100 | Descente, Ltd. | 24,126 | ||||||
900 | Fujibo Holdings, Inc. | 25,539 | ||||||
1,059 | Gerry Weber International AG | 12,221 | ||||||
1,311 | Gildan Activewear, Inc. | 33,260 | ||||||
280,000 | Global Brands Group Holdings, Ltd.* | 36,860 | ||||||
189 | Hermes International SA | 77,498 | ||||||
2,445 | Hugo Boss AG | 150,844 | ||||||
4,000 | Japan Wool Textile Co., Ltd. (The) | 29,737 | ||||||
200 | Kering | 44,831 | ||||||
15,000 | Kurabo Industries, Ltd. | 29,275 | ||||||
399,238 | Li & Fung, Ltd. | 174,567 | ||||||
1,682 | Luxottica Group SpA | 90,585 | ||||||
2,321 | LVMH Moet Hennessy Louis Vuitton SA | 442,498 | ||||||
5,170 | Moncler SpA | 89,902 | ||||||
7,000 | Onward Holdings Co., Ltd. | 49,000 | ||||||
9,893 | Ovs SpA(a) | 49,746 | ||||||
27,000 | Pacific Textiles Holdings, Ltd. | 29,205 | ||||||
2,465 | Pandora A/S | 322,018 | ||||||
6,400 | Prada SpA | 21,600 | ||||||
105 | Puma Se | 27,573 | ||||||
2,618 | Safilo Group SpA* | 21,923 | ||||||
2,218 | Salvatore Ferragamo Italia SpA | 52,339 | ||||||
36,000 | Samsonite International SA | 102,425 | ||||||
9,000 | Seiko Holdings Corp. | 31,810 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Textiles, Apparel & Luxury Goods, continued |
| ||||||
2,500 | Seiren Co., Ltd. | $ | 30,562 | |||||
28,000 | Stella International Holdings, Ltd. | 45,039 | ||||||
277 | Swatch Group AG (The), Class B | 86,153 | ||||||
819 | Swatch Group AG (The), Registered Shares | 50,070 | ||||||
1,909 | Ted Baker plc | 66,140 | ||||||
36,000 | Texwinca Holdings, Ltd. | 23,514 | ||||||
404 | Tod’s SpA | 26,263 | ||||||
5,000 | Tsi Holdings Co., Ltd. | 29,918 | ||||||
27,000 | Unitika, Ltd.* | 19,304 | ||||||
9,000 | Wacoal Holdings Corp. | 104,788 | ||||||
45,514 | Yue Yuen Industrial Holdings, Ltd. | 164,758 | ||||||
|
| |||||||
3,427,206 | ||||||||
|
| |||||||
| Thrifts & Mortgage Finance (0.2%): |
| ||||||
4,125 | Aareal Bank AG | 155,299 | ||||||
615 | Equitable Group, Inc. | 27,697 | ||||||
2,826 | Genworth MI Canada, Inc. | 70,855 | ||||||
16,190 | Genworth Mortgage Insurance AU | 38,100 | ||||||
1,200 | Home Capital Group, Inc. | 28,013 | ||||||
7,866 | Onesavings Bank PLC | 32,735 | ||||||
17,875 | Paragon Group of Cos. PLC (The) | 91,247 | ||||||
|
| |||||||
443,946 | ||||||||
|
| |||||||
| Tobacco (0.4%): |
| ||||||
4,656 | British American Tobacco plc, ADR | 524,591 | ||||||
4,936 | Imperial Tobacco Group plc, Class A | 214,689 | ||||||
4,800 | Japan Tobacco, Inc. | 157,717 | ||||||
2,105 | Swedish Match AB, Class B | 66,906 | ||||||
|
| |||||||
963,903 | ||||||||
|
| |||||||
| Trading Companies & Distributors (1.7%): |
| ||||||
2,637 | AddTech AB, Class B | 41,255 | ||||||
21,185 | Ashtead Group plc | 410,361 | ||||||
1,271 | B&b Tools AB | 26,654 | ||||||
537 | Beijer Ref AB | 12,739 | ||||||
430,000 | Bep International Holdings, Ltd. | 24,571 | ||||||
583 | Bossard Holding AG | 82,103 | ||||||
5,890 | Brammer plc | 11,979 | ||||||
3,484 | Brenntag AG | 193,034 | ||||||
4,067 | Bunzl plc | 105,227 | ||||||
3,143 | Cramo OYJ | 78,676 | ||||||
8,845 | Diploma plc | 113,207 | ||||||
6,630 | Finning International, Inc. | 129,834 | ||||||
7,080 | Grafton Group plc | 47,903 | ||||||
36,721 | Howden Joinery Group plc | 172,759 | ||||||
1,788 | Imcd Group NV | 76,106 | ||||||
2,800 | Inabata & Co., Ltd. | 30,791 | ||||||
4,621 | Indutrade AB | 92,672 | ||||||
10,200 | ITOCHU Corp. | 135,215 | ||||||
13,000 | Iwatani Corp. | 69,073 | ||||||
2,000 | Japan Pulp & Paper Co., Ltd. | 6,290 | ||||||
1,700 | Kanamoto Co., Ltd. | 44,951 | ||||||
24,000 | Kanematsu Corp. | 40,376 | ||||||
5,776 | Kloeckner & Co. SE* | 71,949 | ||||||
1,600 | Kuroda Electric Co., Ltd. | 31,587 | ||||||
29,500 | Marubeni Corp. | 166,919 | ||||||
5,100 | Misumi Group, Inc. | 83,710 | ||||||
1,100 | Mitani Corp. | 30,131 |
Continued
26
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Trading Companies & Distributors, continued |
| ||||||
3,200 | Mitsubishi Corp. | $ | 68,006 | |||||
4,800 | Mitsui & Co., Ltd. | 65,842 | ||||||
1,400 | Monotaro Co., Ltd. | 28,589 | ||||||
7,100 | Nagase & Co., Ltd. | 92,532 | ||||||
1,100 | Nippon Steel & Sumikin Bussan | 42,484 | ||||||
1,200 | Nishio Rent All Co., Ltd. | 36,767 | ||||||
525,800 | Noble Group, Ltd.* | 61,220 | ||||||
7,777 | Ramirent OYJ | 60,467 | ||||||
803 | Reece, Ltd. | 25,953 | ||||||
20,320 | Rexel SA | 333,755 | ||||||
2,192 | Richelieu Hardware, Ltd. | 41,734 | ||||||
3,604 | Russel Metals, Inc. | 68,671 | ||||||
5,168 | Seven Group Holdings, Ltd. | 29,160 | ||||||
42,932 | SIG plc | 54,634 | ||||||
56,300 | Sojitz Corp. | 136,488 | ||||||
3,072 | Toromont Industries, Ltd. | 96,908 | ||||||
8,700 | Toyota Tsushu Corp. | 226,084 | ||||||
8,978 | Travis Perkins plc | 160,443 | ||||||
1,000 | Trusco Nakayama Corp. | 20,902 | ||||||
2,700 | Wakita & Co., Ltd. | 22,428 | ||||||
3,709 | Wolseley plc | 226,561 | ||||||
3,800 | Yamazen Corp. | 31,681 | ||||||
|
| |||||||
4,261,381 | ||||||||
|
| |||||||
| Transportation Infrastructure (0.7%): |
| ||||||
10,833 | Abertis Infraestructuras SA | 151,545 | ||||||
493 | Aena SA(a) | 67,252 | ||||||
384 | Aeroports de Paris | 41,133 | ||||||
3,529 | Ansaldo Sts SpA | 43,975 | ||||||
7,311 | Atlantia SpA | 171,044 | ||||||
54,565 | BBA Aviation plc | 189,875 | ||||||
960 | Flughafen Zuerich AG | 178,167 | ||||||
2,640 | Fraport AG | 155,909 | ||||||
3,270 | Groupe Eurotunnel SA | 31,039 | ||||||
1,679 | Hamburger Hafen und Logistik AG | 31,224 | ||||||
302,800 | Hutchison Port Holdings Trust | 131,676 | ||||||
700 | Japan Airport Terminal Co., Ltd. | 25,279 | ||||||
13,000 | Kamigumi Co., Ltd. | 123,706 | ||||||
2,000 | Mitsubishi Logistics Corp. | 28,230 | ||||||
10,964 | Port of Tauranga, Ltd. | 29,306 | ||||||
42,466 | Qube Holdings, Ltd. | 74,546 | ||||||
15,500 | SATS, Ltd. | 51,798 | ||||||
985 | Save SpA | 17,980 | ||||||
6,407 | SIAS SpA | 54,572 | ||||||
8,000 | Sumitomo Warehouse Co., Ltd. (The) | 42,204 | ||||||
14,036 | Sydney Airport | 60,444 | ||||||
8,406 | Transurban Group | 62,589 | ||||||
2,729 | Westshore Terminals Investment Corp. | 52,629 | ||||||
|
| |||||||
1,816,122 | ||||||||
|
| |||||||
| Water Utilities (0.2%): |
| ||||||
15,034 | Pennon Group plc | 152,797 | ||||||
5,341 | Severn Trent plc | 146,106 | ||||||
7,737 | United Utilities Group plc | 85,713 | ||||||
|
| |||||||
384,616 | ||||||||
|
| |||||||
| Wireless Telecommunication Services (1.1%): |
| ||||||
2,035 | Cellcom Israel, Ltd.* | 16,379 | ||||||
1,335 | Drillisch AG | 57,330 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Wireless Telecommunication Services, continued |
| ||||||
4,802 | Freenet AG | $ | 135,337 | |||||
13,800 | KDDI Corp. | 348,466 | ||||||
13,000 | M1, Ltd./Singapore | 17,565 | ||||||
3,522 | Millicom International Cellular SA, SDR | 150,501 | ||||||
2,104 | Mobistar SA* | 43,958 | ||||||
23,100 | NTT DoCoMo, Inc. | 525,379 | ||||||
1,000 | Okinawa Cellular Telephone Co. | 29,811 | ||||||
1,708 | Rogers Communications, Inc., Class B | 65,895 | ||||||
17,000 | Smartone Telecommunications Ho | 22,831 | ||||||
4,700 | SoftBank Group Corp. | 310,321 | ||||||
21,800 | StarHub, Ltd. | 42,174 | ||||||
17,394 | Tele2 AB | 139,489 | ||||||
378,511 | Vodafone Group plc | 930,784 | ||||||
|
| |||||||
2,836,220 | ||||||||
|
| |||||||
| Total Common Stocks (Cost $264,682,811) | 250,486,668 | ||||||
|
| |||||||
| Preferred Stocks (0.4%): |
| ||||||
| Automobiles (0.4%): |
| ||||||
1,600 | Bayerische Motoren Werke AG (BMW), 4.42% | 122,703 | ||||||
2,782 | Porsche Automobil Holding SE, 1.96% | 151,212 | ||||||
4,515 | Volkswagen AG, 0.13% | 632,470 | ||||||
|
| |||||||
906,385 | ||||||||
|
| |||||||
| Household Products (0.0%): |
| ||||||
455 | Henkel AG & Co. KGaA, 1.30% | 54,254 | ||||||
|
| |||||||
| Total Preferred Stocks (Cost $1,361,420) | 960,639 | ||||||
|
| |||||||
| Rights (0.0%): |
| ||||||
| Aerospace & Defense (0.0%): |
| ||||||
1,164,858 | Rolls-Royce Redemption Shares, Expires on 1/07/17*(b)(c) | 1,435 | ||||||
|
| |||||||
| Banks (0.0%): |
| ||||||
55,201 | Credito Valtellinese Scarl, Expires on 1/06/17*(b) | — | ||||||
|
| |||||||
| Energy Equipment & Services (0.0%): |
| ||||||
1,140 | Petroleum Geo, Expires on 1/06/17*(b) | 885 | ||||||
|
| |||||||
| Hotels, Restaurants & Leisure (0.0%): |
| ||||||
96 | Corporate Travel Management, Ltd., Expires on 1/18/17* | 238 | ||||||
|
| |||||||
| Household Products (0.0%): |
| ||||||
342,120 | Mcbride PLC – Int Crest Purp, Expires on 12/31/49*(c) | 422 | ||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (0.0%): |
| ||||||
20,956 | Repsol SA, Expires on 1/09/17* | 7,764 | ||||||
25,320 | TOTAL SA, Expires on 1/05/17*^(c) | 16,256 | ||||||
|
| |||||||
24,020 | ||||||||
|
| |||||||
| Pharmaceuticals (0.0%): |
| ||||||
7,273 | Faes Farma SA, Expires on 1/03/17* | 697 | ||||||
|
| |||||||
| Total Rights (Cost $16,072) | 27,697 | ||||||
|
|
Continued
27
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Securities Held as Collateral for Securities on Loan (0.2%): |
| ||||||
$ 427,211 | AZL DFA International Core Equity Fund Securities Lending Collateral Account(d) | $ | 427,211 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 427,211 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Unaffiliated Investment Company (0.0%): |
| ||||||
84,299 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(e) | $ | 84,299 | |||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $84,299) | 84,299 | ||||||
|
| |||||||
| Total Investment Securities (Cost $266,571,813)(f) — 99.7% | 251,986,514 | ||||||
| Net other assets (liabilities) — 0.3% | 710,497 | ||||||
|
| |||||||
| Net Assets — 100.0% | $ | 252,697,011 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
ADR—American Depositary Receipt
NYS—New York Shares
SDR—Swedish Depository Receipt
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2016. The total value of securities on loan as of December 31, 2016, was $418,222. |
(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) | The sub-adviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2016, 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, 2016. The total of all such securities represent 0.01% of the net assets of the fund. |
(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, 2016. |
(e) | The rate represents the effective yield at December 31, 2016. |
(f) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Continued
28
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
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, 2016: (Unaudited)
Country | Percentage | |||
Australia | 6.1 | % | ||
Austria | 0.6 | % | ||
Belgium | 1.4 | % | ||
Bermuda | 0.1 | % | ||
Cambodia | — | %NM | ||
Canada | 9.3 | % | ||
Cayman Islands | — | %NM | ||
China | 0.1 | % | ||
Denmark | 1.8 | % | ||
Egypt | — | %NM | ||
European Community | — | %NM | ||
Faroe Islands | — | %NM | ||
Finland | 1.8 | % | ||
France | 7.1 | % | ||
Georgia | — | %NM | ||
Germany | 7.2 | % | ||
Hong Kong | 2.7 | % | ||
India | — | %NM | ||
Ireland (Republic of) | 1.0 | % | ||
Isle of Man | 0.1 | % | ||
Israel | 0.4 | % |
Country | Percentage | |||
Italy | 2.5 | % | ||
Japan | 23.8 | % | ||
Jersey | — | %NM | ||
Liechtenstein | — | %NM | ||
Luxembourg | 0.4 | % | ||
Malta | — | %NM | ||
Monaco | — | %NM | ||
Netherlands | 3.0 | % | ||
New Zealand | 0.4 | % | ||
Norway | 0.8 | % | ||
Peru | — | %NM | ||
Portugal | 0.1 | % | ||
Singapore | 1.0 | % | ||
Spain | 2.6 | % | ||
Sweden | 2.8 | % | ||
Switzerland | 6.7 | % | ||
United Arab Emirates | — | %NM | ||
United Kingdom | 15.7 | % | ||
United States | 0.5 | % | ||
|
| |||
100.0 | % | |||
|
|
NM | Not meaningful, amount is less than 0.05%. |
See accompanying notes to the financial statements.
29
AZL DFA International Core Equity Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investment securities, at cost | $ | 266,571,813 | |||
|
| ||||
Investment securities, at value* | $ | 251,986,514 | |||
Cash | 27,529 | ||||
Interest and dividends receivable | 255,379 | ||||
Foreign currency, at value (cost $677,591) | 672,572 | ||||
Receivable for capital shares issued | 216,212 | ||||
Receivable for investments sold | 56,603 | ||||
Reclaims receivable | 261,750 | ||||
Prepaid expenses | 687 | ||||
|
| ||||
Total Assets | 253,477,246 | ||||
|
| ||||
Liabilities: | |||||
Payable for capital shares redeemed | 45,871 | ||||
Payable for collateral received on loaned securities | 427,211 | ||||
Manager fees payable | 159,613 | ||||
Administration fees payable | 29,843 | ||||
Distribution fees payable | 53,204 | ||||
Custodian fees payable | 40,765 | ||||
Administrative and compliance services fees payable | 671 | ||||
Trustee fees payable | 509 | ||||
Other accrued liabilities | 22,548 | ||||
|
| ||||
Total Liabilities | 780,235 | ||||
|
| ||||
Net Assets | $ | 252,697,011 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 265,789,899 | |||
Accumulated net investment income/(loss) | 2,847,637 | ||||
Accumulated net realized gains/(losses) from investment transactions | (1,332,263 | ) | |||
Net unrealized appreciation/(depreciation) on investments | (14,608,262 | ) | |||
|
| ||||
Net Assets | $ | 252,697,011 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 27,425,034 | ||||
Net Asset Value (offering and redemption price per share) | $ | 9.21 | |||
|
|
* | Includes securities on loan of $418,222. |
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Dividends | $ | 5,723,736 | |||
Income from securities lending | 32,207 | ||||
Foreign withholding tax | (645,769 | ) | |||
|
| ||||
Total Investment Income | 5,110,174 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 1,727,636 | ||||
Administration fees | 248,536 | ||||
Distribution fees | 454,641 | ||||
Custodian fees | 66,089 | ||||
Administrative and compliance services fees | 2,749 | ||||
Trustee fees | 9,071 | ||||
Professional fees | 10,452 | ||||
Shareholder reports | 3,030 | ||||
Other expenses | 5,230 | ||||
|
| ||||
Total expenses before reductions | 2,527,434 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (363,714 | ) | |||
|
| ||||
Net expenses | 2,163,720 | ||||
|
| ||||
Net Investment Income/(Loss) | 2,946,454 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | (1,288,470 | ) | |||
Net realized gains/(losses) on futures contracts | 135,958 | ||||
Change in net unrealized appreciation/depreciation on investments | 5,280,582 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 4,128,070 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 7,074,524 | |||
|
|
See accompanying notes to the financial statements.
30
Statements of Changes in Net Assets
AZL DFA International Core Equity Fund | ||||||||||
For the Year Ended December 31, 2016 | April 27, 2015 to December 31, | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 2,946,454 | $ | 1,463,420 | ||||||
Net realized gains/(losses) on investment transactions | (1,152,512 | ) | (413 | ) | ||||||
Change in unrealized appreciation/depreciation on investments | 5,280,582 | (19,888,844 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 7,074,524 | (18,425,837 | ) | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (1,859,695 | ) | — | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (1,859,695 | ) | — | |||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 110,343,978 | 197,916,531 | ||||||||
Proceeds from dividends reinvested | 1,859,695 | — | ||||||||
Value of shares redeemed | (34,994,294 | ) | (9,217,891 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 77,209,379 | 188,698,640 | ||||||||
|
|
|
| |||||||
Change in net assets | 82,424,208 | 170,272,803 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 170,272,803 | — | ||||||||
|
|
|
| |||||||
End of period | $ | 252,697,011 | $ | 170,272,803 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 2,847,637 | $ | 1,857,623 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 12,178,801 | 19,800,073 | ||||||||
Dividends reinvested | 205,038 | — | ||||||||
Shares redeemed | (3,817,364 | ) | (941,514 | ) | ||||||
|
|
|
| |||||||
Change in shares | 8,566,475 | 18,858,559 | ||||||||
|
|
|
|
(a) | For the period April 27, 2015 (commencement of operations) to December 31, 2015. |
See accompanying notes to the financial statements.
31
AZL DFA International Core Equity Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, 2016 | April 27, 2015 December 31, | |||||||||
Net Asset Value, Beginning of Period | $ | 9.03 | $ | 10.00 | ||||||
|
|
|
| |||||||
Investment Activities: | ||||||||||
Net Investment Income/(Loss) | 0.11 | 0.08 | ||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.17 | (1.05 | ) | |||||||
|
|
|
| |||||||
Total from Investment Activities | 0.28 | (0.97 | ) | |||||||
|
|
|
| |||||||
Dividends to Shareholders From: | ||||||||||
Net Investment Income | (0.10 | ) | — | |||||||
|
|
|
| |||||||
Total Dividends | (0.10 | ) | — | |||||||
|
|
|
| |||||||
Net Asset Value, End of Period | $ | 9.21 | $ | 9.03 | ||||||
|
|
|
| |||||||
Total Return(b) | 3.17 | % | (9.70 | )%(c) | ||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||
Net Assets, End of Period (000’s) | $ | 252,697 | $ | 170,273 | ||||||
Net Investment Income/(Loss)(d) | 1.62 | % | 1.19 | % | ||||||
Expenses Before Reductions(d)(e) | 1.39 | % | 1.39 | % | ||||||
Expenses Net of Reductions(d) | 1.19 | % | 1.19 | % | ||||||
Portfolio Turnover Rate | 11 | % | 4 | %(c) |
(a) | For the period April 27, 2015 (commencement of operations) to December 31, 2015. |
(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.
32
AZL DFA International Core Equity Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL DFA International Core Equity Fund (the “Fund”), and 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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.
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 differing treatment on certain investments) 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.
33
AZL DFA International Core Equity Fund
Notes to the Financial Statements
December 31, 2016
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, 2016 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $1 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $3,187 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (“ASU No. 2014-11”), “Transfers & Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged, and the remaining contractual maturity of those transactions as of December 31, 2016.
Overnight and Continuous | Less than 30 Days | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions | $ | 427,211 | $ | — | $ | — | $ | — | $ | 427,211 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Securities Lending Transactions | 427,211 | — | — | — | 427,211 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Borrowings | $ | 427,211 | $ | — | $ | — | $ | — | $ | 427,211 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Gross Amount of Recognized Liabilities for Securities Lending Transactions | $ | 427,211 | |||||||||||||||||||||||
|
|
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and sub-adviser. Any such purchase or sale transaction must be effected without a brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security’s last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. During the year ended December 31, 2016, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
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, 2016, 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 futures contracts outstanding as of December 31, 2016. The monthly average notional amount for these contracts was $0.3 million for the year ended December 31, 2016. Realized gains and losses are reported as “Net realized gains/(losses) on futures contracts“ on the Statement of Operations.
34
AZL DFA International Core Equity Fund
Notes to the Financial Statements
December 31, 2016
Summary of Derivative Instruments
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, 2016:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives Recognized | Change in Net Unrealized Appreciation/Depreciation on Derivatives Recognized | |||||||
Equity Risk Exposure | ||||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts / Change in unrealized appreciation/depreciation on investments | $ | 135,958 | $ | — |
3. Fees and Transactions with Affiliates and Other Parties
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 Dimensional Fund Advisors LP (“DFA”), DFA 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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL DFA International Core Equity Fund | 0.95 | % | 1.39 | % |
* | The Manager voluntarily reduced the management fee to 0.75% on all assets. The manager reserves the right to increase the management fee to the amount shown in the table 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, 2016, 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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the Fund’s average daily net assets, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $1,903 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-
35
AZL DFA International Core Equity Fund
Notes to the Financial Statements
December 31, 2016
interested Trustee receives a $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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 (the “Board” or “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.
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, 2016 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 | $ | 230,391 | $ | 2,697,348 | $ | — | $ | 2,927,739 | ||||||||||||
Airlines | 96,013 | 627,789 | — | 723,802 | ||||||||||||||||
Auto Components | 468,254 | 6,201,812 | — | 6,670,066 | ||||||||||||||||
Automobiles | 55,698 | 8,781,811 | — | 8,837,509 | ||||||||||||||||
Banks | 7,353,244 | 17,134,834 | — | 24,488,078 | ||||||||||||||||
Beverages | 702,361 | 2,527,735 | — | 3,230,096 | ||||||||||||||||
Biotechnology | 59,576 | 1,272,515 | — | 1,332,091 | ||||||||||||||||
Capital Markets | 860,892 | 5,323,168 | — | 6,184,060 | ||||||||||||||||
Chemicals | 673,735 | 12,431,652 | — | 13,105,387 | ||||||||||||||||
Commercial Services & Supplies | 240,336 | 3,726,117 | — | 3,966,453 | ||||||||||||||||
Communications Equipment | 85,913 | 370,401 | — | 456,314 | ||||||||||||||||
Construction & Engineering | 512,157 | 4,971,475 | — | 5,483,632 | ||||||||||||||||
Construction Materials | 291,543 | 1,793,731 | — | 2,085,274 | ||||||||||||||||
Containers & Packaging | 156,647 | 1,696,178 | — | 1,852,825 | ||||||||||||||||
Distributors | 66,449 | 565,398 | — | 631,847 | ||||||||||||||||
Diversified Consumer Services | 67,041 | 344,456 | — | 411,497 | ||||||||||||||||
Diversified Financial Services | 229,323 | 1,485,556 | — | 1,714,879 | ||||||||||||||||
Diversified Telecommunication Services | 355,751 | 5,178,346 | — | 5,534,097 | ||||||||||||||||
Electric Utilities | 83,136 | 2,806,252 | — | 2,889,388 | ||||||||||||||||
Electrical Equipment | 226,926 | 2,866,626 | — | 3,093,552 | ||||||||||||||||
Electronic Equipment, Instruments & Components | 99,667 | 4,513,197 | — | 4,612,864 | ||||||||||||||||
Energy Equipment & Services | 692,144 | 2,214,965 | — | 2,907,109 | ||||||||||||||||
Food & Staples Retailing | 459,030 | 5,796,370 | — | 6,255,400 | ||||||||||||||||
Food Products | 408,865 | 6,609,780 | — | 7,018,645 | ||||||||||||||||
Gas Utilities | 142,985 | 1,004,802 | — | 1,147,787 |
36
AZL DFA International Core Equity Fund
Notes to the Financial Statements
December 31, 2016
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Health Care Equipment & Supplies | $ | 104,136 | $ | 2,446,335 | $ | — | $ | 2,550,471 | ||||||||||||
Health Care Providers & Services | 76,688 | 1,622,293 | — | 1,698,981 | ||||||||||||||||
Hotels, Restaurants & Leisure | 316,769 | 4,623,033 | — | 4,939,802 | ||||||||||||||||
Independent Power & Renewable Electricity Producers | 414,632 | 342,881 | — | 757,513 | ||||||||||||||||
Industrial Conglomerates | 115,769 | 2,772,299 | — | 2,888,068 | ||||||||||||||||
Insurance | 2,275,326 | 9,036,812 | — | 11,312,138 | ||||||||||||||||
Internet Software & Services | 17,514 | 1,046,691 | — | 1,064,205 | ||||||||||||||||
IT Services | 69,575 | 2,430,261 | — | 2,499,836 | ||||||||||||||||
Leisure Products | 31,803 | 864,334 | — | 896,137 | ||||||||||||||||
Life Sciences Tools & Services | 405,477 | 712,776 | — | 1,118,253 | ||||||||||||||||
Machinery | 196,648 | 9,534,095 | — | 9,730,743 | ||||||||||||||||
Marine | 28,841 | 999,662 | — | 1,028,503 | ||||||||||||||||
Media | 798,478 | 4,464,046 | — | 5,262,524 | ||||||||||||||||
Metals & Mining | 4,855,048 | 8,436,971 | — | 13,292,019 | ||||||||||||||||
Multiline Retail | 225,775 | 1,203,154 | — | 1,428,929 | ||||||||||||||||
Multi-Utilities | 277,003 | 1,719,225 | — | 1,996,228 | ||||||||||||||||
Oil, Gas & Consumable Fuels | 7,012,605 | 4,738,835 | — | 11,751,440 | ||||||||||||||||
Paper & Forest Products | 306,934 | 1,653,141 | — | 1,960,075 | ||||||||||||||||
Personal Products | 554,161 | 561,372 | — | 1,115,533 | ||||||||||||||||
Pharmaceuticals | 848,112 | 6,237,200 | — | 7,085,312 | ||||||||||||||||
Professional Services | 205,208 | 3,216,528 | — | 3,421,736 | ||||||||||||||||
Real Estate Management & Development | 205,281 | 6,625,598 | — | 6,830,879 | ||||||||||||||||
Road & Rail | 1,064,846 | 2,537,041 | — | 3,601,887 | ||||||||||||||||
Semiconductors & Semiconductor Equipment | 226,771 | 1,931,354 | — | 2,158,125 | ||||||||||||||||
Software | 273,288 | 2,247,580 | — | 2,520,868 | ||||||||||||||||
Specialty Retail | 63,087 | 3,642,367 | — | 3,705,454 | ||||||||||||||||
Technology Hardware, Storage & Peripherals | 302,215 | 1,577,639 | — | 1,879,854 | ||||||||||||||||
Textiles, Apparel & Luxury Goods | 33,260 | 3,393,946 | — | 3,427,206 | ||||||||||||||||
Thrifts & Mortgage Finance | 126,565 | 317,381 | — | 443,946 | ||||||||||||||||
Tobacco | 524,591 | 439,312 | — | 963,903 | ||||||||||||||||
Trading Companies & Distributors | 337,147 | 3,924,234 | — | 4,261,381 | ||||||||||||||||
Transportation Infrastructure | 52,629 | 1,763,493 | — | 1,816,122 | ||||||||||||||||
Wireless Telecommunication Services | 65,895 | 2,770,325 | — | 2,836,220 | ||||||||||||||||
All Other Common Stocks+ | — | 10,681,986 | — | 10,681,986 | ||||||||||||||||
Preferred Stocks+ | — | 960,639 | — | 960,639 | ||||||||||||||||
Rights | — | 27,275 | 422 | 27,697 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | 427,211 | — | 427,211 | ||||||||||||||||
Unaffiliated Investment Company | 84,299 | — | — | 84,299 | ||||||||||||||||
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Total Investment Securities | $ | 37,114,453 | $ | 214,871,639 | $ | 422 | $ | 251,986,514 | ||||||||||||
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+ | 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, 2016, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL DFA International Core Equity Fund | $ | 98,026,151 | $ | 21,001,391 |
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.
37
AZL DFA International Core Equity Fund
Notes to the Financial Statements
December 31, 2016
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 policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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 of securities for federal income tax purposes at December 31, 2016 is $267,183,101. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 12,403,086 | ||
Unrealized (depreciation) | (27,599,673 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | (15,196,587 | ) | |
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As of the end of its tax year ended December 31, 2016, the Fund has capital loss carry forwards (“CLCFs”) as summarized in the table 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 DFA International Core Equity Fund | $ | — | $ | 1,194,402 | $ | 1,194,402 |
During the year ended December 31, 2016, the Fund utilized $138,827 in capital loss carry forwards to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL DFA International Core Equity Fund | $ | 1,859,695 | $ | — | $ | 1,859,695 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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 DFA International Core Equity Fund | $ | 3,321,064 | $ | — | $ | (1,194,402 | ) | $ | (15,219,550 | ) | $ | (13,092,888 | ) |
(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. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies — Form N-PORT and Form N-CEN — also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
9. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
38
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 DFA International Core Equity Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2016, and the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the years or periods in the two-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2016, 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 AZL DFA International Core Equity Fund as of December 31, 2016, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the years or periods in the two-year period then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Columbus, Ohio
February 24, 2017
39
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2016, 0.01% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
40
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.
41
Approval of Investment Advisory and Subadvisory Agreements — October 25, 2016 (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 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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
42
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 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 the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held October 25, 2016, the Manager reported that for the three year period ended June 30, 2016, seven Funds were in the top 40%, two were in the middle 20% and three were in the bottom 40%, and for the one year period ended June 30, 2016, twelve Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2016, six Funds were in the top 40%, one was in the middle 20%, and three were in the bottom 40%. At the Board of Trustees meeting held October 25, 2016, 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 twenty Funds reviewed by the Board of Trustees in the fall of 2016, seventeen 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 2016 for the twenty-one Funds was as follows; (1) eighteen of the Funds had total expense rankings below the 65th percentile (with eleven Funds at or below the 50th percentile); (2) the AZL Russell 1000 Growth Index Fund had a total expense ranking in the 66th percentile, but there was only a very limited peer group for such Fund, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; (3) the AZL International Index Fund had a total expense ranking in the 75th percentile, but there was only a limited peer group for such Fund, the actual management fee was in the 37th percentile, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; and (4) for the AZL Morgan Stanley Global Real Estate Fund, which had a total expense ranking in the 70th percentile, the Manager recommended a temporary management fee waiver of 5 basis points, effective November 1, 2016, which would move the management fee ranking from the 80th to the 60th percentile.
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 2013 through June 30, 2016. 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, all of which currently are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. 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.
43
(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, 2016 were approximately $6.4 billion, and that no single Fund had assets in excess of $1,289 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, 2017, 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.
44
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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/Length | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 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 | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 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 | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
45
Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
46
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® DFA U.S. Core Equity Fund
Annual Report
December 31, 2016
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 27
Statement of Operations
Page 27
Statements of Changes in Net Assets
Page 28
Financial Highlights
Page 29
Notes to the Financial Statements
Page 30
Report of Independent Registered Public Accounting Firm
Page 35
Other Federal Income Tax Information
Page 36
Other Information
Page 37
Approval of Investment Advisory and Subadvisory Agreements
Page 38
Information about the Board of Trustees and Officers
Page 41
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® DFA U.S. Core Equity Fund (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® DFA U.S. Core Equity Fund and Dimensional Fund Advisors LP serves as Subadviser to the Fund.
|
What factors affected the Fund’s performance during the year ended December 31, 2016?
For the year ended December 31, 2016, the AZL® DFA U.S. Core Equity Fund (the “Fund”) returned 14.25%. That compared to a 12.74% total return for its benchmark, the Russell 3000® Index1.
U.S. equities struggled during the first three months of the period, before rallying to record-setting levels by the end of the 12-month period under review. Investors sought out defensive stocks during the first half of the year as a strategy to deal with the slow-growth environment. In June, the U.K.’s vote to leave the European Union resulted in a steep downturn in global equity markets. Over subsequent months, however, markets rallied back, and investors shifted their attention to cyclical stocks, which tend to benefit from stronger growth. In November, stocks surged after Donald Trump’s victory in the U.S. presidential election. Citing positive economic data, the U.S. Federal Reserves opted to raise the federal funds rate in December, and indicated that several more rate hikes were likely to come in 2017.
In general, small-cap stocks outperformed their large-cap counterparts and value stocks outperformed growth stocks during the period.
The Fund outperformed its benchmark for the 12-month period under review. A greater emphasis on small-cap and value stocks relative to the benchmark added to relative performance. The Fund’s security screening process generally excludes real estate investment trusts (REITs2), an exclusion that boosted relative performance during the period, as REITs underperformed the overall benchmark.*
The Fund’s exposure to momentum stocks dragged on relative results. The Fund may take a stock’s momentum characteristics under consideration when making trades. Given the negative performance of the momentum premium during the period, this may have had a small negative impact on relative performance.*
The Fund utilized futures on a temporary basis in connection with a large cash flow event. These futures were used for the purpose of maintaining exposure to equity markets and are not part of the Fund’s investment strategy.*
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, 2016.
| |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report.
| |
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), real estate operating companies (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® DFA U.S. Core Equity 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 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.
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.
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 Total Returns as of December 31, 2016 | ||||||||
Since | ||||||||
1 | Inception | |||||||
Year | (4/27/15) | |||||||
AZL® DFA U.S. Core Equity Fund | 14.25 | % | 4.91 | % | ||||
Russell 3000® Index | 12.74 | % | 5.47 | % |
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® DFA U.S. Core Equity Fund | 1.12 | % |
The above expense ratio is based on the current Fund prospectus dated April 25, 2016, as supplemented October 14, 2016. The Manager voluntarily reduced the management fee to 0.54% on all assets. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.20% through April 30, 2018. Additional information pertaining to the December 31, 2016 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 3000® Index, which is an unmanaged broad capitalization index of the top 3,000 U.S. stocks by market cap and covers 98% of the U.S. equity investable universe. 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 DFA U.S. Core Equity Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL DFA U.S. Core 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL DFA U.S. Core Equity Fund | $ | 1,000.00 | $ | 1,107.50 | $ | 4.45 | 0.84 | % |
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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL DFA U.S. Core Equity Fund | $ | 1,000.00 | $ | 1,020.91 | $ | 4.27 | 0.84 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 19.3 | % | |||
Financials | 16.3 | ||||
Consumer Discretionary | 15.6 | ||||
Industrials | 13.8 | ||||
Health Care | 11.1 | ||||
Consumer Staples | 8.3 | ||||
Materials | 4.6 | ||||
Energy | 4.5 | ||||
Utilities | 3.0 | ||||
Telecommunication Services | 2.8 | ||||
Real Estate | 0.3 | ||||
|
| ||||
Total Common Stocks | 99.6 | ||||
Right | — | ^ | |||
Securities Held as Collateral for Securities on Loan | 8.1 | ||||
Money Market | 0.3 | ||||
|
| ||||
Total Investment Securities | 108.0 | ||||
Net other assets (liabilities) | (8.0 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks (99.6%): | ||||||||
Aerospace & Defense (2.5%): | ||||||||
1,674 | AAR Corp. | $ | 55,326 | |||||
4,560 | Aerojet Rocketdyne Holdings, Inc.*^ | 81,852 | ||||||
1,321 | AeroVironment, Inc.* | 35,442 | ||||||
9,657 | Arconic, Inc. | 179,041 | ||||||
1,124 | Astronics Corp.* | 38,036 | ||||||
361 | Astronics Corp., Class B* | 12,166 | ||||||
4,383 | BE Aerospace, Inc. | 263,813 | ||||||
15,922 | Boeing Co. (The) | 2,478,736 | ||||||
4,229 | BWX Technologies, Inc. | 167,891 | ||||||
685 | CPI Aerostructures, Inc.* | 6,336 | ||||||
1,527 | Cubic Corp. | 73,220 | ||||||
3,138 | Curtiss-Wright Corp. | 308,654 | ||||||
5,683 | DigitalGlobe, Inc.*^ | 162,818 | ||||||
625 | Ducommun, Inc.* | 15,975 | ||||||
2,101 | Engility Holdings, Inc.* | 70,804 | ||||||
2,068 | Esterline Technologies Corp.* | 184,466 | ||||||
6,230 | General Dynamics Corp. | 1,075,672 | ||||||
1,641 | HEICO Corp. | 126,603 | ||||||
2,423 | HEICO Corp., Class A | 164,522 | ||||||
6,300 | Hexcel Corp.^ | 324,072 | ||||||
1,776 | Huntington Ingalls Industries, Inc. | 327,121 | ||||||
3,559 | KLX, Inc.* | 160,546 | ||||||
4,471 | Kratos Defense & Security Solutions, Inc.* | 33,085 | ||||||
1,421 | L-3 Communications Holdings, Inc. | 216,148 | ||||||
1,019 | LMI Aerospace, Inc.* | 8,784 | ||||||
6,622 | Lockheed Martin Corp. | 1,655,103 | ||||||
2,613 | Mercury Computer Systems, Inc.* | 78,965 | ||||||
2,746 | Moog, Inc., Class A* | 180,357 | ||||||
140 | Moog, Inc., Class B* | 9,136 | ||||||
343 | National Presto Industries, Inc. | 36,495 | ||||||
4,013 | Northrop Grumman Corp. | 933,344 | ||||||
1,778 | Orbital ATK, Inc. | 155,984 | ||||||
5,648 | Raytheon Co. | 802,016 | ||||||
4,448 | Rockwell Collins, Inc. | 412,596 | ||||||
6,973 | Spirit AeroSystems Holdings, Inc., Class A | 406,875 | ||||||
1,481 | TASER International, Inc.*^ | 35,899 | ||||||
2,334 | Teledyne Technologies, Inc.* | 287,082 | ||||||
11,665 | Textron, Inc. | 566,452 | ||||||
2,316 | The KEYW Holding Corp.* | 27,306 | ||||||
1,412 | TransDigm Group, Inc. | 351,532 | ||||||
3,379 | Triumph Group, Inc.^ | 89,544 | ||||||
16,066 | United Technologies Corp. | 1,761,155 | ||||||
6,897 | WESCO Aircraft Holdings, Inc.* | 103,110 | ||||||
|
| |||||||
14,464,080 | ||||||||
|
| |||||||
Air Freight & Logistics (0.8%): | ||||||||
4,941 | Air Transport Services Group, Inc.* | 78,858 | ||||||
1,400 | Atlas Air Worldwide Holdings, Inc.* | 73,010 | ||||||
5,902 | C.H. Robinson Worldwide, Inc.^ | 432,381 | ||||||
1,026 | Echo Global Logistics, Inc.* | 25,701 | ||||||
5,128 | Expeditors International of Washington, Inc.^ | 271,579 | ||||||
5,735 | FedEx Corp. | 1,067,857 | ||||||
1,779 | Forward Air Corp. | 84,289 | ||||||
2,393 | Hub Group, Inc.* | 104,694 | ||||||
1,058 | Park-Ohio Holdings Corp. | 45,071 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Air Freight & Logistics, continued | ||||||||
3,266 | Radiant Logistics, Inc.* | $ | 12,737 | |||||
18,187 | United Parcel Service, Inc., Class B | 2,084,957 | ||||||
5,560 | XPO Logistics, Inc.* | 239,970 | ||||||
|
| |||||||
4,521,104 | ||||||||
|
| |||||||
Airlines (1.0%): | ||||||||
7,723 | Alaska Air Group, Inc. | 685,262 | ||||||
998 | Allegiant Travel Co. | 166,067 | ||||||
15,304 | American Airlines Group, Inc. | 714,544 | ||||||
2,216 | Copa Holdings SA, Class A | 201,279 | ||||||
19,429 | Delta Air Lines, Inc. | 955,713 | ||||||
5,008 | Hawaiian Holdings, Inc.* | 285,456 | ||||||
20,928 | JetBlue Airways Corp.* | 469,206 | ||||||
�� | 2,917 | SkyWest, Inc. | 106,325 | |||||
17,047 | Southwest Airlines Co. | 849,622 | ||||||
5,511 | Spirit Airlines, Inc.* | 318,866 | ||||||
20,926 | United Continental Holdings, Inc.* | 1,525,086 | ||||||
|
| |||||||
6,277,426 | ||||||||
|
| |||||||
Auto Components (0.9%): | ||||||||
1,777 | Adient plc* | 104,132 | ||||||
5,496 | American Axle & Manufacturing Holdings, Inc.* | 106,073 | ||||||
3,449 | Autoliv, Inc.^ | 390,254 | ||||||
9,280 | BorgWarner, Inc. | 366,003 | ||||||
5,300 | Cooper Tire & Rubber Co. | 205,905 | ||||||
1,615 | Cooper-Standard Holding, Inc.* | 166,959 | ||||||
13,476 | Dana Holding Corp. | 255,774 | ||||||
7,499 | Delphi Automotive plc | 505,058 | ||||||
1,595 | Dorman Products, Inc.* | 116,531 | ||||||
1,483 | Drew Industries, Inc.* | 159,793 | ||||||
6,922 | Federal Mogul Holdings Corp.* | 71,366 | ||||||
2,274 | Fox Factory Holding Corp.* | 63,104 | ||||||
18,086 | Gentex Corp.^ | 356,113 | ||||||
2,720 | Gentherm, Inc.* | 92,072 | ||||||
21,106 | Goodyear Tire & Rubber Co. | 651,541 | ||||||
1,365 | Horizon Global Corp.* | 32,760 | ||||||
3,870 | Lear Corp. | 512,272 | ||||||
3,637 | Modine Manufacturing Co.* | 54,191 | ||||||
1,190 | Motorcar Parts of America, Inc.* | 32,035 | ||||||
2,574 | Spartan Motors, Inc. | 23,810 | ||||||
1,736 | Standard Motor Products, Inc. | 92,390 | ||||||
1,582 | Stoneridge, Inc.* | 27,986 | ||||||
275 | Strattec Security Corp. | 11,083 | ||||||
3,917 | Tenneco, Inc.* | 244,695 | ||||||
1,187 | Tower International, Inc. | 33,651 | ||||||
2,847 | Visteon Corp. | 228,728 | ||||||
1,621 | VOXX International Corp.* | 7,619 | ||||||
|
| |||||||
4,911,898 | ||||||||
|
| |||||||
Automobiles (0.7%): | ||||||||
123,486 | Ford Motor Co. | 1,497,885 | ||||||
36,273 | General Motors Co. | 1,263,751 | ||||||
7,738 | Harley-Davidson, Inc.^ | 451,435 | ||||||
793 | Tesla Motors, Inc.*^ | 169,456 | ||||||
3,270 | Thor Industries, Inc.^ | 327,164 | ||||||
1,652 | Winnebago Industries, Inc. | 52,286 | ||||||
|
| |||||||
3,761,977 | ||||||||
|
|
Continued
4
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks (7.4%): | ||||||||
958 | 1st Constitution Bancorp | $ | 17,915 | |||||
2,060 | 1st Source Corp. | 92,000 | ||||||
691 | Access National Corp. | 19,182 | ||||||
504 | ACNB Corp. | 15,750 | ||||||
661 | American National Bankshares, Inc. | 23,003 | ||||||
587 | American River Bankshares* | 8,870 | ||||||
2,047 | Ameris Bancorp | 89,249 | ||||||
704 | Ames National Corp. | 23,232 | ||||||
880 | Arrow Financial Corp.^ | 35,640 | ||||||
7,268 | Associated Banc-Corp. | 179,520 | ||||||
2,876 | Banc of California, Inc. | 49,899 | ||||||
1,178 | BancFirst Corp. | 109,613 | ||||||
2,831 | Bancorp, Inc. (The)*^ | 22,252 | ||||||
5,443 | BancorpSouth, Inc. | 169,005 | ||||||
165,737 | Bank of America Corp. | 3,662,788 | ||||||
899 | Bank of Commerce Holdings | 8,541 | ||||||
2,471 | Bank of Hawaii Corp.^ | 219,153 | ||||||
451 | Bank of Marin Bancorp | 31,457 | ||||||
5,397 | Bank of the Ozarks, Inc. | 283,828 | ||||||
5,053 | BankUnited, Inc. | 190,448 | ||||||
1,941 | Banner Corp. | 108,327 | ||||||
459 | Bar Harbor Bankshares | 21,724 | ||||||
13,169 | BB&T Corp. | 619,206 | ||||||
842 | BCB Bancorp, Inc. | 10,946 | ||||||
1,507 | Berkshire Hills Bancorp, Inc. | 55,533 | ||||||
1,112 | Blue Hills BanCorp, Inc.^ | 20,850 | ||||||
2,765 | BNC Bancorp | 88,204 | ||||||
1,890 | BOK Financial Corp. | 156,946 | ||||||
7,445 | Boston Private Financial Holdings, Inc. | 123,215 | ||||||
668 | Bridge Bancorp, Inc. | 25,317 | ||||||
5,707 | Brookline Bancorp, Inc. | 93,595 | ||||||
1,162 | Bryn Mawr Bank Corp. | 48,978 | ||||||
74 | C&F Financial Corp. | 3,689 | ||||||
753 | California First National Bancorp | 11,784 | ||||||
843 | Camden National Corp. | 37,471 | ||||||
2,540 | Capital Bank Financial Corp., Class A | 99,695 | ||||||
1,309 | Capital City Bank Group, Inc. | 26,808 | ||||||
1,814 | Cardinal Financial Corp. | 59,481 | ||||||
5,492 | Cascade Bancorp* | 44,595 | ||||||
3,767 | Cathay General Bancorp | 143,259 | ||||||
3,426 | Centerstate Banks, Inc. | 86,232 | ||||||
2,402 | Central Pacific Financial Corp. | 75,471 | ||||||
933 | Central Valley Community Bancorp | 18,623 | ||||||
273 | Century Bancorp, Inc. | 16,380 | ||||||
3,437 | Chemical Financial Corp. | 186,182 | ||||||
377 | Chemung Financial Corp. | 13,704 | ||||||
4,061 | CIT Group, Inc. | 173,323 | ||||||
46,994 | Citigroup, Inc. | 2,792,853 | ||||||
943 | Citizens & Northern Corp.^ | 24,707 | ||||||
11,010 | Citizens Financial Group, Inc. | 392,286 | ||||||
552 | Citizens Holding Co. | 14,269 | ||||||
1,304 | City Holding Co. | 88,150 | ||||||
938 | Civista Bancshares, Inc. | 18,225 | ||||||
1,096 | CNB Financial Corp. | 29,307 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
3,178 | CoBiz Financial, Inc. | $ | 53,676 | |||||
75 | Codorus Valley Bancorp, Inc. | 2,145 | ||||||
56 | Colony Bankcorp, Inc.* | 739 | ||||||
3,847 | Columbia Banking System, Inc. | 171,884 | ||||||
3,601 | Comerica, Inc. | 245,264 | ||||||
5,211 | Commerce Bancshares, Inc.^ | 301,248 | ||||||
2,720 | Community Bank System, Inc. | 168,069 | ||||||
2,277 | Community Bankers Trust Corp.* | 16,508 | ||||||
1,325 | Community Trust Bancorp, Inc. | 65,720 | ||||||
2,266 | ConnectOne Bancorp, Inc. | 58,803 | ||||||
1,273 | CU Bancorp* | 45,573 | ||||||
2,965 | Cullen/Frost Bankers, Inc.^ | 261,602 | ||||||
2,643 | Customers Bancorp, Inc.* | 94,672 | ||||||
6,990 | CVB Financial Corp.^ | 160,281 | ||||||
408 | DNB Financial Corp. | 11,587 | ||||||
1,882 | Eagle Bancorp, Inc.* | 114,708 | ||||||
6,075 | East West Bancorp, Inc. | 308,792 | ||||||
1,692 | Eastern Virginia Bankshares, Inc. | 17,681 | ||||||
1,529 | Enterprise Financial Services Corp. | 65,747 | ||||||
312 | Evans Bancorp, Inc. | 9,844 | ||||||
9,908 | F.N.B. Corp. | 158,825 | ||||||
569 | Farmers Capital Bank Corp.^ | 23,926 | ||||||
1,329 | Farmers National Banc Corp. | 18,872 | ||||||
2,176 | FCB Financial Holdings, Inc.* | 103,795 | ||||||
1,636 | Fidelity Southern Corp. | 38,724 | ||||||
24,887 | Fifth Third Bancorp | 671,202 | ||||||
1,053 | Financial Institutions, Inc. | 36,013 | ||||||
16,004 | First Bancorp* | 105,786 | ||||||
1,497 | First Bancorp | 40,629 | ||||||
814 | First Bancorp, Inc. | 26,943 | ||||||
611 | First Bancshares, Inc. (The) | 16,803 | ||||||
2,931 | First Busey Corp. | 90,216 | ||||||
664 | First Business Financial Services, Inc. | 15,750 | ||||||
592 | First Citizens BancShares, Inc., Class A | 210,160 | ||||||
4,012 | First Commonwealth Financial Corp. | 56,890 | ||||||
1,419 | First Community Bankshares | 42,769 | ||||||
1,217 | First Connecticut Bancorp, Inc. | 27,565 | ||||||
4,645 | First Financial Bancorp | 132,150 | ||||||
3,168 | First Financial Bankshares, Inc. | 143,194 | ||||||
967 | First Financial Corp. | 51,058 | ||||||
1,138 | First Financial Northwest, Inc. | 22,464 | ||||||
498 | First Foundation, Inc.* | 14,193 | ||||||
12,823 | First Horizon National Corp. | 256,588 | ||||||
1,650 | First Interstate BancSystem, Class A^ | 70,208 | ||||||
2,874 | First Merchants Corp. | 108,206 | ||||||
660 | First Mid-Illinois Bancshares, Inc. | 22,440 | ||||||
5,901 | First Midwest Bancorp, Inc. | 148,882 | ||||||
1,043 | First NBC Bank Holding Co.* | 7,614 | ||||||
1,573 | First of Long Island Corp. (The) | 44,909 | ||||||
5,994 | First Republic Bank | 552,287 | ||||||
1,283 | First South Bancorp | 15,332 | ||||||
2,253 | Flushing Financial Corp. | 66,216 | ||||||
7,870 | Fulton Financial Corp. | 147,956 | ||||||
877 | German American Bancorp, Inc. | 46,139 |
Continued
5
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
4,261 | Glacier Bancorp, Inc. | $ | 154,376 | |||||
1,035 | Great Southern Bancorp, Inc. | 56,563 | ||||||
3,353 | Great Western Bancorp, Inc. | 146,157 | ||||||
1,044 | Green BanCorp, Inc.* | 15,869 | ||||||
1,174 | Guaranty Bancorp | 28,411 | ||||||
3,946 | Hancock Holding Co. | 170,073 | ||||||
2,408 | Hanmi Financial Corp. | 84,039 | ||||||
38 | Hawthorn Bancshares, Inc. | 671 | ||||||
1,375 | Heartland Financial USA, Inc. | 66,000 | ||||||
2,292 | Heritage Financial Corp. | 59,019 | ||||||
2,568 | Heritage Oaks Bancorp | 31,663 | ||||||
2,010 | Hertiage Commerce Corp. | 29,004 | ||||||
5,680 | Hilltop Holdings, Inc. | 169,264 | ||||||
8,728 | Home Bancshares, Inc. | 242,377 | ||||||
1,540 | Hometrust Bancshares, Inc.* | 39,886 | ||||||
7,103 | Hope BanCorp, Inc. | 155,485 | ||||||
1,408 | Horizon Bancorp | 39,424 | ||||||
46,099 | Huntington Bancshares, Inc. | 609,429 | ||||||
1,981 | IBERIABANK Corp. | 165,909 | ||||||
1,483 | Independent Bank Corp. | 104,477 | ||||||
855 | Independent Bank Corp. | 18,554 | ||||||
1,288 | Independent Bank Group, Inc.^ | 80,371 | ||||||
5,028 | International Bancshares Corp. | 205,142 | ||||||
14,909 | Investors Bancorp, Inc. | 207,981 | ||||||
69,004 | JPMorgan Chase & Co. | 5,954,354 | ||||||
24,377 | KeyCorp | 445,368 | ||||||
2,859 | Lakeland Bancorp, Inc. | 55,751 | ||||||
1,656 | Lakeland Financial Corp. | 78,428 | ||||||
435 | Landmark Bancorp, Inc. | 12,193 | ||||||
712 | LCNB Corp. | 16,554 | ||||||
2,565 | LegacyTexas Financial Group, Inc. | 110,449 | ||||||
2,067 | M&T Bank Corp. | 323,341 | ||||||
2,571 | Macatawa Bank Corp. | 26,764 | ||||||
918 | Mackinac Financial Corp. | 12,365 | ||||||
1,644 | Mainsource Financial Group, Inc. | 56,554 | ||||||
3,721 | MB Financial, Inc. | 175,743 | ||||||
1,869 | MBT Financial Corp. | 21,213 | ||||||
1,293 | Mercantile Bank Corp. | 48,746 | ||||||
471 | Merchants Bancshares, Inc. | 25,528 | ||||||
555 | Middleburg Financial Corp. | 19,286 | ||||||
638 | MidWestone Financial Group, Inc. | 23,989 | ||||||
570 | MutualFirst Financial, Inc. | 18,867 | ||||||
1,805 | National Bank Holdings Corp. | 57,561 | ||||||
514 | National Bankshares, Inc. | 22,333 | ||||||
3,330 | NBT Bancorp, Inc.^ | 139,460 | ||||||
373 | Nicolet Bankshares, Inc.* | 17,788 | ||||||
1,094 | Northeast Bancorp | 14,331 | ||||||
510 | Northrim Bancorp, Inc. | 16,116 | ||||||
341 | Norwood Financial Corp. | 11,301 | ||||||
3,309 | OFG Bancorp | 43,348 | ||||||
440 | Ohio Valley Banc Corp. | 11,968 | ||||||
819 | Old Line Bancshares, Inc. | 19,640 | ||||||
7,785 | Old National Bancorp | 141,298 | ||||||
676 | Old Point Financial Corp. | 16,900 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
2,225 | Old Second Bancorp, Inc. | $ | 24,586 | |||||
1,951 | Opus Bank | 58,628 | ||||||
638 | Orrstown Financial Services, Inc. | 14,291 | ||||||
1,339 | Pacific Continental Corp. | 29,257 | ||||||
1,205 | Pacific Mercantile Bancorp* | 8,797 | ||||||
1,234 | Pacific Premier Bancorp, Inc.* | 43,622 | ||||||
4,258 | PacWest Bancorp | 231,806 | ||||||
401 | Park National Corp.^ | 47,984 | ||||||
3,377 | Park Sterling Corp. | 36,438 | ||||||
897 | Parke Bancorp, Inc. | 18,075 | ||||||
1,165 | Peapack-Gladstone Financial Corp. | 35,975 | ||||||
364 | Penns Woods Bancorp, Inc. | 18,382 | ||||||
553 | Peoples Bancorp | 13,864 | ||||||
1,361 | Peoples Bancorp, Inc. | 44,178 | ||||||
7,690 | People’s United Financial, Inc. | 148,878 | ||||||
749 | People’s Utah BanCorp | 20,111 | ||||||
2,116 | Pinnacle Financial Partners, Inc. | 146,639 | ||||||
9,060 | PNC Financial Services Group, Inc. | 1,059,658 | ||||||
4,982 | Popular, Inc. | 218,312 | ||||||
878 | Preferred Bank Los Angeles | 46,025 | ||||||
757 | Premier Financial Bancorp, Inc. | 15,216 | ||||||
5,202 | PrivateBancorp, Inc. | 281,896 | ||||||
3,366 | Prosperity Bancshares, Inc.^ | 241,611 | ||||||
606 | QCR Holdings, Inc. | 26,240 | ||||||
27,339 | Regions Financial Corp. | 392,588 | ||||||
2,391 | Renasant Co. | 100,948 | ||||||
1,417 | Republic Bancorp, Inc., Class A | 56,028 | ||||||
2,622 | S & T Bancorp, Inc. | 102,363 | ||||||
348 | Salisbury Bancorp, Inc. | 13,050 | ||||||
1,898 | Sandy Spring Bancorp, Inc. | 75,901 | ||||||
1,879 | Seacoast Banking Corp.* | 41,451 | ||||||
1,252 | Select Bancorp, Inc.* | 12,332 | ||||||
2,100 | ServisFirst Bancshares, Inc.^ | 78,624 | ||||||
1,113 | Shore Bancshares, Inc. | 16,973 | ||||||
1,028 | Sierra Bancorp | 27,335 | ||||||
1,267 | Signature Bank* | 190,303 | ||||||
1,703 | Simmons First National Corp., Class A | 105,841 | ||||||
1,569 | South State Corp. | 137,131 | ||||||
583 | Southern First Bancshares, Inc.* | 20,988 | ||||||
935 | Southern National Bancorp | 15,278 | ||||||
1,100 | Southside Bancshares, Inc. | 41,437 | ||||||
1,447 | Southwest Bancorp | 41,963 | ||||||
2,709 | State Bank Financial Corp. | 72,764 | ||||||
7,505 | Sterling Bancorp | 175,617 | ||||||
1,432 | Stock Yards Bancorp, Inc.^ | 67,232 | ||||||
689 | Stonegate Bank | 28,752 | ||||||
884 | Suffolk Bancorp | 37,853 | ||||||
557 | Summit Financial Group, Inc. | 15,334 | ||||||
1,426 | Sun Bancorp, Inc.^ | 37,076 | ||||||
8,578 | SunTrust Banks, Inc. | 470,503 | ||||||
1,991 | SVB Financial Group* | 341,775 | ||||||
6,676 | Synovus Financial Corp. | 274,250 | ||||||
13,618 | TCF Financial Corp. | 266,777 | ||||||
2,720 | Texas Capital Bancshares, Inc.* | 213,248 |
Continued
6
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
1,121 | Tompkins Financial Corp.^ | $ | 105,979 | |||||
4,717 | TowneBank | 156,840 | ||||||
1,726 | TriCo Bancshares | 58,995 | ||||||
2,154 | Tristate Capital Holdings, Inc.* | 47,603 | ||||||
4,028 | Trustmark Corp. | 143,598 | ||||||
94 | Two River Bancorp | 1,402 | ||||||
29,887 | U.S. Bancorp | 1,535,295 | ||||||
2,255 | UMB Financial Corp.^ | 173,906 | ||||||
9,964 | Umpqua Holdings Corp. | 187,124 | ||||||
3,371 | Union Bankshares Corp. | 120,480 | ||||||
384 | Union Bankshares, Inc.^ | 17,453 | ||||||
3,329 | United Bankshares, Inc. | 153,966 | ||||||
4,046 | United Community Banks, Inc. | 119,843 | ||||||
1,179 | United Security Bancshares* | 9,137 | ||||||
42 | Unity Bancorp, Inc. | 659 | ||||||
1,914 | Univest Corp. | 59,143 | ||||||
11,676 | Valley National Bancorp^ | 135,909 | ||||||
1,113 | Washington Trust Bancorp | 62,384 | ||||||
653 | WashingtonFirst Bankshare, Inc. | 18,930 | ||||||
5,044 | Webster Financial Corp.^ | 273,788 | ||||||
96,124 | Wells Fargo & Co. | 5,297,393 | ||||||
3,257 | WesBanco, Inc. | 140,246 | ||||||
1,062 | West Bancorp | 26,231 | ||||||
1,687 | Westamerica Bancorp | 106,163 | ||||||
5,581 | Western Alliance Bancorp* | 271,851 | ||||||
2,646 | Wintrust Financial Corp. | 192,020 | ||||||
83 | Xenith Bankshares, Inc.* | 2,341 | ||||||
2,516 | Yadkin Financial Corp. | 86,198 | ||||||
5,005 | Zions Bancorp^ | 215,415 | ||||||
|
| |||||||
43,530,084 | ||||||||
|
| |||||||
Beverages (1.7%): | ||||||||
466 | Boston Beer Co., Inc. (The), Class A*^ | 79,150 | ||||||
1,935 | Brown-Forman Corp., Class A^ | 89,494 | ||||||
5,468 | Brown-Forman Corp., Class B^ | 245,623 | ||||||
545 | Coca-Cola Bottling Co. Consolidated | 97,473 | ||||||
91,177 | Coca-Cola Co. (The) | 3,780,198 | ||||||
2,550 | Constellation Brands, Inc., Class C | 390,941 | ||||||
787 | Craft Brewers Alliance, Inc.* | 13,300 | ||||||
5,609 | Dr Pepper Snapple Group, Inc. | 508,568 | ||||||
1,327 | MGP Ingredients, Inc.^ | 66,323 | ||||||
2,011 | Molson Coors Brewing Co., Class B | 195,690 | ||||||
5,703 | Monster Beverage Corp.* | 252,871 | ||||||
2,018 | National Beverage Corp.^ | 103,079 | ||||||
36,165 | PepsiCo, Inc. | 3,783,945 | ||||||
876 | Primo Water Corp.* | 10,757 | ||||||
|
| |||||||
9,617,412 | ||||||||
|
| |||||||
Biotechnology (2.3%): | ||||||||
42,387 | AbbVie, Inc. | 2,654,273 | ||||||
600 | Acorda Therapeutics, Inc.* | 11,280 | ||||||
1,278 | Alexion Pharmaceuticals, Inc.* | 156,363 | ||||||
1,535 | Alkermes plc*^ | 85,315 | ||||||
838 | Alnylam Pharmaceuticals, Inc.*^ | 31,375 | ||||||
13,648 | Amgen, Inc. | 1,995,474 | ||||||
1,084 | Aptevo Therapeutics, Inc.* | 2,645 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Biotechnology, continued | ||||||||
4,351 | Aviragen Therapeutics, Inc.* | $ | 5,352 | |||||
5,247 | Biogen Idec, Inc.* | 1,487,944 | ||||||
1,408 | BioMarin Pharmaceutical, Inc.* | 116,639 | ||||||
579 | Biospecifics Technologies Corp.* | 32,250 | ||||||
813 | Bluebird Bio, Inc.*^ | 50,162 | ||||||
14,276 | Celgene Corp.* | 1,652,447 | ||||||
2,168 | Emergent Biosolutions, Inc.* | 71,197 | ||||||
1,701 | Enanta Pharmaceuticals, Inc.* | 56,984 | ||||||
9,806 | Exelixis, Inc.*^ | 146,207 | ||||||
2,061 | Five Prime Therapeutics, Inc.* | 103,277 | ||||||
35,438 | Gilead Sciences, Inc. | 2,537,714 | ||||||
4,480 | Incyte Corp.* | 449,210 | ||||||
83 | Insys Therapeutics, Inc.*^ | 764 | ||||||
2,019 | Intrexon Corp.* | 49,062 | ||||||
945 | Ionis Pharmaceuticals, Inc.*^ | 45,199 | ||||||
1,605 | Karyopharm Therapeutics, Inc.* | 15,087 | ||||||
526 | Ligand Pharmaceuticals, Inc., Class B*^ | 53,447 | ||||||
2,391 | Mimedx Group, Inc.* | 21,184 | ||||||
2,033 | Myriad Genetics, Inc.*^ | 33,890 | ||||||
1,067 | Neurocrine Biosciences, Inc.*^ | 41,293 | ||||||
10,235 | OPKO Health, Inc.*^ | 95,186 | ||||||
1,317 | Otonomy, Inc.*^ | 20,940 | ||||||
9,565 | PDL BioPharma, Inc. | 20,278 | ||||||
1,298 | Regeneron Pharmaceuticals, Inc.* | 476,483 | ||||||
400 | Sarepta Therapeutics, Inc.* | 10,972 | ||||||
1,210 | Seattle Genetics, Inc.*^ | 63,852 | ||||||
2,907 | Tenax Therapeutics, Inc.* | 5,669 | ||||||
600 | Tesaro, Inc.*^ | 80,688 | ||||||
3,205 | United Therapeutics Corp.*^ | 459,693 | ||||||
1,454 | Vertex Pharmaceuticals, Inc.* | 107,116 | ||||||
1,496 | Xencor, Inc.* | 39,375 | ||||||
|
| |||||||
13,286,286 | ||||||||
|
| |||||||
Building Products (0.7%): | ||||||||
4,158 | A.O. Smith Corp. | 196,881 | ||||||
3,058 | AAON, Inc.^ | 101,067 | ||||||
2,557 | Advanced Drainage Systems, Inc. | 52,674 | ||||||
2,889 | Allegion plc | 184,896 | ||||||
1,273 | American Woodmark Corp.* | 95,793 | ||||||
1,604 | Apogee Enterprises, Inc.^ | 85,910 | ||||||
1,778 | Armstrong Flooring, Inc.* | 35,400 | ||||||
2,857 | Armstrong World Industries, Inc.*^ | 119,423 | ||||||
5,631 | Builders FirstSource, Inc.*^ | 61,772 | ||||||
2,571 | Continental Building Products, Inc.* | 59,390 | ||||||
889 | Csw Industrials, Inc.* | 32,760 | ||||||
4,434 | Fortune Brands Home & Security, Inc. | 237,042 | ||||||
1,576 | Gibraltar Industries, Inc.* | 65,640 | ||||||
1,209 | Insteel Industries, Inc. | 43,089 | ||||||
17,779 | Johnson Controls International plc | 732,316 | ||||||
1,318 | Lennox International, Inc.^ | 201,878 | ||||||
8,975 | Masco Corp. | 283,790 | ||||||
3,362 | NCI Building Systems, Inc.* | 52,615 | ||||||
7,118 | Owens Corning, Inc. | 367,003 | ||||||
1,426 | Patrick Industries, Inc.*^ | 108,804 | ||||||
3,615 | PGT, Inc.* | 41,392 |
Continued
7
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Building Products, continued | ||||||||
3,674 | Ply Gem Holdings, Inc.* | $ | 59,703 | |||||
1,925 | Quanex Building Products Corp. | 39,078 | ||||||
2,822 | Simpson Manufacturing Co., Inc. | 123,463 | ||||||
1,844 | Trex Co., Inc.*^ | 118,754 | ||||||
1,133 | Universal Forest Products, Inc. | 115,770 | ||||||
8,391 | USG Corp.*^ | 242,332 | ||||||
|
| |||||||
3,858,635 | ||||||||
|
| |||||||
Capital Markets (2.6%): | ||||||||
1,453 | Affiliated Managers Group, Inc.* | 211,121 | ||||||
4,874 | Ameriprise Financial, Inc. | 540,722 | ||||||
2,502 | Artisan Partners Asset Management, Inc., Class A^ | 74,435 | ||||||
18,489 | Bank of New York Mellon Corp. (The) | 876,009 | ||||||
18,671 | BGC Partners, Inc., Class A | 191,004 | ||||||
1,844 | BlackRock, Inc., Class A | 701,716 | ||||||
3,218 | CBOE Holdings, Inc.^ | 237,778 | ||||||
13,850 | Charles Schwab Corp. (The) | 546,660 | ||||||
4,001 | CME Group, Inc. | 461,515 | ||||||
2,934 | Cohen & Steers, Inc.^ | 98,582 | ||||||
190 | Diamond Hill Investment Group | 39,972 | ||||||
1,417 | Donnelley Financial Solutions, Inc.* | 32,563 | ||||||
5,873 | E*TRADE Financial Corp.* | 203,499 | ||||||
8,521 | Eaton Vance Corp.^ | 356,859 | ||||||
1,660 | FactSet Research Systems, Inc. | 271,294 | ||||||
6,954 | Federated Investors, Inc., Class B^ | 196,659 | ||||||
2,662 | Financial Engines, Inc. | 97,829 | ||||||
6,967 | Franklin Resources, Inc. | 275,754 | ||||||
3,237 | Gain Capital Holdings, Inc. | 21,299 | ||||||
388 | GAMCO Investors, Inc., Class A | 11,985 | ||||||
5,901 | Goldman Sachs Group, Inc. (The) | 1,412,995 | ||||||
1,743 | Greenhill & Co., Inc.^ | 48,281 | ||||||
141 | Hennessy Advisors, Inc. | 4,477 | ||||||
5,199 | Interactive Brokers Group, Inc., Class A | 189,815 | ||||||
8,955 | Intercontinental Exchange, Inc. | 505,241 | ||||||
1,643 | INTL FCStone, Inc.* | 65,063 | ||||||
13,284 | Invesco, Ltd. | 403,037 | ||||||
2,572 | Investment Technology Group, Inc. | 50,771 | ||||||
8,761 | Janus Capital Group, Inc. | 116,258 | ||||||
6,688 | KCG Holdings, Inc.* | 88,616 | ||||||
10,552 | Ladenburg Thalmann Financial Services, Inc.* | 25,747 | ||||||
5,035 | Legg Mason, Inc. | 150,597 | ||||||
7,804 | LPL Financial Holdings, Inc. | 274,779 | ||||||
1,729 | MarketAxess Holdings, Inc. | 254,025 | ||||||
1,429 | Moelis & Co., Class A | 48,443 | ||||||
3,411 | Moody’s Corp. | 321,555 | ||||||
23,189 | Morgan Stanley | 979,735 | ||||||
2,689 | Morningstar, Inc. | 197,803 | ||||||
2,951 | MSCI, Inc., Class A | 232,480 | ||||||
5,365 | NASDAQ OMX Group, Inc. (The) | 360,099 | ||||||
3,957 | Northern Trust Corp. | 352,371 | ||||||
8,100 | NorthStar Asset Management Group, Inc.^ | 120,852 | ||||||
3,965 | Om Asset Management plc | 57,493 | ||||||
1,024 | Oppenheimer Holdings, Class A | 19,046 | ||||||
1,113 | Pzena Investment Management, Inc. | 12,365 | ||||||
6,074 | Raymond James Financial, Inc. | 420,746 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Capital Markets, continued | ||||||||
7,351 | S&P Global, Inc. | $ | 790,527 | |||||
1,544 | Safeguard Scientifics, Inc.* | 20,767 | ||||||
4,367 | SEI Investments Co. | 215,555 | ||||||
660 | Silvercrest Asset Management Group, Inc., Class A | 8,679 | ||||||
6,747 | State Street Corp. | 524,377 | ||||||
3,314 | Stifel Financial Corp.* | 165,534 | ||||||
6,118 | T. Rowe Price Group, Inc. | 460,441 | ||||||
6,049 | TD Ameritrade Holding Corp. | 263,736 | ||||||
438 | Virtus Investment Partners, Inc. | 51,706 | ||||||
7,585 | Waddell & Reed Financial, Inc., Class A^ | 147,983 | ||||||
631 | Westwood Holdings, Inc. | 37,854 | ||||||
7,874 | WisdomTree Investments, Inc.^ | 87,716 | ||||||
|
| |||||||
14,934,820 | ||||||||
|
| |||||||
Chemicals (2.7%): | ||||||||
2,215 | A. Schulman, Inc. | 74,092 | ||||||
661 | Advansix, Inc.* | 14,635 | ||||||
3,779 | Air Products & Chemicals, Inc. | 543,496 | ||||||
4,856 | Albemarle Corp. | 418,004 | ||||||
2,318 | American Vanguard Corp. | 44,390 | ||||||
2,194 | Ashland Global Holdings, Inc. | 239,782 | ||||||
1,638 | Balchem Corp. | 137,461 | ||||||
3,293 | Cabot Corp. | 166,428 | ||||||
4,019 | Calgon Carbon Corp. | 68,323 | ||||||
4,449 | Celanese Corp., Series A | 350,314 | ||||||
11,520 | CF Industries Holdings, Inc. | 362,650 | ||||||
691 | Chase Corp. | 57,733 | ||||||
4,033 | Chemours Co. (The) | 89,089 | ||||||
3,228 | Chemtura Corp.* | 107,170 | ||||||
578 | Core Molding Technologies, Inc.* | 9,890 | ||||||
23,516 | Dow Chemical Co. (The) | 1,345,585 | ||||||
17,167 | E.I. du Pont de Nemours & Co. | 1,260,057 | ||||||
8,309 | Eastman Chemical Co. | 624,919 | ||||||
4,958 | Ecolab, Inc. | 581,176 | ||||||
4,757 | Ferro Corp.* | 68,168 | ||||||
3,093 | FMC Corp. | 174,940 | ||||||
3,222 | Futurefuel Corp. | 44,786 | ||||||
3,316 | GCP Applied Technologies, Inc.* | 88,703 | ||||||
2,893 | H.B. Fuller Co. | 139,761 | ||||||
702 | Hawkins, Inc. | 37,873 | ||||||
20,298 | Huntsman Corp. | 387,286 | ||||||
1,816 | Ingevity Corp.* | 99,626 | ||||||
1,620 | Innophos Holdings, Inc. | 84,661 | ||||||
1,833 | Innospec, Inc. | 125,561 | ||||||
2,701 | International Flavor & Fragrances, Inc.^ | 318,259 | ||||||
743 | KMG Chemicals, Inc. | 28,895 | ||||||
783 | Koppers Holdings, Inc.* | 31,555 | ||||||
2,348 | Kraton Performance Polymers, Inc.* | 66,871 | ||||||
4,741 | Kronos Worldwide, Inc. | 56,608 | ||||||
1,233 | LSB Industries, Inc.* | 10,382 | ||||||
10,276 | LyondellBasell Industries NV, Class A | 881,475 | ||||||
2,350 | Minerals Technologies, Inc. | 181,538 | ||||||
10,517 | Monsanto Co. | 1,106,493 | ||||||
6,435 | Mosaic Co. (The)^ | 188,739 | ||||||
703 | NewMarket Corp. | 297,960 |
Continued
8
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Chemicals, continued | ||||||||
8,796 | Olin Corp.^ | $ | 225,266 | |||||
3,546 | Omnova Solutions, Inc.* | 35,460 | ||||||
6,657 | Platform Speciality Products Corp.* | 65,305 | ||||||
6,775 | PolyOne Corp. | 217,071 | ||||||
6,290 | PPG Industries, Inc. | 596,039 | ||||||
7,814 | Praxair, Inc. | 915,722 | ||||||
906 | Quaker Chemical Corp. | 115,914 | ||||||
1,835 | Rayonier Advanced Materials, Inc. | 28,369 | ||||||
4,911 | RPM International, Inc. | 264,359 | ||||||
4,184 | Scotts Miracle-Gro Co. (The)^ | 399,781 | ||||||
2,062 | Sensient Technologies Corp. | 162,032 | ||||||
2,107 | Sherwin Williams Co. | 566,235 | ||||||
1,689 | Stepan Co. | 137,620 | ||||||
1,627 | Trecora Resources* | 22,534 | ||||||
1,070 | Tredegar Corp. | 25,680 | ||||||
3,102 | Trinseo SA | 183,949 | ||||||
4,906 | Tronox, Ltd., Class A | 50,581 | ||||||
3,240 | Valspar Corp. (The) | 335,696 | ||||||
3,026 | W.R. Grace & Co. | 204,679 | ||||||
1,636 | Westlake Chemical Corp. | 91,600 | ||||||
|
| |||||||
15,559,226 | ||||||||
|
| |||||||
Commercial Services & Supplies (1.1%): | ||||||||
2,802 | ABM Industries, Inc. | 114,434 | ||||||
10,293 | ACCO Brands Corp.* | 134,324 | ||||||
4,271 | ARC Document Solutions, Inc.* | 21,697 | ||||||
2,727 | Brady Corp., Class A | 102,399 | ||||||
3,409 | Brink’s Co. (The) | 140,621 | ||||||
1,886 | Casella Waste Systems, Inc.* | 23,405 | ||||||
2,003 | CECO Environmental Corp. | 27,942 | ||||||
3,596 | Cintas Corp. | 415,554 | ||||||
4,474 | Clean Harbors, Inc.* | 248,978 | ||||||
5,198 | Copart, Inc.* | 288,021 | ||||||
7,746 | Covanta Holding Corp.^ | 120,838 | ||||||
4,117 | Deluxe Corp. | 294,818 | ||||||
1,613 | Ennis, Inc. | 27,986 | ||||||
2,517 | Essendant, Inc. | 52,605 | ||||||
1,220 | G&K Services, Inc., Class A | 117,669 | ||||||
2,148 | Healthcare Services Group, Inc. | 84,137 | ||||||
1,042 | Heritage-Crystal Clean, Inc.* | 16,359 | ||||||
4,520 | Herman Miller, Inc. | 154,584 | ||||||
2,671 | HNI Corp. | 149,362 | ||||||
3,095 | InnerWorkings, Inc.* | 30,486 | ||||||
4,002 | Interface, Inc. | 74,237 | ||||||
6,809 | KAR Auction Services, Inc. | 290,200 | ||||||
2,829 | Kimball International, Inc., Class B | 49,677 | ||||||
3,654 | Knoll, Inc. | 102,056 | ||||||
1,417 | LSC Communications, Inc. | 42,057 | ||||||
1,875 | Matthews International Corp., Class A | 144,094 | ||||||
2,011 | McGrath Rentcorp | 78,811 | ||||||
2,641 | Mobile Mini, Inc.^ | 79,890 | ||||||
2,304 | MSA Safety, Inc. | 159,736 | ||||||
1,003 | Multi-Color Corp. | 77,833 | ||||||
1,552 | NL Industries, Inc.* | 12,649 | ||||||
11,428 | Pitney Bowes, Inc. | 173,591 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Commercial Services & Supplies, continued | ||||||||
2,606 | Quad Graphics, Inc. | $ | 70,049 | |||||
7,467 | Republic Services, Inc., Class A | 425,992 | ||||||
5,347 | Rollins, Inc.^ | 180,622 | ||||||
3,778 | RR Donnelley & Sons Co.^ | 61,657 | ||||||
1,467 | SP Plus Corp.* | 41,296 | ||||||
5,403 | Steelcase, Inc., Class A | 96,714 | ||||||
2,252 | Stericycle, Inc.* | 173,494 | ||||||
1,534 | Team, Inc.*^ | 60,210 | ||||||
2,583 | Tetra Tech, Inc. | 111,456 | ||||||
2,299 | Trc Companies, Inc.* | 24,369 | ||||||
1,022 | UniFirst Corp. | 146,810 | ||||||
1,309 | US Ecology, Inc.^ | 64,337 | ||||||
1,003 | Viad Corp. | 44,232 | ||||||
824 | Vse Corp. | 32,004 | ||||||
11,930 | Waste Management, Inc. | 845,957 | ||||||
5,156 | West Corp. | 127,663 | ||||||
|
| |||||||
6,357,912 | ||||||||
|
| |||||||
Communications Equipment (1.2%): | ||||||||
2,793 | ADTRAN, Inc. | 62,424 | ||||||
752 | Applied Optoelectronics, Inc.*^ | 17,627 | ||||||
976 | Arista Networks, Inc.* | 94,448 | ||||||
6,736 | ARRIS International plc* | 202,956 | ||||||
550 | Bel Fuse, Inc., Class B | 16,995 | ||||||
1,000 | Black Box Corp. | 15,250 | ||||||
27,161 | Brocade Communications Systems, Inc. | 339,241 | ||||||
1,318 | CalAmp Corp.*^ | 19,111 | ||||||
3,965 | Calix, Inc.* | 30,531 | ||||||
7,195 | Ciena Corp.*^ | 175,630 | ||||||
87,385 | Cisco Systems, Inc. | 2,640,774 | ||||||
4,597 | CommScope Holding Co., Inc.* | 171,008 | ||||||
316 | Communications Systems, Inc. | 1,463 | ||||||
1,262 | Digi International, Inc.* | 17,353 | ||||||
2,952 | EchoStar Corp., Class A* | 151,703 | ||||||
2,442 | EMCORE Corp. | 21,245 | ||||||
2,598 | Extreme Networks, Inc.* | 13,068 | ||||||
2,366 | F5 Networks, Inc.* | 342,408 | ||||||
5,961 | Finisar Corp.* | 180,439 | ||||||
7,060 | Harmonic, Inc.* | 35,300 | ||||||
3,567 | Harris Corp. | 365,510 | ||||||
503 | Infinera Corp.*^ | 4,270 | ||||||
2,791 | InterDigital, Inc. | 254,958 | ||||||
4,483 | Ixia* | 72,176 | ||||||
12,452 | Juniper Networks, Inc. | 351,894 | ||||||
909 | KVH Industries, Inc.* | 10,726 | ||||||
559 | Lumentum Holdings, Inc.* | 21,605 | ||||||
3,350 | Motorola Solutions, Inc. | 277,682 | ||||||
2,590 | NETGEAR, Inc.* | 140,767 | ||||||
3,943 | NetScout Systems, Inc.* | 124,205 | ||||||
3,507 | Oclaro, Inc.* | 31,388 | ||||||
686 | Palo Alto Networks, Inc.*^ | 85,784 | ||||||
1,949 | Plantronics, Inc. | 106,727 | ||||||
2,869 | ShoreTel, Inc.* | 20,513 | ||||||
1,714 | Sonus Networks, Inc.* | 10,798 | ||||||
2,348 | Ubiquiti Networks, Inc.* | 135,714 |
Continued
9
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Communications Equipment, continued | ||||||||
2,845 | ViaSat, Inc.* | $ | 188,396 | |||||
5,226 | Viavi Solutions, Inc.* | 42,749 | ||||||
|
| |||||||
6,794,836 | ||||||||
|
| |||||||
Construction & Engineering (0.5%): | ||||||||
6,756 | Aecom Technology Corp.* | 245,648 | ||||||
800 | Aegion Corp.* | 18,960 | ||||||
2,172 | Ameresco, Inc., Class A* | 11,946 | ||||||
1,245 | Argan, Inc. | 87,835 | ||||||
4,618 | Chicago Bridge & Iron Co. NV | 146,622 | ||||||
3,167 | Comfort Systems USA, Inc. | 105,461 | ||||||
2,560 | Dycom Industries, Inc.*^ | 205,542 | ||||||
4,493 | Emcor Group, Inc. | 317,925 | ||||||
5,917 | Fluor Corp. | 310,761 | ||||||
2,241 | Granite Construction, Inc. | 123,255 | ||||||
1,221 | IES Holdings, Inc.* | 23,382 | ||||||
2,814 | Jacobs Engineering Group, Inc.* | 160,398 | ||||||
8,225 | KBR, Inc. | 137,275 | ||||||
3,504 | MasTec, Inc.* | 134,028 | ||||||
1,578 | MYR Group, Inc.* | 59,459 | ||||||
574 | NV5 Holdings, Inc.* | 19,172 | ||||||
2,101 | Orion Marine Group, Inc.* | 20,905 | ||||||
6,487 | Quanta Services, Inc.* | 226,072 | ||||||
2,791 | Tutor Perini Corp.* | 78,148 | ||||||
1,132 | Valmont Industries, Inc. | 159,499 | ||||||
|
| |||||||
2,592,293 | ||||||||
|
| |||||||
Construction Materials (0.2%): | ||||||||
3,233 | Eagle Materials, Inc., Class A | 318,547 | ||||||
4,198 | Headwaters, Inc.* | 98,737 | ||||||
1,652 | Martin Marietta Materials, Inc. | 365,967 | ||||||
353 | U.S. Lime & Minerals, Inc. | 26,740 | ||||||
1,308 | US Concrete, Inc.* | 85,674 | ||||||
2,871 | Vulcan Materials Co. | 359,306 | ||||||
|
| |||||||
1,254,971 | ||||||||
|
| |||||||
Consumer Finance (1.2%): | ||||||||
20,883 | Ally Financial, Inc. | 397,195 | ||||||
20,744 | American Express Co. | 1,536,715 | ||||||
1,222 | Asta Funding, Inc.* | 11,976 | ||||||
10,887 | Capital One Financial Corp. | 949,781 | ||||||
1,912 | Consumer Portfolio Services, Inc.* | 9,789 | ||||||
1,440 | Credit Acceptance Corp.*^ | 313,214 | ||||||
11,968 | Discover Financial Services | 862,773 | ||||||
1,968 | Encore Capital Group, Inc.* | 56,383 | ||||||
1,910 | Enova International, Inc.* | 23,971 | ||||||
3,948 | EZCORP, Inc., Class A* | 42,046 | ||||||
4,051 | Firstcash, Inc. | 190,397 | ||||||
2,785 | Green Dot Corp., Class A* | 65,587 | ||||||
28,462 | Navient Corp. | 467,631 | ||||||
2,628 | Nelnet, Inc., Class A | 133,371 | ||||||
750 | Nicholas Financial, Inc.* | 8,918 | ||||||
6,799 | Onemain Holdings, Inc.* | 150,530 | ||||||
3,076 | PRA Group, Inc.* | 120,272 | ||||||
960 | Regional Mgmt Corp.* | 25,229 | ||||||
19,000 | Santander Consumer USA Holdings, Inc.* | 256,500 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Consumer Finance, continued | ||||||||
26,909 | SLM Corp.* | $ | 296,537 | |||||
24,910 | Synchrony Financial | 903,486 | ||||||
505 | World Acceptance Corp.*^ | 32,461 | ||||||
|
| |||||||
6,854,762 | ||||||||
|
| |||||||
Containers & Packaging (0.8%): | ||||||||
480 | AEP Industries, Inc. | 55,728 | ||||||
2,903 | AptarGroup, Inc. | 213,225 | ||||||
3,708 | Avery Dennison Corp. | 260,376 | ||||||
4,187 | Ball Corp. | 314,318 | ||||||
8,105 | Bemis Co., Inc.^ | 387,581 | ||||||
4,924 | Berry Plastics Group, Inc.* | 239,947 | ||||||
4,226 | Crown Holdings, Inc.* | 222,161 | ||||||
31,666 | Graphic Packaging Holding Co. | 395,192 | ||||||
1,930 | Greif, Inc., Class A | 99,028 | ||||||
1,310 | Greif, Inc., Class B | 88,491 | ||||||
10,835 | International Paper Co. | 574,905 | ||||||
2,608 | Myers Industries, Inc. | 37,294 | ||||||
14,800 | Owens-Illinois, Inc.* | 257,668 | ||||||
4,550 | Packaging Corp. of America | 385,931 | ||||||
7,676 | Sealed Air Corp. | 348,030 | ||||||
5,136 | Silgan Holdings, Inc. | 262,860 | ||||||
5,379 | Sonoco Products Co. | 283,473 | ||||||
538 | UFP Technologies, Inc.* | 13,692 | ||||||
5,441 | WestRock Co. | 276,240 | ||||||
|
| |||||||
4,716,140 | ||||||||
|
| |||||||
Distributors (0.2%): | ||||||||
3,074 | Core Markt Holdngs Co., Inc.^ | 132,397 | ||||||
5,041 | Genuine Parts Co. | 481,618 | ||||||
13,291 | LKQ Corp.* | 407,369 | ||||||
2,491 | Pool Corp. | 259,911 | ||||||
811 | Weyco Group, Inc. | 25,384 | ||||||
|
| |||||||
1,306,679 | ||||||||
|
| |||||||
Diversified Consumer Services (0.3%): | ||||||||
1,304 | American Public Education, Inc.* | 32,013 | ||||||
273 | Ascent Capital Group, Inc.* | 4,439 | ||||||
3,117 | Bright Horizons Family Solutions, Inc.* | 218,252 | ||||||
3,401 | Cambium Learning Group, Inc.* | 16,971 | ||||||
918 | Capella Education Co. | 80,600 | ||||||
5,222 | Career Education Corp.* | 52,690 | ||||||
1,464 | Carriage Services, Inc. | 41,929 | ||||||
506 | Collectors Universe, Inc. | 10,742 | ||||||
4,045 | DeVry Education Group, Inc. | 126,204 | ||||||
270 | Graham Holdings Co., Class B | 138,227 | ||||||
3,582 | Grand Canyon Education, Inc.* | 209,368 | ||||||
10,527 | H&R Block, Inc. | 242,016 | ||||||
5,384 | Houghton Mifflin Harcourt Co.* | 58,416 | ||||||
2,988 | K12, Inc.* | 51,274 | ||||||
482 | Liberty Tax, Inc. | 6,459 | ||||||
2,211 | National American University Holdings, Inc. | 4,311 | ||||||
9,874 | Service Corp. International | 280,423 | ||||||
3,836 | ServiceMaster Global Holdings, Inc.* | 144,502 | ||||||
3,636 | Sotheby’s*^ | 144,931 | ||||||
622 | Strayer Education, Inc.* | 50,152 |
Continued
10
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Diversified Consumer Services, continued | ||||||||
1,696 | Universal Technical Institute, Inc. | $ | 4,935 | |||||
|
| |||||||
1,918,854 | ||||||||
|
| |||||||
Diversified Financial Services (0.9%): | ||||||||
28,644 | Berkshire Hathaway, Inc., Class B* | 4,668,398 | ||||||
3,604 | FNFV Group* | 49,375 | ||||||
7,746 | Leucadia National Corp. | 180,095 | ||||||
974 | Marlin Business Services, Inc. | 20,357 | ||||||
3,621 | Newstar Financial, Inc.* | 33,494 | ||||||
1,763 | PICO Holdings, Inc.* | 26,709 | ||||||
1,767 | Tiptree Financial, Inc., Class A | 10,867 | ||||||
3,998 | Voya Financial, Inc. | 156,802 | ||||||
|
| |||||||
5,146,097 | ||||||||
|
| |||||||
Diversified Telecommunication Services (2.6%): | ||||||||
168,517 | AT&T, Inc. | 7,167,029 | ||||||
1,019 | ATN International, Inc. | 81,652 | ||||||
26,922 | CenturyLink, Inc.^ | 640,205 | ||||||
2,524 | Cincinnati Bell, Inc.* | 56,411 | ||||||
3,023 | Cogent Communications Group, Inc.^ | 125,001 | ||||||
3,520 | Consolidated Communications Holdings, Inc. | 94,512 | ||||||
1,423 | FairPoint Communications, Inc.* | 26,610 | ||||||
23,600 | Frontier Communications Corp.^ | 79,768 | ||||||
3,714 | General Communication, Inc., Class A* | 72,237 | ||||||
815 | Hawaiian Telcom Holdco, Inc.* | 20,196 | ||||||
1,994 | IDT Corp. | 36,969 | ||||||
3,003 | Inteliquent, Inc. | 68,829 | ||||||
5,557 | Iridium Communications, Inc.*^ | 53,347 | ||||||
5,373 | Level 3 Communications, Inc.* | 302,822 | ||||||
1,975 | Lumos Networks Corp.* | 30,850 | ||||||
4,045 | Orbcomm, Inc.* | 33,452 | ||||||
3,617 | SBA Communications Corp., Class A* | 373,491 | ||||||
107,305 | Verizon Communications, Inc. | 5,727,941 | ||||||
9,821 | Vonage Holdings Corp.*^ | 67,274 | ||||||
6,797 | Windstream Holdings, Inc.^ | 49,822 | ||||||
4,273 | Zayo Group Holdings, Inc.* | 140,411 | ||||||
|
| |||||||
15,248,829 | ||||||||
|
| |||||||
Electric Utilities (1.5%): | ||||||||
2,450 | ALLETE, Inc. | 157,266 | ||||||
5,522 | Alliant Energy Corp. | 209,229 | ||||||
8,580 | American Electric Power Co., Inc. | 540,197 | ||||||
1,924 | Avangrid, Inc. | 72,881 | ||||||
10,353 | Duke Energy Corp. | 803,600 | ||||||
6,122 | Edison International | 440,723 | ||||||
2,442 | El Paso Electric Co. | 113,553 | ||||||
2,643 | Empire District Electric Co.^ | 90,100 | ||||||
3,599 | Entergy Corp. | 264,419 | ||||||
4,980 | Eversource Energy | 275,045 | ||||||
16,319 | Exelon Corp. | 579,161 | ||||||
9,988 | FirstEnergy Corp. | 309,328 | ||||||
1,272 | Genie Energy, Ltd., Class B | 7,314 | ||||||
4,971 | Great Plains Energy, Inc. | 135,957 | ||||||
2,555 | IDACORP, Inc. | 205,805 | ||||||
2,096 | MGE Energy, Inc. | 136,869 | ||||||
8,138 | NextEra Energy, Inc. | 972,165 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electric Utilities, continued | ||||||||
4,016 | OGE Energy Corp. | $ | 134,335 | |||||
2,284 | Otter Tail Power Co. | 93,187 | ||||||
7,605 | PG&E Corp. | 462,156 | ||||||
2,939 | Pinnacle West Capital Corp. | 229,330 | ||||||
3,664 | PNM Resources, Inc. | 125,675 | ||||||
5,276 | Portland General Electric Co. | 228,609 | ||||||
13,030 | PPL Corp. | 443,672 | ||||||
14,349 | Southern Co. (The) | 705,827 | ||||||
5,818 | Westar Energy, Inc. | 327,844 | ||||||
10,233 | Xcel Energy, Inc. | 416,483 | ||||||
|
| |||||||
8,480,730 | ||||||||
|
| |||||||
Electrical Equipment (0.7%): | ||||||||
1,157 | Acuity Brands, Inc. | 267,105 | ||||||
926 | Allied Motion Technologies, Inc. | 19,807 | ||||||
9,515 | AMETEK, Inc. | 462,428 | ||||||
1,953 | AZZ, Inc.^ | 124,797 | ||||||
1,657 | Babcock & Wilcox Enterprises, Inc.* | 27,490 | ||||||
7,835 | Eaton Corp. plc | 525,650 | ||||||
15,630 | Emerson Electric Co. | 871,372 | ||||||
1,159 | Encore Wire Corp. | 50,243 | ||||||
2,963 | EnerSys | 231,410 | ||||||
4,065 | Generac Holdings, Inc.*^ | 165,608 | ||||||
3,673 | General Cable Corp. | 69,971 | ||||||
1,311 | Global Power Equipment Group, Inc.* | 6,188 | ||||||
2,775 | Hubbell, Inc. | 323,843 | ||||||
1,831 | LSI Industries, Inc. | 17,834 | ||||||
606 | Powell Industries, Inc. | 23,634 | ||||||
415 | Power Solutions International, Inc.* | 3,113 | ||||||
400 | Preformed Line Products Co. | 23,248 | ||||||
2,269 | Regal-Beloit Corp. | 157,128 | ||||||
4,484 | Rockwell Automation, Inc. | 602,649 | ||||||
6,152 | Sensata Technologies Holding NV* | 239,620 | ||||||
2,410 | Thermon Group Holdings, Inc.*^ | 46,007 | ||||||
|
| |||||||
4,259,145 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (1.4%): | ||||||||
7,309 | Amphenol Corp., Class A | 491,164 | ||||||
2,510 | Anixter International, Inc.* | 203,436 | ||||||
4,742 | Arrow Electronics, Inc.* | 338,105 | ||||||
5,016 | Avnet, Inc. | 238,812 | ||||||
6,295 | AVX Corp. | 98,391 | ||||||
1,734 | Badger Meter, Inc. | 64,071 | ||||||
2,425 | Belden, Inc. | 181,317 | ||||||
7,075 | CDW Corp. | 368,536 | ||||||
3,912 | Cognex Corp. | 248,881 | ||||||
1,412 | Coherent, Inc.* | 193,988 | ||||||
1,010 | Control4 Corp.* | 10,302 | ||||||
16,767 | Corning, Inc. | 406,934 | ||||||
376 | CTS Corp. | 8,422 | ||||||
1,747 | CUI Global, Inc.* | 12,107 | ||||||
2,838 | Daktronics, Inc.^ | 30,367 | ||||||
2,277 | Dolby Laboratories, Inc., Class A | 102,898 | ||||||
2,339 | Electro Scientific Industries, Inc.* | 13,847 | ||||||
2,696 | Fabrinet* | 108,649 | ||||||
1,007 | FARO Technologies, Inc.* | 36,252 |
Continued
11
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electronic Equipment, Instruments & Components, continued | ||||||||
29,505 | Flextronics International, Ltd.* | $ | 423,987 | |||||
7,918 | FLIR Systems, Inc. | 286,552 | ||||||
640 | Frequency Electronics, Inc.* | 6,912 | ||||||
1,004 | Identiv, Inc.* | 3,193 | ||||||
4,641 | II-VI, Inc.* | 137,606 | ||||||
2,640 | IPG Photonics Corp.*^ | 260,594 | ||||||
1,595 | Itron, Inc.* | 100,246 | ||||||
14,490 | Jabil Circuit, Inc.^ | 342,978 | ||||||
3,410 | KEMET Corp.* | 22,608 | ||||||
6,969 | Keysight Technologies, Inc.* | 254,856 | ||||||
1,603 | Kimball Electronics, Inc.* | 29,175 | ||||||
5,037 | Knowles Corp.*^ | 84,168 | ||||||
736 | Littlelfuse, Inc. | 111,703 | ||||||
214 | Mesa Labs, Inc. | 26,269 | ||||||
2,290 | Methode Electronics, Inc., Class A | 94,692 | ||||||
567 | MOCON, Inc. | 11,057 | ||||||
915 | MTS Systems Corp. | 51,881 | ||||||
1,799 | Napco Security Technologies, Inc.* | 15,292 | ||||||
4,833 | National Instruments Corp. | 148,953 | ||||||
1,955 | Novanta, Inc.* | 41,055 | ||||||
1,498 | OSI Systems, Inc.* | 114,028 | ||||||
1,553 | Park Electrochemical Corp. | 28,963 | ||||||
1,445 | PC Connection, Inc. | 40,590 | ||||||
1,087 | PCM, Inc.* | 24,458 | ||||||
772 | Perceptron, Inc.* | 5,126 | ||||||
2,255 | Plexus Corp.* | 121,860 | ||||||
4,858 | RadiSys Corp.* | 21,521 | ||||||
1,193 | Rogers Corp.* | 91,634 | ||||||
6,195 | Sanmina Corp.* | 227,047 | ||||||
2,157 | ScanSource, Inc.* | 87,035 | ||||||
2,996 | SYNNEX Corp. | 362,575 | ||||||
7,195 | TE Connectivity, Ltd. | 498,470 | ||||||
1,933 | Tech Data Corp.* | 163,686 | ||||||
7,049 | Trimble Navigation, Ltd.* | 212,527 | ||||||
6,321 | TTM Technologies, Inc.*^ | 86,155 | ||||||
782 | Universal Display Corp.* | 44,027 | ||||||
5,690 | VeriFone Systems, Inc.*^ | 100,884 | ||||||
7,620 | Vishay Intertechnology, Inc.^ | 123,444 | ||||||
585 | Wayside Technology Group, Inc. | 10,940 | ||||||
3,268 | Zebra Technologies Corp., Class A*^ | 280,264 | ||||||
|
| |||||||
8,255,490 | ||||||||
|
| |||||||
Energy Equipment & Services (0.8%): | ||||||||
3,729 | Atwood Oceanics, Inc.^ | 48,962 | ||||||
6,549 | Baker Hughes, Inc. | 425,489 | ||||||
1,913 | Core Laboratories NV^ | 229,637 | ||||||
5,986 | Diamond Offshore Drilling, Inc.* | 105,952 | ||||||
2,169 | Dril-Quip, Inc.*^ | 130,248 | ||||||
1,558 | Era Group, Inc.* | 26,439 | ||||||
2,010 | Exterran Corp.* | 48,039 | ||||||
6,132 | FMC Technologies, Inc.* | 217,870 | ||||||
6,591 | Forum Energy Technologies, Inc.* | 145,002 | ||||||
4,200 | Frank’s International NV^ | 51,702 | ||||||
760 | Geospace Technologies Corp.* | 15,474 | ||||||
1,086 | Gulf Island Fabrication, Inc. | 12,923 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Energy Equipment & Services, continued | ||||||||
5,611 | Halliburton Co. | $ | 303,499 | |||||
7,826 | Helix Energy Solutions Group, Inc.* | 69,025 | ||||||
2,235 | Helmerich & Payne, Inc. | 172,989 | ||||||
1,750 | Matrix Service Co.* | 39,725 | ||||||
13,741 | McDermott International, Inc.* | 101,546 | ||||||
15,446 | Nabors Industries, Ltd. | 253,314 | ||||||
8,247 | National-Oilwell Varco, Inc.^ | 308,768 | ||||||
935 | Natural Gas Services Group* | 30,060 | ||||||
4,799 | Newpark Resources, Inc.*^ | 35,993 | ||||||
12,057 | Noble Corp. plc^ | 71,377 | ||||||
7,152 | Oceaneering International, Inc. | 201,758 | ||||||
3,066 | Oil States International, Inc.* | 119,574 | ||||||
9,357 | Parker Drilling Co.* | 24,328 | ||||||
6,531 | Patterson-UTI Energy, Inc. | 175,815 | ||||||
974 | PHI, Inc.* | 17,551 | ||||||
3,744 | Pioneer Energy Services Corp.* | 25,646 | ||||||
5,837 | Rowan Cos. plc, Class A*^ | 110,261 | ||||||
4,475 | RPC, Inc.^ | 88,650 | ||||||
13,480 | Schlumberger, Ltd. | 1,131,646 | ||||||
191 | SEACOR Holdings, Inc.*^ | 13,614 | ||||||
7,928 | Superior Energy Services, Inc.^ | 133,825 | ||||||
2,650 | Tesco Corp.* | 21,863 | ||||||
4,086 | TETRA Technologies, Inc.* | 20,512 | ||||||
16,660 | Transocean, Ltd.*^ | 245,568 | ||||||
2,800 | Unit Corp.* | 75,236 | ||||||
|
| |||||||
5,249,880 | ||||||||
|
| |||||||
Food & Staples Retailing (1.9%): | ||||||||
2,460 | Casey’s General Stores, Inc. | 292,445 | ||||||
1,143 | Chefs’ Warehouse, Inc.*^ | 18,059 | ||||||
10,328 | Costco Wholesale Corp. | 1,653,616 | ||||||
22,272 | CVS Health Corp. | 1,757,484 | ||||||
1,267 | Ingles Markets, Inc., Class A | 60,943 | ||||||
25,720 | Kroger Co. (The) | 887,597 | ||||||
1,720 | Natural Grocers by Vitamin Cottage, Inc.* | 20,451 | ||||||
1,852 | PriceSmart, Inc. | 154,642 | ||||||
27,665 | Rite Aid Corp.* | 227,960 | ||||||
71 | Smart & Final Stores, Inc.* | 1,001 | ||||||
1,100 | SpartanNash Co. | 43,494 | ||||||
5,794 | Sprouts Farmers Market, Inc.*^ | 109,622 | ||||||
16,013 | Supervalu, Inc.* | 74,781 | ||||||
12,641 | Sysco Corp. | 699,932 | ||||||
1,610 | The Andersons, Inc. | 71,967 | ||||||
3,347 | United Natural Foods, Inc.*^ | 159,719 | ||||||
738 | Village Super Market, Inc., Class A | 22,804 | ||||||
13,906 | Walgreens Boots Alliance, Inc. | 1,150,861 | ||||||
41,899 | Wal-Mart Stores, Inc. | 2,896,058 | ||||||
2,367 | Weis Markets, Inc. | 158,210 | ||||||
17,058 | Whole Foods Market, Inc. | 524,704 | ||||||
|
| |||||||
10,986,350 | ||||||||
|
| |||||||
Food Products (1.9%): | ||||||||
8,892 | Archer-Daniels-Midland Co. | 405,920 | ||||||
3,898 | B&G Foods, Inc.^ | 170,732 | ||||||
10,796 | Blue Buffalo Pet Products, Inc.* | 259,536 | ||||||
6,017 | Bunge, Ltd. | 434,668 |
Continued
12
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Food Products, continued | ||||||||
808 | Calavo Growers, Inc. | $ | 49,611 | |||||
3,085 | Cal-Maine Foods, Inc. | 136,280 | ||||||
5,711 | Campbell Soup Co. | 345,344 | ||||||
5,964 | ConAgra Foods, Inc. | 235,876 | ||||||
9,405 | Darling International, Inc.* | 121,419 | ||||||
5,447 | Dean Foods Co.^ | 118,636 | ||||||
1,004 | Farmer Brothers Co.* | 36,847 | ||||||
13,535 | Flowers Foods, Inc.^ | 270,294 | ||||||
2,619 | Fresh Del Monte Produce, Inc. | 158,790 | ||||||
13,416 | General Mills, Inc. | 828,705 | ||||||
3,802 | Hain Celestial Group, Inc.* | 148,392 | ||||||
4,168 | Hershey Co. (The) | 431,096 | ||||||
5,718 | Hormel Foods Corp. | 199,044 | ||||||
4,065 | Ingredion, Inc. | 507,962 | ||||||
1,198 | Inventure Foods, Inc.* | 11,800 | ||||||
1,150 | J & J Snack Foods Corp. | 153,445 | ||||||
5,010 | JM Smucker Co. (The)^ | 641,581 | ||||||
300 | John B Sanfilippo And Son, Inc. | 21,117 | ||||||
6,185 | Kellogg Co. | 455,896 | ||||||
9,347 | Kraft Heinz Co. (The) | 816,179 | ||||||
1,988 | Lamb Weston Holding, Inc.* | 75,246 | ||||||
1,671 | Lancaster Colony Corp. | 236,263 | ||||||
1,028 | Landec Corp.* | 14,186 | ||||||
3,829 | McCormick & Co. | 357,361 | ||||||
389 | McCormick & Co., Inc. | 36,216 | ||||||
5,324 | Mead Johnson Nutrition Co. | 376,726 | ||||||
17,047 | Mondelez International, Inc., Class A | 755,694 | ||||||
1,260 | Omega Protein Corp.* | 31,563 | ||||||
4,222 | Pilgrim’s Pride Corp. | 80,176 | ||||||
4,838 | Pinnacle Foods, Inc. | 258,591 | ||||||
3,084 | Post Holdings, Inc.*^ | 247,923 | ||||||
1,270 | Sanderson Farms, Inc. | 119,685 | ||||||
43 | Seaboard Corp.* | 169,936 | ||||||
677 | Seneca Foods Corp., Class A* | 27,114 | ||||||
4,652 | Snyders-Lance, Inc.^ | 178,358 | ||||||
1,687 | Tootsie Roll Industries, Inc. | 67,058 | ||||||
2,495 | TreeHouse Foods, Inc.*^ | 180,114 | ||||||
8,804 | Tyson Foods, Inc., Class A | 543,031 | ||||||
4,692 | WhiteWave Foods Co., Class A* | 260,875 | ||||||
|
| |||||||
10,975,286 | ||||||||
|
| |||||||
Gas Utilities (0.4%): | ||||||||
3,123 | Atmos Energy Corp. | 231,570 | ||||||
900 | Chesapeake Utilities Corp. | 60,255 | ||||||
519 | Delta Natural Gas Co., Inc. | 15,222 | ||||||
1,024 | Gas Natural, Inc. | 12,851 | ||||||
4,223 | National Fuel Gas Co.^ | 239,191 | ||||||
4,213 | New Jersey Resources Corp. | 149,562 | ||||||
1,671 | Northwest Natural Gas Co.^ | 99,926 | ||||||
2,727 | ONE Gas, Inc. | 174,419 | ||||||
155 | RGC Resources, Inc. | 3,901 | ||||||
4,168 | South Jersey Industries, Inc. | 140,420 | ||||||
2,850 | Southwest Gas Corp. | 218,367 | ||||||
2,233 | Spire, Inc. | 144,140 | ||||||
10,056 | UGI Corp. | 463,381 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Gas Utilities, continued | ||||||||
2,516 | WGL Holdings, Inc. | $ | 191,920 | |||||
|
| |||||||
2,145,125 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (1.9%): | ||||||||
1,143 | Abaxis, Inc.^ | 60,316 | ||||||
22,251 | Abbott Laboratories | 854,660 | ||||||
1,146 | ABIOMED, Inc.* | 129,131 | ||||||
2,269 | Accuray, Inc.*^ | 10,437 | ||||||
5,108 | Alere, Inc.* | 199,059 | ||||||
2,473 | Align Technology, Inc.* | 237,729 | ||||||
703 | Analogic Corp. | 58,314 | ||||||
2,726 | AngioDynamics, Inc.* | 45,988 | ||||||
1,103 | Anika Therapeutics, Inc.* | 54,003 | ||||||
115 | Atrion Corp. | 58,328 | ||||||
4,834 | Baxter International, Inc. | 214,340 | ||||||
3,074 | Becton, Dickinson & Co. | 508,901 | ||||||
7,924 | Boston Scientific Corp.* | 171,396 | ||||||
2,558 | C.R. Bard, Inc. | 574,680 | ||||||
2,141 | Cantel Medical Corp.^ | 168,604 | ||||||
1,589 | CONMED Corp.^ | 70,186 | ||||||
1,052 | Cooper Cos., Inc. (The) | 184,026 | ||||||
1,619 | CryoLife, Inc.* | 31,004 | ||||||
1,022 | Cynosure, Inc., Class A* | 46,603 | ||||||
7,164 | Danaher Corp. | 557,646 | ||||||
5,045 | DENTSPLY SIRONA, Inc. | 291,248 | ||||||
1,491 | Derma Sciences, Inc.* | 7,753 | ||||||
843 | Dexcom, Inc.*^ | 50,327 | ||||||
3,806 | Edwards Lifesciences Corp.* | 356,622 | ||||||
1,052 | Exactech, Inc.* | 28,720 | ||||||
4,329 | Globus Medical, Inc., Class A*^ | 107,402 | ||||||
2,246 | Haemonetics Corp.* | 90,289 | ||||||
2,733 | Halyard Health, Inc.* | 101,066 | ||||||
2,939 | Hill-Rom Holdings, Inc. | 164,995 | ||||||
10,038 | Hologic, Inc.* | 402,725 | ||||||
698 | ICU Medical, Inc.* | 102,850 | ||||||
2,916 | IDEXX Laboratories, Inc.* | 341,959 | ||||||
433 | Inogen, Inc.* | 29,085 | ||||||
1,444 | Integer Holdings Corp.* | 42,526 | ||||||
1,416 | Integra LifeSciences Holdings Corp.*^ | 121,479 | ||||||
416 | Intuitive Surgical, Inc.* | 263,815 | ||||||
2,327 | Invacare Corp. | 30,367 | ||||||
1,209 | LeMaitre Vascular, Inc. | 30,636 | ||||||
1,168 | LivaNova plc* | 52,525 | ||||||
2,823 | Masimo Corp.* | 190,270 | ||||||
15,938 | Medtronic plc | 1,135,263 | ||||||
3,164 | Meridian Bioscience, Inc. | 56,003 | ||||||
2,425 | Merit Medical Systems, Inc.* | 64,263 | ||||||
952 | Natus Medical, Inc.* | 33,130 | ||||||
1,702 | Neogen Corp.* | 112,332 | ||||||
2,499 | NuVasive, Inc.* | 168,333 | ||||||
481 | Nuvectra Corp.* | 2,419 | ||||||
2,383 | OraSure Technologies, Inc.* | 20,923 | ||||||
1,074 | Orthofix International NV* | 38,857 | ||||||
700 | Quidel Corp.* | 14,994 | ||||||
3,726 | ResMed, Inc.^ | 231,198 |
Continued
13
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Equipment & Supplies, continued | ||||||||
3,310 | RTI Surgical, Inc.* | $ | 10,758 | |||||
624 | SeaSpine Holdings Corp.* | 4,930 | ||||||
6,389 | St. Jude Medical, Inc. | 512,334 | ||||||
1,745 | STERIS plc | 117,596 | ||||||
4,858 | Stryker Corp. | 582,037 | ||||||
785 | Surmodics, Inc.* | 19,939 | ||||||
950 | Teleflex, Inc.^ | 153,093 | ||||||
227 | Utah Medical Products, Inc. | 16,514 | ||||||
2,597 | Varian Medical Systems, Inc.* | 233,159 | ||||||
691 | Vascular Solutions, Inc.* | 38,765 | ||||||
2,249 | West Pharmaceutical Services, Inc. | 190,783 | ||||||
3,020 | Zimmer Holdings, Inc. | 311,664 | ||||||
|
| |||||||
11,111,297 | ||||||||
|
| |||||||
Health Care Providers & Services (3.0%): | ||||||||
2,137 | Acadia Healthcare Co., Inc.*^ | 70,735 | ||||||
1,958 | Aceto Corp. | 43,017 | ||||||
634 | Addus HomeCare Corp.* | 22,222 | ||||||
9,600 | Aetna, Inc. | 1,190,496 | ||||||
3,470 | Air Methods Corp.* | 110,520 | ||||||
666 | Alliance HealthCare Services, Inc.* | 6,394 | ||||||
542 | Almost Family, Inc.* | 23,902 | ||||||
1,469 | Amedisys, Inc.*^ | 62,623 | ||||||
1,839 | AmerisourceBergen Corp. | 143,791 | ||||||
3,501 | AMN Healthcare Services, Inc.*^ | 134,613 | ||||||
5,304 | Anthem, Inc. | 762,556 | ||||||
1,916 | BioTelemetry, Inc.* | 42,823 | ||||||
5,253 | Brookdale Senior Living, Inc.*^ | 65,242 | ||||||
2,121 | Capital Senior Living Corp.*^ | 34,042 | ||||||
7,734 | Cardinal Health, Inc. | 556,616 | ||||||
5,547 | Centene Corp.* | 313,461 | ||||||
1,288 | Chemed Corp. | 206,608 | ||||||
4,923 | Cigna Corp. | 656,679 | ||||||
1,442 | Civitas Solutions, Inc.* | 28,696 | ||||||
7,171 | Community Health Systems, Inc.* | 40,086 | ||||||
1,871 | CorVel Corp.* | 68,479 | ||||||
1,177 | Cross Country Healthcare, Inc.* | 18,373 | ||||||
9,186 | DaVita, Inc.* | 589,741 | ||||||
3,058 | Ensign Group, Inc. (The)^ | 67,918 | ||||||
6,505 | Envision Healthcare Corp.*^ | 411,701 | ||||||
15,898 | Express Scripts Holding Co.* | 1,093,623 | ||||||
784 | Five Star Quality Care, Inc.* | 2,117 | ||||||
2,639 | Hanger Orthopedic Group, Inc.* | 30,347 | ||||||
5,584 | HCA Holdings, Inc.* | 413,328 | ||||||
1,272 | HealthEquity, Inc.* | 51,541 | ||||||
6,210 | HealthSouth Corp. | 256,100 | ||||||
2,040 | Healthways, Inc.* | 46,410 | ||||||
2,255 | Henry Schein, Inc.* | 342,106 | ||||||
4,142 | Humana, Inc. | 845,092 | ||||||
2,629 | InfuSystems Holdings, Inc.* | 6,704 | ||||||
4,876 | Kindred Healthcare, Inc. | 38,277 | ||||||
4,425 | Laboratory Corp. of America Holdings* | 568,082 | ||||||
409 | Landauer, Inc. | 19,673 | ||||||
1,326 | LHC Group, Inc.* | 60,598 | ||||||
3,038 | LifePoint Hospitals, Inc.* | 172,558 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Providers & Services, continued | ||||||||
2,025 | Magellan Health Services, Inc.* | $ | 152,381 | |||||
5,524 | McKesson Corp. | 775,846 | ||||||
3,929 | MEDNAX, Inc.*^ | 261,907 | ||||||
3,666 | Molina Healthcare, Inc.*^ | 198,917 | ||||||
1,075 | National Healthcare Corp. | 81,474 | ||||||
1,219 | National Research Corp.^ | 23,161 | ||||||
4,172 | Owens & Minor, Inc.^ | 147,230 | ||||||
6,645 | Patterson Cos., Inc.^ | 272,644 | ||||||
1,669 | PharMerica Corp.* | 41,975 | ||||||
2,269 | Premier, Inc., Class A* | 68,887 | ||||||
1,197 | Providence Service Corp.* | 45,546 | ||||||
8,208 | Quest Diagnostics, Inc. | 754,315 | ||||||
2,317 | Quorum Health Corp.* | 16,845 | ||||||
2,518 | RadNet, Inc.* | 16,241 | ||||||
9,791 | Select Medical Holdings Corp.*^ | 129,731 | ||||||
3,573 | Surgical Care Affiliates, Inc.*^ | 165,323 | ||||||
4,086 | Team Health Holdings, Inc.*^ | 177,537 | ||||||
6,770 | Tenet Healthcare Corp.* | 100,467 | ||||||
1,840 | Triple-S Management Corp., Class B* | 38,088 | ||||||
937 | U.S. Physical Therapy, Inc. | 65,777 | ||||||
18,239 | UnitedHealth Group, Inc. | 2,918,969 | ||||||
6,141 | Universal American Financial Corp.* | 61,103 | ||||||
4,862 | Universal Health Services, Inc., Class B | 517,220 | ||||||
3,389 | VCA Antech, Inc.* | 232,655 | ||||||
2,533 | WellCare Health Plans, Inc.* | 347,224 | ||||||
|
| |||||||
17,229,353 | ||||||||
|
| |||||||
Health Care Technology (0.1%): | ||||||||
8,041 | Allscripts Healthcare Solutions, Inc.* | 82,099 | ||||||
700 | athenahealth, Inc.* | 73,619 | ||||||
5,336 | Cerner Corp.* | 252,765 | ||||||
339 | Computer Programs & Systems, Inc. | 8,000 | ||||||
1,357 | HealthStream, Inc.* | 33,993 | ||||||
2,872 | HMS Holdings Corp.* | 52,156 | ||||||
1,095 | Omnicell, Inc.* | 37,121 | ||||||
800 | Quality Systems, Inc.* | 10,520 | ||||||
1,747 | Simulations Plus, Inc. | 16,859 | ||||||
2,187 | Veeva Systems, Inc., Class A* | 89,011 | ||||||
|
| |||||||
656,143 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure (2.5%): | ||||||||
10,056 | Aramark Holdings Corp. | 359,200 | ||||||
7,927 | Belmond, Ltd., Class A* | 105,825 | ||||||
67 | Biglari Holdings, Inc.* | 31,704 | ||||||
1,927 | BJ’s Restaurants, Inc.* | 75,731 | ||||||
7,923 | Bloomin’ Brands, Inc.^ | 142,852 | ||||||
200 | Bob Evans Farms, Inc. | 10,642 | ||||||
1,441 | Bravo Brio Restaurant Group, Inc.* | 5,476 | ||||||
2,887 | Brinker International, Inc.^ | 142,993 | ||||||
1,469 | Buffalo Wild Wings, Inc.*^ | 226,814 | ||||||
6,600 | Caesars Entertainment Corp.*^ | 56,100 | ||||||
5,584 | Carnival Corp., Class A^ | 290,703 | ||||||
2,943 | Carrols Restaurant Group, Inc.* | 44,881 | ||||||
1,723 | Century Casinos, Inc.* | 14,180 | ||||||
4,028 | Cheesecake Factory, Inc. (The) | 241,197 | ||||||
549 | Chipotle Mexican Grill, Inc.* | 207,149 |
Continued
14
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Hotels, Restaurants & Leisure, continued | ||||||||
3,453 | Choice Hotels International, Inc. | $ | 193,541 | |||||
1,178 | Chuy’s Holdings, Inc.*^ | 38,226 | ||||||
4,529 | ClubCorp Holdings, Inc. | 64,991 | ||||||
1,626 | Cracker Barrel Old Country Store, Inc. | 271,509 | ||||||
4,520 | Darden Restaurants, Inc.^ | 328,694 | ||||||
2,412 | Dave & Buster’s Entertainment, Inc.* | 135,796 | ||||||
1,574 | Del Frisco’s Restaurant Group, Inc.* | 26,758 | ||||||
2,144 | del Taco Restaurants, Inc.* | 30,273 | ||||||
4,856 | Denny’s Corp.* | 62,302 | ||||||
1,558 | DineEquity, Inc. | 119,966 | ||||||
1,346 | Domino’s Pizza, Inc. | 214,337 | ||||||
4,546 | Dunkin’ Brands Group, Inc. | 238,392 | ||||||
1,277 | Fiesta Restaurant Group, Inc.* | 38,118 | ||||||
624 | Habit Restaurants, Inc. (The), Class A* | 10,764 | ||||||
9,730 | Hilton Worldwide Holdings, Inc.* | 264,656 | ||||||
828 | Hyatt Hotels Corp., Class A*^ | 45,755 | ||||||
7,221 | Ilg, Inc. | 131,206 | ||||||
6,233 | International Game Technology plc | 159,066 | ||||||
300 | International Speedway Corp., Class A | 11,040 | ||||||
2,548 | Intrawest Resorts Holdings, Inc.* | 45,482 | ||||||
1,792 | Jack in the Box, Inc. | 200,059 | ||||||
671 | Jamba, Inc.* | 6,911 | ||||||
666 | La Quinta Holdings, Inc.* | 9,464 | ||||||
9,975 | Las Vegas Sands Corp. | 532,765 | ||||||
2,136 | Luby’s, Inc.* | 9,142 | ||||||
4,334 | Marriott International, Inc., Class A | 358,335 | ||||||
2,136 | Marriott Vacations Worldwide Corp.^ | 181,240 | ||||||
18,273 | McDonald’s Corp. | 2,224,191 | ||||||
24,340 | MGM Resorts International* | 701,722 | ||||||
341 | Nathans Famous, Inc.* | 22,131 | ||||||
5,162 | Norwegian Cruise Line Holdings, Ltd.* | 219,540 | ||||||
879 | Panera Bread Co., Class A*^ | 180,274 | ||||||
2,292 | Papa John’s International, Inc.^ | 196,149 | ||||||
2,267 | Planet Fitness, Inc. | 45,567 | ||||||
1,317 | Popeyes Louisiana Kitchen, Inc.*^ | 79,652 | ||||||
763 | Potbelly Corp.* | 9,843 | ||||||
886 | RCI Hospitality Holdings, Inc. | 15,151 | ||||||
1,501 | Red Lion Hotels Corp.* | 12,533 | ||||||
878 | Red Robin Gourmet Burgers* | 49,519 | ||||||
4,589 | Royal Caribbean Cruises, Ltd. | 376,482 | ||||||
268 | Ruby Tuesday, Inc.* | 866 | ||||||
3,127 | Ruth’s Hospitality Group, Inc. | 57,224 | ||||||
2,300 | Scientific Games Corp., Class A* | 32,200 | ||||||
6,758 | SeaWorld Entertainment, Inc. | 127,929 | ||||||
3,076 | Six Flags Entertainment Corp. | 184,437 | ||||||
1,933 | Sonic Corp.^ | 51,244 | ||||||
2,826 | Speedway Motorsports, Inc. | 61,239 | ||||||
38,423 | Starbucks Corp. | 2,133,245 | ||||||
4,257 | Texas Roadhouse, Inc. | 205,358 | ||||||
1,604 | Town Sports International Holdings, Inc.* | 4,010 | ||||||
1,246 | Vail Resorts, Inc. | 200,992 | ||||||
22,020 | Wendy’s Co. (The)^ | 297,710 | ||||||
1,298 | Wingstop, Inc. | 38,408 | ||||||
3,982 | Wyndham Worldwide Corp. | 304,105 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Hotels, Restaurants & Leisure, continued | ||||||||
2,056 | Wynn Resorts, Ltd.^ | $ | 177,865 | |||||
4,136 | Yum China Holdings, Inc.* | 108,032 | ||||||
7,670 | Yum! Brands, Inc. | 485,741 | ||||||
|
| |||||||
14,287,594 | ||||||||
|
| |||||||
Household Durables (0.9%): | ||||||||
1,886 | Beazer Homes USA, Inc.* | 25,084 | ||||||
6,757 | CalAtlantic Group, Inc.^ | 229,806 | ||||||
504 | Cavco Industries, Inc.* | 50,324 | ||||||
1,150 | Century Communities, Inc.* | 24,150 | ||||||
12,050 | D.R. Horton, Inc. | 329,327 | ||||||
1,137 | Dixie Group, Inc. (The)* | 4,093 | ||||||
1,910 | Ethan Allen Interiors, Inc. | 70,384 | ||||||
431 | Flexsteel Industries, Inc. | 26,580 | ||||||
5,743 | Garmin, Ltd. | 278,478 | ||||||
2,761 | GoPro, Inc., Class A*^ | 24,048 | ||||||
3,020 | Harman International Industries, Inc. | 335,703 | ||||||
1,211 | Helen of Troy, Ltd.* | 102,269 | ||||||
500 | Hooker Furniture Corp. | 18,975 | ||||||
1,333 | Installed Building Products, Inc.* | 55,053 | ||||||
931 | iRobot Corp.*^ | 54,417 | ||||||
4,827 | KB Home | 76,315 | ||||||
3,931 | La-Z-Boy, Inc. | 122,058 | ||||||
4,024 | Leggett & Platt, Inc.^ | 196,693 | ||||||
7,538 | Lennar Corp., Class A | 323,606 | ||||||
368 | Lennar Corp., Class B | 12,696 | ||||||
1,206 | LGI Homes, Inc.*^ | 34,648 | ||||||
1,249 | Libbey, Inc. | 24,306 | ||||||
1,017 | Lifetime Brands, Inc. | 18,052 | ||||||
2,789 | M.D.C. Holdings, Inc.^ | 71,566 | ||||||
1,880 | M/I Homes, Inc.* | 47,338 | ||||||
3,168 | Meritage Corp.*^ | 110,246 | ||||||
3,206 | Mohawk Industries, Inc.* | 640,174 | ||||||
4,983 | Newell Rubbermaid, Inc. | 222,491 | ||||||
150 | NVR, Inc.* | 250,350 | ||||||
13,213 | PulteGroup, Inc. | 242,855 | ||||||
1,730 | Taylor Morrison Home Corp., Class A*^ | 33,320 | ||||||
3,400 | Tempur Sealy International, Inc.*^ | 232,152 | ||||||
8,185 | Toll Brothers, Inc.* | 253,735 | ||||||
2,205 | TopBuild Corp.* | 78,498 | ||||||
10,253 | TRI Pointe Homes, Inc.*^ | 117,704 | ||||||
2,946 | Tupperware Brands Corp.^ | 155,019 | ||||||
718 | Universal Electronics, Inc.* | 46,347 | ||||||
203 | WCI Communities, Inc.* | 4,760 | ||||||
3,485 | Whirlpool Corp. | 633,468 | ||||||
2,147 | William Lyon Homes, Class A* | 40,857 | ||||||
1,918 | Zagg, Inc.*^ | 13,618 | ||||||
|
| |||||||
5,631,563 | ||||||||
|
| |||||||
Household Products (1.1%): | ||||||||
1,985 | Central Garden & Pet Co., Class A* | 61,337 | ||||||
7,372 | Church & Dwight Co., Inc. | 325,769 | ||||||
3,732 | Clorox Co. (The) | 447,915 | ||||||
16,353 | Colgate-Palmolive Co. | 1,070,140 | ||||||
3,074 | Energizer Holdings, Inc. | 137,131 | ||||||
10,024 | HRG Group, Inc.* | 155,973 |
Continued
15
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Household Products, continued | ||||||||
6,918 | Kimberly-Clark Corp. | $ | 789,482 | |||||
333 | Oil-Dri Corp. | 12,724 | ||||||
582 | Orchids Paper Products Co.^ | 15,237 | ||||||
39,498 | Procter & Gamble Co. (The) | 3,320,992 | ||||||
1,509 | Spectrum Brands Holdings, Inc.^ | 184,596 | ||||||
698 | WD-40 Co. | 81,596 | ||||||
|
| |||||||
6,602,892 | ||||||||
|
| |||||||
Independent Power & Renewable Electricity Producers (0.2%): | ||||||||
18,368 | AES Corp. (The) | 213,436 | ||||||
5,810 | Atlantic Power Corp.* | 14,525 | ||||||
22,655 | Calpine Corp.* | 258,948 | ||||||
7,034 | Dynegy, Inc.* | 59,508 | ||||||
14,628 | NRG Energy, Inc. | 179,339 | ||||||
2,123 | NRG Yield, Inc., Class A | 32,609 | ||||||
2,753 | NRG Yield, Inc., Class C | 43,497 | ||||||
3,058 | Ormat Technologies, Inc. | 163,970 | ||||||
3,976 | Pattern Energy Group, Inc.^ | 75,504 | ||||||
|
| |||||||
1,041,336 | ||||||||
|
| |||||||
Industrial Conglomerates (1.2%): | ||||||||
16,212 | 3M Co., Class C | 2,894,977 | ||||||
2,793 | Carlisle Cos., Inc. | 308,040 | ||||||
57,368 | General Electric Co. | 1,812,829 | ||||||
16,546 | Honeywell International, Inc. | 1,916,854 | ||||||
1,736 | Raven Industries, Inc. | 43,747 | ||||||
1,278 | Roper Industries, Inc. | 233,976 | ||||||
|
| |||||||
7,210,423 | ||||||||
|
| |||||||
Insurance (3.5%): | ||||||||
8,411 | Aflac, Inc. | 585,406 | ||||||
333 | Alleghany Corp.* | 202,504 | ||||||
3,973 | Allied World Assurance Co. Holdings AG | 213,390 | ||||||
7,676 | Allstate Corp. (The) | 568,945 | ||||||
4,095 | AMBAC Financial Group, Inc.* | 92,138 | ||||||
6,319 | American Equity Investment Life Holding Co. | 142,430 | ||||||
2,316 | American Financial Group, Inc. | 204,086 | ||||||
15,671 | American International Group, Inc. | 1,023,472 | ||||||
908 | American National Insurance Co. | 113,146 | ||||||
1,543 | Amerisafe, Inc. | 96,206 | ||||||
12,054 | AmTrust Financial Services^ | 330,039 | ||||||
5,048 | Aon plc | 563,003 | ||||||
2,651 | Arch Capital Group, Ltd.* | 228,755 | ||||||
7,028 | Arthur J. Gallagher & Co. | 365,175 | ||||||
3,035 | Aspen Insurance Holdings, Ltd. | 166,925 | ||||||
3,262 | Assurant, Inc. | 302,909 | ||||||
8,505 | Assured Guaranty, Ltd. | 321,234 | ||||||
2,046 | Axis Capital Holdings, Ltd. | 133,542 | ||||||
9,302 | Brown & Brown, Inc. | 417,288 | ||||||
7,138 | Chubb, Ltd. | 943,073 | ||||||
3,539 | Cincinnati Financial Corp. | 268,079 | ||||||
2,176 | Citizens, Inc.* | 21,368 | ||||||
1,199 | CNA Financial Corp. | 49,759 | ||||||
2,354 | Crawford & Co. | 29,566 | ||||||
2,915 | Crawford & Co., Class A | 27,605 | ||||||
1,631 | Donegal Group, Inc., Class A | 28,510 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Insurance, continued | ||||||||
1,546 | EMC Insurance Group, Inc. | $ | 46,395 | |||||
2,393 | Employers Holdings, Inc. | 94,763 | ||||||
2,905 | Endurance Specialty Holdings, Ltd. | 268,422 | ||||||
874 | Enstar Group, Ltd.* | 172,790 | ||||||
3,309 | Erie Indemnity Co., Class A | 372,097 | ||||||
1,098 | Everest Re Group, Ltd. | 237,607 | ||||||
1,054 | Federated National Holding Co. | 19,699 | ||||||
7,368 | First American Financial Corp. | 269,890 | ||||||
8,665 | FNF Group | 294,263 | ||||||
21,335 | Genworth Financial, Inc., Class A* | 81,286 | ||||||
695 | Global Indemnity, Ltd.* | 26,556 | ||||||
2,383 | Greenlight Capital Re, Ltd.*^ | 54,332 | ||||||
1,469 | Hallmark Financial Services, Inc.* | 17,084 | ||||||
1,978 | Hanover Insurance Group, Inc. (The) | 180,018 | ||||||
8,084 | Hartford Financial Services Group, Inc. (The) | 385,203 | ||||||
997 | HCI Group, Inc. | 39,362 | ||||||
1,317 | Independence Holding Co. | 25,747 | ||||||
566 | Infinity Property & Casualty Corp. | 49,751 | ||||||
153 | Investors Title Co. | 24,202 | ||||||
1,436 | James River Group Holdings | 59,666 | ||||||
2,904 | Kemper Corp. | 128,647 | ||||||
5,369 | Lincoln National Corp. | 355,804 | ||||||
6,949 | Loews Corp. | 325,422 | ||||||
5,556 | Maiden Holdings, Ltd. | 96,952 | ||||||
301 | Markel Corp.* | 272,255 | ||||||
12,507 | Marsh & McLennan Cos., Inc. | 845,348 | ||||||
2,658 | Mercury General Corp.^ | 160,038 | ||||||
15,089 | MetLife, Inc. | 813,146 | ||||||
4,959 | National General Holdings Corp. | 123,925 | ||||||
262 | National Western Life Group, Inc., Class A | 81,430 | ||||||
830 | Navigators Group, Inc. | 97,733 | ||||||
14,768 | Old Republic International Corp. | 280,592 | ||||||
1,796 | Onebeacon Insurance Group, Ltd. | 28,826 | ||||||
4,021 | Primerica, Inc.^ | 278,052 | ||||||
11,782 | Principal Financial Group, Inc.^ | 681,707 | ||||||
2,541 | ProAssurance Corp. | 142,804 | ||||||
10,900 | Progressive Corp. (The) | 386,950 | ||||||
7,056 | Prudential Financial, Inc. | 734,247 | ||||||
1,338 | Reinsurance Group of America, Inc. | 168,361 | ||||||
1,958 | RenaissanceRe Holdings, Ltd. | 266,719 | ||||||
2,255 | RLI Corp.^ | 142,358 | ||||||
854 | Safety Insurance Group, Inc. | 62,940 | ||||||
3,298 | Selective Insurance Group, Inc. | 141,979 | ||||||
2,664 | State Auto Financial Corp. | 71,422 | ||||||
1,761 | Stewart Information Services Corp.^ | 81,147 | ||||||
3,912 | Third Point Reinsurance, Ltd.* | 45,184 | ||||||
3,870 | Torchmark Corp. | 285,451 | ||||||
10,660 | Travelers Cos., Inc. (The) | 1,304,996 | ||||||
1,438 | United Fire Group, Inc. | 70,706 | ||||||
1,616 | United Insurance Holdings Co. | 24,466 | ||||||
3,169 | Universal Insurance Holdings, Inc. | 90,000 | ||||||
7,583 | UnumProvident Corp. | 333,121 | ||||||
3,791 | Validus Holdings, Ltd. | 208,543 | ||||||
5,166 | W.R. Berkley Corp. | 343,591 |
Continued
16
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Insurance, continued | ||||||||
322 | White Mountains Insurance Group, Ltd. | $ | 269,208 | |||||
2,119 | Willis Towers Watson plc | 259,111 | ||||||
4,400 | Wmih Corp.* | 6,820 | ||||||
4,856 | XL Group, Ltd. | 180,935 | ||||||
|
| |||||||
20,348,622 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (1.7%): | ||||||||
2,093 | 1-800 Flowers.com, Inc., Class A* | 22,395 | ||||||
9,398 | Amazon.com, Inc.* | 7,047,279 | ||||||
691 | Blue Nile, Inc. | 28,075 | ||||||
2,685 | CafePress, Inc.*^ | 7,894 | ||||||
2,936 | Expedia, Inc. | 332,590 | ||||||
185 | FTD Cos., Inc.* | 4,410 | ||||||
3,111 | HSN, Inc. | 106,707 | ||||||
1,155 | Liberty Expedia Holdings, Class A* | 45,819 | ||||||
5,384 | Liberty TripAdvisor Holdings, Inc., Class A* | 81,029 | ||||||
1,732 | Liberty Ventures, Series A, Class A* | 63,859 | ||||||
2,619 | Netflix, Inc.* | 324,232 | ||||||
1,637 | Nutri/System, Inc. | 56,722 | ||||||
820 | Overstock.com, Inc.* | 14,350 | ||||||
1,164 | PetMed Express, Inc.^ | 26,853 | ||||||
1,013 | Priceline Group, Inc. (The)* | 1,485,120 | ||||||
1,959 | Shutterfly, Inc.* | 98,303 | ||||||
2,147 | TripAdvisor, Inc.* | 99,556 | ||||||
|
| |||||||
9,845,193 | ||||||||
|
| |||||||
Internet Software & Services (2.2%): | ||||||||
3,020 | Actua Corp.*^ | 42,280 | ||||||
7,524 | Akamai Technologies, Inc.* | 501,700 | ||||||
3,423 | Alphabet, Inc., Class A* | 2,712,556 | ||||||
3,562 | Alphabet, Inc., Class C* | 2,749,224 | ||||||
429 | Bankrate, Inc.* | 4,740 | ||||||
913 | Bazaarvoice, Inc.* | 4,428 | ||||||
2,377 | Blucora, Inc.* | 35,061 | ||||||
1,203 | Carbonite, Inc.* | 19,729 | ||||||
1,744 | Cimpress NV*^ | 159,768 | ||||||
468 | CoStar Group, Inc.* | 88,213 | ||||||
2,881 | DHI Group, Inc.* | 18,006 | ||||||
8,462 | EarthLink Holdings Corp. | 47,726 | ||||||
20,891 | eBay, Inc.* | 620,254 | ||||||
990 | Envestnet, Inc.*^ | 34,898 | ||||||
28,826 | Facebook, Inc., Class A* | 3,316,432 | ||||||
1,451 | GoDaddy, Inc., Class A*^ | 50,712 | ||||||
2,338 | GrubHub, Inc.* | 87,956 | ||||||
2,548 | GTT Communications, Inc.* | 73,255 | ||||||
3,192 | IAC/InterActiveCorp* | 206,810 | ||||||
3,284 | Internap Network Services Corp.* | 5,057 | ||||||
3,214 | Intralinks Holdings, Inc.* | 43,453 | ||||||
2,946 | j2 Global, Inc.^ | 240,983 | ||||||
1,546 | Leaf Group, Ltd.* | 10,126 | ||||||
5,660 | Limelight Networks, Inc.* | 14,263 | ||||||
1,736 | Liquidity Services, Inc.* | 16,926 | ||||||
540 | LogMeIn, Inc. | 52,137 | ||||||
2,502 | Marchex, Inc., Class B* | 6,630 | ||||||
2,297 | Meetme, Inc.*^ | 11,324 | ||||||
3,759 | NIC, Inc. | 89,840 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Internet Software & Services, continued | ||||||||
1,082 | Numerex Corp., Class A* | $ | 8,007 | |||||
2,520 | QuinStreet, Inc.* | 9,475 | ||||||
752 | Qumu Corp.* | 1,790 | ||||||
2,745 | RealNetworks, Inc.* | 13,341 | ||||||
401 | Reis, Inc.^ | 8,922 | ||||||
2,683 | RetailMeNot, Inc.* | 24,952 | ||||||
981 | Shutterstock, Inc.*^ | 46,617 | ||||||
585 | Stamps.com, Inc.*^ | 67,070 | ||||||
1,895 | TechTarget* | 16,164 | ||||||
1,344 | Travelzoo, Inc.* | 12,634 | ||||||
3,390 | Tremor Video, Inc.* | 8,441 | ||||||
4,951 | Twitter, Inc.*^ | 80,701 | ||||||
3,098 | VeriSign, Inc.*^ | 235,665 | ||||||
4,619 | Web.com Group, Inc.* | 97,692 | ||||||
2,330 | WebMD Health Corp.* | 115,498 | ||||||
1,311 | XO Group, Inc.* | 25,499 | ||||||
13,234 | Yahoo!, Inc.* | 511,759 | ||||||
700 | Yelp, Inc.*^ | 26,691 | ||||||
1,125 | Zillow Group, Inc., Class A* | 41,006 | ||||||
2,504 | Zillow Group, Inc., Class C*^ | 91,321 | ||||||
|
| |||||||
12,707,732 | ||||||||
|
| |||||||
IT Services (4.0%): | ||||||||
16,856 | Accenture plc, Class C | 1,974,344 | ||||||
3,417 | Acxiom Corp.* | 91,576 | ||||||
2,162 | Alliance Data Systems Corp. | 494,017 | ||||||
5,531 | Amdocs, Ltd. | 322,181 | ||||||
10,094 | Automatic Data Processing, Inc. | 1,037,461 | ||||||
936 | Black Knight Financial Services, Inc., Class A*^ | 35,381 | ||||||
1,732 | Blackhawk Network Holdings, Inc.*^ | 65,253 | ||||||
8,907 | Booz Allen Hamilton Holding Corp. | 321,275 | ||||||
4,071 | Broadridge Financial Solutions, Inc. | 269,907 | ||||||
1,304 | CACI International, Inc., Class A* | 162,087 | ||||||
4,434 | Cardtronics plc*^ | 241,963 | ||||||
521 | Cass Information Systems, Inc. | 38,330 | ||||||
5,879 | CIBER, Inc.* | 3,714 | ||||||
11,008 | Cognizant Technology Solutions Corp., Class A* | 616,778 | ||||||
5,969 | Computer Sciences Corp. | 354,678 | ||||||
5,424 | Convergys Corp. | 133,213 | ||||||
5,794 | CoreLogic, Inc.* | 213,393 | ||||||
2,608 | CSG Systems International, Inc. | 126,227 | ||||||
7,054 | CSRA, Inc. | 224,599 | ||||||
1,260 | Datalink Corp.* | 14,188 | ||||||
2,749 | DST Systems, Inc. | 294,555 | ||||||
1,894 | Epam Systems, Inc.*^ | 121,803 | ||||||
3,396 | Euronet Worldwide, Inc.* | 245,972 | ||||||
4,871 | Everi Holdings, Inc.* | 10,570 | ||||||
1,396 | Exlservice Holdings, Inc.* | 70,414 | ||||||
4,709 | Fidelity National Information Services, Inc. | 356,189 | ||||||
5,989 | Fiserv, Inc.* | 636,511 | ||||||
1,827 | FleetCor Technologies, Inc.* | 258,557 | ||||||
825 | Forrester Research, Inc. | 35,434 | ||||||
2,317 | Gartner, Inc.* | 234,179 | ||||||
6,266 | Genpact, Ltd.* | 152,514 | ||||||
3,996 | Global Payments, Inc. | 277,362 |
Continued
17
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
IT Services, continued | ||||||||
1,357 | Hackett Group, Inc. (The) | $ | 23,965 | |||||
24,294 | International Business Machines Corp. | 4,032,562 | ||||||
2,731 | Jack Henry & Associates, Inc. | 242,458 | ||||||
7,258 | Leidos Holdings, Inc. | 371,174 | ||||||
4,003 | Lionbridge Technologies, Inc.* | 23,217 | ||||||
1,840 | ManTech International Corp., Class A | 77,740 | ||||||
25,684 | MasterCard, Inc., Class A | 2,651,873 | ||||||
3,978 | Maximus, Inc.^ | 221,933 | ||||||
3,966 | ModusLink Global Solutions, Inc.* | 5,790 | ||||||
2,787 | MoneyGram International, Inc.* | 32,914 | ||||||
1,007 | NCI, Inc., Class A | 14,048 | ||||||
3,102 | NeuStar, Inc., Class A* | 103,607 | ||||||
8,899 | Paychex, Inc. | 541,771 | ||||||
11,658 | PayPal Holdings, Inc.* | 460,141 | ||||||
2,322 | Perficient, Inc.* | 40,612 | ||||||
840 | PFSweb, Inc.* | 7,140 | ||||||
2,200 | Sabre Corp.^ | 54,890 | ||||||
2,591 | Science Applications International Corp. | 219,717 | ||||||
3,035 | Servicesource International, Inc.* | 17,239 | ||||||
1,241 | StarTek, Inc.* | 10,486 | ||||||
3,283 | Sykes Enterprises, Inc.* | 94,747 | ||||||
4,553 | Syntel, Inc.^ | 90,104 | ||||||
3,701 | TeleTech Holdings, Inc. | 112,881 | ||||||
7,782 | Teradata Corp.*^ | 211,437 | ||||||
6,585 | Total System Services, Inc. | 322,863 | ||||||
5,685 | Travelport Worldwide, Ltd. | 80,159 | ||||||
3,021 | Unisys Corp.* | 45,164 | ||||||
5,853 | Vantive, Inc., Class A* | 348,956 | ||||||
899 | Virtusa Corp.* | 22,583 | ||||||
36,614 | Visa, Inc., Class A | 2,856,625 | ||||||
19,383 | Western Union Co.^ | 420,999 | ||||||
1,662 | WEX, Inc.* | 185,479 | ||||||
|
| |||||||
23,379,899 | ||||||||
|
| |||||||
Leisure Products (0.3%): | ||||||||
864 | Arctic Cat, Inc.* | 12,977 | ||||||
5,928 | Brunswick Corp. | 323,313 | ||||||
3,789 | Callaway Golf Co. | 41,527 | ||||||
658 | Escalade, Inc. | 8,686 | ||||||
4,480 | Hasbro, Inc.^ | 348,499 | ||||||
503 | Johnson Outdoors, Inc., A | 19,964 | ||||||
531 | Malibu Boats, Inc.* | 10,131 | ||||||
662 | Marine Products Corp. | 9,182 | ||||||
9,123 | Mattel, Inc.^ | 251,339 | ||||||
1,932 | Nautilus Group, Inc.*^ | 35,742 | ||||||
2,607 | Polaris Industries, Inc.^ | 214,791 | ||||||
3,582 | Smith & Wesson Holding Corp.*^ | 75,509 | ||||||
1,015 | Sturm, Ruger & Co., Inc.^ | 53,491 | ||||||
2,859 | Vista Outdoor, Inc.* | 105,497 | ||||||
|
| |||||||
1,510,648 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.8%): | ||||||||
7,900 | Agilent Technologies, Inc. | 359,924 | ||||||
1,366 | Bio-Rad Laboratories, Inc., Class A* | 248,994 | ||||||
1,595 | Bio-Techne Corp. | 164,014 | ||||||
7,817 | Bruker Corp. | 165,564 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Life Sciences Tools & Services, continued | ||||||||
2,431 | Cambrex Corp.* | $ | 131,152 | |||||
3,826 | Charles River Laboratories International, Inc.* | 291,503 | ||||||
1,700 | Enzo Biochem, Inc.* | 11,798 | ||||||
1,979 | Harvard Bioscience, Inc.* | 6,036 | ||||||
2,578 | Illumina, Inc.* | 330,087 | ||||||
2,326 | INC Research Holdings, Inc., Class A* | 122,348 | ||||||
2,457 | Luminex Corp.* | 49,705 | ||||||
1,117 | Mettler-Toledo International, Inc.* | 467,532 | ||||||
1,400 | Neogenomics, Inc.*^ | 11,998 | ||||||
4,123 | PAREXEL International Corp.* | 270,964 | ||||||
3,558 | PerkinElmer, Inc. | 185,550 | ||||||
2,855 | Pra Health Sciences, Inc.* | 157,368 | ||||||
1,485 | Quintiles Transnational Holdings, Inc.* | 112,934 | ||||||
6,934 | Thermo Fisher Scientific, Inc. | 978,387 | ||||||
7,549 | VWR Corp.* | 188,951 | ||||||
2,208 | Waters Corp.* | 296,733 | ||||||
|
| |||||||
4,551,542 | ||||||||
|
| |||||||
Machinery (2.8%): | ||||||||
5,194 | AGCO Corp.^ | 300,525 | ||||||
652 | Alamo Group, Inc. | 49,617 | ||||||
2,170 | Albany International Corp., Class A | 100,471 | ||||||
6,677 | Allison Transmission Holdings, Inc. | 224,948 | ||||||
1,977 | Altra Industrial Motion Corp. | 72,951 | ||||||
1,107 | American Railcar Industries | 50,136 | ||||||
1,445 | ARC Group Worldwide, Inc.* | 6,358 | ||||||
1,605 | Astec Industries, Inc. | 108,273 | ||||||
3,610 | Barnes Group, Inc. | 171,186 | ||||||
911 | Blue Bird Corp.* | 14,075 | ||||||
800 | Briggs & Stratton Corp. | 17,808 | ||||||
11,198 | Caterpillar, Inc.^ | 1,038,502 | ||||||
2,289 | Chart Industries, Inc.* | 82,450 | ||||||
1,021 | CIRCOR International, Inc. | 66,242 | ||||||
3,041 | CLARCOR, Inc. | 250,791 | ||||||
5,831 | Colfax Corp.* | 209,508 | ||||||
1,526 | Columbus McKinnon Corp. | 41,263 | ||||||
2,706 | Commercial Vehicle Group, Inc.* | 14,964 | ||||||
3,811 | Crane Co. | 274,849 | ||||||
3,616 | Cummins, Inc. | 494,198 | ||||||
6,563 | Deere & Co. | 676,251 | ||||||
8,591 | Donaldson Co., Inc.^ | 361,509 | ||||||
1,924 | Douglas Dynamics, Inc. | 64,743 | ||||||
6,717 | Dover Corp. | 503,304 | ||||||
716 | EnPro Industries, Inc. | 48,230 | ||||||
1,981 | ESCO Technologies, Inc. | 112,224 | ||||||
4,690 | Federal Signal Corp. | 73,211 | ||||||
3,914 | Flowserve Corp.^ | 188,068 | ||||||
4,043 | Fortive Corp. | 216,826 | ||||||
2,760 | Franklin Electric Co., Inc. | 107,364 | ||||||
694 | FreightCar America, Inc.^ | 10,361 | ||||||
1,569 | Gencor Industries, Inc.* | 24,633 | ||||||
1,203 | Global Brass & Copper Holdings, Inc. | 41,263 | ||||||
1,617 | Gorman-Rupp Co. (The) | 50,046 | ||||||
4,041 | Graco, Inc. | 335,767 | ||||||
1,612 | Greenbrier Cos, Inc.^ | 66,979 |
Continued
18
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Machinery, continued | ||||||||
995 | Hardinge, Inc. | $ | 11,025 | |||||
7,203 | Harsco Corp. | 97,961 | ||||||
4,761 | Hillenbrand, Inc. | 182,584 | ||||||
490 | Hurco Cos, Inc. | 16,219 | ||||||
1,063 | Hyster-Yale Materials Handling, Inc., Class A | 67,788 | ||||||
2,196 | IDEX Corp. | 197,772 | ||||||
8,094 | Illinois Tool Works, Inc. | 991,190 | ||||||
7,989 | Ingersoll-Rand plc | 599,494 | ||||||
5,449 | ITT, Inc. | 210,168 | ||||||
1,662 | John Bean Technologies Corp. | 142,849 | ||||||
598 | Kadant, Inc. | 36,598 | ||||||
4,427 | Kennametal, Inc. | 138,388 | ||||||
143 | Key Technology, Inc.* | 1,667 | ||||||
787 | L.B. Foster Co., Class A | 10,703 | ||||||
2,794 | Lincoln Electric Holdings, Inc. | 214,216 | ||||||
539 | Lindsay Corp. | 40,215 | ||||||
774 | Lydall, Inc.* | 47,872 | ||||||
1,213 | Manitex International, Inc.* | 8,321 | ||||||
10,121 | Manitowoc Co., Inc. (The)* | 60,524 | ||||||
8,494 | Manitowoc Foodservice, Inc.*^ | 164,189 | ||||||
5,860 | Meritor, Inc.* | 72,781 | ||||||
1,601 | Middleby Corp. (The)* | 206,225 | ||||||
3,785 | Mueller Industries, Inc. | 151,249 | ||||||
15,347 | Mueller Water Products, Inc., Class A | 204,269 | ||||||
4,067 | Navistar International Corp.* | 127,582 | ||||||
1,258 | NN, Inc. | 23,965 | ||||||
2,257 | Nordson Corp. | 252,897 | ||||||
158 | Omega Flex, Inc. | 8,810 | ||||||
6,301 | OshKosh Corp. | 407,108 | ||||||
7,045 | PACCAR, Inc. | 450,176 | ||||||
2,722 | Parker Hannifin Corp. | 381,080 | ||||||
5,836 | Pentair plc | 327,225 | ||||||
976 | Proto Labs, Inc.*^ | 50,118 | ||||||
1,060 | RBC Bearings, Inc.* | 98,379 | ||||||
9,209 | Rexnord Corp.* | 180,404 | ||||||
2,202 | Snap-On, Inc. | 377,137 | ||||||
2,342 | SPX Corp.* | 55,552 | ||||||
2,342 | SPX FLOW, Inc.* | 75,085 | ||||||
775 | Standex International Corp. | 68,084 | ||||||
4,454 | Stanley Black & Decker, Inc. | 510,828 | ||||||
1,670 | Sun Hydraulics Corp.^ | 66,750 | ||||||
953 | Supreme Industires, Inc., Class A | 14,962 | ||||||
1,121 | Tennant Co. | 79,815 | ||||||
4,808 | Terex Corp. | 151,596 | ||||||
3,355 | Timken Co. | 133,194 | ||||||
3,046 | Titan International, Inc. | 34,146 | ||||||
4,544 | Toro Co. | 254,237 | ||||||
3,413 | TriMas Corp.* | 80,206 | ||||||
14,684 | Trinity Industries, Inc.^ | 407,628 | ||||||
5,806 | Wabash National Corp.*^ | 91,851 | ||||||
1,688 | WABCO Holdings, Inc.* | 179,181 | ||||||
3,243 | Wabtec Corp.^ | 269,234 | ||||||
1,165 | Watts Water Technologies, Inc., Class A | 75,958 | ||||||
4,166 | Woodward, Inc. | 287,662 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Machinery, continued | ||||||||
935 | Xerium Technologies, Inc.* | $ | 5,255 | |||||
4,848 | Xylem, Inc. | 240,073 | ||||||
|
| |||||||
16,110,339 | ||||||||
|
| |||||||
Marine (0.1%): | ||||||||
1,680 | Eagle Bulk Shipping, Inc.* | 9,828 | ||||||
2,992 | Kirby Corp.*^ | 198,968 | ||||||
3,233 | Matson, Inc. | 114,416 | ||||||
|
| |||||||
323,212 | ||||||||
|
| |||||||
Media (3.0%): | ||||||||
1,468 | A.H. Belo Corp., Class A | 9,322 | ||||||
1,959 | AMC Entertainment Holdings, Inc., Class A^ | 65,920 | ||||||
1,629 | AMC Networks, Inc., Class A*^ | 85,262 | ||||||
270 | Cable One, Inc. | 167,867 | ||||||
182 | CBS Corp., Class A | 11,766 | ||||||
9,784 | CBS Corp., Class B | 622,458 | ||||||
2,224 | Charter Communications, Inc., Class A* | 640,333 | ||||||
7,978 | Cinemark Holdings, Inc. | 306,036 | ||||||
1,661 | Clear Channel Outdoor Holdings, Inc., Class A | 8,388 | ||||||
64,392 | Comcast Corp., Class A | 4,446,267 | ||||||
7,549 | Discovery Communications, Inc., Class A*^ | 206,918 | ||||||
9,189 | Discovery Communications, Inc., Class C* | 246,081 | ||||||
5,853 | DISH Network Corp., Class A* | 339,064 | ||||||
4,131 | E.W. Scripps Co. (The), Class A*^ | 79,852 | ||||||
2,473 | Entercom Communications Corp. | 37,837 | ||||||
4,792 | Entravision Communications Corp., Class A | 33,544 | ||||||
1,834 | Eros International plc*^ | 23,934 | ||||||
6,638 | Gannett Co., Inc. | 64,455 | ||||||
4,886 | Gray Television, Inc.* | 53,013 | ||||||
4,727 | Harte-Hanks, Inc. | 7,138 | ||||||
13,729 | Interpublic Group of Cos., Inc. (The) | 321,396 | ||||||
3,547 | John Wiley & Sons, Inc., Class A | 193,312 | ||||||
192 | John Wiley & Sons, Inc., Class B | 10,497 | ||||||
247 | Liberty Braves Group, Class A* | 5,061 | ||||||
527 | Liberty Braves Group, Class C* | 10,851 | ||||||
563 | Liberty Broadband Corp., Class A* | 40,795 | ||||||
3,300 | Liberty Broadband Corp., Class C*^ | 244,431 | ||||||
619 | Liberty Media Group, Class A* | 19,406 | ||||||
1,318 | Liberty Media Group, Class C* | 41,293 | ||||||
2,477 | Liberty SiriusXM Group, Class A* | 85,506 | ||||||
5,273 | Liberty SiriusXM Group, Class C* | 178,860 | ||||||
753 | Lions Gate Entertainment Corp., Class A* | 20,256 | ||||||
4,332 | Lions Gate Entertainment Corp., Class B* | 106,307 | ||||||
7,488 | Live Nation, Inc.* | 199,181 | ||||||
876 | Madison Square Garden Co. (The), Class A* | 150,243 | ||||||
9,820 | Media General, Inc.* | 184,911 | ||||||
2,849 | Meredith Corp.^ | 168,518 | ||||||
2,629 | MSG Networks, Inc., Class A* | 56,524 | ||||||
3,726 | National CineMedia, Inc. | 54,884 | ||||||
2,511 | New Media Investment Group, Inc. | 40,151 | ||||||
5,102 | New York Times Co. (The), Class A | 67,857 | ||||||
8,725 | News Corp., Class A | 99,989 | ||||||
4,904 | News Corp., Class B | 57,867 | ||||||
1,755 | Nexstar Broadcasting Group, Inc., Class A | 111,092 | ||||||
6,406 | Omnicom Group, Inc.^ | 545,215 |
Continued
19
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Media, continued | ||||||||
1,419 | Reading International, Inc., Class A* | $ | 23,555 | |||||
8,109 | Regal Entertainment Group, Class A | 167,045 | ||||||
1,853 | Scholastic Corp. | 87,999 | ||||||
4,121 | Scripps Networks Interactive, Class C^ | 294,116 | ||||||
2,737 | Sinclair Broadcast Group, Inc., Class A^ | 91,279 | ||||||
36,686 | Sirius XM Holdings, Inc.^ | 163,253 | ||||||
10,486 | Tegna, Inc. | 224,296 | ||||||
15,669 | Time Warner, Inc. | 1,512,528 | ||||||
6,987 | Time, Inc. | 124,718 | ||||||
933 | Tronc, Inc.^ | 12,941 | ||||||
23,830 | Twenty-First Century Fox, Inc. | 668,192 | ||||||
8,290 | Twenty-First Century Fox, Inc., Class B | 225,903 | ||||||
442 | Viacom, Inc., Class A | 17,017 | ||||||
12,859 | Viacom, Inc., Class B | 451,351 | ||||||
29,471 | Walt Disney Co. (The) | 3,071,467 | ||||||
1,692 | World Wrestling Entertainment, Inc., Class A | 31,133 | ||||||
|
| |||||||
17,636,651 | ||||||||
|
| |||||||
Metals & Mining (0.7%): | ||||||||
16,272 | AK Steel Holding Corp.*^ | 166,137 | ||||||
3,218 | Alcoa Corp.* | 90,361 | ||||||
6,283 | Allegheny Technologies, Inc.^ | 100,088 | ||||||
799 | Ampco-Pittsburgh Corp. | 13,383 | ||||||
3,052 | Carpenter Technology Corp.^ | 110,391 | ||||||
4,968 | Century Aluminum Co.*^ | 42,526 | ||||||
10,120 | Cliffs Natural Resources, Inc.* | 85,109 | ||||||
9,476 | Commercial Metals Co. | 206,387 | ||||||
2,984 | Compass Minerals International, Inc.^ | 233,796 | ||||||
9,823 | Ferroglobe plc(a) | 106,383 | ||||||
35,575 | Freeport-McMoRan Copper & Gold, Inc.* | 469,235 | ||||||
2,945 | Gold Resource Corp. | 12,811 | ||||||
468 | Handy & Harman, Ltd.* | 11,957 | ||||||
943 | Haynes International, Inc.^ | 40,540 | ||||||
29,166 | Hecla Mining Co. | 152,830 | ||||||
151 | Kaiser Aluminum Corp. | 11,731 | ||||||
1,359 | Materion Corp. | 53,816 | ||||||
12,309 | McEwen Mining, Inc. | 35,819 | ||||||
10,995 | Newmont Mining Corp. | 374,600 | ||||||
5,905 | Nucor Corp. | 351,466 | ||||||
700 | Olympic Steel, Inc. | 16,961 | ||||||
3,298 | Reliance Steel & Aluminum Co. | 262,323 | ||||||
3,069 | Royal Gold, Inc. | 194,421 | ||||||
1,500 | Ryerson Holding Corp.* | 20,025 | ||||||
1,365 | Schnitzer Steel Industries, Inc., Class A | 35,081 | ||||||
1,772 | Southern Copper Corp.^ | 56,598 | ||||||
5,822 | Steel Dynamics, Inc. | 207,147 | ||||||
7,009 | Stillwater Mining Co.* | 112,915 | ||||||
3,673 | SunCoke Energy, Inc.* | 41,652 | ||||||
701 | Synalloy Corp.* | 7,676 | ||||||
1,400 | TimkenSteel Corp.*^ | 21,672 | ||||||
7,131 | United States Steel Corp. | 235,394 | ||||||
548 | Universal Stainless & Alloy Products, Inc.* | 7,403 | ||||||
2,898 | Worthington Industries, Inc. | 137,481 | ||||||
|
| |||||||
4,026,115 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Multiline Retail (0.7%): | ||||||||
4,485 | Big Lots, Inc. | $ | 225,192 | |||||
3,183 | Dillard’s, Inc., Class A^ | 199,542 | ||||||
6,815 | Dollar General Corp. | 504,787 | ||||||
4,239 | Dollar Tree, Inc.* | 327,166 | ||||||
1,212 | Gordmans Stores, Inc.* | 830 | ||||||
18,758 | J.C. Penney Co., Inc.* | 155,879 | ||||||
14,751 | Kohl’s Corp.^ | 728,404 | ||||||
13,447 | Macy’s, Inc. | 481,537 | ||||||
6,850 | Nordstrom, Inc. | 328,321 | ||||||
2,966 | Ollie’s Bargain Outlet Holdings, Inc.* | 84,383 | ||||||
14,447 | Target Corp. | 1,043,507 | ||||||
|
| |||||||
4,079,548 | ||||||||
|
| |||||||
Multi-Utilities (0.8%): | ||||||||
6,827 | Ameren Corp. | 358,143 | ||||||
3,449 | Avista Corp.^ | 137,926 | ||||||
2,740 | Black Hills Corp.^ | 168,072 | ||||||
9,831 | CenterPoint Energy, Inc. | 242,236 | ||||||
7,809 | CMS Energy Corp. | 325,011 | ||||||
4,703 | Consolidated Edison, Inc. | 346,517 | ||||||
10,556 | Dominion Resources, Inc. | 808,483 | ||||||
3,615 | DTE Energy Co. | 356,114 | ||||||
5,763 | MDU Resources Group, Inc.^ | 165,802 | ||||||
9,333 | NiSource, Inc. | 206,633 | ||||||
2,365 | NorthWestern Corp.^ | 134,498 | ||||||
8,581 | Public Service Enterprise Group, Inc. | 376,533 | ||||||
3,404 | SCANA Corp. | 249,445 | ||||||
3,551 | Sempra Energy | 357,373 | ||||||
844 | Unitil Corp. | 38,267 | ||||||
5,394 | Vectren Corp. | 281,297 | ||||||
4,778 | WEC Energy Group, Inc. | 280,230 | ||||||
|
| |||||||
4,832,580 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (3.8%): | ||||||||
359 | Abraxas Petroleum Corp.* | 923 | ||||||
332 | Adams Resources & Energy, Inc. | 13,164 | ||||||
6,084 | Alon USA Energy, Inc. | 69,236 | ||||||
3,807 | Anadarko Petroleum Corp. | 265,462 | ||||||
5,191 | Antero Resources Corp.* | 122,767 | ||||||
2,109 | Apache Corp. | 133,858 | ||||||
5,397 | Cabot Oil & Gas Corp. | 126,074 | ||||||
4,230 | Callon Petroleum Co.*^ | 65,015 | ||||||
6,161 | Cheniere Energy, Inc.* | 255,250 | ||||||
35,729 | Chesapeake Energy Corp.*^ | 250,818 | ||||||
26,074 | Chevron Corp. | 3,068,909 | ||||||
884 | Cimarex Energy Co. | 120,136 | ||||||
7,534 | Clean Energy Fuel Corp.* | 21,547 | ||||||
3,508 | Cloud Peak Energy, Inc.* | 19,680 | ||||||
20,955 | Cobalt International Energy, Inc.* | 25,565 | ||||||
1,095 | Concho Resources, Inc.* | 145,197 | ||||||
19,011 | ConocoPhillips Co. | 953,212 | ||||||
13,717 | CONSOL Energy, Inc. | 250,061 | ||||||
1,423 | Contango Oil & Gas Co.* | 13,291 | ||||||
2,157 | Continental Resources, Inc.*^ | 111,172 | ||||||
3,623 | CVR Energy, Inc.^ | 91,988 | ||||||
3,590 | Delek US Holdings, Inc. | 86,411 |
Continued
20
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
23,516 | Denbury Resources, Inc.*^ | $ | 86,539 | |||||
3,324 | Devon Energy Corp. | 151,807 | ||||||
8,860 | DHT Holdings, Inc. | 36,680 | ||||||
984 | Diamondback Energy, Inc.* | 99,443 | ||||||
15,555 | Eclipse Resources Corp.* | 41,532 | ||||||
3,131 | Energen Corp.* | 180,565 | ||||||
6,042 | Enlink Midstream LLC | 115,100 | ||||||
5,950 | EOG Resources, Inc. | 601,545 | ||||||
8,400 | EP Energy Corp., Class A*^ | 55,020 | ||||||
3,072 | EQT Corp. | 200,909 | ||||||
42,589 | Exxon Mobil Corp. | 3,844,082 | ||||||
4,505 | Gaslog, Ltd. | 72,531 | ||||||
388 | Green Plains Renewable Energy, Inc. | 10,806 | ||||||
5,413 | Gulfport Energy Corp.* | 117,137 | ||||||
2,222 | Hallador Energy Co. | 20,198 | ||||||
4,463 | Hess Corp. | 278,000 | ||||||
6,013 | HollyFrontier Corp.^ | 196,986 | ||||||
3,242 | Jones Energy, Inc., Class A* | 16,210 | ||||||
30,682 | Kinder Morgan, Inc. | 635,424 | ||||||
16,008 | Kosmos Energy LLC* | 112,215 | ||||||
2,301 | Laredo Petroleum Holdings, Inc.* | 32,536 | ||||||
18,340 | Marathon Oil Corp. | 317,465 | ||||||
15,958 | Marathon Petroleum Corp. | 803,485 | ||||||
3,977 | Murphy Oil Corp.^ | 123,804 | ||||||
1,997 | Newfield Exploration Co.* | 80,879 | ||||||
8,543 | Noble Energy, Inc. | 325,147 | ||||||
11,184 | Oasis Petroleum, Inc.* | 169,326 | ||||||
8,368 | Occidental Petroleum Corp. | 596,053 | ||||||
8,157 | ONEOK, Inc. | 468,293 | ||||||
2,263 | Pacific Ethanol, Inc.* | 21,499 | ||||||
1,401 | Panhandle Oil & Gas, Inc., Class A | 32,994 | ||||||
3,519 | Parsley Energy, Inc., Class A* | 124,010 | ||||||
6,440 | PBF Energy, Inc., Class A^ | 179,547 | ||||||
3,068 | PDC Energy, Inc.* | 222,675 | ||||||
5,200 | Phillips 66 | 449,332 | ||||||
1,605 | Pioneer Natural Resources Co. | 289,012 | ||||||
6 | PrimeEnergy Corp.* | 324 | ||||||
11,284 | QEP Resources, Inc.* | 207,738 | ||||||
4,715 | Range Resources Corp. | 162,007 | ||||||
3,344 | Renewable Energy Group, Inc.* | 32,437 | ||||||
374 | REX American Resources Corp.* | 36,933 | ||||||
8,064 | Rice Energy, Inc.* | 172,166 | ||||||
1,820 | Ring Energy, Inc.* | 23,642 | ||||||
5,130 | RSP Permian, Inc.* | 228,901 | ||||||
14,497 | Scorpio Tankers, Inc.^ | 65,671 | ||||||
3,285 | SemGroup Corp., Class A^ | 137,149 | ||||||
5,342 | Ship Finance International^ | 79,329 | ||||||
4,595 | SM Energy Co. | 158,436 | ||||||
14,441 | Southwestern Energy Co.*^ | 156,252 | ||||||
9,053 | Spectra Energy Corp. | 371,988 | ||||||
8,098 | Synergy Resources Corp.* | 72,153 | ||||||
5,426 | Targa Resources Corp.^ | 304,236 | ||||||
6,407 | Teekay Shipping Corp.^ | 51,448 | ||||||
9,185 | Tesoro Corp. | 803,228 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
13,823 | Valero Energy Corp. | $ | 944,387 | |||||
8,471 | Western Refining, Inc. | 320,627 | ||||||
11,919 | Whiting Petroleum Corp.*^ | 143,266 | ||||||
8,981 | Williams Cos., Inc. (The) | 279,668 | ||||||
3,558 | World Fuel Services Corp. | 163,348 | ||||||
17,173 | WPX Energy, Inc.* | 250,211 | ||||||
|
| |||||||
22,484,067 | ||||||||
|
| |||||||
Paper & Forest Products (0.2%): | ||||||||
3,411 | Boise Cascade Co.* | 76,748 | ||||||
1,659 | Clearwater Paper Corp.* | 108,747 | ||||||
375 | Deltic Timber Corp. | 28,901 | ||||||
4,068 | Domtar Corp. | 158,774 | ||||||
9,067 | KapStone Paper & Packaging Corp. | 199,927 | ||||||
6,141 | Louisiana-Pacific Corp.* | 116,249 | ||||||
5,575 | Mercer International, Inc. | 59,374 | ||||||
1,274 | Neenah Paper, Inc. | 108,545 | ||||||
700 | P.H. Glatfelter Co. | 16,723 | ||||||
7,266 | Resolute Forest Products* | 38,873 | ||||||
2,301 | Schweitzer-Mauduit International, Inc. | 104,765 | ||||||
|
| |||||||
1,017,626 | ||||||||
|
| |||||||
Personal Products (0.3%): | ||||||||
22,998 | Avon Products, Inc.* | 115,910 | ||||||
15,761 | Coty, Inc., Class A | 288,584 | ||||||
2,990 | Edgewell Personal Care Co.* | 218,240 | ||||||
5,076 | Estee Lauder Co., Inc. (The), Class A | 388,264 | ||||||
2,955 | Herbalife, Ltd.*^ | 142,254 | ||||||
1,755 | Inter Parfums, Inc. | 57,476 | ||||||
923 | Medifast, Inc. | 38,424 | ||||||
1,236 | Natures Sunshine Products, Inc. | 18,540 | ||||||
4,808 | Nu Skin Enterprises, Inc., Class A | 229,726 | ||||||
723 | Nutraceutical International Corp. | 25,269 | ||||||
2,385 | Revlon, Inc.* | 69,523 | ||||||
340 | United-Guardian, Inc. | 5,270 | ||||||
1,364 | Usana Health Sciences, Inc.*^ | 83,477 | ||||||
|
| |||||||
1,680,957 | ||||||||
|
| |||||||
Pharmaceuticals (3.0%): | ||||||||
7,282 | Akorn, Inc.*^ | 158,966 | ||||||
5,772 | Allergan plc* | 1,212,178 | ||||||
2,003 | Amphastar Pharmaceuticals, Inc.*^ | 36,895 | ||||||
400 | ANI Pharmaceuticals, Inc.* | 24,248 | ||||||
1,490 | Aralez Pharmacuticals, Inc.* | 6,571 | ||||||
12,668 | Bristol-Myers Squibb Co. | 740,318 | ||||||
4,513 | Catalent, Inc.* | 121,670 | ||||||
1,290 | Corcept Therapeutics, Inc.* | 9,365 | ||||||
1,468 | Cumberland Pharmaceuticals, Inc.* | 8,074 | ||||||
17,803 | Eli Lilly & Co. | 1,309,411 | ||||||
4,308 | Endo International plc* | 70,953 | ||||||
8,867 | Horizon Pharma plc* | 143,468 | ||||||
2,984 | Impax Laboratories, Inc.* | 39,538 | ||||||
1,011 | Jazz Pharmaceuticals plc* | 110,229 | ||||||
49,880 | Johnson & Johnson Co. | 5,746,675 | ||||||
3,439 | Lannett Co., Inc.*^ | 75,830 | ||||||
42 | Lipocine, Inc.* | 155 |
Continued
21
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Pharmaceuticals, continued | ||||||||
3,682 | Mallinckrodt plc* | $ | 183,437 | |||||
3,639 | Medicines Co. (The)*^ | 123,508 | ||||||
44,315 | Merck & Co., Inc. | 2,608,824 | ||||||
3,026 | Mylan NV* | 115,442 | ||||||
728 | Perrigo Co. plc | 60,591 | ||||||
105,721 | Pfizer, Inc. | 3,433,818 | ||||||
793 | Phibro Animal Health Corp., Class A | 23,235 | ||||||
3,358 | Prestige Brands Holdings, Inc.* | 174,952 | ||||||
870 | Sciclone Pharmaceuticals, Inc.* | 9,396 | ||||||
2,641 | Sucampo Pharmaceuticals, Inc., Class A* | 35,786 | ||||||
1,789 | Supernus Pharmaceuticals, Inc.* | 45,172 | ||||||
923 | Taro Pharmaceutical Industries, Ltd.* | 97,164 | ||||||
12,563 | Zoetis, Inc. | 672,497 | ||||||
1,517 | Zogenix, Inc.* | 18,432 | ||||||
|
| |||||||
17,416,798 | ||||||||
|
| |||||||
Professional Services (0.7%): | ||||||||
846 | Advisory Board Co. (The)* | 28,130 | ||||||
494 | Barrett Business Services, Inc. | 31,665 | ||||||
3,745 | CBIZ, Inc.* | 51,307 | ||||||
1,503 | CDI Corp.* | 11,122 | ||||||
1,900 | CEB, Inc. | 115,140 | ||||||
456 | CRA International, Inc. | 16,690 | ||||||
2,185 | Dun & Bradstreet Corp. | 265,084 | ||||||
3,281 | Equifax, Inc. | 387,913 | ||||||
1,564 | Exponent, Inc. | 94,309 | ||||||
1,105 | Franklin Covey Co.* | 22,266 | ||||||
3,151 | FTI Consulting, Inc.* | 142,047 | ||||||
1,304 | GP Strategies Corp.* | 37,294 | ||||||
1,205 | Heidrick & Struggles International, Inc. | 29,101 | ||||||
3,834 | Hill International, Inc.* | 16,678 | ||||||
1,763 | Huron Consulting Group, Inc.* | 89,296 | ||||||
1,472 | ICF International, Inc.* | 81,254 | ||||||
974 | Insperity, Inc. | 69,105 | ||||||
1,623 | Kelly Services, Inc., Class A | 37,199 | ||||||
2,263 | Kforce, Inc. | 52,275 | ||||||
3,332 | Korn/Ferry International | 98,061 | ||||||
4,477 | Manpower, Inc. | 397,871 | ||||||
1,887 | Mistras Group, Inc.* | 48,458 | ||||||
3,651 | Navigant Consulting, Inc.* | 95,583 | ||||||
7,090 | Nielsen Holdings plc | 297,426 | ||||||
3,930 | On Assignment, Inc.* | 173,549 | ||||||
2,125 | Resources Connection, Inc. | 40,906 | ||||||
6,639 | Robert Half International, Inc. | 323,850 | ||||||
4,146 | RPX Corp.* | 44,777 | ||||||
2,853 | TransUnion* | 88,243 | ||||||
2,994 | TriNet Group, Inc.* | 76,706 | ||||||
2,713 | Trueblue, Inc.* | 66,875 | ||||||
5,710 | Verisk Analytics, Inc.* | 463,482 | ||||||
840 | Volt Information Sciences, Inc.* | 5,754 | ||||||
633 | Willdan Group, Inc.* | 14,299 | ||||||
|
| |||||||
3,813,715 | ||||||||
|
| |||||||
Real Estate Management & Development (0.3%): | ||||||||
3,247 | Alexander & Baldwin, Inc. | 145,693 | ||||||
400 | Altisource Portfolio Solutions*^ | 10,636 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Real Estate Management & Development, continued | ||||||||
875 | Av Homes, Inc.* | $ | 13,825 | |||||
11,461 | CBRE Group, Inc., Class A* | 360,907 | ||||||
339 | Consolidated-Tomoka Land Co. | 18,109 | ||||||
2,547 | Forestar Group, Inc.* | 33,875 | ||||||
232 | FRP Holdings, Inc.* | 8,746 | ||||||
318 | Griffin Industrial Realty, Inc. | 10,090 | ||||||
2,632 | HFF, Inc., Class A | 79,618 | ||||||
1,889 | Howard Hughes Corp. (The)* | 215,535 | ||||||
1,690 | Jones Lang LaSalle, Inc. | 170,758 | ||||||
5,386 | Kennedy-Wilson Holdings, Inc. | 110,413 | ||||||
2,112 | Marcus & Millichap, Inc.* | 56,433 | ||||||
988 | RE/MAX Holdings, Inc., Class A | 55,328 | ||||||
7,526 | Realogy Holdings Corp. | 193,644 | ||||||
1,206 | Tejon Ranch Co.* | 30,669 | ||||||
1,038 | The RMR Group, Inc., Class A | 41,001 | ||||||
3,157 | The St. Joe Co.*^ | 59,983 | ||||||
|
| |||||||
1,615,263 | ||||||||
|
| |||||||
Road & Rail (1.2%): | ||||||||
1,070 | AMERCO, Inc.^ | 395,461 | ||||||
1,475 | ArcBest Corp. | 40,784 | ||||||
9,455 | Avis Budget Group, Inc.* | 346,809 | ||||||
2,663 | Celadon Group, Inc. | 19,040 | ||||||
1,699 | Covenant Transportation Group, Inc., Class A* | 32,859 | ||||||
19,297 | CSX Corp. | 693,341 | ||||||
3,125 | Genesee & Wyoming, Inc., Class A* | 216,906 | ||||||
6,907 | Heartland Express, Inc. | 140,627 | ||||||
660 | Hertz Global Holdings, Inc.* | 14,230 | ||||||
3,855 | J.B. Hunt Transport Services, Inc. | 374,205 | ||||||
4,667 | Kansas City Southern | 395,995 | ||||||
6,669 | Knight Transportation, Inc.^ | 220,410 | ||||||
2,653 | Landstar System, Inc. | 226,301 | ||||||
6,406 | Norfolk Southern Corp. | 692,296 | ||||||
4,149 | Old Dominion Freight Line, Inc.* | 355,943 | ||||||
2,916 | Roadrunner Transportation System, Inc.* | 30,297 | ||||||
5,496 | Ryder System, Inc. | 409,122 | ||||||
1,912 | Saia, Inc.* | 84,415 | ||||||
8,442 | Swift Transportation Co.*^ | 205,647 | ||||||
20,700 | Union Pacific Corp. | 2,146,177 | ||||||
2,010 | Universal Truckload Services, Inc. | 32,864 | ||||||
1,023 | USA Truck, Inc.* | 8,910 | ||||||
6,273 | Werner Enterprises, Inc.^ | 169,057 | ||||||
1,829 | YRC Worldwide, Inc.* | 24,289 | ||||||
|
| |||||||
7,275,985 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (3.5%): | ||||||||
1,825 | Advanced Energy Industries, Inc.* | 99,919 | ||||||
24,384 | Advanced Micro Devices, Inc.* | 276,515 | ||||||
2,031 | Alpha & Omega Semiconductor, Ltd.* | 43,199 | ||||||
22,065 | Amkor Technology, Inc.*^ | 232,786 | ||||||
3,628 | Analog Devices, Inc. | 263,465 | ||||||
16,074 | Applied Materials, Inc. | 518,708 | ||||||
1,615 | Axcelis Technologies, Inc.* | 23,498 | ||||||
1,701 | AXT, Inc.* | 8,165 | ||||||
2,548 | Broadcom, Ltd. | 450,410 | ||||||
3,846 | Brooks Automation, Inc. | 65,651 |
Continued
22
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Semiconductors & Semiconductor Equipment, continued | ||||||||
1,455 | Cabot Microelectronics Corp. | $ | 91,912 | |||||
838 | Cavium, Inc.* | 52,325 | ||||||
437 | CEVA, Inc.* | 14,661 | ||||||
3,276 | Cirrus Logic, Inc.* | 185,225 | ||||||
1,955 | Cohu, Inc. | 27,175 | ||||||
5,124 | Cree, Inc.*^ | 135,222 | ||||||
16,617 | Cypress Semiconductor Corp.^ | 190,098 | ||||||
3,151 | Diodes, Inc.* | 80,886 | ||||||
7,419 | Entegris, Inc.* | 132,800 | ||||||
2,694 | Exar Corp.* | 29,041 | ||||||
2,896 | First Solar, Inc.*^ | 92,933 | ||||||
3,971 | FormFactor, Inc.* | 44,475 | ||||||
1,314 | GSI Technology, Inc.* | 8,147 | ||||||
6,611 | Integrated Device Technology, Inc.* | 155,755 | ||||||
131,000 | Intel Corp. | 4,751,371 | ||||||
5,554 | Intersil Corp., Class A | 123,854 | ||||||
2,413 | IXYS Corp. | 28,715 | ||||||
6,380 | KLA-Tencor Corp. | 501,978 | ||||||
3,756 | Kopin Corp.* | 10,667 | ||||||
3,624 | Kulicke & Soffa Industries, Inc.* | 57,803 | ||||||
6,358 | Lam Research Corp. | 672,231 | ||||||
6,641 | Lattice Semiconductor Corp.* | 48,878 | ||||||
8,137 | Linear Technology Corp. | 507,342 | ||||||
740 | MA-COM Technology Solutions Holdings, Inc.*^ | 34,247 | ||||||
1,550 | MagnaChip Semiconductor Corp.* | 9,610 | ||||||
14,635 | Marvell Technology Group, Ltd. | 202,988 | ||||||
5,668 | Maxim Integrated Products, Inc. | 218,615 | ||||||
2,590 | MaxLinear, Inc., Class A* | 56,462 | ||||||
3,686 | Microchip Technology, Inc.^ | 236,457 | ||||||
44,921 | Micron Technology, Inc.* | 984,668 | ||||||
4,902 | Microsemi Corp.* | 264,561 | ||||||
2,866 | MKS Instruments, Inc. | 170,240 | ||||||
306 | Monolithic Power Systems, Inc.^ | 25,071 | ||||||
1,348 | Nanometrics, Inc.* | 33,781 | ||||||
1,500 | Neophotonics Corp.* | 16,215 | ||||||
150 | NVE Corp. | 10,715 | ||||||
21,938 | NVIDIA Corp. | 2,341,663 | ||||||
25,792 | ON Semiconductor Corp.*^ | 329,106 | ||||||
1,438 | PDF Solutions, Inc.*^ | 32,427 | ||||||
5,010 | Photronics, Inc.* | 56,613 | ||||||
999 | Power Integrations, Inc. | 67,782 | ||||||
2,939 | Qorvo, Inc.* | 154,973 | ||||||
28,120 | QUALCOMM, Inc. | 1,833,425 | ||||||
2,529 | Rambus, Inc.* | 34,824 | ||||||
2,429 | Rudolph Technologies, Inc.* | 56,717 | ||||||
3,322 | Semtech Corp.* | 104,809 | ||||||
1,920 | Sigma Designs, Inc.* | 11,520 | ||||||
867 | Silicon Laboratories, Inc.* | 56,355 | ||||||
6,757 | Skyworks Solutions, Inc.^ | 504,478 | ||||||
5,527 | Sunpower Corp.*^ | 36,533 | ||||||
1,692 | Synaptics, Inc.*^ | 90,657 | ||||||
10,229 | Teradyne, Inc. | 259,817 | ||||||
3,673 | Tessera Holding Corp. | 162,347 | ||||||
22,921 | Texas Instruments, Inc. | 1,672,545 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Semiconductors & Semiconductor Equipment, continued | ||||||||
2,037 | Ultratech, Inc.* | $ | 48,847 | |||||
3,054 | Veeco Instruments, Inc.* | 89,024 | ||||||
1,889 | Versum Materials, Inc.* | 53,024 | ||||||
3,038 | Xcerra Corp.* | 23,210 | ||||||
6,925 | Xilinx, Inc. | 418,062 | ||||||
|
| |||||||
20,628,198 | ||||||||
|
| |||||||
Software (3.5%): | ||||||||
7,811 | ACI Worldwide, Inc.* | 141,770 | ||||||
6,622 | Activision Blizzard, Inc. | 239,120 | ||||||
5,352 | Adobe Systems, Inc.* | 550,988 | ||||||
1,009 | American Software, Inc., Class A | 10,423 | ||||||
2,253 | ANSYS, Inc.* | 208,380 | ||||||
5,023 | Aspen Technology, Inc.* | 274,658 | ||||||
2,234 | Autodesk, Inc.* | 165,338 | ||||||
2,272 | Aware, Inc.* | 13,859 | ||||||
2,259 | Barracuda Networks, Inc.* | 48,410 | ||||||
2,184 | Blackbaud, Inc.^ | 139,776 | ||||||
25,743 | CA, Inc. | 817,855 | ||||||
8,502 | Cadence Design Systems, Inc.* | 214,420 | ||||||
4,532 | CDK Global, Inc. | 270,515 | ||||||
4,211 | Citrix Systems, Inc.* | 376,084 | ||||||
5,712 | Dell Technologies, Inc., Class V* | 313,989 | ||||||
1,468 | Ebix, Inc. | 83,749 | ||||||
5,572 | Electronic Arts, Inc.* | 438,851 | ||||||
699 | Ellie Mae, Inc.* | 58,492 | ||||||
1,083 | Evolving Systems, Inc. | 4,440 | ||||||
1,493 | Fair Isaac Corp. | 177,995 | ||||||
1,784 | FireEye, Inc.*^ | 21,230 | ||||||
1,444 | Fortinet, Inc.* | 43,493 | ||||||
977 | Globant SA* | 32,583 | ||||||
1,683 | Guidewire Software, Inc.* | 83,022 | ||||||
6,066 | Intuit, Inc. | 695,224 | ||||||
4,396 | Manhattan Associates, Inc.* | 233,120 | ||||||
6,165 | Mentor Graphics Corp. | 227,427 | ||||||
150,128 | Microsoft Corp. | 9,328,955 | ||||||
430 | MicroStrategy, Inc., Class A* | 84,882 | ||||||
1,803 | Monotype Imaging Holdings, Inc. | 35,790 | ||||||
11,007 | Nuance Communications, Inc.* | 164,004 | ||||||
59,336 | Oracle Corp. | 2,281,469 | ||||||
2,127 | Paycom Software, Inc.* | 96,757 | ||||||
3,912 | Pegasystems, Inc.^ | 140,832 | ||||||
2,433 | Progress Software Corp. | 77,686 | ||||||
137 | Proofpoint, Inc.*^ | 9,679 | ||||||
2,402 | PTC, Inc.* | 111,141 | ||||||
581 | QAD, Inc. | 17,662 | ||||||
1,224 | Qualys, Inc.* | 38,740 | ||||||
369 | RealPage, Inc.* | 11,070 | ||||||
4,839 | Red Hat, Inc.* | 337,278 | ||||||
294 | Rosetta Stone, Inc.* | 2,620 | ||||||
737 | Rubicon Project, Inc.* | 5,469 | ||||||
3,521 | Salesforce.com, Inc.* | 241,048 | ||||||
2,393 | SeaChange International, Inc.* | 5,504 | ||||||
1,677 | ServiceNow, Inc.* | 124,668 | ||||||
2,372 | Silver Spring Networks, Inc.* | 31,571 |
Continued
23
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Software, continued | ||||||||
1,367 | Splunk, Inc.*^ | $ | 69,922 | |||||
6,506 | SS&C Technologies Holdings, Inc.^ | 186,072 | ||||||
13,477 | Symantec Corp. | 321,966 | ||||||
2,279 | Synchronoss Technologies, Inc.*^ | 87,286 | ||||||
4,892 | Synopsys, Inc.* | 287,943 | ||||||
1,313 | Tableau Software, Inc., Class A* | 55,343 | ||||||
3,937 | Take-Two Interactive Software, Inc.* | 194,055 | ||||||
2,229 | Telenav, Inc.* | 15,714 | ||||||
7,428 | TiVo Corp.* | 155,245 | ||||||
547 | Tyler Technologies, Inc.*^ | 78,095 | ||||||
429 | Ultimate Software Group, Inc. (The)* | 78,228 | ||||||
1,722 | VASCO Data Security International, Inc.* | 23,505 | ||||||
2,730 | Verint Systems, Inc.* | 96,233 | ||||||
742 | VMware, Inc., Class A*^ | 58,418 | ||||||
1,232 | Workday, Inc., Class A*^ | 81,423 | ||||||
664 | Zedge, Inc., Class B* | 2,078 | ||||||
37,216 | Zynga, Inc.* | 95,645 | ||||||
|
| |||||||
20,919,207 | ||||||||
|
| |||||||
Specialty Retail (3.5%): | ||||||||
5,776 | Aaron’s, Inc.^ | 184,774 | ||||||
2,444 | Advance Auto Parts, Inc.^ | 413,329 | ||||||
13,744 | American Eagle Outfitters, Inc.^ | 208,496 | ||||||
492 | America’s Car Mart, Inc.* | 21,525 | ||||||
2,209 | Asbury Automotive Group, Inc.* | 136,295 | ||||||
9,258 | Ascena Retail Group, Inc.* | 57,307 | ||||||
6,942 | AutoNation, Inc.*^ | 337,728 | ||||||
600 | AutoZone, Inc.* | 473,874 | ||||||
3,164 | Barnes & Noble Education, Inc.* | 36,291 | ||||||
5,007 | Barnes & Noble, Inc. | 55,828 | ||||||
9,785 | Bed Bath & Beyond, Inc.^ | 397,662 | ||||||
20,317 | Best Buy Co., Inc.^ | 866,926 | ||||||
1,657 | Big 5 Sporting Goods Corp.^ | 28,749 | ||||||
1,519 | Boot Barn Holdings, Inc.* | 19,018 | ||||||
583 | Build-A-Bear Workshop, Inc.* | 8,016 | ||||||
4,578 | Burlington Stores, Inc.* | 387,986 | ||||||
4,737 | Cabela’s, Inc., Class A* | 277,351 | ||||||
3,318 | Caleres, Inc. | 108,897 | ||||||
6,888 | CarMax, Inc.*^ | 443,518 | ||||||
1,987 | Cato Corp., Class A | 59,769 | ||||||
7,822 | Chico’s FAS, Inc. | 112,559 | ||||||
1,389 | Children’s Place Retail Stores, Inc. (The) | 140,220 | ||||||
1,991 | Christopher & Banks Corp.* | 4,659 | ||||||
881 | Citi Trends, Inc. | 16,598 | ||||||
6,247 | CST Brands, Inc. | 300,793 | ||||||
1,097 | Destination Maternity Corp.^ | 5,671 | ||||||
2,864 | Destination XL Group, Inc.*^ | 12,172 | ||||||
4,900 | Dick’s Sporting Goods, Inc. | 260,190 | ||||||
5,289 | DSW, Inc., Class A^ | 119,796 | ||||||
6,313 | Express, Inc.* | 67,928 | ||||||
2,165 | Finish Line, Inc. (The), Class A^ | 40,724 | ||||||
2,499 | Five Below, Inc.*^ | 99,860 | ||||||
6,908 | Foot Locker, Inc. | 489,708 | ||||||
2,397 | Francesca’s Holdings Corp.* | 43,218 | ||||||
9,167 | GameStop Corp., Class A^ | 231,558 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Specialty Retail, continued | ||||||||
16,270 | Gap, Inc. (The)^ | $ | 365,099 | |||||
1,571 | Genesco, Inc.* | 97,559 | ||||||
7,035 | GNC Holdings, Inc., Class A | 77,666 | ||||||
1,600 | Group 1 Automotive, Inc. | 124,704 | ||||||
6,442 | Guess?, Inc.^ | 77,948 | ||||||
1,166 | Haverty Furniture Cos., Inc. | 27,634 | ||||||
1,874 | Hibbett Sports, Inc.*^ | 69,900 | ||||||
33,579 | Home Depot, Inc. (The) | 4,502,273 | ||||||
1,036 | Kirkland’s, Inc.* | 16,068 | ||||||
4,361 | L Brands, Inc. | 287,128 | ||||||
1,938 | Lithia Motors, Inc., Class A | 187,657 | ||||||
23,357 | Lowe’s Cos., Inc. | 1,661,151 | ||||||
1,141 | Lumber Liquidators Holdings, Inc.*^ | 17,959 | ||||||
1,427 | MarineMax, Inc.* | 27,612 | ||||||
4,050 | Michaels Cos., Inc. (The)* | 82,823 | ||||||
1,920 | Monro Muffler Brake, Inc.^ | 109,824 | ||||||
3,308 | Murphy U.S.A., Inc.* | 203,343 | ||||||
4,842 | New York & Co.* | 10,991 | ||||||
2,200 | Office Depot, Inc. | 9,944 | ||||||
2,503 | O’Reilly Automotive, Inc.* | 696,860 | ||||||
5,666 | Party City Holdco, Inc.* | 80,457 | ||||||
7,245 | Penske Automotive Group, Inc.^ | 375,581 | ||||||
1,904 | Perfumania Holdings, Inc.* | 2,856 | ||||||
170 | Pier 1 Imports, Inc. | 1,452 | ||||||
900 | Rent-A-Center, Inc.^ | 10,125 | ||||||
2,425 | Restoration Hardware Holdings, Inc.*^ | 74,448 | ||||||
10,582 | Ross Stores, Inc. | 694,179 | ||||||
9,608 | Sally Beauty Holdings, Inc.* | 253,843 | ||||||
2,956 | Select Comfort Corp.*^ | 66,865 | ||||||
600 | Shoe Carnival, Inc. | 16,188 | ||||||
2,499 | Signet Jewelers, Ltd.^ | 235,556 | ||||||
3,293 | Sonic Automotive, Inc., Class A | 75,410 | ||||||
1,606 | Sportsman’s Warehouse Holdings, Inc.* | 15,080 | ||||||
15,183 | Staples, Inc. | 137,406 | ||||||
3,378 | Stein Mart, Inc. | 18,511 | ||||||
1,353 | Tailored Brands, Inc. | 34,569 | ||||||
289 | Tandy Leather Factory, Inc.* | 2,341 | ||||||
2,860 | The Tile Shop Holdings, Inc.* | 55,913 | ||||||
4,460 | Tiffany & Co.^ | 345,338 | ||||||
854 | Tilly’s, Inc.* | 11,264 | ||||||
17,522 | TJX Cos., Inc. (The) | 1,316,429 | ||||||
4,639 | Tractor Supply Co. | 351,683 | ||||||
737 | Trans World Entertainment Corp.* | 2,395 | ||||||
2,124 | Ulta Salon, Cosmetics & Fragrance, Inc.* | 541,493 | ||||||
10,387 | Urban Outfitters, Inc.* | 295,822 | ||||||
1,993 | Vitamin Shoppe, Inc.* | 47,334 | ||||||
1,842 | West Marine, Inc.* | 19,286 | ||||||
5,095 | Williams-Sonoma, Inc.^ | 246,547 | ||||||
285 | Winmark Corp. | 35,953 | ||||||
2,204 | Zumiez, Inc.* | 48,157 | ||||||
|
| |||||||
20,535,617 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (3.5%): | ||||||||
148,970 | Apple, Inc. | 17,253,705 | ||||||
728 | Astro-Med, Inc. | 10,374 |
Continued
24
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Technology Hardware, Storage & Peripherals, continued | ||||||||
2,354 | Avid Technology, Inc.* | $ | 10,358 | |||||
748 | Cray, Inc.* | 15,484 | ||||||
2,278 | Diebold, Inc.^ | 57,292 | ||||||
1,956 | Eastman Kodak Co.* | 30,318 | ||||||
2,385 | Electronics for Imaging, Inc.*^ | 104,606 | ||||||
29,777 | Hewlett Packard Enterprise Co. | 689,040 | ||||||
33,972 | HP, Inc. | 504,144 | ||||||
8,552 | NCR Corp.* | 346,869 | ||||||
10,688 | NetApp, Inc. | 376,966 | ||||||
12,282 | Seagate Technology plc^ | 468,804 | ||||||
2,313 | Super Micro Computer, Inc.* | 64,880 | ||||||
6,156 | Western Digital Corp. | 418,300 | ||||||
20,384 | Xerox Corp. | 177,952 | ||||||
|
| |||||||
20,529,092 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (0.9%): | ||||||||
1,747 | Carter’s, Inc. | 150,923 | ||||||
484 | Cherokee, Inc.* | 5,082 | ||||||
9,539 | Coach, Inc. | 334,055 | ||||||
3,392 | Columbia Sportswear Co. | 197,754 | ||||||
4,393 | Crocs, Inc.* | 30,136 | ||||||
810 | Culp, Inc. | 30,092 | ||||||
2,320 | Deckers Outdoor Corp.*^ | 128,505 | ||||||
4,552 | Fossil Group, Inc.*^ | 117,715 | ||||||
2,068 | G-III Apparel Group, Ltd.* | 61,130 | ||||||
13,867 | Hanesbrands, Inc.^ | 299,111 | ||||||
3,172 | Iconix Brand Group, Inc.* | 29,626 | ||||||
6,072 | Kate Spade & Co.* | 113,364 | ||||||
4,434 | Lululemon Athletica, Inc.* | 288,165 | ||||||
7,166 | Michael Kors Holdings, Ltd.* | 307,995 | ||||||
30,212 | Nike, Inc., Class C | 1,535,675 | ||||||
1,259 | Oxford Industries, Inc. | 75,704 | ||||||
600 | Perry Ellis International, Inc.* | 14,946 | ||||||
2,605 | PVH Corp. | 235,075 | ||||||
2,324 | Ralph Lauren Corp. | 209,904 | ||||||
570 | Rocky Brands, Inc. | 6,584 | ||||||
3,577 | Sequential Brands Group, Inc.* | 16,740 | ||||||
3,882 | Skechers U.S.A., Inc., Class A* | 95,420 | ||||||
3,826 | Steven Madden, Ltd.*^ | 136,780 | ||||||
700 | Superior Uniform Group, Inc. | 13,734 | ||||||
3,720 | Under Armour, Inc., Class A*^ | 108,066 | ||||||
3,746 | Under Armour, Inc., Class C* | 94,287 | ||||||
1,027 | Unifi, Inc.* | 33,511 | ||||||
802 | Vera Bradley, Inc.* | 9,399 | ||||||
5,997 | VF Corp. | 319,940 | ||||||
6,221 | Wolverine World Wide, Inc.^ | 136,551 | ||||||
|
| |||||||
5,135,969 | ||||||||
|
| |||||||
Thrifts & Mortgage Finance (0.6%): | ||||||||
493 | ASB Bancorp, Inc.* | 14,420 | ||||||
8,629 | Astoria Financial Corp. | 160,931 | ||||||
3,548 | Bank Mutual Corp. | 33,529 | ||||||
1,591 | BankFinancial Corp. | 23,579 | ||||||
4,285 | Beneficial Bancorp, Inc. | 78,844 | ||||||
4,484 | BofI Holding, Inc.*^ | 128,018 | ||||||
689 | BSB Bancorp, Inc.* | 19,947 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Thrifts & Mortgage Finance, continued | ||||||||
9,821 | Capitol Federal Financial, Inc. | $ | 161,654 | |||||
1,278 | Charter Financial Corp. | 21,304 | ||||||
2,063 | Clifton Bancorp, Inc.^ | 34,906 | ||||||
2,791 | Dime Community Bancshares | 56,099 | ||||||
855 | ESSA Bancorp, Inc. | 13,441 | ||||||
4,321 | Essent Group, Ltd.* | 139,871 | ||||||
9,408 | Everbank Financial Corp. | 182,985 | ||||||
403 | Federal Agricultural Mortgage Corp. | 23,080 | ||||||
408 | First Capital, Inc. | 13,444 | ||||||
4,276 | Flagstar Bancorp, Inc.* | 115,195 | ||||||
8 | Greene County Bancorp, Inc. | 183 | ||||||
155 | Hingham Institution for Savings | 30,501 | ||||||
1,670 | HomeStreet, Inc.*^ | 52,772 | ||||||
787 | HopFed Bancorp, Inc. | 10,593 | ||||||
613 | IF Bancorp, Inc. | 11,341 | ||||||
966 | Impac Mortgage Holdings, Inc.* | 13,543 | ||||||
5,119 | Kearny Financial Corp.^ | 79,600 | ||||||
1,249 | Kentucky First Federal Bancorp | 11,303 | ||||||
750 | Lake Shore Bancorp, Inc. | 12,195 | ||||||
673 | Lake Sunapee Bank Group | 15,876 | ||||||
759 | Malvern Bancorp, Inc.* | 16,053 | ||||||
4,170 | Meridian Bancorp, Inc. | 78,813 | ||||||
484 | Meta Financial Group, Inc. | 49,804 | ||||||
19,071 | MGIC Investment Corp.* | 194,332 | ||||||
5,566 | Nationstar Mortgage Holdings, Inc.* | 100,522 | ||||||
9,610 | New York Community Bancorp, Inc.^ | 152,895 | ||||||
3,378 | NMI Holdings, Inc., Class A* | 35,976 | ||||||
1,311 | Northeast Community Bancorp, Inc. | 10,357 | ||||||
3,608 | Northfield Bancorp, Inc. | 72,052 | ||||||
7,217 | Northwest Bancshares, Inc.^ | 130,123 | ||||||
2,643 | Oceanfirst Financial Corp. | 79,369 | ||||||
503 | Oconee Federal Financial Corp. | 10,815 | ||||||
6,975 | Ocwen Financial Corp.*^ | 37,595 | ||||||
3,358 | Oritani Financial Corp. | 62,963 | ||||||
1,218 | PennyMac Financial Services, Inc., Class A* | 20,280 | ||||||
3,040 | PHH Corp.* | 46,086 | ||||||
679 | Provident Financial Holdings, Inc. | 13,729 | ||||||
3,473 | Provident Financial Services, Inc. | 98,286 | ||||||
10,356 | Radian Group, Inc. | 186,200 | ||||||
420 | Riverview Bancorp, Inc. | 2,940 | ||||||
967 | SI Financial Group, Inc. | 14,892 | ||||||
561 | Southern Missouri Bancorp, Inc. | 19,848 | ||||||
733 | Territorial Bancorp, Inc. | 24,072 | ||||||
7,081 | TFS Financial Corp. | 134,822 | ||||||
7,273 | TrustCo Bank Corp. | 63,639 | ||||||
3,739 | United Community Financial Corp. | 33,427 | ||||||
3,669 | United Financial Bancorp, Inc. | 66,629 | ||||||
3,636 | Washington Federal, Inc. | 124,897 | ||||||
2,036 | Waterstone Financial, Inc. | 37,462 | ||||||
2,181 | Wawlker & Dunlop, Inc.* | 68,047 | ||||||
1,498 | Western New England BanCorp, Inc. | 14,006 | ||||||
2,142 | WSFS Financial Corp. | 99,282 | ||||||
|
| |||||||
3,559,367 | ||||||||
|
|
Continued
25
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Tobacco (1.2%): | ||||||||
52,537 | Altria Group, Inc. | $ | 3,552,552 | |||||
28,027 | Philip Morris International, Inc. | 2,564,190 | ||||||
8,746 | Reynolds American, Inc. | 490,126 | ||||||
1,284 | Universal Corp. | 81,855 | ||||||
7,323 | Vector Group, Ltd.^ | 166,525 | ||||||
|
| |||||||
6,855,248 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.7%): | ||||||||
7,861 | Air Lease Corp.^ | 269,868 | ||||||
4,508 | Aircastle, Ltd.^ | 93,992 | ||||||
2,594 | Applied Industrial Technologies, Inc. | 154,084 | ||||||
2,840 | Beacon Roofing Supply, Inc.* | 130,839 | ||||||
3,757 | BMC Stock Holdings, Inc.* | 73,262 | ||||||
1,592 | CAI International, Inc.*^ | 13,803 | ||||||
644 | Dxp Enterprises, Inc.* | 22,373 | ||||||
9,739 | Fastenal Co.^ | 457,537 | ||||||
600 | H&E Equipment Services, Inc. | 13,950 | ||||||
6,084 | HD Supply Holdings, Inc.* | 258,631 | ||||||
1,299 | Herc Holdings, Inc. Com* | 52,168 | ||||||
1,307 | Huttig Building Products, Inc.* | 8,639 | ||||||
2,054 | Kaman Corp., Class A | 100,502 | ||||||
5,588 | MRC Global, Inc.* | 113,213 | ||||||
2,233 | MSC Industrial Direct Co., Inc., Class A | 206,307 | ||||||
4,627 | NOW, Inc.*^ | 94,715 | ||||||
1,007 | TransAct Technologies, Inc.* | 10,876 | ||||||
2,536 | Triton International, Ltd.^ | 40,069 | ||||||
5,844 | United Rentals, Inc.*^ | 617,009 | ||||||
6,334 | Univar, Inc.* | 179,696 | ||||||
1,184 | Veritiv Corp.* | 63,640 | ||||||
2,272 | W.W. Grainger, Inc.^ | 527,671 | ||||||
1,446 | Watsco, Inc. | 214,182 | ||||||
84 | Watsco, Inc., Class B | 12,495 | ||||||
2,955 | WESCO International, Inc.* | 196,655 | ||||||
|
| |||||||
3,926,176 | ||||||||
|
| |||||||
Transportation Infrastructure (0.0%): | ||||||||
2,859 | Macquarie Infrastructure Corp. | 233,580 | ||||||
|
| |||||||
Water Utilities (0.1%): | ||||||||
2,327 | American States Water Co.^ | 106,018 | ||||||
4,447 | American Water Works Co., Inc. | 321,785 | ||||||
3,916 | Aqua America, Inc. | 117,637 |
Shares or Principal | Fair Value | |||||||
Common Stocks, continued | ||||||||
Water Utilities, continued | ||||||||
491 | Artesian Resources Corp. | $ | 15,683 | |||||
2,891 | California Water Service Group | 98,005 | ||||||
665 | Connecticut Water Service, Inc. | 37,140 | ||||||
979 | Middlesex Water Co. | 42,038 | ||||||
669 | Pure Cycle Corp.* | 3,680 | ||||||
1,234 | SJW Corp. | 69,079 | ||||||
772 | York Water Co. (The) | 29,490 | ||||||
|
| |||||||
840,555 | ||||||||
|
| |||||||
Wireless Telecommunication Services (0.2%): | ||||||||
2,055 | Boingo Wireless, Inc.* | 25,050 | ||||||
4,154 | Shenandoah Telecommunications Co.^ | 113,404 | ||||||
1,649 | Spok Holdings, Inc. | 34,217 | ||||||
15,850 | Sprint Corp.*^ | 133,457 | ||||||
6,397 | Telephone & Data Systems, Inc. | 184,681 | ||||||
7,271 | T-Mobile US, Inc.* | 418,156 | ||||||
1,288 | United States Cellular Corp.* | 56,311 | ||||||
|
| |||||||
965,276 | ||||||||
|
| |||||||
Total Common Stocks (Cost $548,474,080) | 579,821,705 | |||||||
|
| |||||||
Right (0.0%): | ||||||||
Biotechnology (0.0%): | ||||||||
2,582 | Dyax Corp. CVR, Expires on 12/31/19*(a)(b) | 2,866 | ||||||
|
| |||||||
Total Right (Cost $–) | 2,866 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (8.1%): | ||||||||
$ | 46,867,227 | AZL DFA U.S. Core Equity Fund Securities Lending Collateral Account(c) | 46,867,227 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 46,867,227 | ||||||
|
| |||||||
Unaffiliated Investment Company (0.3%): | ||||||||
1,966,972 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(d) | 1,966,972 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $1,966,972) | 1,966,972 | |||||||
|
| |||||||
Total Investment Securities (Cost $597,308,279)(e) — 108.0% | 628,658,770 | |||||||
Net other assets (liabilities) — (8.0)% | (46,570,859 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 582,087,911 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2016. The total value of securities on loan as of December 31, 2016, was $45,454,619. |
(a) | The sub-adviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2016, these securities represent 0.02% 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, 2016. The total of all such 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, 2016. |
(d) | The rate represents the effective yield at December 31, 2016. |
(e) | See Federal Tax Information listed in the Notes to the Financial Statements. |
See accompanying notes to the financial statements.
26
AZL DFA U.S. Core Equity Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investment securities, at cost | $ | 597,308,279 | |||
|
| ||||
Investment securities, at value* | $ | 628,658,770 | |||
Cash | 2,012 | ||||
Interest and dividends receivable | 611,460 | ||||
Receivable for capital shares issued | 68,459 | ||||
Receivable for investments sold | 46,463 | ||||
Reclaims receivable | 160 | ||||
Prepaid expenses | 2,830 | ||||
|
| ||||
Total Assets | 629,390,154 | ||||
|
| ||||
Liabilities: | |||||
Payable for collateral received on loaned securities | 46,867,227 | ||||
Manager fees payable | 269,108 | ||||
Administration fees payable | 13,061 | ||||
Distribution fees payable | 124,587 | ||||
Custodian fees payable | 12,382 | ||||
Administrative and compliance services fees payable | 1,555 | ||||
Trustee fees payable | 1,181 | ||||
Other accrued liabilities | 13,142 | ||||
|
| ||||
Total Liabilities | 47,302,243 | ||||
|
| ||||
Net Assets | $ | 582,087,911 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 542,924,067 | |||
Accumulated net investment income/(loss) | 6,602,252 | ||||
Accumulated net realized gains/(losses) from investment transactions | 1,211,101 | ||||
Net unrealized appreciation/(depreciation) on investments | 31,350,491 | ||||
|
| ||||
Net Assets | $ | 582,087,911 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 54,212,851 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.74 | |||
|
|
* | Includes securities on loan of $45,454,619. |
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Dividends | $ | 11,075,524 | |||
Income from securities lending | 273,533 | ||||
Foreign withholding tax | (1,415 | ) | |||
|
| ||||
Total Investment Income | 11,347,642 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 4,370,837 | ||||
Administration fees | 157,785 | ||||
Distribution fees | 1,365,888 | ||||
Custodian fees | 21,116 | ||||
Administrative and compliance services fees | 8,105 | ||||
Trustee fees | 26,968 | ||||
Professional fees | 26,479 | ||||
Shareholder reports | 7,690 | ||||
Other expenses | 13,465 | ||||
|
| ||||
Total expenses before reductions | 5,998,333 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (1,420,518 | ) | |||
|
| ||||
Net expenses | 4,577,815 | ||||
|
| ||||
Net Investment Income/(Loss) | 6,769,827 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 1,725,525 | ||||
Net realized gains/(losses) on futures contracts | 62,240 | ||||
Change in net unrealized appreciation/depreciation on investments | 65,900,402 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 67,688,167 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 74,457,994 | |||
|
|
See accompanying notes to the financial statements.
27
Statements of Changes in Net Assests
AZL DFA U.S. Core Equity Fund | ||||||||||
For the Year Ended December 31, 2016 | April 27, 2015 to December 31, 2015 (a) | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 6,769,827 | $ | 4,544,215 | ||||||
Net realized gains/(losses) on investment transactions | 1,787,765 | (670,285 | ) | |||||||
Change in unrealized appreciation/depreciation on investments | 65,900,402 | (34,549,911 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 74,457,994 | (30,675,981 | ) | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (5,009,038 | ) | — | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (5,009,038 | ) | — | |||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 59,090,768 | 664,092,322 | ||||||||
Proceeds from dividends reinvested | 5,009,038 | — | ||||||||
Value of shares redeemed | (109,037,201 | ) | (75,839,991 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (44,937,395 | ) | 588,252,331 | |||||||
|
|
|
| |||||||
Change in net assets | 24,511,561 | 557,576,350 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 557,576,350 | — | ||||||||
|
|
|
| |||||||
End of period | $ | 582,087,911 | $ | 557,576,350 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 6,602,252 | $ | 4,938,055 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 5,965,055 | 66,436,982 | ||||||||
Dividends reinvested | 503,927 | — | ||||||||
Shares redeemed | (10,989,431 | ) | (7,703,682 | ) | ||||||
|
|
|
| |||||||
Change in shares | (4,520,449 | ) | 58,733,300 | |||||||
|
|
|
|
(a) | For the period April 27, 2015 (commencement of operations) to December 31, 2015. |
See accompanying notes to the financial statements.
28
AZL DFA U.S. Core Equity Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, 2016 | April 27, 2015 December 31, | |||||||||
Net Asset Value, Beginning of Period | $ | 9.49 | $ | 10.00 | ||||||
|
|
|
| |||||||
Investment Activities: | ||||||||||
Net Investment Income/(Loss) | 0.13 | 0.08 | ||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.21 | (0.59 | ) | |||||||
|
|
|
| |||||||
Total from Investment Activities | 1.34 | (0.51 | ) | |||||||
|
|
|
| |||||||
Dividends to Shareholders From: | ||||||||||
Net Investment Income | (0.09 | ) | — | |||||||
|
|
|
| |||||||
Total Dividends | (0.09 | ) | — | |||||||
|
|
|
| |||||||
Net Asset Value, End of Period | $ | 10.74 | $ | 9.49 | ||||||
|
|
|
| |||||||
Total Return(b) | 14.25 | % | (5.10 | )%(c) | ||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||
Net Assets, End of Period (000’s) | $ | 582,088 | $ | 557,576 | ||||||
Net Investment Income/(Loss)(d) | 1.24 | % | 1.12 | % | ||||||
Expenses Before Reductions(d)(e) | 1.10 | % | 1.12 | % | ||||||
Expenses Net of Reductions(d) | 0.84 | % | 0.86 | % | ||||||
Portfolio Turnover Rate | 10 | % | 12 | %(c) |
(a) | For the period April 27, 2015 (commencement of operations) to December 31, 2015. |
(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.
29
AZL DFA U.S. Core Equity Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL DFA U.S. Core Equity Fund (the “Fund”), and 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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.
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 differing treatment on certain investments) 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.
30
AZL DFA U.S. Core Equity Fund
Notes to the Financial Statements
December 31, 2016
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, 2016 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $47.5 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $27,061 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (“ASU No. 2014-11”), “Transfers & Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged, and the remaining contractual maturity of those transactions as of December 31, 2016.
Overnight and Continuous | Less 30 Days | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions | $ | 45,910,750 | $ | 956,477 | $ | — | $ | — | $ | 46,867,227 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Securities Lending Transactions | 45,910,750 | 956,477 | — | — | 46,867,227 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Borrowings | $ | 45,910,750 | $ | 956,477 | $ | — | $ | — | $ | 46,867,227 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Gross Amount of Recognized Liabilities for Securities Lending Transactions | $ | 46,867,227 | |||||||||||||||||||||||
|
|
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and sub-adviser. Any such purchase or sale transaction must be effected without a brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security’s last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. During the year ended December 31, 2016, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
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, 2016, 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 futures contracts outstanding as of December 31, 2016. The monthly average notional amount for these contracts was $0.3 million for the year ended December 31, 2016. Realized gains and losses are reported as “Net realized gains/(losses) on futures contracts” on the Statement of Operations.
31
AZL DFA U.S. Core Equity Fund
Notes to the Financial Statements
December 31, 2016
Summary of Derivative Instruments
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, 2016:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives Recognized | Change in Net Unrealized Appreciation/Depreciation on Derivatives Recognized | |||||||
Equity Risk Exposure Equity Contracts | Net realized gains/(losses) on futures contracts / Change in unrealized appreciation/depreciation on investments | $ | 62,240 |
| $ | — |
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3. Fees and Transactions with Affiliates and Other Parties
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 Dimensional Fund Advisors LP (“DFA”), DFA 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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL DFA U.S. Core Equity Fund | 0.80 | % | 1.20 | % |
* | The Manager voluntarily reduced the management fee to 0.54% on all assets. The manager reserves the right to increase the management fee to the amount shown in the table 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, 2016, 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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the Fund’s average daily net assets, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $6,093 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
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AZL DFA U.S. Core Equity Fund
Notes to the Financial Statements
December 31, 2016
non-interested Trustee receives a $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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 (the “Board” or “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.
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, 2016, 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, 2016 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks+ | $ | 579,821,705 | $ | — | $ | 579,821,705 | |||||||||
Right | — | 2,866 | 2,866 | ||||||||||||
Securities Held as Collateral for Securities on Loan | — | 46,867,227 | 46,867,227 | ||||||||||||
Unaffiliated Investment Company | 1,966,972 | — | 1,966,972 | ||||||||||||
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Total Investment Securities | $ | 581,788,677 | $ | 46,870,093 | $ | 628,658,770 | |||||||||
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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, 2016, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL DFA U.S. Core Equity Fund | $ | 55,478,070 | $ | 99,813,757 |
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.
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AZL DFA U.S. Core Equity Fund
Notes to the Financial Statements
December 31, 2016
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 policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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 of securities for federal income tax purposes at December 31, 2016 is $597,316,377. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 70,362,912 | ||
Unrealized (depreciation) | (39,020,519 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 31,342,393 | ||
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Capital loss carry forwards (“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.
During the year ended December 31, 2016, the Fund utilized $647,707 in capital loss carry forwards to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL DFA U.S. Core Equity Fund | $ | 5,009,038 | $ | — | $ | 5,009,038 |
(a) Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes.
At December 31, 2016, 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 DFA U.S. Core Equity Fund | $ | 6,608,870 | $ | 1,212,581 | $ | — | $ | 31,342,393 | $ | 39,163,844 |
(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. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies — Form N-PORT and Form N-CEN — also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
9. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
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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 DFA U.S. Core Equity Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2016, and the related statement of operations for the year then ended and the statements of changes in net assets and the financial highlights for each of the years or periods in the two-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2016, 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 AZL DFA U.S. Core Equity Fund as of December 31, 2016 the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the years or periods in the two-year period then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Columbus, Ohio
February 24, 2017
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2016, 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.
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Approval of Investment Advisory and Subadvisory Agreements — October 25, 2016 (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 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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 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 the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held October 25, 2016, the Manager reported that for the three year period ended June 30, 2016, seven Funds were in the top 40%, two were in the middle 20% and three were in the bottom 40%, and for the one year period ended June 30, 2016, twelve Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2016, six Funds were in the top 40%, one was in the middle 20%, and three were in the bottom 40%. At the Board of Trustees meeting held October 25, 2016, 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 twenty Funds reviewed by the Board of Trustees in the fall of 2016, seventeen 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 2016 for the twenty-one Funds was as follows; (1) eighteen of the Funds had total expense rankings below the 65th percentile (with eleven Funds at or below the 50th percentile); (2) the AZL Russell 1000 Growth Index Fund had a total expense ranking in the 66th percentile, but there was only a very limited peer group for such Fund, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; (3) the AZL International Index Fund had a total expense ranking in the 75th percentile, but there was only a limited peer group for such Fund, the actual management fee was in the 37th percentile, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; and (4) for the AZL Morgan Stanley Global Real Estate Fund, which had a total expense ranking in the 70th percentile, the Manager recommended a temporary management fee waiver of 5 basis points, effective November 1, 2016, which would move the management fee ranking from the 80th to the 60th percentile.
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 2013 through June 30, 2016. 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, all of which currently are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. 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.
39
(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, 2016 were approximately $6.4 billion, and that no single Fund had assets in excess of $1,289 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, 2017, 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.
40
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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 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 | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 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 | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
41
Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
42
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® DFA U.S. Small Cap Fund
Annual Report
December 31, 2016
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 21
Statement of Operations
Page 21
Statements of Changes in Net Assets
Page 22
Financial Highlights
Page 23
Notes to the Financial Statements
Page 24
Report of Independent Registered Public Accounting Firm
Page 29
Other Federal Income Tax Information
Page 30
Other Information
Page 31
Approval of Investment Advisory and Subadvisory Agreements
Page 32
Information about the Board of Trustees and Officers
Page 35
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® DFA U.S. Small Cap Fund (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® DFA U.S. Small Cap Fund and Dimensional Fund Advisors LP serves as Subadviser to the Fund.
|
What factors affected the Fund’s performance during the year ended December 31, 2016?
For the year ended December 31, 2016, the AZL® DFA U.S. Small Cap Fund (the “Fund”) returned 24.90%. That compared to a 21.31% total return for its benchmark, the Russell 2000® Index1.
Signs of economic acceleration both domestically and globally provided a favorable backdrop for stocks during 2016. Despite a brief downturn after Britain’s vote to leave the European Union in June, all major equity categories posted positive returns during the period under review. U.S. equities ended 2016 in a particularly strong fashion, boosted by a year-end rally after Donald Trump’s victory in the U.S. presidential election. In December, the U.S. Federal Reserve raised the federal funds rate for the second time in a decade and indicated that more rate hikes are likely in 2017, a positive indication about the overall health of the domestic economy.
These factors helped U.S. stocks outperform both developed and emerging market equities. In general, small-cap stocks outperformed their large-cap counterparts for the period, and that outperformance accelerated significantly following the U.S. election. Value stocks outperformed growth in both the large- and small-cap dimensions.
The Fund outperformed its benchmark for the 12-month period. A strategy aimed at excluding stocks with high valuations and low profitability benefited the Fund’s relative results, as those securities underperformed during the period, particularly in the health care sector.*
The Fund’s greater allocation to larger companies within the small-cap equities universe dragged on relative performance during the period, as these investments underperformed micro-cap stocks for the year.*
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, 2016.
| |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
1
AZL® DFA U.S. Small Cap 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 small-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.
Small- to mid-capitalization companies typically have a higher risk of failure and historically have experienced a greater degree of volatility.
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 Total Returns as of December 31, 2016 | ||||||||
Since Inception (4/27/15) | ||||||||
1 | ||||||||
Year | ||||||||
AZL® DFA U.S. Small Cap Fund | 24.90 | % | 8.64 | % | ||||
Russell 2000® Index | 21.31 | % | 6.47 | % |
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® DFA U.S. Small Cap Fund | 1.18 | % |
The above expense ratio is based on the current Fund prospectus dated April 25, 2016, as supplemented October 14, 2016. The Manager voluntarily reduced the management fee to 0.70% on all assets. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.35% through April 30, 2018. Additional information pertaining to the December 31, 2016 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 Russell 2000® Index, which is an unmanaged market capitalization-weighted index comprised of the 2,000 smallest companies listed on the Russell 3000® Index, which contains the 3,000 largest companies in the U.S. based on market capitalization. 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 DFA U.S. Small Cap Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL DFA U.S. Small Cap 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL DFA U.S. Small Cap Fund | $ | 1,000.00 | $ | 1,203.00 | $ | 5.54 | 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL DFA U.S. Small Cap Fund | $ | 1,000.00 | $ | 1,020.11 | $ | 5.08 | 1.00 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Financials | 23.7 | % | |||
Industrials | 18.9 | ||||
Information Technology | 15.5 | ||||
Consumer Discretionary | 14.5 | ||||
Health Care | 7.9 | ||||
Materials | 5.7 | ||||
Utilities | 4.5 | ||||
Consumer Staples | 3.9 | ||||
Energy | 3.7 | ||||
Telecommunication Services | 1.1 | ||||
Real Estate | 0.7 | ||||
|
| ||||
Total Common Stocks | 100.1 | ||||
Securities Held as Collateral for Securities on Loan | 18.2 | ||||
|
| ||||
Total Investment Securities | 118.3 | ||||
Net other assets (liabilities) | (18.3 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
Common Stocks (100.1%): | ||||||||
Aerospace & Defense (1.6%): | ||||||||
1,397 | AAR Corp. | $ | 46,171 | |||||
12,753 | Aerojet Rocketdyne Holdings, Inc.*^ | 228,916 | ||||||
3,952 | AeroVironment, Inc.* | 106,032 | ||||||
1,402 | Air Industries Group, Inc.* | 4,416 | ||||||
5,128 | Arotech Corp.* | 17,948 | ||||||
3,415 | Astronics Corp.* | 115,564 | ||||||
550 | Astronics Corp., Class B* | 18,535 | ||||||
3,937 | Astrotech Corp.* | 5,866 | ||||||
3,317 | BWX Technologies, Inc. | 131,685 | ||||||
685 | CPI Aerostructures, Inc.* | 6,336 | ||||||
4,364 | Cubic Corp. | 209,254 | ||||||
774 | Curtiss-Wright Corp. | 76,131 | ||||||
10,878 | DigitalGlobe, Inc.*^ | 311,655 | ||||||
766 | Ducommun, Inc.* | 19,579 | ||||||
3,343 | Engility Holdings, Inc.* | 112,659 | ||||||
808 | Esterline Technologies Corp.* | 72,074 | ||||||
3,376 | Innovative Solutions & Support, Inc.* | 11,242 | ||||||
7,000 | KLX, Inc.* | 315,770 | ||||||
11,071 | Kratos Defense & Security Solutions, Inc.* | 81,925 | ||||||
2,710 | LMI Aerospace, Inc.* | 23,360 | ||||||
4,748 | Mercury Computer Systems, Inc.* | 143,485 | ||||||
5,506 | Moog, Inc., Class A* | 361,634 | ||||||
66 | Moog, Inc., Class B* | 4,307 | ||||||
1,293 | National Presto Industries, Inc. | 137,575 | ||||||
8,722 | TASER International, Inc.*^ | 211,421 | ||||||
235 | Teledyne Technologies, Inc.* | 28,905 | ||||||
633 | Tel-Instrument Electronics Corp.* | 2,785 | ||||||
7,022 | The KEYW Holding Corp.* | 82,789 | ||||||
6,548 | Triumph Group, Inc.^ | 173,522 | ||||||
15,588 | WESCO Aircraft Holdings, Inc.*^ | 233,041 | ||||||
|
| |||||||
3,294,582 | ||||||||
|
| |||||||
Air Freight & Logistics (0.5%): | ||||||||
492 | Air T, Inc.* | 11,267 | ||||||
12,088 | Air Transport Services Group, Inc.* | 192,924 | ||||||
1,862 | Atlas Air Worldwide Holdings, Inc.* | 97,103 | ||||||
4,235 | Echo Global Logistics, Inc.* | 106,087 | ||||||
4,737 | Forward Air Corp. | 224,439 | ||||||
6,045 | Hub Group, Inc.* | 264,469 | ||||||
2,328 | Park-Ohio Holdings Corp. | 99,173 | ||||||
5,212 | Radiant Logistics, Inc.* | 20,327 | ||||||
|
| |||||||
1,015,789 | ||||||||
|
| |||||||
Airlines (0.5%): | ||||||||
2,379 | Allegiant Travel Co. | 395,866 | ||||||
562 | Copa Holdings SA, Class A | 51,046 | ||||||
7,531 | Hawaiian Holdings, Inc.* | 429,267 | ||||||
1,113 | SkyWest, Inc. | 40,569 | ||||||
2,855 | Spirit Airlines, Inc.* | 165,190 | ||||||
|
| |||||||
1,081,938 | ||||||||
|
| |||||||
Auto Components (1.7%): | ||||||||
13,720 | American Axle & Manufacturing Holdings, Inc.* | 264,796 | ||||||
8,611 | Cooper Tire & Rubber Co. | 334,537 | ||||||
2,216 | Cooper-Standard Holding, Inc.* | 229,090 | ||||||
4,410 | Dana Holding Corp. | 83,702 | ||||||
5,557 | Dorman Products, Inc.* | 405,994 |
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Auto Components, continued | ||||||||
4,538 | Drew Industries, Inc.* | $ | 488,969 | |||||
17,141 | Federal Mogul Holdings Corp.* | 176,724 | ||||||
6,597 | Fox Factory Holding Corp.* | 183,067 | ||||||
6,256 | Gentherm, Inc.* | 211,766 | ||||||
3,099 | Horizon Global Corp.* | 74,376 | ||||||
9,007 | Modine Manufacturing Co.* | 134,204 | ||||||
3,366 | Motorcar Parts of America, Inc.* | 90,613 | ||||||
6,373 | Spartan Motors, Inc. | 58,950 | ||||||
4,020 | Standard Motor Products, Inc. | 213,944 | ||||||
5,223 | Stoneridge, Inc.* | 92,395 | ||||||
733 | Strattec Security Corp. | 29,540 | ||||||
2,136 | Tenneco, Inc.* | 133,436 | ||||||
3,920 | Tower International, Inc. | 111,132 | ||||||
1,614 | Visteon Corp. | 129,669 | ||||||
4,313 | VOXX International Corp.* | 20,271 | ||||||
|
| |||||||
3,467,175 | ||||||||
|
| |||||||
Automobiles (0.1%): | ||||||||
1,621 | Thor Industries, Inc. | �� | 162,181 | |||||
4,607 | Winnebago Industries, Inc. | 145,812 | ||||||
|
| |||||||
307,993 | ||||||||
|
| |||||||
Banks (15.5%): | ||||||||
1,584 | 1st Constitution Bancorp | 29,621 | ||||||
4,655 | 1st Source Corp. | 207,892 | ||||||
1,956 | Access National Corp.^ | 54,299 | ||||||
410 | ACNB Corp. | 12,813 | ||||||
1,639 | American National Bankshares, Inc. | 57,037 | ||||||
346 | American River Bankshares* | 5,228 | ||||||
6,355 | Ameris Bancorp | 277,078 | ||||||
1,649 | Ames National Corp. | 54,417 | ||||||
294 | Anchor Bancorp, Inc.* | 7,997 | ||||||
2,496 | Arrow Financial Corp.^ | 101,088 | ||||||
17,207 | Associated Banc-Corp. | 425,013 | ||||||
13 | Auburn National Bancorp, Inc. | 407 | ||||||
6,594 | Banc of California, Inc. | 114,406 | ||||||
2,407 | BancFirst Corp. | 223,971 | ||||||
736 | Bancorp of New Jersey, Inc. | 9,936 | ||||||
7,009 | Bancorp, Inc. (The)*^ | 55,091 | ||||||
14,954 | BancorpSouth, Inc. | 464,321 | ||||||
2,653 | Bank of Commerce Holdings | 25,204 | ||||||
5,271 | Bank of Hawaii Corp.^ | 467,484 | ||||||
1,200 | Bank of Marin Bancorp | 83,700 | ||||||
441 | Bank of South Carolina Corp. | 9,217 | ||||||
4,201 | Banner Corp. | 234,458 | ||||||
1,220 | Bar Harbor Bankshares | 57,743 | ||||||
1,367 | Bay Bancorp, Inc.* | 9,022 | ||||||
595 | BCB Bancorp, Inc. | 7,735 | ||||||
4,723 | Berkshire Hills Bancorp, Inc. | 174,043 | ||||||
6,893 | BNC Bancorp | 219,887 | ||||||
14,390 | Boston Private Financial Holdings, Inc. | 238,155 | ||||||
2,206 | Bridge Bancorp, Inc. | 83,607 | ||||||
12,156 | Brookline Bancorp, Inc. | 199,358 | ||||||
3,289 | Bryn Mawr Bank Corp. | 138,631 | ||||||
74 | C&F Financial Corp. | 3,689 | ||||||
1,274 | California First National Bancorp | 19,938 |
Continued
4
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
2,359 | Camden National Corp. | $ | 104,858 | |||||
4,547 | Capital Bank Financial Corp., Class A | 178,470 | ||||||
3,242 | Capital City Bank Group, Inc. | 66,396 | ||||||
5,532 | Cardinal Financial Corp. | 181,395 | ||||||
694 | Carolina Bank Holdings, Inc.* | 17,926 | ||||||
397 | Carolina Financial Corp. | 12,224 | ||||||
13,625 | Cascade Bancorp* | 110,635 | ||||||
11,284 | Cathay General Bancorp | 429,131 | ||||||
8,484 | Centerstate Banks, Inc. | 213,542 | ||||||
5,261 | Central Pacific Financial Corp. | 165,301 | ||||||
1,141 | Central Valley Community Bancorp | 22,774 | ||||||
511 | Century Bancorp, Inc. | 30,660 | ||||||
7,350 | Chemical Financial Corp. | 398,150 | ||||||
940 | Chemung Financial Corp. | 34,169 | ||||||
2,509 | Citizens & Northern Corp.^ | 65,736 | ||||||
261 | Citizens First Corp. | 4,698 | ||||||
718 | Citizens Holding Co. | 18,560 | ||||||
2,576 | City Holding Co. | 174,138 | ||||||
797 | Civista Bancshares, Inc. | 15,486 | ||||||
2,720 | CNB Financial Corp. | 72,733 | ||||||
7,107 | CoBiz Financial, Inc. | 120,037 | ||||||
75 | Codorus Valley Bancorp, Inc. | 2,145 | ||||||
56 | Colony Bankcorp, Inc.* | 739 | ||||||
9,489 | Columbia Banking System, Inc. | 423,969 | ||||||
7,358 | Community Bank System, Inc.^ | 454,651 | ||||||
3,296 | Community Bankers Trust Corp.* | 23,896 | ||||||
3,050 | Community Trust Bancorp, Inc. | 151,280 | ||||||
525 | Community West Bancshares | 4,883 | ||||||
5,611 | ConnectOne Bancorp, Inc. | 145,605 | ||||||
3,186 | CU Bancorp* | 114,059 | ||||||
5,060 | Customers Bancorp, Inc.* | 181,249 | ||||||
17,004 | CVB Financial Corp.^ | 389,902 | ||||||
130 | DNB Financial Corp. | 3,692 | ||||||
609 | Eagle Bancorp Montana, Inc. | 12,850 | ||||||
5,021 | Eagle Bancorp, Inc.* | 306,030 | ||||||
2,246 | Eastern Virginia Bankshares, Inc. | 23,471 | ||||||
3,787 | Enterprise Financial Services Corp. | 162,841 | ||||||
300 | Equity Bancshares, Inc.* | 10,092 | ||||||
534 | Evans Bancorp, Inc. | 16,848 | ||||||
25,433 | F.N.B. Corp. | 407,691 | ||||||
1,103 | Farmers Capital Bank Corp.^ | 46,381 | ||||||
2,582 | Farmers National Banc Corp. | 36,664 | ||||||
242 | Fauquier Bankshares, Inc. | 3,908 | ||||||
819 | FCB Financial Holdings, Inc.* | 39,066 | ||||||
4,053 | Fidelity Southern Corp. | 95,935 | ||||||
2,609 | Financial Institutions, Inc. | 89,228 | ||||||
38,108 | First Bancorp* | 251,894 | ||||||
3,708 | First Bancorp | 100,635 | ||||||
2,165 | First Bancorp, Inc. | 71,662 | ||||||
965 | First Bancshares, Inc. (The) | 26,538 | ||||||
6,563 | First Busey Corp. | 202,009 | ||||||
1,646 | First Business Financial Services, Inc. | 39,043 | ||||||
794 | First Citizens BancShares, Inc., Class A | 281,870 | ||||||
3,144 | First Commonwealth Financial Corp. | 44,582 | ||||||
3,514 | First Community Bankshares | 105,912 |
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
2,774 | First Connecticut Bancorp, Inc. | $ | 62,831 | |||||
10,944 | First Financial Bancorp | 311,357 | ||||||
9,256 | First Financial Bankshares, Inc. | 418,371 | ||||||
2,100 | First Financial Corp. | 110,880 | ||||||
2,252 | First Financial Northwest, Inc. | 44,454 | ||||||
1,289 | First Foundation, Inc.* | 36,737 | ||||||
8,453 | First Horizon National Corp. | 169,145 | ||||||
3,685 | First Interstate BancSystem, Class A^ | 156,797 | ||||||
6,823 | First Merchants Corp. | 256,886 | ||||||
13,368 | First Midwest Bancorp, Inc. | 337,275 | ||||||
3,442 | First NBC Bank Holding Co.* | 25,127 | ||||||
3,897 | First of Long Island Corp. (The) | 111,259 | ||||||
28 | First Savings Financial Group | 1,336 | ||||||
888 | First South Bancorp | 10,612 | ||||||
208 | First United Corp.*(a) | 3,318 | ||||||
908 | First US Bancshares, Inc. | 10,124 | ||||||
4,932 | Flushing Financial Corp. | 144,951 | ||||||
279 | Franklin Financial Network, Inc.* | 11,676 | ||||||
25,457 | Fulton Financial Corp. | 478,591 | ||||||
2,789 | German American Bancorp, Inc.^ | 146,729 | ||||||
12,694 | Glacier Bancorp, Inc.^ | 459,903 | ||||||
2,565 | Great Southern Bancorp, Inc. | 140,177 | ||||||
849 | Great Western Bancorp, Inc. | 37,008 | ||||||
3,876 | Guaranty Bancorp | 93,799 | ||||||
10,509 | Hancock Holding Co. | 452,938 | ||||||
5,559 | Hanmi Financial Corp. | 194,009 | ||||||
38 | Hawthorn Bancshares, Inc. | 671 | ||||||
3,898 | Heartland Financial USA, Inc. | 187,104 | ||||||
5,183 | Heritage Financial Corp. | 133,462 | ||||||
6,360 | Heritage Oaks Bancorp | 78,419 | ||||||
4,977 | Hertiage Commerce Corp. | 71,818 | ||||||
16,353 | Hilltop Holdings, Inc. | 487,318 | ||||||
15,366 | Home Bancshares, Inc.^ | 426,714 | ||||||
3,318 | Hometrust Bancshares, Inc.* | 85,936 | ||||||
18,841 | Hope BanCorp, Inc. | 412,429 | ||||||
2,959 | Horizon Bancorp | 82,852 | ||||||
4,676 | IBERIABANK Corp. | 391,615 | ||||||
4,455 | Independent Bank Corp. | 313,855 | ||||||
3,196 | Independent Bank Group, Inc.^ | 199,430 | ||||||
10,786 | International Bancshares Corp. | 440,069 | ||||||
7,007 | Lakeland Bancorp, Inc. | 136,637 | ||||||
4,322 | Lakeland Financial Corp. | 204,690 | ||||||
745 | Landmark Bancorp, Inc. | 20,882 | ||||||
1,512 | LCNB Corp. | 35,154 | ||||||
8,114 | LegacyTexas Financial Group, Inc. | 349,389 | ||||||
5,225 | Macatawa Bank Corp. | 54,392 | ||||||
1,048 | Mackinac Financial Corp. | 14,117 | ||||||
4,070 | Mainsource Financial Group, Inc. | 140,008 | ||||||
8,905 | MB Financial, Inc. | 420,583 | ||||||
1,565 | MBT Financial Corp. | 17,763 | ||||||
3,203 | Mercantile Bank Corp. | 120,753 | ||||||
1,168 | Merchants Bancshares, Inc. | 63,306 | ||||||
303 | Middleburg Financial Corp. | 10,529 | ||||||
1,441 | MidWestone Financial Group, Inc. | 54,182 | ||||||
892 | MutualFirst Financial, Inc. | 29,525 |
Continued
5
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
4,474 | National Bank Holdings Corp. | $ | 142,676 | |||||
1,309 | National Bankshares, Inc. | 56,876 | ||||||
7,207 | NBT Bancorp, Inc.^ | 301,829 | ||||||
378 | Nicolet Bankshares, Inc.* | 18,027 | ||||||
1,136 | Northeast Bancorp | 14,882 | ||||||
1,357 | Northrim Bancorp, Inc. | 42,881 | ||||||
406 | Norwood Financial Corp.^ | 13,455 | ||||||
7,468 | OFG Bancorp | 97,831 | ||||||
183 | Ohio Valley Banc Corp. | 4,978 | ||||||
2,029 | Old Line Bancshares, Inc. | 48,655 | ||||||
19,364 | Old National Bancorp | 351,457 | ||||||
1,004 | Old Point Financial Corp. | 25,100 | ||||||
3,314 | Old Second Bancorp, Inc. | 36,620 | ||||||
622 | Opus Bank | 18,691 | ||||||
1,398 | Orrstown Financial Services, Inc. | 31,315 | ||||||
3,315 | Pacific Continental Corp. | 72,433 | ||||||
1,718 | Pacific Mercantile Bancorp* | 12,541 | ||||||
4,076 | Pacific Premier Bancorp, Inc.* | 144,087 | ||||||
2,309 | Park National Corp.^ | 276,295 | ||||||
8,402 | Park Sterling Corp. | 90,658 | ||||||
1,230 | Parke Bancorp, Inc. | 24,785 | ||||||
2,884 | Peapack-Gladstone Financial Corp. | 89,058 | ||||||
968 | Penns Woods Bancorp, Inc. | 48,884 | ||||||
395 | Peoples Bancorp | 9,903 | ||||||
3,369 | Peoples Bancorp, Inc. | 109,358 | ||||||
452 | People’s Utah BanCorp | 12,136 | ||||||
7,244 | Pinnacle Financial Partners, Inc. | 502,008 | ||||||
5 | Polonia Bancorp, Inc.* | 56 | ||||||
3,264 | Popular, Inc. | 143,028 | ||||||
1,000 | Porter Bancorp, Inc.* | 12,320 | ||||||
2,485 | Preferred Bank Los Angeles | 130,264 | ||||||
955 | Premier Financial Bancorp, Inc. | 19,196 | ||||||
11,402 | PrivateBancorp, Inc. | 617,873 | ||||||
425 | Prosperity Bancshares, Inc.^ | 30,507 | ||||||
1,118 | QCR Holdings, Inc. | 48,409 | ||||||
5,547 | Renasant Co. | 234,194 | ||||||
2,499 | Republic Bancorp, Inc., Class A | 98,810 | ||||||
7,724 | Republic First Bancorp, Inc.* | 64,495 | ||||||
6,121 | S & T Bancorp, Inc. | 238,964 | ||||||
320 | Salisbury Bancorp, Inc. | 12,000 | ||||||
4,230 | Sandy Spring Bancorp, Inc. | 169,158 | ||||||
552 | SB Financial Group, Inc. | 8,860 | ||||||
6,202 | Seacoast Banking Corp.* | 136,816 | ||||||
1,252 | Select Bancorp, Inc.* | 12,332 | ||||||
544 | ServisFirst Bancshares, Inc.^ | 20,367 | ||||||
2,325 | Shore Bancshares, Inc. | 35,456 | ||||||
2,735 | Sierra Bancorp | 72,724 | ||||||
4,932 | Simmons First National Corp., Class A | 306,524 | ||||||
3,956 | South State Corp. | 345,754 | ||||||
562 | Southern First Bancshares, Inc.* | 20,232 | ||||||
892 | Southern National Bancorp | 14,575 | ||||||
4,344 | Southside Bancshares, Inc. | 163,638 | ||||||
3,583 | Southwest Bancorp | 103,907 | ||||||
88 | Southwest Georgia Financial Corp. | 1,738 | ||||||
6,242 | State Bank Financial Corp. | 167,660 |
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
16,487 | Sterling Bancorp | $ | 385,796 | |||||
690 | Stewardship Financial Corp. | 6,762 | ||||||
4,055 | Stock Yards Bancorp, Inc.^ | 190,382 | ||||||
245 | Stonegate Bank | 10,224 | ||||||
2,188 | Suffolk Bancorp | 93,690 | ||||||
682 | Summit Financial Group, Inc.^ | 18,775 | ||||||
963 | Summit State Bank | 14,445 | ||||||
2,160 | Sun Bancorp, Inc.^ | 56,160 | ||||||
625 | Sussex Bancorp | 13,063 | ||||||
22,638 | TCF Financial Corp. | 443,478 | ||||||
7,126 | Texas Capital Bancshares, Inc.* | 558,677 | ||||||
2,544 | Tompkins Financial Corp.^ | 240,510 | ||||||
9,685 | TowneBank | 322,026 | ||||||
4,274 | TriCo Bancshares | 146,085 | ||||||
5,240 | Tristate Capital Holdings, Inc.* | 115,804 | ||||||
11,394 | Trustmark Corp.^ | 406,196 | ||||||
94 | Two River Bancorp | 1,402 | ||||||
5,635 | UMB Financial Corp.^ | 434,571 | ||||||
7,370 | Union Bankshares Corp. | 263,404 | ||||||
249 | Union Bankshares, Inc. | 11,317 | ||||||
450 | United Bancshares, Inc. | 9,900 | ||||||
8,613 | United Bankshares, Inc. | 398,351 | ||||||
3,612 | United Community Banks, Inc. | 106,987 | ||||||
907 | United Security Bancshares* | 7,029 | ||||||
42 | Unity Bancorp, Inc. | 659 | ||||||
4,739 | Univest Corp. | 146,435 | ||||||
33,761 | Valley National Bancorp^ | 392,978 | ||||||
398 | Veritex Holdings, Inc.* | 10,631 | ||||||
2,963 | Washington Trust Bancorp | 166,076 | ||||||
456 | WashingtonFirst Bankshare, Inc. | 13,219 | ||||||
2,793 | Webster Financial Corp.^ | 151,604 | ||||||
127 | Wellesley Bank | 3,524 | ||||||
6,412 | WesBanco, Inc. | 276,101 | ||||||
3,230 | West Bancorp | 79,781 | ||||||
4,131 | Westamerica Bancorp | 259,964 | ||||||
5,896 | Wintrust Financial Corp. | 427,873 | ||||||
83 | Xenith Bankshares, Inc.* | 2,341 | ||||||
8,170 | Yadkin Financial Corp. | 279,904 | ||||||
|
| |||||||
32,284,017 | ||||||||
|
| |||||||
Beverages (0.3%): | ||||||||
1,205 | Coca-Cola Bottling Co. Consolidated^ | 215,514 | ||||||
1,920 | Craft Brewers Alliance, Inc.* | 32,448 | ||||||
3,286 | MGP Ingredients, Inc.^ | 164,234 | ||||||
4,974 | National Beverage Corp.^ | 254,072 | ||||||
1,100 | Primo Water Corp.* | 13,508 | ||||||
985 | Willamette Valley Vineyards, Inc.* | 7,890 | ||||||
|
| |||||||
687,666 | ||||||||
|
| |||||||
Biotechnology (0.7%): | ||||||||
383 | Acorda Therapeutics, Inc.* | 7,200 | ||||||
2,927 | Akebia Therapeutics, Inc.* | 30,470 | ||||||
1,397 | AMAG Pharmaceuticals, Inc.*^ | 48,616 | ||||||
2,800 | Amicus Therapeutics, Inc.*^ | 13,916 | ||||||
3,846 | Aptevo Therapeutics, Inc.* | 9,384 | ||||||
3,629 | Atara Biotherapeutics, Inc.* | 51,532 |
Continued
6
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Biotechnology, continued | ||||||||
3,900 | Atyr Pharma, Inc.* | $ | 8,385 | |||||
7,111 | Aviragen Therapeutics, Inc.* | 8,747 | ||||||
1,280 | Biospecifics Technologies Corp.* | 71,296 | ||||||
740 | Bluebird Bio, Inc.*^ | 45,658 | ||||||
6,042 | Celldex Theraputics, Inc.* | 21,389 | ||||||
6,811 | Emergent Biosolutions, Inc.* | 223,672 | ||||||
3,175 | Enanta Pharmaceuticals, Inc.* | 106,363 | ||||||
1,280 | Five Prime Therapeutics, Inc.* | 64,141 | ||||||
7,434 | Fortress Biotech, Inc.* | 20,072 | ||||||
3,451 | Genocea Biosciences, Inc.* | 14,218 | ||||||
592 | ImmuCell Corp.*^ | 3,522 | ||||||
1,703 | Inotek Pharmaceuticals Corp.* | 10,388 | ||||||
11,121 | Insys Therapeutics, Inc.*^ | 102,313 | ||||||
2,838 | Karyopharm Therapeutics, Inc.* | 26,677 | ||||||
1,681 | Ligand Pharmaceuticals, Inc., Class B*^ | 170,806 | ||||||
3,803 | Mimedx Group, Inc.* | 33,695 | ||||||
9,783 | Myriad Genetics, Inc.*^ | 163,083 | ||||||
5,361 | Newlink Genetics Corp.*^ | 55,111 | ||||||
2,308 | Otonomy, Inc.*^ | 36,697 | ||||||
27,986 | PDL BioPharma, Inc. | 59,330 | ||||||
1,429 | Pfenex, Inc.* | 12,961 | ||||||
935 | Retrophin, Inc.*^ | 17,700 | ||||||
2,100 | Spectrum Pharmaceuticals, Inc.*^ | 9,303 | ||||||
5,663 | Tenax Therapeutics, Inc.* | 11,043 | ||||||
3,399 | Zafgen, Inc.* | 10,809 | ||||||
|
| |||||||
1,468,497 | ||||||||
|
| |||||||
Building Products (1.4%): | ||||||||
8,766 | AAON, Inc.^ | 289,716 | ||||||
2,186 | Advanced Drainage Systems, Inc.^ | 45,032 | ||||||
2,639 | American Woodmark Corp.* | 198,585 | ||||||
5,176 | Apogee Enterprises, Inc.^ | 277,227 | ||||||
3,226 | Armstrong Flooring, Inc.* | 64,230 | ||||||
6,018 | Armstrong World Industries, Inc.*^ | 251,552 | ||||||
14,981 | Builders FirstSource, Inc.*^ | 164,342 | ||||||
1,725 | Continental Building Products, Inc.* | 39,848 | ||||||
308 | Continental Materials Corp.* | 7,377 | ||||||
1,117 | Gibraltar Industries, Inc.* | 46,523 | ||||||
2,755 | Insteel Industries, Inc.^ | 98,188 | ||||||
12,539 | NCI Building Systems, Inc.* | 196,235 | ||||||
2,514 | Patrick Industries, Inc.*^ | 191,818 | ||||||
8,952 | PGT, Inc.* | 102,500 | ||||||
11,370 | Ply Gem Holdings, Inc.* | 184,763 | ||||||
6,124 | Quanex Building Products Corp. | 124,317 | ||||||
8,130 | Simpson Manufacturing Co., Inc. | 355,687 | ||||||
4,786 | Trex Co., Inc.*^ | 308,218 | ||||||
471 | Universal Forest Products, Inc. | 48,127 | ||||||
|
| |||||||
2,994,285 | ||||||||
|
| |||||||
Capital Markets (1.2%): | ||||||||
1,393 | Artisan Partners Asset Management, Inc., Class A^ | 41,442 | ||||||
10,034 | BGC Partners, Inc., Class A | 102,648 | ||||||
7,411 | Cohen & Steers, Inc. | 249,009 | ||||||
575 | Diamond Hill Investment Group | 120,969 | ||||||
597 | Donnelley Financial Solutions, Inc.* | 13,719 |
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Capital Markets, continued | ||||||||
4,561 | Federated Investors, Inc., Class B^ | $ | 128,985 | |||||
1,769 | Financial Engines, Inc. | 65,011 | ||||||
8,015 | Gain Capital Holdings, Inc. | 52,739 | ||||||
1,201 | GAMCO Investors, Inc., Class A | 37,099 | ||||||
4,915 | Greenhill & Co., Inc.^ | 136,146 | ||||||
141 | Hennessy Advisors, Inc. | 4,477 | ||||||
10,299 | Interactive Brokers Group, Inc., Class A | 376,015 | ||||||
3,446 | INTL FCStone, Inc.* | 136,462 | ||||||
5,216 | Janus Capital Group, Inc. | 69,216 | ||||||
11,945 | KCG Holdings, Inc.* | 158,271 | ||||||
34,837 | Ladenburg Thalmann Financial Services, Inc.* | 85,002 | ||||||
844 | LPL Financial Holdings, Inc. | 29,717 | ||||||
466 | MarketAxess Holdings, Inc. | 68,465 | ||||||
426 | Moelis & Co., Class A | 14,441 | ||||||
4,196 | NorthStar Asset Management Group, Inc.^ | 62,604 | ||||||
1,098 | Om Asset Management plc | 15,921 | ||||||
2,541 | Oppenheimer Holdings, Class A | 47,263 | ||||||
2,624 | Pzena Investment Management, Inc. | 29,153 | ||||||
3,824 | Safeguard Scientifics, Inc.* | 51,433 | ||||||
1,619 | Silvercrest Asset Management Group, Inc., Class A | 21,290 | ||||||
1,266 | Stifel Financial Corp.* | 63,237 | ||||||
207 | Value Line, Inc. | 4,037 | ||||||
91 | Virtus Investment Partners, Inc. | 10,743 | ||||||
1,678 | Westwood Holdings, Inc. | 100,663 | ||||||
21,433 | WisdomTree Investments, Inc.^ | 238,763 | ||||||
|
| |||||||
2,534,940 | ||||||||
|
| |||||||
Chemicals (2.6%): | ||||||||
5,150 | A. Schulman, Inc. | 172,268 | ||||||
5,740 | American Vanguard Corp. | 109,921 | ||||||
4,463 | Balchem Corp. | 374,535 | ||||||
5,561 | Cabot Corp. | 281,053 | ||||||
9,956 | Calgon Carbon Corp. | 169,252 | ||||||
1,192 | Chase Corp. | 99,592 | ||||||
12,818 | Chemtura Corp.* | 425,557 | ||||||
1,403 | Core Molding Technologies, Inc.* | 24,005 | ||||||
2,886 | Ferro Corp.* | 41,356 | ||||||
2,318 | Flotek Industries, Inc.*^ | 21,766 | ||||||
7,977 | Futurefuel Corp. | 110,880 | ||||||
3,321 | GCP Applied Technologies, Inc.* | 88,837 | ||||||
7,929 | H.B. Fuller Co. | 383,050 | ||||||
1,989 | Hawkins, Inc. | 107,307 | ||||||
796 | Ingevity Corp.* | 43,669 | ||||||
3,644 | Innophos Holdings, Inc. | 190,435 | ||||||
4,174 | Innospec, Inc. | 285,919 | ||||||
14,475 | Intrepid Potash, Inc.* | 30,108 | ||||||
2,103 | KMG Chemicals, Inc. | 81,786 | ||||||
5,305 | Kraton Performance Polymers, Inc.* | 151,086 | ||||||
13,418 | Kronos Worldwide, Inc. | 160,211 | ||||||
4,373 | LSB Industries, Inc.* | 36,821 | ||||||
5,487 | Minerals Technologies, Inc. | 423,870 | ||||||
893 | Northern Technologies International Corp.* | 12,279 | ||||||
5,935 | Olin Corp.^ | 151,995 | ||||||
8,799 | Omnova Solutions, Inc.* | 87,990 | ||||||
10,245 | Platform Speciality Products Corp.* | 100,503 |
Continued
7
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Chemicals, continued | ||||||||
3,797 | PolyOne Corp. | $ | 121,656 | |||||
2,081 | Quaker Chemical Corp. | 266,243 | ||||||
2,769 | Rayonier Advanced Materials, Inc. | 42,809 | ||||||
1,528 | Sensient Technologies Corp. | 120,070 | ||||||
3,672 | Stepan Co. | 299,195 | ||||||
279 | TOR Minerals International, Inc.* | 1,688 | ||||||
4,603 | Trecora Resources* | 63,752 | ||||||
1,788 | Tredegar Corp. | 42,912 | ||||||
2,135 | Trinseo SA | 126,606 | ||||||
10,917 | Tronox, Ltd., Class A | 112,554 | ||||||
|
| |||||||
5,363,536 | ||||||||
|
| |||||||
Commercial Services & Supplies (3.6%): | ||||||||
9,165 | ABM Industries, Inc. | 374,298 | ||||||
18,472 | ACCO Brands Corp.* | 241,060 | ||||||
675 | Acme United Corp. | 17,267 | ||||||
1,580 | AMREP Corp.* | 11,724 | ||||||
8,754 | ARC Document Solutions, Inc.* | 44,470 | ||||||
7,780 | Brady Corp., Class A | 292,139 | ||||||
7,802 | Brink’s Co. (The) | 321,833 | ||||||
7,585 | Casella Waste Systems, Inc.* | 94,130 | ||||||
5,965 | CECO Environmental Corp. | 83,212 | ||||||
2,332 | Clean Harbors, Inc.*^ | 129,776 | ||||||
325 | CompX International, Inc. | 5,233 | ||||||
19,019 | Covanta Holding Corp.^ | 296,696 | ||||||
1,356 | Deluxe Corp. | 97,103 | ||||||
535 | Ecology and Environment, Inc., Class A | 5,644 | ||||||
1,100 | Ennis, Inc. | 19,085 | ||||||
6,386 | Essendant, Inc. | 133,467 | ||||||
3,784 | G&K Services, Inc., Class A | 364,966 | ||||||
3,351 | Healthcare Services Group, Inc. | 131,259 | ||||||
8,920 | Herman Miller, Inc. | 305,064 | ||||||
7,237 | HNI Corp.^ | 404,692 | ||||||
1,900 | Hudson Technologies, Inc*^ | 15,219 | ||||||
3,695 | InnerWorkings, Inc.* | 36,396 | ||||||
11,087 | Interface, Inc. | 205,664 | ||||||
4,059 | Intersections, Inc.* | 16,195 | ||||||
7,005 | Kimball International, Inc., Class B | 123,008 | ||||||
8,661 | Knoll, Inc. | 241,902 | ||||||
597 | LSC Communications, Inc. | 17,719 | ||||||
5,162 | Matthews International Corp., Class A | 396,699 | ||||||
4,607 | McGrath Rentcorp | 180,548 | ||||||
7,137 | Mobile Mini, Inc.^ | 215,894 | ||||||
6,137 | MSA Safety, Inc. | 425,477 | ||||||
2,406 | Multi-Color Corp. | 186,706 | ||||||
2,566 | NL Industries, Inc.* | 20,913 | ||||||
2,198 | Perma-Fix Environmental Services, Inc.* | 8,572 | ||||||
5,379 | Quad Graphics, Inc. | 144,588 | ||||||
1,465 | RR Donnelley & Sons Co.^ | 23,909 | ||||||
3,757 | SP Plus Corp.* | 105,760 | ||||||
15,045 | Steelcase, Inc., Class A | 269,306 | ||||||
5,115 | Team, Inc.*^ | 200,764 | ||||||
8,918 | Tetra Tech, Inc. | 384,811 | ||||||
6,115 | Trc Companies, Inc.* | 64,819 | ||||||
2,218 | UniFirst Corp. | 318,616 | ||||||
3,770 | US Ecology, Inc.^ | 185,296 |
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Commercial Services & Supplies, continued | ||||||||
1,974 | Versar, Inc.* | $ | 2,724 | |||||
3,364 | Virco Manufacturing Co.* | 14,465 | ||||||
2,196 | Vse Corp. | 85,293 | ||||||
12,438 | West Corp. | 307,965 | ||||||
|
| |||||||
7,572,346 | ||||||||
|
| |||||||
Communications Equipment (1.9%): | ||||||||
10,099 | ADTRAN, Inc. | 225,713 | ||||||
1,444 | Applied Optoelectronics, Inc.*^ | 33,847 | ||||||
254 | Bel Fuse, Inc., Class A | 6,429 | ||||||
1,595 | Bel Fuse, Inc., Class B | 49,286 | ||||||
976 | Black Box Corp. | 14,884 | ||||||
5,439 | CalAmp Corp.*^ | 78,866 | ||||||
9,819 | Calix, Inc.* | 75,606 | ||||||
16,268 | Ciena Corp.*^ | 397,102 | ||||||
1,808 | ClearOne, Inc. | 20,611 | ||||||
316 | Communications Systems, Inc. | 1,463 | ||||||
6,028 | EMCORE Corp. | 52,444 | ||||||
18,289 | Finisar Corp.* | 553,607 | ||||||
15,310 | Harmonic, Inc.*^ | 76,550 | ||||||
2,083 | Infinera Corp.*^ | 17,685 | ||||||
5,666 | InterDigital, Inc. | 517,589 | ||||||
13,422 | Ixia* | 216,094 | ||||||
3,225 | KVH Industries, Inc.* | 38,055 | ||||||
5,346 | NETGEAR, Inc.* | 290,555 | ||||||
4,903 | NetScout Systems, Inc.* | 154,445 | ||||||
4,083 | Oclaro, Inc.* | 36,543 | ||||||
131 | Optical Cable Corp.* | 419 | ||||||
5,637 | Plantronics, Inc. | 308,682 | ||||||
900 | RELM Wireless Corp. | 4,275 | ||||||
3,494 | ShoreTel, Inc.* | 24,982 | ||||||
4,620 | Sonus Networks, Inc.* | 29,106 | ||||||
5,073 | Ubiquiti Networks, Inc.*^ | 293,219 | ||||||
4,436 | ViaSat, Inc.* | 293,752 | ||||||
8,844 | Viavi Solutions, Inc.* | 72,344 | ||||||
|
| |||||||
3,884,153 | ||||||||
|
| |||||||
Construction & Engineering (1.3%): | ||||||||
5,275 | Ameresco, Inc., Class A* | 29,013 | ||||||
2,740 | Argan, Inc. | 193,307 | ||||||
6,419 | Comfort Systems USA, Inc. | 213,753 | ||||||
5,300 | Dycom Industries, Inc.*^ | 425,537 | ||||||
6,026 | Emcor Group, Inc. | 426,399 | ||||||
5,754 | Granite Construction, Inc. | 316,470 | ||||||
5,928 | Hc2 Holdings, Inc.* | 35,153 | ||||||
1,979 | IES Holdings, Inc.* | 37,898 | ||||||
19,899 | KBR, Inc. | 332,114 | ||||||
2,462 | Layne Christensen Co.* | 26,762 | ||||||
3,054 | MasTec, Inc.* | 116,816 | ||||||
2,719 | MYR Group, Inc.* | 102,452 | ||||||
1,479 | Northwest Pipe Co.* | 25,468 | ||||||
1,180 | NV5 Holdings, Inc.* | 39,412 | ||||||
5,203 | Orion Marine Group, Inc.* | 51,770 | ||||||
1,563 | Primoris Services Corp.^ | 35,605 | ||||||
3,151 | Sterling Construction Co., Inc.* | 26,657 | ||||||
2,887 | The Goldfield Corp.* | 14,724 |
Continued
8
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Construction & Engineering, continued | ||||||||
2,416 | Valmont Industries, Inc. | $ | 340,414 | |||||
|
| |||||||
2,789,724 | ||||||||
|
| |||||||
Construction Materials (0.2%): | ||||||||
12,539 | Headwaters, Inc.* | 294,917 | ||||||
720 | U.S. Lime & Minerals, Inc. | 54,540 | ||||||
2,142 | US Concrete, Inc.*^ | 140,301 | ||||||
|
| |||||||
489,758 | ||||||||
|
| |||||||
Consumer Finance (0.8%): | ||||||||
1,660 | Asta Funding, Inc.* | 16,268 | ||||||
2,191 | Atlanticus Holdings Corp.* | 6,244 | ||||||
5,088 | Consumer Portfolio Services, Inc.* | 26,051 | ||||||
5,380 | Emergent Capital, Inc.* | 6,510 | ||||||
4,412 | Encore Capital Group, Inc.* | 126,404 | ||||||
5,295 | Enova International, Inc.* | 66,452 | ||||||
9,775 | EZCORP, Inc., Class A* | 104,104 | ||||||
8,324 | Firstcash, Inc. | 391,228 | ||||||
1,542 | Green Dot Corp., Class A* | 36,314 | ||||||
5,239 | Nelnet, Inc., Class A | 265,879 | ||||||
1,556 | Nicholas Financial, Inc.* | 18,501 | ||||||
7,134 | PRA Group, Inc.* | 278,939 | ||||||
2,376 | Regional Mgmt Corp.* | 62,441 | ||||||
17,338 | SLM Corp.* | 191,065 | ||||||
1,528 | World Acceptance Corp.*^ | 98,220 | ||||||
|
| |||||||
1,694,620 | ||||||||
|
| |||||||
Containers & Packaging (0.3%): | ||||||||
993 | AEP Industries, Inc. | 115,287 | ||||||
4,085 | Greif, Inc., Class A | 209,602 | ||||||
1,290 | Greif, Inc., Class B | 87,140 | ||||||
5,740 | Myers Industries, Inc. | 82,082 | ||||||
2,073 | Silgan Holdings, Inc.^ | 106,096 | ||||||
1,332 | UFP Technologies, Inc.* | 33,899 | ||||||
|
| |||||||
634,106 | ||||||||
|
| |||||||
Distributors (0.3%): | ||||||||
12 | AMCON Distributing Co. | 1,384 | ||||||
6,735 | Core Markt Holdngs Co., Inc.^ | 290,077 | ||||||
813 | Educational Development Corp. | 8,089 | ||||||
1,618 | Pool Corp. | 168,822 | ||||||
2,157 | Weyco Group, Inc. | 67,514 | ||||||
|
| |||||||
535,886 | ||||||||
|
| |||||||
Diversified Consumer Services (0.9%): | ||||||||
3,229 | American Public Education, Inc.* | 79,272 | ||||||
914 | Ascent Capital Group, Inc.* | 14,862 | ||||||
3,362 | Bridgepoint Education, Inc.* | 34,057 | ||||||
8,795 | Cambium Learning Group, Inc.* | 43,887 | ||||||
2,063 | Capella Education Co. | 181,131 | ||||||
12,930 | Career Education Corp.* | 130,464 | ||||||
3,238 | Carriage Services, Inc.^ | 92,736 | ||||||
1,667 | Collectors Universe, Inc. | 35,390 | ||||||
2,095 | DeVry Education Group, Inc. | 65,364 | ||||||
23 | Graham Holdings Co., Class B | 11,775 | ||||||
7,698 | Grand Canyon Education, Inc.* | 449,948 | ||||||
4,931 | Houghton Mifflin Harcourt Co.* | 53,501 | ||||||
7,399 | K12, Inc.* | 126,967 |
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Diversified Consumer Services, continued | ||||||||
2,183 | Liberty Tax, Inc. | $ | 29,252 | |||||
1,526 | National American University Holdings, Inc. | 2,976 | ||||||
8,444 | Sotheby’s*^ | 336,578 | ||||||
2,055 | Strayer Education, Inc.* | 165,695 | ||||||
5,156 | Universal Technical Institute, Inc. | 15,004 | ||||||
2,231 | Weight Watchers International, Inc.*^ | 25,545 | ||||||
|
| |||||||
1,894,404 | ||||||||
|
| |||||||
Diversified Financial Services (0.1%): | ||||||||
2,417 | Marlin Business Services, Inc. | 50,515 | ||||||
6,056 | Newstar Financial, Inc.* | 56,018 | ||||||
4,366 | PICO Holdings, Inc.* | 66,146 | ||||||
2,849 | Tiptree Financial, Inc., Class A | 17,521 | ||||||
|
| |||||||
190,200 | ||||||||
|
| |||||||
Diversified Telecommunication Services (0.8%): | ||||||||
2,689 | ATN International, Inc. | 215,469 | ||||||
7,179 | Cincinnati Bell, Inc.* | 160,451 | ||||||
7,425 | Cogent Communications Group, Inc.^ | 307,023 | ||||||
1,823 | Consolidated Communications Holdings, Inc. | 48,948 | ||||||
5,025 | FairPoint Communications, Inc.* | 93,968 | ||||||
7,358 | General Communication, Inc., Class A* | 143,113 | ||||||
2,168 | Hawaiian Telcom Holdco, Inc.* | 53,723 | ||||||
4,115 | IDT Corp. | 76,292 | ||||||
6,196 | Inteliquent, Inc. | 142,012 | ||||||
15,938 | Iridium Communications, Inc.*^ | 153,005 | ||||||
4,346 | Lumos Networks Corp.* | 67,885 | ||||||
13,354 | Orbcomm, Inc.* | 110,438 | ||||||
9,776 | Vonage Holdings Corp.*^ | 66,966 | ||||||
4,462 | Windstream Holdings, Inc.^ | 32,706 | ||||||
|
| |||||||
1,671,999 | ||||||||
|
| |||||||
Electric Utilities (1.3%): | ||||||||
7,954 | ALLETE, Inc. | 510,568 | ||||||
6,813 | El Paso Electric Co. | 316,805 | ||||||
8,314 | Empire District Electric Co.^ | 283,424 | ||||||
3,043 | Genie Energy, Ltd., Class B | 17,497 | ||||||
1,608 | IDACORP, Inc. | 129,524 | ||||||
5,487 | MGE Energy, Inc. | 358,301 | ||||||
6,258 | Otter Tail Power Co. | 255,326 | ||||||
13,077 | PNM Resources, Inc. | 448,542 | ||||||
9,125 | Portland General Electric Co. | 395,386 | ||||||
|
| |||||||
2,715,373 | ||||||||
|
| |||||||
Electrical Equipment (0.8%): | ||||||||
1,690 | Allied Motion Technologies, Inc. | 36,149 | ||||||
547 | American Electric Technologies, Inc.* | 848 | ||||||
4,216 | AZZ, Inc.^ | 269,402 | ||||||
1,826 | Babcock & Wilcox Enterprises, Inc.* | 30,293 | ||||||
3,898 | Encore Wire Corp. | 168,978 | ||||||
5,838 | EnerSys | 455,948 | ||||||
411 | Espey Manufacturing & Electronics Corp. | 10,710 | ||||||
2,200 | Fuelcell Energy, Inc.* | 3,850 | ||||||
3,351 | Generac Holdings, Inc.*^ | 136,520 | ||||||
7,693 | General Cable Corp. | 146,552 | ||||||
4,534 | LSI Industries, Inc. | 44,161 | ||||||
53 | Pioneer Power Solutions, Inc.* | 315 |
Continued
9
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Electrical Equipment, continued | ||||||||
569 | Powell Industries, Inc. | $ | 22,191 | |||||
2,209 | Power Solutions International, Inc.*^ | 16,568 | ||||||
1,064 | Preformed Line Products Co. | 61,840 | ||||||
1,305 | Regal-Beloit Corp. | 90,371 | ||||||
75 | Servotronics, Inc. | 755 | ||||||
5,525 | Thermon Group Holdings, Inc.*^ | 105,472 | ||||||
3,104 | Ultralife Corp.* | 15,365 | ||||||
|
| |||||||
1,616,288 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (3.3%): | ||||||||
2,011 | ADDvantage Technologies Group, Inc.* | 3,559 | ||||||
994 | Agilysys, Inc.* | 10,298 | ||||||
4,760 | Anixter International, Inc.* | 385,798 | ||||||
19,628 | AVX Corp. | 306,786 | ||||||
4,877 | Badger Meter, Inc. | 180,205 | ||||||
1,351 | Belden, Inc. | 101,014 | ||||||
1,407 | Cognex Corp. | 89,513 | ||||||
3,758 | Coherent, Inc.* | 516,294 | ||||||
4,630 | Control4 Corp.* | 47,226 | ||||||
4,147 | CUI Global, Inc.*^ | 28,739 | ||||||
8,032 | Daktronics, Inc. | 85,942 | ||||||
1,365 | Data I/O Corp.* | 5,706 | ||||||
5,745 | Electro Scientific Industries, Inc.* | 34,010 | ||||||
5,917 | Fabrinet* | 238,455 | ||||||
3,079 | FARO Technologies, Inc.* | 110,844 | ||||||
640 | Frequency Electronics, Inc.* | 6,912 | ||||||
2,274 | Identiv, Inc.* | 7,231 | ||||||
646 | IEC Electronics Corp.* | 2,306 | ||||||
10,491 | II-VI, Inc.* | 311,058 | ||||||
1,303 | Insight Enterprises, Inc.* | 52,693 | ||||||
199 | IntriCon Corp.* | 1,373 | ||||||
2,791 | Invensense, Inc.* | 35,697 | ||||||
6,279 | Itron, Inc.* | 394,635 | ||||||
8,386 | KEMET Corp.* | 55,599 | ||||||
756 | Kimball Electronics, Inc.* | 13,759 | ||||||
12,427 | Knowles Corp.*^ | 207,655 | ||||||
3,062 | Littlelfuse, Inc. | 464,721 | ||||||
662 | Mesa Labs, Inc. | 81,261 | ||||||
6,614 | Methode Electronics, Inc., Class A | 273,489 | ||||||
604 | MOCON, Inc. | 11,778 | ||||||
2,644 | MTS Systems Corp. | 149,915 | ||||||
2,608 | Napco Security Technologies, Inc.* | 22,168 | ||||||
6,456 | Novanta, Inc.* | 135,576 | ||||||
3,785 | OSI Systems, Inc.* | 288,114 | ||||||
3,068 | PAR Technology Corp.* | 17,119 | ||||||
3,846 | Park Electrochemical Corp. | 71,728 | ||||||
1,746 | PCM, Inc.* | 39,285 | ||||||
1,875 | Perceptron, Inc.* | 12,450 | ||||||
5,383 | Plexus Corp.* | 290,897 | ||||||
6,950 | RadiSys Corp.* | 30,789 | ||||||
1,727 | RF Industries, Ltd. | 3,022 | ||||||
3,170 | Rogers Corp.* | 243,488 | ||||||
12,134 | Sanmina Corp.* | 444,711 | ||||||
4,214 | ScanSource, Inc.* | 170,035 | ||||||
3,264 | SYNNEX Corp. | 395,009 | ||||||
1,210 | Tech Data Corp.* | 102,463 |
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Electronic Equipment, Instruments & Components, continued | ||||||||
16,717 | TTM Technologies, Inc.*^ | $ | 227,853 | |||||
203 | Universal Display Corp.* | 11,429 | ||||||
3,719 | VeriFone Systems, Inc.* | 65,938 | ||||||
6,432 | Vishay Intertechnology, Inc.^ | 104,198 | ||||||
989 | Wayside Technology Group, Inc. | 18,494 | ||||||
3,952 | Wireless Telecom Group, Inc.* | 7,548 | ||||||
|
| |||||||
6,916,785 | ||||||||
|
| |||||||
Energy Equipment & Services (1.5%): | ||||||||
483 | Archrock, Inc. | 6,376 | ||||||
8,563 | Atwood Oceanics, Inc.^ | 112,432 | ||||||
1,388 | Dawson Geophysical Co.* | 11,160 | ||||||
4,461 | Diamond Offshore Drilling, Inc.* | 78,960 | ||||||
4,550 | Dril-Quip, Inc.*^ | 273,227 | ||||||
2,135 | Ensco plc, Class A, ADR | 20,752 | ||||||
3,837 | Era Group, Inc.* | 65,114 | ||||||
241 | Exterran Corp.* | 5,760 | ||||||
14,952 | Forum Energy Technologies, Inc.* | 328,943 | ||||||
2,757 | Frank’s International NV^ | 33,939 | ||||||
1,260 | Geospace Technologies Corp.* | 25,654 | ||||||
2,641 | Gulf Island Fabrication, Inc. | 31,428 | ||||||
2,758 | Helix Energy Solutions Group, Inc.* | 24,326 | ||||||
1,321 | Hornbeck Offshore Services, Inc.* | 9,538 | ||||||
4,951 | Matrix Service Co.* | 112,388 | ||||||
41,501 | McDermott International, Inc.* | 306,693 | ||||||
16,654 | Nabors Industries, Ltd. | 273,125 | ||||||
2,316 | Natural Gas Services Group* | 74,459 | ||||||
11,101 | Newpark Resources, Inc.*^ | 83,258 | ||||||
9,910 | Noble Corp. plc^ | 58,667 | ||||||
627 | Oceaneering International, Inc. | 17,688 | ||||||
2,351 | Oil States International, Inc.* | 91,689 | ||||||
23,169 | Parker Drilling Co.* | 60,239 | ||||||
6,733 | Patterson-UTI Energy, Inc. | 181,252 | ||||||
2,412 | PHI, Inc.* | 43,464 | ||||||
5,957 | Pioneer Energy Services Corp.* | 40,805 | ||||||
1,757 | Rignet, Inc.* | 40,675 | ||||||
16,158 | Rowan Cos. plc, Class A*^ | 305,224 | ||||||
1,726 | RPC, Inc.^ | 34,192 | ||||||
12,577 | Superior Energy Services, Inc.^ | 212,299 | ||||||
4,709 | Tesco Corp.* | 38,849 | ||||||
5,480 | TETRA Technologies, Inc.* | 27,510 | ||||||
1,769 | U.S. Silica Holdings, Inc. | 100,267 | ||||||
3,954 | Unit Corp.* | 106,244 | ||||||
|
| |||||||
3,236,596 | ||||||||
|
| |||||||
Food & Staples Retailing (0.6%): | ||||||||
4,717 | Chefs’ Warehouse, Inc.* | 74,529 | ||||||
2,510 | Ingles Markets, Inc., Class A | 120,731 | ||||||
4,259 | Natural Grocers by Vitamin Cottage, Inc.* | 50,640 | ||||||
4,323 | PriceSmart, Inc. | 360,970 | ||||||
200 | SpartanNash Co. | 7,908 | ||||||
37,425 | Supervalu, Inc.* | 174,775 | ||||||
384 | The Andersons, Inc. | 17,165 | ||||||
1,585 | United Natural Foods, Inc.*^ | 75,636 | ||||||
1,832 | Village Super Market, Inc., Class A^ | 56,609 | ||||||
4,539 | Weis Markets, Inc. | 303,386 | ||||||
|
| |||||||
1,242,349 | ||||||||
|
|
Continued
10
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Food Products (1.8%): | ||||||||
9,113 | B&G Foods, Inc.^ | $ | 399,148 | |||||
2,862 | Calavo Growers, Inc.^ | 175,727 | ||||||
5,940 | Cal-Maine Foods, Inc.^ | 262,400 | ||||||
1,318 | Coffee Holding Co., Inc.* | 6,129 | ||||||
7,904 | Darling International, Inc.* | 102,041 | ||||||
14,474 | Dean Foods Co.^ | 315,244 | ||||||
3,107 | Farmer Brothers Co.* | 114,027 | ||||||
1,800 | Fresh Del Monte Produce, Inc. | 109,134 | ||||||
3,708 | Inventure Foods, Inc.* | 36,524 | ||||||
2,736 | J & J Snack Foods Corp. | 365,064 | ||||||
307 | John B Sanfilippo And Son, Inc. | 21,610 | ||||||
2,790 | Lancaster Colony Corp. | 394,477 | ||||||
2,754 | Landec Corp.* | 38,005 | ||||||
2,658 | Limoneira Co. | 57,174 | ||||||
596 | Omega Protein Corp.* | 14,930 | ||||||
4,186 | Post Holdings, Inc.*^ | 336,513 | ||||||
1,220 | Rocky Mountain Chocolate Factory, Inc. | 12,432 | ||||||
2,912 | Sanderson Farms, Inc. | 274,427 | ||||||
1,677 | Seneca Foods Corp., Class A* | 67,164 | ||||||
12 | Seneca Foods Corp., Class B* | 504 | ||||||
10,495 | Snyders-Lance, Inc.^ | 402,377 | ||||||
6,285 | Tootsie Roll Industries, Inc.^ | 249,829 | ||||||
|
| |||||||
3,754,880 | ||||||||
|
| |||||||
Gas Utilities (1.5%): | ||||||||
2,635 | Chesapeake Utilities Corp. | 176,413 | ||||||
1,008 | Delta Natural Gas Co., Inc. | 29,565 | ||||||
2,109 | Gas Natural, Inc. | 26,468 | ||||||
12,319 | New Jersey Resources Corp. | 437,325 | ||||||
4,793 | Northwest Natural Gas Co. | 286,621 | ||||||
5,913 | ONE Gas, Inc. | 378,195 | ||||||
79 | RGC Resources, Inc. | 1,988 | ||||||
11,590 | South Jersey Industries, Inc. | 390,467 | ||||||
5,524 | Southwest Gas Corp. | 423,249 | ||||||
7,213 | Spire, Inc. | 465,599 | ||||||
5,777 | WGL Holdings, Inc. | 440,670 | ||||||
|
| |||||||
3,056,560 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (3.2%): | ||||||||
4,444 | Abaxis, Inc.^ | 234,510 | ||||||
9,057 | Accuray, Inc.* | 41,662 | ||||||
2,095 | Analogic Corp. | 173,780 | ||||||
6,750 | AngioDynamics, Inc.* | 113,873 | ||||||
2,731 | Anika Therapeutics, Inc.* | 133,710 | ||||||
307 | Atrion Corp.^ | 155,710 | ||||||
6,675 | Cantel Medical Corp.^ | 525,656 | ||||||
283 | CONMED Corp.^ | 12,500 | ||||||
5,343 | CryoLife, Inc.* | 102,318 | ||||||
3,874 | Cynosure, Inc., Class A* | 176,654 | ||||||
5,289 | Derma Sciences, Inc.* | 27,503 | ||||||
1,118 | Elctromed, Inc.* | 4,338 | ||||||
2,604 | Exactech, Inc.* | 71,089 | ||||||
10,408 | Globus Medical, Inc., Class A*^ | 258,222 | ||||||
6,431 | Haemonetics Corp.* | 258,526 | ||||||
6,189 | Halyard Health, Inc.*^ | 228,869 | ||||||
5,695 | Hill-Rom Holdings, Inc. | 319,717 |
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Equipment & Supplies, continued | ||||||||
2,663 | ICU Medical, Inc.* | $ | 392,393 | |||||
1,629 | Inogen, Inc.*^ | 109,420 | ||||||
4,246 | Integer Holdings Corp.* | 125,045 | ||||||
6,158 | Integra LifeSciences Holdings Corp.*^ | 528,296 | ||||||
5,763 | Invacare Corp. | 75,207 | ||||||
2,006 | IRIDEX Corp.* | 28,204 | ||||||
249 | Kewaunee Scientific CP | 6,088 | ||||||
3,330 | LeMaitre Vascular, Inc. | 84,382 | ||||||
2,367 | LivaNova plc* | 106,444 | ||||||
7,468 | Masimo Corp.* | 503,343 | ||||||
7,277 | Meridian Bioscience, Inc. | 128,803 | ||||||
8,851 | Merit Medical Systems, Inc.* | 234,552 | ||||||
5,544 | Natus Medical, Inc.* | 192,931 | ||||||
3,676 | Neogen Corp.* | 242,616 | ||||||
6,172 | NuVasive, Inc.* | 415,746 | ||||||
1,520 | Nuvectra Corp.* | 7,646 | ||||||
5,743 | OraSure Technologies, Inc.* | 50,424 | ||||||
3,546 | Orthofix International NV* | 128,295 | ||||||
920 | Quidel Corp.* | 19,706 | ||||||
10,930 | RTI Surgical, Inc.*^ | 35,523 | ||||||
2,363 | SeaSpine Holdings Corp.* | 18,668 | ||||||
561 | Span-America Medical System, Inc. | 10,233 | ||||||
2,431 | Surmodics, Inc.* | 61,747 | ||||||
3,600 | TransEnterix, Inc.* | 4,680 | ||||||
754 | Utah Medical Products, Inc. | 54,854 | ||||||
2,850 | Vascular Solutions, Inc.* | 159,885 | ||||||
2,539 | Wright Medical Group NV* | 58,346 | ||||||
|
| |||||||
6,622,114 | ||||||||
|
| |||||||
Health Care Providers & Services (2.3%): | ||||||||
1,781 | Aac Holdings, Inc.* | 12,894 | ||||||
5,540 | Aceto Corp. | 121,714 | ||||||
3,936 | AdCare Health Systems, Inc.* | 5,747 | ||||||
3,021 | Addus HomeCare Corp.* | 105,886 | ||||||
914 | Adeptus Health, Inc., Class A*^ | 6,983 | ||||||
6,275 | Air Methods Corp.* | 199,859 | ||||||
2,215 | Alliance HealthCare Services, Inc.* | 21,264 | ||||||
1,791 | Almost Family, Inc.* | 78,983 | ||||||
5,486 | Amedisys, Inc.*^ | 233,868 | ||||||
7,614 | AMN Healthcare Services, Inc.*^ | 292,758 | ||||||
1,753 | BioScrip, Inc.* | 1,823 | ||||||
5,137 | BioTelemetry, Inc.* | 114,812 | ||||||
1,800 | Brookdale Senior Living, Inc.* | 22,356 | ||||||
5,919 | Capital Senior Living Corp.*^ | 95,000 | ||||||
2,326 | Chemed Corp. | 373,113 | ||||||
269 | Civitas Solutions, Inc.* | 5,353 | ||||||
3,861 | CorVel Corp.* | 141,313 | ||||||
816 | Cross Country Healthcare, Inc.* | 12,738 | ||||||
2,588 | Diplomat Pharmacy, Inc.* | 32,609 | ||||||
8,773 | Ensign Group, Inc. (The)^ | 194,848 | ||||||
1,905 | Five Star Quality Care, Inc.* | 5,144 | ||||||
2,358 | Genesis Healthcare, Inc.* | 10,022 | ||||||
1,652 | HealthEquity, Inc.* | 66,939 | ||||||
6,106 | Healthways, Inc.* | 138,912 | ||||||
3,529 | InfuSystems Holdings, Inc.* | 8,999 |
Continued
11
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Providers & Services, continued | ||||||||
2,846 | Kindred Healthcare, Inc. | $ | 22,341 | |||||
490 | Landauer, Inc. | 23,569 | ||||||
3,146 | LHC Group, Inc.* | 143,772 | ||||||
1,982 | LifePoint Hospitals, Inc.* | 112,578 | ||||||
3,859 | Magellan Health Services, Inc.* | 290,390 | ||||||
2,158 | National Healthcare Corp.^ | 163,555 | ||||||
1,920 | National Research Corp.^ | 36,480 | ||||||
680 | National Research Corp., Class A^ | 28,336 | ||||||
9,789 | Nobilis Health Corp.*^ | 20,557 | ||||||
9,830 | Owens & Minor, Inc.^ | 346,900 | ||||||
5,046 | PharMerica Corp.* | 126,907 | ||||||
2,964 | Providence Service Corp.* | 112,780 | ||||||
1,080 | Psychemedics Corp. | 26,654 | ||||||
8,313 | RadNet, Inc.* | 53,619 | ||||||
22,263 | Select Medical Holdings Corp.*^ | 294,984 | ||||||
6,344 | Surgical Care Affiliates, Inc.*^ | 293,537 | ||||||
3,743 | Tenet Healthcare Corp.* | 55,546 | ||||||
4,357 | Triple-S Management Corp., Class B* | 90,190 | ||||||
2,326 | U.S. Physical Therapy, Inc. | 163,285 | ||||||
10,911 | Universal American Financial Corp.* | 108,564 | ||||||
|
| |||||||
4,818,481 | ||||||||
|
| |||||||
Health Care Technology (0.4%): | ||||||||
26,431 | Allscripts Healthcare Solutions, Inc.* | 269,861 | ||||||
558 | Arrhythmia Research Technology, Inc.* | 2,120 | ||||||
2,108 | Computer Programs & Systems, Inc. | 49,749 | ||||||
660 | HealthStream, Inc.* | 16,533 | ||||||
3,326 | HMS Holdings Corp.* | 60,400 | ||||||
5,666 | Omnicell, Inc.* | 192,077 | ||||||
10,576 | Quality Systems, Inc.* | 139,074 | ||||||
3,115 | Simulations Plus, Inc. | 30,060 | ||||||
|
| |||||||
759,874 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure (3.2%): | ||||||||
17,070 | Belmond, Ltd., Class A* | 227,885 | ||||||
2 | Biglari Holdings, Inc.* | 946 | ||||||
4,027 | BJ’s Restaurants, Inc.* | 158,261 | ||||||
18,068 | Bloomin’ Brands, Inc.^ | 325,766 | ||||||
3,490 | Bob Evans Farms, Inc. | 185,703 | ||||||
3,066 | Bravo Brio Restaurant Group, Inc.* | 11,651 | ||||||
1,695 | Brinker International, Inc.^ | 83,953 | ||||||
2,429 | Buffalo Wild Wings, Inc.* | 375,038 | ||||||
5,874 | Caesars Entertainment Corp.*^ | 49,929 | ||||||
6,745 | Carrols Restaurant Group, Inc.* | 102,861 | ||||||
4,585 | Century Casinos, Inc.* | 37,735 | ||||||
7,607 | Cheesecake Factory, Inc. (The) | 455,507 | ||||||
2,351 | Choice Hotels International, Inc. | 131,774 | ||||||
2,799 | Chuy’s Holdings, Inc.*^ | 90,828 | ||||||
11,036 | ClubCorp Holdings, Inc. | 158,367 | ||||||
1,394 | Dave & Buster’s Entertainment, Inc.* | 78,482 | ||||||
4,454 | Del Frisco’s Restaurant Group, Inc.* | 75,718 | ||||||
1,448 | del Taco Restaurants, Inc.* | 20,446 | ||||||
13,005 | Denny’s Corp.* | 166,854 | ||||||
3,084 | DineEquity, Inc. | 237,468 | ||||||
3,712 | Dover Motorsports, Inc. | 8,538 | ||||||
2,394 | El Pollo Loco Holdings, Inc.* | 29,446 |
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Hotels, Restaurants & Leisure, continued | ||||||||
1,421 | Famous Dave’s of America, Inc.*^ | $ | 7,034 | |||||
4,357 | Fiesta Restaurant Group, Inc.* | 130,056 | ||||||
378 | Flanigan’s Enterprises, Inc. | 9,204 | ||||||
11,024 | Ilg, Inc. | 200,306 | ||||||
920 | International Speedway Corp., Class A | 33,856 | ||||||
1,653 | Intrawest Resorts Holdings, Inc.* | 29,506 | ||||||
1,832 | Jack in the Box, Inc. | 204,524 | ||||||
3,322 | Jamba, Inc.* | 34,217 | ||||||
1,168 | Kona Grill, Inc.* | 14,658 | ||||||
2,660 | La Quinta Holdings, Inc.* | 37,799 | ||||||
5,681 | Luby’s, Inc.* | 24,315 | ||||||
4,858 | Marriott Vacations Worldwide Corp.^ | 412,201 | ||||||
843 | Nathans Famous, Inc.* | 54,711 | ||||||
5,627 | Noodles & Co.*^ | 23,071 | ||||||
6,368 | Papa John’s International, Inc.^ | 544,972 | ||||||
3,151 | Pinnacle Entertainment, Inc.* | 45,690 | ||||||
1,541 | Planet Fitness, Inc. | 30,974 | ||||||
3,708 | Popeyes Louisiana Kitchen, Inc.*^ | 224,260 | ||||||
1,200 | Potbelly Corp.* | 15,480 | ||||||
2,069 | RCI Hospitality Holdings, Inc. | 35,380 | ||||||
3,634 | Red Lion Hotels Corp.* | 30,344 | ||||||
2,718 | Red Robin Gourmet Burgers* | 153,295 | ||||||
1,865 | Ruby Tuesday, Inc.* | 6,024 | ||||||
5,652 | Ruth’s Hospitality Group, Inc. | 103,432 | ||||||
11,597 | SeaWorld Entertainment, Inc.^ | 219,531 | ||||||
788 | Shake Shack, Inc., Class A* | 28,203 | ||||||
8,467 | Sonic Corp.^ | 224,460 | ||||||
6,549 | Speedway Motorsports, Inc. | 141,917 | ||||||
8,216 | Texas Roadhouse, Inc. | 396,340 | ||||||
4,346 | Town Sports International Holdings, Inc.* | 10,865 | ||||||
12,047 | Wendy’s Co. (The)^ | 162,875 | ||||||
2,153 | Wingstop, Inc. | 63,707 | ||||||
|
| |||||||
6,666,363 | ||||||||
|
| |||||||
Household Durables (1.4%): | ||||||||
2,682 | CalAtlantic Group, Inc.^ | 91,215 | ||||||
1,565 | Cavco Industries, Inc.* | 156,265 | ||||||
3,024 | Dixie Group, Inc. (The)* | 10,886 | ||||||
5,018 | Ethan Allen Interiors, Inc. | 184,913 | ||||||
253 | Flexsteel Industries, Inc. | 15,603 | ||||||
931 | Helen of Troy, Ltd.* | 78,623 | ||||||
7,411 | Hovnanian Enterprises, Inc., Class A* | 20,232 | ||||||
942 | Installed Building Products, Inc.* | 38,905 | ||||||
4,589 | iRobot Corp.*^ | 268,227 | ||||||
12,694 | KB Home^ | 200,692 | ||||||
1,138 | Koss Corp.* | 2,595 | ||||||
8,500 | La-Z-Boy, Inc. | 263,925 | ||||||
924 | LGI Homes, Inc.*^ | 26,547 | ||||||
4,396 | Libbey, Inc. | 85,546 | ||||||
2,522 | Lifetime Brands, Inc. | 44,766 | ||||||
7,822 | M.D.C. Holdings, Inc. | 200,713 | ||||||
4,157 | M/I Homes, Inc.* | 104,673 | ||||||
6,186 | Meritage Corp.*^ | 215,273 | ||||||
723 | P & F Industries, Inc., Class A | 5,979 | ||||||
1,301 | Skyline Corp.* | 20,113 |
Continued
12
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Household Durables, continued | ||||||||
3,040 | Stanley Furniture Co., Inc. | $ | 2,737 | |||||
5,242 | Taylor Morrison Home Corp., Class A*^ | 100,961 | ||||||
839 | TopBuild Corp.* | 29,868 | ||||||
25,587 | TRI Pointe Homes, Inc.*^ | 293,738 | ||||||
2,150 | Tupperware Brands Corp.^ | 113,133 | ||||||
2,525 | Universal Electronics, Inc.* | 162,989 | ||||||
5,316 | William Lyon Homes, Class A* | 101,163 | ||||||
5,426 | Zagg, Inc.*^ | 38,525 | ||||||
|
| |||||||
2,878,805 | ||||||||
|
| |||||||
Household Products (0.4%): | ||||||||
1,769 | Central Garden & Pet Co., Class A* | 54,662 | ||||||
3,827 | Energizer Holdings, Inc.^ | 170,722 | ||||||
16,547 | HRG Group, Inc.* | 257,472 | ||||||
1,767 | Ocean Bio-Chem, Inc. | 6,644 | ||||||
940 | Oil-Dri Corp. | 35,917 | ||||||
1,648 | Orchids Paper Products Co.^ | 43,145 | ||||||
2,171 | WD-40 Co.^ | 253,790 | ||||||
|
| |||||||
822,352 | ||||||||
|
| |||||||
Independent Power & Renewable Electricity Producers (0.4%): | ||||||||
22,978 | Atlantic Power Corp.* | 57,445 | ||||||
5,291 | Dynegy, Inc.* | 44,762 | ||||||
2,911 | NRG Yield, Inc., Class A | 44,713 | ||||||
4,635 | NRG Yield, Inc., Class C | 73,233 | ||||||
7,807 | Ormat Technologies, Inc. | 418,612 | ||||||
10,283 | Pattern Energy Group, Inc.^ | 195,274 | ||||||
3,630 | TerraForm Power, Inc., Class A* | 46,500 | ||||||
5,942 | Vivint Solar, Inc.*^ | 15,152 | ||||||
|
| |||||||
895,691 | ||||||||
|
| |||||||
Industrial Conglomerates (0.1%): | ||||||||
7,017 | Raven Industries, Inc. | 176,828 | ||||||
|
| |||||||
Insurance (3.2%): | ||||||||
3,090 | Allied World Assurance Co. Holdings AG | 165,964 | ||||||
8,008 | AMBAC Financial Group, Inc.* | 180,180 | ||||||
13,933 | American Equity Investment Life Holding Co. | 314,050 | ||||||
2,053 | American National Insurance Co. | 255,824 | ||||||
3,293 | Amerisafe, Inc. | 205,319 | ||||||
4,281 | Argo Group International Holdings, Ltd. | 282,118 | ||||||
8,289 | Aspen Insurance Holdings, Ltd. | 455,894 | ||||||
180 | Baldwin & Lyons, Inc., Class A | 4,734 | ||||||
9,319 | Citizens, Inc.* | 91,513 | ||||||
3,445 | Crawford & Co. | 43,269 | ||||||
4,636 | Crawford & Co., Class A | 43,903 | ||||||
2,691 | Donegal Group, Inc., Class A | 47,039 | ||||||
3,293 | EMC Insurance Group, Inc. | 98,823 | ||||||
5,530 | Employers Holdings, Inc. | 218,988 | ||||||
1,365 | Enstar Group, Ltd.* | 269,860 | ||||||
2,939 | FBL Financial Group, Inc., Class A^ | 229,683 | ||||||
2,611 | Federated National Holding Co. | 48,800 | ||||||
4,344 | First Acceptance Corp.* | 4,518 | ||||||
10,826 | Genworth Financial, Inc., Class A* | 41,247 | ||||||
1,050 | Global Indemnity, Ltd.* | 40,121 | ||||||
5,527 | Greenlight Capital Re, Ltd.*^ | 126,015 | ||||||
3,636 | Hallmark Financial Services, Inc.* | 42,287 |
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Insurance, continued | ||||||||
1,975 | HCI Group, Inc. | $ | 77,973 | |||||
569 | Heritage Insurance Holdings, Inc. | 8,916 | ||||||
2,823 | Independence Holding Co. | 55,190 | ||||||
379 | Investors Title Co. | 59,950 | ||||||
2,048 | Kemper Corp. | 90,726 | ||||||
1,473 | Kingstone Co., Inc. | 20,254 | ||||||
12,677 | Maiden Holdings, Ltd. | 221,214 | ||||||
18,599 | MBIA, Inc.*^ | 199,009 | ||||||
2,096 | Mercury General Corp.^ | 126,200 | ||||||
4,062 | National General Holdings Corp. | 101,509 | ||||||
588 | National Western Life Group, Inc., Class A | 182,750 | ||||||
4,446 | Onebeacon Insurance Group, Ltd. | 71,358 | ||||||
7,538 | Primerica, Inc.^ | 521,252 | ||||||
8,380 | ProAssurance Corp. | 470,956 | ||||||
6,898 | RLI Corp.^ | 435,471 | ||||||
513 | Safety Insurance Group, Inc. | 37,808 | ||||||
2,048 | Selective Insurance Group, Inc. | 88,166 | ||||||
5,250 | State Auto Financial Corp. | 140,753 | ||||||
884 | State National Companies, Inc. | 12,252 | ||||||
4,083 | Stewart Information Services Corp.^ | 188,145 | ||||||
204 | The National Security Group, Inc. | 3,570 | ||||||
2,083 | Third Point Reinsurance, Ltd.* | 24,059 | ||||||
4,002 | United Insurance Holdings Co. | 60,590 | ||||||
6,539 | Universal Insurance Holdings, Inc. | 185,708 | ||||||
|
| |||||||
6,593,928 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (0.5%): | ||||||||
5,183 | 1-800 Flowers.com, Inc., Class A* | 55,458 | ||||||
2,282 | Blue Nile, Inc. | 92,718 | ||||||
3,666 | CafePress, Inc.* | 10,778 | ||||||
500 | FTD Cos., Inc.* | 11,920 | ||||||
1,784 | HSN, Inc. | 61,191 | ||||||
1,300 | Lands’ End, Inc.*^ | 19,695 | ||||||
9,267 | Liberty TripAdvisor Holdings, Inc., Class A* | 139,468 | ||||||
5,101 | Nutri/System, Inc. | 176,750 | ||||||
4,189 | Overstock.com, Inc.* | 73,308 | ||||||
3,780 | PetMed Express, Inc.^ | 87,205 | ||||||
5,389 | Shutterfly, Inc.* | 270,419 | ||||||
1,880 | US Auto Parts Network, Inc.* | 6,618 | ||||||
|
| |||||||
1,005,528 | ||||||||
|
| |||||||
Internet Software & Services (1.5%): | ||||||||
7,493 | Actua Corp.*^ | 104,902 | ||||||
3,832 | Angie’s List, Inc.* | 31,537 | ||||||
778 | Bankrate, Inc.* | 8,597 | ||||||
3,300 | Bazaarvoice, Inc.* | 16,005 | ||||||
1,300 | Blucora, Inc.* | 19,175 | ||||||
2,594 | Carbonite, Inc.* | 42,542 | ||||||
4,358 | Cimpress NV*^ | 399,236 | ||||||
701 | Commercehub, Inc. Com, Series A* | 10,522 | ||||||
1,381 | DHI Group, Inc.* | 8,631 | ||||||
21,351 | EarthLink Holdings Corp. | 120,420 | ||||||
2,603 | Envestnet, Inc.*^ | 91,756 | ||||||
6,302 | GTT Communications, Inc.* | 181,183 | ||||||
12,029 | Internap Network Services Corp.* | 18,525 | ||||||
10,609 | Intralinks Holdings, Inc.*^ | 143,434 |
Continued
13
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Internet Software & Services, continued | ||||||||
4,991 | Inuvo, Inc.* | $ | 8,335 | |||||
1,156 | j2 Global, Inc.^ | 94,561 | ||||||
3,938 | Leaf Group, Ltd.* | 25,794 | ||||||
18,673 | Limelight Networks, Inc.* | 47,056 | ||||||
3,018 | Liquidity Services, Inc.* | 29,426 | ||||||
1,096 | LogMeIn, Inc. | 105,819 | ||||||
6,655 | Marchex, Inc., Class B*^ | 17,636 | ||||||
7,131 | Meetme, Inc.*^ | 35,156 | ||||||
10,915 | NIC, Inc. | 260,868 | ||||||
3,492 | Numerex Corp., Class A* | 25,841 | ||||||
8,938 | QuinStreet, Inc.* | 33,607 | ||||||
1,839 | Qumu Corp.* | 4,377 | ||||||
7,302 | RealNetworks, Inc.* | 35,488 | ||||||
2,319 | Reis, Inc.^ | 51,598 | ||||||
8,001 | RetailMeNot, Inc.* | 74,409 | ||||||
1,400 | Rightside Group, Ltd.* | 11,578 | ||||||
5,723 | Shutterstock, Inc.*^ | 271,956 | ||||||
1,743 | Stamps.com, Inc.* | 199,834 | ||||||
5,449 | Synacor, Inc.* | 16,892 | ||||||
6,258 | TechTarget* | 53,381 | ||||||
2,773 | Travelzoo, Inc.* | 26,066 | ||||||
8,928 | Tremor Video, Inc.* | 22,231 | ||||||
1,900 | Truecar, Inc.*^ | 23,750 | ||||||
8,613 | Web.com Group, Inc.* | 182,164 | ||||||
5,665 | WebMD Health Corp.* | 280,813 | ||||||
2,184 | XO Group, Inc.* | 42,479 | ||||||
6,743 | YuMe, Inc.* | 24,140 | ||||||
|
| |||||||
3,201,720 | ||||||||
|
| |||||||
IT Services (2.2%): | ||||||||
13,535 | Acxiom Corp.* | 362,738 | ||||||
8,209 | Blackhawk Network Holdings, Inc.*^ | 309,274 | ||||||
824 | CACI International, Inc., Class A* | 102,423 | ||||||
6,999 | Cardtronics plc*^ | 381,936 | ||||||
2,101 | Cass Information Systems, Inc. | 154,571 | ||||||
12,401 | CIBER, Inc.* | 7,835 | ||||||
3,848 | Convergys Corp. | 94,507 | ||||||
2,654 | CoreLogic, Inc.* | 97,747 | ||||||
5,437 | CSG Systems International, Inc. | 263,151 | ||||||
758 | CSP, Inc. | 8,020 | ||||||
4,162 | Datalink Corp.* | 46,864 | ||||||
11,883 | Everi Holdings, Inc.* | 25,786 | ||||||
5,621 | Exlservice Holdings, Inc.* | 283,523 | ||||||
3,140 | Forrester Research, Inc. | 134,863 | ||||||
5,599 | Hackett Group, Inc. (The) | 98,878 | ||||||
2,498 | Innodata, Inc.* | 6,120 | ||||||
12,390 | Lionbridge Technologies, Inc.* | 71,862 | ||||||
4,125 | ManTech International Corp., Class A | 174,281 | ||||||
10,553 | ModusLink Global Solutions, Inc.* | 15,407 | ||||||
6,208 | MoneyGram International, Inc.* | 73,316 | ||||||
1,690 | NCI, Inc., Class A | 23,576 | ||||||
7,462 | NeuStar, Inc., Class A* | 249,231 | ||||||
6,573 | Perficient, Inc.* | 114,962 | ||||||
3,168 | PFSweb, Inc.*^ | 26,928 | ||||||
5,456 | Science Applications International Corp. | 462,669 |
| Fair Value | |||||||
Common Stocks, continued | ||||||||
IT Services, continued | ||||||||
13,472 | Servicesource International, Inc.* | $ | 76,521 | |||||
719 | StarTek, Inc.* | 6,076 | ||||||
7,735 | Sykes Enterprises, Inc.* | 223,232 | ||||||
7,984 | TeleTech Holdings, Inc. | 243,512 | ||||||
5,724 | Travelport Worldwide, Ltd. | 80,708 | ||||||
8,699 | Unisys Corp.* | 130,050 | ||||||
5,566 | Virtusa Corp.* | 139,818 | ||||||
|
| |||||||
4,490,385 | ||||||||
|
| |||||||
Leisure Products (0.4%): | ||||||||
2,445 | Arctic Cat, Inc.* | 36,724 | ||||||
3,537 | Callaway Golf Co. | 38,766 | ||||||
2,916 | Escalade, Inc. | 38,491 | ||||||
2,447 | JAKKS Pacific, Inc.* | 12,602 | ||||||
611 | Malibu Boats, Inc.* | 11,658 | ||||||
984 | Marine Products Corp. | 13,648 | ||||||
5,982 | Nautilus Group, Inc.*^ | 110,667 | ||||||
8,017 | Smith & Wesson Holding Corp.*^ | 168,998 | ||||||
2,637 | Sturm, Ruger & Co., Inc.^ | 138,970 | ||||||
8,489 | Vista Outdoor, Inc.* | 313,244 | ||||||
|
| |||||||
883,768 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.4%): | ||||||||
1,587 | Albany Molecular Research, Inc.*^ | 29,772 | ||||||
173 | Bioanalytical Systems, Inc.* | 131 | ||||||
1,820 | Bruker Corp. | 38,548 | ||||||
5,196 | Cambrex Corp.* | 280,325 | ||||||
1,037 | Charles River Laboratories International, Inc.* | 79,009 | ||||||
4,315 | Enzo Biochem, Inc.* | 29,946 | ||||||
7,018 | Harvard Bioscience, Inc.* | 21,405 | ||||||
1,322 | INC Research Holdings, Inc., Class A* | 69,537 | ||||||
7,462 | Luminex Corp.* | 150,956 | ||||||
1,737 | PAREXEL International Corp.* | 114,156 | ||||||
|
| |||||||
813,785 | ||||||||
|
| |||||||
Machinery (4.9%): | ||||||||
1,617 | Actuant Corp., Class A | 41,961 | ||||||
5,535 | Albany International Corp., Class A | 256,271 | ||||||
4,756 | Altra Industrial Motion Corp. | 175,496 | ||||||
1,200 | American Railcar Industries | 54,348 | ||||||
1,974 | ARC Group Worldwide, Inc.*^ | 8,686 | ||||||
806 | Art’s-Way Manufacturing Co.* | 2,740 | ||||||
3,783 | Astec Industries, Inc. | 255,201 | ||||||
8,599 | Barnes Group, Inc. | 407,765 | ||||||
1,300 | Briggs & Stratton Corp. | 28,938 | ||||||
5,149 | Chart Industries, Inc.* | 185,467 | ||||||
2,999 | CIRCOR International, Inc. | 194,575 | ||||||
1,754 | CLARCOR, Inc. | 144,652 | ||||||
407 | Colfax Corp.* | 14,624 | ||||||
3,780 | Columbus McKinnon Corp. | 102,211 | ||||||
5,525 | Commercial Vehicle Group, Inc.* | 30,553 | ||||||
1,068 | Crane Co. | 77,024 | ||||||
983 | Dmc Global, Inc. | 15,581 | ||||||
4,235 | Douglas Dynamics, Inc. | 142,508 | ||||||
3,312 | EnPro Industries, Inc. | 223,096 | ||||||
4,335 | ESCO Technologies, Inc. | 245,578 |
Continued
14
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Machinery, continued | ||||||||
9,840 | Federal Signal Corp. | $ | 153,602 | |||||
7,661 | Franklin Electric Co., Inc. | 298,013 | ||||||
2,281 | FreightCar America, Inc.^ | 34,055 | ||||||
1,765 | Gencor Industries, Inc.* | 27,711 | ||||||
3,972 | Global Brass & Copper Holdings, Inc. | 136,240 | ||||||
4,496 | Gorman-Rupp Co. (The) | 139,151 | ||||||
4,781 | Greenbrier Cos, Inc.^ | 198,651 | ||||||
2,410 | Hardinge, Inc. | 26,703 | ||||||
13,745 | Harsco Corp. | 186,932 | ||||||
9,867 | Hillenbrand, Inc. | 378,399 | ||||||
1,212 | Hurco Cos, Inc. | 40,117 | ||||||
2,157 | Hyster-Yale Materials Handling, Inc., Class A | 137,552 | ||||||
3,022 | ITT, Inc. | 116,559 | ||||||
4,871 | John Bean Technologies Corp. | 418,661 | ||||||
3,351 | Joy Global, Inc. | 93,828 | ||||||
9,949 | Kennametal, Inc. | 311,006 | ||||||
143 | Key Technology, Inc.* | 1,667 | ||||||
2,094 | L.B. Foster Co., Class A | 28,478 | ||||||
1,824 | Lindsay Corp. | 136,089 | ||||||
829 | Lydall, Inc.* | 51,274 | ||||||
3,228 | Manitex International, Inc.* | 22,144 | ||||||
21,093 | Manitowoc Co., Inc. (The)* | 126,136 | ||||||
20,438 | Manitowoc Foodservice, Inc.*^ | 395,067 | ||||||
15,613 | Meritor, Inc.* | 193,913 | ||||||
9,351 | Mueller Industries, Inc. | 373,666 | ||||||
26,424 | Mueller Water Products, Inc., Class A | 351,703 | ||||||
3,846 | Navistar International Corp.* | 120,649 | ||||||
3,562 | NN, Inc. | 67,856 | ||||||
158 | Omega Flex, Inc. | 8,810 | ||||||
3,573 | Proto Labs, Inc.*^ | 183,474 | ||||||
3,840 | RBC Bearings, Inc.* | 356,390 | ||||||
14,687 | Rexnord Corp.* | 287,718 | ||||||
1,692 | SPX Corp.* | 40,134 | ||||||
745 | SPX FLOW, Inc.* | 23,885 | ||||||
2,098 | Standex International Corp. | 184,309 | ||||||
4,643 | Sun Hydraulics Corp.^ | 185,581 | ||||||
1,607 | Supreme Industires, Inc., Class A | 25,230 | ||||||
466 | Taylor Devices, Inc.* | 7,083 | ||||||
3,038 | Tennant Co. | 216,306 | ||||||
15,787 | Terex Corp. | 497,763 | ||||||
800 | The Exone Co.*^ | 7,472 | ||||||
3,690 | Timken Co. | 146,493 | ||||||
11,231 | Titan International, Inc. | 125,900 | ||||||
7,749 | TriMas Corp.* | 182,102 | ||||||
10,692 | Wabash National Corp.*^ | 169,147 | ||||||
4,049 | Watts Water Technologies, Inc., Class A | 263,995 | ||||||
1,318 | Woodward, Inc. | 91,008 | ||||||
572 | WSI Industries, Inc. | 1,745 | ||||||
3,110 | Xerium Technologies, Inc.* | 17,478 | ||||||
|
| |||||||
10,195,120 | ||||||||
|
| |||||||
Marine (0.2%): | ||||||||
1,121 | Kirby Corp.*^ | 74,547 | ||||||
7,315 | Matson, Inc. | 258,877 | ||||||
|
| |||||||
333,424 | ||||||||
|
|
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Media (1.8%): | ||||||||
3,904 | A.H. Belo Corp., Class A | $ | 24,790 | |||||
5,322 | AMC Entertainment Holdings, Inc., Class A^ | 179,085 | ||||||
2,527 | Ballantyne Strong, Inc.* | 20,216 | ||||||
478 | Beasley Broadcast Group, Inc., Class A | 2,964 | ||||||
27,534 | Central Eurpoean Media Enterprises* | 70,212 | ||||||
229 | Daily Journal Corp.* | 55,372 | ||||||
12,254 | E.W. Scripps Co. (The), Class A*^ | 236,870 | ||||||
6,123 | Entercom Communications Corp. | 93,682 | ||||||
11,865 | Entravision Communications Corp., Class A | 83,055 | ||||||
2,242 | Eros International plc*^ | 29,258 | ||||||
4,669 | Gannett Co., Inc. | 45,336 | ||||||
338 | Global Eagle Entertainment, Inc.* | 2,183 | ||||||
11,521 | Gray Television, Inc.* | 125,003 | ||||||
12,577 | Harte-Hanks, Inc. | 18,991 | ||||||
2,892 | Hemisphere Media Group* | 32,390 | ||||||
2,441 | Insignia Systems, Inc.* | 5,834 | ||||||
3,833 | John Wiley & Sons, Inc., Class A | 208,899 | ||||||
10,454 | Lee Enterprises, Inc.* | 30,317 | ||||||
372 | McClatchy Co., Class A* | 4,903 | ||||||
21,894 | Media General, Inc.* | 412,265 | ||||||
6,314 | Meredith Corp.^ | 373,473 | ||||||
1,662 | MSG Networks, Inc., Class A* | 35,733 | ||||||
10,941 | National CineMedia, Inc. | 161,161 | ||||||
26,302 | New York Times Co. (The), Class A | 349,817 | ||||||
4,979 | Nexstar Broadcasting Group, Inc., Class A | 315,171 | ||||||
8,158 | Radio One, Inc., Class D* | 23,658 | ||||||
4,315 | Reading International, Inc., Class A* | 71,629 | ||||||
4,639 | Regal Entertainment Group, Class A | 95,563 | ||||||
654 | Scholastic Corp. | 31,058 | ||||||
9,348 | Sinclair Broadcast Group, Inc., Class A^ | 311,756 | ||||||
860 | Spanish Broadcasting System, Inc., Class A* | 2,623 | ||||||
13,453 | Time, Inc. | 240,136 | ||||||
1,858 | World Wrestling Entertainment, Inc., Class A | 34,187 | ||||||
|
| |||||||
3,727,590 | ||||||||
|
| |||||||
Metals & Mining (1.5%): | ||||||||
15,472 | AK Steel Holding Corp.*^ | 157,969 | ||||||
4,365 | Allegheny Technologies, Inc.^ | 69,534 | ||||||
2,124 | Ampco-Pittsburgh Corp. | 35,577 | ||||||
6,694 | Carpenter Technology Corp.^ | 242,122 | ||||||
3,100 | Century Aluminum Co.*^ | 26,536 | ||||||
11,200 | Cliffs Natural Resources, Inc.* | 94,192 | ||||||
8,368 | Coeur d’Alene Mines Corp.* | 76,065 | ||||||
18,568 | Commercial Metals Co. | 404,410 | ||||||
4,543 | Compass Minerals International, Inc.^ | 355,944 | ||||||
13,641 | Ferroglobe plc(a) | 147,732 | ||||||
1,805 | Gold Resource Corp. | 7,852 | ||||||
1,510 | Handy & Harman, Ltd.* | 38,581 | ||||||
2,335 | Haynes International, Inc.^ | 100,382 | ||||||
61,781 | Hecla Mining Co. | 323,732 | ||||||
931 | Kaiser Aluminum Corp. | 72,329 | ||||||
4,126 | Materion Corp. | 163,390 | ||||||
9,373 | McEwen Mining, Inc.^ | 27,275 | ||||||
856 | Ryerson Holding Corp.* | 11,428 | ||||||
1,487 | Schnitzer Steel Industries, Inc., Class A | 38,216 |
Continued
15
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Metals & Mining, continued | ||||||||
19,975 | Stillwater Mining Co.* | $ | 321,797 | |||||
3,318 | SunCoke Energy, Inc.* | 37,626 | ||||||
1,789 | Synalloy Corp.* | 19,590 | ||||||
846 | TimkenSteel Corp.*^ | 13,096 | ||||||
5,878 | United States Steel Corp. | 194,033 | ||||||
1,458 | Universal Stainless & Alloy Products, Inc.* | 19,698 | ||||||
2,441 | Worthington Industries, Inc. | 115,801 | ||||||
|
| |||||||
3,114,907 | ||||||||
|
| |||||||
Multiline Retail (0.4%): | ||||||||
7,840 | Big Lots, Inc.^ | 393,647 | ||||||
654 | Dillard’s, Inc., Class A^ | 40,999 | ||||||
800 | Fred’s, Inc.^ | 14,848 | ||||||
4,032 | Gordmans Stores, Inc.* | 2,762 | ||||||
39,798 | J.C. Penney Co., Inc.* | 330,721 | ||||||
1,852 | Ollie’s Bargain Outlet Holdings, Inc.* | 52,689 | ||||||
1,009 | Tuesday Morning Corp.* | 5,449 | ||||||
|
| |||||||
841,115 | ||||||||
|
| |||||||
Multi-Utilities (0.7%): | ||||||||
10,432 | Avista Corp.^ | 417,176 | ||||||
6,434 | Black Hills Corp.^ | 394,662 | ||||||
7,525 | NorthWestern Corp.^ | 427,946 | ||||||
2,614 | Unitil Corp. | 118,519 | ||||||
|
| |||||||
1,358,303 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (2.1%): | ||||||||
13,215 | Abraxas Petroleum Corp.* | 33,963 | ||||||
816 | Adams Resources & Energy, Inc. | 32,354 | ||||||
12,123 | Alon USA Energy, Inc. | 137,960 | ||||||
6,000 | Approach Resources, Inc.* | 20,100 | ||||||
901 | Barnwell Industries, Inc.* | 1,478 | ||||||
9,079 | Bill Barrett Corp.* | 63,462 | ||||||
7,870 | Callon Petroleum Co.*^ | 120,962 | ||||||
16,914 | Clean Energy Fuel Corp.* | 48,374 | ||||||
8,098 | Cloud Peak Energy, Inc.*^ | 45,430 | ||||||
1,914 | Contango Oil & Gas Co.* | 17,877 | ||||||
3,956 | Delek US Holdings, Inc. | 95,221 | ||||||
39,156 | Denbury Resources, Inc.*^ | 144,094 | ||||||
16,266 | DHT Holdings, Inc. | 67,341 | ||||||
1,100 | Dorian LPG, Ltd.*^ | 9,031 | ||||||
416 | Earthstone Energy, Inc.* | 5,716 | ||||||
4,363 | Eclipse Resources Corp.* | 11,649 | ||||||
7,475 | Enlink Midstream LLC | 142,399 | ||||||
12,047 | EP Energy Corp., Class A*^ | 78,908 | ||||||
1,297 | Evolution Petroleum Corp. | 12,970 | ||||||
13,216 | Gaslog, Ltd. | 212,778 | ||||||
1,561 | Green Plains Renewable Energy, Inc. | 43,474 | ||||||
944 | Gulfport Energy Corp.* | 20,428 | ||||||
5,504 | Hallador Energy Co. | 50,031 | ||||||
7,609 | Jones Energy, Inc., Class A*^ | 38,045 | ||||||
11,810 | Kosmos Energy LLC* | 82,788 | ||||||
1,531 | Laredo Petroleum Holdings, Inc.* | 21,648 | ||||||
12,361 | Nordic American Tankers, Ltd.^ | 103,832 | ||||||
9,684 | Oasis Petroleum, Inc.* | 146,616 | ||||||
4,913 | Pacific Ethanol, Inc.* | 46,674 |
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
3,313 | Panhandle Oil & Gas, Inc., Class A | $ | 78,021 | |||||
1,648 | Par Pacific Holdings, Inc.*^ | 23,962 | ||||||
871 | Parsley Energy, Inc., Class A* | 30,694 | ||||||
12,598 | PBF Energy, Inc., Class A^ | 351,232 | ||||||
5,288 | PDC Energy, Inc.* | 383,803 | ||||||
6 | PrimeEnergy Corp.* | 324 | ||||||
6,030 | Renewable Energy Group, Inc.* | 58,491 | ||||||
3,077 | Rice Energy, Inc.* | 65,694 | ||||||
3,561 | Ring Energy, Inc.* | 46,257 | ||||||
8,875 | RSP Permian, Inc.* | 396,002 | ||||||
28,682 | Scorpio Tankers, Inc.^ | 129,929 | ||||||
3,517 | SemGroup Corp., Class A^ | 146,835 | ||||||
12,619 | Ship Finance International^ | 187,392 | ||||||
3,446 | SM Energy Co.^ | 118,818 | ||||||
17,761 | Synergy Resources Corp.* | 158,251 | ||||||
1,980 | Teekay Shipping Corp. | 15,899 | ||||||
18,909 | Teekay Tankers, Ltd. | 42,734 | ||||||
781 | Western Refining, Inc. | 29,561 | ||||||
6,446 | Whiting Petroleum Corp.*^ | 77,481 | ||||||
1,144 | World Fuel Services Corp. | 52,521 | ||||||
11,076 | WPX Energy, Inc.* | 161,377 | ||||||
|
| |||||||
4,410,881 | ||||||||
|
| |||||||
Paper & Forest Products (1.1%): | ||||||||
6,562 | Boise Cascade Co.* | 147,645 | ||||||
2,930 | Clearwater Paper Corp.* | 192,062 | ||||||
2,095 | Deltic Timber Corp.^ | 161,462 | ||||||
8,287 | Domtar Corp. | 323,442 | ||||||
15,839 | KapStone Paper & Packaging Corp. | 349,249 | ||||||
19,676 | Louisiana-Pacific Corp.* | 372,466 | ||||||
11,341 | Mercer International, Inc. | 120,782 | ||||||
2,748 | Neenah Paper, Inc. | 234,130 | ||||||
1,455 | P.H. Glatfelter Co. | 34,760 | ||||||
15,494 | Resolute Forest Products* | 82,893 | ||||||
4,885 | Schweitzer-Mauduit International, Inc. | 222,414 | ||||||
|
| |||||||
2,241,305 | ||||||||
|
| |||||||
Personal Products (0.5%): | ||||||||
27,730 | Avon Products, Inc.* | 139,759 | ||||||
1,214 | CCA Industries, Inc.* | 3,156 | ||||||
5,186 | Inter Parfums, Inc. | 169,842 | ||||||
900 | Lifevantage Corp.* | 7,335 | ||||||
537 | Mannatech, Inc. | 10,901 | ||||||
2,284 | Medifast, Inc. | 95,083 | ||||||
1,387 | Natural Alternatives International, Inc.* | 15,673 | ||||||
3,757 | Natures Sunshine Products, Inc. | 56,355 | ||||||
2,622 | Nu Skin Enterprises, Inc., Class A | 125,279 | ||||||
1,791 | Nutraceutical International Corp. | 62,595 | ||||||
6,562 | Revlon, Inc.* | 191,282 | ||||||
340 | United-Guardian, Inc. | 5,270 | ||||||
3,726 | Usana Health Sciences, Inc.*^ | 228,032 | ||||||
|
| |||||||
1,110,562 | ||||||||
|
| |||||||
Pharmaceuticals (0.9%): | ||||||||
1,196 | Akorn, Inc.* | 26,109 | ||||||
1,346 | Amphastar Pharmaceuticals, Inc.*^ | 24,793 |
Continued
16
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Pharmaceuticals, continued | ||||||||
1,398 | ANI Pharmaceuticals, Inc.*^ | $ | 84,747 | |||||
1,496 | Aratana Therapeutics, Inc.* | 10,741 | ||||||
5,610 | Catalent, Inc.* | 151,245 | ||||||
3,415 | Cumberland Pharmaceuticals, Inc.* | 18,783 | ||||||
5,725 | DepoMed, Inc.*^ | 103,165 | ||||||
8,459 | Endocyte, Inc.* | 21,570 | ||||||
8,766 | Horizon Pharma plc* | 141,834 | ||||||
1,722 | Impax Laboratories, Inc.* | 22,817 | ||||||
4,468 | Innoviva, Inc.*^ | 47,808 | ||||||
2,063 | Juniper Pharmaceuticals, Inc.* | 11,553 | ||||||
6,034 | Lannett Co., Inc.*^ | 133,050 | ||||||
2,617 | Lipocine, Inc.*^ | 9,631 | ||||||
7,896 | Medicines Co. (The)*^ | 267,989 | ||||||
459 | Phibro Animal Health Corp., Class A | 13,449 | ||||||
8,296 | Prestige Brands Holdings, Inc.* | 432,221 | ||||||
9,367 | Sciclone Pharmaceuticals, Inc.* | 101,164 | ||||||
8,258 | Sucampo Pharmaceuticals, Inc., Class A* | 111,896 | ||||||
5,788 | Supernus Pharmaceuticals, Inc.* | 146,146 | ||||||
2,286 | Zogenix, Inc.* | 27,775 | ||||||
|
| |||||||
1,908,486 | ||||||||
|
| |||||||
Professional Services (1.9%): | ||||||||
1,888 | Acacia Research Corp.* | 12,272 | ||||||
5,002 | Advisory Board Co. (The)* | 166,317 | ||||||
979 | Barrett Business Services, Inc. | 62,754 | ||||||
9,272 | CBIZ, Inc.* | 127,026 | ||||||
3,999 | CDI Corp.* | 29,593 | ||||||
5,113 | CEB, Inc. | 309,848 | ||||||
490 | CRA International, Inc. | 17,934 | ||||||
4,395 | Exponent, Inc. | 265,019 | ||||||
3,126 | Franklin Covey Co.* | 62,989 | ||||||
7,060 | FTI Consulting, Inc.* | 318,265 | ||||||
3,229 | GP Strategies Corp.* | 92,349 | ||||||
3,411 | Heidrick & Struggles International, Inc. | 82,376 | ||||||
9,494 | Hill International, Inc.* | 41,299 | ||||||
3,860 | Huron Consulting Group, Inc.* | 195,509 | ||||||
3,423 | ICF International, Inc.* | 188,950 | ||||||
3,511 | Insperity, Inc. | 249,105 | ||||||
1,000 | Kelly Services, Inc., Class A | 22,920 | ||||||
5,603 | Kforce, Inc. | 129,429 | ||||||
8,537 | Korn/Ferry International^ | 251,244 | ||||||
666 | Mastech Holdings, Inc.* | 4,535 | ||||||
5,340 | Mistras Group, Inc.* | 137,131 | ||||||
8,295 | Navigant Consulting, Inc.* | 217,163 | ||||||
8,419 | On Assignment, Inc.* | 371,783 | ||||||
7,016 | Resources Connection, Inc. | 135,058 | ||||||
10,265 | RPX Corp.* | 110,862 | ||||||
3,165 | TriNet Group, Inc.* | 81,087 | ||||||
7,676 | Trueblue, Inc.* | 189,213 | ||||||
4,212 | Volt Information Sciences, Inc.* | 28,852 | ||||||
1,576 | Willdan Group, Inc.* | 35,602 | ||||||
|
| |||||||
3,936,484 | ||||||||
|
| |||||||
Real Estate Management & Development (0.6%): | ||||||||
8,755 | Alexander & Baldwin, Inc. | 392,837 | ||||||
2,400 | Altisource Portfolio Solutions*^ | 63,816 |
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Real Estate Management & Development, continued | ||||||||
395 | CKX Lands, Inc.* | $ | 4,207 | |||||
1,120 | Consolidated-Tomoka Land Co. | 59,830 | ||||||
6,308 | Forestar Group, Inc.* | 83,896 | ||||||
232 | FRP Holdings, Inc.* | 8,746 | ||||||
376 | Griffin Industrial Realty, Inc. | 11,930 | ||||||
6,592 | HFF, Inc., Class A | 199,408 | ||||||
10 | J.W. Mays, Inc.* | 449 | ||||||
4,581 | Kennedy-Wilson Holdings, Inc. | 93,911 | ||||||
5,387 | Marcus & Millichap, Inc.* | 143,941 | ||||||
1,035 | Maui Land & Pineapple Co.* | 7,504 | ||||||
308 | Stratus Properties, Inc.* | 10,087 | ||||||
4,276 | Tejon Ranch Co.*^ | 108,739 | ||||||
1,076 | The RMR Group, Inc., Class A | 42,502 | ||||||
2,700 | The St. Joe Co.*^ | 51,300 | ||||||
256 | Transcontinental Realty Investors, Inc.* | 3,023 | ||||||
|
| |||||||
1,286,126 | ||||||||
|
| |||||||
Road & Rail (1.2%): | ||||||||
9,726 | Avis Budget Group, Inc.* | 356,750 | ||||||
4,522 | Celadon Group, Inc. | 32,332 | ||||||
2,970 | Covenant Transportation Group, Inc., Class A* | 57,440 | ||||||
14,120 | Heartland Express, Inc. | 287,483 | ||||||
12,603 | Knight Transportation, Inc.^ | 416,530 | ||||||
4,671 | Landstar System, Inc. | 398,436 | ||||||
1,020 | Marten Transport, Ltd. | 23,766 | ||||||
7,221 | Roadrunner Transportation System, Inc.* | 75,026 | ||||||
4,204 | Saia, Inc.* | 185,607 | ||||||
3,419 | Swift Transportation Co.*^ | 83,287 | ||||||
4,455 | Universal Truckload Services, Inc. | 72,839 | ||||||
1,872 | USA Truck, Inc.* | 16,305 | ||||||
11,360 | Werner Enterprises, Inc.^ | 306,152 | ||||||
5,662 | YRC Worldwide, Inc.* | 75,191 | ||||||
|
| |||||||
2,387,144 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (3.7%): | ||||||||
7,017 | Advanced Energy Industries, Inc.* | 384,181 | ||||||
5,028 | Alpha & Omega Semiconductor, Ltd.* | 106,946 | ||||||
1,056 | Ambarella, Inc.* | 57,161 | ||||||
34,591 | Amkor Technology, Inc.*^ | 364,935 | ||||||
2,883 | Axcelis Technologies, Inc.* | 41,948 | ||||||
2,777 | AXT, Inc.* | 13,330 | ||||||
2,314 | Brooks Automation, Inc. | 39,500 | ||||||
4,242 | Cabot Microelectronics Corp. | 267,967 | ||||||
634 | Cavium, Inc.* | 39,587 | ||||||
1,462 | CEVA, Inc.* | 49,050 | ||||||
10,088 | Cirrus Logic, Inc.* | 570,376 | ||||||
4,840 | Cohu, Inc. | 67,276 | ||||||
4,144 | Cree, Inc.*^ | 109,360 | ||||||
8,530 | Diodes, Inc.* | 218,965 | ||||||
4,185 | DSP Group, Inc.* | 54,614 | ||||||
19,633 | Entegris, Inc.* | 351,431 | ||||||
8,893 | Exar Corp.* | 95,867 | ||||||
12,777 | FormFactor, Inc.* | 143,102 | ||||||
4,679 | GSI Technology, Inc.* | 29,010 | ||||||
20,412 | Integrated Device Technology, Inc.* | 480,907 | ||||||
23,060 | Intersil Corp., Class A | 514,238 |
Continued
17
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Semiconductors & Semiconductor Equipment, continued | ||||||||
1,349 | inTest Corp.* | $ | 6,205 | |||||
5,974 | IXYS Corp. | 71,091 | ||||||
12,127 | Kopin Corp.*^ | 34,441 | ||||||
11,917 | Kulicke & Soffa Industries, Inc.* | 190,076 | ||||||
17,231 | Lattice Semiconductor Corp.* | 126,820 | ||||||
685 | MA-COM Technology Solutions Holdings, Inc.*^ | 31,702 | ||||||
3,994 | MagnaChip Semiconductor Corp.* | 24,763 | ||||||
2,327 | MaxLinear, Inc., Class A*^ | 50,729 | ||||||
8,758 | MKS Instruments, Inc. | 520,225 | ||||||
4,449 | Nanometrics, Inc.* | 111,492 | ||||||
6,163 | Neophotonics Corp.* | 66,622 | ||||||
910 | NVE Corp. | 65,001 | ||||||
5,936 | PDF Solutions, Inc.*^ | 133,857 | ||||||
12,404 | Photronics, Inc.* | 140,165 | ||||||
3,805 | Power Integrations, Inc. | 258,169 | ||||||
18,269 | Rambus, Inc.* | 251,564 | ||||||
6,014 | Rudolph Technologies, Inc.* | 140,427 | ||||||
2,280 | Semtech Corp.* | 71,934 | ||||||
740 | Sevcon, Inc.* | 6,312 | ||||||
6,339 | Sigma Designs, Inc.* | 38,034 | ||||||
6,159 | Silicon Laboratories, Inc.* | 400,335 | ||||||
586 | Sunpower Corp.*^ | 3,873 | ||||||
2,469 | Synaptics, Inc.*^ | 132,289 | ||||||
8,159 | Tessera Holding Corp. | 360,628 | ||||||
2,862 | Ultra Clean Holdings, Inc.* | 27,761 | ||||||
4,394 | Ultratech, Inc.* | 105,368 | ||||||
6,860 | Veeco Instruments, Inc.* | 199,969 | ||||||
10,031 | Xcerra Corp.* | 76,637 | ||||||
|
| |||||||
7,646,240 | ||||||||
|
| |||||||
Software (2.4%): | ||||||||
18,665 | ACI Worldwide, Inc.* | 338,770 | ||||||
4,794 | American Software, Inc., Class A | 49,522 | ||||||
2,923 | Aspen Technology, Inc.* | 159,830 | ||||||
2,785 | Aware, Inc.* | 16,989 | ||||||
8,893 | Barracuda Networks, Inc.* | 190,577 | ||||||
6,086 | Blackbaud, Inc.^ | 389,504 | ||||||
2,350 | BSQUARE Corp.* | 13,748 | ||||||
1,750 | Datawatch Corp.* | 9,625 | ||||||
5,359 | Ebix, Inc.^ | 305,731 | ||||||
428 | Ellie Mae, Inc.* | 35,815 | ||||||
2,049 | Evolving Systems, Inc. | 8,401 | ||||||
3,328 | Fair Isaac Corp. | 396,764 | ||||||
4,113 | GlobalSCAPE, Inc. | 16,740 | ||||||
595 | Globant SA* | 19,843 | ||||||
4,000 | Glu Mobile, Inc.* | 7,760 | ||||||
17,978 | Mentor Graphics Corp. | 663,208 | ||||||
204 | MicroStrategy, Inc., Class A* | 40,270 | ||||||
6,977 | Monotype Imaging Holdings, Inc. | 138,493 | ||||||
2,185 | Paycom Software, Inc.*^ | 99,396 | ||||||
10,482 | Pegasystems, Inc. | 377,352 | ||||||
7,959 | Progress Software Corp. | 254,131 | ||||||
2,878 | QAD, Inc. | 87,491 | ||||||
15 | QAD, Inc., Class B | 383 | ||||||
968 | Qualys, Inc.* | 30,637 |
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Software, continued | ||||||||
1,655 | Rosetta Stone, Inc.* | $ | 14,746 | |||||
6,367 | SeaChange International, Inc.* | 14,644 | ||||||
1,807 | Silver Spring Networks, Inc.* | 24,051 | ||||||
6,810 | Synchronoss Technologies, Inc.* | 260,823 | ||||||
7,906 | Telenav, Inc.* | 55,737 | ||||||
20,200 | TiVo Corp.* | 422,180 | ||||||
7,072 | VASCO Data Security International, Inc.* | 96,533 | ||||||
3,044 | Verint Systems, Inc.* | 107,301 | ||||||
1,473 | Zedge, Inc., Class B* | 4,610 | ||||||
1,895 | Zix Corp.* | 9,361 | ||||||
121,224 | Zynga, Inc.* | 311,546 | ||||||
|
| |||||||
4,972,512 | ||||||||
|
| |||||||
Specialty Retail (3.3%): | ||||||||
9,996 | Aaron’s, Inc.^ | 319,772 | ||||||
3,905 | Abercrombie & Fitch Co., Class A^ | 46,860 | ||||||
10,212 | American Eagle Outfitters, Inc.^ | 154,916 | ||||||
1,626 | America’s Car Mart, Inc.* | 71,138 | ||||||
4,436 | Asbury Automotive Group, Inc.* | 273,701 | ||||||
26,427 | Ascena Retail Group, Inc.* | 163,583 | ||||||
7,305 | Barnes & Noble Education, Inc.* | 83,788 | ||||||
11,581 | Barnes & Noble, Inc. | 129,128 | ||||||
4,102 | Big 5 Sporting Goods Corp.^ | 71,170 | ||||||
3,574 | Boot Barn Holdings, Inc.*^ | 44,746 | ||||||
1,732 | Build-A-Bear Workshop, Inc.* | 23,815 | ||||||
908 | Cabela’s, Inc., Class A* | 53,163 | ||||||
7,297 | Caleres, Inc. | 239,488 | ||||||
5,093 | Cato Corp., Class A | 153,197 | ||||||
22,518 | Chico’s FAS, Inc. | 324,034 | ||||||
3,179 | Children’s Place Retail Stores, Inc. (The)^ | 320,920 | ||||||
7,062 | Christopher & Banks Corp.* | 16,525 | ||||||
2,910 | Citi Trends, Inc. | 54,824 | ||||||
7,308 | Conn’s, Inc.* | 92,446 | ||||||
3,351 | CST Brands, Inc. | 161,351 | ||||||
2,917 | Destination Maternity Corp.^ | 15,081 | ||||||
10,159 | Destination XL Group, Inc.*^ | 43,176 | ||||||
2,730 | DSW, Inc., Class A^ | 61,835 | ||||||
13,584 | Express, Inc.* | 146,164 | ||||||
7,307 | Finish Line, Inc. (The), Class A^ | 137,445 | ||||||
8,642 | Five Below, Inc.*^ | 345,333 | ||||||
7,915 | Francesca’s Holdings Corp.* | 142,707 | ||||||
1,782 | GameStop Corp., Class A^ | 45,013 | ||||||
3,529 | Genesco, Inc.*^ | 219,151 | ||||||
410 | GNC Holdings, Inc., Class A | 4,526 | ||||||
693 | Group 1 Automotive, Inc. | 54,012 | ||||||
11,356 | Guess?, Inc.^ | 137,408 | ||||||
2,764 | Haverty Furniture Cos., Inc. | 65,507 | ||||||
5,671 | hhgregg, Inc.*^ | 8,110 | ||||||
3,790 | Hibbett Sports, Inc.*^ | 141,367 | ||||||
3,206 | Kirkland’s, Inc.* | 49,725 | ||||||
3,753 | Lithia Motors, Inc., Class A^ | 363,402 | ||||||
3,004 | Lumber Liquidators Holdings, Inc.*^ | 47,283 | ||||||
4,711 | MarineMax, Inc.* | 91,158 | ||||||
5,373 | Monro Muffler Brake, Inc.^ | 307,336 | ||||||
1,676 | Murphy U.S.A., Inc.* | 103,024 |
Continued
18
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Specialty Retail, continued | ||||||||
11,726 | New York & Co.* | $ | 26,618 | |||||
3,403 | Party City Holdco, Inc.* | 48,323 | ||||||
441 | Perfumania Holdings, Inc.* | 662 | ||||||
17,335 | Pier 1 Imports, Inc. | 148,041 | ||||||
1,537 | Rent-A-Center, Inc.^ | 17,291 | ||||||
8,198 | Select Comfort Corp.*^ | 185,439 | ||||||
7,500 | Sonic Automotive, Inc., Class A | 171,750 | ||||||
2,363 | Sportsman’s Warehouse Holdings, Inc.* | 22,189 | ||||||
8,364 | Stein Mart, Inc. | 45,835 | ||||||
1,998 | Tailored Brands, Inc. | 51,049 | ||||||
289 | Tandy Leather Factory, Inc.* | 2,341 | ||||||
6,734 | The Buckle, Inc.^ | 153,535 | ||||||
8,543 | The Container Store Group, Inc.* | 54,248 | ||||||
8,692 | The Tile Shop Holdings, Inc.* | 169,929 | ||||||
2,271 | Tilly’s, Inc.* | 29,954 | ||||||
737 | Trans World Entertainment Corp.* | 2,395 | ||||||
589 | Urban Outfitters, Inc.* | 16,775 | ||||||
4,282 | Vitamin Shoppe, Inc.* | 101,698 | ||||||
4,562 | West Marine, Inc.* | 47,764 | ||||||
942 | Winmark Corp. | 118,833 | ||||||
5,550 | Zumiez, Inc.* | 121,268 | ||||||
|
| |||||||
6,863,265 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (0.5%): | ||||||||
3,723 | 3D Systems Corp.* | 49,479 | ||||||
1,308 | Astro-Med, Inc. | 18,639 | ||||||
7,288 | Avid Technology, Inc.* | 32,067 | ||||||
1,901 | Concurrent Computer Corp. | 10,170 | ||||||
1,297 | Cray, Inc.* | 26,848 | ||||||
7,744 | Diebold, Inc.^ | 194,762 | ||||||
7,170 | Eastman Kodak Co.* | 111,135 | ||||||
7,011 | Electronics for Imaging, Inc.*^ | 307,502 | ||||||
2,458 | Stratasys, Ltd.* | 40,655 | ||||||
7,770 | Super Micro Computer, Inc.*^ | 217,949 | ||||||
1,590 | TransAct Technologies, Inc. | 10,494 | ||||||
6,647 | USA Technologies, Inc.* | 28,582 | ||||||
|
| |||||||
1,048,282 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (0.7%): | ||||||||
1,716 | Cherokee, Inc.* | 18,018 | ||||||
8,448 | Crocs, Inc.* | 57,953 | ||||||
2,291 | Culp, Inc. | 85,111 | ||||||
4,229 | Deckers Outdoor Corp.*^ | 234,244 | ||||||
6,596 | G-III Apparel Group, Ltd.* | 194,978 | ||||||
7,140 | Iconix Brand Group, Inc.* | 66,688 | ||||||
5,694 | Kate Spade & Co.* | 106,307 | ||||||
2,740 | Oxford Industries, Inc. | 164,756 | ||||||
1,515 | Rocky Brands, Inc. | 17,498 | ||||||
6,949 | Sequential Brands Group, Inc.*^ | 32,521 | ||||||
10,365 | Steven Madden, Ltd.*^ | 370,549 | ||||||
761 | Vera Bradley, Inc.* | 8,919 | ||||||
1,800 | Vince Holding Corp.*^ | 7,290 | ||||||
4,613 | Wolverine World Wide, Inc.^ | 101,255 | ||||||
|
| |||||||
1,466,087 | ||||||||
|
|
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Thrifts & Mortgage Finance (2.9%): | ||||||||
885 | ASB Bancorp, Inc.* | $ | 25,886 | |||||
20,572 | Astoria Financial Corp. | 383,667 | ||||||
1,803 | Atlantic Coast Financial Corp.* | 12,260 | ||||||
8,784 | Bank Mutual Corp. | 83,009 | ||||||
3,938 | BankFinancial Corp. | 58,361 | ||||||
2,775 | Bear State Financial, Inc.^ | 28,166 | ||||||
12,773 | Beneficial Bancorp, Inc. | 235,023 | ||||||
9,091 | BofI Holding, Inc.*^ | 259,547 | ||||||
1,659 | BSB Bancorp, Inc.* | 48,028 | ||||||
22,445 | Capitol Federal Financial, Inc. | 369,444 | ||||||
3,165 | Charter Financial Corp. | 52,761 | ||||||
280 | Citizens Community Bancorp, Inc. | 3,480 | ||||||
5,107 | Clifton Bancorp, Inc. | 86,410 | ||||||
993 | Coastway Bancorp, Inc.* | 15,540 | ||||||
6,910 | Dime Community Bancshares | 138,891 | ||||||
1,537 | ESSA Bancorp, Inc. | 24,162 | ||||||
867 | Essent Group, Ltd.* | 28,065 | ||||||
8,551 | Everbank Financial Corp. | 166,317 | ||||||
242 | First Capital, Inc. | 7,974 | ||||||
9,580 | Flagstar Bancorp, Inc.* | 258,084 | ||||||
574 | FS Bancorp, Inc. | 20,635 | ||||||
195 | Guaranty Federal Bankshares, Inc. | 4,130 | ||||||
681 | Hamilton Bancorp, Inc.* | 9,704 | ||||||
245 | Hingham Institution for Savings | 48,211 | ||||||
629 | HMN Financial, Inc.* | 11,008 | ||||||
973 | Home Bancorp, Inc. | 37,568 | ||||||
43 | Home Federal Bancorp, Inc. | 1,155 | ||||||
4,136 | HomeStreet, Inc.*^ | 130,698 | ||||||
1,446 | HopFed Bancorp, Inc. | 19,463 | ||||||
869 | IF Bancorp, Inc. | 16,077 | ||||||
865 | Impac Mortgage Holdings, Inc.* | 12,127 | ||||||
7,701 | Kearny Financial Corp.^ | 119,751 | ||||||
390 | Kentucky First Federal Bancorp | 3,530 | ||||||
832 | Lake Sunapee Bank Group | 19,627 | ||||||
1,116 | LendingTree, Inc.* | 113,107 | ||||||
940 | Malvern Bancorp, Inc.* | 19,881 | ||||||
9,112 | Meridian Bancorp, Inc. | 172,217 | ||||||
1,197 | Meta Financial Group, Inc. | 123,171 | ||||||
676 | MSB Financial Corp.* | 9,937 | ||||||
3,723 | Nationstar Mortgage Holdings, Inc.* | 67,237 | ||||||
2,740 | NMI Holdings, Inc., Class A* | 29,181 | ||||||
8,224 | Northfield Bancorp, Inc. | 164,233 | ||||||
13,856 | Northwest Bancshares, Inc.^ | 249,824 | ||||||
5,668 | Oceanfirst Financial Corp. | 170,210 | ||||||
198 | Oconee Federal Financial Corp. | 4,257 | ||||||
16,927 | Ocwen Financial Corp.*^ | 91,237 | ||||||
7,654 | Oritani Financial Corp. | 143,513 | ||||||
4,022 | PennyMac Financial Services, Inc., Class A* | 66,966 | ||||||
1,835 | PHH Corp.* | 27,819 | ||||||
1,677 | Provident Financial Holdings, Inc. | 33,909 | ||||||
2,873 | Provident Financial Services, Inc. | 81,306 | ||||||
1,683 | Prudential Bancorp, Inc. | 28,813 | ||||||
420 | Riverview Bancorp, Inc. | 2,940 | ||||||
2,613 | Security National Financial Corp., Class A* | 16,985 |
Continued
19
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Thrifts & Mortgage Finance, continued | ||||||||
671 | Severn Bancorp, Inc.* | $ | 5,301 | |||||
1,709 | SI Financial Group, Inc. | 26,319 | ||||||
707 | Southern Missouri Bancorp, Inc. | 25,014 | ||||||
1,815 | Territorial Bancorp, Inc. | 59,605 | ||||||
17,842 | TrustCo Bank Corp. | 156,118 | ||||||
25 | United Community Bancorp | 418 | ||||||
9,257 | United Community Financial Corp. | 82,758 | ||||||
8,283 | United Financial Bancorp, Inc. | 150,419 | ||||||
6,735 | Walter Investment Management Corp.*^ | 31,991 | ||||||
14,474 | Washington Federal, Inc. | 497,181 | ||||||
6,500 | Waterstone Financial, Inc. | 119,600 | ||||||
5,401 | Wawlker & Dunlop, Inc.* | 168,511 | ||||||
580 | Wayne Savings Bancshares, Inc. | 9,570 | ||||||
1,725 | Western New England BanCorp, Inc. | 16,129 | ||||||
12 | Wolverine Bancorp, Inc. | 379 | ||||||
4,945 | WSFS Financial Corp. | 229,201 | ||||||
35 | WVS Financial Corp. | 518 | ||||||
|
| |||||||
5,934,534 | ||||||||
|
| |||||||
Tobacco (0.2%): | ||||||||
301 | Alliance One International, Inc.* | 5,779 | ||||||
483 | Universal Corp. | 30,791 | ||||||
17,556 | Vector Group, Ltd.^ | 399,224 | ||||||
|
| |||||||
435,794 | ||||||||
|
| |||||||
Trading Companies & Distributors (1.0%): | ||||||||
311 | AeroCentury Corp.* | 2,939 | ||||||
3,640 | Air Lease Corp.^ | 124,961 | ||||||
6,157 | Applied Industrial Technologies, Inc. | 365,726 | ||||||
8,168 | Beacon Roofing Supply, Inc.* | 376,299 | ||||||
2,473 | BMC Stock Holdings, Inc.* | 48,224 | ||||||
4,236 | CAI International, Inc.*^ | 36,726 | ||||||
957 | Dxp Enterprises, Inc.* | 33,246 | ||||||
1,463 | Envirostar, Inc.^ | 21,214 | ||||||
1,239 | H&E Equipment Services, Inc. | 28,807 | ||||||
1,116 | Herc Holdings, Inc. Com* | 44,819 | ||||||
4,781 | Huttig Building Products, Inc.* | 31,602 | ||||||
4,012 | Kaman Corp., Class A | 196,307 | ||||||
4,569 | MRC Global, Inc.* | 92,568 | ||||||
3,542 | NOW, Inc.*^ | 72,505 | ||||||
539 | Rush Enterprises, Inc., Class A* | 17,194 |
Shares or | Fair Value | |||||||
Common Stocks, continued | ||||||||
Trading Companies & Distributors, continued | ||||||||
9,964 | Textainer Group Holdings, Ltd. | $ | 74,232 | |||||
3,983 | Titan Machinery, Inc.* | 58,032 | ||||||
577 | TransAct Technologies, Inc.* | 6,232 | ||||||
5,731 | Triton International, Ltd.^ | 90,550 | ||||||
1,668 | Univar, Inc.* | 47,321 | ||||||
2,676 | Veritiv Corp.* | 143,835 | ||||||
1,397 | WESCO International, Inc.* | 92,970 | ||||||
|
| |||||||
2,006,309 | ||||||||
|
| |||||||
Water Utilities (0.6%): | ||||||||
6,675 | American States Water Co.^ | 304,113 | ||||||
1,521 | Artesian Resources Corp. | 48,581 | ||||||
8,428 | California Water Service Group | 285,709 | ||||||
2,058 | Connecticut Water Service, Inc.^ | 114,939 | ||||||
2,756 | Consolidated Water Co., Ltd.^ | 29,903 | ||||||
3,030 | Middlesex Water Co. | 130,108 | ||||||
669 | Pure Cycle Corp.* | 3,680 | ||||||
3,454 | SJW Corp. | 193,355 | ||||||
2,392 | York Water Co. (The)^ | 91,374 | ||||||
|
| |||||||
1,201,762 | ||||||||
|
| |||||||
Wireless Telecommunication Services (0.3%): | ||||||||
6,783 | Boingo Wireless, Inc.* | 82,685 | ||||||
8,165 | Shenandoah Telecommunications Co.^ | 222,905 | ||||||
4,083 | Spok Holdings, Inc. | 84,722 | ||||||
11,298 | Telephone & Data Systems, Inc. | 326,173 | ||||||
|
| |||||||
716,485 | ||||||||
|
| |||||||
Total Common Stocks (Cost $185,916,791) | 208,168,784 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (18.2%): | ||||||||
$ | 37,945,466 | AZL DFA U.S. Small Cap Fund Securities Lending Collateral Account(b) | 37,945,466 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 37,945,466 | ||||||
|
| |||||||
Total Investment Securities (Cost $223,862,257)(c) — 118.3% | 246,114,250 | |||||||
Net other assets (liabilities) — (18.3)% | (38,102,426 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 208,011,824 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
ADR—American Depositary Receipt
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2016. The total value of securities on loan as of December 31, 2016, was $36,777,980. |
(a) | The sub-adviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2016, these securities represent 0.07% 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, 2016. |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
See accompanying notes to the financial statements.
20
AZL DFA U.S. Small Cap Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investment securities, at cost | $ | 223,862,257 | |||
|
| ||||
Investment securities, at value* | $ | 246,114,250 | |||
Interest and dividends receivable | 218,884 | ||||
Receivable for capital shares issued | 12,895 | ||||
Receivable for investments sold | 1,214,956 | ||||
Prepaid expenses | 1,126 | ||||
|
| ||||
Total Assets | 247,562,111 | ||||
|
| ||||
Liabilities: | |||||
Cash overdraft | 1,040,641 | ||||
Payable for capital shares redeemed | 369,926 | ||||
Payable for collateral received on loaned securities | 37,945,466 | ||||
Manager fees payable | 125,444 | ||||
Administration fees payable | 6,019 | ||||
Distribution fees payable | 44,802 | ||||
Custodian fees payable | 12,259 | ||||
Administrative and compliance services fees payable | 564 | ||||
Trustee fees payable | 428 | ||||
Other accrued liabilities | 4,738 | ||||
|
| ||||
Total Liabilities | 39,550,287 | ||||
|
| ||||
Net Assets | $ | 208,011,824 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 181,672,793 | |||
Accumulated net investment income/(loss) | 1,121,439 | ||||
Accumulated net realized gains/(losses) from investment transactions | 2,965,599 | ||||
Net unrealized appreciation/(depreciation) on investments | 22,251,993 | ||||
|
| ||||
Net Assets | $ | 208,011,824 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 18,207,052 | ||||
Net Asset Value (offering and redemption price per share) | $ | 11.42 | |||
|
|
* | Includes securities on loan of $36,777,980. |
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Dividends | $ | 2,883,744 | |||
Income from securities lending | 278,450 | ||||
Foreign withholding tax | (403 | ) | |||
|
| ||||
Total Investment Income | 3,161,791 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 1,731,664 | ||||
Administration fees | 60,772 | ||||
Distribution fees | 509,314 | ||||
Custodian fees | 10,301 | ||||
Administrative and compliance services fees | 1,830 | ||||
Trustee fees | 6,090 | ||||
Professional fees | 5,837 | ||||
Shareholder reports | 1,702 | ||||
Other expenses | 3,687 | ||||
|
| ||||
Total expenses before reductions | 2,331,197 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (305,591 | ) | |||
|
| ||||
Net expenses | 2,025,606 | ||||
|
| ||||
Net Investment Income/(Loss) | 1,136,185 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 2,962,328 | ||||
Change in net unrealized appreciation/depreciation on investments | 41,654,859 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 44,617,187 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 45,753,372 | |||
|
|
See accompanying notes to the financial statements.
21
Statements of Changes in Net Assets
AZL DFA U.S. Small Cap Fund | ||||||||||
For the Year Ended December 31, 2016 | April 27, 2015 to | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 1,136,185 | $ | 762,828 | ||||||
Net realized gains/(losses) on investment transactions | 2,962,328 | 322,501 | ||||||||
Change in unrealized appreciation/depreciation on investments | 41,654,859 | (19,402,866 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 45,753,372 | (18,317,537 | ) | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (897,259 | ) | — | |||||||
From net realized gains | (346,185 | ) | — | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (1,243,444 | ) | — | |||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 6,352,461 | 246,357,340 | ||||||||
Proceeds from dividends reinvested | 1,243,444 | — | ||||||||
Value of shares redeemed | (52,625,048 | ) | (19,508,764 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (45,029,143 | ) | 226,848,576 | |||||||
|
|
|
| |||||||
Change in net assets | (519,215 | ) | 208,531,039 | |||||||
Net Assets: | ||||||||||
Beginning of period | 208,531,039 | — | ||||||||
|
|
|
| |||||||
End of period | $ | 208,011,824 | $ | 208,531,039 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 1,121,439 | $ | 909,467 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 651,607 | 24,643,710 | ||||||||
Dividends reinvested | 125,347 | — | ||||||||
Shares redeemed | (5,243,191 | ) | (1,970,421 | ) | ||||||
|
|
|
| |||||||
Change in shares | (4,466,237 | ) | 22,673,289 | |||||||
|
|
|
|
(a) | For the period April 27, 2015 (commencement of operations) to December 31, 2015. |
See accompanying notes to the financial statements.
22
AZL DFA U.S. Small Cap Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, 2016 | April 27, 2015 December 31, | |||||||||
Net Asset Value, Beginning of Period | $ | 9.20 | $ | 10.00 | ||||||
|
|
|
| |||||||
Investment Activities: | ||||||||||
Net Investment Income/(Loss) | 0.07 | 0.03 | ||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 2.21 | (0.83 | ) | |||||||
|
|
|
| |||||||
Total from Investment Activities | 2.28 | (0.80 | ) | |||||||
|
|
|
| |||||||
Dividends to Shareholders From: | ||||||||||
Net Investment Income | (0.04 | ) | — | |||||||
Net Realized Gains | (0.02 | ) | — | |||||||
|
|
|
| |||||||
Total Dividends | (0.06 | ) | — | |||||||
|
|
|
| |||||||
Net Asset Value, End of Period | $ | 11.42 | $ | 9.20 | ||||||
|
|
|
| |||||||
Total Return(b) | 24.90 | % | (8.00 | )%(c) | ||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||
Net Assets, End of Period (000’s) | $ | 208,012 | $ | 208,531 | ||||||
Net Investment Income/(Loss)(d) | 0.56 | % | 0.50 | % | ||||||
Expenses Before Reductions(d)(e) | 1.14 | % | 1.18 | % | ||||||
Expenses Net of Reductions(d) | 0.99 | % | 1.03 | % | ||||||
Portfolio Turnover Rate | 9 | % | 10 | %(c) |
(a) | For the period April 27, 2015 (commencement of operations) to December 31, 2015. |
(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.
23
AZL DFA U.S. Small Cap Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL DFA U.S. Small Cap Fund (the “Fund”), and 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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.
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) 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.
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AZL DFA U.S. Small Cap Fund
Notes to the Financial Statements
December 31, 2016
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, 2016 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $34.6 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $27,500 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (“ASU No. 2014-11”), “Transfers & Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged, and the remaining contractual maturity of those transactions as of December 31, 2016.
Overnight and Continuous | Less than 30 Days | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions | $ | 36,644,315 | $ | 1,301,151 | $ | — | $ | — | $ | 37,945,466 | |||||||||||||||
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Total Securities Lending Transactions | 36,644,315 | 1,301,151 | — | — | 37,945,466 | ||||||||||||||||||||
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Total Borrowings | $ | 36,644,315 | $ | 1,301,151 | $ | — | $ | — | $ | 37,945,466 | |||||||||||||||
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Gross Amount of Recognized Liabilities for Securities Lending Transactions | $ | 37,945,466 | |||||||||||||||||||||||
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Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and sub-adviser. Any such purchase or sale transaction must be effected without a brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security’s last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. During the year ended December 31, 2016, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
3. Fees and Transactions with Affiliates and Other Parties
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 Dimensional Fund Advisors LP (“DFA”), DFA 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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL DFA U.S. Small Cap Fund | 0.85 | % | 1.35 | % |
* | 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 at any time. |
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AZL DFA U.S. Small Cap Fund
Notes to the Financial Statements
December 31, 2016
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, 2016, 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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the Fund’s average daily net assets, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $2,293 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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 (the “Board” or “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.
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.
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AZL DFA U.S. Small Cap Fund
Notes to the Financial Statements
December 31, 2016
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, 2016, 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, 2016 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks+ | $ | 208,168,784 | $ | — | $ | 208,168,784 | |||||||||
Securities Held as Collateral for Securities on Loan | — | 37,945,466 | 37,945,466 | ||||||||||||
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Total Investment Securities | $ | 208,168,784 | $ | 37,945,466 | $ | 246,114,250 | |||||||||
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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, 2016, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL DFA U.S. Small Cap Fund | $ | 17,920,622 | $ | 62,733,279 |
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 policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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 of securities for federal income tax purposes at December 31, 2016 is $223,859,327. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 40,050,793 | ||
Unrealized (depreciation) | (17,795,870 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 22,254,923 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL DFA U.S. Small Cap Fund | $ | 1,243,444 | $ | — | $ | 1,243,444 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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 Earnings/ | |||||||||||||||||||||
AZL DFA U.S. Small Cap Fund | $ | 2,357,367 | $ | 1,726,741 | $ | — | $ | 22,254,923 | $ | 26,339,031 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
27
AZL DFA U.S. Small Cap Fund
Notes to the Financial Statements
December 31, 2016
8. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies – Form N-PORT and Form N-CEN – also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
9. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
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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 DFA U.S. Small Cap Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2016, and the related statement of operations for the year then ended and the statements of changes in net assets and the financial highlights for each of the years or periods in the two-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2016, 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 AZL DFA U.S. Small Cap Fund as of December 31, 2016, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the years or periods in the two-year period then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Columbus, Ohio
February 24, 2017
29
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2016, 93.72% 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, 2016, the Fund declared net short-term capital gain distributions of $346,185.
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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 — October 25, 2016 (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 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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
32
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 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 the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held October 25, 2016, the Manager reported that for the three year period ended June 30, 2016, seven Funds were in the top 40%, two were in the middle 20% and three were in the bottom 40%, and for the one year period ended June 30, 2016, twelve Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2016, six Funds were in the top 40%, one was in the middle 20%, and three were in the bottom 40%. At the Board of Trustees meeting held October 25, 2016, 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 twenty Funds reviewed by the Board of Trustees in the fall of 2016, seventeen 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 2016 for the twenty-one Funds was as follows; (1) eighteen of the Funds had total expense rankings below the 65th percentile (with eleven Funds at or below the 50th percentile); (2) the AZL Russell 1000 Growth Index Fund had a total expense ranking in the 66th percentile, but there was only a very limited peer group for such Fund, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; (3) the AZL International Index Fund had a total expense ranking in the 75th percentile, but there was only a limited peer group for such Fund, the actual management fee was in the 37th percentile, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; and (4) for the AZL Morgan Stanley Global Real Estate Fund, which had a total expense ranking in the 70th percentile, the Manager recommended a temporary management fee waiver of 5 basis points, effective November 1, 2016, which would move the management fee ranking from the 80th to the 60th percentile.
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 2013 through June 30, 2016. 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, all of which currently are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. 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.
33
(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, 2016 were approximately $6.4 billion, and that no single Fund had assets in excess of $1,289 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, 2017, 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.
34
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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 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 | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 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 | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
35
Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
36
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® Emerging Markets Equity Index Fund
(formerly AZL® Schroder Emerging Markets Equity Fund)
Annual Report
December 31, 2016
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 14
Statement of Operations
Page 14
Statements of Changes in Net Assets
Page 15
Financial Highlights
Page 16
Notes to the Financial Statements
Page 17
Report of Independent Registered Public Accounting Firm
Page 23
Other Federal Income Tax Information
Page 24
Other Information
Page 25
Approval of Investment Advisory and Subadvisory Agreements
Page 26
Information about the Board of Trustees and Of?cers
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® Emerging Markets Equity Index Fund Review (unaudited)
(formerly AZL® Schroder Emerging Markets Equity Fund)
Allianz Investment Management LLC serves as the Manager for the AZL® Emerging Markets Equity 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, 2016?
For the year ended December 31, 2016, the AZL® Emerging Markets Equity Index Fund (Class 2 Shares) (the “Fund”) returned 9.89%. That compared to a 11.60% total return for its benchmark, the MSCI Emerging Markets Index1.
The Fund underwent a change in subadvisors on October 14, 2016. On that date the Fund, which previously was named the AZL® Schroder Emerging Markets Equity Fund, became known as the AZL® Emerging Markets Equity Index Fund and changed subadvisors to BlackRock. The Fund’s change of subadvisors also led to a shift from active management to passive management.
Emerging market equities posted strong gains for 2016. In the first quarter of 2016, gains were driven by a rally in commodity prices, particularly in the prices of oil and metals. Commodity-exporting countries such as Brazil and South Africa led the way early in the period.
In the second and third quarters of the year, emerging market investors turned their focus toward higher-quality securities. This shift benefited shares of emerging market companies with the ability to maintain growth and improve efficiencies in a challenging economic environment.
Emerging markets gave up some of these early gains in the fourth quarter. Uncertainty in the lead up to the U.S. presidential election pressured emerging market equities and currencies, in general. The unexpected Trump victory fuelled expectations for higher U.S. economic growth, and the U.S. Federal Reserve raised interest rates in December and suggested a faster pace of rate hikes in 2017. Meanwhile, the U.S. dollar strengthened against other world currencies throughout much of the period, and emerging markets stocks suffered in that environment.
Brazil (up 66%), Russia (up 55%), and South Africa (up 18%) were among the top performing countries for the 12-month period, while China (up 1%) and Greece (down 12%) lagged.
Under the previous subadvisor, the Fund lagged its benchmark slightly. Most of this underperformance came in the first quarter of the period when the Fund’s bias toward quality names failed to capture all of the entire commodity-driven rally. In particular, stock selection in Brazil and Russia weighed on relative results, such as the Fund’s investment in a high quality Brazilian jet manufacturer, which underperformed that nation’s more commodity-related companies. A below-benchmark exposure to South Africa also dragged on relative results as that country benefited strongly from the rebound in the price of metals.*
Stock selection in China, particularly holdings in a Chinese internet company, added strongly to relative results under the previous subadvisor. The company benefited as the Chinese public increasingly relied on the internet in their day-to-day activities. An overweight allocation to Russia and Brazil also contributed positively to the Fund’s relative performance.*
Following the change in subadvisor, the Fund was managed with a passive approach, which seeks investment results, before fees, expenses and fair value adjustments to its portfolio at the close of the New York Stock Exchange, that correspond to the performance of the MSCI Emerging Markets Index. During the fourth quarter, energy generated the benchmark’s strongest returns on rising oil prices. However, most sectors declined especially consumer staples and real estate.*
The Fund held derivatives in the form of futures contracts, which it used to hedge its cash position. The futures 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, 2016. |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
1
AZL® Emerging Markets Equity Index Fund Review (unaudited)
Fund Objective | ||
The Fund’s investment objective is to seek to match the performance of the MSCI Emerging Markets 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 90% of its assets in the securities of the MSCI Emerging Markets Index (the “Underlying Index”) and in depositary receipts representing securities in it Underlying 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. | ||
Emerging market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries. | ||
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. | ||
The performance of the Fund is expected to be lower than that of the Index because of Fund fees and expenses. Securities in which the Fund will invest may involve substantial risk and may be subject to sudden severe price declines. | ||
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. 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, 2016 | ||||||||||||
Inception | 1 Year | 3 Year | 5 Year | 10 | Since | |||||||
AZL® Emerging Markets Equity Index Fund | ||||||||||||
(Class 1 Shares) | 5/6/07 | 10.21% | -2.93% | 1.73% | — | 0.08% | ||||||
AZL® Emerging Markets Equity Index Fund | ||||||||||||
(Class 2 Shares) | 5/1/06 | 9.89% | -3.19% | 1.46% | 0.74% | 1.22% | ||||||
MSCI Emerging Markets Index | ||||||||||||
(gross of withholding taxes) | 5/1/06 | 11.60% | -2.19% | 1.64% | 2.17% | 2.94% | ||||||
MSCI Emerging Markets Index | ||||||||||||
(net of withholding taxes) | 5/1/06 | 11.19% | -2.55% | 1.28% | 1.84% | 2.61% |
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® Emerging Markets Equity Index Fund (Class 1 Shares) | 1.15 | % | ||
AZL® Emerging Markets Equity Index Fund (Class 2 Shares) | 1.40 | % |
Expense Ratios are based on the current Fund prospectus dated April 25, 2016, as supplemented October 14, 2016. The Manager voluntarily reduced the management fee to 0.45% on all assets. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 0.85% for Class 1 Shares and 1.10% for Class 2 Shares through April 30, 2018. Additional information pertaining to the December 31, 2016 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 does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Index noted as “gross of withholding taxes” reflects the maximum possible reinvestment of dividends with no adjustment for withholding tax deductions or tax credits. 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 Emerging Markets Equity Index Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL Emerging Markets Equity 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Emerging Markets Equity Index Fund, Class 1 | $ | 1,000.00 | $ | 1,041.80 | $ | 5.29 | 1.03 | % | ||||||||||||
AZL Emerging Markets Equity Index Fund, Class 2 | $ | 1,000.00 | $ | 1,040.40 | $ | 6.36 | 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Emerging Markets Equity Index Fund, Class 1 | $ | 1,000.00 | $ | 1,019.96 | $ | 5.23 | 1.03 | % | ||||||||||||
AZL Emerging Markets Equity Index Fund, Class 2 | $ | 1,000.00 | $ | 1,018.90 | $ | 6.29 | 1.24 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Financials | 24.9 | % | |||
Information Technology | 23.1 | ||||
Consumer Discretionary | 9.6 | ||||
Energy | 8.0 | ||||
Materials | 7.1 | ||||
Consumer Staples | 7.0 | ||||
Telecommunication Services | 6.2 | ||||
Industrials | 5.2 | ||||
Utilities | 3.0 | ||||
Real Estate | 2.7 | ||||
Health Care | 2.3 | ||||
|
| ||||
Total Common Stocks and Preferred Stocks | 99.1 | ||||
Right | — | ^ | |||
Money Market | 0.4 | ||||
|
| ||||
Total Investment Securities | 99.5 | ||||
Net other assets (liabilities) | 0.5 | ||||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks (97.4%): |
| ||||||
| Aerospace & Defense (0.2%): |
| ||||||
146,000 | AviChina Industry & Technology Co., Ltd. | $ | 100,284 | |||||
46,100 | Embraer SA | 226,731 | ||||||
4,145 | Korea Aerospace Industries, Ltd. | 229,362 | ||||||
2,385 | Samsung Techwin Co., Ltd. | 85,626 | ||||||
|
| |||||||
642,003 | ||||||||
|
| |||||||
| Air Freight & Logistics (0.1%): |
| ||||||
1,329 | Hyundai Glovis Co., Ltd. | 169,647 | ||||||
141,000 | Sinotrans, Ltd. | 62,647 | ||||||
|
| |||||||
232,294 | ||||||||
|
| |||||||
| Airlines (0.2%): |
| ||||||
126,000 | Air China, Ltd. | 80,361 | ||||||
86,700 | AirAsia Berhad | 44,230 | ||||||
182,000 | China Airlines, Ltd. | 52,414 | ||||||
126,000 | China Southern Airlines Co., Ltd., Class H | 65,128 | ||||||
140,000 | Eva Airways Corp. | 63,271 | ||||||
2,581 | Korean Air Lines Co., Ltd.* | 58,368 | ||||||
20,768 | Latam Airlines Group SA* | 175,114 | ||||||
38,206 | Turk Hava Yollari Anonim Ortakligi* | 54,315 | ||||||
|
| |||||||
593,201 | ||||||||
|
| |||||||
| Auto Components (0.8%): |
| ||||||
7,250 | Bharat Forge, Ltd. | 96,613 | ||||||
521 | Bosch, Ltd. | 160,959 | ||||||
134,000 | Cheng Shin Rubber Industry Co., Ltd. | 251,956 | ||||||
26,400 | Fuyao Glass Industry Group Co., Ltd., Class H | 81,236 | ||||||
5,269 | Hankook Tire Co., Ltd. | 252,881 | ||||||
13,244 | Hanon Systems | 112,822 | ||||||
4,687 | Hyundai Mobis Co., Ltd. | 1,022,405 | ||||||
1,155 | Hyundai Wia Corp. | 69,676 | ||||||
29,143 | Motherson Sumi Systems, Ltd. | 140,033 | ||||||
|
| |||||||
2,188,581 | ||||||||
|
| |||||||
| Automobiles (2.4%): |
| ||||||
5,808 | Bajaj Auto, Ltd. | 224,684 | ||||||
208,000 | Brilliance China Automotive Holdings, Ltd. | 285,488 | ||||||
44,500 | BYD Co., Ltd., Class H | 233,532 | ||||||
59,400 | Chongqing Changan Automobile Co., Ltd., Class B | 84,859 | ||||||
188,000 | Dongfeng Motor Corp., Series H | 182,912 | ||||||
4,857 | Ford Otomotiv Sanayi AS | 42,120 | ||||||
340,000 | Geely Automobile Holdings, Ltd. | 323,338 | ||||||
214,500 | Great Wall Motor Co. | 198,932 | ||||||
144,000 | Guangzhou Automobile Group Co., Ltd. | 172,342 | ||||||
3,455 | Hero MotoCorp, Ltd. | 154,382 | ||||||
9,388 | Hyundai Motor Co. | 1,128,089 | ||||||
1,601 | Hyundai Motor Co., Ltd. | 126,605 | ||||||
16,896 | Kia Motors Corp. | 548,322 | ||||||
25,793 | Mahindra & Mahindra, Ltd. | 448,238 | ||||||
7,318 | Maruti Suzuki India, Ltd. | 570,112 | ||||||
1,341,200 | PT Astra International TbK | 820,360 | ||||||
26,395 | Tata Motors, Ltd. | 115,789 | ||||||
104,238 | Tata Motors, Ltd. | 724,204 | ||||||
8,652 | Tofas Turk Otomobil Fabrikasi AS | 60,475 | ||||||
32,400 | UMW Holdings Berhad | 33,014 | ||||||
60,000 | Yulon Motor Co., Ltd. | 49,834 | ||||||
|
| |||||||
6,527,631 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Banks (16.1%): |
| ||||||
135,553 | Abu Dhabi Commercial Bank | $ | 254,222 | |||||
1,639,000 | Agricultural Bank of China, Ltd. | 669,248 | ||||||
152,270 | Akbank T.A.S. | 337,636 | ||||||
6,260 | Alior Bank SA* | 81,109 | ||||||
69,600 | Alliance Financial Group Berhad | 57,659 | ||||||
95,736 | Alpha Bank SA* | 191,792 | ||||||
125,200 | AMMB Holdings Berhad | 120,193 | ||||||
110,320 | Axis Bank, Ltd. | 729,092 | ||||||
57,700 | Banco Bradesco SA | 516,838 | ||||||
189,125 | Banco Bradesco SA | 1,685,916 | ||||||
1,689,237 | Banco de Chile | 198,128 | ||||||
2,566 | Banco de Credito e Inversiones | 129,947 | ||||||
59,500 | Banco do Brasil SA | 513,757 | ||||||
28,800 | Banco Santander Brasil SA | 261,424 | ||||||
4,565,073 | Banco Santander Chile | 254,142 | ||||||
31,293 | Bancolombia SA | 283,373 | ||||||
17,200 | Bangkok Bank Public Co., Ltd. | 77,309 | ||||||
2,261 | Bank Handlowy w Warszawie SA | 41,294 | ||||||
41,982 | Bank Millennium SA* | 52,093 | ||||||
5,305,000 | Bank of China, Ltd. | 2,340,732 | ||||||
606,000 | Bank of Communications Co., Ltd., Class H | 433,825 | ||||||
48,950 | Bank of the Philippine Islands | 87,432 | ||||||
10,900 | Bank Pekao SA | 327,848 | ||||||
2,404 | Bank Zachodni WBK SA | 181,628 | ||||||
29,338 | Barclays Africa Group, Ltd. | 358,192 | ||||||
113,540 | BDO Unibank, Inc. | 255,807 | ||||||
18,484 | BNK Financial Group, Inc. | 132,843 | ||||||
2,801 | Capitec Bank Holdings, Ltd. | 141,960 | ||||||
341,000 | Chang Hwa Commercial Bank | 181,513 | ||||||
618,000 | China Citic Bank Co., Ltd. | 390,372 | ||||||
5,676,000 | China Construction Bank | 4,348,688 | ||||||
942,000 | China Development Financial Holding Corp. | 234,904 | ||||||
214,000 | China Everbright Bank Co., Series H | 97,326 | ||||||
259,000 | China Merchants Bank Co., Ltd. | 601,893 | ||||||
407,500 | China Minsheng Banking Corp., Ltd. | 432,662 | ||||||
1,184,000 | Chinatrust Financial Holding Co., Ltd. | 646,862 | ||||||
174,000 | Chongqing Rural Commercial Bank Co., Ltd. | 102,152 | ||||||
211,400 | CIMB Group Holdings Berhad | 212,494 | ||||||
11,078 | Commercial Bank of Qatar Qsc (The) | 98,878 | ||||||
71,877 | Commercial International Bank Egypt SAE | 291,821 | ||||||
4,426 | Credicorp, Ltd. | 698,688 | ||||||
11,983 | DGB Financial Group, Inc. | 96,835 | ||||||
85,517 | Dubai Islamic Bank | 129,705 | ||||||
545,000 | E.Sun Financial Holding Co., Ltd. | 310,490 | ||||||
128,606 | Eurobank Ergasias SA* | 87,132 | ||||||
663,000 | First Financial Holdings Co., Ltd. | 353,346 | ||||||
62,292 | First Gulf Bank Pjsc | 217,964 | ||||||
242,735 | Grupo Aval Acciones y Valores | 98,259 | ||||||
172,800 | Grupo Financiero Banorte SAB de C.V. | 851,425 | ||||||
161,200 | Grupo Financiero Inbursa SAB de C.V., Class O | 244,426 | ||||||
126,400 | Grupo Financiero Santander Mexico Sab de CV | 181,838 | ||||||
19,549 | Hana Financial Holdings Group, Inc. | 504,737 | ||||||
45,000 | Hong Leong Bank Berhad | 135,227 | ||||||
15,800 | Hong Leong Financial Group Berhad | 50,022 | ||||||
509,000 | Hua Nan Financial Holdings Co., Ltd. | 256,189 | ||||||
76,484 | ICICI Bank, Ltd. | 286,822 |
Continued
4
AZL Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Banks, continued |
| ||||||
86,731 | IDFC Bank, Ltd. | $ | 76,669 | |||||
4,962,000 | Industrial & Commercial Bank of China | 2,959,622 | ||||||
17,862 | Industrial Bank of Korea (IBK) | 187,531 | ||||||
10,639,682 | Itau Corpbanca* | 89,309 | ||||||
258,997 | Itausa - Investimentos Itau S.A. | 659,196 | ||||||
39,800 | Kasikornbank Public Co., Ltd. | 196,543 | ||||||
81,200 | Kasikornbank Public Co., Ltd. | 400,987 | ||||||
27,388 | KB Financial Group, Inc. | 967,860 | ||||||
5,261 | Komercni Banka AS | 181,306 | ||||||
241,900 | Krung Thai Bank | 119,189 | ||||||
236,800 | Malayan Banking Berhad | 432,549 | ||||||
28,544 | Masraf Al Rayan | 294,621 | ||||||
1,023 | mBank SA* | 81,992 | ||||||
753,000 | Mega Financial Holdings Co., Ltd. | 537,199 | ||||||
44,020 | Metropolitan Bank & Trust | 64,365 | ||||||
18,441 | Moneta Money Bank As* | 59,528 | ||||||
46,876 | National Bank of Abu Dhabi | 127,419 | ||||||
379,865 | National Bank of Greece SA* | 99,357 | ||||||
13,729 | Nedcor, Ltd. | 236,625 | ||||||
16,473 | OTP Bank Nyrt | 470,639 | ||||||
453,343 | Piraeus Bank SA* | 99,988 | ||||||
60,562 | Powszechna Kasa Oszczednosci Bank Polski SA | 407,472 | ||||||
829,200 | PT Bank Central Asia Tbk | 949,863 | ||||||
232,200 | PT Bank Danamon Indonesia Tbk | 63,981 | ||||||
646,000 | PT Bank Mandiri Tbk | 552,493 | ||||||
516,300 | PT Bank Negara Indonesia Tbk | 211,066 | ||||||
735,700 | PT Bank Rakyat Indonesia Tbk | 638,113 | ||||||
182,000 | Public Bank Berhad | 799,914 | ||||||
5,089 | Qatar Islamic Bank | 145,217 | ||||||
14,447 | Qatar National Bank | 646,360 | ||||||
55,500 | RHB Capital Berhad | 58,207 | ||||||
8,000 | Sberbank of Russia, ADR | 92,383 | ||||||
171,383 | Sberbank of Russia, ADR | 1,984,614 | ||||||
7,820 | Security Bank Corp. | 29,849 | ||||||
28,847 | Shinhan Financial Group Co., Ltd. | 1,081,745 | ||||||
108,100 | Siam Commercial Bank Public Co., Ltd. | 458,538 | ||||||
702,000 | SinoPac Financial Holdings Co., Ltd. | 197,460 | ||||||
81,159 | Standard Bank Group, Ltd. | 898,554 | ||||||
107,458 | State Bank of India | 393,667 | ||||||
592,000 | Taishin Financial Holding Co., Ltd. | 216,230 | ||||||
268,000 | Taiwan Business Bank | 67,684 | ||||||
533,000 | Taiwan Cooperative Financial Holding Co., Ltd. | 231,987 | ||||||
1,384,500 | TMB Bank PCL | 81,000 | ||||||
159,884 | Turkiye Garanti Bankasi AS | 345,941 | ||||||
43,259 | Turkiye Halk Bankasi AS | 114,718 | ||||||
109,011 | Turkiye Is Bankasi AS, Class C | 160,325 | ||||||
51,910 | Turkiye Vakiflar Bankasi T.A.O., Class D | 64,131 | ||||||
186,105 | VTB Bank OJSC, GDR | 443,338 | ||||||
21,564 | Woori Bank | 227,231 | ||||||
60,175 | Yapive Kredi Bankasi AS* | 58,609 | ||||||
21,559 | Yes Bank, Ltd. | 365,785 | ||||||
|
| |||||||
43,187,078 | ||||||||
|
| |||||||
| Beverages (1.4%): | |||||||
315,666 | Ambev SA Com Npv | 1,591,332 | ||||||
14,344 | Anadolu Efes Biracilik ve Malt Sanayii AS | 71,741 | ||||||
29,000 | Arca Continental SAB de C.V. | 150,923 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Beverages, continued | |||||||
112,000 | China Resources Enterprises, Ltd.* | $ | 221,283 | |||||
34,400 | Coca-Cola Femsa | 218,138 | ||||||
5,282 | Coca-Cola Icecek AS | 49,578 | ||||||
10,230 | Compania Cervecerias Unidas S.A. | 106,918 | ||||||
18,016 | Embotelladora Andina SA | 67,058 | ||||||
123,935 | Fomento Economico Mexicano S.A.B. de C.V. | 943,735 | ||||||
42 | Lotte Chilsung Beverage Co., Ltd. | 50,770 | ||||||
24,000 | Tsingtao Brewery Co., Ltd., Class H | 90,402 | ||||||
4,527 | United Spirits, Ltd.* | 129,481 | ||||||
|
| |||||||
3,691,359 | ||||||||
|
| |||||||
| Biotechnology (0.3%): |
| ||||||
69,500 | 3sbio, Inc.* | 67,565 | ||||||
5,319 | Celltrion, Inc.* | 471,636 | ||||||
8,000 | Obi Pharma, Inc.* | 70,430 | ||||||
11,000 | Taimed Biologics, Inc.* | 56,515 | ||||||
|
| |||||||
666,146 | ||||||||
|
| |||||||
| Building Products (0.1%): |
| ||||||
411 | KCC Corp. | 122,307 | ||||||
|
| |||||||
| Capital Markets (1.4%): |
| ||||||
113,549 | BM&F Bovespa SA | 575,913 | ||||||
23,625 | Brait Se | 150,585 | ||||||
15,500 | Cetip SA | 212,498 | ||||||
606,000 | China Cinda Asset Management Co., Ltd., Class H | 218,633 | ||||||
64,000 | China Everbright, Ltd. | 120,760 | ||||||
204,500 | China Galaxy Securities Co. | 183,603 | ||||||
263,000 | China Huarong Asset Management Co., Ltd., Class H* | 94,754 | ||||||
150,000 | Citic Securities Co., Ltd. | 302,354 | ||||||
15,738 | Coronation Fund Managers, Ltd. | 80,451 | ||||||
12,737 | Daewoo Securities Co., Ltd. | 76,249 | ||||||
94,400 | Gf Securities Co., Ltd. | 197,059 | ||||||
198,800 | Haitong Securities Co., Ltd. | 339,388 | ||||||
101,200 | Huatai Securities Co., Ltd., Class H | 192,290 | ||||||
17,141 | Investec, Ltd. | 113,311 | ||||||
2,765 | Korea Investment Holdings Co., Ltd. | 95,870 | ||||||
5,266 | Mirae Asset Securities Co., Ltd.(a) | 93,678 | ||||||
9,973 | NH Investment & Securities Co., Ltd. | 79,609 | ||||||
4,064 | Samsung Securities Co., Ltd. | 106,571 | ||||||
94,630 | The Moscow Exchange | 194,129 | ||||||
665,000 | Yuanta Financial Holding Co., Ltd. | 246,829 | ||||||
|
| |||||||
3,674,534 | ||||||||
|
| |||||||
| Chemicals (2.5%): |
| ||||||
19,917 | Asian Paints, Ltd. | 261,327 | ||||||
223,000 | Formosa Chemicals & Fibre Corp. | 663,932 | ||||||
259,000 | Formosa Plastics Corp. | 714,744 | ||||||
3,089 | Grupa Azoty SA, ADR | 46,279 | ||||||
7,593 | Hanwha Chemical Corp. | 154,842 | ||||||
1,493 | Hyosung Corp. | 179,595 | ||||||
99,900 | Indorama Ventures PCL | 92,898 | ||||||
1,295 | Kumho Petrochemical Co., Ltd. | 87,732 | ||||||
3,016 | LG Chem, Ltd. | 650,450 | ||||||
540 | LG Chem, Ltd. | 80,148 | ||||||
1,092 | Lotte Chemical Corp. | 331,779 | ||||||
74,415 | Mexichem SAB de C.V. | 168,893 |
Continued
5
AZL Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Chemicals, continued |
| ||||||
317,000 | Nan Ya Plastics Corp. | $ | 698,526 | |||||
1,183 | OCI Co., Ltd. | 76,862 | ||||||
46,719 | Petkim Petrokimya Holding AS | 48,985 | ||||||
166,100 | Petronas Chemicals Group Berhad | 258,449 | ||||||
6,723 | Phosagro OAO, GDR | 102,386 | ||||||
143,600 | PTT Global Chemical Public Co., Ltd. | 251,655 | ||||||
37,329 | Sasol, Ltd. | 1,077,337 | ||||||
242,000 | Sinopec Shanghai Petrochemical Co., Ltd | 131,004 | ||||||
6,665 | Sociedad Quimica y Minera de Chile SA | 190,094 | ||||||
36,635 | Synthos SA | 39,912 | ||||||
51,000 | Taiwan Fertilizer Co., Ltd. | 63,442 | ||||||
24,557 | UPL, Ltd. | 233,236 | ||||||
|
| |||||||
6,604,507 | ||||||||
|
| |||||||
| Commercial Services & Supplies (0.1%): |
| ||||||
170,000 | China Everbright International, Ltd. | 191,811 | ||||||
1,594 | KEPCO Plant Service & Engineering Co., Ltd. | 71,462 | ||||||
1,346 | S1 Corp. | 97,639 | ||||||
|
| |||||||
360,912 | ||||||||
|
| |||||||
| Communications Equipment (0.0%): |
| ||||||
52,200 | ZTE Corp., Class H | 90,471 | ||||||
|
| |||||||
| Construction & Engineering (0.9%): |
| ||||||
306,000 | China Communications Construction Co., Ltd. | 350,521 | ||||||
136,500 | China Railway Contstruction Corp., Ltd. | 174,884 | ||||||
277,000 | China Railway Group, Ltd. | 226,650 | ||||||
124,000 | China State Construction International Holdings, Ltd. | 184,904 | ||||||
1,973 | Daelim Industrial Co., Ltd. | 141,999 | ||||||
8,837 | Daewoo Engineering & Construct* | 37,069 | ||||||
218,500 | Dialog Group Berhad | 74,913 | ||||||
116,900 | Gamuda Berhad | 124,498 | ||||||
3,522 | GS Engineering & Construction Corp.* | 77,070 | ||||||
4,008 | Hyandai Development Co. | 148,874 | ||||||
5,129 | Hyundai Engineering & Construction Co., Ltd. | 180,450 | ||||||
198,800 | IJM Corporation Berhad | 141,834 | ||||||
20,623 | Larsen & Toubro, Ltd. | 408,594 | ||||||
86,000 | Sinopec Engineering Group Co., Ltd. | 71,623 | ||||||
328,800 | Waskita Karya Persero TBK PT | 62,000 | ||||||
|
| |||||||
2,405,883 | ||||||||
|
| |||||||
| Construction Materials (1.1%): |
| ||||||
3,118 | ACC, Ltd. | 61,005 | ||||||
41,230 | Ambuja Cements, Ltd. | 124,933 | ||||||
85,000 | Anhui Conch Cement Co., Ltd. | 229,401 | ||||||
163,000 | Asia Cement Corp. | 132,846 | ||||||
31,885 | Cementos Argos SA | 125,989 | ||||||
934,931 | Cemex Sab de CV* | 748,068 | ||||||
200,000 | China National Buildings Material Co., Ltd. | 97,145 | ||||||
20,102 | Grupo Argos SA | 129,124 | ||||||
23,500 | Lafarge Malaysia Berhad | 37,605 | ||||||
101,900 | PT Indocement Tunggal Prakarsa Tbk | 116,314 | ||||||
205,300 | PT Semen Indonesia (Persero) Tbk | 139,244 | ||||||
579 | Shree Cement, Ltd. | 125,299 | ||||||
20,800 | Siam Cement PCL | 288,677 | ||||||
230,000 | Taiwan Cement Corp. | 249,551 | ||||||
7,500 | The Siam Cement Public Co., Ltd. | 103,721 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Construction Materials, continued |
| ||||||
3,201 | Titan Cement Co. SA | $ | 75,126 | |||||
5,183 | Ultra Tech Cement, Ltd. | 247,343 | ||||||
|
| |||||||
3,031,391 | ||||||||
|
| |||||||
| Consumer Finance (0.2%): |
| ||||||
11,186 | Bajaj Finance, Ltd. | 138,787 | ||||||
68,100 | Gentera SAB de C.V. | 109,569 | ||||||
19,290 | Mahindra & Mahindra Financial Services | 76,306 | ||||||
2,462 | Samsung Card Co., Ltd. | 80,875 | ||||||
10,208 | Shriram Transport Finance | 127,655 | ||||||
|
| |||||||
533,192 | ||||||||
|
| |||||||
| Containers & Packaging (0.1%): |
| ||||||
38,400 | Klabin SA | 209,163 | ||||||
|
| |||||||
| Distributors (0.1%): |
| ||||||
10,763 | Imperial Holdings, Ltd. | 142,299 | ||||||
|
| |||||||
| Diversified Consumer Services (0.4%): |
| ||||||
95,700 | Kroton Educacional SA | 392,131 | ||||||
8,632 | New Oriental Education & Technology Group, Inc., ADR* | 363,407 | ||||||
2,969 | TAL Education Group, ADR* | 208,275 | ||||||
|
| |||||||
963,813 | ||||||||
|
| |||||||
| Diversified Financial Services (1.4%): |
| ||||||
17,170 | Ayala Corp. | 252,613 | ||||||
71,000 | Chailease Holding Co., Ltd. | 121,213 | ||||||
6,027 | Corp. Financiera Colombiana SA | 74,456 | ||||||
137,000 | Far East Horizon, Ltd. | 116,982 | ||||||
225,266 | FirstRand, Ltd. | 866,901 | ||||||
443,000 | Fubon Financial Holdings Co., Ltd. | 701,906 | ||||||
6,992 | Grupo de Inversiones Surameric | 86,192 | ||||||
16,232 | Grupo de Inversiones Suramericana SA | 206,584 | ||||||
5,425 | GT Capital Holdings, Inc. | 138,588 | ||||||
63,551 | Haci Omer Sabanci Holding AS | 165,088 | ||||||
907,800 | Metro Pacific Investments Corp. | 121,429 | ||||||
43,855 | Power Finance Corp., Ltd. | 78,772 | ||||||
6,390 | PSG Group, Ltd. | 101,901 | ||||||
34,843 | Remgro, Ltd. | 566,628 | ||||||
48,854 | Rmb Holdings Limited | 236,660 | ||||||
|
| |||||||
3,835,913 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (1.9%): |
| ||||||
146,000 | Asia Pacific Telecom Co., Ltd.* | 46,859 | ||||||
39,383 | Bharti Infratel, Ltd. | 199,108 | ||||||
166,000 | China Communications Services Corp., Ltd. | 105,651 | ||||||
962,000 | China Telecom Corp., Ltd., Class H | 443,060 | ||||||
414,000 | China Unicom (Hong Kong), Ltd. | 480,962 | ||||||
255,000 | Chunghwa Telecom Co., Ltd. | 804,582 | ||||||
115,166 | Emirates Telecommunications Group Co. PJSC | 588,952 | ||||||
16,963 | Hellenic Telecommunications Organization SA (OTE) | 159,418 | ||||||
15,165 | LG Uplus Corp. | 143,705 | ||||||
4,295 | O2 Czech Republic AS | 43,498 | ||||||
5,543 | Ooredoo Qsc | 154,977 | ||||||
45,417 | Orange Polska SA | 59,784 | ||||||
3,363,100 | PT Telekomunikasi Indonesia Tbk | 989,555 | ||||||
165,900 | PT Tower Bersama Infrastructure Tbk | 61,353 | ||||||
62,380 | Rostelecom Pjsc | 85,633 |
Continued
6
AZL Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Diversified Telecommunication Services, continued | ||||||||
31,000 | Telefonica Brasil | $ | 420,042 | |||||
78,100 | Telekom Malaysia Berhad | 103,597 | ||||||
18,236 | Telkom SA SOC, Ltd. | 98,262 | ||||||
692,900 | True Corp. PCL | 137,784 | ||||||
31,492 | Turk Telekomunikasyon AS | 47,142 | ||||||
|
| |||||||
5,173,924 | ||||||||
|
| |||||||
Electric Utilities (1.2%): | ||||||||
15,700 | Centrais Eletricas Brasileiras S.A* | 124,946 | ||||||
12,879 | Centrais Eletricas Brasileiras S.A* | 90,302 | ||||||
11,171 | CEZ | 187,030 | ||||||
52,200 | Companhia Energetica de Minas Gerais, ADR | 123,713 | ||||||
7,100 | Companhia Paranaense de Energia-Copel | 59,712 | ||||||
14,100 | Cpfl Energia SA | 109,265 | ||||||
21,000 | EDP - Energias do Brasil SA | 86,499 | ||||||
1,994,952 | ENEL Americas SA | 324,508 | ||||||
1,359,159 | ENEL Chile SA | 125,927 | ||||||
13,700 | Equatorial Energia SA | 229,091 | ||||||
8,020,000 | Federal Hydrogenerating Co. (Rushydro) | 121,289 | ||||||
2,454,892 | Inter Rao Ues Pjsc | 154,216 | ||||||
26,834 | Interconexion Electrica SA ESP | 89,223 | ||||||
16,663 | Korea Electric Power Corp., Ltd. | 609,106 | ||||||
58,236 | PGE SA | 145,363 | ||||||
76,751 | Tata Power Co., Ltd. | 85,778 | ||||||
72,780 | Tauron Polska Energia SA* | 49,594 | ||||||
213,700 | Tenega Nasional Berhad | 661,300 | ||||||
|
| |||||||
3,376,862 | ||||||||
|
| |||||||
Electrical Equipment (0.2%): | ||||||||
40,658 | Bharat Heavy Electricals, Ltd. | 72,394 | ||||||
3,385 | Doosan Heavy Industries & Construction Co., Ltd. | 76,002 | ||||||
17,292 | Havells India, Ltd. | 86,819 | ||||||
196,000 | Shanghai Electric Group Co., Ltd., Class H* | 87,373 | ||||||
131,000 | Teco Electric & Machinery Co., Ltd. | 112,974 | ||||||
37,500 | Zhuzhou CSR Times Electric Co., Ltd. | 189,598 | ||||||
|
| |||||||
625,160 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (2.4%): | ||||||||
51,000 | AAC Technologies Holdings, Inc. | 458,849 | ||||||
600,000 | AU Optronics Corp. | 217,732 | ||||||
34,500 | Delta Electronics Thai PCL | 78,185 | ||||||
134,000 | Delta Electronics, Inc. | 656,839 | ||||||
1,030,000 | Hon Hai Precision Industry Co., Ltd. | 2,668,544 | ||||||
620,000 | Innolux Corp. | 222,040 | ||||||
6,000 | Largan Precision Co., Ltd. | 698,317 | ||||||
15,123 | LG Display Co., Ltd. | 390,471 | ||||||
1,006 | LG Innotek Co., Ltd. | 73,282 | ||||||
3,970 | Samsung Electro-Mechanics Co., Ltd., Series L | 166,752 | ||||||
3,899 | Samsung SDI Co., Ltd. | 350,447 | ||||||
47,000 | Sunny Optical Technology Group Co., Ltd. | 204,799 | ||||||
98,000 | Synnex Technology International Corp. | 98,398 | ||||||
103,000 | WPG Holdings, Ltd. | 120,930 | ||||||
27,000 | Zhen Ding Technology Holding, Ltd. | 52,880 | ||||||
|
| |||||||
6,458,465 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Energy Equipment & Services (0.1%): | ||||||||
126,000 | China Oilfield Services, Ltd. | $ | 116,387 | |||||
269,600 | Sapurakencana Petroleum Berhad* | 97,173 | ||||||
|
| |||||||
213,560 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (0.5%): | ||||||||
131,506 | Emlak Konut Gayrimenkul Yatiirim | 111,631 | ||||||
178,300 | Fibra UNO Amdinistracion SA | 272,592 | ||||||
52,649 | Fortress Income Fund, Ltd. | 123,387 | ||||||
65,874 | Fortress Income Fund, Ltd., Class B | 79,883 | ||||||
144,627 | Growthpoint Properties Limited | 273,950 | ||||||
16,836 | Hyprop Investments, Ltd. | 143,372 | ||||||
302,149 | Redefine Properties, Ltd. | 247,468 | ||||||
20,451 | Resilient REIT, Ltd. | 170,464 | ||||||
|
| |||||||
1,422,747 | ||||||||
|
| |||||||
Food & Staples Retailing (1.8%): | ||||||||
1,402 | Bgf Retail Co., Ltd. | 94,660 | ||||||
21,732 | Bid Corp., Ltd. | 386,188 | ||||||
14,710 | BIM Birlesik Magazalar AS | 204,419 | ||||||
98,369 | Cencosud SA | 276,299 | ||||||
341,900 | CP All PCL | 595,916 | ||||||
2,473 | Dongsuh Companies, Inc. | 56,292 | ||||||
1,382 | E-Mart Co., Ltd. | 209,128 | ||||||
5,294 | Eurocash SA | 49,796 | ||||||
1,911 | GS Retail Co., Ltd. | 75,199 | ||||||
20,819 | Magnit OJSC, Registered Shares, GDR | 917,402 | ||||||
7,514 | Massmart Holdings, Ltd. | 68,963 | ||||||
25,356 | Pickn Pay Stores, Ltd. | 117,662 | ||||||
39,000 | President Chain Store Corp. | 279,007 | ||||||
16,000 | Raia Drogasil SA | 300,947 | ||||||
29,738 | Shoprite Holdings, Ltd. | 371,350 | ||||||
165,000 | Sun Art Retail Group, Ltd. | 144,485 | ||||||
12,816 | The Spar Group, Ltd. | 185,153 | ||||||
348,224 | Wal-Mart de Mexico SAB de C.V. | 623,461 | ||||||
|
| |||||||
4,956,327 | ||||||||
|
| |||||||
Food Products (1.9%): | ||||||||
38,563 | BRF-Brasil Foods SA | 571,949 | ||||||
187,600 | Charoen Pokphand Foods Public Co., Ltd. | 153,864 | ||||||
280,000 | China Huishan Dairy Holdings Co., Ltd. | 108,596 | ||||||
176,000 | China Mengniu Dairy Co., Ltd. | 336,504 | ||||||
559 | CJ CheilJedang Corp. | 165,166 | ||||||
88,300 | Felda Global Ventures Holdings | 30,442 | ||||||
16,400 | Genting Plantations Berhad | 39,419 | ||||||
14,980 | Gruma, SAB de C.V., Class B | 190,416 | ||||||
113,900 | Grupo Bimbo SAB de C.V., Series A | 257,685 | ||||||
42,800 | Grupo Lala Sab de CV | 62,274 | ||||||
156,600 | IOI Corp. Berhad | 153,208 | ||||||
49,400 | JBS SA | 173,110 | ||||||
29,500 | Kuala Lumpur Kepong Berhad | 157,638 | ||||||
402 | Lotte Confectionery Co., Ltd. | 59,334 | ||||||
2,400 | M Dias Branco SA | 84,847 | ||||||
1,602 | Nestle India, Ltd. | 142,053 | ||||||
253 | Orion Corp. | 136,983 | ||||||
84 | Ottogi Corp. | 46,039 | ||||||
8,845 | Pioneer Foods, Ltd. | 99,201 | ||||||
32,800 | PPB Group Berhad | 115,980 | ||||||
510,700 | PT Charoen Pokphand Indonesia Tbk | 116,765 |
Continued
7
AZL Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Food Products, continued | ||||||||
161,400 | PT Indofood CBP Sukses Makmur Tbk | $ | 102,664 | |||||
303,800 | PT Indofood Sukses Makmur Tbk | 178,568 | ||||||
27,000 | Standard Foods Corp. | 64,021 | ||||||
132,100 | Thai Union Frozen Products PCL | 77,565 | ||||||
11,300 | Tiger Brands, Ltd. | 327,239 | ||||||
136,000 | Tingyi (Caymen Is) Holding Corp. | 164,634 | ||||||
10,652 | Ulker Biskuvi Sanayi AS | 48,839 | ||||||
318,000 | Uni-President Enterprises Corp. | 525,035 | ||||||
60,400 | Universal Robina Corp. | 198,368 | ||||||
396,000 | Want Want China Holdings, Ltd. | 253,086 | ||||||
|
| |||||||
5,141,492 | ||||||||
|
| |||||||
Gas Utilities (0.5%): | ||||||||
118,000 | China Gas Holdings, Ltd. | 159,906 | ||||||
60,000 | China Resources Gas Group, Ltd. | 168,169 | ||||||
52,000 | ENN Energy Holdings, Ltd. | 213,022 | ||||||
21,949 | Gail India, Ltd. | 141,843 | ||||||
33,290 | Infraestructura Energetica Nova, SAB de C.V. | 145,070 | ||||||
1,962 | Korea Gas Corp. | 78,600 | ||||||
47,900 | Petronas Gas Berhad | 227,425 | ||||||
755,000 | PT Perusahaan Gas Negara Tbk | 150,816 | ||||||
|
| |||||||
1,284,851 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (0.1%): | ||||||||
45,400 | Hartalega Holdings Berhad | 48,859 | ||||||
132,000 | Shandong Weigao Group Medical Polymer Co., Ltd., Class H | 87,807 | ||||||
|
| |||||||
136,666 | ||||||||
|
| |||||||
Health Care Providers & Services (0.6%): | ||||||||
5,296 | Apollo Hospitals Enterprise, Ltd. | 91,916 | ||||||
268,100 | Bangkok Dusit Medical Services Public Co., Ltd. | 172,621 | ||||||
24,700 | Bumrungrad Hospital PCL | 124,597 | ||||||
209,400 | IHH Healthcare Berhad | 296,512 | ||||||
68,577 | Life Healthcare Group Holdings Pte, Ltd. | 162,240 | ||||||
65,752 | Netcare, Ltd. | 152,404 | ||||||
18,400 | OdontoPrev SA | 71,265 | ||||||
15,200 | Qualicorp SA | 89,942 | ||||||
47,800 | Shanghai Pharmaceuticals Holding Co., Ltd. | 109,251 | ||||||
82,400 | Sinopharm Group Co., Series H | 338,085 | ||||||
|
| |||||||
1,608,833 | ||||||||
|
| |||||||
Health Care Technology (0.0%): | ||||||||
226,000 | Alibaba Health Information Technology, Ltd.* | 113,276 | ||||||
|
| |||||||
Hotels, Restaurants & Leisure (0.7%): | ||||||||
46,700 | Berjaya Sports Toto Berhard | 30,825 | ||||||
180,179 | Dxb Entertainments PJSC* | 63,782 | ||||||
155,500 | Genting Berhard | 277,087 | ||||||
205,500 | Genting Malaysia Berhad | 209,588 | ||||||
29,670 | Jollibee Foods Corp. | 115,552 | ||||||
8,340 | Kangwon Land, Inc. | 246,861 | ||||||
149,300 | Minor International PCL | 149,081 | ||||||
15,456 | OPAP SA | 136,647 | ||||||
25,416 | Tsogo Sun Holdings, Ltd. | 50,933 | ||||||
26,737 | Yum China Holdings, Inc.* | 698,370 | ||||||
|
| |||||||
1,978,726 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Household Durables (0.8%): | ||||||||
16,369 | Arcelik AS | $ | 98,415 | |||||
3,827 | Coway Co., Ltd. | 279,556 | ||||||
87,000 | Haier Electronics Group Co., Ltd. | 136,609 | ||||||
750 | Hanssem Co., Ltd. | 122,799 | ||||||
6,870 | LG Electronics, Inc. | 292,270 | ||||||
10,000 | Nien Made Enterprise Co., Ltd. | 102,493 | ||||||
200,575 | Steinhoff International Holdings NV | 1,036,505 | ||||||
|
| |||||||
2,068,647 | ||||||||
|
| |||||||
Household Products (0.4%): | ||||||||
41,423 | Hindustan Unilever, Ltd. | 504,225 | ||||||
105,600 | Kimberl- Clark de Mexico SAB de C.V. | 190,239 | ||||||
105,600 | PT Unilever Indonesia Tbk | 304,085 | ||||||
|
| |||||||
998,549 | ||||||||
|
| |||||||
Independent Power & Renewable Electricity Producers (0.8%): | ||||||||
101,900 | Aboitiz Power Corp. | 85,515 | ||||||
174,425 | AES Gener SA | 62,341 | ||||||
13,400 | AES Tiete Energia SA | 57,666 | ||||||
734,000 | Cgn Power Co., Ltd., Class H | 200,862 | ||||||
220,000 | China Longyuan Power Group Corp. | 170,234 | ||||||
229,000 | China Power International Develpoment, Ltd. | 82,753 | ||||||
132,000 | China Resources Power Holdings Co. | 208,968 | ||||||
546,185 | Colbun SA | 107,541 | ||||||
9,100 | Electricity Genera PCL | 50,499 | ||||||
227,069 | ENEL Generacion Chile SA | 149,933 | ||||||
648,500 | Energy Development Corp. | 67,213 | ||||||
11,300 | Engie Brasil Energia SA | 121,573 | ||||||
35,400 | Glow Energy PCL | 78,099 | ||||||
292,000 | Huaneng Power International, Inc., Class H | 192,977 | ||||||
274,000 | Huaneng Renewables Corp., Ltd. | 88,628 | ||||||
114,140 | NTPC, Ltd. | 276,509 | ||||||
|
| |||||||
2,001,311 | ||||||||
|
| |||||||
Industrial Conglomerates (2.0%): | ||||||||
134,550 | Aboitiz Equity Ventures, Inc. | 191,663 | ||||||
194,900 | Alfa SAB de C.V., Class A | 241,349 | ||||||
142,100 | Alliance Global Group, Inc. | 36,537 | ||||||
35,500 | Beijing Enterprises Holdings, Ltd. | 167,290 | ||||||
22,054 | Bidvest Group, Ltd. | 289,907 | ||||||
302,000 | Citic, Ltd. | 430,867 | ||||||
1,031 | CJ Corp. | 159,350 | ||||||
275,700 | DMCI Holdings, Inc. | 73,484 | ||||||
223,000 | Far Eastern New Century Corp. | 167,027 | ||||||
178,500 | Fosun International, Ltd. | 250,041 | ||||||
39,300 | Grupo Carso SAB de C.V. | 158,117 | ||||||
3,187 | Hanwha Corp. | 92,379 | ||||||
40,400 | Hap Seng Consolidated Berhad | 79,812 | ||||||
10,469 | Industries Qatar Q.S.C. | 337,685 | ||||||
198,310 | JG Summit Holdings, Inc. | 269,618 | ||||||
43,880 | KOC Holdings AS | 171,724 | ||||||
6,178 | LG Corp. | 306,693 | ||||||
5,031 | Samsung C&T Corp. | 519,409 | ||||||
33,000 | Shanghai Industrial Holdings, Ltd. | 89,049 | ||||||
4,930 | Siemens, Ltd. | 80,552 | ||||||
159,900 | Sime Darby Berhad | 288,718 | ||||||
3,110 | SK C&C Co., Ltd. | 590,119 | ||||||
16,670 | SM Investments Corp. | 219,293 |
Continued
8
AZL Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Industrial Conglomerates, continued | ||||||||
49,661 | Turkiye Sise ve Cam Fabrikalari AS | $ | 53,934 | |||||
|
| |||||||
5,264,617 | ||||||||
|
| |||||||
Insurance (3.5%): | ||||||||
2,568 | Bajaj Finserv, Ltd. | 109,096 | ||||||
48,400 | BB Seguridade Participacoes SA | 421,037 | ||||||
565,000 | Cathay Financial Holding Co., Ltd. | 846,107 | ||||||
241,000 | China Life Insurance Co., Ltd. | 238,917 | ||||||
504,000 | China Life Insurance Co., Ltd. | 1,303,913 | ||||||
167,400 | China Pacific Insurance Group Co., Ltd., Class H | 578,965 | ||||||
111,800 | China Taiping Insurance Holdings Co., Ltd.* | 229,529 | ||||||
24,646 | Discovery, Ltd. | 205,496 | ||||||
3,512 | Dongbu Insurance Co., Ltd. | 181,612 | ||||||
15,390 | Hanwha Life Insurance Co., Ltd. | 83,113 | ||||||
4,435 | Hyundai Marine & Fire Insurance Co., Ltd. | 115,480 | ||||||
7,924 | Liberty Holding, Ltd. | 63,776 | ||||||
70,805 | MMI Holdings, Ltd. | 120,985 | ||||||
53,700 | New China Life Insurance Co., Ltd. | 244,339 | ||||||
484,000 | People’s Insurance Co. Group of China, Ltd. | 190,329 | ||||||
292,000 | Picc Property & Casuality Co., Ltd., Class H | 450,586 | ||||||
351,000 | Ping An Insurance Group Co. of China, Ltd. | 1,746,419 | ||||||
7,800 | Porto Seguro SA | 64,497 | ||||||
38,849 | Powszechny Zaklad Ubezpieczen SA | 308,477 | ||||||
8,178 | Qatar Insurance Co. | 190,329 | ||||||
46,273 | Rand Merchant Investment Holdings, Ltd. | 134,279 | ||||||
2,155 | Samsung Fire & Marine Insurance Co., Ltd. | 478,831 | ||||||
4,575 | Samsung Life Insurance Co., Ltd. | 425,669 | ||||||
97,467 | Sanlam, Ltd. | 446,261 | ||||||
567,000 | Shin Kong Financial Holdings Co., Ltd.* | 138,981 | ||||||
12,200 | Sul America SA | 67,503 | ||||||
|
| |||||||
9,384,526 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (0.9%): | ||||||||
25,208 | Ctrip.com International, ADR* | 1,008,320 | ||||||
44,850 | JD.com, Inc., ADR* | 1,140,984 | ||||||
2,463 | Qunar Cayman Islands, Ltd., ADR* | 74,210 | ||||||
25,895 | Vipshop Holdings, Ltd., ADR* | 285,104 | ||||||
|
| |||||||
2,508,618 | ||||||||
|
| |||||||
Internet Software & Services (8.2%): | ||||||||
5,327 | 58.com, Inc., ADR* | 149,156 | ||||||
75,898 | Alibaba Group Holding, Ltd., ADR* | 6,664,603 | ||||||
18,345 | Baidu, Inc., ADR* | 3,016,102 | ||||||
2,151 | Daum Kakao Corp. | 136,773 | ||||||
5,345 | NetEase, Inc., ADR | 1,150,992 | ||||||
1,886 | NHN Corp. | 1,208,131 | ||||||
3,758 | SINA Corp.* | 228,449 | ||||||
383,900 | Tencent Holdings, Ltd. | 9,317,802 | ||||||
2,136 | Weibo Corp. - Spon, ADR* | 86,722 | ||||||
2,019 | Yy, Inc., ADR* | 79,589 | ||||||
|
| |||||||
22,038,319 | ||||||||
|
| |||||||
IT Services (1.8%): | ||||||||
67,317 | Cielo SA | 577,115 | ||||||
39,053 | HCL Technologies, Ltd. | 476,091 | ||||||
122,957 | Infosys, Ltd. | 1,828,322 | ||||||
2,467 | Samsung SDS Co., Ltd. | 284,564 | ||||||
31,288 | Tata Consultancy Services, Ltd. | 1,087,764 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
IT Services, continued | ||||||||
16,122 | Tech Mahindra, Ltd. | $ | 115,735 | |||||
65,000 | Travelsky Technology, Ltd., Series H | 136,101 | ||||||
42,752 | Wipro, Ltd. | 298,782 | ||||||
|
| |||||||
4,804,474 | ||||||||
|
| |||||||
Leisure Products (0.1%): | ||||||||
20,000 | Giant Manufacturing Co., Ltd. | 113,348 | ||||||
15,000 | Merida Industry Co., Ltd. | 66,767 | ||||||
|
| |||||||
180,115 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.1%): | ||||||||
5,513 | Divi’s Laboratories, Ltd. | 63,507 | ||||||
891 | Samsung Biologics Co., Ltd.* | 111,412 | ||||||
|
| |||||||
174,919 | ||||||||
|
| |||||||
Machinery (0.6%): | ||||||||
78,790 | Ashok Leyland, Ltd. | 92,680 | ||||||
93,500 | China Conch Venture Holdings, Ltd. | 165,729 | ||||||
288,000 | CRRC Corp., Ltd., Class H | 257,609 | ||||||
921 | Eicher Motors, Ltd. | 295,151 | ||||||
44,000 | Haitian International Holdings, Ltd. | 85,773 | ||||||
14,000 | Hiwin Technologies Corp. | 63,946 | ||||||
2,755 | Hyundai Heavy Industries Co.* | 330,760 | ||||||
17,243 | Samsung Heavy Industries Co., Ltd.* | 131,743 | ||||||
39,200 | WEG SA | 186,770 | ||||||
68,000 | Weichai Power Co., Ltd., Class H | 104,289 | ||||||
|
| |||||||
1,714,450 | ||||||||
|
| |||||||
Marine (0.1%): | ||||||||
122,000 | Evergreen Marine Corp. (Taiwan), Ltd.* | 41,897 | ||||||
77,300 | MISC Berhad | 126,755 | ||||||
|
| |||||||
168,652 | ||||||||
|
| |||||||
Media (2.2%): | ||||||||
780,000 | Alibaba Pictures Group, Ltd.* | 126,323 | ||||||
108,100 | Astro Malaysia Holdings Berhad | 62,646 | ||||||
67,800 | Bec World Public Co., Ltd. | 31,395 | ||||||
4,891 | Cheil Worldwide, Inc. | 63,714 | ||||||
1,345 | CJ E&M Corp. | 78,990 | ||||||
13,280 | Cyfrowy Polsat SA* | 78,110 | ||||||
159,769 | Grupo Televisa SAB | 666,629 | ||||||
29,496 | Naspers, Ltd. | 4,300,868 | ||||||
345,900 | PT Media Nusantara Citra Tbk | 44,892 | ||||||
404,800 | PT Surya Citra Media Tbk | 83,973 | ||||||
39,886 | ZEE Entertainment Enterprises, Ltd. | 265,621 | ||||||
|
| |||||||
5,803,161 | ||||||||
|
| |||||||
Metals & Mining (3.1%): | ||||||||
178,400 | Alrosa PJSC | 283,776 | ||||||
274,000 | Aluminum Corp. of China, Ltd.* | 112,161 | ||||||
3,733 | Anglo American Platinum, Ltd.* | 71,575 | ||||||
28,220 | AngloGold Ashanti, Ltd.* | 302,606 | ||||||
734,000 | China Steel Corp. | 559,129 | ||||||
13,170 | Cia de Minas Buenaventura SA, ADR | 148,558 | ||||||
43,200 | Companhia Siderurgica Nacional S.A. (CSN)* | 144,080 | ||||||
96,899 | Eregli Demir ve Celik Fabrikalari T.A.S. | 140,989 | ||||||
56,861 | Gold Fields | 173,447 | ||||||
249,294 | Grupo Mexico SAB de C.V., Series B | 677,204 | ||||||
77,180 | Hindalco Industries, Ltd. | 175,221 | ||||||
5,674 | Hyundai Steel Co. | 266,347 |
Continued
9
AZL Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Metals & Mining, continued | ||||||||
43,229 | Impala Platinum Holdings, Ltd.* | $ | 133,681 | |||||
9,630 | Industrias Penoles SAB de C.V. | 178,592 | ||||||
3,172 | Jastrzebska Spolka Weglowa SA* | 50,738 | ||||||
86,000 | Jiangxi Copper Co., Ltd. | 119,127 | ||||||
5,856 | JSW Steel, Ltd. | 139,931 | ||||||
9,690 | KGHM Polska Miedz SA | 213,738 | ||||||
537 | Korea Zinc Co. | 210,998 | ||||||
3,834 | MMC Norilsk Nickel PJSC | 633,614 | ||||||
4,621 | POSCO | 976,985 | ||||||
14,500 | Severstal | 223,277 | ||||||
51,157 | Sibanye Gold, Ltd. | 91,772 | ||||||
5,891 | Southern Copper Corp. | 188,159 | ||||||
20,839 | Tata Steel, Ltd. | 119,584 | ||||||
129,559 | Vale SA | 929,517 | ||||||
85,850 | Vale SA | 677,680 | ||||||
71,820 | Vedanta, Ltd. | 227,557 | ||||||
398,000 | Zijin Mining Group Co., Ltd. | 125,948 | ||||||
|
| |||||||
8,295,991 | ||||||||
|
| |||||||
Multiline Retail (0.6%): | ||||||||
12,985 | El Puerto de Liverpool SAb de C.V. | 93,714 | ||||||
1,078 | Hyundai Department Store Co., Ltd. | 97,196 | ||||||
12,800 | Lojas Americanas SA | 49,064 | ||||||
44,500 | Lojas Renner SA | 316,939 | ||||||
780 | Lotte Shopping Co., Ltd. | 142,839 | ||||||
161,600 | PT Matahari Department Store Tbk | 180,428 | ||||||
34,600 | Robinson Department Store Public Co., Ltd. | 61,121 | ||||||
38,755 | S.A.C.I. Falabella | 306,866 | ||||||
522 | Shinsegae Department Store Co. | 76,045 | ||||||
68,771 | Woolworths Holdings, Ltd. | 353,934 | ||||||
|
| |||||||
1,678,146 | ||||||||
|
| |||||||
Multi-Utilities (0.1%): | ||||||||
1,903 | Qatar Electricity & Water Co. | 118,674 | ||||||
298,800 | YTL Corporation Berhad | 103,207 | ||||||
140,200 | YTL Power International Berhad | 46,537 | ||||||
|
| |||||||
268,418 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (7.7%): | ||||||||
107,200 | Banpu Public Co., Ltd. | 57,181 | ||||||
34,241 | Bharat Pertoleum Corp., Ltd. | 320,090 | ||||||
31,144 | Cairn India, Ltd. | 110,843 | ||||||
142,000 | China Coal Energy Co., Ltd., Class H* | 67,073 | ||||||
1,726,000 | China Petroleum & Chemical Corp., Class H | 1,221,476 | ||||||
235,000 | China Shenhua Energy Co., Ltd. | 438,309 | ||||||
1,198,000 | CNOOC, Ltd. | 1,479,137 | ||||||
48,090 | Coal India, Ltd. | 212,278 | ||||||
8,400 | Cosan sa industria e Comercio | 98,506 | ||||||
341,501 | Ecopetrol SA* | 157,012 | ||||||
31,489 | Empresas Copec SA | 301,975 | ||||||
77,500 | Energy Absolute Public Co., Ltd. | 64,146 | ||||||
9,915 | Exxaro Resources, Ltd. | 64,330 | ||||||
80,000 | Formosa Petrochemical Corp. | 276,924 | ||||||
830,800 | Gazprom Pjsc | 2,097,142 | ||||||
6,397 | Grupa Lotos SA* | 58,504 | ||||||
3,622 | GS Holdings | 161,679 | ||||||
27,599 | Hindustan Petroleum Corp., Ltd. | 178,780 | ||||||
693,100 | Irpc PCL | 92,693 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
224,000 | Kunlun Energy Co., Ltd. | $ | 167,231 | |||||
30,323 | LUKOIL PJSC | 1,707,412 | ||||||
2,532 | MOL Hungarian Oil & Gas plc | 177,821 | ||||||
6,305 | NovaTek OAO, Registered Shares, GDR | 816,787 | ||||||
88,823 | Oil & Natural Gas Corp., Ltd. | 250,232 | ||||||
1,410,000 | PetroChina Co., Ltd., Class H | 1,040,497 | ||||||
271,400 | Petroleo Brasileiro S.A.* | 1,240,538 | ||||||
195,434 | Petroleo Brasileiro S.A.* | 1,017,660 | ||||||
13,700 | Petronas Dagangan Berhad | 72,680 | ||||||
22,203 | Polski Koncern Naftowy Orlen SA | 452,544 | ||||||
122,508 | Polskie Gornictwo Naftowe i Gazownictwo SA | 164,814 | ||||||
996,300 | PT Adaro Energy Tbk | 125,071 | ||||||
116,200 | PT United Tractors Tbk | 183,147 | ||||||
96,200 | PTT Exploration & Production PCL | 258,248 | ||||||
69,200 | PTT pcl | 717,102 | ||||||
87,684 | Reliance Industries, Ltd. | 1,396,638 | ||||||
50,000 | Rosneft Oil Co., Registered Shares, GDR | 324,219 | ||||||
30,000 | Rosneft Oil Co., Registered Shares, GDR | 194,531 | ||||||
4,362 | SK Energy Co., Ltd. | 526,124 | ||||||
3,191 | S-Oil Corp. | 222,615 | ||||||
494,600 | Surgutneftegas OJSC | 250,066 | ||||||
479,800 | Surgutneftegas Prefernce | 251,403 | ||||||
98,020 | Tatneft Pjsc | 683,300 | ||||||
56,500 | Thai Oil Public Co., Ltd. | 113,718 | ||||||
8,667 | Tupras-Turkiye Petrol Rafine | 173,925 | ||||||
25,000 | Ultrapar Participacoes SA | 526,021 | ||||||
130,000 | Yanzhou Coal Mining Co. | 88,264 | ||||||
|
| |||||||
20,600,686 | ||||||||
|
| |||||||
Paper & Forest Products (0.4%): | ||||||||
21,500 | Duratex SA* | 44,940 | ||||||
86,517 | Empresas CMPC SA | 177,018 | ||||||
17,200 | Fibria Celulose SA | 168,606 | ||||||
8,189 | Mondi, Ltd. | 166,497 | ||||||
113,000 | Nine Dragons Paper Holdings, Ltd. | 102,062 | ||||||
37,475 | Sappi, Ltd.* | 244,724 | ||||||
28,000 | Suzano Papel e Celulose SA, Class A | 122,218 | ||||||
|
| |||||||
1,026,065 | ||||||||
|
| |||||||
Personal Products (0.9%): | ||||||||
2,088 | Amorepacific Corp. | 555,262 | ||||||
635 | Amorepacific Corp. | 107,757 | ||||||
1,979 | Amorepacific Group | 217,585 | ||||||
36,563 | Dabur India, Ltd. | 149,815 | ||||||
8,249 | Godrej Consumer Products, Ltd. | 183,282 | ||||||
50,500 | Hengan International Group Co., Ltd. | 370,282 | ||||||
148 | LG Household & Health Care, Ltd. | 68,964 | ||||||
608 | LG Household & Health Care, Ltd. | 430,865 | ||||||
31,254 | Marico, Ltd. | 119,833 | ||||||
11,900 | Natura Cosmeticos SA | 84,206 | ||||||
|
| |||||||
2,287,851 | ||||||||
|
| |||||||
Pharmaceuticals (1.5%): | ||||||||
25,271 | Aspen Pharmacare Holdings, Ltd. | 521,850 | ||||||
18,226 | Aurobindo Pharma, Ltd. | 179,545 | ||||||
14,172 | Cadila Healthcare, Ltd. | 74,264 | ||||||
86,000 | China Medical System Holdings, Ltd. | 135,686 |
Continued
10
AZL Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Pharmaceuticals, continued | ||||||||
286,000 | China Pharmaceutical Enterprise & Investment Corp. | $ | 304,221 | |||||
23,912 | Cipla, Ltd. | 200,481 | ||||||
7,584 | Dr Reddy’s Laboratories, Ltd. | 341,701 | ||||||
9,570 | Glenmark Pharmaceuticals, Ltd. | 125,126 | ||||||
369 | Hanmi Pharm Co., Ltd. | 93,092 | ||||||
824 | Hanmi Science Co., Ltd. | 41,602 | ||||||
24,100 | Hypermarcas SA | 193,573 | ||||||
15,286 | Lupin, Ltd. | 334,597 | ||||||
5,374 | Piramal Enterprises, Ltd. | 128,042 | ||||||
1,460,000 | PT Kalbe Farma Tbk | 163,181 | ||||||
9,675 | Richter Gedeon Nyrt | 204,377 | ||||||
28,000 | Shanghai Fosun Pharmaceutical Group Co., Ltd. | 85,535 | ||||||
308,000 | Sino Biopharmaceutical, Ltd. | 216,474 | ||||||
64,118 | Sun Pharmaceutical Industries, Ltd. | 592,032 | ||||||
581 | Yuhan Corp. | 95,789 | ||||||
|
| |||||||
4,031,168 | ||||||||
|
| |||||||
Real Estate Management & Development (2.0%): | ||||||||
217,681 | Aldar Properties PJSC | 155,893 | ||||||
469,600 | Ayala Land, Inc. | 301,974 | ||||||
6,733 | Barwa Real Estate Co. | 61,438 | ||||||
39,900 | BR Malls Participacoes SA* | 146,565 | ||||||
93,200 | Central Pattana PCL | 147,168 | ||||||
284,000 | China Evergrande Group | 176,469 | ||||||
254,000 | China Overseas Land & Investment, Ltd. | 669,976 | ||||||
192,000 | China Resources Land, Ltd. | 432,916 | ||||||
91,000 | China Vanke Co., Ltd., Class H | 205,727 | ||||||
387,000 | Country Garden Holdings Co., Ltd. | 215,503 | ||||||
135,116 | Emaar Malls PJSC | 96,212 | ||||||
242,821 | Emaar Properties PJSC | 470,223 | ||||||
55,077 | Ezdan Holding Group | 228,413 | ||||||
258,000 | Franshion Properties China, Ltd. | 69,306 | ||||||
330,000 | Fullshare Holdings, Ltd. | 153,626 | ||||||
66,800 | Guangzhou R&F Properties Co., Ltd., Class H | 80,726 | ||||||
57,000 | Highwealth Construction Corp. | 80,087 | ||||||
107,200 | IOI Properties Group BHD | 50,158 | ||||||
101,000 | Longfor Properties Co., Ltd. | 127,791 | ||||||
781,000 | Megaworld Corp. | 55,972 | ||||||
5,600 | Multiplan Empreendimentos Imobiliarios SA | 102,216 | ||||||
16,551 | New Europe Property Investment plc | 191,767 | ||||||
532,900 | PT Bumi Serpong Damai | 69,135 | ||||||
1,277,800 | PT Lippo Karawaci Tbk | 68,188 | ||||||
1,234,700 | PT Pakuwon Jati Tbk | 51,577 | ||||||
699,000 | PT Summarecon Agung Tbk | 68,460 | ||||||
113,300 | Robinsons Land Corp. | 59,202 | ||||||
57,000 | Ruentex Development Co., Ltd.* | 64,898 | ||||||
63,500 | Shanghai Lujiazue | 92,964 | ||||||
84,500 | Shimao Property Holdings, Ltd. | 110,139 | ||||||
208,000 | Sino-Ocean Land Holdings, Ltd. | 92,753 | ||||||
573,900 | SM Prime Holdings, Inc. | 326,702 | ||||||
144,000 | Soho China, Ltd. | 70,771 | ||||||
130,000 | Sunac China Holdings, Ltd. | 108,251 | ||||||
64,272 | Talaat Moustafa Group | 32,600 | ||||||
|
| |||||||
5,435,766 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Road & Rail (0.2%): | ||||||||
404,600 | Bts Group Holdings PCL | $ | 96,322 | |||||
484 | CJ Korea Express Co., Ltd.* | 71,700 | ||||||
2,294 | Container Corporation of India, Ltd. | 37,466 | ||||||
11,000 | Localiza Rent a Car SA | 115,708 | ||||||
55,600 | Rumo Logistica Operadora Multimodal SA* | 104,938 | ||||||
|
| |||||||
426,134 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (5.0%): | ||||||||
414,000 | Advanced Semiconductor Engineering, Inc. | 421,292 | ||||||
901,000 | GCL-Poly Energy Holdings, Ltd.* | 107,644 | ||||||
100,000 | MediaTek, Inc. | 667,108 | ||||||
48,000 | Nanya Technology Corp. | 71,171 | ||||||
40,000 | Novatek Microelectronics Corp. | 131,634 | ||||||
10,000 | Phison Electronics Corp. | 78,911 | ||||||
45,000 | Powertech Technology, Inc. | 121,005 | ||||||
32,000 | Realtek Semiconductor Corp. | 100,634 | ||||||
189,800 | Semiconductor Manufacturing International Corp.* | 296,563 | ||||||
151,000 | Siliconware Precision Industries Co. | 223,931 | ||||||
39,357 | SK Hynix, Inc. | 1,438,865 | ||||||
1,665,000 | Taiwan Semiconductor Manufacturing Co., Ltd. | 9,325,219 | ||||||
839,000 | United Microelectronics Corp. | 295,917 | ||||||
62,000 | Vanguard International Semiconductor Corp. | 107,509 | ||||||
|
| |||||||
13,387,403 | ||||||||
|
| |||||||
Software (0.1%): | ||||||||
54,000 | Kingsoft Corp., Ltd. | 110,002 | ||||||
1,243 | Ncsoft Corp. | 254,194 | ||||||
|
| |||||||
364,196 | ||||||||
|
| |||||||
Specialty Retail (0.4%): | ||||||||
2,316 | Ff Group* | 46,826 | ||||||
855,000 | GOME Electrical Appliances Holdings, Ltd. | 103,287 | ||||||
273,100 | Home Product Center Public Co., Ltd. | 77,525 | ||||||
17,000 | Hotai Motor Co., Ltd. | 194,117 | ||||||
2,364 | Hotel Shilla Co., Ltd. | 94,090 | ||||||
7,063 | Jumbo SA | 111,730 | ||||||
16,832 | Mr.Price Group, Ltd. | 194,785 | ||||||
14,576 | The Foschini Group, Ltd. | 167,926 | ||||||
30,825 | Truworths International, Ltd. | 178,029 | ||||||
|
| |||||||
1,168,315 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (4.8%): | ||||||||
203,000 | Acer, Inc. | 82,015 | ||||||
22,000 | Advantech Co., Ltd. | 172,628 | ||||||
48,000 | Asustek Computer, Inc. | 392,366 | ||||||
9,000 | Casetek Holdings, Ltd. | 23,762 | ||||||
45,000 | Catcher Technology Co., Ltd. | 309,146 | ||||||
36,000 | Chicony Electronics Co., Ltd. | 83,385 | ||||||
294,000 | Compal Electronics, Inc. | 167,440 | ||||||
63,000 | Foxconn Technology Co., Ltd. | 165,266 | ||||||
45,000 | High Tech Computer Corp.* | 109,418 | ||||||
173,000 | Inventec Corp. | 117,831 | ||||||
500,000 | Lenovo Group, Ltd. | 301,138 | ||||||
146,000 | Lite-On Technology Corp. | 218,206 | ||||||
42,000 | Micro-Star International Co., Ltd. | 95,042 | ||||||
135,000 | Pegatron Corp. | 318,527 | ||||||
187,000 | Quanta Computer, Inc. | 347,985 |
Continued
11
AZL Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Technology Hardware, Storage & Peripherals, continued |
| ||||||
6,703 | Samsung Electronics Co., Ltd. | $ | 9,905,710 | |||||
14,000 | Transcend Infromation, Inc. | 36,889 | ||||||
173,000 | Wistron Corp. | 133,116 | ||||||
|
| |||||||
12,979,870 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (0.6%): |
| ||||||
69,000 | Anta Sports Products, Ltd. | 204,594 | ||||||
438,000 | Belle International Holdings, Ltd. | 245,024 | ||||||
1,861 | CCC SA | 90,538 | ||||||
13,000 | Eclat Textile Co., Ltd. | 135,092 | ||||||
23,000 | Feng Tay Enterprise Co., Ltd. | 85,505 | ||||||
53,000 | Formosta Taffeta Co., Ltd. | 48,482 | ||||||
1,348,000 | HengTen Networks Group, Ltd.* | 67,310 | ||||||
89 | LPP SA | 120,841 | ||||||
153,000 | Pou Chen Corp. | 189,881 | ||||||
39,000 | Ruentex Industries, Ltd. | 64,742 | ||||||
39,000 | Shenzhou International Group | 245,629 | ||||||
21,507 | Titan Co., Ltd. | 103,186 | ||||||
|
| |||||||
1,600,824 | ||||||||
|
| |||||||
| Thrifts & Mortgage Finance (0.8%): |
| ||||||
101,061 | Housing Development Finance Corp., Ltd. | 1,878,879 | ||||||
20,415 | Indiabulls Housing Finance, Ltd. | 194,391 | ||||||
20,608 | LIC Housing Finance, Ltd. | 169,676 | ||||||
|
| |||||||
2,242,946 | ||||||||
|
| |||||||
| Tobacco (0.7%): |
| ||||||
9,900 | British American Tobacco Malaysia Berhad | 98,439 | ||||||
224,019 | ITC, Ltd. | 795,911 | ||||||
7,662 | KT&G Corp. | 640,532 | ||||||
33,300 | PT Gudang Garam Tbk | 157,711 | ||||||
644,100 | PT Hanjaya Mandala Sampoerna TBK | 183,159 | ||||||
|
| |||||||
1,875,752 | ||||||||
|
| |||||||
| Trading Companies & Distributors (0.1%): |
| ||||||
3,229 | Daewoo International Corp. | 71,976 | ||||||
124,300 | PT AkR Corporindo Tbk | 55,427 | ||||||
8,796 | SK Network Co., Ltd. | 50,142 | ||||||
|
| |||||||
177,545 | ||||||||
|
| |||||||
| Transportation Infrastructure (1.0%): |
| ||||||
50,746 | Adani Ports & Special Economic Zone, Ltd. | 199,715 | ||||||
29,700 | Airports of Thailand Public Co., Ltd. | 329,537 | ||||||
476,100 | Bangkok Expressway & Metro | 98,549 | ||||||
106,000 | Beijing Capital International Airport Co., Ltd. | 106,940 | ||||||
90,000 | China Merchants Holdings International Co., Ltd. | 222,579 | ||||||
61,100 | Companhia de Concessoes Rodoviarias | 299,753 | ||||||
112,000 | Cosco Pacific, Ltd. | 112,235 | ||||||
11,489 | Dp World, Ltd. | 201,172 | ||||||
14,385 | Grupo Aeroportuario de Sur | 207,156 | ||||||
24,700 | Grupo Aeroporturaio del Pacifico SAB de C.V. | 203,116 | ||||||
35,200 | International Container Terminal Services, Inc. | 50,688 | ||||||
84,000 | Jiangsu Expressway Co., Ltd., Series H | 105,915 | ||||||
51,700 | Malaysia Airports Holdings Berhad | 69,884 | ||||||
54,000 | OHL Mexico SAB de C.V. | 53,136 | ||||||
18,415 | Promotora y Operadora de Infraestructura SAB de C.V. | 153,743 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Transportation Infrastructure, continued |
| ||||||
150,707 | PT Jasa Marga Persero Tbk | $ | 48,253 | |||||
11,315 | TAV Havalimanlari Holding AS | 45,040 | ||||||
70,800 | Westports Holding Berhad | 67,769 | ||||||
100,000 | Zhejiang Expressway Co., Ltd. | 95,398 | ||||||
|
| |||||||
2,670,578 | ||||||||
|
| |||||||
| Water Utilities (0.3%): |
| ||||||
180,991 | Aguas Andinas SA, Class A | 94,304 | ||||||
302,000 | Beijing Enterprises Water Group, Ltd. | 199,159 | ||||||
23,700 | Cia Saneamento Basico Do Estado de Sao Paulo | 209,739 | ||||||
176,000 | Guangdong Investment, Ltd. | 231,004 | ||||||
|
| |||||||
734,206 | ||||||||
|
| |||||||
| Wireless Telecommunication Services (3.9%): |
| ||||||
72,000 | Advanced Info Service Public Co., Ltd. | 294,714 | ||||||
2,200,100 | America Movil SAB de C.V., Series L | 1,382,390 | ||||||
183,200 | Axiata Group Berhad | 192,463 | ||||||
69,169 | Bharti Airtel, Ltd. | 311,184 | ||||||
414,500 | China Mobile, Ltd. | 4,346,575 | ||||||
242,200 | DIGI.com Berhad | 260,931 | ||||||
10,428 | Empresa Nacional de Telecomunicaciones SA* | 110,730 | ||||||
110,000 | Far EasTone Telecommunications Co., Ltd. | 247,312 | ||||||
181,537 | Global Telecom Holding* | 72,514 | ||||||
2,300 | Globe Telecom, Inc. | 69,892 | ||||||
87,222 | Idea Cellular, Ltd. | 95,070 | ||||||
129,900 | Maxis Berhad | 173,040 | ||||||
35,756 | Mobile TeleSystems PJSC, ADR | 325,737 | ||||||
107,230 | MTN Group, Ltd. | 980,167 | ||||||
6,730 | Pldt, Inc. | 184,902 | ||||||
258,900 | PT XL Axiata Tbk* | 44,366 | ||||||
11,688 | Sistema Jsfc-REG S Sponsor, GDR | 105,187 | ||||||
1,429 | SK Telecom Co., Ltd. | 265,902 | ||||||
107,000 | Taiwan Mobile Co., Ltd. | 344,951 | ||||||
58,600 | Tim Participacoes S.A. | 141,042 | ||||||
60,908 | Turkcell Iletisim Hizmetleri AS* | 168,444 | ||||||
25,747 | Vodacom Group, Ltd. | 285,155 | ||||||
|
| |||||||
10,402,668 | ||||||||
|
| |||||||
| Total Common Stocks (Cost $249,543,194) | 260,958,453 | ||||||
|
| |||||||
| Preferred Stocks (1.7%): |
| ||||||
| Automobiles (0.1%): |
| ||||||
2,666 | Hyundai Motor Co., Ltd., 4.15% | 218,149 | ||||||
|
| |||||||
| Banks (0.8%): | |||||||
210,140 | Itau Unibanco Holding SA, Series S, 0.99% | 2,186,536 | ||||||
|
| |||||||
| Chemicals (0.0%): |
| ||||||
10,700 | Braskem SA, Class A, 7.34% | 112,651 | ||||||
|
| |||||||
| Food & Staples Retailing (0.1%): |
| ||||||
10,900 | Companhia Brasileira de Destribuicao Grupo Pao de Acucar, Series A, 0.03% | 183,442 | ||||||
|
| |||||||
| Metals & Mining (0.1%): |
| ||||||
63,400 | Gerdau SA, 0.46% | 210,476 | ||||||
|
| |||||||
| Multiline Retail (0.1%): |
| ||||||
39,600 | Lojas Americanas SA, 0.09% | 206,935 | ||||||
|
|
Continued
12
AZL Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Preferred Stocks, continued | ||||||||
Technology Hardware, Storage & Peripherals (0.5%): | ||||||||
1,184 | Samsung Electronics Co., Ltd., 1.48% | $ | 1,392,496 | |||||
|
| |||||||
Total Preferred Stocks (Cost $4,619,172) | 4,510,685 | |||||||
|
| |||||||
Right (0.0%): | ||||||||
Banks (0.0%): | ||||||||
2,014 | The Commercial Bank (Q.S.C.), Expires on 1/23/17 | 3,872 | ||||||
|
| |||||||
Total Right (Cost $–) | 3,872 | |||||||
|
| |||||||
Unaffiliated Investment Company (0.4%): | ||||||||
959,772 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(b) | 959,772 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $959,772) | 959,772 | |||||||
|
| |||||||
Total Investment Securities (Cost $255,122,138)(c) — 99.5% | 266,432,782 | |||||||
Net other assets (liabilities) — 0.5% | 1,445,231 | |||||||
|
| |||||||
Net Assets — 100.0% | $ | 267,878,013 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
ADR—American Depositary Receipt
GDR—Global Depositary Receipt
* | Non-income producing security. |
(a) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2016. The total of all such securities represent 0.07% of the net assets of the fund. |
(b) | The rate represents the effective yield at December 31, 2016. |
(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, 2016: (Unaudited)
Country | Percentage | |||
Bermuda | 0.3 | % | ||
Brazil | 7.7 | % | ||
Cayman Islands | 2.1 | % | ||
Chile | 1.2 | % | ||
China | 17.6 | % | ||
Colombia | 0.5 | % | ||
Czech Republic | 0.2 | % | ||
Egypt | 0.1 | % | ||
Greece | 0.4 | % | ||
Hong Kong | 6.2 | % | ||
Hungary | 0.3 | % | ||
India | 8.3 | % | ||
Indonesia | 2.6 | % | ||
Malaysia | 2.5 | % | ||
Malta | 0.1 | % | ||
Mexico | 3.5 | % |
Country | Percentage | |||
Peru | 0.1 | % | ||
Philippines | 1.2 | % | ||
Poland | 1.2 | % | ||
Qatar | 0.9 | % | ||
Republic of Korea (South) | 14.2 | % | ||
Romania | 0.1 | % | ||
Russian Federation | 4.5 | % | ||
South Africa | 6.9 | % | ||
Switzerland | 0.2 | % | ||
Taiwan, Province Of China | 12.1 | % | ||
Thailand | 2.3 | % | ||
Turkey | 1.1 | % | ||
United Arab Emirates | 0.9 | % | ||
United States | 0.7 | % | ||
|
| |||
100.0 | % | |||
|
|
Futures Contracts
Cash of $114,000 has been segregated to cover margin requirements for the following open contracts as of December 31, 2016:
Description | Type | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Mini MSCI Emerging Markets Index Future (U.S. Dollar) | Long | 3/17/17 | 56 | $ | 2,404,920 | $ | (23,874 | ) |
See accompanying notes to the financial statements.
13
AZL Emerging Markets Equity Index Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investment securities, at cost | $ | 255,122,138 | |||
|
| ||||
Investment securities, at value | $ | 266,432,782 | |||
Segregated cash for collateral | 114,000 | ||||
Interest and dividends receivable | 760,798 | ||||
Foreign currency, at value (cost $1,290,365) | 1,088,955 | ||||
Receivable for capital shares issued | 25,309 | ||||
Receivable for investments sold | 10,000 | ||||
Reclaims receivable | 13,707 | ||||
Prepaid expenses | 997 | ||||
|
| ||||
Total Assets | 268,446,548 | ||||
|
| ||||
Liabilities: | |||||
Cash overdraft | 6,371 | ||||
Payable for investments purchased | 91,911 | ||||
Payable for capital shares redeemed | 9,200 | ||||
Payable for variation margin on futures contracts | 17,653 | ||||
Accrued foreign taxes | 37,949 | ||||
Manager fees payable | 103,874 | ||||
Administration fees payable | 14,004 | ||||
Distribution fees payable | 52,574 | ||||
Custodian fees payable | 217,733 | ||||
Administrative and compliance services fees payable | 709 | ||||
Trustee fees payable | 538 | ||||
Other accrued liabilities | 16,019 | ||||
|
| ||||
Total Liabilities | 568,535 | ||||
|
| ||||
Net Assets | $ | 267,878,013 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 248,408,469 | |||
Accumulated net investment income/(loss) | 1,293,824 | ||||
Accumulated net realized gains/(losses) from investment transactions | 7,119,254 | ||||
Net unrealized appreciation/(depreciation) on investments | 11,056,466 | ||||
|
| ||||
Net Assets | $ | 267,878,013 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 19,006,145 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 2,880,240 | ||||
Net Asset Value (offering and redemption price per share) | $ | 6.60 | |||
|
| ||||
Class 2 | |||||
Net Assets | $ | 248,871,868 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 37,708,545 | ||||
Net Asset Value (offering and redemption price per share) | $ | 6.60 | |||
|
|
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Dividends | $ | 5,105,703 | |||
Income from securities lending | 8,885 | ||||
Foreign withholding tax | (611,428 | ) | |||
|
| ||||
Total Investment Income | 4,503,160 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,342,072 | ||||
Administration fees | 100,061 | ||||
Distribution fees —Class 2 | 470,194 | ||||
Custodian fees | 386,751 | ||||
Administrative and compliance services fees | 3,273 | ||||
Trustee fees | 11,152 | ||||
Professional fees | 11,980 | ||||
Shareholder reports | 17,534 | ||||
Other expenses | 13,646 | ||||
|
| ||||
Total expenses before reductions | 3,356,663 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (575,077 | ) | |||
|
| ||||
Net expenses | 2,781,586 | ||||
|
| ||||
Net Investment Income/(Loss) | 1,721,574 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 20,679,516 | ||||
Net realized gains/(losses) on futures contracts | 251,300 | ||||
Change in net unrealized appreciation/depreciation on investments | (7,832,354 | ) | |||
Net Change in foreign taxes on unrealized gains/losses | (37,949 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 13,060,513 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 14,782,087 | |||
|
|
See accompanying notes to the financial statements.
14
Statements of Changes in Net Assets
AZL Emerging Markets Equity Index Fund | ||||||||||
For the Year Ended December 31, 2016 | For the Year Ended December 31, 2015 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 1,721,574 | $ | 1,314,733 | ||||||
Net realized gains/(losses) on investment transactions | 20,930,816 | (12,360,514 | ) | |||||||
Change in unrealized appreciation/depreciation on investments | (7,870,303 | ) | (18,455,961 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 14,782,087 | (29,501,742 | ) | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1 | (177,036 | ) | (316,978 | ) | ||||||
Class 2 | (1,002,584 | ) | (2,033,472 | ) | ||||||
From net realized gains: | ||||||||||
Class 1 | — | (923,853 | ) | |||||||
Class 2 | — | (7,767,670 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (1,179,620 | ) | (11,041,973 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Class 1 | ||||||||||
Proceeds from shares issued | 141,405 | 119,346 | ||||||||
Proceeds from dividends reinvested | 177,036 | 1,240,831 | ||||||||
Value of shares redeemed | (3,606,577 | ) | (2,703,620 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | (3,288,136 | ) | (1,343,443 | ) | ||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Proceeds from shares issued | 103,334,884 | 7,478,752 | ||||||||
Proceeds from dividends reinvested | 1,002,584 | 9,801,142 | ||||||||
Value of shares redeemed | (39,516,903 | ) | (34,119,510 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | 64,820,565 | (16,839,616 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 61,532,429 | (18,183,059 | ) | |||||||
|
|
|
| |||||||
Change in net assets | 75,134,896 | (58,726,774 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 192,743,117 | 251,469,891 | ||||||||
|
|
|
| |||||||
End of period | $ | 267,878,013 | $ | 192,743,117 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 1,293,824 | $ | 1,076,608 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Class 1 | ||||||||||
Shares issued | 21,440 | 15,392 | ||||||||
Dividends reinvested | 26,189 | 207,150 | ||||||||
Shares redeemed | (562,635 | ) | (389,897 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | (515,006 | ) | (167,355 | ) | ||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Shares issued | 15,054,324 | 1,059,869 | ||||||||
Dividends reinvested | 148,311 | 1,636,251 | ||||||||
Shares redeemed | (6,019,305 | ) | (4,848,411 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | 9,183,330 | (2,152,291 | ) | |||||||
|
|
|
| |||||||
Change in shares | 8,668,324 | (2,319,646 | ) | |||||||
|
|
|
|
See accompanying notes to the financial statements.
15
AZL Emerging Markets Equity Index Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||
Class 1 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 6.04 | $ | 7.35 | $ | 7.81 | $ | 8.05 | $ | 7.08 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.06 | 0.07 | 0.10 | 0.09 | 0.08 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.56 | (1.00 | ) | (0.48 | ) | (0.25 | ) | 1.39 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 0.62 | (0.93 | ) | (0.38 | ) | (0.16 | ) | 1.47 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Investment Income | (0.06 | ) | (0.10 | ) | (0.07 | ) | (0.08 | ) | (0.08 | ) | |||||||||||||||
Net Realized Gains | — | (0.28 | ) | (0.01 | ) | — | (0.42 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.06 | ) | (0.38 | ) | (0.08 | ) | (0.08 | ) | (0.50 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 6.60 | $ | 6.04 | $ | 7.35 | $ | 7.81 | $ | 8.05 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 10.21 | % | (12.69 | )% | (4.96 | )% | (1.96 | )% | 21.52 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 19,006 | $ | 20,505 | $ | 26,194 | $ | 31,711 | $ | 36,970 | |||||||||||||||
Net Investment Income/(Loss) | 1.05 | % | 0.86 | % | 1.14 | % | 1.04 | % | 0.99 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.41 | % | 1.49 | % | 1.46 | % | 1.45 | % | 1.43 | % | |||||||||||||||
Expenses Net of Reductions | 1.14 | % | 1.33 | % | 1.31 | % | 1.30 | % | 1.28 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.14 | % | 1.33 | % | 1.31 | % | 1.30 | % | 1.28 | % | |||||||||||||||
Portfolio Turnover Rate(d) | 115 | % | 45 | % | 58 | % | 49 | % | 51 | % | |||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 6.04 | $ | 7.34 | $ | 7.80 | $ | 8.03 | $ | 7.07 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.04 | 0.05 | 0.08 | 0.07 | 0.05 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.56 | (1.00 | ) | (0.48 | ) | (0.24 | ) | 1.39 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 0.60 | (0.95 | ) | (0.40 | ) | (0.17 | ) | 1.44 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Investment Income | (0.04 | ) | (0.07 | ) | (0.05 | ) | (0.06 | ) | (0.06 | ) | |||||||||||||||
Net Realized Gains | — | (0.28 | ) | (0.01 | ) | — | (0.42 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.04 | ) | (0.35 | ) | (0.06 | ) | (0.06 | ) | (0.48 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 6.60 | $ | 6.04 | $ | 7.34 | $ | 7.80 | $ | 8.03 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 9.89 | % | (12.88 | )% | (5.22 | )% | (2.10 | )% | 21.04 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 248,872 | $ | 172,238 | $ | 225,276 | $ | 266,951 | $ | 298,895 | |||||||||||||||
Net Investment Income/(Loss) | 0.80 | % | 0.60 | % | 0.90 | % | 0.79 | % | 0.74 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.64 | % | 1.74 | % | 1.71 | % | 1.70 | % | 1.68 | % | |||||||||||||||
Expenses Net of Reductions | 1.36 | % | 1.58 | % | 1.56 | % | 1.55 | % | 1.53 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.36 | % | 1.58 | % | 1.56 | % | 1.55 | % | 1.53 | % | |||||||||||||||
Portfolio Turnover Rate(d) | 115 | % | 45 | % | 58 | % | 49 | % | 51 | % |
(a) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. |
(b) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
(c) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. |
(d) | 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.
16
AZL Emerging Markets Equity Index Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Emerging Markets Equity Index Fund (formerly, AZL Schroder Emerging Markets Equity Fund) (the “Fund”), and 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding or similar taxes imposed by such countries. The Fund may be subject to foreign taxes on gains in investments or currency repatriation. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
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.
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 differing treatment on certain investments) 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
17
AZL Emerging Markets Equity Index Fund
Notes to the Financial Statements
December 31, 2016
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. The average outstanding amount of securities on loan was $5 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $872 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Statement of Operations.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and sub-adviser. Any such purchase or sale transaction must be effected without a brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security’s last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. During the year ended December 31, 2016, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
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 period ended December 31, 2016, 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 $2.4 million as of December 31, 2016. The monthly average notional amount for these contracts was $0.3 million for the period ended December 31, 2016. 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, 2016:
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 | $ | — | Payable for variation margin on futures contracts | $ | 23,874 |
* | For futures contracts, the amounts represent the cumulative appreciation/(depreciation) of these futures contracts as reported in the Schedule of Portfolio Investments. Only the current day’s variation margin is reported within the Statement of Assets and Liabilities as Variation margin on futures contracts. |
18
AZL Emerging Markets Equity Index Fund
Notes to the Financial Statements
December 31, 2016
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, 2016:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives Recognized | Change in Unrealized Appreciation/Depreciation on Derivatives Recognized | |||||||
Equity Risk Exposure | ||||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/Change in unrealized appreciation/depreciation on investments | $ | 251,300 | $ | (23,874 | ) |
3. Fees and Transactions with Affiliates and Other Parties
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”), BlackRock 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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit** | |||||||||
AZL Emerging Markets Equity Index Fund Class 1 | 0.85 | % | 0.85 | % | ||||||
AZL Emerging Markets Equity Index Fund Class 2 | 0.85 | % | 1.10 | % |
* | From January 1, 2016 through October 13, 2016, The Manager retained Schroder Investment Management North America Inc. as subadviser and the annual rate due to the Manager was 1.23% of average daily net assets. Effective October 14, 2016, the Manager retained BlackRock as subadviser and the annual rate due to the Manager decreased to 0.85% of average daily net assets and voluntarily reduced the management fee to 0.45% on all assets. The Manager reserves the right to increase the management fee to the amount shown in the table at any time. |
** | Limit in effect as of October 14, 2016. Prior to that date, the annual expense limit was 1.40% and 1.65% for Class 1 and Class 2, respectively. |
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, 2016, there were no remaining contractual reimbursements that are subject to repayments 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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the average daily net assets attributable to Class 2 shares, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $2,210 was paid from the Fund relating to these fees and expenses.
19
AZL Emerging Markets Equity Index Fund
Notes to the Financial Statements
December 31, 2016
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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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 (the “Board” or “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.
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, 2016, 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, 2016 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks | |||||||||||||||
Aerospace & Defense | $ | 226,731 | $ | 415,272 | $ | 642,003 | |||||||||
Airlines | 175,114 | 418,087 | 593,201 | ||||||||||||
Banks | 9,779,352 | 33,407,726 | 43,187,078 | ||||||||||||
Beverages | 3,078,104 | 613,255 | 3,691,359 | ||||||||||||
Capital Markets | 788,411 | 2,886,123 | 3,674,534 | ||||||||||||
Chemicals | 358,987 | 6,245,520 | 6,604,507 | ||||||||||||
Construction Materials | 1,003,181 | 2,028,210 | 3,031,391 | ||||||||||||
Consumer Finance | 109,569 | 423,623 | 533,192 | ||||||||||||
Containers & Packaging | 209,163 | — | 209,163 | ||||||||||||
Diversified Consumer Services | 963,813 | — | 963,813 | ||||||||||||
Diversified Financial Services | 367,232 | 3,468,681 | 3,835,913 | ||||||||||||
Diversified Telecommunication Services | 420,042 | 4,753,882 | 5,173,924 | ||||||||||||
Electric Utilities | 1,412,779 | 1,964,083 | 3,376,862 | ||||||||||||
Equity Real Estate Investment Trusts | 272,592 | 1,150,155 | 1,422,747 | ||||||||||||
Food & Staples Retailing | 1,250,503 | 3,705,824 | 4,956,327 | ||||||||||||
Food Products | 1,340,281 | 3,801,211 | 5,141,492 | ||||||||||||
Gas Utilities | 145,070 | 1,139,781 | 1,284,851 | ||||||||||||
Health Care Providers & Services | 161,207 | 1,447,626 | 1,608,833 | ||||||||||||
Hotels, Restaurants & Leisure | 762,152 | 1,216,574 | 1,978,726 | ||||||||||||
Household Products | 190,239 | 808,310 | 998,549 |
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AZL Emerging Markets Equity Index Fund
Notes to the Financial Statements
December 31, 2016
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Independent Power & Renewable Electricity Producers | $ | 395,633 | $ | 1,605,678 | $ | 2,001,311 | |||||||||
Industrial Conglomerates | 399,466 | 4,865,151 | 5,264,617 | ||||||||||||
Insurance | 861,514 | 8,523,012 | 9,384,526 | ||||||||||||
Internet & Direct Marketing Retail | 2,508,618 | — | 2,508,618 | ||||||||||||
Internet Software & Services | 11,375,613 | 10,662,706 | 22,038,319 | ||||||||||||
IT Services | 577,115 | 4,227,359 | 4,804,474 | ||||||||||||
Life Sciences Tools & Services | 111,412 | 63,507 | 174,919 | ||||||||||||
Machinery | 186,770 | 1,527,680 | 1,714,450 | ||||||||||||
Media | 744,739 | 5,058,422 | 5,803,161 | ||||||||||||
Metals & Mining | 2,994,528 | 5,301,463 | 8,295,991 | ||||||||||||
Multiline Retail | 766,583 | 911,563 | 1,678,146 | ||||||||||||
Oil, Gas & Consumable Fuels | 3,400,215 | 17,200,471 | 20,600,686 | ||||||||||||
Paper & Forest Products | 512,782 | 513,283 | 1,026,065 | ||||||||||||
Personal Products | 84,206 | 2,203,645 | 2,287,851 | ||||||||||||
Pharmaceuticals | 193,573 | 3,837,595 | 4,031,168 | ||||||||||||
Real Estate Management & Development | 530,238 | 4,905,528 | 5,435,766 | ||||||||||||
Road & Rail | 220,646 | 205,488 | 426,134 | ||||||||||||
Transportation Infrastructure | 916,904 | 1,753,674 | 2,670,578 | ||||||||||||
Water Utilities | 304,043 | 430,163 | 734,206 | ||||||||||||
Wireless Telecommunication Services | 2,032,413 | 8,370,255 | 10,402,668 | ||||||||||||
All Other Common Stocks+ | — | 56,766,334 | 56,766,334 | ||||||||||||
Preferred Stocks | |||||||||||||||
Automobiles | — | 218,149 | 218,149 | ||||||||||||
Technology Hardware, Storage & Peripherals | — | 1,392,496 | 1,392,496 | ||||||||||||
All Other Preferred Stocks+ | 2,900,040 | — | 2,900,040 | ||||||||||||
Right | — | 3,872 | 3,872 | ||||||||||||
Unaffiliated Investment Company | 959,772 | — | 959,772 | ||||||||||||
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| ||||||||||
Total Investment Securities | 55,991,345 | 210,441,437 | 266,432,782 | ||||||||||||
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Other Financial Instruments:* | |||||||||||||||
Futures Contracts | (23,874 | ) | — | (23,874 | ) | ||||||||||
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Total Investments | $ | 55,967,471 | $ | 210,441,437 | $ | 266,408,908 | |||||||||
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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, 2016, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL Emerging Markets Equity Index Fund | $ | 301,470,163 | $ | 239,678,934 |
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 policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
21
AZL Emerging Markets Equity Index Fund
Notes to the Financial Statements
December 31, 2016
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 of securities for federal income tax purposes at December 31, 2016 is $256,642,124. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 24,953,233 | ||
Unrealized (depreciation) | (15,162,575 | ) | ||
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| |||
Net unrealized appreciation/(depreciation) | $ | 9,790,658 | ||
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Capital loss carry forwards (“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.
During the year ended December 31, 2016, the Fund utilized $12,197,997 in capital loss carry forwards to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Emerging Markets Equity Index Fund | $ | 1,179,620 | $ | — | $ | 1,179,620 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2015 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Emerging Markets Equity Index Fund | $ | 2,350,473 | $ | 8,691,500 | $ | 11,041,973 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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 Depreciation(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Emerging Markets Equity Index Fund | $ | 1,437,406 | $ | 8,471,785 | $ | — | $ | 9,560,353 | $ | 19,469,544 |
(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. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies — Form N-PORT and Form N-CEN — also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
9. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
22
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 Emerging Markets Equity Index Fund (formerly, 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, 2016, 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, 2016, 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 AZL Emerging Markets Equity Index Fund as of December 31, 2016, 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 24, 2017
23
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2016, 4.66% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deductions available to corporate shareholders.
24
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.
25
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL® Emerging Markets Equity Index Fund
(formerly AZL Schroder Emerging Markets Equity Fund)
Approval of New Subadvisory Agreement — June 14, 2016 (Unaudited)
At an in-person meeting of the Board of Trustees (the “Board” or the “Trustees” of Allianz Variable Insurance Products Trust (the “Trust”)) held on June 14, 2016, the Board considered a recommendation by Allianz Investment Management LLC (the “Manager”), the investment manager to the AZL Schroder Emerging Markets Equity Fund (the “Fund”), to (a) approve a subadvisory agreement (the “BlackRock Agreement”) between the Manager and BlackRock Investment Management Inc. (“BlackRock”), pursuant to which BlackRock would replace Schroder Investment Management North America Inc. (“Schroder”) as subadviser to the Fund, and (b) change the name of the Fund to “AZL Emerging Markets Equity Index Fund.” At the June 14 meeting, the Board voted unanimously to approve the BlackRock Agreement, which became effective as to the Fund on October 14, 2016. At the meeting, the Board reviewed materials furnished by the Manager pertaining to BlackRock and the BlackRock Agreement.
Board Consideration of the BlackRock Agreement
At the in-person meeting held on June 14, 2016, the Board considered the Manager’s recommendation that BlackRock replace Schroder as the Fund’s subadviser. At the meeting, the Board reviewed materials furnished by the Manager pertaining to BlackRock and the BlackRock Agreement and unanimously approved the BlackRock Agreement, which became effective as to the Fund October 14, 2016.
The Manager, as investment manager of all of the outstanding series of the Trust, is charged with researching and recommending subadvisers for the subadvised funds of the Trust, including the Fund. The Manager has adopted policies and procedures to assist it in analyzing each subadviser with expertise in a particular asset class for purposes of making the recommendation that a specific subadviser be selected. The Board reviews and considers the information provided by the Manager in deciding which investment advisers to approve. After an investment adviser becomes a subadviser, a similarly rigorous process is instituted by the Manager to monitor and evaluate the investment performance and other responsibilities of the subadviser. As part of its ongoing obligation to monitor and evaluate the performance of the Fund’s subadviser, the Manager reviewed and evaluated Schroder’s management of the Fund, with a focus on the Fund’s investment performance in relation to its benchmark.
The Board, including a majority of the independent Trustees, with the assistance of independent counsel to the independent Trustees, considered whether to approve the BlackRock Agreement for the Fund in light of its experience in governing the Trust and working with the Manager and the subadvisers on matters relating to the mutual funds that are outstanding series of the Trust. The independent Trustees are those Trustees who are not “interested persons” of the Trust within the meaning of the 1940 Act, and are not employees of or affiliated with the Fund, the Manager, Schroder or BlackRock. At least annually, the Board receives from experienced counsel who are independent of the Manager a memorandum discussing the legal standards for the Board’s consideration of proposed investment advisory or subadvisory agreements. In its deliberations, the Board considered all factors that the Trustees believed were relevant. The Board based its decision to approve the BlackRock Agreement on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. The Board approved the termination of the Schroder Agreement and determined that the BlackRock Agreement was reasonable and in the best interests of the Fund, and approved BlackRock as the Fund’s new subadviser. The Board’s decision to approve the BlackRock Agreement reflects the exercise of its business judgment on whether to approve new arrangements and continue existing arrangements. In reaching this decision, 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.
A rule adopted by the SEC under the 1940 Act requires a discussion of certain factors relating to the selection of investment managers and subadvisers and the approval of advisory and subadvisory fees. The factors enumerated by the SEC in the rule are set forth below in italics followed by the Board’s conclusions regarding each factor.
(1) The nature, extent, and quality of services provided by the Subadviser. In deciding to approve BlackRock, the Board considered the reputation, financial strength and resources of BlackRock, and the experience and reputation of its portfolio management team to be involved with the Fund. The Board also considered BlackRock’s investment philosophy and process, particularly in the area of equity index funds. The Board determined that, based upon the Manager’s report, the proposed change to BlackRock as the subadviser likely would benefit the Fund and its shareholders.
In reviewing various other matters, the Board concluded that BlackRock was a recognized firm capable of competently managing the Fund; that the nature, extent and quality of services that BlackRock could provide were at a level at least equal to the services provided by Schroder; that the services contemplated by the BlackRock Agreement are substantially the same as those provided under the Schroder Agreement; that the BlackRock Agreement contains provisions generally comparable to those of other subadvisory agreements for other mutual funds; that BlackRock is staffed with qualified personnel and has significant research capabilities; and that the investment performance of BlackRock in managing a similar fund, as discussed below, is at least satisfactory.
(2) The investment performance of BlackRock. The Board received information about the performance of a BlackRock separate account utilizing the emerging markets equity index strategy. The performance information presented to the Board, which covered the nine years ending December 31, 2015, reflected the Fund’s fee structure, and included performance versus a benchmark (the MSCI Emerging Markets Index) and performance rankings relative to a peer group of comparable emerging markets funds. The Board also received information regarding returns, risk, standard deviation, and tracking error for the five years ending December 31, 2015. The Board noted that the performance of the BlackRock emerging markets equity index strategy was satisfactory and consistent with the Fund’s investment objective to seek to match the performance of the MSCI Emerging Markets Index as closely as possible.
(3) The costs of services to be provided and profits to be realized by BlackRock from its relationship with the Fund. The Board compared the fee schedule in the BlackRock Agreement to the fee schedule in the Schroder Agreement. The BlackRock Agreement provides that for the services provided and the expenses assumed by BlackRock, the Manager (out of its fees received from the Fund under the Management Agreement) will pay BlackRock a fee based on average daily net assets of 0.10% on the first $300 million and 0.08% on all assets over $300 million. The Schroder Agreement provided for subadvisory fees at the rate of 0.60% on all assets. The Board noted that the fee schedule in the BlackRock Agreement is lower than the fee schedule in the Schroder Agreement. The Board noted that the fee schedule in the BlackRock Agreement was the result of arm’s-length negotiation between the Manager and BlackRock. The Manager also reported that the Fund’s total expense ratio (which includes management fees and operating expenses) would be in the 50th percentile in the category of emerging market index funds. The Manager acknowledged that the size of the emerging markets index fund peer group, with only four other funds, was a challenge for comparability. The Board also reviewed information provided by BlackRock regarding its anticipated profitability for acting as subadviser to the Fund. Based upon its review, the Board concluded that the fees proposed to be paid to BlackRock were reasonable.
(4) and (5) The extent to which economies of scale would be realized as the Fund grows, and whether fee levels reflect these economies of scale. The Board noted that the fee schedule in the BlackRock Agreement contains breakpoints that reduce the fee rate on assets above $300 million. The Board also noted that the Fund had approximately $172.2 million in net assets at December 31, 2015. The Board considered the possibility that BlackRock, or the Manager, may realize certain economies of scale as the Fund grows larger. The Board noted that in the fund industry as a whole, as well as among funds similar to the Fund, 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
26
be realized at some level of total assets. Moreover, because different managers have different cost structures and models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Board also noted that the advisory agreements for many funds do not have breakpoints at all.
The Trustees also noted that the fee schedule in the Management Agreement between the Manager and the Fund does not contain breakpoints that would reduce the fee rate as assets increase. However, the Manager has agreed to reduce the fee it collects from the Fund, through at least April 30, 2018, and to “cap” the Fund’s expenses at certain levels, which could have the effect of reducing expenses as does advisory/subadvisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or additional advisory/subadvisory fee breakpoints as the Fund grows larger. The Board receives quarterly reports on the level of Fund assets. The Board reapproved the BlackRock Agreement at a meeting held on October 25, 2016, and expects to consider again whether or not to reapprove the BlackRock Agreement at a meeting to be held prior to December 31, 2017, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the subadvisory fee schedule should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the fee schedule in the BlackRock Agreement was acceptable.
Approval of Investment Advisory and Subadvisory Agreements — October 25, 2016 (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 Fund is 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 Fund is 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 agreement (the “Subadvisory Agreements”) with the Subadviser. 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 Fund, 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 Fund 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 Fund and the companies that service it; and relevant developments in the mutual fund industry and how the Fund and/or Advisory Organizations are responding to them.
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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 Fund. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Fund. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Fund.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers the 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 Fund’s assets and the placement of orders for the purchase and sale of the securities of the Fund. As the Fund is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for the Fund to handle day-to-day management of the Fund’s investment portfolio; 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 Subadviser to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by the Subadviser with the investment policies and restrictions of the Fund, 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 Fund’s portfolio investments and to make available to the Fund’s administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager provides the Trust and the 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 Fund) and executive and other personnel as are necessary for the operation of the Trust and the Fund. 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 Subadviser 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 Subadviser 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 the Fund. 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 the Fund under the Agreements.
(2) The investment performance of the Fund, the Manager and the Subadviser. 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 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 the appropriate benchmark(s), and performance versus peer groups. However, the Board of Trustees also considered the fact that prior October 14, 2016, the Fund was subadvised by a different subadviser (Schroder) and managed pursuant to a different strategy. Accordingly, the investment performance of the Fund and the prior Subadviser prior to October 14, 2016, were not deemed to be pertinent to the Board of Trustee’s assessment of the continuance of the Management Agreement and the BlackRock Agreement for the period following October 14, 2016.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadviser and their affiliates from their relationship with the Fund. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Fund is 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 Fund overall are generally comparable to the average level of fees paid by Fund peer groups. The Board of Trustees received information that the Fund paid “actual” advisory fees in a percentage amount within the 50th percentile for the emerging index 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 Fund 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 Fund, 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 2016 for the Fund was at the 50th percentile.
The Manager has committed to providing the Fund with a high quality of service and working to reduce Fund expenses over time, particularly as the Fund grows larger. The Trustees concluded therefore that the expense ratios of the Fund was not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2013 through June 30, 2016. 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 Fund 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 the Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Fund was not excessive.
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The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of the Subadviser in connection with its relationship with the Fund. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreement with the Subadviser, which is not affiliated with it, was negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. 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 Fund was excessive.
(4) and (5) The extent to which economies of scale would be realized as the Fund grows, and whether fee levels reflect these economies of scale. The Trustees noted that the advisory fee schedule for the Fund does not contain breakpoints that reduce the fee rate on assets above specified levels. 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 the Fund 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 Fund, 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 the Fund as of June 30, 2016 were approximately $192.2 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 Fund grows 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, 2017, 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 the Fund’s advisory fee rate schedule was acceptable under the Fund’s circumstances.
29
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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 5701 Golden Hills Drive | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 5701 Golden Hills Drive | 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 5701 Golden Hills Drive | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
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Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® Enhanced Bond Index Fund
Annual Report
December 31, 2016
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 24
Statement of Operations
Page 24
Statements of Changes in Net Assets
Page 25
Financial Highlights
Page 26
Notes to the Financial Statements
Page 27
Report of Independent Registered Public Accounting Firm
Page 34
Other Federal Income Tax Information
Page 35
Other Information
Page 36
Approval of Investment Advisory and Subadvisory Agreements
Page 37
Information about the Board of Trustees and Officers
Page 40
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, 2016?
For the year ended December 31, 2016, the AZL® Enhanced Bond Index Fund (the “Fund”) had a total return of 2.28%. That compared to a 2.65% total return for its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index1.
Investor concerns about the health of the global economy, slowing growth in China and falling oil prices pushed down asset prices and drove up volatility early in 2016. Credit spreads (the difference in yield between U.S. Treasuries and other bonds) widened in this environment. However, a rebound in the price of oil in mid-February helped settle the markets, narrowing credit spreads and pushing volatility to its lowest level since August 2015.
The U.K.’s June vote to exit the European Union surprised investors and triggered a sharp spike in volatility. Global equity indexes fell sharply and bond markets rallied strongly as investors sought the relative safety of fixed-income securities. Equity markets recovered quickly, but bond rates remained low for several weeks.
For much of the period, investors flocked to U.S. investment-grade bonds in search of yield amid historically low interest rates. This drove up bond prices and squeezed credit spreads. On an absolute basis, investment-grade corporate bonds were the largest contributor to the Fund’s modest gain for the 12-month period under review. Agency mortgage-backed securities also contributed positively to absolute performance.*
Late in the year, the surprise victory of President Trump in the November elections spurred a renewed focus on economic growth, which drove up inflation expectations and pushed the yield on 10-year U.S. Treasuries up more than 80 basis points (0.80%) in the fourth quarter
In relative terms, the Fund’s underweight exposure to credit, which includes corporate investment-grade bonds, dragged on returns. We were concerned about increasing leverage alongside tight valuations among corporate bonds. The Fund’s relatively short duration position dragged on relative results early in the year as interest rates rallied on
concerns of slowing global growth and a snap devaluation in the Chinese Renminbi. A shift toward longer duration later in the year also detracted as the portfolio was a bit too quick to change positioning following the sell-off in late November. The Fund’s lower-than-benchmark exposure to emerging markets debt also weighed on relative results as such bonds experienced a strong year overall and a particularly strong third quarter.*
The Fund’s overweight positions and security selection within commercial mortgage-backed securities (CMBS) and asset-backed securities (ABS) added to relative results. In particular, the Fund benefited from its exposure to the single asset/single borrower market among CMBS and private student loans in the ABS market. Late in the year, we positioned the Fund with a bias toward a steeper yield curve in anticipation of higher inflation, that strategy benefited relative performance as the Republican sweep in the U.S. elections accelerated inflation expectations.*
During the period under review the Fund held derivatives in the form of foreign currency forward contracts to hedge the portfolio’s currency exposure to non-dollar bonds. The portfolio also held Treasury futures. With the strengthening U.S. dollar, the derivative positions benefited the portfolio, allowing the management team to hedge currency risk from non-dollar bonds and manage duration and curve risk. The Fund’s holdings of interest rate swaps, used to hedge its cash position, had 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, 2016. |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
1
AZL® Enhanced Bond Index Fund Review (unaudited)
Fund Objective
The Fund’s investment objective is to exceed the total return of the Bloomberg 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. | ||
Emerging market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries. | ||
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. | ||
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. | ||
Debt securities held by the Fund may decline in value due to rising interest rates. Interest rates in the U.S. are at, or near, historic lows, which may increase the Fund’s exposure to risks related to rising rates. | ||
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, 2016 | ||||||||
1 Year | 3 Year | 5 Year | Since | |||||
AZL® Enhanced Bond Index Fund | 2.28% | 2.60% | 1.92% | 3.04% | ||||
Bloomberg Barclays U.S. Aggregate Bond Index | 2.65% | 3.03% | 2.23% | 3.77% |
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® Enhanced Bond Index Fund | 0.66 | % |
The above expense ratio is based on the current Fund prospectus dated April 25, 2016, as supplemented October 14, 2016. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 0.70% through April 30, 2018. Additional information pertaining to the December 31, 2016 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 Bloomberg 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Enhanced Bond Index Fund | $ | 1,000.00 | $ | 974.00 | $ | 3.32 | 0.67 | % |
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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Enhanced Bond Index Fund | $ | 1,000.00 | $ | 1,021.77 | $ | 3.40 | 0.67 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
U.S. Treasury Obligations | 35.1 | % | |||
U.S. Government Agency Mortgages | 29.6 | ||||
Corporate Bonds | 18.6 | ||||
Securities Held as Collateral for Securities on Loan | 17.7 | ||||
Certificates of Deposit | 8.2 | ||||
Asset Backed Securities | 6.0 | ||||
Yankee Dollars | 4.2 | ||||
Collateralized Mortgage Obligations | 4.1 | ||||
Money Markets | 1.1 | ||||
Commercial Paper | 1.3 | ||||
Municipal Bonds | 0.4 | ||||
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| ||||
Total Investment Securities | 126.3 | ||||
Net other assets (liabilities) | (26.3 | ) | |||
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Net Assets | 100.0 | % | |||
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3
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
Asset Backed Securities (6.0%): | ||||||||
$ | 2,543,052 | American Homes 4 Rent LLC, Class A, Series 2014-SFR3, 3.68%, 12/17/36 | $ | 2,599,967 | ||||
6,000,000 | AmeriCredit Automoblie Receivables Trust, Class A3, Series 16-3, 1.46%, 5/10/21, Callable 1/8/21 @ 100 | 5,969,922 | ||||||
2,330,000 | AmeriCredit Automoblie Receivables Trust, Class A3, Series 16-4, 1.53%, 7/8/21, Callable 8/8/21 @ 100 | 2,314,205 | ||||||
1,200,000 | Anchorage Capital CLO, Ltd., Class A1A, Series 2014-4A, 2.34%, 7/28/26, Callable 1/28/17 @ 100(a) | 1,200,024 | ||||||
1,000,000 | Apidos CLO, Class A1R, Series 15-20A, 2.24%, 12/16/27(a)(b) | 1,000,000 | ||||||
1,885,000 | Arbor Realty Collateralized Loan, Class A, Series 15-FL2A, 2.45%, 9/15/25, Callable 3/15/18 @ 100(a) | 1,861,984 | ||||||
5,350,000 | Banc of America Merrill Lynch Large Loan, Class A, Series 2015-ASHF, 1.92%, 1/15/28(a) | 5,358,574 | ||||||
6,187,000 | Benefit Street Partners CLO, Ltd., Class A1R, Series 2014-IVA, 2.44%, 1/20/29, Callable 1/20/19 @ 100(a)(b) | 6,187,000 | ||||||
580,000 | Cedar Funding, Ltd., Class A1, Series 14-3A, 2.44%, 5/20/26(a) | 581,422 | ||||||
1,000,000 | Cent CLO, LP, Class A1R, Series 14-22A, 2.30%, 11/7/26(a)(b) | 1,000,000 | ||||||
2,000,000 | Chase Issuance Trust, Class A5, Series 2016-A5, 1.27%, 7/15/21 | 1,973,330 | ||||||
1,270,000 | Chrysler Capital Auto Receivables Trust, Class B, Series 2013-BA, 1.78%, 6/17/19, Callable 1/15/18 @ 100 | 1,273,692 | ||||||
3,000,000 | CIFC Funding, Ltd., Class A1R, Series 15-1A, 2.31%, 1/22/27(a)(b) | 3,000,000 | ||||||
2,210,000 | Citibank Credit Card Issuance Trust, Class A1, Series 2014-A1, 2.88%, 1/23/23 | 2,267,020 | ||||||
2,165,000 | Credit Acceptance Auto Loan Trust, Class A, Series 15-2A, 2.40%, 2/15/23, Callable 12/15/18 @ 100(a) | 2,172,467 | ||||||
471,782 | Credit Acceptance Auto Loan Trust, Class A, Series 2014-1A, 1.55%, 10/15/21 | 471,761 | ||||||
2,239,426 | Credit Acceptance Auto Loan Trust, Class A, Series 2014-2A, 1.88%, 3/15/22, Callable 10/15/17 @ 100 | 2,242,548 | ||||||
1,495,000 | Ford Credit Floorplan Master Owner Trust, Class A, Series 2014-2, 1.20%, 2/15/21(a) | 1,497,270 | ||||||
1,855,000 | Golden Credit Card Trust, Class A, Series 2015-2A, 2.02%, 4/15/22 | 1,842,761 | ||||||
2,190,000 | GoldenTree Loan Opportunities VII, Ltd., Class A, Series 2013-7A, 2.03%, 4/25/25(a) | 2,188,316 | ||||||
1,064,271 | Navient Student Loan Trust, Class A, Series 14-CTA, 1.40%, 9/16/24(a) | 1,064,002 | ||||||
1,505,000 | Navient Student Loan Trust, Class A2A, Series 2016-AA, 3.91%, 12/15/45 | 1,562,253 | ||||||
2,140,000 | Nextgear Floorplan Master Owner Trust, Class A, Series 2014-1A, 1.92%, 10/15/19 | 2,139,997 | ||||||
2,205,000 | Nomad CLO, Ltd., Class A1, Series 2013-1A, 2.08%, 1/15/25, Callable 1/15/17 @ 100(a) | 2,204,169 |
Principal Amount | Fair Value | |||||||
Asset Backed Securities, continued | ||||||||
$ | 1,400,000 | Ocp CLO, Ltd., Class A1R, Series 2012-2A, 2.28%, 11/22/25, Callable 11/22/18 @ 100(a)(b) | $ | 1,400,000 | ||||
1,500,000 | Ocp CLO, Ltd., Class A1, Series 2015-8A, 2.41%, 4/17/27, Callable 4/17/17 @ 100(a) | 1,500,659 | ||||||
1,806,797 | OneMain Financial Issuance Trust, Class A, Series 2014-2A, 2.47%, 9/18/24, Callable 1/18/17 @ 101 | 1,807,542 | ||||||
1,875,000 | OneMain Financial Issuance Trust, Class A, Series 2015-1A, 3.19%, 3/18/26, Callable 1/18/18 @ 101 | 1,888,307 | ||||||
1,250,000 | Ozlm, Ltd., Class A1B, Series 14-7A, 2.37%, 7/17/26, Callable 1/17/17 @ 100(a) | 1,250,036 | ||||||
2,425,000 | PFS Financing Corp., Class 4, Series 16-A, 1.90%, 2/18/20(a) | 2,440,326 | ||||||
480,000 | PFS Financing Corp., Class A, Series 2016-BA, 1.87%, 10/15/21 | 475,200 | ||||||
2,300,000 | Prestige Auto Receivables Trust, Class C, Series 2014-1A, 2.39%, 5/15/20, Callable 8/15/18 @ 100 | 2,302,873 | ||||||
2,054,762 | Progress Residential Trust, Class A, Series 2015-SFR2, 2.74%, 6/12/32 | 2,041,055 | ||||||
1,700,000 | Santander Drive Auto Receivable, Class A3, Series 16-3, 1.50%, 8/17/20, Callable 6/15/21 @ 100 | 1,692,479 | ||||||
1,790,000 | Santander Drive Auto Receivable, Class C, Series 16-1, 3.09%, 4/15/22, Callable 10/15/19 @ 100(a) | 1,817,144 | ||||||
1,156,098 | Santander Drive Auto Receivables Trust, Class C, Series 2013-4, 3.25%, 1/15/20, Callable 1/15/18 @ 100 | 1,163,618 | ||||||
2,280,000 | Santander Drive Auto Receivables Trust, Class A3, Series 15-4, 1.58%, 9/16/19, Callable 6/15/19 @ 100(a) | 2,282,200 | ||||||
35,358 | SLM Student Loan Trust, Class A2, Series 2004-B, 1.16%, 6/15/21(a) | 35,305 | ||||||
815,956 | SLM Student Loan Trust, Class A4, Series 2006-A, 1.15%, 12/15/23(a) | 809,552 | ||||||
60,187 | SLM Student Loan Trust, Class A1, Series 2012-A, 2.10%, 8/15/25, Callable 5/15/20 @ 100(a) | 60,256 | ||||||
245,661 | SLM Student Loan Trust, Class A2, Series 2012-C, 3.31%, 10/15/46 | 248,976 | ||||||
5,800,000 | SMB Private Education Loan Trust, Class A2A, Series 15-B, 2.98%, 7/15/27 | 5,865,068 | ||||||
250,000 | SMB Private Education Loan Trust, Class A2A, Series 16-A, 2.70%, 5/15/31(a) | 248,202 | ||||||
3,190,000 | SMB Private Education Loan Trust, Class A2A, Series 2016-C, 2.34%, 9/15/34 | 3,136,908 | ||||||
3,733,900 | Social Professional Loan Program, Class A2, Series 2015-D, 2.72%, 10/27/36 | 3,739,769 | ||||||
1,440,597 | Social Professional Loan Program LLC, Class A2, Series 2015-C, 2.51%, 8/25/33 | 1,439,051 | ||||||
3,140,000 | Social Professional Loan Programe, Class A2B, Series 16-E, 2.49%, 1/25/36 | 3,115,285 | ||||||
1,000,000 | Sound Point CLO, Ltd., Class A1, Series 2014-2A, 2.24%, 10/20/26, Callable 1/20/17 @ 100(a) | 998,365 |
Continued
4
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
Asset Backed Securities, continued | ||||||||
$ | 2,190,000 | Springleaf Funding Trust, Class A, Series 2015-AA, 3.16%, 11/15/24, Callable 2/15/18 @ 100 | $ | 2,207,301 | ||||
2,093,507 | Sway Residential Trust, Class A, Series 2014-1, 2.04%, 1/17/32(a) | 2,094,865 | ||||||
2,435,000 | Synchrony Credit Card Master Note Trust, Class A, Series 2012-7, 1.76%, 9/15/22 | 2,417,569 | ||||||
3,970,000 | Synchrony Credit Card Master Note Trust, Class A, Series 2015-1, 2.37%, 3/15/23 | 4,005,803 | ||||||
2,270,000 | Synchrony Credit Card Master Note Trust, Class A, Series 2016-2, 2.21%, 5/15/24 | 2,257,677 | ||||||
2,250,000 | Treman Park CLO, Ltd., Class AR, Series 2015-1A, 2.25%, 4/20/27, Callable 1/20/17 @ 100(a)(b) | 2,259,376 | ||||||
6,000,000 | World Financial Network Credit Card Master Trust, Class A, Series 2012-A, 3.14%, 1/17/23 | 6,163,041 | ||||||
2,395,000 | World Financial Network Credit Card Master Trust, Class A, Series 2015-B, 2.55%, 6/17/24 | 2,422,144 | ||||||
2,000,000 | World Financial Network Credit Card Master Trust, Class A, Series 2016-C, 1.72%, 8/15/23 | 1,983,166 | ||||||
|
| |||||||
Total Asset Backed Securities (Cost $121,709,003) | 121,541,802 | |||||||
|
| |||||||
Collateralized Mortgage Obligations (4.1%): | ||||||||
197,067 | Banc of America Commercial Mortgage, Inc., Class A1A, Series 2007-3, 5.73%, 6/10/49(a) | 198,466 | ||||||
27,926 | Banc of America Large Loan, Class A4B, Series 2010-UB4, 5.11%, 12/20/41(a)(b) | 27,926 | ||||||
2,542,750 | Barclays Commercial Mortgage Securities, Class A, Series 2015-SLP, 1.81%, 2/15/28(a) | 2,538,098 | ||||||
1,712,251 | Bear Stearns Commercial Mortgage Securities, Inc., Class A1A, Series 2007-PW15, 5.32%, 2/11/44 | 1,714,302 | ||||||
625,000 | Bear Stearns Commercial Mortgage Securities, Inc., Class AM, Series 2007-PW16, 5.90%, 6/11/40(a) | 633,179 | ||||||
2,540,000 | BHMS Mortgage Trust, Class AFL, Series 2014-ATLS, 2.13%, 7/5/33(a) | 2,542,384 | ||||||
6,000,000 | CGGS Commercial Mortgage Trust, Class AFX, Series 2016-RNDA, 2.76%, 2/10/33 | 6,038,315 | ||||||
21,055,564 | Citigroup Commercial Mortgage Trust, Class XA, Series 2015-P1, 0.94%, 9/15/48(a) | 1,064,969 | ||||||
667,000 | Commercial Mortgage Loan Trust, Class A5, Series 2015-CR24, 3.70%, 8/10/48 | 692,375 | ||||||
1,279,058 | Commercial Mortgage Loan Trust, Class AM, Series 2013-CR7, 3.31%, 3/10/46 | 1,285,983 | ||||||
1,854,322 | Commercial Mortgage Loan Trust, Class A1A, Series 2008-LS1, 6.30%, 12/10/49(a) | 1,900,864 | ||||||
45,392 | Commercial Mortgage Pass-Through Certificates, Class AM, Series 2006-C8, 5.35%, 12/10/46 | 45,354 | ||||||
26,607,292 | Commercial Mortgage Trust, Class XA, Series 2015-CCRE23, 1.14%, 5/10/48(a) | 1,425,214 | ||||||
1,510,000 | Commercial Mortgage Trust, Class C, Series 2014-CR17, 4.90%, 5/10/47(a) | 1,552,192 | ||||||
8,970,000 | Commercial Mortgage Trust, Class A, Series 2014-TWC, 1.53%, 2/13/32(a) | 8,970,000 | ||||||
2,500,000 | Core Industrial Trust, Class A, Series 2015-WEST, 3.29%, 2/10/37 | 2,503,952 | ||||||
3,640,000 | Core Industrial Trust, Class A, Series 2015-CALW, 3.04%, 2/10/34 | 3,713,897 |
Principal Amount | Fair Value | |||||||
Collateralized Mortgage Obligations, continued | ||||||||
$ | 8,500,000 | Cosmopolitian Hotel Trust, Class A, Series 2016-CSMO, 2.10%, 11/15/33(a) | $ | 8,542,608 | ||||
1,965,000 | Credit Suisse Mortgage Trust, Class A4, Series 2016-NXCR, 3.73%, 12/15/49 | 2,020,632 | ||||||
1,590,000 | Credit Suisse Mortgage Trust, Class A, Series 2016-MFF, 2.03%, 11/15/33 | 1,592,352 | ||||||
113,830 | DBRR Trust, Class A, Series 2013-EZ3, 1.64%, 12/18/49(a) | 113,723 | ||||||
640,000 | Gahr Commercial Mortgage Trust, Class AFX, Series 2015-NRF, 3.23%, 12/15/34 | 656,214 | ||||||
3,562,054 | GAHR Commercial Mortgage Trust, Class AFL1, Series 2015-NRF, 2.00%, 12/15/34(a) | 3,567,583 | ||||||
4,407,266 | GS Mortgage Securities Trust, Class XA, Series 2013-GC10, 1.74%, 2/10/46(a) | 319,125 | ||||||
1,100,000 | GS Mortgage Securities Trust, Class A, Series 2012-SHOP, 2.93%, 6/5/31 | 1,115,434 | ||||||
955,000 | JPMorgan Chase Commercial Mortgage, Class A, Series 2016-NINE, 2.95%, 10/6/38(a) | 925,487 | ||||||
581,597 | JPMorgan Chase Commercial Mortgage Securities Corp., Class A, Series 2012-WLDN, 3.91%, 5/5/30 | 604,264 | ||||||
1,180,000 | Latitude Management Real Estate Capital, Class A, Series 2016-CRE2, 2.29%, 11/24/31(a)(b) | 1,180,000 | ||||||
1,200,000 | LB Commercial Conduit Mortgage Trust, Class AM, Series 2007-C3, 5.92%, 7/15/44(a) | 1,216,683 | ||||||
1,379,920 | Merrill Lynch Mortgage Trust, Class A1A, Series 2007-C1, 5.83%, 6/12/50(a) | 1,392,738 | ||||||
1,300,000 | Morgan Stanley Baml Trust, Class A3, Series 2015-C24, 3.48%, 5/15/48 | 1,328,515 | ||||||
1,540,000 | Morgan Stanley Capital I Trust, Class A4, Series 2016-BNK2, 3.05%, 11/15/49 | 1,519,948 | ||||||
393,542 | Morgan Stanley Capital I Trust, Class A1A, Series 2007-IQ13, 5.31%, 3/15/44 | 394,025 | ||||||
1,740,000 | Morgan Stanley Capital I Trust, Class A, Series 2014-MP, 3.47%, 8/11/29 | 1,803,449 | ||||||
121,099 | Morgan Stanley Re-REMIC Trust, Class A, Series 2012-XA, 2.00%, 7/27/49 | 120,406 | ||||||
282,328 | RBSCF Trust, Class WBTA, Series 2010-RR3, 6.17%, 2/16/51(a) | 281,896 | ||||||
1,220,000 | SFAVE Commercial Mortgage Securities Trust, Class A2A, Series 2015-5AVE, 3.66%, 1/5/43(a) | 1,174,087 | ||||||
125,000 | SG Commercial Mortgage Securities Trust, Class A4, Series 2016-C5, 3.06%, 10/10/48 | 121,286 | ||||||
1,315,000 | Smb Private Education Loan Trust, Class A2B, Series 14-A, 1.85%, 5/15/26(a) | 1,324,204 | ||||||
336,000 | Smb Private Education Loan Trust, Class A2A, Series 16-B, 2.43%, 2/17/32(a) | 328,758 | ||||||
120,000 | Social Professional Loan Program, Class A2B, Series 16-D, 2.34%, 4/25/33 | 117,547 | ||||||
15,888 | STRIPS, Class A, Series 2012-1A, 1.50%, 12/25/44(b) | 15,888 | ||||||
1,460,000 | Vno Mortgage Trust, Class A, Series 2013-PENN, 3.81%, 12/13/29 | 1,532,487 | ||||||
170,000 | Waldorf Astoria Boca Raton Trust, Class A, Series 2016-BOCA, 2.05%, 6/15/29(a) | 170,611 | ||||||
5,100,000 | Wells Fargo Commercial Mortgage Trust, Class A4, Series 2015-C28, 3.54%, 5/15/48 | 5,237,847 | ||||||
1,635,000 | Wells Fargo Commercial Mortgage Trust, Class A4, Series 2015-NXS4, 3.72%, 12/15/48 | 1,693,810 |
Continued
5
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
Collateralized Mortgage Obligations, continued | ||||||||
$ | 43,700,000 | Wells Fargo Commercial Mortgage Trust, Class XA, Series 2016-LC25, 1.10%, 12/15/59(a) | $ | 2,993,017 | ||||
17,879,891 | WF-RBS Commercial Mortgage Trust, Class XA, Series 2014-C20, 1.34%, 5/15/47(a) | 986,831 | ||||||
2,020,000 | World Financial Network Credit Card Master Trust, Class A, Series 2016-A, 2.03%, 4/15/25 | 1,978,430 | ||||||
|
| |||||||
| Total Collateralized Mortgage Obligations | 83,217,355 | ||||||
|
| |||||||
Corporate Bonds (18.6%): | ||||||||
Aerospace & Defense (0.4%): | ||||||||
580,000 | Aviation Capital Group Corp., 2.88%, 9/17/18, Callable 8/17/18 @ 100(c) | 587,250 | ||||||
95,000 | BAE Systems plc, 3.85%, 12/15/25, Callable 9/15/25 @ 100(c) | 96,888 | ||||||
80,000 | Boeing Co. (The), 3.30%, 3/1/35, Callable 9/1/34 @ 100 | 74,862 | ||||||
40,000 | Boeing Co. (The), 3.50%, 3/1/45, Callable 9/1/44 @ 100 | 37,135 | ||||||
90,000 | General Dynamics Corp., 2.13%, 8/15/26, Callable 5/15/26 @ 100^ | 83,141 | ||||||
25,000 | Lockheed Martin Corp., 3.10%, 1/15/23, Callable 11/15/22 @ 100^ | 25,273 | ||||||
2,075,000 | Lockheed Martin Corp., 3.55%, 1/15/26, Callable 10/15/25 @ 100 | 2,120,052 | ||||||
319,000 | Lockheed Martin Corp., 4.50%, 5/15/36, Callable 11/15/35 @ 100 | 339,154 | ||||||
1,356,000 | Lockheed Martin Corp., 4.70%, 5/15/46, Callable 11/15/45 @ 100 | 1,474,956 | ||||||
1,810,000 | Northrop Grumman Corp., 3.25%, 8/1/23 | 1,845,212 | ||||||
1,154,000 | United Technologies Corp., 1.78%, 5/4/18(a) | 1,154,252 | ||||||
500,000 | United Technologies Corp., 4.50%, 6/1/42 | 535,202 | ||||||
500,000 | United Technologies Corp., 3.75%, 11/1/46, Callable 5/1/46 @ 100^ | 475,844 | ||||||
|
| |||||||
8,849,221 | ||||||||
|
| |||||||
Air Freight & Logistics (0.1%): | ||||||||
500,000 | FedEx Corp., 3.88%, 8/1/42 | 456,346 | ||||||
820,000 | FedEx Corp., 4.55%, 4/1/46, Callable 10/1/45 @ 100 | 826,321 | ||||||
|
| |||||||
1,282,667 | ||||||||
|
| |||||||
Airlines (0.1%): | ||||||||
645,813 | American Airlines 15-1, Series A, 3.38%, 5/1/27 | 636,125 | ||||||
585,808 | American Airlines Pass Through Trust, Class AA, Series 2015-2, 3.60%, 3/22/29 | 582,147 | ||||||
|
| |||||||
1,218,272 | ||||||||
|
| |||||||
Auto Components (0.0%): | ||||||||
50,000 | Delphi Corp., 4.15%, 3/15/24, Callable 12/15/23 @ 100 | 51,536 | ||||||
|
| |||||||
Automobiles (0.1%): | ||||||||
967,000 | BMW US Capital LLC, 1.50%, 4/11/19(c) | 957,824 | ||||||
1,125,000 | Ford Motor Co., 5.29%, 12/8/46, Callable 6/8/46 @ 100 | 1,139,614 | ||||||
|
| |||||||
2,097,438 | ||||||||
|
| |||||||
Banks (3.1%): | ||||||||
403,000 | Bank of America Corp., 2.00%, 1/11/18, MTN | 403,927 | ||||||
1,065,000 | Bank of America Corp., 2.07%, 3/22/18, MTN^(a) | 1,072,169 | ||||||
500,000 | Bank of America Corp., 5.65%, 5/1/18, MTN | 523,881 |
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Banks, continued | ||||||||
$ | 311,000 | Bank of America Corp., 1.95%, 5/12/18, MTN | $ | 311,437 | ||||
747,000 | Bank of America Corp., 2.60%, 1/15/19 | 753,385 | ||||||
766,000 | Bank of America Corp., Series L, 2.25%, 4/21/20, MTN^ | 761,534 | ||||||
6,900,000 | Bank of America Corp., Series G, 2.63%, 4/19/21^ | 6,852,651 | ||||||
890,000 | Bank of America Corp., 2.50%, 10/21/22, Callable 10/21/21 @ 100^ | 860,743 | ||||||
370,000 | Bank of America Corp., 3.30%, 1/11/23, MTN | 371,236 | ||||||
1,095,000 | Bank of America Corp., 4.00%, 4/1/24 | 1,129,316 | ||||||
585,000 | Bank of America Corp., 4.00%, 1/22/25, MTN | 585,735 | ||||||
1,020,000 | Bank of America Corp., Series L, 3.95%, 4/21/25 | 1,015,399 | ||||||
4,336,000 | Bank of America Corp., Series G, 4.45%, 3/3/26 | 4,468,413 | ||||||
1,810,000 | Bank of America Corp., Series G, 3.50%, 4/19/26^ | 1,785,876 | ||||||
284,000 | Branch Banking & Trust, 3.63%, 9/16/25, Callable 8/16/25 @ 100 | 288,743 | ||||||
2,580,000 | Citigroup, Inc., 1.80%, 2/5/18 | 2,578,558 | ||||||
250,000 | Citizens Bank NA/RI, 2.55%, 5/13/21, Callable 4/13/21 @ 100 | 248,465 | ||||||
40,000 | Citizens Financial Group, Inc., 2.38%, 7/28/21, Callable 6/28/21 @ 100^ | 39,226 | ||||||
206,000 | Fifth Third Bank, 2.15%, 8/20/18, Callable 7/20/18 @ 100 | 207,302 | ||||||
1,306,000 | HSBC USA, Inc., 1.70%, 3/5/18 | 1,305,266 | ||||||
1,660,000 | HSBC USA, Inc., 2.35%, 3/5/20 | 1,647,019 | ||||||
2,000,000 | HSBC USA, Inc., 2.75%, 8/7/20 | 2,003,970 | ||||||
1,095,000 | JPMorgan Chase & Co., 2.20%, 10/22/19^ | 1,099,398 | ||||||
20,000 | JPMorgan Chase & Co., 2.75%, 6/23/20, Callable 5/23/20 @ 100 | 20,181 | ||||||
6,900,000 | JPMorgan Chase & Co., 2.30%, 8/15/21, Callable 8/15/20 @ 100 | 6,772,171 | ||||||
125,000 | JPMorgan Chase & Co., 4.50%, 1/24/22 | 134,804 | ||||||
450,000 | JPMorgan Chase & Co., 2.70%, 5/18/23, Callable 3/18/23 @ 100 | 440,275 | ||||||
691,000 | JPMorgan Chase & Co., 3.90%, 7/15/25, Callable 4/15/25 @ 100 | 710,541 | ||||||
630,000 | JPMorgan Chase & Co., 3.20%, 6/15/26, Callable 3/15/26 @ 100^ | 616,614 | ||||||
8,530,000 | JPMorgan Chase & Co., 2.95%, 10/1/26, Callable 7/1/26 @ 100^ | 8,141,782 | ||||||
3,363,000 | JPMorgan Chase & Co., 4.25%, 10/1/27^ | 3,455,240 | ||||||
430,000 | JPMorgan Chase & Co., Series Z, 5.30%, 12/31/49, Callable 5/1/20 @ 100^(a) | 438,841 | ||||||
200,000 | KeyCorp, 2.90%, 9/15/20 | 202,371 | ||||||
142,000 | Merrill Lynch & Co., 6.88%, 4/25/18, MTN | 150,933 | ||||||
460,000 | Santander Holdings USA, Inc., 2.70%, 5/24/19, Callable 4/24/19 @ 100 | 459,650 | ||||||
265,000 | Santander Holdings USA, Inc., 2.65%, 4/17/20, Callable 3/17/20 @ 100 | 262,650 | ||||||
830,000 | Santander Holdings USA, Inc., 4.50%, 7/17/25, Callable 4/17/25 @ 100 | 824,809 | ||||||
300,000 | U.S. BanCorp, Series V, 2.38%, 7/22/26, Callable 6/22/26 @ 100 | 277,730 | ||||||
128,000 | Wachovia Corp., 5.50%, 8/1/35 | 141,728 | ||||||
514,000 | Wells Fargo & Co., Series G, 2.60%, 7/22/20 | 516,971 | ||||||
3,320,000 | Wells Fargo & Co., 2.10%, 7/26/21 | 3,230,543 | ||||||
250,000 | Wells Fargo & Co., 3.00%, 4/22/26 | 238,558 |
Continued
6
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Banks, continued | ||||||||
$ | 965,000 | Wells Fargo & Co., 3.00%, 10/23/26 | $ | 919,063 | ||||
3,105,000 | Wells Fargo & Co., Series G, 4.30%, 7/22/27 | 3,193,722 | ||||||
246,000 | Wells Fargo & Co., 3.90%, 5/1/45^ | 233,333 | ||||||
175,000 | Wells Fargo & Co., Series G, 4.90%, 11/17/45 | 179,746 | ||||||
680,000 | Wells Fargo & Co., 4.40%, 6/14/46, MTN^ | 650,797 | ||||||
1,140,000 | Wells Fargo & Co., 4.75%, 12/7/46 | 1,156,936 | ||||||
480,000 | Wells Fargo & Co., 5.88%, 12/31/49, Callable 6/15/25 @ 100^(a) | 503,952 | ||||||
|
| |||||||
64,187,590 | ||||||||
|
| |||||||
Beverages (0.6%): | ||||||||
1,310,000 | Anheuser-Busch InBev NV, 2.65%, 2/1/21, Callable 1/1/21 @ 100 | 1,317,526 | ||||||
1,461,000 | Anheuser-Busch InBev NV, 3.30%, 2/1/23, Callable 12/1/22 @ 100 | 1,486,906 | ||||||
3,005,000 | Anheuser-Busch InBev NV, 3.65%, 2/1/26, Callable 11/1/25 @ 100 | 3,050,647 | ||||||
1,090,000 | Anheuser-Busch InBev NV, 4.70%, 2/1/36, Callable 8/1/35 @ 100 | 1,146,536 | ||||||
2,230,000 | Anheuser-Busch InBev NV, 4.90%, 2/1/46, Callable 8/1/45 @ 100 | 2,410,341 | ||||||
620,000 | Molson Coors Brewing Co., 3.00%, 7/15/26, Callable 4/15/26 @ 100 | 586,093 | ||||||
90,000 | Molson Coors Brewing Co., 4.20%, 7/15/46, Callable 1/15/46 @ 100 | 83,909 | ||||||
1,200,000 | PepsiCo, Inc., 1.70%, 10/6/21, Callable 9/6/21 @ 100 | 1,165,770 | ||||||
200,000 | PepsiCo, Inc., 2.38%, 10/6/26, Callable 7/6/26 @ 100^ | 189,334 | ||||||
200,000 | PepsiCo, Inc., 3.45%, 10/6/46, Callable 4/6/46 @ 100 | 182,197 | ||||||
|
| |||||||
11,619,259 | ||||||||
|
| |||||||
Biotechnology (0.5%): | ||||||||
120,000 | Abbvie, Inc., 4.70%, 5/14/45, Callable 11/14/44 @ 100 | 117,736 | ||||||
400,000 | Abbvie, Inc., 4.45%, 5/14/46, Callable 11/14/45 @ 100 | 383,011 | ||||||
1,000,000 | AbbVie, Inc., 2.30%, 5/14/21, Callable 4/14/21 @ 100 | 979,785 | ||||||
1,000,000 | AbbVie, Inc., 3.20%, 5/14/26, Callable 2/14/26 @ 100^ | 951,427 | ||||||
130,000 | AbbVie, Inc., 4.30%, 5/14/36, Callable 11/14/35 @ 100 | 123,878 | ||||||
389,000 | AbbVie, Inc., 4.40%, 11/6/42 | 365,951 | ||||||
500,000 | Amgen, Inc., 1.85%, 8/19/21, Callable 7/19/21 @ 100 | 480,808 | ||||||
450,000 | Amgen, Inc., 3.63%, 5/15/22, Callable 2/15/22 @ 100 | 465,029 | ||||||
640,000 | Amgen, Inc., 2.60%, 8/19/26, Callable 5/19/26 @ 100^ | 588,632 | ||||||
350,000 | Amgen, Inc., 4.40%, 5/1/45, Callable 11/1/44 @ 100 | 335,491 | ||||||
254,000 | Amgen, Inc., 4.56%, 6/15/48, Callable 12/15/47 @ 100(c) | 245,683 | ||||||
367,000 | Amgen, Inc., 4.66%, 6/15/51, Callable 12/15/50 @ 100(c) | 352,727 |
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Biotechnology, continued | ||||||||
$ | 220,000 | Baxalta, Inc., 2.88%, 6/23/20, Callable 5/23/20 @ 100 | $ | 219,945 | ||||
319,000 | Baxalta, Inc., 4.00%, 6/23/25, Callable 3/23/25 @ 100 | 319,932 | ||||||
390,000 | Baxalta, Inc., 5.25%, 6/23/45, Callable 12/23/44 @ 100 | 416,292 | ||||||
200,000 | Biogen, Inc., 3.63%, 9/15/22 | 205,293 | ||||||
500,000 | Biogen, Inc., 4.05%, 9/15/25, Callable 6/15/25 @ 100 | 514,782 | ||||||
60,000 | Biogen, Inc., 5.20%, 9/15/45, Callable 3/15/45 @ 100 | 64,209 | ||||||
50,000 | Gilead Sciences, Inc., 2.50%, 9/1/23, Callable 7/1/23 @ 100 | 48,216 | ||||||
800,000 | Gilead Sciences, Inc., 3.65%, 3/1/26, Callable 12/1/25 @ 100^ | 811,150 | ||||||
230,000 | Gilead Sciences, Inc., 4.80%, 4/1/44, Callable 10/1/43 @ 100 | 238,824 | ||||||
204,000 | Gilead Sciences, Inc., 4.75%, 3/1/46, Callable 9/1/45 @ 100 | 211,073 | ||||||
1,290,000 | Gilead Sciences, Inc., 4.15%, 3/1/47, Callable 9/1/46 @ 100^ | 1,225,245 | ||||||
|
| |||||||
9,665,119 | ||||||||
|
| |||||||
Capital Markets (2.1%): | ||||||||
1,475,000 | Bank of New York Mellon Corp. (The), 2.05%, 5/3/21, Callable 4/3/21 @ 100, MTN^ | 1,447,714 | ||||||
205,000 | Bank of New York Mellon Corp. (The), Series G, 3.00%, 2/24/25, Callable 1/24/25 @ 100 | 201,590 | ||||||
135,000 | Bank of New York Mellon Corp. (The), 2.80%, 5/4/26, Callable 2/4/26 @ 100^ | 130,006 | ||||||
185,000 | Bank of New York Mellon Corp. (The), 3.00%, 10/30/28, Callable 7/30/28 @ 100^ | 175,904 | ||||||
1,641,000 | Bank of New York Mellon Corp. (The), Series E, 4.95%, 12/29/49, Callable 6/20/20 @ 100^(a) | 1,649,205 | ||||||
1,780,000 | Bank of New York Mellon Corp. (The), 4.62%, 12/29/49, Callable 9/20/26 @ 100(a) | 1,632,830 | ||||||
1,235,000 | Chalres Schwab Corp., Series E, 4.62%, 12/29/49, Callable 3/1/22 @ 100(a) | 1,160,900 | ||||||
3,040,000 | Deutsche Bank AG London, 1.40%, 2/13/17 | 3,039,024 | ||||||
650,000 | Goldman Sachs Group, Inc., 2.88%, 2/25/21, Callable 1/25/21 @ 100^ | 653,006 | ||||||
3,000,000 | Goldman Sachs Group, Inc., 5.95%, 1/15/27 | 3,419,019 | ||||||
1,135,000 | Goldman Sachs Group, Inc. (The), 2.38%, 1/22/18 | 1,141,748 | ||||||
562,000 | Goldman Sachs Group, Inc. (The), 2.90%, 7/19/18 | 569,761 | ||||||
610,000 | Goldman Sachs Group, Inc. (The), 2.60%, 4/23/20, Callable 3/23/20 @ 100 | 610,639 | ||||||
335,000 | Goldman Sachs Group, Inc. (The), 3.75%, 5/22/25, Callable 2/22/25 @ 100 | 335,871 | ||||||
3,915,000 | Goldman Sachs Group, Inc. (The), 3.75%, 2/25/26, Callable 11/25/25 @ 100 | 3,926,502 | ||||||
360,000 | Goldman Sachs Group, Inc. (The), 4.80%, 7/8/44, Callable 1/8/44 @ 100 | 377,938 | ||||||
150,000 | Goldman Sachs Group, Inc. (The), 4.75%, 10/21/45, Callable 4/21/45 @ 100 | 158,346 |
Continued
7
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Capital Markets, continued | ||||||||
$ | 706,000 | Morgan Stanley, 1.88%, 1/5/18 | $ | 707,052 | ||||
414,000 | Morgan Stanley, 2.13%, 4/25/18 | 415,649 | ||||||
1,460,000 | Morgan Stanley, 2.80%, 6/16/20^ | 1,471,949 | ||||||
7,605,000 | Morgan Stanley, 2.50%, 4/21/21 | 7,522,319 | ||||||
2,185,000 | Morgan Stanley, 2.63%, 11/17/21 | 2,158,697 | ||||||
1,300,000 | Morgan Stanley, 4.88%, 11/1/22 | 1,393,261 | ||||||
1,005,000 | Morgan Stanley, 3.75%, 2/25/23 | 1,032,280 | ||||||
169,000 | Morgan Stanley, 3.95%, 4/23/27 | 167,295 | ||||||
1,170,000 | Northern Trust Corp., 4.60%, 12/29/49, Callable 10/1/26 @ 100(a) | 1,112,963 | ||||||
1,355,000 | State Street Corp., 2.55%, 8/18/20 | 1,368,669 | ||||||
1,449,000 | State Street Corp., Series F, 5.25%, 12/31/49, Callable 9/15/20 @ 100(a) | 1,481,603 | ||||||
232,184 | SteelRiver Transmission Co. LLC, 4.71%, 6/30/17(c) | 233,736 | ||||||
1,000,000 | UBS Group AG, 4.13%, 4/15/26^(c) | 1,022,724 | ||||||
|
| |||||||
40,718,200 | ||||||||
|
| |||||||
Chemicals (0.2%): | ||||||||
178,000 | CF Industries Holdings, Inc., 3.45%, 6/1/23^ | 160,022 | ||||||
1,445,000 | CF Industries Holdings, Inc., 4.50%, 12/1/26(c) | 1,420,280 | ||||||
230,000 | CF Industries Holdings, Inc., 5.38%, 3/15/44 | 189,821 | ||||||
49,000 | Dow Chemical Co. (The), 4.38%, 11/15/42, Callable 5/15/42 @ 100 | 47,565 | ||||||
410,000 | Eastman Chemical Co., 2.70%, 1/15/20, Callable 12/15/19 @ 100 | 412,399 | ||||||
220,000 | Eastman Chemical Co., 4.65%, 10/15/44, Callable 4/15/44 @ 100 | 218,184 | ||||||
1,000,000 | Ecolab, Inc., 2.70%, 11/1/26, Callable 8/1/26 @ 100^ | 952,119 | ||||||
410,000 | LyondellBasell Idustries NV, 4.88%, 3/15/44, Callable 9/15/43 @ 100 | 424,591 | ||||||
199,000 | Monsanto Co., 3.38%, 7/15/24, Callable 4/15/24 @ 100^ | 198,136 | ||||||
90,000 | Monsanto Co., 4.40%, 7/15/44, Callable 1/15/44 @ 100 | 86,985 | ||||||
250,000 | Monsanto Co., 3.95%, 4/15/45, Callable 10/15/44 @ 100 | 219,360 | ||||||
|
| |||||||
4,329,462 | ||||||||
|
| |||||||
Commercial Services & Supplies (0.0%): | ||||||||
535,000 | Republic Services, Inc., 3.20%, 3/15/25, Callable 12/15/24 @ 100 | 530,646 | ||||||
45,000 | Republic Services, Inc., 2.90%, 7/1/26, Callable 4/1/26 @ 100 | 43,139 | ||||||
|
| |||||||
573,785 | ||||||||
|
| |||||||
Communications Equipment (0.2%): | ||||||||
927,000 | Cisco Systems, Inc., 2.20%, 2/28/21 | 925,002 | ||||||
1,099,000 | Cisco Systems, Inc., 1.85%, 9/20/21, Callable 8/20/21 @ 100 | 1,072,586 | ||||||
435,000 | Cisco Systems, Inc., 2.20%, 9/20/23, Callable 7/20/23 @ 100 | 418,450 | ||||||
550,000 | Cisco Systems, Inc., 2.50%, 9/20/26, Callable 6/20/26 @ 100 | 523,111 | ||||||
135,000 | Harris Corp., 2.70%, 4/27/20, Callable 3/27/20 @ 100^ | 134,852 |
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Communications Equipment, continued | ||||||||
$ | 1,000,000 | Harris Corp., 3.83%, 4/27/25, Callable 1/27/25 @ 100 | $ | 1,015,868 | ||||
340,000 | Harris Corp., 4.85%, 4/27/35, Callable 10/27/34 @ 100 | 357,218 | ||||||
273,000 | Harris Corp., 5.05%, 4/27/45, Callable 10/27/44 @ 100^ | 288,238 | ||||||
50,000 | Juniper Networks, Inc., 4.35%, 6/15/25, Callable 3/15/25 @ 100^ | 50,419 | ||||||
224,000 | Motorola Solutions, Inc., 4.00%, 9/1/24^ | 224,261 | ||||||
|
| |||||||
5,010,005 | ||||||||
|
| |||||||
Consumer Finance (0.9%): | ||||||||
425,000 | American Honda Finance, 2.25%, 8/15/19 | 429,138 | ||||||
290,000 | Capital One Bank USA NA, 1.30%, 6/5/17, Callable 5/5/17 @ 100 | 289,794 | ||||||
2,200,000 | Capital One Financial Corp., 3.20%, 2/5/25, Callable 1/5/25 @ 100^ | 2,132,316 | ||||||
365,000 | Capital One Financial Corp., 4.20%, 10/29/25, Callable 9/29/25 @ 100 | 366,214 | ||||||
3,555,000 | Capital One Financial Corp., 3.75%, 7/28/26, Callable 6/28/26 @ 100^ | 3,446,198 | ||||||
1,185,000 | Capital One NA, Series BKNT, 1.65%, 2/5/18, Callable 1/5/18 @ 100 | 1,182,699 | ||||||
545,000 | Capital One NA, 2.95%, 7/23/21, Callable 6/23/21 @ 100 | 547,020 | ||||||
455,000 | Discover Bank, 2.60%, 11/13/18, Callable 10/12/18 @ 100 | 458,946 | ||||||
330,000 | Discover Bank, Series BKNT, 3.10%, 6/4/20, Callable 5/4/20 @ 100 | 333,955 | ||||||
2,155,000 | Discover Bank, 3.45%, 7/27/26, Callable 4/27/26 @ 100^ | �� | 2,080,892 | |||||
1,045,000 | Ford Motor Credit Co. LLC, 1.72%, 12/6/17 | 1,044,210 | ||||||
950,000 | Ford Motor Credit Co. LLC, 2.94%, 1/8/19 | 960,841 | ||||||
1,500,000 | Ford Motor Credit Co. LLC, 5.75%, 2/1/21 | 1,644,872 | ||||||
220,000 | Hyundai Capital America, 2.40%, 10/30/18(c) | 220,918 | ||||||
95,000 | Hyundai Capital America, 2.50%, 3/18/19(c) | 95,254 | ||||||
588,000 | Hyundai Capital America, 3.00%, 10/30/20(c) | 588,050 | ||||||
910,000 | John Deere Capital Corp., 2.80%, 3/6/23 | 910,025 | ||||||
371,000 | Nissan Motor Acceptance, 2.00%, 3/8/19(c) | 370,182 | ||||||
125,000 | Synchrony Financial, 2.70%, 2/3/20, Callable 1/3/20 @ 100 | 124,629 | ||||||
85,000 | Synchrony Financial, 4.50%, 7/23/25, Callable 4/24/25 @ 100 | 87,309 | ||||||
500,000 | Synchrony Financial, 3.70%, 8/4/26, Callable 5/4/26 @ 100 | 480,636 | ||||||
140,000 | Toyota Motor Credit Corp., 1.40%, 5/20/19^ | 138,412 | ||||||
277,000 | Toyota Motor Credit Corp., 2.13%, 7/18/19 | 278,202 | ||||||
|
| |||||||
18,210,712 | ||||||||
|
| |||||||
Containers & Packaging (0.1%): | ||||||||
370,000 | WestRock MWV LLC, 8.20%, 1/15/30 | 483,026 | ||||||
685,000 | WestRock RKT Co., 4.90%, 3/1/22 | 743,594 | ||||||
|
| |||||||
1,226,620 | ||||||||
|
| |||||||
Diversified Consumer Services (0.1%): | ||||||||
145,000 | California Institute of Technology, 4.32%, 8/1/45 | 152,427 |
Continued
8
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued | |||||||
| Diversified Consumer Services, continued | |||||||
$ | 360,000 | Massachusetts Institute of Technology, 4.68%, 7/1/14 | $ | 362,390 | ||||
114,000 | Pres & Fellows of Harvar, 3.15%, 7/15/46, Callable 1/15/46 @ 100^ | 101,996 | ||||||
575,000 | Pres & Fellows of Harvar, 3.30%, 7/15/56, Callable 1/15/56 @ 100 | 505,676 | ||||||
|
| |||||||
1,122,489 | ||||||||
|
| |||||||
| Diversified Financial Services (0.1%): | |||||||
135,000 | Berkshire Hathaway, Inc., 2.75%, 3/15/23, Callable 1/15/23 @ 100 | 134,493 | ||||||
95,000 | Berkshire Hathaway, Inc., 3.13%, 3/15/26, Callable 12/15/25 @ 100 | 94,383 | ||||||
1,090,000 | Daimler Finance NA LLC, 1.88%, 1/11/18(c) | 1,091,488 | ||||||
1,321,000 | Daimler Finance NA LLC, 1.50%, 7/5/19(c) | 1,299,699 | ||||||
|
| |||||||
2,620,063 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (1.3%): | |||||||
316,000 | AT&T, Inc., 2.38%, 11/27/18 | 318,761 | ||||||
317,000 | AT&T, Inc., 2.30%, 3/11/19^ | 318,215 | ||||||
720,000 | AT&T, Inc., 2.45%, 6/30/20, Callable 5/30/20 @ 100 | 714,983 | ||||||
1,000,000 | AT&T, Inc., 2.80%, 2/17/21, Callable 1/17/21 @ 100 | 992,057 | ||||||
665,000 | AT&T, Inc., 3.00%, 6/30/22, Callable 4/30/22 @ 100 | 652,771 | ||||||
4,000,000 | AT&T, Inc., 4.21%, 11/27/22(c)(d) | 3,194,339 | ||||||
150,000 | AT&T, Inc., 4.45%, 4/1/24, Callable 1/1/24 @ 100 | 156,365 | ||||||
185,000 | AT&T, Inc., 3.95%, 1/15/25, Callable 10/15/24 @ 100 | 185,320 | ||||||
2,000,000 | AT&T, Inc., 4.13%, 2/17/26, Callable 11/17/25 @ 100^ | 2,025,132 | ||||||
170,000 | AT&T, Inc., 4.50%, 5/15/35, Callable 11/15/34 @ 100 | 164,248 | ||||||
122,000 | AT&T, Inc., 5.35%, 9/1/40 | 125,294 | ||||||
1,010,000 | AT&T, Inc., 4.75%, 5/15/46, Callable 11/15/45 @ 100 | 956,893 | ||||||
250,000 | Verizon Communications, Inc., 2.63%, 2/21/20^ | 252,399 | ||||||
1,320,000 | Verizon Communications, Inc., 4.50%, 9/15/20^ | 1,412,549 | ||||||
447,000 | Verizon Communications, Inc., 3.45%, 3/15/21^ | 461,484 | ||||||
1,500,000 | Verizon Communications, Inc., 1.75%, 8/15/21, Callable 7/15/21 @ 100^ | 1,438,952 | ||||||
1,325,000 | Verizon Communications, Inc., 3.00%, 11/1/21, Callable 9/1/21 @ 100 | 1,334,661 | ||||||
192,000 | Verizon Communications, Inc., 2.45%, 11/1/22, Callable 8/1/22 @ 100 | 185,454 | ||||||
1,195,000 | Verizon Communications, Inc., 5.15%, 9/15/23 | 1,321,363 | ||||||
3,000,000 | Verizon Communications, Inc., 2.63%, 8/15/26, Callable 5/15/26 @ 2.63%^ | 2,761,656 | ||||||
1,302,000 | Verizon Communications, Inc., 4.40%, 11/1/34, Callable 5/1/34 @ 100 | 1,285,056 | ||||||
2,250,000 | Verizon Communications, Inc., 4.13%, 8/15/46 | 2,036,300 | ||||||
2,342,000 | Verizon Communications, Inc., 4.86%, 8/21/46 | 2,373,135 | ||||||
525,000 | Verizon Communications, Inc., 5.01%, 8/21/54 | 522,250 | ||||||
|
| |||||||
25,189,637 | ||||||||
|
|
Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued | |||||||
| Electric Utilities (1.8%): | |||||||
$ | 500,000 | Baltimore Gas & Electric, 2.80%, 8/15/22, Callable 5/15/22 @ 100 | $ | 502,193 | ||||
500,000 | Baltimore Gas & Electric, 2.40%, 8/15/26, Callable 5/15/26 @ 100^ | 466,841 | ||||||
220,000 | Carolina Power & Light Co., 5.70%, 4/1/35 | 262,579 | ||||||
430,000 | Carolina Power & Light Co., 4.10%, 3/15/43, Callable 9/15/42 @ 100 | 429,948 | ||||||
2,295,000 | Duke Energy Carolinas, 2.95%, 12/1/26, Callable 9/1/26 @ 100 | 2,257,679 | ||||||
1,000,000 | Duke Energy Carolinas, 4.25%, 12/15/41, Callable 6/15/41 @ 100^ | 1,022,992 | ||||||
555,000 | Duke Energy Carolinas LLC, 3.75%, 6/1/45, Callable 12/1/44 @ 100 | 528,319 | ||||||
1,500,000 | Duke Energy Corp., 1.80%, 9/1/21, Callable 8/1/21 @ 100 | 1,444,955 | ||||||
2,850,000 | Duke Energy Corp., 3.05%, 8/15/22, Callable 5/15/22 @ 100 | 2,864,507 | ||||||
1,500,000 | Duke Energy Corp., 2.65%, 9/1/26, Callable 6/1/26 @ 100^ | 1,399,992 | ||||||
1,000,000 | Duke Energy Corp., 3.75%, 9/1/46, Callable 3/1/46 @ 100 | 900,207 | ||||||
45,000 | Emera U.S. Finance LP, 2.15%, 6/15/19(c) | 44,926 | ||||||
15,000 | Emera U.S. Finance LP, 3.55%, 6/15/26, Callable 3/15/26 @ 100^(c) | 14,745 | ||||||
560,000 | Emera U.S. Finance LP, 4.75%, 6/15/46, Callable 12/15/45 @ 100(c) | 564,729 | ||||||
1,500,000 | Entergy Corp., 5.13%, 9/15/20, Callable 6/15/20 @ 100 | 1,616,931 | ||||||
4,105,000 | Entergy Corp., 2.95%, 9/1/26, Callable 6/1/26 @ 100^ | 3,839,990 | ||||||
135,000 | Exelon Corp., 2.85%, 6/15/20, Callable 5/15/20 @ 100 | 136,441 | ||||||
15,000 | Exelon Corp., 2.45%, 4/15/21, Callable 3/15/21 @ 100 | 14,820 | ||||||
35,000 | Exelon Corp., 3.40%, 4/15/26, Callable 1/15/26 @ 100 | 34,341 | ||||||
92,000 | Exelon Corp., 4.95%, 6/15/35, Callable 12/15/34 @ 100^ | 97,604 | ||||||
163,000 | Exelon Corp., 5.63%, 6/15/35 | 180,362 | ||||||
65,000 | Florida Power & Light Co., 5.95%, 2/1/38 | 83,310 | ||||||
845,000 | Florida Power Corp., 6.40%, 6/15/38 | 1,114,149 | ||||||
40,000 | MidAmerican Energy Holdings Co., 5.95%, 5/15/37 | 49,001 | ||||||
450,000 | MidAmerican Energy Holdings Co., 6.50%, 9/15/37 | 585,756 | ||||||
1,000,000 | Northern States PWR-MINN, 3.40%, 8/15/42, Callable 2/15/42 @ 100 | 917,574 | ||||||
1,000,000 | Northern States PWR-MINN, 3.60%, 5/15/46, Callable 11/15/45 @ 100 | 946,649 | ||||||
619,000 | PacifiCorp, 5.65%, 7/15/18 | 656,272 | ||||||
395,000 | PacifiCorp, 5.75%, 4/1/37 | 483,902 | ||||||
630,000 | PacifiCorp, 4.10%, 2/1/42, Callable 8/1/41 @ 100^ | 632,674 | ||||||
1,000,000 | PPL Capital Funding, Inc., 3.40%, 6/1/23, Callable 3/1/23 @ 100 | 1,006,814 |
Continued
9
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Electric Utilities, continued | ||||||||
$ | 350,000 | PPL Capital Funding, Inc., 5.00%, 3/15/44, Callable 9/15/43 @ 100^ | $ | 370,129 | ||||
350,000 | Progress Energy Carolinas, Inc., 5.30%, 1/15/19 | 374,114 | ||||||
600,000 | Southwestern Public Service Co., 3.30%, 6/15/24, Callable 12/15/23 @ 100 | 607,484 | ||||||
5,510,000 | Virginia Electric & Power Co., 3.45%, 9/1/22, Callable 6/1/22 @ 100 | 5,714,527 | ||||||
1,075,000 | Virginia Electric & Power Co., Series A, 3.15%, 1/15/26, Callable 10/15/25 @ 100 | 1,067,275 | ||||||
215,000 | Virginia Electric & Power Co., Series B, 2.95%, 11/15/26, Callable 8/15/26 @ 100 | 208,998 | ||||||
185,000 | Virginia Electric & Power Co., Series A, 6.00%, 5/15/37 | 228,908 | ||||||
25,000 | Virginia Electric & Power Co., 6.35%, 11/30/37 | 32,199 | ||||||
200,000 | Virginia Electric & Power Co., 4.00%, 1/15/43, Callable 7/15/42 @ 100 | 197,578 | ||||||
1,500,000 | Virginia Electric & Power Co., Series D, 4.65%, 8/15/43, Callable 2/15/43 @ 100^ | 1,628,367 | ||||||
375,000 | Virginia Electric & Power Co., Series B, 4.20%, 5/15/45, Callable 11/15/44 @ 100^ | 381,592 | ||||||
255,000 | Virginia Electric & Power Co., Series C, 4.00%, 11/15/46, Callable 5/15/46 @ 100^ | 254,228 | ||||||
|
| |||||||
36,166,601 | ||||||||
|
| |||||||
Electrical Equipment (0.2%): | ||||||||
840,000 | Eaton Corp., 1.50%, 11/2/17 | 840,699 | ||||||
1,000,000 | Eaton Corp., 2.75%, 11/2/22 | 990,434 | ||||||
255,000 | Eaton Corp., 4.00%, 11/2/32 | 251,388 | ||||||
1,560,000 | Eaton Corp., 4.15%, 11/2/42 | 1,524,860 | ||||||
|
| |||||||
3,607,381 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (0.0%): | ||||||||
40,000 | Avnet, Inc., 4.63%, 4/15/26, Callable 1/15/26 @ 100 | 38,973 | ||||||
|
| |||||||
Energy Equipment & Services (0.1%): | ||||||||
1,085,000 | Halliburton Co., 3.80%, 11/15/25, Callable 8/15/25 @ 100 | 1,102,248 | ||||||
263,000 | Halliburton Co., 5.00%, 11/15/45, Callable 5/15/45 @ 100 | 283,631 | ||||||
|
| |||||||
1,385,879 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (0.3%): | ||||||||
424,000 | American Tower Corp., 3.30%, 2/15/21, Callable 1/15/21 @ 100 | 428,829 | ||||||
141,000 | American Tower Corp., 4.00%, 6/1/25, Callable 3/1/25 @ 100 | 141,360 | ||||||
424,000 | American Tower Corp., 4.40%, 2/15/26, Callable 11/15/25 @ 100 | 433,266 | ||||||
1,000,000 | American Tower Corp., 3.13%, 1/15/27, Callable 10/15/26 @ 100 | 922,661 | ||||||
150,000 | Boston Properties, LP, 2.75%, 10/1/26, Callable 7/1/26 @ 100 | 137,149 | ||||||
357,000 | CC Holdings GS V LLC, 3.85%, 4/15/23 | 362,794 | ||||||
25,000 | Crown Castle International Corp., 3.40%, 2/15/21, Callable 1/15/21 @ 100 | 25,369 | ||||||
175,000 | Crown Castle International Corp., 2.25%, 9/1/21, Callable 8/1/21 @ 100^ | 169,303 |
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Equity Real Estate Investment Trusts, continued | ||||||||
$ | 2,000,000 | Crown Castle International Corp., 5.25%, 1/15/23 | $ | 2,152,500 | ||||
535,000 | Crown Castle International Corp., 3.70%, 6/15/26, Callable 3/15/26 @ 100 | 525,119 | ||||||
535,000 | Crown Castle Towers LLC, 6.11%, 1/15/20, Callable 7/15/19 @ 100(c) | 579,652 | ||||||
|
| |||||||
5,878,002 | ||||||||
|
| |||||||
Food & Staples Retailing (0.4%): | ||||||||
2,000,000 | CVS Health Corp., 2.80%, 7/20/20, Callable 6/20/20 @ 100 | 2,029,210 | ||||||
130,000 | CVS Health Corp., 5.30%, 12/5/43, Callable 6/5/43 @ 100 | 147,301 | ||||||
985,000 | CVS Health Corp., 5.13%, 7/20/45, Callable 1/20/45 @ 100 | 1,097,730 | ||||||
1,000,000 | Supermarkets & Pharmacies, 2.88%, 6/1/26, Callable 3/1/26 @ 100^ | 953,167 | ||||||
2,190,000 | Walgreens Boots Alliance, Inc., 3.45%, 6/1/26, Callable 3/1/26 @ 100^ | 2,149,707 | ||||||
220,000 | Walgreens Boots Alliance, Inc., 4.80%, 11/18/44, Callable 5/18/44 @ 100 | 226,118 | ||||||
840,000 | Walgreens Boots Alliance, Inc., 4.65%, 6/1/46, Callable 12/1/45 @ 100 | 852,408 | ||||||
199,000 | Wal-Mart Stores, Inc., 6.50%, 8/15/37 | 269,686 | ||||||
305,000 | Wal-Mart Stores, Inc., 4.00%, 4/11/43, Callable 10/11/42 @ 100 | 306,395 | ||||||
251,000 | Wal-Mart Stores, Inc., 4.30%, 4/22/44, Callable 10/22/43 @ 100^ | 264,874 | ||||||
|
| |||||||
8,296,596 | ||||||||
|
| |||||||
Food Products (0.1%): | ||||||||
1,405,000 | Kraft Heinz Foods Co., 3.00%, 6/1/26, Callable 3/1/26 @ 100 | 1,319,066 | ||||||
280,000 | Kraft Heinz Foods Co., 4.38%, 6/1/46, Callable 12/1/45 @ 100 | 263,474 | ||||||
|
| |||||||
1,582,540 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (0.3%): | ||||||||
132,000 | Becton, Dickinson & Co., 1.80%, 12/15/17 | 132,300 | ||||||
109,000 | Becton, Dickinson & Co., 2.68%, 12/15/19 | 110,593 | ||||||
84,000 | Becton, Dickinson & Co., 3.73%, 12/15/24, Callable 9/15/24 @ 100 | 85,900 | ||||||
200,000 | Becton, Dickinson & Co., 4.69%, 12/15/44, Callable 6/15/44 @ 100 | 207,189 | ||||||
205,000 | Boston Scientific Corp., 3.85%, 5/15/25 | 205,403 | ||||||
1,255,000 | Medtronic, Inc., 3.63%, 3/15/24, Callable 12/15/23 @ 100 | 1,306,019 | ||||||
1,132,000 | Medtronic, Inc., 3.50%, 3/15/25^ | 1,165,636 | ||||||
1,300,000 | Medtronic, Inc., 4.38%, 3/15/35 | 1,375,307 | ||||||
35,000 | St Jude Medical, Inc., 3.88%, 9/15/25, Callable 6/15/25 @ 100 | 35,261 | ||||||
166,000 | St Jude Medical, Inc., 4.75%, 4/15/43, Callable 10/15/42 @ 100 | 162,481 | ||||||
200,000 | Stryker Corp., 2.63%, 3/15/21, Callable 2/15/21 @ 100 | 200,772 | ||||||
50,000 | Stryker Corp., 3.50%, 3/15/26, Callable 12/15/25 @ 100 | 50,472 |
Continued
10
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Health Care Equipment & Supplies, continued | ||||||||
$ | 285,000 | Stryker Corp., 4.63%, 3/15/46, Callable 9/15/45 @ 100 | $ | 290,608 | ||||
|
| |||||||
5,327,941 | ||||||||
|
| |||||||
Health Care Providers & Services (0.4%): | ||||||||
135,000 | Aetna, Inc., 1.90%, 6/7/19 | 134,690 | ||||||
185,000 | Aetna, Inc., 2.75%, 11/15/22, Callable 8/15/22 @ 100 | 181,743 | ||||||
2,000,000 | Aetna, Inc., 2.80%, 6/15/23, Callable 4/15/23 @ 100^ | 1,970,018 | ||||||
105,000 | Aetna, Inc., 3.50%, 11/15/24, Callable 8/15/24 @ 100 | 106,528 | ||||||
900,000 | Aetna, Inc., 3.20%, 6/15/26, Callable 3/15/26 @ 100 | 890,342 | ||||||
380,000 | Aetna, Inc., 4.13%, 11/15/42, Callable 5/15/42 @ 100 | 362,527 | ||||||
400,000 | Aetna, Inc., 4.38%, 6/15/46, Callable 12/15/45 @ 100 | 401,659 | ||||||
410,000 | CIGNA Corp., 3.25%, 4/15/25, Callable 1/15/25 @ 100 | 399,318 | ||||||
725,000 | UnitedHealth Group, Inc., 1.40%, 10/15/17 | 726,056 | ||||||
160,000 | UnitedHealth Group, Inc., 2.70%, 7/15/20 | 162,407 | ||||||
545,000 | UnitedHealth Group, Inc., 3.35%, 7/15/22 | 561,517 | ||||||
1,000,000 | UnitedHealth Group, Inc., 3.10%, 3/15/26 | 986,301 | ||||||
245,000 | UnitedHealth Group, Inc., 4.63%, 7/15/35 | 267,060 | ||||||
80,000 | UnitedHealth Group, Inc., 4.25%, 3/15/43, Callable 9/15/42 @ 100 | 81,641 | ||||||
350,000 | UnitedHealth Group, Inc., 4.75%, 7/15/45 | 385,566 | ||||||
|
| |||||||
7,617,373 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure (0.0%): | ||||||||
10,000 | McDonald’s Corp., 2.75%, 12/9/20, Callable 11/9/20 @ 100^ | 10,111 | ||||||
55,000 | McDonald’s Corp., 3.70%, 1/30/26, Callable 10/30/25 @ 100 | 55,995 | ||||||
50,000 | McDonald’s Corp., 4.70%, 12/9/35, Callable 6/9/35 @ 100 | 52,896 | ||||||
120,000 | McDonald’s Corp., 4.60%, 5/26/45, Callable 11/26/44 @ 100 | 123,908 | ||||||
60,000 | McDonald’s Corp., 4.88%, 12/9/45, Callable 6/9/45 @ 100, MTN | 64,264 | ||||||
|
| |||||||
307,174 | ||||||||
|
| |||||||
Household Durables (0.1%): | ||||||||
856,000 | Newell Rubbermaid, Inc., 3.85%, 4/1/23, Callable 2/1/23 @ 100 | 887,935 | ||||||
430,000 | Newell Rubbermaid, Inc., 4.20%, 4/1/26, Callable 1/1/26 @ 100^ | 448,825 | ||||||
|
| |||||||
1,336,760 | ||||||||
|
| |||||||
Industrial Conglomerates (0.1%): | ||||||||
106,000 | General Electric Capital Corp., 4.38%, 9/16/20 | 113,934 | ||||||
1,720,000 | General Electric Co., 2.70%, 10/9/22 | 1,719,681 | ||||||
500,000 | General Electric Co., 4.50%, 3/11/44 | 536,738 | ||||||
309,000 | Georgia-Pacific LLC, 3.60%, 3/1/25, Callable 12/1/24 @ 100^(c) | 312,528 |
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Industrial Conglomerates, continued | ||||||||
$ | 174,000 | Georgia-Pacific LLC, 7.75%, 11/15/29 | $ | 234,184 | ||||
|
| |||||||
2,917,065 | ||||||||
|
| |||||||
Insurance (0.3%): | ||||||||
325,000 | ACE INA Holdings, Inc., 3.35%, 5/15/24 | 331,108 | ||||||
410,000 | ACE INA Holdings, Inc., 4.15%, 3/13/43 | 413,920 | ||||||
850,000 | American International Group, Inc., 4.50%, 7/16/44, Callable 1/16/44 @ 100 | 838,164 | ||||||
70,000 | American International Group, Inc., 4.80%, 7/10/45, Callable 1/10/45 @ 100 | 72,654 | ||||||
236,000 | American International Group, Inc., 4.38%, 1/15/55, Callable 7/15/54 @ 100^ | 216,217 | ||||||
305,000 | Arch Capital Finance LLC, 4.01%, 12/15/26, Callable 9/15/26 @ 100 | 309,389 | ||||||
500,000 | Hartford Financial Services Group, 5.13%, 4/15/22^ | 554,593 | ||||||
401,000 | Hartford Financial Services Group, Inc. (The), 4.30%, 4/15/43 | 371,452 | ||||||
800,000 | Hartford FINL SVCS GRP, 6.10%, 10/1/41 | 938,791 | ||||||
20,000 | Marsh & McLennan Cos., Inc., 3.50%, 3/10/25, Callable 12/10/24 @ 100 | 20,136 | ||||||
1,060,000 | Marsh & McLennan Cos., Inc., 3.75%, 3/14/26, Callable 12/14/25 @ 100 | 1,079,877 | ||||||
130,000 | MetLife, Inc., 4.05%, 3/1/45 | 124,663 | ||||||
95,000 | Principal Financial Group, Inc., 3.13%, 5/15/23 | 94,481 | ||||||
196,000 | Principal Financial Group, Inc., 3.10%, 11/15/26, Callable 8/15/26 @ 100 | 189,444 | ||||||
25,000 | Principal Financial Group, Inc., 4.63%, 9/15/42 | 25,893 | ||||||
120,000 | Teachers Insurance & Annuity Association, 6.85%, 12/16/39(c) | 155,727 | ||||||
50,000 | Teachers Insurance & Annuity Association, 4.90%, 9/15/44(c) | 54,088 | ||||||
214,000 | Travelers Cos., Inc. (The), 4.30%, 8/25/45, Callable 2/25/45 @ 100 | 221,673 | ||||||
50,000 | Travelers Cos., Inc. (The), 3.75%, 5/15/46, Callable 11/15/45 @ 100 | 47,180 | ||||||
|
| |||||||
6,059,450 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (0.1%): | ||||||||
390,000 | Amazon.com, Inc., 3.80%, 12/5/24, Callable 9/5/24 @ 100 | 409,823 | ||||||
861,000 | Amazon.com, Inc., 4.80%, 12/5/34, Callable 6/5/34 @ 100 | 947,669 | ||||||
488,000 | Amazon.com, Inc., 4.95%, 12/5/44, Callable 6/5/44 @ 100 | 556,586 | ||||||
|
| |||||||
1,914,078 | ||||||||
|
| |||||||
IT Services (0.2%): | ||||||||
173,000 | Fidelity National Information Services, Inc., 5.00%, 10/15/25, Callable 7/15/25 @ 100^ | 188,420 | ||||||
250,000 | Fidelity National Information Services, Inc., 4.50%, 8/15/46, Callable 2/15/46 @ 100 | 238,013 | ||||||
420,000 | IBM Corp., 2.88%, 11/9/22 | 422,711 | ||||||
100,000 | IBM Corp., 4.70%, 2/19/46^ | 109,035 | ||||||
450,000 | MasterCard, Inc., 3.38%, 4/1/24 | 462,867 | ||||||
500,000 | Visa, Inc., 3.15%, 12/14/25, Callable 9/14/25 @ 100 | 502,193 |
Continued
11
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
IT Services, continued | ||||||||
$ | 1,637,000 | Visa, Inc., 4.15%, 12/14/35, Callable 6/14/35 @ 100 | $ | 1,713,911 | ||||
784,000 | Visa, Inc., 4.30%, 12/14/45, Callable 6/14/45 @ 100 | 827,523 | ||||||
|
| |||||||
4,464,673 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.0%): | ||||||||
111,000 | Agilent Technologies, Inc., 6.50%, 11/1/17 | 115,156 | ||||||
313,000 | Thermo Fisher Scientific, Inc., 3.60%, 8/15/21, Callable 5/15/21 @ 100 | 323,490 | ||||||
550,000 | Thermo Fisher Scientific, Inc., 2.95%, 9/19/26, Callable 6/19/26 @ 100 | 519,337 | ||||||
|
| |||||||
957,983 | ||||||||
|
| |||||||
Machinery (0.0%): | ||||||||
605,000 | Deere & Co., 2.60%, 6/8/22, Callable 3/8/22 @ 100 | 602,062 | ||||||
|
| |||||||
Media (1.2%): | ||||||||
778,000 | Comcast Corp., 3.15%, 3/1/26, Callable 12/1/25 @ 100 | 767,632 | ||||||
8,625,000 | Comcast Corp., 2.35%, 1/15/27, Callable 10/15/26 @ 100^ | 7,950,783 | ||||||
3,750,000 | Comcast Corp., 3.40%, 7/15/46, Callable 1/15/46 @ 100 | 3,274,919 | ||||||
224,000 | Cox Communications, Inc., 8.38%, 3/1/39(c) | 279,348 | ||||||
575,000 | Cox Communications, Inc., 4.70%, 12/15/42(c) | 499,989 | ||||||
8,000 | Discovery Communications, Inc., 5.05%, 6/1/20 | 8,587 | ||||||
100,000 | Discovery Communications, Inc., 3.45%, 3/15/25, Callable 12/15/24 @ 100 | 95,455 | ||||||
850,000 | Discovery Communications, Inc., 4.90%, 3/11/26, Callable 12/11/25 @ 100^ | 895,065 | ||||||
1,227,000 | Discovery Communications, Inc., 4.88%, 4/1/43 | 1,133,863 | ||||||
850,000 | NBCUniversal Enterprise, Inc., 5.25%, 12/31/99, Callable 3/19/21 @ 100(c) | 892,500 | ||||||
820,000 | NBCUniversal Media LLC, 5.15%, 4/30/20 | 896,690 | ||||||
580,000 | NBCUniversal Media LLC, 4.45%, 1/15/43 | 592,683 | ||||||
569,000 | Time Warner, Inc., 3.60%, 7/15/25, Callable 4/15/25 @ 100 | 565,814 | ||||||
2,607,000 | Time Warner, Inc., 3.88%, 1/15/26, Callable 10/15/25 @ 100^ | 2,609,808 | ||||||
285,000 | Twenty-First Century Fox, Inc., 3.70%, 10/15/25, Callable 7/15/25 @ 100^ | 288,464 | ||||||
206,000 | Twenty-First Century Fox, Inc., 6.40%, 12/15/35 | 246,097 | ||||||
820,000 | Viacom, Inc., 3.45%, 10/4/26, Callable 7/4/26 @ 100 | 757,843 | ||||||
330,000 | Viacom, Inc., 4.85%, 12/15/34, Callable 6/15/34 @ 100 | 294,186 | ||||||
180,000 | Viacom, Inc., 4.38%, 3/15/43 | 143,380 | ||||||
500,000 | Viacom, Inc., 5.85%, 9/1/43, Callable 3/1/43 @ 100 | 490,001 | ||||||
725,000 | Walt Disney Co. (The), Series G, 3.15%, 9/17/25 | 735,328 | ||||||
1,370,000 | Walt Disney Co. (The), 1.85%, 7/30/26^ | 1,233,403 | ||||||
|
| |||||||
24,651,838 | ||||||||
|
| |||||||
Multiline Retail (0.0%): | ||||||||
423,000 | Dollar General Corp., 4.15%, 11/1/25, Callable 8/1/25 @ 100 | 435,229 | ||||||
|
|
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Multi-Utilities (0.2%): | ||||||||
$ | 85,000 | CMS Energy Corp., 3.00%, 5/15/26, Callable 2/15/26 @ 100 | $ | 81,808 | ||||
775,000 | CMS Energy Corp., 4.70%, 3/31/43, Callable 9/30/42 @ 100 | 810,266 | ||||||
440,000 | CMS Energy Corp., 4.88%, 3/1/44, Callable 9/1/43 @ 100 | 471,697 | ||||||
560,000 | DTE Electric Co., 3.70%, 3/15/45, Callable 9/15/44 @ 100 | 535,420 | ||||||
190,000 | DTE Electric Co., 3.70%, 6/1/46, Callable 12/1/45 @ 100 | 182,778 | ||||||
590,000 | DTE Energy Co., Series B, 3.30%, 6/15/22, Callable 4/15/22 @ 100 | 600,173 | ||||||
300,000 | NiSource Finance Corp., 5.25%, 2/15/43, Callable 8/15/42 @ 100^ | 331,928 | ||||||
865,000 | Public Service Electric & Gas Co., 2.38%, 5/15/23, Callable 2/15/23 @ 100 | 845,478 | ||||||
|
| |||||||
3,859,548 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.7%): | ||||||||
135,000 | Apache Corp., 6.00%, 1/15/37 | 155,271 | ||||||
689,000 | Apache Corp., 5.10%, 9/1/40, Callable 3/1/40 @ 100 | 720,819 | ||||||
395,000 | Devon Energy Corp., 3.25%, 5/15/22, Callable 2/15/22 @ 100^ | 392,494 | ||||||
811,000 | Dominion Gas Holdings LLC, 4.60%, 12/15/44, Callable 6/15/44 @ 100 | 806,920 | ||||||
250,000 | El Paso Pipeline Partners Operating Co. LLC, 5.00%, 10/1/21, Callable 7/1/21 @ 100^ | 266,187 | ||||||
68,000 | Enbridge Energy Partners LP, 5.88%, 10/15/25, Callable 7/15/25 @ 100^ | 75,815 | ||||||
191,000 | Enbridge Energy Partners LP, 7.38%, 10/15/45, Callable 4/15/45 @ 100^ | 236,906 | ||||||
1,200,000 | Energy Transfer Partners, 4.75%, 1/15/26, Callable 10/15/25 @ 100^ | 1,240,610 | ||||||
1,350,000 | Energy Transfer Partners, 6.13%, 12/15/45, Callable 6/15/45 @ 100 | 1,436,317 | ||||||
265,000 | Energy Transfer Partners LP, 4.05%, 3/15/25, Callable 12/15/24 @ 100 | 262,326 | ||||||
1,710,000 | Energy Transfer Partners LP, 5.15%, 3/15/45, Callable 9/15/44 @ 100 | 1,640,026 | ||||||
479,000 | Enterprise Products Operating LLC, 5.10%, 2/15/45, Callable 8/15/44 @ 100 | 505,177 | ||||||
135,000 | Enterprise Products Operating LP, 4.90%, 5/15/46, Callable 11/15/45 @ 100^ | 138,578 | ||||||
450,000 | EOG Resources, Inc., 2.63%, 3/15/23, Callable 12/15/22 @ 100 | 436,236 | ||||||
110,000 | EOG Resources, Inc., 3.90%, 4/1/35, Callable 10/1/34 @ 100 | 104,173 | ||||||
235,000 | Kinder Morgan Energy Partners LP, 5.40%, 9/1/44, Callable 3/1/44 @ 100 | 234,234 | ||||||
540,000 | Kinder Morgan, Inc./Delawa, 4.30%, 6/1/25, Callable 3/1/25 @ 100^ | 555,966 | ||||||
1,210,000 | Kinder Morgan, Inc./Delawa, 5.55%, 6/1/45, Callable 12/1/44 @ 100 | 1,272,645 | ||||||
800,000 | Kinder Morgan, Inc./Delawa, 5.05%, 2/15/46, Callable 8/15/45 @ 100 | 791,924 |
Continued
12
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
$ | 668,000 | Marathon Petroleum Corp., 4.75%, 9/15/44, Callable 3/15/44 @ 100^ | $ | 592,187 | ||||
450,000 | Marathon Petroleum Corp., 5.85%, 12/15/45, Callable 6/15/45 @ 100 | 447,298 | ||||||
74,000 | Pioneer Natural Resource Co., 4.45%, 1/15/26, Callable 10/15/25 @ 100 | 78,408 | ||||||
600,000 | Plains All American Pipeline LP, 3.85%, 10/15/23, Callable 7/15/23 @ 100 | 593,201 | ||||||
365,000 | Plains All American Pipeline LP, 4.65%, 10/15/25, Callable 7/15/25 @ 100^ | 377,094 | ||||||
378,000 | Sunoco Logistics Partner LP, 5.35%, 5/15/45, Callable 11/15/44 @ 100 | 365,019 | ||||||
|
| |||||||
13,725,831 | ||||||||
|
| |||||||
Pharmaceuticals (0.3%): | ||||||||
500,000 | Johnson & Johnson, 2.45%, 3/1/26, Callable 12/1/25 @ 100 | 478,216 | ||||||
250,000 | Merck & Co., Inc., 2.75%, 2/10/25, Callable 11/10/24 @ 100 | 245,466 | ||||||
250,000 | Merck & Co., Inc., 3.70%, 2/10/45, Callable 8/10/44 @ 100 | 238,386 | ||||||
265,000 | Mylan, Inc., 5.40%, 11/29/43, Callable 5/29/43 @ 100 | 248,160 | ||||||
610,000 | Pfizer, Inc., 3.40%, 5/15/24 | 630,515 | ||||||
400,000 | Pfizer, Inc., 2.75%, 6/3/26 | 388,336 | ||||||
125,000 | Pfizer, Inc., 4.30%, 6/15/43 | 129,398 | ||||||
600,000 | Pfizer, Inc., 4.40%, 5/15/44^ | 633,754 | ||||||
1,195,000 | Pfizer, Inc., 4.13%, 12/15/46^ | 1,215,627 | ||||||
995,000 | Watson Pharmaceuticals, Inc., 1.88%, 10/1/17 | 996,901 | ||||||
|
| |||||||
5,204,759 | ||||||||
|
| |||||||
Real Estate Management & Development (0.0%): | ||||||||
470,000 | Northwest Florida Timber Finance LLC, 4.75%, 3/4/29(c) | 411,250 | ||||||
|
| |||||||
Road & Rail (0.1%): | ||||||||
1,000,000 | Burlington North Santa Fe LLC, 3.05%, 9/1/22, Callable 6/1/22 @ 100 | 1,021,215 | ||||||
130,000 | Burlington North Santa Fe LLC, 4.15%, 4/1/45, Callable 10/1/44 @ 100^ | 131,834 | ||||||
432,000 | Norfolk Southern Corp., 2.90%, 6/15/26, Callable 3/15/26 @ 100 | 415,713 | ||||||
500,000 | Penske Truck Leasing/PTL, 3.40%, 11/15/26, Callable 8/15/26 @ 100(c) | 478,387 | ||||||
484,000 | Union Pacific Corp., 3.88%, 2/1/55, Callable 8/1/54 @ 100 | 444,574 | ||||||
470,257 | Union Pacific Railroad Co., Series 14-1, 3.23%, 5/14/26 | 463,871 | ||||||
|
| |||||||
2,955,594 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (0.3%): | ||||||||
515,000 | Analog Devices, Inc., 3.50%, 12/5/26, Callable 9/5/26 @ 100 | 510,234 | ||||||
19,000 | KLA-Tencor Corp., 4.65%, 11/1/24, Callable 8/1/24 @ 100 | 20,114 | ||||||
50,000 | Lam Research Corp., 2.80%, 6/15/21, Callable 5/15/21 @ 100^ | 49,731 |
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Semiconductors & Semiconductor Equipment, continued | ||||||||
$ | 236,000 | Lam Research Corp., 3.80%, 3/15/25, Callable 12/15/24 @ 100 | $ | 236,257 | ||||
1,865,000 | NVIDIA Corp., 2.20%, 9/16/21, Callable 8/16/21 @ 100 | 1,820,432 | ||||||
2,290,000 | NVIDIA Corp., 3.20%, 9/16/26, Callable 6/16/26 @ 100 | 2,201,738 | ||||||
228,000 | QUALCOMM, Inc., 3.45%, 5/20/25, Callable 2/20/25 @ 100^ | 231,995 | ||||||
478,000 | QUALCOMM, Inc., 4.80%, 5/20/45, Callable 11/20/44 @ 100^ | 510,805 | ||||||
|
| |||||||
5,581,306 | ||||||||
|
| |||||||
Software (0.5%): | ||||||||
750,000 | Microsoft Corp., 1.55%, 8/8/21, Callable 7/8/21 @ 100 | 727,434 | ||||||
705,000 | Microsoft Corp., 2.65%, 11/3/22, Callable 9/3/22 @ 100^ | 709,101 | ||||||
320,000 | Microsoft Corp., 2.00%, 8/8/23, Callable 6/8/23 @ 100 | 305,857 | ||||||
1,360,000 | Microsoft Corp., 2.40%, 8/8/26, Callable 5/8/26 @ 100 | 1,284,788 | ||||||
925,000 | Microsoft Corp., 3.45%, 8/8/36, Callable 2/8/36 @ 100 | 879,085 | ||||||
2,790,000 | Microsoft Corp., 3.70%, 8/8/46, Callable 2/8/46 @ 100 | 2,626,688 | ||||||
250,000 | Microsoft Corp., 3.95%, 8/8/56, Callable 2/8/56 @ 100 | 236,121 | ||||||
401,000 | Oracle Corp., 3.40%, 7/8/24, Callable 4/8/24 @ 100 | 408,581 | ||||||
425,000 | Oracle Corp., 2.95%, 5/15/25, Callable 2/15/25 @ 100 | 416,619 | ||||||
170,000 | Oracle Corp., 2.65%, 7/15/26, Callable 4/15/26 @ 100^ | 161,366 | ||||||
195,000 | Oracle Corp., 4.50%, 7/8/44, Callable 1/8/44 @ 100 | 199,090 | ||||||
2,525,000 | Oracle Corp., 4.00%, 7/15/46, Callable 1/15/46 @ 100 | 2,415,152 | ||||||
450,000 | Oracle Corp., 4.38%, 5/15/55, Callable 11/15/54 @ 100 | 447,579 | ||||||
|
| |||||||
10,817,461 | ||||||||
|
| |||||||
Specialty Retail (0.0%): | ||||||||
15,000 | Home Depot, Inc. (The), 4.40%, 3/15/45, Callable 9/15/44 @ 100 | 15,985 | ||||||
300,000 | Home Depot, Inc. (The), 4.25%, 4/1/46, Callable 10/1/45 @ 100 | 314,958 | ||||||
145,000 | Lowe’s Cos., Inc., 2.50%, 4/15/26, Callable 1/15/26 @ 100 | 137,701 | ||||||
38,000 | Lowe’s Cos., Inc., 5.00%, 9/15/43, Callable 3/15/43 @ 100 | 42,275 | ||||||
134,000 | Lowe’s Cos., Inc., 3.70%, 4/15/46, Callable 10/15/45 @ 100^ | 125,082 | ||||||
|
| |||||||
636,001 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (0.4%): | ||||||||
500,000 | Apple, Inc., 1.55%, 8/4/21, Callable 7/4/21 @ 100^ | 483,411 |
Continued
13
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Technology Hardware, Storage & Peripherals, continued | ||||||||
$ | 410,000 | Apple, Inc., 3.45%, 5/6/24^ | $ | 422,316 | ||||
127,000 | Apple, Inc., 3.25%, 2/23/26, Callable 11/23/25 @ 100 | 127,067 | ||||||
1,200,000 | Apple, Inc., 2.45%, 8/4/26, Callable 5/4/26 @ 100^ | 1,126,256 | ||||||
340,000 | Apple, Inc., 3.45%, 2/9/45 | 300,100 | ||||||
640,000 | Apple, Inc., 4.65%, 2/23/46, Callable 8/23/45 @ 100 | 691,103 | ||||||
1,685,000 | Apple, Inc., 3.85%, 8/4/46, Callable 2/4/46 @ 100 | 1,614,469 | ||||||
785,000 | Diamond 1 Finance Corp./Diamond 2 Finance Corp., 5.45%, 6/15/23, Callable 4/15/23 @ 100(c) | 832,680 | ||||||
220,000 | Diamond 1 Finance Corp./Diamond 2 Finance Corp., 6.02%, 6/15/26, Callable 3/15/26 @ 100(c) | 238,325 | ||||||
345,000 | Diamond 1 Finance Corp./Diamond 2 Finance Corp., 8.35%, 7/15/46, Callable 1/15/46 @ 100^(c) | 424,794 | ||||||
60,000 | Diamond 1 Finance Corp/Diamond 2 Finance Corp., 8.10%, 7/15/36, Callable 1/15/36 @ 100(c) | 71,375 | ||||||
520,000 | HP Enterprise Co., 2.85%, 10/5/18(c) | 525,029 | ||||||
590,000 | HP Enterprise Co., 3.60%, 10/15/20, Callable 9/15/20 @ 100(c) | 600,215 | ||||||
625,000 | HP Enterprise Co., 4.90%, 10/15/25, Callable 7/15/25 @ 100^(c) | 643,009 | ||||||
|
| |||||||
8,100,149 | ||||||||
|
| |||||||
Tobacco (0.2%): | ||||||||
300,000 | Altria Group, Inc., 2.63%, 9/16/26, Callable 6/16/26 @ 100 | 284,095 | ||||||
267,000 | Altria Group, Inc., 5.38%, 1/31/44 | 308,418 | ||||||
300,000 | Altria Group, Inc., 3.88%, 9/16/46, Callable 3/16/46 @ 100 | 276,868 | ||||||
92,000 | Reynolds American, Inc., 3.25%, 6/12/20 | 94,269 | ||||||
1,300,000 | Reynolds American, Inc., 4.45%, 6/12/25, Callable 3/12/25 @ 100 | 1,372,554 | ||||||
1,025,000 | Reynolds American, Inc., 5.85%, 8/15/45, Callable 2/15/45 @ 100 | 1,213,729 | ||||||
|
| |||||||
3,549,933 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.1%): | ||||||||
290,000 | Air Lease Corp., 2.13%, 1/15/20^ | 285,672 | ||||||
170,000 | Air Lease Corp., 3.38%, 6/1/21, Callable 5/1/21 @ 100 | 172,355 | ||||||
1,315,000 | Air Lease Corp., 3.00%, 9/15/23, Callable 7/15/23 @ 100 | 1,256,333 | ||||||
825,000 | GATX Corp., 2.50%, 7/30/19 | 826,255 | ||||||
|
| |||||||
2,540,615 | ||||||||
|
| |||||||
Wireless Telecommunication Services (0.3%): | ||||||||
5,900,000 | Sprint Spectrum, 3.36%, 3/20/23(c) | 5,911,033 | ||||||
|
| |||||||
Total Corporate Bonds (Cost $382,770,786) | 374,813,153 | |||||||
|
| |||||||
Yankee Dollars (4.2%): | ||||||||
Auto Components (0.0%): | ||||||||
615,000 | Delphi Automotive plc, 4.40%, 10/1/46, Callable 4/1/46 @ 100^ | 565,056 | ||||||
|
|
Principal Amount | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Banks (1.2%): | ||||||||
$ | 1,045,000 | Barclays Bank plc, 2.75%, 11/8/19 | $ | 1,042,241 | ||||
210,000 | Barclays Bank plc, 5.14%, 10/14/20 | 221,782 | ||||||
3,168,000 | Barclays Bank plc, 4.38%, 1/12/26 | 3,208,620 | ||||||
1,250,000 | BNP Paribas SA, 4.38%, 5/12/26(c) | 1,232,000 | ||||||
1,375,000 | BPCE SA, 5.70%, 10/22/23(c) | 1,445,514 | ||||||
1,092,000 | Federal Republic of Germany, 1.50%, 2/6/19 | 1,091,462 | ||||||
2,785,000 | HSBC Holdings plc, 4.38%, 11/23/26^ | 2,805,676 | ||||||
1,115,000 | ING Bank NV, 3.75%, 3/7/17(c) | 1,119,715 | ||||||
630,000 | ING Bank NV, 1.80%, 3/16/18(c) | 629,196 | ||||||
1,114,000 | ING Bank NV, 5.80%, 9/25/23^(c) | 1,224,051 | ||||||
1,439,000 | Lloyds Banking Group plc, 4.65%, 3/24/26^ | 1,457,552 | ||||||
805,000 | Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden NV, Series G, 1.50%, 2/12/18(c) | 805,590 | ||||||
215,000 | Nordea Bank AB, 1.88%, 9/17/18(c) | 214,894 | ||||||
2,670,000 | Royal Bank of Canada, 2.20%, 9/23/19 | 2,684,781 | ||||||
1,985,000 | Santander UK Group Holdings plc, 2.88%, 10/16/20^ | 1,967,117 | ||||||
708,000 | Santander UK Group Holdings plc, 2.88%, 8/5/21^ | 692,321 | ||||||
240,000 | Santander UK plc, 7.95%, 10/26/29 | 279,696 | ||||||
|
| |||||||
22,122,208 | ||||||||
|
| |||||||
Biotechnology (0.1%): | ||||||||
455,000 | Shire Acq INV Ireland DA, 1.90%, 9/23/19 | 449,232 | ||||||
495,000 | Shire Acq INV Ireland DA, 2.40%, 9/23/21, Callable 8/23/21 @ 100 | 478,164 | ||||||
500,000 | Shire Acq INV Ireland DA, 2.88%, 9/23/23, Callable 7/23/23 @ 100 | 475,224 | ||||||
1,165,000 | Shire Acq INV Ireland DA, 3.20%, 9/23/26, Callable 6/23/26 @ 100 | 1,088,499 | ||||||
|
| |||||||
2,491,119 | ||||||||
|
| |||||||
Capital Markets (0.6%): | ||||||||
1,515,000 | CDP Financial, Inc., 4.40%, 11/25/19(c) | 1,616,222 | ||||||
770,000 | Credit Suisse AG, NY, 1.70%, 4/27/18 | 768,303 | ||||||
2,000,000 | Credit Suisse AG, NY, 3.00%, 10/29/21 | 2,019,110 | ||||||
360,000 | Credit Suisse GP Funding, Ltd., 3.45%, 4/16/21 | 362,272 | ||||||
1,035,000 | Credit Suisse Group Fun, Ltd., 2.75%, 3/26/20^ | 1,026,017 | ||||||
254,000 | Credit Suisse Group Fund, Ltd., 3.80%, 6/9/23 | 253,720 | ||||||
250,000 | Credit Suissen AG, NY, 3.63%, 9/9/24 | 251,670 | ||||||
290,000 | Deutsche Bank AG London, 1.35%, 5/30/17 | 289,372 | ||||||
2,790,000 | FMS Wertmanagement, 1.63%, 11/20/18 | 2,799,631 | ||||||
280,000 | Nomura Holdings, Inc., 2.75%, 3/19/19 | 282,650 | ||||||
930,000 | UBS Group Funding, 2.65%, 2/1/22(c) | 903,862 | ||||||
|
| |||||||
10,572,829 | ||||||||
|
| |||||||
Chemicals (0.0%): | ||||||||
345,000 | Agrium, Inc., 4.13%, 3/15/35, Callable 9/15/34 @ 100 | 316,328 | ||||||
200,000 | Air Liquid Finance, 2.25%, 9/27/23, Callable 7/27/23 @ 100(c) | 190,430 | ||||||
|
| |||||||
506,758 | ||||||||
|
| |||||||
Diversified Financial Services (0.0%): | ||||||||
245,000 | Corp. Financiera de Desarrollo SA, 4.75%, 7/15/25(c) | 255,106 | ||||||
635,000 | Export Development Canada, 0.88%, 8/27/18(c) | 630,050 | ||||||
|
| |||||||
885,156 | ||||||||
|
|
Continued
14
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Food Products (0.2%): | ||||||||
3,050,000 | Danone SA, 2.95%, 11/2/26, Callable 8/2/26 @ 100(c) | $ | 2,910,563 | |||||
|
| |||||||
Insurance (0.1%): | ||||||||
1,210,000 | Aon plc, 3.88%, 12/15/25, Callable 9/15/25 @ 100^ | 1,233,335 | ||||||
685,000 | Aon plc, 4.60%, 6/14/44, Callable 3/14/44 @ 100 | 676,729 | ||||||
200,000 | Aon plc, 4.75%, 5/15/45, Callable 11/15/44 @ 100 | 202,157 | ||||||
500,000 | Trinity Acquistion plc, 4.40%, 3/15/26, Callable 12/15/25 @ 100 | 506,127 | ||||||
|
| |||||||
2,618,348 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.3%): | ||||||||
140,000 | BP Capital Markets plc, 1.39%, 5/10/18(a) | 140,237 | ||||||
633,000 | Canadian Natural Resources, 3.90%, 2/1/25, Callable 11/1/24 @ 100 | 634,871 | ||||||
660,000 | Canadian Natural Resources, 6.25%, 3/15/38 | 750,859 | ||||||
555,000 | Ecopetrol SA, 4.13%, 1/16/25 | 519,758 | ||||||
90,000 | Enbridge, Inc., 3.50%, 6/10/24, Callable 3/10/24 @ 100 | 87,652 | ||||||
107,000 | Petroleos Mexicanos, 6.00%, 3/5/20 | 112,858 | ||||||
22,000 | Petroleos Mexicanos, 6.88%, 8/4/26(c) | 23,210 | ||||||
925,000 | Petroleos Mexicanos, 6.50%, 3/13/27^(c) | 954,138 | ||||||
490,000 | Petroleos Mexicanos, 6.50%, 6/2/41 | 458,910 | ||||||
1,503,000 | Petroleos Mexicanos, 5.63%, 1/23/46 | 1,247,489 | ||||||
215,000 | Shell International Finance BV, 2.13%, 5/11/20 | 214,743 | ||||||
800,000 | Shell International Finance BV, 1.75%, 9/12/21^ | 777,418 | ||||||
1,000,000 | Shell International Finance BV, 2.50%, 9/12/26 | 938,265 | ||||||
280,000 | Shell International Finance BV, 4.13%, 5/11/35 | 285,897 | ||||||
12,000 | Shell International Finance BV, 4.55%, 8/12/43 | 12,514 | ||||||
22,000 | Shell International Finance BV, 4.38%, 5/11/45 | 22,285 | ||||||
250,000 | Shell International Finance BV, 3.75%, 9/12/46 | 230,036 | ||||||
516,000 | Suncor Energy, Inc., 6.80%, 5/15/38 | 669,134 | ||||||
|
| |||||||
8,080,274 | ||||||||
|
| |||||||
Pharmaceuticals (1.1%): | ||||||||
5,570,000 | Actavis Funding SCS, 3.00%, 3/12/20, Callable 2/12/20 @ 100^ | 5,647,218 | ||||||
1,000,000 | Actavis Funding SCS, 3.45%, 3/15/22, Callable 1/15/22 @ 100 | 1,015,009 | ||||||
175,000 | Actavis Funding SCS, 3.85%, 6/15/24, Callable 3/15/24 @ 100 | 176,560 | ||||||
2,260,000 | Actavis Funding SCS, 3.80%, 3/15/25, Callable 12/15/24 @ 100 | 2,262,662 | ||||||
521,000 | Actavis Funding SCS, 4.75%, 3/15/45, Callable 9/15/44 @ 100 | 511,483 | ||||||
2,255,000 | Mylan NV, 3.15%, 6/15/21, Callable 5/15/21 @ 100(c) | 2,213,028 | ||||||
2,064,000 | Mylan NV, 3.95%, 6/15/26, Callable 3/15/26 @ 100^(c) | 1,931,590 | ||||||
720,000 | Mylan NV, 5.25%, 6/15/46, Callable 12/15/45 @ 100^(c) | 664,051 | ||||||
670,000 | Takeda Pharmaceutical Co., Ltd., 1.63%, 3/17/17(c) | 670,594 | ||||||
600,000 | Teva Pharmaceutical Finance BV, 2.95%, 12/18/22 | 578,159 |
Principal Amount | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Pharmaceuticals, continued | ||||||||
$ | 1,390,000 | Teva Pharmaceuticals Industries, Ltd., 2.20%, 7/21/21^ | $ | 1,329,795 | ||||
1,395,000 | Teva Pharmaceuticals Industries, Ltd., 2.80%, 7/21/23^ | 1,320,494 | ||||||
1,055,000 | Teva Pharmaceuticals Industries, Ltd., 3.15%, 10/1/26^ | 972,633 | ||||||
375,000 | Teva Pharmaceuticals Ne, 1.40%, 7/20/18 | 371,942 | ||||||
1,400,000 | Teva Pharmaceuticals Ne, 4.10%, 10/1/46^ | 1,199,607 | ||||||
|
| |||||||
20,864,825 | ||||||||
|
| |||||||
Sovereign Bonds (0.6%): | ||||||||
620,000 | Canada Government, 1.63%, 2/27/19 | 622,750 | ||||||
589,561 | Oriental Republic of Uruguay, 4.50%, 8/14/24 | 614,617 | ||||||
600,000 | Oriental Republic of Uruguay, 4.38%, 10/27/27 | 601,530 | ||||||
689,000 | Province of Manitoba Canada, 3.05%, 5/14/24 | 702,073 | ||||||
870,000 | Province of Quebec, 2.50%, 4/20/26 | 837,394 | ||||||
595,000 | Republic of Colombia, 4.50%, 1/28/26, Callable 10/28/25 @ 100 | 612,850 | ||||||
575,000 | Republic of Panama, 4.00%, 9/22/24, Callable 6/22/24 @ 100 | 585,063 | ||||||
281,000 | Republic of Peru, 5.63%, 11/18/50 | 318,233 | ||||||
1,079,000 | Republic of Turkey, 4.25%, 4/14/26 | 959,119 | ||||||
262,000 | United Mexican States, Series E, 3.50%, 1/21/21^ | 266,192 | ||||||
6,007,000 | United Mexican States, 4.13%, 1/21/26^ | 5,958,944 | ||||||
|
| |||||||
12,078,765 | ||||||||
|
| |||||||
Wireless Telecommunication Services (0.0%): | ||||||||
95,000 | Rogers Communications, Inc., 3.63%, 12/15/25, Callable 9/15/25 @ 100 | 96,064 | ||||||
130,000 | Rogers Communications, Inc., 5.00%, 3/15/44, Callable 9/15/43 @ 100 | 139,061 | ||||||
|
| |||||||
235,125 | ||||||||
|
| |||||||
Total Yankee Dollars (Cost $85,922,002) | 83,931,026 | |||||||
|
| |||||||
Municipal Bonds (0.4%): | ||||||||
California (0.0%): | ||||||||
347,000 | University of California Revenue, 4.77%, 5/15/2115 | 331,753 | ||||||
50,000 | University of California Revenue, 4.86%, 5/15/2112 | 48,326 | ||||||
700,000 | California State, 5.00%, 9/1/42, Continously Callable @100 | 768,480 | ||||||
360,000 | California State Health Facilities Financing Authority Revenue, Series A, 5.00%, 8/15/52, Continously Callable @100 | 387,209 | ||||||
|
| |||||||
1,535,768 | ||||||||
|
| |||||||
Illinois (0.0%): | ||||||||
595,000 | Illinois State, 5.50%, 7/1/24, Continously Callable @100 | 627,130 | ||||||
|
| |||||||
Nevada (0.2%): | ||||||||
1,100,000 | Las Vegas Valley Nevada Water District, 5.00%, 6/1/39, Continously Callable @100 | 1,235,673 | ||||||
|
| |||||||
Massachusetts (0.0%): | ||||||||
450,000 | Massachusetts State School Building Authority Sales Tax Revenue, Series B, 5.00%, 10/15/41, Continously Callable @100 | 500,351 | ||||||
|
|
Continued
15
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
Municipal Bonds, continued | ||||||||
Missouri (0.0%): | ||||||||
$ | 460,000 | Metropolitan Saint Louis Sewer District West Water System Revenue, Series A, 5.00%, 5/1/42, Continously Callable @100 | $ | 507,546 | ||||
|
| |||||||
New Jersey (0.2%): | ||||||||
1,290,000 | New Jersey State Transportation Trust Fund Authority Revenue, Series AA, 5.00%, 6/15/36, Continously Callable @100 | 1,292,773 | ||||||
420,000 | New Jersey State Health Care Facilities Financing Authority Revenue, 5.00%, 7/1/44, Continously Callable @100 | 450,034 | ||||||
|
| |||||||
1,742,807 | ||||||||
|
| |||||||
New York (0.0%): | ||||||||
540,000 | New York State Urban Development Corp. Revenue, Series E, 5.00%, 3/15/24, Continously Callable @100 | 627,097 | ||||||
670,000 | New York City Municipal Finance Authority Water & Sewer System Revenue, Series EE, 5.00%, 6/15/47, Continously Callable @100 | 743,010 | ||||||
|
| |||||||
1,370,107 | ||||||||
|
| |||||||
Total Municipal Bonds (Cost $7,458,751) | 7,519,382 | |||||||
|
| |||||||
U.S. Government Agency Mortgages (29.6%): | ||||||||
Federal Home Loan Mortgage Corporation (7.2%) | ||||||||
2,052,633 | 2.50%, 2/1/24, Pool #G14989 | 2,089,529 | ||||||
591,000 | 4.29%, 9/15/29(d) | 380,644 | ||||||
116,888 | 3.00%, 1/1/30, Pool #V60724 | 120,199 | ||||||
83,267 | 3.00%, 1/1/30, Pool #V60696 | 85,624 | ||||||
166,038 | 2.50%, 3/1/30, Pool #V60770 | 166,680 | ||||||
249,745 | 2.50%, 5/1/30, Pool #V60796 | 250,484 | ||||||
181,654 | 2.50%, 5/1/30, Pool #J31418 | 182,245 | ||||||
362,551 | 3.00%, 5/1/30, Pool #J31689 | 373,119 | ||||||
688,889 | 3.00%, 6/1/30, Pool #V60840 | 708,626 | ||||||
67,461 | 2.50%, 7/1/30, Pool #J32204 | 67,670 | ||||||
314,660 | 3.00%, 7/1/30, Pool #G15520 | 323,606 | ||||||
36,635 | 3.00%, 7/1/30, Pool #J32181 | 37,707 | ||||||
64,182 | 2.50%, 7/1/30, Pool #J32209 | 64,391 | ||||||
14,397 | 2.50%, 7/1/30, Pool #J32491 | 14,440 | ||||||
19,502 | 2.50%, 7/1/30, Pool #V60905 | 19,560 | ||||||
203,890 | 2.50%, 9/1/30, Pool #V60903 | 204,524 | ||||||
423,327 | 3.00%, 8/1/30, Pool #V60908 | 435,469 | ||||||
65,579 | 3.00%, 8/1/30, Pool #V60909 | 67,461 | ||||||
277,920 | 2.50%, 8/1/30, Pool #V60886 | 278,825 | ||||||
42,038 | 3.00%, 8/1/30, Pool #J32436 | �� | 43,234 | |||||
208,278 | 2.50%, 8/1/30, Pool #V60902 | 208,956 | ||||||
420,914 | 2.50%, 9/1/30, Pool #V60904 | 422,159 | ||||||
197,000 | 4.48%, 3/15/31(d) | 119,703 | ||||||
190,000 | 6.75%, 3/15/31 | 267,784 | ||||||
94,309 | 5.00%, 7/1/35, Pool #G01840 | 103,676 | ||||||
121,807 | 5.00%, 7/1/35, Pool #G01838 | 133,797 | ||||||
1,025,905 | 5.00%, 2/1/38, Pool #G60365 | 1,127,255 | ||||||
319,620 | 6.00%, 4/1/39, Pool #G07613 | 371,997 | ||||||
61,896 | 4.50%, 12/1/39, Pool #A90196 | 66,784 | ||||||
54,333 | 4.50%, 7/1/40, Pool #A93010 | 58,323 | ||||||
71,889 | 4.00%, 8/1/40, Pool #A93534 | 75,526 | ||||||
65,381 | 4.00%, 10/1/40, Pool #A95923 | 69,205 | ||||||
63,945 | 4.00%, 11/1/40, Pool #A94779 | 67,726 |
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal Home Loan Mortgage Corporatio, continued | ||||||||
$ | 63,723 | 4.00%, 11/1/40, Pool #A94977 | $ | 67,496 | ||||
60,646 | 4.00%, 11/1/40, Pool #A95144 | 63,916 | ||||||
76,393 | 3.12%, 3/1/41, Pool #1B8062(a) | 80,207 | ||||||
4,031 | 4.00%, 4/1/41, Pool #Q00093 | 4,256 | ||||||
203,148 | 4.50%, 5/1/41, Pool #Q00959 | 218,059 | ||||||
193,527 | 4.50%, 5/1/41, Pool #Q00804 | 208,273 | ||||||
| 873,045 | | Class FL, Series 4248, 1.15%, 5/15/41(a) | 873,048 | ||||
1,025,555 | 5.50%, 6/1/41, Pool #G07553 | 1,142,306 | ||||||
123,227 | 4.00%, 10/1/41, Pool #Q04022 | 130,467 | ||||||
65,498 | 4.00%, 10/1/41, Pool #Q03841 | 69,348 | ||||||
855,037 | 3.50%, 10/1/41, Pool #G08462 | 880,851 | ||||||
206,117 | 5.00%, 10/1/41, Pool #G07642 | 224,964 | ||||||
1,909,551 | 5.00%, 11/1/41, Pool #G07962 | 2,083,497 | ||||||
420,926 | 3.50%, 4/1/42, Pool #C03811 | 433,630 | ||||||
155,105 | 2.03%, 7/1/42, Pool #2B0646(a) | 161,969 | ||||||
64,346 | 3.50%, 8/1/42, Pool #Q12162 | 66,289 | ||||||
60,541 | 3.50%, 10/1/42, Pool #Q11750 | 62,348 | ||||||
36,273 | 3.50%, 10/1/42, Pool #Q11909 | 37,234 | ||||||
388,361 | 3.00%, 12/1/42, Pool #C04320 | 388,202 | ||||||
454,055 | 3.00%, 1/1/43, Pool #Q14866 | 453,870 | ||||||
78,817 | 3.50%, 2/1/43, Pool #Q15442 | 81,342 | ||||||
308,097 | 3.00%, 3/1/43, Pool #Q16403 | 307,971 | ||||||
434,886 | 3.00%, 3/1/43, Pool #Q16673 | 434,709 | ||||||
543,093 | 3.00%, 3/1/43, Pool #Q16567 | 542,872 | ||||||
150,766 | 3.00%, 4/1/43, Pool #Q17095 | 150,704 | ||||||
201,201 | 3.50%, 6/1/43, Pool #Q18718 | 207,151 | ||||||
301,113 | 3.50%, 7/1/43, Pool #Q20206 | 310,096 | ||||||
311,898 | 3.50%, 7/1/43, Pool #Q20021 | 321,894 | ||||||
209,857 | 3.50%, 8/1/43, Pool #Q21320 | 216,017 | ||||||
1,620,213 | 3.00%, 8/1/43, Pool #G07550 | 1,619,552 | ||||||
690,498 | 3.50%, 8/1/43, Pool #V80355 | 712,628 | ||||||
4,826,332 | 3.00%, 9/1/43, Pool #G60675 | 4,821,015 | ||||||
141,058 | 4.00%, 9/1/43, Pool #Q21579 | 149,421 | ||||||
532,330 | 4.50%, 12/1/43, Pool #Q23779 | 572,808 | ||||||
488,082 | 4.50%, 12/1/43, Pool #G60018 | 527,619 | ||||||
35,809 | 3.50%, 1/1/44, Pool #Q24368 | 36,877 | ||||||
1,700,000 | 2.50%, 1/15/44, Pool #G20500, TBA | 1,615,288 | ||||||
786,372 | Class XZ, Series 4316, 4.50%, 3/15/44 | 884,966 | ||||||
28,082 | 3.50%, 4/1/44, Pool #Q25812 | 28,900 | ||||||
216,699 | 4.00%, 4/1/44, Pool #Q25643 | 228,713 | ||||||
1,171,286 | Class ZX, Series 4352, 4.00%, 4/15/44 | 1,233,759 | ||||||
21,836 | 3.50%, 5/1/44, Pool #Q25988 | 22,488 | ||||||
41,502 | 3.50%, 5/1/44, Pool #Q26218 | 42,830 | ||||||
29,504 | 3.50%, 5/1/44, Pool #Q26452 | 30,382 | ||||||
76,231 | 3.50%, 5/1/44, Pool #Q26362 | 78,505 | ||||||
36,843 | 3.50%, 6/1/44, Pool #Q26707 | 37,938 | ||||||
35,444 | 3.50%, 7/1/44, Pool #Q27319 | 36,573 | ||||||
151,307 | 3.50%, 8/1/44, Pool #Q27843 | 155,810 | ||||||
810,196 | 4.00%, 8/1/44, Pool #G07786 | 858,199 | ||||||
65,746 | 3.50%, 9/1/44, Pool #Q28604 | 67,757 | ||||||
716,458 | 4.50%, 9/1/44, Pool #G60198 | 770,026 | ||||||
157,608 | 3.50%, 9/1/44, Pool #Q28605 | 162,310 | ||||||
62,229 | 4.00%, 2/1/45, Pool #Q31338 | 65,805 | ||||||
26,941 | 4.00%, 2/1/45, Pool #Q31128 | 28,488 | ||||||
12,152,769 | 4.00%, 9/1/45, Pool #Q36148 | 12,770,077 | ||||||
41,650 | 3.50%, 9/1/45, Pool #Q36302 | 42,943 |
Continued
16
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal Home Loan Mortgage Corporation, continued | ||||||||
$ | 4,111,556 | 4.00%, 10/1/45, Pool #Q36814 | $ | 4,320,233 | ||||
403,089 | 4.00%, 10/1/45, Pool #Q36972 | 425,838 | ||||||
637,829 | 4.00%, 10/1/45, Pool #G08672 | 670,231 | ||||||
13,166 | 4.00%, 12/1/45, Pool #Q37738 | 13,838 | ||||||
60,959 | 4.00%, 12/1/45, Pool #Q37955 | 64,471 | ||||||
77,446 | 4.00%, 12/1/45, Pool #Q37957 | 81,750 | ||||||
12,001,553 | 4.00%, 1/1/46, Pool #G08688 | 12,612,256 | ||||||
9,715 | 4.00%, 1/1/46, Pool #Q38422 | 10,209 | ||||||
67,297 | 4.00%, 1/1/46, Pool #Q38076 | 70,728 | ||||||
300,000 | 6.00%, 1/15/46, Pool #26965, TBA | 338,859 | ||||||
2,600,000 | 5.50%, 1/15/46, TBA | 2,882,750 | ||||||
4,799,943 | 3.50%, 1/15/46, TBA | 4,914,868 | ||||||
10,933,922 | 3.50%, 6/1/46, Pool #G08711 | 11,206,015 | ||||||
11,240,859 | 3.00%, 8/1/46, Pool #G60717 | 11,173,826 | ||||||
1,037,073 | Class FB, Series 4606, 1.20%, 8/15/46(a) | 1,029,938 | ||||||
4,481,718 | 3.00%, 9/1/46, Pool #Q43104 | 4,457,660 | ||||||
6,857,763 | 4.00%, 9/1/46, Pool #G08723 | 7,217,053 | ||||||
2,486,669 | 3.00%, 9/1/46, Pool #Q42979 | 2,472,549 | ||||||
646,078 | 3.00%, 9/1/46, Pool #G60718 | 642,410 | ||||||
4,172,307 | 4.00%, 10/1/46, Pool #G08728 | 4,389,612 | ||||||
10,980,839 | 3.50%, 1/1/47, Pool #G08742 | 11,254,677 | ||||||
2,727,555 | 3.00%, 12/1/46, Pool #V82848 | 2,716,296 | ||||||
6,334,695 | 3.50%, 12/1/46, Pool #G08738 | 6,492,670 | ||||||
678,373 | 3.00%, 12/1/46, Pool #Q45064 | 674,521 | ||||||
294,746 | 3.00%, 12/1/46, Pool #Q45079 | 293,712 | ||||||
341,398 | 3.00%, 12/1/46, Pool #Q45080 | 339,989 | ||||||
699,464 | 3.00%, 12/1/46, Pool #Q44853 | 695,709 | ||||||
178,530 | 3.00%, 12/1/46, Pool #Q45083 | 178,125 | ||||||
6,709,000 | 4.50%, 1/15/47, TBA | 7,201,258 | ||||||
|
| |||||||
145,673,642 | ||||||||
|
| |||||||
Federal National Mortgage Association (16.6%) | ||||||||
35,664 | 5.50%, 1/1/18, Pool #680928 | 36,073 | ||||||
52,435 | 4.00%, 7/1/19, Pool #AE0968 | 53,954 | ||||||
50,016 | 5.50%, 3/1/20, Pool #888557 | 51,142 | ||||||
795,000 | 1.25%, 8/17/21^ | 768,344 | ||||||
193,853 | 5.50%, 5/1/25, Pool #AE0378 | 199,869 | ||||||
255,489 | 5.50%, 7/1/25, Pool #AE0096 | 283,776 | ||||||
33,188 | 5.50%, 9/1/25, Pool #AL4903 | 34,203 | ||||||
2,355,606 | 3.50%, 12/1/25, Pool #AH1359 | 2,459,751 | ||||||
298,859 | 4.00%, 9/1/26, Pool #AL2683 | 315,645 | ||||||
209,984 | 4.00%, 12/1/26, Pool #AL1938 | 220,238 | ||||||
2,796,927 | 4.00%, 5/1/27, Pool #AL5956 | 2,952,369 | ||||||
2,121,863 | 3.50%, 9/1/28, Pool #AL4245 | 2,226,052 | ||||||
647,524 | 3.50%, 10/1/28, Pool #AV0198 | 679,160 | ||||||
813,922 | 3.50%, 11/1/28, Pool #AV1360 | 853,653 | ||||||
608,725 | 3.50%, 2/1/29, Pool #AL4922 | 638,474 | ||||||
687,496 | 3.00%, 4/1/29, Pool #AW0937 | 706,923 | ||||||
481,307 | 3.00%, 5/1/29, Pool #AW2544 | 495,090 | ||||||
935,809 | 3.00%, 6/1/29, Pool #AS2676 | 962,300 | ||||||
2,073,331 | 3.50%, 8/1/29, Pool #AL5884 | 2,174,914 | ||||||
672,526 | 3.50%, 9/1/29, Pool #AL5806 | 705,557 | ||||||
399,952 | 3.50%, 9/1/29, Pool #AX0105 | 416,937 | ||||||
648,814 | 3.00%, 9/1/29, Pool #AS3220 | 667,205 | ||||||
166,408 | 3.00%, 9/1/29, Pool #AS3355 | 171,185 | ||||||
1,918,597 | 3.00%, 9/1/29, Pool #AL6897 | 1,973,687 |
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal National Mortgage Association, continued | ||||||||
$ | 82,061 | 3.50%, 10/1/29, Pool #AX2741 | $ | 86,092 | ||||
2,927,113 | 3.50%, 12/1/29, Pool #AL6161 | 3,078,525 | ||||||
1,235,494 | 3.00%, 1/1/30, Pool #AL6144 | 1,270,495 | ||||||
2,605,000 | 4.22%, 1/15/30(d) | 1,670,967 | ||||||
248,436 | 3.00%, 3/1/30, Pool #AL6583 | 255,575 | ||||||
214,405 | 3.00%, 4/1/30, Pool #AL6584 | 220,478 | ||||||
173,288 | 2.50%, 4/1/30, Pool #AY3416 | 173,816 | ||||||
86,670 | 2.50%, 5/1/30, Pool #AY0828 | 86,984 | ||||||
124,184 | 3.00%, 5/1/30, Pool #AL6761 | 127,750 | ||||||
3,901,000 | 4.09%, 5/15/30(d) | 2,508,565 | ||||||
179,297 | 3.00%, 7/1/30, Pool #AX9701 | 184,425 | ||||||
167,530 | 3.00%, 7/1/30, Pool #AL7139 | 172,310 | ||||||
57,759 | 3.00%, 7/1/30, Pool #AX9700 | 59,434 | ||||||
34,923 | 3.00%, 7/1/30, Pool #AZ2297 | 35,893 | ||||||
75,618 | 2.50%, 7/1/30, Pool #AZ2170 | 75,845 | ||||||
167,870 | 2.50%, 8/1/30, Pool #AS5614 | 168,374 | ||||||
309,588 | 3.00%, 8/1/30, Pool #AL7225 | 318,427 | ||||||
104,316 | 3.00%, 8/1/30, Pool #AL7226 | 107,222 | ||||||
44,695 | 3.50%, 8/1/30, Pool #AS5707 | 46,859 | ||||||
49,562 | 3.00%, 8/1/30, Pool #AZ7833 | 51,001 | ||||||
21,360 | 3.00%, 8/1/30, Pool #AZ8597 | 21,980 | ||||||
183,543 | 3.50%, 8/1/30, Pool #AS5708 | 193,297 | ||||||
43,981 | 3.00%, 8/1/30, Pool #AX3298 | 45,258 | ||||||
129,278 | 2.50%, 8/1/30, Pool #AS5548 | 129,648 | ||||||
324,344 | 2.50%, 8/1/30, Pool #AS5616 | 325,230 | ||||||
234,777 | 3.00%, 8/1/30, Pool #AS5623 | 241,433 | ||||||
230,595 | 3.00%, 8/1/30, Pool #AS5622 | 237,184 | ||||||
279,768 | 3.00%, 8/1/30, Pool #AL7227 | 287,686 | ||||||
183,745 | 2.50%, 9/1/30, Pool #AS5872 | 184,297 | ||||||
97,251 | 3.00%, 9/1/30, Pool #AZ5719 | 99,948 | ||||||
156,091 | 2.50%, 9/1/30, Pool #AS5786 | 156,538 | ||||||
161,186 | 3.00%, 9/1/30, Pool #AS5714 | 165,797 | ||||||
218,102 | 3.00%, 9/1/30, Pool #AS5728 | 224,425 | ||||||
181,858 | 2.50%, 11/1/30, Pool #AS6141 | 182,404 | ||||||
160,114 | 2.50%, 11/1/30, Pool #AS6142 | 160,579 | ||||||
178,964 | 2.50%, 11/1/30, Pool #AS6116 | 179,405 | ||||||
177,339 | 2.50%, 11/1/30, Pool #AS6115 | 177,828 | ||||||
200,000 | 4.50%, 1/25/31, TBA | 205,203 | ||||||
10,429,000 | 3.00%, 1/25/31, TBA | 10,701,947 | ||||||
1,900,000 | 5.00%, 1/25/31, TBA | 1,940,227 | ||||||
2,223,000 | 2.50%, 1/25/31, TBA | 2,226,517 | ||||||
264,163 | 2.50%, 6/1/31, Pool #AS7320 | 264,972 | ||||||
487,845 | 2.50%, 7/1/31, Pool #AS7617 | 489,339 | ||||||
314,063 | 2.50%, 7/1/31, Pool #AS7605 | 315,024 | ||||||
65,500 | 4.00%, 8/1/31, Pool #AY4688 | 68,771 | ||||||
97,272 | 4.00%, 8/1/31, Pool #AY4707 | 104,871 | ||||||
763,153 | 2.50%, 10/1/31, Pool #AS8208 | 765,509 | ||||||
444,192 | 2.50%, 10/1/31, Pool #AS8009 | 445,495 | ||||||
601,887 | 2.50%, 10/1/31, Pool #AS8193 | 603,652 | ||||||
1,848,470 | 2.50%, 10/1/31, Pool #AS8195 | 1,855,313 | ||||||
3,734,559 | 2.50%, 10/1/31, Pool #BC4773 | 3,748,401 | ||||||
437,506 | 2.50%, 11/1/31, Pool #AS8240 | 438,857 | ||||||
396,618 | 2.50%, 11/1/31, Pool #AS8241 | 397,781 | ||||||
252,398 | 2.50%, 11/1/31, Pool #BC2628 | 253,333 | ||||||
331,275 | 2.50%, 11/1/31, Pool #AS8245 | 332,503 | ||||||
518,127 | 2.50%, 11/1/31, Pool #BC2631 | 519,567 |
Continued
17
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal National Mortgage Association, continued | ||||||||
$ | 273,291 | 2.50%, 11/1/31, Pool #BC2629 | $ | 274,135 | ||||
4,000,000 | 2.00%, 1/25/32, TBA | 3,895,078 | ||||||
219,812 | 5.50%, 1/1/33, Pool #676661 | 246,422 | ||||||
152,614 | 5.50%, 5/1/33, Pool #555424 | 170,948 | ||||||
358,740 | 5.50%, 2/1/35, Pool #735989 | 402,298 | ||||||
1,277,391 | 5.00%, 2/1/35, Pool #735226 | 1,400,204 | ||||||
31,745 | 6.00%, 4/1/35, Pool #735504 | 36,510 | ||||||
301,197 | 4.00%, 1/1/36, Pool #AB0686 | 318,943 | ||||||
851,375 | 5.50%, 9/1/36, Pool #995113 | 954,864 | ||||||
73,750 | 3.00%, 10/1/36, Pool #AL9227 | 74,711 | ||||||
517,188 | 3.00%, 11/1/36, Pool #AS8348 | 523,926 | ||||||
216,583 | 3.00%, 11/1/36, Pool #AS8349 | 219,405 | ||||||
2,637,085 | 3.00%, 12/1/36, Pool #BE1895 | 2,671,440 | ||||||
508,428 | 3.00%, 12/1/36, Pool #BE1896 | 515,052 | ||||||
618,050 | 3.00%, 12/1/36, Pool #AS8553 | 626,102 | ||||||
59,559 | 5.50%, 2/1/38, Pool #961545 | 66,524 | ||||||
27,932 | 6.00%, 3/1/38, Pool #889529 | 32,073 | ||||||
153,037 | 5.50%, 5/1/38, Pool #889441 | 171,064 | ||||||
208,347 | 5.50%, 5/1/38, Pool #889692 | 232,626 | ||||||
90,710 | 6.00%, 5/1/38, Pool #889466 | 104,542 | ||||||
141,165 | 5.50%, 6/1/38, Pool #995018 | 157,474 | ||||||
39,245 | 5.50%, 9/1/38, Pool #889995 | 43,808 | ||||||
97,157 | 6.00%, 10/1/38, Pool #889983 | 110,049 | ||||||
187,198 | 4.50%, 4/1/39, Pool #930922 | 202,103 | ||||||
194,886 | 4.50%, 5/1/39, Pool #AL1472 | 210,718 | ||||||
400,155 | 5.00%, 6/1/39, Pool #AL7521 | 438,962 | ||||||
1,401,839 | 6.00%, 7/1/39, Pool #BF0056 | 1,572,412 | ||||||
104,907 | 5.50%, 10/1/39, Pool #AD0362 | 117,674 | ||||||
100,279 | 5.50%, 12/1/39, Pool #AD0571 | 112,346 | ||||||
12,713,626 | 4.50%, 1/1/40, POOL #AC8568 | 13,697,370 | ||||||
69,066 | 4.50%, 4/1/40, Pool #AD4038 | 74,837 | ||||||
639,739 | 6.00%, 4/1/40, Pool #AL4141 | 724,503 | ||||||
124,018 | 6.50%, 5/1/40, Pool #AL1704 | 140,897 | ||||||
272,732 | 4.00%, 7/1/40, Pool #AE0113 | 286,951 | ||||||
256,555 | 4.50%, 7/1/40, Pool #AD7127 | 275,938 | ||||||
141,545 | 4.50%, 7/1/40, Pool #AB1226 | 152,557 | ||||||
487,108 | 4.00%, 8/1/40, Pool #AE0216 | 513,073 | ||||||
7,198 | 4.00%, 8/1/40, Pool #AD9136 | 7,592 | ||||||
67,030 | 6.00%, 9/1/40, Pool #AE0823 | 75,866 | ||||||
540,491 | 4.00%, 10/1/40, Pool #AE7535 | 569,231 | ||||||
1,269,965 | 4.00%, 10/1/40, Pool #AB1614 | 1,344,344 | ||||||
86,540 | 4.00%, 11/1/40, Pool #AE8407 | 91,113 | ||||||
397,752 | 4.00%, 12/1/40, Pool #AH0946 | 419,664 | ||||||
58,828 | 4.00%, 12/1/40, Pool #AH0006 | 62,088 | ||||||
2,680,000 | Class CY, Series 2010-136, 4.00%, 12/25/40 | 2,868,092 | ||||||
125,228 | 4.00%, 1/1/41, Pool #AL7167 | 132,926 | ||||||
89,027 | 2.92%, 2/1/41, Pool #AH6958(a) | 93,074 | ||||||
907,220 | 4.00%, 4/1/41, Pool #AI1186 | 957,608 | ||||||
148,764 | 6.00%, 6/1/41, Pool #AL4142 | 168,718 | ||||||
1,637,945 | 5.00%, 7/1/41, Pool #AL7524 | 1,795,837 | ||||||
147,322 | 3.03%, 7/1/41, Pool #AL0533(a) | 155,959 | ||||||
83,591 | 4.50%, 7/1/41, Pool #AB3314 | 90,261 | ||||||
96,580 | 4.00%, 9/1/41, Pool #AI5228 | 101,570 | ||||||
1,885,454 | 5.50%, 9/1/41, Pool #AL8430 | 2,105,914 | ||||||
73,804 | 4.50%, 9/1/41, Pool #AI8961 | 79,940 |
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal National Mortgage Association, continued | ||||||||
$ | 1,088,798 | 4.00%, 9/1/41, Pool #AJ1541 | $ | 1,145,136 | ||||
65,788 | 4.00%, 10/1/41, Pool #AC9312 | 69,257 | ||||||
4,717,731 | 4.00%, 11/1/41, Pool #AJ4701 | 4,993,500 | ||||||
216,317 | 4.00%, 12/1/41, Pool #AB4054 | 229,910 | ||||||
73,457 | 4.00%, 12/1/41, Pool #AJ7684 | 78,079 | ||||||
73,239 | 3.50%, 1/1/42, Pool #AK2073 | 75,543 | ||||||
249,469 | 4.00%, 2/1/42, Pool #AB4530 | 263,479 | ||||||
101,791 | 3.50%, 4/1/42, Pool #AK7510 | 104,994 | ||||||
128,837 | 4.00%, 5/1/42, Pool #A02114 | 135,784 | ||||||
32,699 | 3.50%, 5/1/42, Pool #AO2881 | 33,598 | ||||||
134,022 | 4.00%, 5/1/42, Pool #AT6144 | 142,444 | ||||||
402,007 | 4.00%, 5/1/42, Pool #AO2961 | 424,582 | ||||||
63,394 | 3.50%, 6/1/42, Pool #AO3107 | 65,385 | ||||||
34,986 | 3.50%, 6/1/42, Pool #AO3048 | 36,086 | ||||||
55,684 | 3.50%, 6/1/42, Pool #AK9225 | 57,433 | ||||||
62,726 | 3.50%, 6/1/42, Pool #AL2168 | 64,693 | ||||||
145,711 | 4.00%, 6/1/42, Pool #AL2003 | 153,804 | ||||||
37,808 | 2.26%, 7/1/42, Pool #AO6482(a) | 39,542 | ||||||
4,821,177 | 4.00%, 7/1/42, Pool #AL2160 | 5,124,797 | ||||||
284,457 | 4.00%, 7/1/42, Pool #AL4244 | 302,355 | ||||||
115,457 | 4.00%, 7/1/42, Pool #AL2607 | 121,467 | ||||||
205,677 | 2.02%, 7/1/42, Pool #AP0006(a) | 216,714 | ||||||
73,629 | 3.50%, 7/1/42, Pool #AO9707 | 75,938 | ||||||
1,720,104 | 4.00%, 8/1/42, Pool #AL2242 | 1,810,060 | ||||||
71,865 | 4.00%, 9/1/42, Pool #AX3706 | 75,881 | ||||||
514,677 | 4.50%, 9/1/42, Pool #AL2482 | 554,144 | ||||||
149,643 | 4.00%, 9/1/42, Pool #AL2901 | 157,954 | ||||||
673,498 | 3.50%, 10/1/42, Pool #AB6512 | 694,440 | ||||||
81,137 | 3.50%, 10/1/42, Pool #AQ0393 | 83,792 | ||||||
182,911 | 3.00%, 10/1/42, Pool #AP9726 | 182,859 | ||||||
254,877 | 3.00%, 12/1/42, Pool #AB7425 | 254,804 | ||||||
1,172,053 | 3.00%, 12/1/42, Pool #AB7269 | 1,171,720 | ||||||
343,661 | 4.00%, 12/1/42, Pool #AL6055 | 365,279 | ||||||
317,155 | 3.00%, 12/1/42, Pool #AB7271 | 317,065 | ||||||
421,216 | 3.00%, 1/1/43, Pool #AB7565 | 421,097 | ||||||
767,767 | 3.00%, 1/1/43, Pool #AB7497 | 767,548 | ||||||
522,888 | 3.00%, 1/1/43, Pool #AB7755 | 522,739 | ||||||
843,711 | 3.00%, 1/1/43, Pool #AB7567 | 843,471 | ||||||
3,229,081 | 4.50%, 1/1/43, Pool #AL8206 | 3,479,297 | ||||||
756,092 | 3.00%, 1/1/43, Pool #AB7458 | 755,877 | ||||||
229,123 | 4.00%, 1/1/43, Pool #AL7369 | 241,393 | ||||||
350,832 | 3.50%, 2/1/43, Pool #AL2935 | 361,806 | ||||||
287,728 | 3.00%, 2/1/43, Pool #AB7762 | 287,646 | ||||||
289,882 | 3.00%, 2/1/43, Pool #AB8558 | 289,799 | ||||||
72,237 | 3.00%, 3/1/43, Pool #AB8712 | 72,217 | ||||||
851,092 | 3.50%, 3/1/43, Pool #AL3409 | 877,477 | ||||||
120,974 | 3.00%, 3/1/43, Pool #AR7568 | 120,939 | ||||||
135,405 | 3.00%, 3/1/43, Pool #AR7576 | 135,367 | ||||||
541,682 | 3.00%, 3/1/43, Pool #AB8701 | 541,528 | ||||||
188,456 | 3.00%, 3/1/43, Pool #AB8830 | 188,403 | ||||||
193,483 | 3.00%, 3/1/43, Pool #AR9218 | 193,428 | ||||||
568,939 | 3.00%, 3/1/43, Pool #AR9194 | 568,777 | ||||||
148,053 | 3.00%, 4/1/43, Pool #AB8924 | 148,011 | ||||||
153,041 | 3.00%, 4/1/43, Pool #AB8923 | 152,998 | ||||||
512,159 | 3.00%, 4/1/43, Pool #AB9016 | 512,013 |
Continued
18
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal National Mortgage Association, continued | ||||||||
$ | 69,998 | 3.00%, 4/1/43, Pool #AB9033 | $ | 69,978 | ||||
268,404 | 3.00%, 4/1/43, Pool #AT2040 | 268,327 | ||||||
84,113 | 3.00%, 4/1/43, Pool #AT2037 | 84,089 | ||||||
227,084 | 3.00%, 4/1/43, Pool #AR8630 | 227,019 | ||||||
152,796 | 3.00%, 4/1/43, Pool #AT2043 | 152,752 | ||||||
563,018 | 3.00%, 5/1/43, Pool #AT2719 | 562,858 | ||||||
214,813 | 3.00%, 5/1/43, Pool #AT6654 | 214,752 | ||||||
213,937 | 3.00%, 5/1/43, Pool #AL3759 | 213,876 | ||||||
261,739 | 3.00%, 5/1/43, Pool #AB9462 | 261,664 | ||||||
370,838 | 3.00%, 5/1/43, Pool #AB9173 | 370,733 | ||||||
33,875 | 3.50%, 6/1/43, Pool #AB9567 | 34,915 | ||||||
106,290 | 3.00%, 6/1/43, Pool #AT7676 | 106,259 | ||||||
303,435 | 3.00%, 6/1/43, Pool #AB9662 | 303,348 | ||||||
19,680 | 3.00%, 6/1/43, Pool #AB9564 | 19,674 | ||||||
283,159 | 3.50%, 7/1/43, Pool #AT8464 | 292,039 | ||||||
640,845 | 3.50%, 7/1/43, Pool #AL4010 | 660,707 | ||||||
3,748,841 | 3.00%, 7/1/43, Pool #AB9940 | 3,747,774 | ||||||
269,589 | 3.50%, 7/1/43, Pool #AT4327 | 278,439 | ||||||
783,903 | 3.50%, 7/1/43, Pool #AT7940 | 809,638 | ||||||
19,389 | 3.50%, 8/1/43, Pool #AT7333 | 19,996 | ||||||
79,720 | 3.50%, 8/1/43, Pool #AU3267 | 82,335 | ||||||
74,524 | 3.50%, 8/1/43, Pool #AU3270 | 76,821 | ||||||
162,611 | 3.50%, 8/1/43, Pool #AU0613 | 167,627 | ||||||
147,464 | 3.50%, 8/1/43, Pool #AU0570 | 152,013 | ||||||
713,349 | 3.50%, 8/1/43, Pool #AS0209 | 735,355 | ||||||
20,199 | 3.50%, 8/1/43, Pool #AU3032 | 20,832 | ||||||
25,542 | 3.50%, 9/1/43, Pool #AT7267 | 26,339 | ||||||
172,903 | 4.00%, 10/1/43, Pool #AL7577 | 182,547 | ||||||
31,313 | 3.50%, 10/1/43, Pool #AU7247 | 32,346 | ||||||
2,410,675 | 5.00%, 12/1/43, Pool #AL7777 | 2,635,290 | ||||||
764,981 | 3.50%, 12/1/43, Pool #AL4682 | 790,124 | ||||||
137,421 | 3.50%, 1/1/44, Pool #AS1539 | 141,709 | ||||||
139,601 | 3.50%, 1/1/44, Pool #AS1703 | 143,961 | ||||||
1,556,919 | 2.90%, 1/1/44, Pool #AV7743(a) | 1,603,685 | ||||||
85,399 | 3.50%, 1/1/44, Pool #AS1453 | 88,206 | ||||||
166,200 | 4.00%, 3/1/44, Pool #AV6577 | 176,102 | ||||||
5,742,375 | 4.50%, 4/1/44, Pool #AL6887 | 6,193,618 | ||||||
37,662 | 3.50%, 6/1/44, Pool #AW6405 | 38,836 | ||||||
18,323 | 3.50%, 6/1/44, Pool #AS2591 | 18,896 | ||||||
6,693,884 | 3.50%, 6/1/44, Pool #AL9405 | 6,904,439 | ||||||
38,893 | 4.00%, 7/1/44, Pool #AW7055 | 41,082 | ||||||
2,348,936 | 4.00%, 8/1/44, Pool #AL5601 | 2,496,789 | ||||||
301,535 | 4.00%, 10/1/44, Pool #AS3642 | 320,450 | ||||||
1,280,102 | 5.00%, 11/1/44, Pool #AL8878 | 1,401,907 | ||||||
270,566 | 4.00%, 12/1/44, Pool #AX9372 | 286,686 | ||||||
26,301 | 4.00%, 12/1/44, Pool #AY0299 | 27,946 | ||||||
537,912 | 4.00%, 12/1/44, Pool #AS4067 | 571,387 | ||||||
22,173 | 4.00%, 12/1/44, Pool #AX6255 | 23,554 | ||||||
379,188 | 4.00%, 1/1/45, Pool #AS4349 | 402,745 | ||||||
242,570 | 4.00%, 1/1/45, Pool #AY0367 | 256,981 | ||||||
88,434 | 4.00%, 1/1/45, Pool #AX8713 | 93,694 | ||||||
172,258 | 4.00%, 2/1/45, Pool #AY2693 | 182,165 | ||||||
35,179 | 4.00%, 2/1/45, Pool #AY1866 | 37,367 | ||||||
243,556 | 4.00%, 2/1/45, Pool #AS4308 | 257,923 | ||||||
43,076 | 4.00%, 5/1/45, Pool #AY8218 | 45,495 |
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal National Mortgage Association, continued | ||||||||
$ | 87,553 | 4.00%, 5/1/45, Pool #AY9770 | $ | 93,021 | ||||
195,513 | 4.00%, 6/1/45, Pool #MA2304 | 205,661 | ||||||
657,300 | 4.00%, 10/1/45, Pool #AS5949 | 696,482 | ||||||
347,421 | 4.50%, 10/1/45, Pool #AS5952 | 377,438 | ||||||
430,181 | 4.00%, 10/1/45, Pool #AS6008 | 456,963 | ||||||
191,523 | 4.00%, 10/1/45, Pool #AL7443 | 202,936 | ||||||
138,943 | 4.00%, 10/1/45, Pool #AL7442 | 147,591 | ||||||
212,510 | 4.00%, 11/1/45, Pool #AZ2670 | 223,537 | ||||||
406,451 | 4.50%, 10/1/45, Pool #AL7660 | 443,493 | ||||||
75,207 | 4.00%, 10/1/45, Pool #BA2878 | 79,638 | ||||||
75,320 | 4.00%, 10/1/45, Pool #BA2877 | 79,666 | ||||||
250,437 | 4.50%, 10/1/45, Pool #AL7661 | 271,944 | ||||||
76,346 | 4.00%, 10/1/45, Pool #BA2879 | 80,868 | ||||||
41,618 | 4.00%, 10/1/45, Pool #AZ1097 | 43,794 | ||||||
688,552 | 4.00%, 10/1/45, Pool #AZ8885 | 724,330 | ||||||
316,564 | 4.00%, 10/1/45, Pool #AS6009 | 336,273 | ||||||
66,627 | 4.00%, 10/1/45, Pool #AZ9244 | 70,598 | ||||||
58,456 | 4.00%, 10/1/45, Pool #AZ9243 | 62,096 | ||||||
30,373 | 4.50%, 11/1/45, Pool #AS6233 | 32,896 | ||||||
319,250 | 4.50%, 11/1/45, Pool #AS6230 | 346,906 | ||||||
273,712 | 4.50%, 11/1/45, Pool #AS6234 | 298,950 | ||||||
74,523 | 4.50%, 11/1/45, Pool #AL7747 | 80,905 | ||||||
85,961 | 4.00%, 11/1/45, Pool #BA3523 | 90,418 | ||||||
343,014 | 4.00%, 11/1/45, Pool #BA2905 | 363,296 | ||||||
212,720 | 4.00%, 11/1/45, Pool #BA2904 | 224,604 | ||||||
94,100 | 4.00%, 12/1/45, Pool #BA2924 | 99,245 | ||||||
212,409 | 4.00%, 12/1/45, Pool #BA4737 | 225,154 | ||||||
183,344 | 4.00%, 12/1/45, Pool #BA4736 | 194,791 | ||||||
558,941 | 4.00%, 12/1/45, Pool #MA2484 | 587,964 | ||||||
639,226 | 4.00%, 12/1/45, Pool #AS6347 | 677,177 | ||||||
244,435 | 4.00%, 1/1/46, Pool #BA4781 | 259,794 | ||||||
370,045 | 4.00%, 1/1/46, Pool #BA3107 | 389,242 | ||||||
3,890,000 | 5.00%, 1/25/46, TBA | 4,237,669 | ||||||
31,626,000 | 3.00%, 1/25/46, TBA | 31,417,704 | ||||||
1,200,000 | 2.50%, 1/25/46, TBA | 1,141,620 | ||||||
4,523,000 | 6.00%, 1/25/46, TBA | 5,121,591 | ||||||
3,262,350 | 4.00%, 2/1/46, Pool #G08694 | 3,428,295 | ||||||
406,034 | 4.00%, 2/1/46, Pool #AS6662 | 430,258 | ||||||
9,232,977 | 3.50%, 4/1/46, Pool #BC5981 | 9,481,634 | ||||||
1,233,977 | 4.00%, 4/1/46, Pool #BC3605 | 1,298,682 | ||||||
298,040 | 3.00%, 6/1/46, Pool #AS7362 | 297,124 | ||||||
3,424,121 | 3.50%, 6/1/46, Pool #AL8803 | 3,512,523 | ||||||
37,320 | 3.00%, 6/1/46, Pool #AS7365 | 37,123 | ||||||
302,761 | 4.50%, 6/1/46, Pool #AS7408 | 329,241 | ||||||
1,142,289 | 4.00%, 6/1/46, Pool #BC6043 | 1,201,907 | ||||||
211,572 | 4.00%, 6/1/46, Pool #BA7722 | 222,592 | ||||||
171,384 | 3.00%, 6/1/46, Pool #AS7370 | 171,070 | ||||||
3,755,604 | 3.50%, 7/1/46, Pool #BC8104 | 3,852,892 | ||||||
2,051,087 | 3.50%, 7/1/46, Pool #AL8776 | 2,104,168 | ||||||
214,392 | 3.50%, 7/1/46, Pool #BC5646 | 219,946 | ||||||
4,823,676 | 3.50%, 7/1/46, Pool #BA7748 | 4,954,424 | ||||||
178,559 | 3.50%, 7/1/46, Pool #BC5660 | 183,184 | ||||||
71,372 | 4.00%, 8/1/46, Pool #BD4900 | 76,023 | ||||||
41,986 | 4.00%, 8/1/46, Pool #BD3933 | 44,723 | ||||||
50,693 | 3.00%, 8/1/46, Pool #AL9031 | 50,600 |
Continued
19
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal National Mortgage Association, continued | ||||||||
$ | 2,027,935 | Class UF, Series 2016-48, 1.16%, 8/25/46(a) | $ | 2,023,780 | ||||
459,650 | 3.00%, 9/1/46, Pool #AS7999 | 457,952 | ||||||
467,932 | 3.00%, 9/1/46, Pool #AS7878 | 466,493 | ||||||
238,086 | 3.00%, 9/1/46, Pool #AS7889 | 237,649 | ||||||
52,586 | 4.00%, 9/1/46, Pool #BD7826 | 56,013 | ||||||
6,966,748 | 3.00%, 9/1/46, Pool #BD1469 | 6,941,009 | ||||||
976,199 | 3.00%, 9/1/46, Pool #AL9214 | 971,079 | ||||||
150,059 | 4.00%, 9/1/46, Pool #BD1481 | 159,809 | ||||||
354,046 | 3.00%, 9/1/46, Pool #AL9045 | 352,714 | ||||||
729,262 | 4.00%, 10/1/46, Pool #AL9357 | 773,188 | ||||||
996,940 | 3.00%, 10/1/46, Pool #AL9215 | 992,020 | ||||||
1,224,850 | 3.50%, 10/1/46, Pool #AS8531 | 1,257,183 | ||||||
6,010,115 | 3.00%, 10/1/46, Pool #BD3309 | 5,984,184 | ||||||
1,294,919 | 3.00%, 10/1/46, Pool #BD8925 | 1,289,010 | ||||||
15,514,595 | 4.00%, 11/1/46, Pool #AS8375 | 16,449,066 | ||||||
561,153 | 3.00%, 11/1/46, Pool #BD9645 | 558,210 | ||||||
944,992 | 3.00%, 11/1/46, Pool #BD8962 | 940,680 | ||||||
703,669 | 3.00%, 11/1/46, Pool #BD8963 | 700,284 | ||||||
1,063,210 | 3.00%, 11/1/46, Pool #BD9644 | 1,057,963 | ||||||
1,623,397 | 3.50%, 11/1/46, Pool #BD8970 | 1,667,661 | ||||||
389,575 | 3.00%, 11/1/46, Pool #BD9641 | 388,377 | ||||||
395,141 | 3.00%, 11/1/46, Pool #BD9643 | 393,192 | ||||||
8,708,788 | 4.00%, 11/1/46, Pool #AS8374 | 9,241,396 | ||||||
357,166 | 3.00%, 11/1/46, Pool #AL9481 | 356,511 | ||||||
2,295,179 | 4.00%, 11/1/46, Pool #AS8379 | 2,444,765 | ||||||
10,733,679 | 3.50%, 12/1/46, Pool #AS8461 | 11,011,721 | ||||||
2,128,553 | 3.00%, 12/1/46, Pool #AS8486 | 2,120,689 | ||||||
245,000 | 3.00%, 1/1/47, Pool #AS8589 | 244,247 | ||||||
786,532 | 3.00%, 10/1/46, Pool #AL9266 | 782,407 | ||||||
1,135,985 | 3.00%, 11/1/46, Pool #AL9325 | 1,134,250 | ||||||
10,479,448 | 3.50%, 12/31/49, Pool #MA2864 | 10,761,493 | ||||||
|
| |||||||
333,282,190 | ||||||||
|
| |||||||
Government National Mortgage Association (5.8%) | ||||||||
35,507 | 4.50%, 9/15/33, Pool #615516 | 38,726 | ||||||
123,161 | 5.00%, 12/15/33, Pool #783571 | 136,120 | ||||||
35,106 | 6.50%, 8/20/38, Pool #4223 | 39,916 | ||||||
41,902 | 6.50%, 10/15/38, Pool #673213 | 47,864 | ||||||
19,878 | 6.50%, 11/20/38, Pool #4292 | 22,735 | ||||||
38,511 | 6.50%, 12/15/38, Pool #782510 | 44,326 | ||||||
390,413 | 5.00%, 1/15/39, Pool #782557 | 431,239 | ||||||
264,120 | 5.00%, 4/15/39, Pool #782619 | 291,389 | ||||||
25,923 | 5.00%, 6/15/39, Pool #782696 | 28,587 | ||||||
185,817 | 5.00%, 10/20/39, Pool #4559 | 205,954 | ||||||
20,776 | 4.50%, 12/20/39, Pool #G24598 | 22,461 | ||||||
55,412 | 4.50%, 1/15/40, Pool #728627 | 60,026 | ||||||
25,614 | 4.50%, 1/20/40, Pool #4617 | 27,706 | ||||||
20,402 | 4.50%, 2/20/40, Pool #G24636 | 21,988 | ||||||
139,750 | 5.00%, 5/15/40, Pool #782958 | 154,206 | ||||||
1,434 | 4.50%, 5/20/40, Pool #G24696 | 1,545 | ||||||
1,270,904 | 4.50%, 7/15/40, Pool #733795 | 1,377,386 | ||||||
147,092 | 4.50%, 7/15/40, Pool #745793 | 159,449 | ||||||
50,119 | 4.50%, 8/20/40, Pool #4771 | 54,235 | ||||||
29,234 | 4.00%, 9/20/40, Pool #G24800 | 31,354 |
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Government National Mortgage Association, continued | ||||||||
$ | 247,004 | 4.50%, 10/15/40, Pool #783609 | $ | 267,739 | ||||
737,238 | 4.00%, 10/20/40, Pool #G24833 | 790,719 | ||||||
1,393,951 | 4.00%, 11/20/40, Pool #4853 | 1,495,071 | ||||||
779,229 | 4.00%, 12/20/40, Pool #G24882 | 835,758 | ||||||
334,365 | 4.00%, 1/15/41, Pool #759138 | 356,240 | ||||||
592,750 | 4.00%, 1/20/41, Pool #004922 | 635,715 | ||||||
78,842 | 4.50%, 2/15/41, Pool #738019 | 85,543 | ||||||
10,188 | 4.00%, 2/20/41, Pool #4945 | 10,886 | ||||||
1,868,085 | 4.00%, 2/20/41, Pool #742887 | 1,997,259 | ||||||
237,084 | 4.00%, 3/15/41, Pool #762838 | 251,592 | ||||||
14,317 | 5.00%, 4/20/41, Pool #5018 | 15,746 | ||||||
239,293 | 4.50%, 6/20/41, Pool #783590 | 257,772 | ||||||
31,041 | 5.00%, 6/20/41, Pool #5083 | 34,139 | ||||||
16,253 | 5.00%, 7/20/41, Pool #5116 | 17,875 | ||||||
547,570 | 4.50%, 7/20/41, Pool #5115 | 588,555 | ||||||
162,473 | 4.50%, 7/20/41, Pool #783584 | 175,111 | ||||||
83,592 | 4.50%, 7/20/41, Pool #754367 | 89,290 | ||||||
1,218,680 | 4.00%, 7/20/41, Pool #742895 | 1,299,134 | ||||||
172,658 | 4.50%, 11/15/41, Pool #783610 | 187,162 | ||||||
73,323 | 4.50%, 11/20/41, Pool #5234 | 79,158 | ||||||
912,827 | 3.50%, 12/20/41, Pool #5258 | 952,436 | ||||||
61,276 | 3.50%, 9/20/42, Pool #MA0392 | 63,991 | ||||||
122,830 | 3.50%, 10/20/42, Pool #MA0462 | 128,274 | ||||||
181,771 | 3.50%, 1/20/43, Pool #MA0699 | 189,828 | ||||||
54,181 | 4.00%, 7/20/43, Pool #MA1158 | 57,820 | ||||||
51,793 | 4.00%, 8/20/44, Pool #AJ2723 | 55,824 | ||||||
24,809 | 4.00%, 8/20/44, Pool #AJ4687 | 26,739 | ||||||
62,077 | 4.00%, 8/20/44, Pool #AI4167 | 66,466 | ||||||
19,350 | 4.00%, 8/20/44, Pool #AI4166 | 20,819 | ||||||
380,727 | 4.50%, 10/20/44, Pool #MA2305 | 406,745 | ||||||
1,977,317 | 4.50%, 11/20/44, Pool #MA2373 | 2,112,446 | ||||||
1,247,266 | 5.00%, 12/20/44, Pool #MA2448 | 1,343,442 | ||||||
1,404,202 | Class ZD, Series 2015-3, 4.00%, 1/20/45 | 1,490,505 | ||||||
735,249 | 5.00%, 12/20/45, Pool #MA3313 | 791,154 | ||||||
2,800,000 | 4.50%, 1/15/46, TBA | 3,027,828 | ||||||
1,000,000 | 5.00%, 1/15/46, TBA | 1,092,188 | ||||||
2,400,000 | 3.00%, 1/15/46, TBA | 2,425,406 | ||||||
7,069,000 | 4.00%, 1/15/46, TBA | 7,505,290 | ||||||
46,063,000 | 3.50%, 1/20/46, TBA | 47,883,026 | ||||||
24,637,000 | 3.00%, 1/20/46, TBA | 24,945,443 | ||||||
2,451,459 | 3.50%, 9/20/46, Pool #MA3937 | 2,551,651 | ||||||
478,856 | 3.50%, 10/20/46, Pool #AX4344 | 499,224 | ||||||
187,961 | 3.50%, 10/20/46, Pool #AX4342 | 196,369 | ||||||
165,159 | 3.50%, 10/20/46, Pool #AX4343 | 172,296 | ||||||
200,333 | 3.50%, 10/20/46, Pool #AX4341 | 209,569 | ||||||
408,003 | 3.50%, 10/20/46, Pool #AX4345 | 425,010 | ||||||
49,857 | 4.00%, 10/20/46, Pool #AQ0542 | 53,190 | ||||||
4,800,000 | 3.50%, 1/15/47, TBA | 4,991,053 | ||||||
|
| |||||||
116,351,707 | ||||||||
|
| |||||||
Total U.S. Government Agency Mortgages | 595,307,539 | |||||||
|
|
Continued
20
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
U.S. Treasury Obligations (35.1%): | ||||||||
U.S. Treasury Bonds (6.5%) | ||||||||
$ | 4,105,000 | 5.38%, 2/15/31^ | $ | 5,467,347 | ||||
24,860,000 | 4.75%, 2/15/37 | 32,355,862 | ||||||
23,635,000 | 3.13%, 11/15/41^ | 23,986,760 | ||||||
3,455,000 | 3.75%, 11/15/43 | 3,917,241 | ||||||
1,205,000 | 3.13%, 8/15/44^ | 1,219,591 | ||||||
15,000 | 2.50%, 2/15/45^ | 13,361 | ||||||
955,000 | 3.00%, 5/15/45 | 942,092 | ||||||
1,770,000 | 2.88%, 8/15/45 | 1,703,280 | ||||||
2,248,100 | 2.50%, 2/15/46^ | 1,997,648 | ||||||
26,955,000 | 2.50%, 5/15/46^ | 23,954,154 | ||||||
25,957,000 | 2.25%, 8/15/46^ | 21,825,165 | ||||||
12,310,000 | 2.88%, 11/15/46^ | 11,884,923 | ||||||
|
| |||||||
129,267,424 | ||||||||
|
| |||||||
U.S. Treasury Notes (28.6%) | ||||||||
7,359,000 | 1.25%, 11/30/18^ | 7,369,634 | ||||||
190,585,000 | 0.88%, 9/15/19 | 188,091,004 | ||||||
52,750,000 | 1.38%, 12/15/19^ | 52,624,297 | ||||||
2,645,000 | 2.00%, 9/30/20# | 2,674,963 | ||||||
7,790,000 | 2.25%, 7/31/21 | 7,912,023 | ||||||
14,205,000 | 1.13%, 7/31/21^ | 13,731,135 | ||||||
93,213,000 | 1.13%, 9/30/21^ | 89,910,462 | ||||||
21,437,500 | 1.25%, 10/31/21 | 20,787,687 | ||||||
37,070,000 | 1.63%, 11/30/21^ | 36,793,421 | ||||||
12,235,000 | 1.50%, 3/31/23 | 11,756,110 | ||||||
5,430,000 | 1.63%, 4/30/23^ | 5,251,831 | ||||||
18,525,000 | 1.25%, 7/31/23^ | 17,439,546 | ||||||
2,093,000 | 1.38%, 8/31/23^ | 1,983,036 | ||||||
6,820,000 | 1.38%, 9/30/23^ | 6,458,485 | ||||||
26,809,000 | 2.75%, 11/15/23^ | 27,692,866 | ||||||
44,370,000 | 2.13%, 11/30/23^ | 44,075,339 | ||||||
1,090,000 | 1.63%, 5/15/26^ | 1,016,425 | ||||||
21,009,500 | 1.50%, 8/15/26^ | 19,323,004 | ||||||
21,731,000 | 2.00%, 11/15/26^ | 20,908,438 | ||||||
|
| |||||||
575,799,706 | ||||||||
|
| |||||||
Total U.S. Treasury Obligations (Cost $721,171,403) | 705,067,130 | |||||||
|
| |||||||
Certificates of Deposit (8.2%): | ||||||||
2,265,000 | Bank of Tokyo-Mitsubishi UFJ, NY, 1.54% | 2,268,624 | ||||||
7,000,000 | Bank of Tokyo-Mitsubishi UFJ, NY, 1.55%, 10/13/17 | 7,006,816 | ||||||
20,000,000 | Bank of Tokyo-Mitsubishi UFJ, NY, 1.54%, 11/1/17 | 20,015,184 | ||||||
1,485,000 | Bank Of Tokyo-Mitsubishi UFJ, NY, 1.52% | 1,487,230 | ||||||
1,858,000 | BNP Paribas, NY, 1.47% | 1,859,768 | ||||||
2,020,000 | BNP Paribas, NY, 1.53% | 2,022,566 | ||||||
2,150,000 | Credit Indust Et Comm, NY, 1.51% | 2,154,999 | ||||||
1,462,000 | Credit Suisse, NY, 1.60% | 1,462,506 | ||||||
2,180,000 | Credit Suisse, NY, 1.69% | 2,183,263 | ||||||
2,535,000 | Credit Suisse, NY, 1.72% | 2,538,650 | ||||||
20,000,000 | Credit Suisse, NY, 1.62%, 11/1/17 | 19,998,001 |
Principal Amount or Shares | Fair Value | |||||||
Certificates of Deposit, continued | ||||||||
$ | 24,500,000 | Lloyds TSB Bank plc, NY, 1.40%, 9/17/17 | $ | 24,546,277 | ||||
1,810,000 | Mizuho Bank, Ltd., NY, 1.55% | 1,813,099 | ||||||
25,000,000 | Mizuho Bank, Ltd., NY, 1.65%, 12/7/17 | 25,011,251 | ||||||
1,620,000 | Mizuho Corp., NY, 1.64% | 1,623,366 | ||||||
3,520,000 | Natixis, NY, 1.53% | 3,525,222 | ||||||
2,200,000 | Natixis, NY, 1.56% | 2,203,698 | ||||||
2,400,000 | Norinchukin Bank, NY, 1.47% | 2,402,291 | ||||||
2,170,000 | Rabobank Nederland, NY, 1.41% | 2,172,984 | ||||||
3,745,000 | Skandinaviska Enskilda Banken AB, 1.39% | 3,750,857 | ||||||
2,050,000 | Skandinaviska Enskilda Banken AB, NY, 1.21%(d) | 2,051,501 | ||||||
3,535,000 | Societe Generale, NY, 1.60% | 3,541,999 | ||||||
2,350,000 | Sumitomo Mitsui Banking Corp., 1.60% | 2,355,965 | ||||||
2,900,000 | Sumitomo Mitsui Trust, NY, 1.53% | 2,903,982 | ||||||
3,090,000 | Sumitomo Mitsui Trust, NY, 1.69% | 3,095,166 | ||||||
1,890,000 | Sumitomo Mitsui Trust, NY, 1.70% | 1,893,058 | ||||||
2,295,000 | Swedbank AB NY Branch, 1.38% | 2,298,587 | ||||||
1,400,000 | Toronto Dominion Bank, NY, 1.41% | 1,402,507 | ||||||
2,900,000 | UBS AG Stamford CT, 1.46% | 2,905,835 | ||||||
4,075,000 | UBS AG Stamford CT, 1.57% | 4,083,198 | ||||||
7,475,000 | Wells Fargo Bank NA, 1.10%, 4/11/17 | 7,477,218 | ||||||
|
| |||||||
Total Certificate of Deposit (Cost $163,880,000) | 164,055,668 | |||||||
|
| |||||||
Commercial Paper (1.3%): | ||||||||
1,270,000 | Anz National International, Ltd., 1.28%(d) | 1,260,167 | ||||||
4,300,000 | AXA Financial, Inc., 1.55%(d) | 4,249,229 | ||||||
1,410,000 | BPCE, 1.32%(d) | 1,398,380 | ||||||
1,515,000 | BPCE, 1.37%(d) | 1,500,023 | ||||||
1,250,000 | Mitsubishi UFJ Trust And Banking, NY, 1.16%(d) | 1,243,729 | ||||||
1,355,000 | Mizuho Bank, NY, 1.39%(d) | 1,343,200 | ||||||
1,485,000 | Societe Generale, NY, 1.27%(d) | 1,473,446 | ||||||
1,690,000 | Standard Chartered Bank plc, 1.43%(d) | 1,675,642 | ||||||
2,575,000 | Sumitomo Mitsui Trust, NY, 1.22%(d) | 2,557,431 | ||||||
1,332,000 | Toronto Dominion Bank, NY, 1.35%(d) | 1,321,043 | ||||||
3,855,000 | Toronto Dominion Bank, NY, 1.38%(d) | 3,814,368 | ||||||
3,650,000 | Vodafone Group plc, 1.63%(d) | 3,610,206 | ||||||
|
| |||||||
Total Commercial Paper (Cost $25,430,852) | 25,446,864 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (17.7%): | ||||||||
354,996,235 | AZL Enhanced Bond Index Fund Securities Lending Collateral Account(e) | 354,996,235 | ||||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 354,996,235 | ||||||
|
| |||||||
Unaffiliated Investment Company (1.1%): | ||||||||
22,120,666 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(d) | 22,120,666 | ||||||
|
| |||||||
Total Unaffiliated Investment Company | 22,120,666 | |||||||
|
| |||||||
Total Investment Securities | 2,538,016,820 | |||||||
Net other assets (liabilities) — (26.3)% | (528,295,510 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 2,009,721,310 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
MTN—Medium Term Note
REMIC—Real Estate Mortgage Investment Conduit
Continued
21
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Re-REMIC—Restructured Real Estate Mortgage Investment Conduit
^ | This security or a partial position of this security was on loan as of December 31, 2016. The total value of securities on loan as of December 31, 2016, was $346,795,037. |
# | All or a portion of the security has been pledged as collateral for open derivative positions. |
(a) | Variable rate security. The rate presented represents the rate in effect at December 31, 2016. The date presented represents the final maturity date. |
(b) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2016. The total of all such securities represent 0.80% 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) | The rate represents the effective yield at December 31, 2016. |
(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, 2016. |
(f) | 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, 2016: (Unaudited)
Country | Percentage | |||
Australia | 0.1 | % | ||
Canada | 0.5 | % | ||
Colombia | — | % | ||
France | 0.9 | % | ||
Germany | 0.3 | % | ||
Guernsey | 0.1 | % | ||
Ireland | 0.1 | % | ||
Israel | — | %NM | ||
Japan | 3.1 | % | ||
Jersey | 0.1 | % | ||
Luxembourg | 0.4 | % | ||
Mexico | 0.4 | % |
Country | Percentage | |||
Netherlands | 0.9 | % | ||
Panama | — | %NM | ||
Peru | — | %NM | ||
Sweden | 0.3 | % | ||
Switzerland | 1.3 | % | ||
Turkey | — | %NM | ||
United Kingdom | 1.8 | % | ||
United States | 89.7 | % | ||
Uruguay | — | % | ||
|
| |||
100.0 | % | |||
|
|
NM | Not meaningful, amount is less than 0.05%. |
Securities Sold Short (-4.1%):
Security Description | Coupon Rate | Maturity Date | Par Amount | Proceeds Received | Fair Value | Unrealized Appreciation/ Deprecation | ||||||||||||||||||
Federal Home Loan Mortgage Corporation (TBA) | 3.00 | % | 1/15/46 | $ | (27,730,000 | ) | $ | (27,529,414 | ) | $ | (27,535,181 | ) | $ | (5,767 | ) | |||||||||
Federal Home Loan Mortgage Corporation (TBA) | 3.00 | % | 1/15/32 | (2,046,000 | ) | (2,099,388 | ) | (2,099,399 | ) | (11 | ) | |||||||||||||
Federal Home Loan Mortgage Corporation (TBA) | 2.50 | % | 1/15/32 | (1,582,000 | ) | (1,584,781 | ) | (1,584,843 | ) | (62 | ) | |||||||||||||
Federal Home Loan Mortgage Corporation (TBA) | 5.00 | % | 1/15/47 | (2,500,000 | ) | (2,724,239 | ) | (2,722,070 | ) | 2,169 | ||||||||||||||
Federal Home Loan Mortgage Corporation (TBA) | 4.00 | % | 2/15/46 | (25,513,141 | ) | (26,519,960 | ) | (26,765,378 | ) | (245,418 | ) | |||||||||||||
Federal National Mortgage Association (TBA) | 5.50 | % | 1/25/46 | (900,000 | ) | (1,001,109 | ) | (1,000,476 | ) | 633 | ||||||||||||||
Federal National Mortgage Association (TBA) | 4.50 | % | 2/25/46 | (628,000 | ) | (670,957 | ) | (673,493 | ) | (2,536 | ) | |||||||||||||
Federal National Mortgage Association (TBA) | 3.50 | % | 1/25/46 | (1,825,500 | ) | (1,855,022 | ) | (1,870,995 | ) | (15,973 | ) | |||||||||||||
Federal National Mortgage Association (TBA) | 3.50 | % | 1/25/31 | (7,263,000 | ) | (7,562,449 | ) | (7,566,713 | ) | (4,264 | ) | |||||||||||||
Federal National Mortgage Association (TBA) | 4.00 | % | 1/25/46 | (3,335,000 | ) | (3,507,563 | ) | (3,506,114 | ) | 1,449 | ||||||||||||||
Federal National Mortgage Association (TBA) | 4.50 | % | 1/25/47 | (421,000 | ) | (455,335 | ) | (452,822 | ) | 2,513 | ||||||||||||||
Federal National Mortgage Association (TBA) | 4.00 | % | 2/25/46 | (2,855,000 | ) | (2,973,700 | ) | (2,997,471 | ) | (23,771 | ) | |||||||||||||
Government National Mortgage Association (TBA) | 4.50 | % | 1/20/47 | (1,745,000 | ) | (1,870,421 | ) | (1,862,446 | ) | 7,975 | ||||||||||||||
Government National Mortgage Association (TBA) | 4.00 | % | 1/20/46 | (993,000 | ) | (1,054,906 | ) | (1,054,538 | ) | 368 | ||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
$ | (81,409,244 | ) | $ | (81,691,939 | ) | $ | (282,695 | ) | ||||||||||||||||
|
|
|
|
|
|
Continued
22
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2016
Futures Contracts
Description | Type | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
90-Day Eurodollar March Futures | Short | 3/8/17 | (147 | ) | $ | (20,674,873 | ) | $ | (10,191 | ) | ||||||||||
U.S. Treasury 10-Year Note March Futures | Short | 3/22/17 | (309 | ) | (41,425,313 | ) | 15,044 | |||||||||||||
U.S. Treasury 5-Year Note March Futures | Short | 3/31/17 | (224 | ) | (26,356,750 | ) | 80,017 | |||||||||||||
U.S. Treasury 10-Year Note March Futures | Long | 3/22/17 | 558 | 69,348,938 | (103,010 | ) | ||||||||||||||
U.S. Treasury 2-Year Note March Futures | Long | 3/31/17 | 440 | 95,342,500 | (38,760 | ) | ||||||||||||||
U.S. Treasury 30-Year Bond March Futures | Long | 3/22/17 | 24 | 3,615,750 | (6,707 | ) | ||||||||||||||
Ultra Long Term U.S. Treasury Bond March Futures | Long | 3/22/17 | 13 | 2,083,250 | (8,086 | ) | ||||||||||||||
|
| |||||||||||||||||||
Total | $ | (71,693 | ) | |||||||||||||||||
|
|
See accompanying notes to the financial statements.
23
AZL Enhanced Bond Index Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investment securities, at cost | $ | 2,571,543,503 | |||
|
| ||||
Investment securities, at value* | $ | 2,538,016,820 | |||
Cash | 26,850 | ||||
Interest and dividends receivable | 9,922,536 | ||||
Foreign currency, at value (cost $299,484) | 294,677 | ||||
Receivable for capital shares issued | 1,408,458 | ||||
Receivable for investments sold | 166,005,184 | ||||
Receivable for variation margin on futures contracts | 262,290 | ||||
Prepaid expenses | 8,411 | ||||
|
| ||||
Total Assets | 2,715,945,226 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 268,009,431 | ||||
Payable for capital shares redeemed | 130,055 | ||||
Payable for collateral received on loaned securities | 354,996,235 | ||||
Securities sold short (Proceeds received $81,409,244) | 81,691,939 | ||||
Payable for variation margin on futures contracts | 227,768 | ||||
Manager fees payable | 587,170 | ||||
Administration fees payable | 51,639 | ||||
Distribution fees payable | 419,409 | ||||
Custodian fees payable | 21,214 | ||||
Administrative and compliance services fees payable | 5,720 | ||||
Trustee fees payable | 4,344 | ||||
Other accrued liabilities | 78,992 | ||||
|
| ||||
Total Liabilities | 706,223,916 | ||||
|
| ||||
Net Assets | $ | 2,009,721,310 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 2,033,729,424 | |||
Accumulated net investment income/(loss) | 18,214,031 | ||||
Accumulated net realized gains/(losses) from investment transactions | (8,336,269 | ) | |||
Net unrealized appreciation/(depreciation) on investments | (33,885,876 | ) | |||
|
| ||||
Net Assets | $ | 2,009,721,310 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 188,401,644 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.67 | |||
|
|
* | Includes securities on loan of $346,795,037 |
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Interest | $ | 24,105,469 | |||
Dividends | 77,985 | ||||
Income from securities lending | 593,041 | ||||
|
| ||||
Total Investment Income | 24,776,495 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 3,345,437 | ||||
Administration fees | 386,445 | ||||
Distribution fees | 2,389,608 | ||||
Custodian fees | 40,518 | ||||
Administrative and compliance services fees | 15,730 | ||||
Trustee fees | 47,595 | ||||
Professional fees | 80,456 | ||||
Shareholder reports | 24,374 | ||||
Other expenses | 37,976 | ||||
|
| ||||
Total expenses | 6,368,139 | ||||
|
| ||||
Net Investment Income/(Loss) | 18,408,356 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | (11,030,596 | ) | |||
Net realized gains/(losses) on securities held short | 572,030 | ||||
Net realized gains/(losses) on futures contracts | 2,676,975 | ||||
Change in net unrealized appreciation/depreciation on investments | (26,515,684 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | (34,297,275 | ) | |||
|
| ||||
Change in Net Assets Resulting From Operations | $ | (15,888,919 | ) | ||
|
|
See accompanying notes to the financial statements.
24
Statements of Changes in Net Assets
AZL Enhanced Bond Index Fund | ||||||||||
For the Year Ended December 31, 2016 | For the Year Ended December 31, 2015 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 18,408,356 | $ | 12,667,518 | ||||||
Net realized gains/(losses) on investment transactions | (7,781,591 | ) | 11,942,654 | |||||||
Change in unrealized appreciation/depreciation on investments | (26,515,684 | ) | (17,289,290 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from operations | (15,888,919 | ) | 7,320,882 | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (14,423,627 | ) | (14,242,972 | ) | ||||||
From net realized gains | (9,626,836 | ) | (8,315,482 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (24,050,463 | ) | (22,558,454 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 1,494,336,008 | 147,790,151 | ||||||||
Proceeds from dividends reinvested | 24,050,464 | 22,558,454 | ||||||||
Value of shares redeemed | (150,994,846 | ) | (422,267,730 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 1,367,391,626 | (251,919,125 | ) | |||||||
|
|
|
| |||||||
Change in net assets | 1,327,452,244 | (267,156,697 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 682,269,066 | 949,425,763 | ||||||||
|
|
|
| |||||||
End of period | $ | 2,009,721,310 | $ | 682,269,066 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 18,214,031 | $ | 14,233,547 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 136,696,292 | 13,270,633 | ||||||||
Dividends reinvested | 2,200,408 | 2,086,813 | ||||||||
Shares redeemed | (13,775,065 | ) | (37,390,144 | ) | ||||||
|
|
|
| |||||||
Change in shares | 125,121,635 | (22,032,698 | ) | |||||||
|
|
|
|
See accompanying notes to the financial statements.
25
AZL Enhanced Bond Index Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $10.78 | $ | 11.13 | $ | 10.67 | $ | 11.17 | $ | 11.02 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.09 | 0.27 | 0.14 | 0.05 | 0.09 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.16 | (0.24 | ) | 0.43 | (0.31 | ) | 0.38 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 0.25 | 0.03 | 0.57 | (0.26 | ) | 0.47 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.22 | ) | (0.24 | ) | (0.11 | ) | (0.12 | ) | (0.13 | ) | |||||||||||||||
Net Realized Gains | (0.14 | ) | (0.14 | ) | — | (0.12 | ) | (0.19 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.36 | ) | (0.38 | ) | (0.11 | ) | (0.24 | ) | (0.32 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $10.67 | $ | 10.78 | $ | 11.13 | $ | 10.67 | $ | 11.17 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 2.28 | % | 0.23 | % | 5.35 | % | (2.32 | )% | 4.22 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $2,009,721 | $ | 682,269 | $ | 949,426 | $ | 788,913 | $ | 503,548 | ||||||||||||||||
Net Investment Income/(Loss) | 1.93 | % | 1.65 | % | 1.49 | % | 1.14 | % | 1.35 | % | |||||||||||||||
Expenses Before Reductions(b) | 0.67 | % | 0.66 | % | 0.65 | % | 0.66 | % | 0.68 | % | |||||||||||||||
Expenses Net of Reductions | 0.67 | % | 0.66 | % | 0.65 | % | 0.66 | % | 0.68 | % | |||||||||||||||
Portfolio Turnover Rate | 288 | % | 342 | % | 564 | % | 663 | % | 385 | % |
(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.
26
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 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 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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.
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
27
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2016
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, 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) 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, 2016 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $157 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $60,585 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (“ASU No. 2014-11”), “Transfers & Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged, and the remaining contractual maturity of those transactions as of December 31, 2016.
Overnight and Continuous | Less than 30 Days | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions | $ | 86,225,989 | $ | — | $ | — | $ | — | $ | 86,225,989 | |||||||||||||||
Government Securities | 245,294,972 | 23,475,273 | — | — | 268,770,246 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Securities Lending Transactions | 331,520,962 | 23,475,273 | — | — | 354,996,235 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Borrowings | $ | 331,520,962 | $ | 23,475,273 | $ | — | $ | — | $ | 354,996,235 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Gross Amount of Recognized Liabilities for Securities Lending Transactions |
| $ | 354,996,235 | ||||||||||||||||||||||
|
|
TBA Purchase and Sale Commitments
The Fund may enter into to-be-announced (TBA) purchase or sale commitments, pursuant to which it agrees to purchase or sell, respectively, mortgage-backed securities for a fixed unit price, with payment and delivery at a scheduled future date beyond the customary settlement period for such securities. With TBA transactions, the particular
28
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2016
securities to be delivered are not identified at the trade date; however, delivered securities must meet specified terms, including issuer, rate, and mortgage term, and be within industry-accepted “good delivery” standards. The Fund may enter into TBA purchase transactions with the intention of taking possession of the underlying securities, may elect to extend the settlement by “rolling” the transaction, and/or may use TBAs to gain interim exposure to underlying securities. Until settlement, the Fund maintains liquid assets sufficient to settle its TBA commitments.
To mitigate counterparty risk, the Fund has entered into agreements with TBA counterparties that provide for collateral and the right to offset amounts due to or from those counterparties under specified conditions. Subject to minimum transfer amounts, collateral requirements are determined and transfers made based on the net aggregate unrealized gain or loss on all TBA commitments with a particular counterparty. At any time, the Fund’s risk of loss from a particular counterparty related to its TBA commitments is the aggregate unrealized gain on appreciated TBAs in excess of unrealized loss on depreciated TBAs and collateral held, if any, by such counterparty. As of December 31, 2016, no collateral had been posted by the Fund to counterparties for TBAs.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and sub-adviser. Any such purchase or sale transaction must be effected without a brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security’s last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. During the year ended December 31, 2016, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
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, 2016, 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 $258.8 million as of December 31, 2016. The monthly average notional amount for these contracts was $122.5 million for the year ended December 31, 2016. 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, 2016:
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 Contracts | Receivable for variation margin on futures contracts | $ | 95,061 | Payable for variation margin on futures contracts * | $ | 166,754 |
* | For futures contracts, the amounts represent the cumulative appreciation/depreciation of these futures contracts as reported in the Schedule of Portfolio Investments. Only the current day’s variation margin is reported within the Statement of Assets and Liabilities as Variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended December 31, 2016:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives Recognized | Change in Net Unrealized | |||||||
Foreign Currency Risk Exposure | ||||||||||
Currency Contracts | Net realized gains/(losses) on futures contracts/Change in unrealized appreciation/depreciation on investments | $ | — | $ | 544 | |||||
Interest Rate Risk Exposure | ||||||||||
Interest Rate Contracts | Net realized gains/(losses) on futures contracts/ Change in unrealized appreciation/depreciation on investments | 2,676,975 | (19,066 | ) |
29
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2016
3. Fees and Transactions with Affiliates and Other Parties
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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, 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, 2016, 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, 2016, 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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the Fund’s average daily net assets, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $8,866 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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) |
30
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2016
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 (the “Board” or “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, 2016, 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, 2016 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Asset Backed Securities | $ | — | $ | 121,541,802 | $ | 121,541,802 | |||||||||
Collateralized Mortgage Obligations | — | 83,217,355 | 83,217,355 | ||||||||||||
Corporate Bonds+ | — | 374,813,153 | 374,813,153 | ||||||||||||
Yankee Dollars+ | — | 83,931,026 | 83,931,026 | ||||||||||||
Municipal Bonds | — | 7,519,382 | 7,519,382 |
31
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2016
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
U.S. Government Agency Mortgages | $ | — | $ | 595,307,539 | $ | 595,307,539 | |||||||||
U.S. Treasury Obligations | — | 705,067,130 | 705,067,130 | ||||||||||||
Certificate of Deposit | — | 164,055,668 | 164,055,668 | ||||||||||||
Commercial Paper | — | 25,446,864 | 25,446,864 | ||||||||||||
Securities Held as Collateral for Securities on Loan | — | 354,996,235 | 354,996,235 | ||||||||||||
Unaffiliated Investment Company | 22,120,666 | — | 22,120,666 | ||||||||||||
|
|
|
|
|
| ||||||||||
Total Investment Securities | 22,120,666 | 2,515,896,154 | 2,538,016,820 | ||||||||||||
|
|
|
|
|
| ||||||||||
Securities Sold Short | — | (81,691,939 | ) | (81,691,939 | ) | ||||||||||
Other Financial Instruments:* | |||||||||||||||
Futures Contracts | (71,693 | ) | — | (71,693 | ) | ||||||||||
|
|
|
|
|
| ||||||||||
Total Investments | $ | 22,048,973 | $ | 2,434,204,215 | $ | 2,456,253,188 | |||||||||
|
|
|
|
|
|
+ | 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, 2016, 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 | $ | 3,684,449,640 | $ | 2,669,189,198 |
For the year ended December 31, 2016, cost of purchases and proceeds from sales of long-term U.S. government securities included above were as follows:
Purchases | Sales | |||||||||
AZL Enhanced Bond Index Fund | $ | 3,120,643,045 | $ | 2,483,277,860 |
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 policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
32
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2016
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 of securities for federal income tax purposes at December 31, 2016 is $2,575,264,123. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 4,353,303 | ||
Unrealized (depreciation) | (41,600,606 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | (37,247,303 | ) | |
|
|
As of the end of its tax year ended December 31, 2016, the Fund has capital loss carry forwards (“CLCFs”) as summarized in the table 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 Fund Name | $ | 4,687,342 | $ | — | $ | 4,687,342 |
The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Enhanced Bond Index Fund | $ | 20,069,143 | $ | 3,981,320 | $ | 24,050,463 |
(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, 2015 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Enhanced Bond Index Fund | $ | 20,614,243 | $ | 1,944,211 | $ | 22,558,454 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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 Depreciation(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Enhanced Bond Index Fund | $ | 18,214,031 | $ | — | $ | (4,687,342 | ) | $ | (37,534,803 | ) | $ | (24,008,114 | ) |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies — Form N-PORT and Form N-CEN — also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
9. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
33
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, 2016, 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, 2016, 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 AZL Enhanced Bond Index Fund as of December 31, 2016, 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 24, 2017
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Other Federal Income Tax Information (Unaudited)
During the year ended December 31, 2016, the Fund declared net long-term capital gain distributions of $3,981,320.
During the year ended December 31, 2016, the Fund declared net short-term capital gain distributions of $5,645,434.
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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 — October 25, 2016 (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 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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 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 the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held October 25, 2016, the Manager reported that for the three year period ended June 30, 2016, seven Funds were in the top 40%, two were in the middle 20% and three were in the bottom 40%, and for the one year period ended June 30, 2016, twelve Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2016, six Funds were in the top 40%, one was in the middle 20%, and three were in the bottom 40%. At the Board of Trustees meeting held October 25, 2016, 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 twenty Funds reviewed by the Board of Trustees in the fall of 2016, seventeen 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 2016 for the twenty-one Funds was as follows; (1) eighteen of the Funds had total expense rankings below the 65th percentile (with eleven Funds at or below the 50th percentile); (2) the AZL Russell 1000 Growth Index Fund had a total expense ranking in the 66th percentile, but there was only a very limited peer group for such Fund, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; (3) the AZL International Index Fund had a total expense ranking in the 75th percentile, but there was only a limited peer group for such Fund, the actual management fee was in the 37th percentile, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; and (4) for the AZL Morgan Stanley Global Real Estate Fund, which had a total expense ranking in the 70th percentile, the Manager recommended a temporary management fee waiver of 5 basis points, effective November 1, 2016, which would move the management fee ranking from the 80th to the 60th percentile.
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 2013 through June 30, 2016. 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, all of which currently are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. 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, 2016 were approximately $6.4 billion, and that no single Fund had assets in excess of $1,289 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, 2017, 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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 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 | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 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 | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
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Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® Gateway Fund
Annual Report
December 31, 2016
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.
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What factors affected the Fund’s performance during the year ended December 31, 2016?
For the year ended December 31, 2016, the AZL® Gateway Fund (the “Fund”) returned 4.84%. That compared to a 11.96% 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 flow and reduce the risk associated with unhedged equity market investments. We believe selling index call options reduce the Fund’s volatility and may provide steady cash flow, which 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 protect against sudden, short-term stock market declines.*
Domestic equities tumbled early in the period amid investor concerns over slowing economic growth in China and falling commodity prices. Stocks rebounded as China’s central bank announced stimulus measures and the U.S. Federal Reserve adopted a cautious tone on interest rates. The U.K.’s Brexit vote to leave the European Union roiled stock markets in June, but equities recovered quickly. Stocks also dipped before the U.S. presidential election but rallied after the election of Donald Trump. Stocks performed well during the period.
The Fund’s relative return was hurt by the relatively low rate of volatility in the markets, as measured by the Chicago Board Options Exchange Volatility Index2 (the VIX). For the year, the VIX averaged 15.83, compared to its long-term average of 19.71. This was surprising given that 2016 was a presidential election year that was marked by unexpected events and high levels of uncertainty. However, election years sometimes bring decreased volatility, and 2016 followed a low-VIX pattern that brought high volatility in the early part of the year, a dip in the third quarter and an uptick again in the final two months. More broadly, the bond market outperformed stocks through the first half of the year, but a post-election surge in equities moved money out of bonds.
Given the Fund’s two-part strategy to protect against market declines and participate in market advances, the relative lack of volatility in 2016 put a damper on the Fund’s performance. The Fund’s downside protection delivered smaller losses than the S&P 500 Index in each of the market downturns early in the period, around the Brexit vote and leading up to the U.S. elections. From December 31, 2015 to February 11, 2016, the Fund’s -5.28% total return outpaced the index by 499 basis points (4.99%); from June 23 to June 27, the Fund’s -2.27% return held up better by 307 basis points (3.07%); and from August 15 to November 4, the Fund’s 1.10% decline beat the benchmark by 328 basis points (3.28%).
However, the Fund lagged the benchmark during market advances. From February 11 to year-end, the Fund’s return of 11.10% underperformed the S&P 500 Index by 13.67 percentage points. Throughout this period, the return of the Fund was consistent with expectations in a low-volatility environment. Also in line with its objectives, the measured risk of the Fund was low relative to the S&P 500, as its standard deviation3 for 2016 was 5.85% versus 13.23% for the Index. In the end, the Fund’s performance was hampered by the consistently low volatility environment during the year, which produced cash flow from call writing that held the Fund back relative to the market’s strong advance.
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, 2016. | |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. | |
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. | |
3 | Standard Deviation is a statistical measure of the degree to which an individual value in a probability distribution tends to vary from the mean of the distribution. |
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, 2016 | ||||||||
Since Inception | ||||||||
1 Year | 3 Year | 5 Year | ||||||
AZL® Gateway Fund | 4.84% | 3.29% | 4.48% | 4.11% | ||||
S&P 500 Index | 11.96% | 8.87% | 14.66% | 12.36% |
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 Ratio | Gross | |||
AZL® Gateway Fund | 1.10 | % |
The above expense ratio is based on the current Fund prospectus dated April 25, 2016, as supplemented October 14, 2016. 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, 2018. Additional information pertaining to the December 31, 2016 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Gateway Fund | $ | 1,000.00 | $ | 1,038.00 | $ | 5.64 | 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Gateway Fund | $ | 1,000.00 | $ | 1,019.61 | $ | 5.58 | 1.10 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 20.6 | % | |||
Financials | 14.9 | ||||
Health Care | 12.9 | ||||
Consumer Discretionary | 12.1 | ||||
Industrials | 10.5 | ||||
Consumer Staples | 8.9 | ||||
Energy | 7.3 | ||||
Utilities | 3.2 | ||||
Telecommunication Services | 2.6 | ||||
Materials | 2.5 | ||||
Real Estate | 2.1 | ||||
|
| ||||
Total Common Stocks | 97.6 | ||||
Money Market | 5.5 | ||||
Purchased Put Options | 0.4 | ||||
|
| ||||
Total Investment Securities | 103.5 | ||||
Net other assets (liabilities) | (3.5 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Gateway Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks+ (97.6%): | ||||||||
Aerospace & Defense (1.8%): | ||||||||
7,844 | Boeing Co. (The) | $ | 1,221,154 | |||||
4,696 | Raytheon Co. | 666,832 | ||||||
1,071 | TransDigm Group, Inc. | 266,636 | ||||||
10,317 | United Technologies Corp. | 1,130,950 | ||||||
|
| |||||||
3,285,572 | ||||||||
|
| |||||||
Air Freight & Logistics (0.7%): | ||||||||
10,323 | United Parcel Service, Inc., Class B | 1,183,429 | ||||||
|
| |||||||
Airlines (0.6%): | ||||||||
2,553 | Alaska Air Group, Inc. | 226,528 | ||||||
8,323 | American Airlines Group, Inc. | 388,601 | ||||||
4,969 | JetBlue Airways Corp.* | 111,405 | ||||||
5,402 | United Continental Holdings, Inc.* | 393,697 | ||||||
|
| |||||||
1,120,231 | ||||||||
|
| |||||||
Auto Components (0.2%): | ||||||||
1,040 | Adient plc* | 60,944 | ||||||
1,731 | Autoliv, Inc. | 195,863 | ||||||
3,718 | Cooper Tire & Rubber Co. | 144,444 | ||||||
|
| |||||||
401,251 | ||||||||
|
| |||||||
Automobiles (0.5%): | ||||||||
63,621 | Ford Motor Co. | 771,723 | ||||||
641 | Tesla Motors, Inc.* | 136,975 | ||||||
|
| |||||||
908,698 | ||||||||
|
| |||||||
Banks (6.7%): | ||||||||
6,870 | Associated Banc-Corp. | 169,689 | ||||||
117,950 | Bank of America Corp. | 2,606,695 | ||||||
37,608 | Citigroup, Inc. | 2,235,043 | ||||||
25,039 | Huntington Bancshares, Inc. | 331,016 | ||||||
38,551 | JPMorgan Chase & Co. | 3,326,566 | ||||||
4,095 | Old National Bancorp | 74,324 | ||||||
18,260 | U.S. Bancorp | 938,016 | ||||||
44,258 | Wells Fargo & Co. | 2,439,058 | ||||||
|
| |||||||
12,120,407 | ||||||||
|
| |||||||
Beverages (2.0%): | ||||||||
38,465 | Coca-Cola Co. (The) | 1,594,759 | ||||||
7,035 | Monster Beverage Corp.* | 311,932 | ||||||
16,445 | PepsiCo, Inc. | 1,720,640 | ||||||
|
| |||||||
3,627,331 | ||||||||
|
| |||||||
Biotechnology (2.9%): | ||||||||
15,229 | AbbVie, Inc. | 953,640 | ||||||
3,442 | Alexion Pharmaceuticals, Inc.* | 421,129 | ||||||
7,039 | Amgen, Inc. | 1,029,171 | ||||||
2,520 | Biogen Idec, Inc.* | 714,622 | ||||||
8,088 | Celgene Corp.* | 936,186 | ||||||
12,764 | Gilead Sciences, Inc. | 914,030 | ||||||
377 | Shire plc, ADR | 64,233 | ||||||
3,277 | Vertex Pharmaceuticals, Inc.* | 241,417 | ||||||
|
| |||||||
5,274,428 | ||||||||
|
| |||||||
Building Products (0.5%): | ||||||||
6,547 | Fortune Brands Home & Security, Inc. | 350,003 | ||||||
11,919 | Johnson Controls International plc | 490,943 | ||||||
|
| |||||||
840,946 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks+, continued | ||||||||
Capital Markets (2.5%): | ||||||||
2,871 | Affiliated Managers Group, Inc.* | $ | 417,156 | |||||
18,217 | Charles Schwab Corp. (The) | 719,025 | ||||||
3,800 | CME Group, Inc. | 438,330 | ||||||
6,031 | Eaton Vance Corp. | 252,578 | ||||||
4,082 | Goldman Sachs Group, Inc. (The) | 977,435 | ||||||
7,615 | Intercontinental Exchange, Inc. | 429,638 | ||||||
5,603 | Legg Mason, Inc. | 167,586 | ||||||
17,854 | Morgan Stanley | 754,332 | ||||||
4,250 | TD Ameritrade Holding Corp. | 185,300 | ||||||
4,034 | Waddell & Reed Financial, Inc., Class A | 78,703 | ||||||
|
| |||||||
4,420,083 | ||||||||
|
| |||||||
Chemicals (1.9%): | ||||||||
489 | Advansix, Inc.* | 10,826 | ||||||
1,565 | Ashland Global Holdings, Inc. | 171,039 | ||||||
1,664 | Celanese Corp., Series A | 131,023 | ||||||
14,100 | Dow Chemical Co. (The) | 806,802 | ||||||
9,012 | E.I. du Pont de Nemours & Co. | 661,481 | ||||||
4,652 | Eastman Chemical Co. | 349,877 | ||||||
1,263 | Ingevity Corp.* | 69,288 | ||||||
5,087 | LyondellBasell Industries NV, Class A | 436,363 | ||||||
4,236 | Monsanto Co. | 445,670 | ||||||
2,675 | Olin Corp. | 68,507 | ||||||
4,828 | RPM International, Inc. | 259,891 | ||||||
|
| |||||||
3,410,767 | ||||||||
|
| |||||||
Commercial Services & Supplies (0.3%): | ||||||||
6,338 | Waste Management, Inc. | 449,428 | ||||||
|
| |||||||
Communications Equipment (1.1%): | ||||||||
55,193 | Cisco Systems, Inc. | 1,667,932 | ||||||
3,211 | Motorola Solutions, Inc. | 266,160 | ||||||
853 | Palo Alto Networks, Inc.* | 106,668 | ||||||
|
| |||||||
2,040,760 | ||||||||
|
| |||||||
Consumer Finance (0.7%): | ||||||||
3,760 | Ally Financial, Inc. | 71,515 | ||||||
8,298 | American Express Co. | 614,716 | ||||||
7,338 | Discover Financial Services | 528,996 | ||||||
|
| |||||||
1,215,227 | ||||||||
|
| |||||||
Containers & Packaging (0.4%): | ||||||||
3,534 | Avery Dennison Corp. | 248,157 | ||||||
3,498 | Sonoco Products Co. | 184,345 | ||||||
5,594 | WestRock Co. | 284,007 | ||||||
|
| |||||||
716,509 | ||||||||
|
| |||||||
Distributors (0.3%): | ||||||||
4,874 | Genuine Parts Co. | 465,662 | ||||||
|
| |||||||
Diversified Financial Services (1.8%): | ||||||||
20,242 | Berkshire Hathaway, Inc., Class B* | 3,299,041 | ||||||
|
| |||||||
Diversified Telecommunication Services (2.6%): | ||||||||
56,562 | AT&T, Inc. | 2,405,582 | ||||||
1,680 | SBA Communications Corp., Class A* | 173,477 | ||||||
37,359 | Verizon Communications, Inc. | 1,994,223 | ||||||
|
| |||||||
4,573,282 | ||||||||
|
|
Continued
4
AZL Gateway Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks+, continued |
| ||||||
| Electric Utilities (1.5%): |
| ||||||
11,097 | Alliant Energy Corp. | $ | 420,465 | |||||
18,590 | American Electric Power Co., Inc. | 1,170,427 | ||||||
11,464 | Duke Energy Corp. | 889,836 | ||||||
2,364 | Hawaiian Electric Industries, Inc. | 78,177 | ||||||
6,162 | OGE Energy Corp. | 206,119 | ||||||
|
| |||||||
2,765,024 | ||||||||
|
| |||||||
| Electrical Equipment (0.6%): |
| ||||||
6,401 | Eaton Corp. plc | 429,444 | ||||||
9,856 | Emerson Electric Co. | 549,472 | ||||||
871 | Hubbell, Inc. | 101,646 | ||||||
|
| |||||||
1,080,562 | ||||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (0.5%): |
| ||||||
14,486 | Corning, Inc. | 351,575 | ||||||
7,418 | TE Connectivity, Ltd. | 513,919 | ||||||
|
| |||||||
865,494 | ||||||||
|
| |||||||
| Energy Equipment & Services (1.5%): |
| ||||||
4,978 | Baker Hughes, Inc. | 323,421 | ||||||
13,251 | Halliburton Co. | 716,746 | ||||||
7,364 | Patterson-UTI Energy, Inc. | 198,239 | ||||||
16,222 | Schlumberger, Ltd. | 1,361,837 | ||||||
|
| |||||||
2,600,243 | ||||||||
|
| |||||||
| Equity Real Estate Investment Trusts (2.1%): |
| ||||||
3,796 | Care Capital Properties, Inc. | 94,900 | ||||||
6,370 | Digital Realty Trust, Inc. | 625,915 | ||||||
21,332 | Duke Realty Corp. | 566,578 | ||||||
5,523 | Extra Space Storage, Inc. | 426,597 | ||||||
6,462 | Healthcare Realty Trust, Inc. | 195,928 | ||||||
7,309 | Liberty Property Trust | 288,706 | ||||||
2,377 | Mack-Cali Realty Corp. | 68,981 | ||||||
3,970 | Regency Centers Corp. | 273,732 | ||||||
5,563 | Senior Housing Properties Trust | 105,308 | ||||||
13,484 | UDR, Inc. | 491,896 | ||||||
10,423 | Ventas, Inc. | 651,645 | ||||||
|
| |||||||
3,790,186 | ||||||||
|
| |||||||
| Food & Staples Retailing (1.8%): |
| ||||||
13,823 | CVS Health Corp. | 1,090,773 | ||||||
10,774 | Walgreens Boots Alliance, Inc. | 891,656 | ||||||
16,635 | Wal-Mart Stores, Inc. | 1,149,811 | ||||||
|
| |||||||
3,132,240 | ||||||||
|
| |||||||
| Food Products (1.4%): |
| ||||||
2,169 | Bunge, Ltd. | 156,689 | ||||||
14,046 | ConAgra Foods, Inc. | 555,519 | ||||||
7,059 | Kraft Heinz Co. (The) | 616,392 | ||||||
4,308 | Lamb Weston Holding, Inc.* | 163,058 | ||||||
24,231 | Mondelez International, Inc., Class A | 1,074,160 | ||||||
|
| |||||||
2,565,818 | ||||||||
|
| |||||||
| Gas Utilities (0.2%): |
| ||||||
2,742 | National Fuel Gas Co. | 155,306 | ||||||
761 | ONE Gas, Inc. | 48,674 | ||||||
1,627 | WGL Holdings, Inc. | 124,108 | ||||||
|
| |||||||
328,088 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks+, continued |
| ||||||
| Health Care Equipment & Supplies (2.1%): |
| ||||||
16,892 | Abbott Laboratories | $ | 648,821 | |||||
8,840 | Baxter International, Inc. | 391,966 | ||||||
29,866 | Boston Scientific Corp.* | 646,002 | ||||||
7,622 | Hologic, Inc.* | 305,795 | ||||||
757 | Intuitive Surgical, Inc.* | 480,067 | ||||||
16,973 | Medtronic plc | 1,208,986 | ||||||
1,228 | ResMed, Inc. | 76,197 | ||||||
|
| |||||||
3,757,834 | ||||||||
|
| |||||||
| Health Care Providers & Services (2.7%): |
| ||||||
6,344 | Aetna, Inc. | 786,720 | ||||||
4,142 | Anthem, Inc. | 595,495 | ||||||
9,418 | Express Scripts Holding Co.* | 647,864 | ||||||
5,862 | HCA Holdings, Inc.* | 433,905 | ||||||
3,448 | Patterson Cos., Inc. | 141,471 | ||||||
2,868 | Quest Diagnostics, Inc. | 263,569 | ||||||
10,727 | UnitedHealth Group, Inc. | 1,716,750 | ||||||
2,963 | Universal Health Services, Inc., Class B | 315,204 | ||||||
|
| |||||||
4,900,978 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (1.1%): |
| ||||||
1,261 | Domino’s Pizza, Inc. | 200,802 | ||||||
6,029 | Hilton Worldwide Holdings, Inc.* | 163,989 | ||||||
834 | Las Vegas Sands Corp. | 44,544 | ||||||
9,918 | McDonald’s Corp. | 1,207,218 | ||||||
3,975 | Melco Crown Entertainment, Ltd., ADR | 63,203 | ||||||
4,499 | MGM Resorts International* | 129,706 | ||||||
3,571 | Norwegian Cruise Line Holdings, Ltd.* | 151,875 | ||||||
1,821 | Restaurant Brands International, Inc. | 86,789 | ||||||
9,469 | Wendy’s Co. (The) | 128,021 | ||||||
|
| |||||||
2,176,147 | ||||||||
|
| |||||||
| Household Durables (0.9%): |
| ||||||
6,302 | Leggett & Platt, Inc. | 308,042 | ||||||
8,581 | Newell Rubbermaid, Inc. | 383,142 | ||||||
13,704 | Toll Brothers, Inc.* | 424,824 | ||||||
1,320 | Tupperware Brands Corp. | 69,458 | ||||||
2,069 | Whirlpool Corp. | 376,082 | ||||||
|
| |||||||
1,561,548 | ||||||||
|
| |||||||
| Household Products (1.8%): |
| ||||||
4,077 | Church & Dwight Co., Inc. | 180,163 | ||||||
11,500 | Colgate-Palmolive Co. | 752,560 | ||||||
3,912 | Kimberly-Clark Corp. | 446,437 | ||||||
21,870 | Procter & Gamble Co. (The) | 1,838,830 | ||||||
|
| |||||||
3,217,990 | ||||||||
|
| |||||||
| Industrial Conglomerates (3.0%): |
| ||||||
7,824 | 3M Co., Class C | 1,397,132 | ||||||
83,701 | General Electric Co. | 2,644,951 | ||||||
10,963 | Honeywell International, Inc. | 1,270,064 | ||||||
|
| |||||||
5,312,147 | ||||||||
|
| |||||||
| Insurance (2.9%): |
| ||||||
6,185 | Aflac, Inc. | 430,476 | ||||||
6,861 | Allstate Corp. (The) | 508,537 | ||||||
12,126 | American International Group, Inc. | 791,948 | ||||||
4,220 | Aon plc | 470,657 | ||||||
2,881 | Arthur J. Gallagher & Co. | 149,697 |
Continued
5
AZL Gateway Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks+, continued | ||||||||
Insurance, continued | ||||||||
4,168 | FNF Group | $ | 141,545 | |||||
8,458 | Lincoln National Corp. | 560,512 | ||||||
9,306 | Marsh & McLennan Cos., Inc. | 628,993 | ||||||
7,132 | Principal Financial Group, Inc. | 412,658 | ||||||
6,053 | Travelers Cos., Inc. (The) | 741,008 | ||||||
7,242 | XL Group, Ltd. | 269,837 | ||||||
|
| |||||||
5,105,868 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (2.3%): | ||||||||
3,778 | Amazon.com, Inc.* | 2,833,009 | ||||||
4,359 | Netflix, Inc.* | 539,644 | ||||||
500 | Priceline Group, Inc. (The)* | 733,030 | ||||||
|
| |||||||
4,105,683 | ||||||||
|
| |||||||
Internet Software & Services (4.7%): | ||||||||
3,041 | Alphabet, Inc., Class A* | 2,409,841 | ||||||
2,603 | Alphabet, Inc., Class C* | 2,009,047 | ||||||
479 | Baidu, Inc., ADR* | 78,752 | ||||||
14,544 | eBay, Inc.* | 431,811 | ||||||
23,488 | Facebook, Inc., Class A* | 2,702,295 | ||||||
3,442 | VeriSign, Inc.* | 261,833 | ||||||
9,612 | Yahoo!, Inc.* | 371,696 | ||||||
|
| |||||||
8,265,275 | ||||||||
|
| |||||||
IT Services (3.4%): | ||||||||
6,394 | Automatic Data Processing, Inc. | 657,175 | ||||||
3,201 | Broadridge Financial Solutions, Inc. | 212,226 | ||||||
9,559 | Cognizant Technology Solutions Corp., Class A* | 535,591 | ||||||
5,705 | Fidelity National Information Services, Inc. | 431,526 | ||||||
915 | FleetCor Technologies, Inc.* | 129,491 | ||||||
8,525 | International Business Machines Corp. | 1,415,065 | ||||||
6,185 | Paychex, Inc. | 376,543 | ||||||
12,911 | PayPal Holdings, Inc.* | 509,597 | ||||||
20,996 | Visa, Inc., Class A | 1,638,108 | ||||||
8,976 | Western Union Co. | 194,959 | ||||||
|
| |||||||
6,100,281 | ||||||||
|
| |||||||
Leisure Products (0.2%): | ||||||||
5,340 | Mattel, Inc. | 147,117 | ||||||
1,846 | Polaris Industries, Inc. | 152,092 | ||||||
|
| |||||||
299,209 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.2%): | ||||||||
2,247 | Illumina, Inc.* | 287,706 | ||||||
|
| |||||||
Machinery (1.9%): | ||||||||
9,029 | Caterpillar, Inc. | 837,350 | ||||||
2,991 | Cummins, Inc. | 408,780 | ||||||
3,814 | Deere & Co. | 392,995 | ||||||
4,515 | Parker Hannifin Corp. | 632,100 | ||||||
3,892 | Pentair plc | 218,224 | ||||||
2,303 | Snap-On, Inc. | 394,435 | ||||||
4,363 | Stanley Black & Decker, Inc. | 500,392 | ||||||
2,492 | Timken Co. | 98,932 | ||||||
|
| |||||||
3,483,208 | ||||||||
|
| |||||||
Media (3.1%): | ||||||||
24,384 | Comcast Corp., Class A | 1,683,715 | ||||||
4,704 | Liberty Global plc, Series C* | 139,709 | ||||||
2,065 | Liberty Global plc, LiLAC, Class C* | 43,716 |
Shares | Fair Value | |||||||
Common Stocks+, continued | ||||||||
Media, continued | ||||||||
7,817 | News Corp., Class B | $ | 92,241 | |||||
4,629 | Omnicom Group, Inc. | 393,974 | ||||||
123,474 | Sirius XM Holdings, Inc. | 549,459 | ||||||
8,392 | Time Warner, Inc. | 810,080 | ||||||
2,728 | Time, Inc. | 48,695 | ||||||
16,543 | Walt Disney Co. (The) | 1,724,111 | ||||||
|
| |||||||
5,485,700 | ||||||||
|
| |||||||
Metals & Mining (0.2%): | ||||||||
4,477 | Southern Copper Corp. | 142,995 | ||||||
5,410 | Steel Dynamics, Inc. | 192,489 | ||||||
1,535 | Worthington Industries, Inc. | 72,820 | ||||||
|
| |||||||
408,304 | ||||||||
|
| |||||||
Mortgage Real Estate Investment Trusts (0.3%): | ||||||||
14,269 | Agnc Investment Corp. | 258,697 | ||||||
27,279 | Annaly Capital Management, Inc. | 271,972 | ||||||
|
| |||||||
530,669 | ||||||||
|
| |||||||
Multiline Retail (0.5%): | ||||||||
4,378 | Nordstrom, Inc. | 209,838 | ||||||
8,858 | Target Corp. | 639,813 | ||||||
|
| |||||||
849,651 | ||||||||
|
| |||||||
Multi-Utilities (1.5%): | ||||||||
7,948 | Ameren Corp. | 416,952 | ||||||
16,064 | CenterPoint Energy, Inc. | 395,817 | ||||||
6,745 | Consolidated Edison, Inc. | 496,972 | ||||||
15,264 | Public Service Enterprise Group, Inc. | 669,784 | ||||||
11,279 | WEC Energy Group, Inc. | 661,513 | ||||||
|
| |||||||
2,641,038 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (5.8%): | ||||||||
3,499 | Cheniere Energy, Inc.* | 144,964 | ||||||
19,805 | Chevron Corp. | 2,331,049 | ||||||
5,374 | Concho Resources, Inc.* | 712,592 | ||||||
21,286 | ConocoPhillips Co. | 1,067,280 | ||||||
4,456 | Continental Resources, Inc.* | 229,662 | ||||||
40,211 | Exxon Mobil Corp. | 3,629,444 | ||||||
7,460 | Gulfport Energy Corp.* | 161,434 | ||||||
7,855 | HollyFrontier Corp. | 257,330 | ||||||
12,619 | Occidental Petroleum Corp. | 898,851 | ||||||
5,165 | ONEOK, Inc. | 296,523 | ||||||
9,064 | Phillips 66 | 783,220 | ||||||
|
| |||||||
10,512,349 | ||||||||
|
| |||||||
Personal Products (0.0%): | ||||||||
1,355 | Herbalife, Ltd.* | 65,230 | ||||||
|
| |||||||
Pharmaceuticals (5.0%): | ||||||||
4,490 | Allergan plc* | 942,945 | ||||||
15,760 | Bristol-Myers Squibb Co. | 921,014 | ||||||
9,848 | Eli Lilly & Co. | 724,320 | ||||||
1,542 | Jazz Pharmaceuticals plc* | 168,124 | ||||||
25,545 | Johnson & Johnson Co. | 2,943,040 | ||||||
26,534 | Merck & Co., Inc. | 1,562,057 | ||||||
53,711 | Pfizer, Inc. | 1,744,533 | ||||||
|
| |||||||
9,006,033 | ||||||||
|
|
Continued
6
AZL Gateway Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks+, continued | ||||||||
Professional Services (0.3%): | ||||||||
1,688 | Dun & Bradstreet Corp. | $ | 204,788 | |||||
3,339 | Verisk Analytics, Inc.* | 271,027 | ||||||
|
| |||||||
475,815 | ||||||||
|
| |||||||
Road & Rail (0.7%): | ||||||||
3,185 | Avis Budget Group, Inc.* | 116,826 | ||||||
1,340 | Canadian Pacific Railway, Ltd. | 191,312 | ||||||
24,296 | CSX Corp. | 872,955 | ||||||
3,437 | Hertz Global Holdings, Inc.* | 74,102 | ||||||
|
| |||||||
1,255,195 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (3.4%): | ||||||||
5,352 | Advanced Micro Devices, Inc.* | 60,692 | ||||||
5,730 | Analog Devices, Inc. | 416,113 | ||||||
16,991 | Applied Materials, Inc. | 548,300 | ||||||
45,326 | Intel Corp. | 1,643,973 | ||||||
5,753 | Linear Technology Corp. | 358,700 | ||||||
4,741 | Microchip Technology, Inc. | 304,135 | ||||||
6,558 | NVIDIA Corp. | 700,001 | ||||||
14,853 | QUALCOMM, Inc. | 968,415 | ||||||
3,215 | Skyworks Solutions, Inc. | 240,032 | ||||||
11,910 | Texas Instruments, Inc. | 869,073 | ||||||
|
| |||||||
6,109,434 | ||||||||
|
| |||||||
Software (4.3%): | ||||||||
10,300 | Activision Blizzard, Inc. | 371,933 | ||||||
7,622 | Adobe Systems, Inc.* | 784,685 | ||||||
2,268 | ANSYS, Inc.* | 209,767 | ||||||
1,981 | Dell Technologies, Inc., Class V* | 108,896 | ||||||
72,909 | Microsoft Corp. | 4,530,565 | ||||||
7,555 | Nuance Communications, Inc.* | 112,570 | ||||||
30,754 | Oracle Corp. | 1,182,491 | ||||||
1,667 | ServiceNow, Inc.* | 123,925 | ||||||
8,842 | Symantec Corp. | 211,235 | ||||||
1,800 | Workday, Inc., Class A* | 118,962 | ||||||
|
| |||||||
7,755,029 | ||||||||
|
| |||||||
Specialty Retail (2.5%): | ||||||||
3,520 | American Eagle Outfitters, Inc. | 53,398 | ||||||
4,154 | Foot Locker, Inc. | 294,477 | ||||||
5,538 | Gap, Inc. (The) | 124,273 | ||||||
15,372 | Home Depot, Inc. (The) | 2,061,079 | ||||||
3,586 | L Brands, Inc. | 236,102 | ||||||
13,351 | Lowe’s Cos., Inc. | 949,523 | ||||||
3,314 | Tiffany & Co. | 256,603 | ||||||
7,494 | TJX Cos., Inc. (The) | 563,024 | ||||||
|
| |||||||
4,538,479 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (3.2%): | ||||||||
49,370 | Apple, Inc. | 5,718,033 | ||||||
|
|
Shares or Contracts | Fair Value | |||||||
Common Stocks+, continued | ||||||||
Textiles, Apparel & Luxury Goods (0.5%): | ||||||||
2,270 | Lululemon Athletica, Inc.* | $ | 147,527 | |||||
4,805 | Michael Kors Holdings, Ltd.* | 206,518 | ||||||
10,021 | Under Armour, Inc., Class A* | 291,110 | ||||||
2,313 | Under Armour, Inc., Class C* | 58,218 | ||||||
|
| |||||||
703,373 | ||||||||
|
| |||||||
Tobacco (1.9%): | ||||||||
21,159 | Altria Group, Inc. | 1,430,772 | ||||||
15,339 | Philip Morris International, Inc. | 1,403,365 | ||||||
9,445 | Reynolds American, Inc. | 529,298 | ||||||
3,587 | Vector Group, Ltd. | 81,568 | ||||||
|
| |||||||
3,445,003 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.1%): | ||||||||
2,491 | GATX Corp. | 153,396 | ||||||
|
| |||||||
Wireless Telecommunication Services (0.0%): | ||||||||
3,632 | Sprint Corp.* | 30,581 | ||||||
|
| |||||||
Total Common Stocks (Cost $115,615,052) | 174,737,893 | |||||||
|
| |||||||
Purchased Options (0.4%): | ||||||||
Total Purchased Options (Cost $1,109,843) | 651,673 | |||||||
|
| |||||||
Unaffiliated Investment Company (5.5%): | ||||||||
9,830,986 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(a) | 9,830,986 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $9,830,986) | 9,830,986 | |||||||
|
| |||||||
Total Investment Securities (Cost $126,555,881)(b) — 103.5% | 185,220,552 | |||||||
Net other assets (liabilities) — (3.5)% | (6,269,793 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 178,950,759 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
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, 2016. |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Continued
7
AZL Gateway Fund
Schedule of Portfolio Investments
December 31, 2016
Exchange-traded options purchased as of December 31, 2016 were as follows:
Description | Put/ Call | Strike Price | Expiration Date | Contracts | Fair Value | |||||||||||||||
S&P 500 Index | Put | 2000.00 | USD | 1/20/17 | 91 | $ | 8,418 | |||||||||||||
S&P 500 Index | Put | 2050.00 | USD | 1/20/17 | 112 | 17,080 | ||||||||||||||
S&P 500 Index | Put | 1975.00 | USD | 2/17/17 | 75 | 29,625 | ||||||||||||||
S&P 500 Index | Put | 2025.00 | USD | 2/17/17 | 180 | 106,200 | ||||||||||||||
S&P 500 Index | Put | 2000.00 | USD | 3/17/17 | 132 | 151,800 | ||||||||||||||
S&P 500 Index | Put | 2075.00 | USD | 3/17/17 | 183 | 338,550 | ||||||||||||||
|
| |||||||||||||||||||
Total (Cost $1,109,843) | $ | 651,673 | ||||||||||||||||||
|
|
Exchange-traded options written as of December 31, 2016 were as follows:
Description | Put/ Call | Strike Price | Expiration Date | Contracts | Fair Value | |||||||||||||||
S&P 500 Index | Call | 2200.00 | USD | 1/06/17 | 77 | $ | (336,490 | ) | ||||||||||||
S&P 500 Index | Call | 2260.00 | USD | 1/13/17 | 84 | (81,900 | ) | |||||||||||||
S&P 500 Index | Call | 2175.00 | USD | 1/20/17 | 92 | (681,260 | ) | |||||||||||||
S&P 500 Index | Call | 2200.00 | USD | 1/20/17 | 76 | (403,560 | ) | |||||||||||||
S&P 500 Index | Call | 2250.00 | USD | 1/20/17 | 91 | (170,170 | ) | |||||||||||||
S&P 500 Index | Call | 2200.00 | USD | 2/17/17 | 90 | (591,750 | ) | |||||||||||||
S&P 500 Index | Call | 2225.00 | USD | 2/17/17 | 89 | (428,090 | ) | |||||||||||||
S&P 500 Index | Call | 2250.00 | USD | 3/17/17 | 92 | (419,060 | ) | |||||||||||||
S&P 500 Index | Call | 2275.00 | USD | 3/17/17 | 82 | (264,450 | ) | |||||||||||||
|
| |||||||||||||||||||
Total (Premiums $3,197,616) | $ | (3,376,730 | ) | |||||||||||||||||
|
|
See accompanying notes to the financial statements.
8
AZL Gateway Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investment securities, at cost | $ | 126,555,881 | |||
|
| ||||
Investment securities, at value | $ | 185,220,552 | |||
Cash | 314 | ||||
Interest and dividends receivable | 236,794 | ||||
Receivable for investments sold | 1,329,217 | ||||
Reclaims receivable | 874 | ||||
Prepaid expenses | 998 | ||||
|
| ||||
Total Assets | 186,788,749 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 4,242,248 | ||||
Payable for capital shares redeemed | 47,826 | ||||
Written Options (Premiums received $3,197,616) | 3,376,730 | ||||
Manager fees payable | 119,113 | ||||
Administration fees payable | 4,092 | ||||
Distribution fees payable | 37,223 | ||||
Custodian fees payable | 4,167 | ||||
Administrative and compliance services fees payable | 476 | ||||
Trustee fees payable | 362 | ||||
Other accrued liabilities | 5,753 | ||||
|
| ||||
Total Liabilities | 7,837,990 | ||||
|
| ||||
Net Assets | $ | 178,950,759 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 152,555,484 | |||
Accumulated net investment income/(loss) | 2,178,309 | ||||
Accumulated net realized gains/(losses) from investment transactions | (34,268,595 | ) | |||
Net unrealized appreciation/(depreciation) on investments | 58,485,561 | ||||
|
| ||||
Net Assets | $ | 178,950,759 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 14,560,611 | ||||
Net Asset Value (offering and redemption price per share) | $ | 12.29 | |||
|
|
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Dividends | $ | 4,321,713 | |||
Foreign withholding tax | (674 | ) | |||
|
| ||||
Total Investment Income | 4,321,039 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 1,508,592 | ||||
Administration fees | 54,642 | ||||
Distribution fees | 471,435 | ||||
Custodian fees | 9,886 | ||||
Administrative and compliance services fees | 3,342 | ||||
Trustee fees | 11,177 | ||||
Professional fees | 10,226 | ||||
Shareholder reports | 6,434 | ||||
Other expenses | 5,028 | ||||
|
| ||||
Total expenses | 2,080,762 | ||||
|
| ||||
Net Investment Income/(Loss) | 2,240,277 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 14,142,983 | ||||
Net realized gains/(losses) on options contracts | (10,376,104 | ) | |||
Change in net unrealized appreciation/depreciation on investments | 2,424,904 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 6,191,783 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 8,432,060 | |||
|
|
See accompanying notes to the financial statements.
9
Statements of Changes in Net Assets
AZL Gateway Fund | ||||||||||
For the 2016 | For the 2015 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 2,240,277 | $ | 2,357,693 | ||||||
Net realized gains/(losses) on investment transactions | 3,766,879 | 5,768,353 | ||||||||
Change in unrealized appreciation/depreciation on investments | 2,424,904 | (3,817,975 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 8,432,060 | 4,308,071 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (3,778,083 | ) | (2,407,178 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (3,778,083 | ) | (2,407,178 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 20,573,427 | 19,280,893 | ||||||||
Proceeds from dividends reinvested | 3,778,083 | 2,407,178 | ||||||||
Value of shares redeemed | (50,762,419 | ) | (40,633,801 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (26,410,909 | ) | (18,945,730 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (21,756,932 | ) | (17,044,837 | ) | ||||||
Net Assets: | ||||||||||
Beginning of period | 200,707,691 | 217,752,528 | ||||||||
|
|
|
| |||||||
End of period | $ | 178,950,759 | $ | 200,707,691 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 2,178,309 | $ | 3,778,082 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 1,701,718 | 1,608,509 | ||||||||
Dividends reinvested | 316,688 | 204,518 | ||||||||
Shares redeemed | (4,236,081 | ) | (3,382,596 | ) | ||||||
|
|
|
| |||||||
Change in shares | (2,217,675 | ) | (1,569,569 | ) | ||||||
|
|
|
|
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, | |||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 11.96 | $ | 11.87 | $ | 11.65 | $ | 10.83 | $ | 10.44 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.17 | 0.15 | 0.13 | 0.13 | 0.06 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.40 | 0.08 | 0.23 | 0.78 | 0.37 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 0.57 | 0.23 | 0.36 | 0.91 | 0.43 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.24 | ) | (0.14 | ) | (0.14 | ) | (0.09 | ) | (0.04 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.24 | ) | (0.14 | ) | (0.14 | ) | (0.09 | ) | (0.04 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 12.29 | $ | 11.96 | $ | 11.87 | $ | 11.65 | $ | 10.83 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 4.84 | % | 1.98 | % | 3.09 | % | 8.44 | % | 4.15 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 178,951 | $ | 200,708 | $ | 217,753 | $ | 212,164 | $ | 169,796 | |||||||||||||||
Net Investment Income/(Loss) | 1.19 | % | 1.11 | % | 1.14 | % | 1.35 | % | 1.74 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.10 | % | 1.10 | % | 1.10 | % | 1.11 | % | 1.14 | % | |||||||||||||||
Expenses Net of Reductions | 1.10 | % | 1.10 | % | 1.10 | % | 1.10 | % | 1.11 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.10 | % | 1.10 | % | 1.10 | % | 1.11 | % | 1.14 | % | |||||||||||||||
Portfolio Turnover Rate | 20 | % | 5 | % | 18 | % | 16 | % | 5 | % |
(a) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. |
(b) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
(c) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial Statements. |
See accompanying notes to the financial statements.
11
AZL Gateway Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Gateway Fund (the “Fund”), and 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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.
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) 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, 2016
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.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and sub-adviser. Any such purchase or sale transaction must be effected without a brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security’s last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. During the year ended December 31, 2016, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
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, 2016, 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 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, 2016:
Number of Contracts | Cost | |||||||||
Options outstanding at December 31, 2015 | 959 | $ | 1,487,578 | |||||||
Options purchased | 7,365 | 11,153,795 | ||||||||
Options exercised | — | — | ||||||||
Options expired | (625 | ) | (1,020,623 | ) | ||||||
Options closed | (6,926 | ) | (10,510,907 | ) | ||||||
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| |||||||
Options outstanding at December 31, 2016 | 773 | $ | 1,109,843 | |||||||
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The Fund had the following transactions in written call and put options during the year ended December 31, 2016:
Number of Contracts | Premiums Received | |||||||||
Options outstanding at December 31, 2015 | (959 | ) | $ | (4,888,491 | ) | |||||
Options written | (9,619 | ) | (35,103,083 | ) | ||||||
Options exercised | — | — | ||||||||
Options expired | 321 | 847,542 | ||||||||
Options closed | 9,484 | 35,946,416 | ||||||||
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Options outstanding at December 31, 2016 | (773 | ) | $ | (3,197,616 | ) | |||||
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13
AZL Gateway Fund
Notes to the Financial Statements
December 31, 2016
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, 2016:
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 Risk Exposure | ||||||||||||
Equity Contracts | Investment securities, at value (purchased options) | $ | 651,673 | Written options | $ | 3,376,730 |
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, 2016:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives Recognized | Change in Net Unrealized Appreciation/Depreciation on Derivatives Recognized | |||||||
Equity Risk Exposure | ||||||||||
Equity Contracts | Net realized gains/(losses) on options contracts/Change in unrealized appreciation/depreciation on investments | $ | (10,376,104 | ) | $ | (2,335,312 | ) |
3. Fees and Transactions with Affiliates and Other Parties
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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, 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, 2016, 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, 2016, 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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
14
AZL Gateway Fund
Notes to the Financial Statements
December 31, 2016
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the Fund’s average daily net assets, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $2,159 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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 (the “Board” or “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.
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, 2016, 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, 2016 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks+ | $ | 174,737,893 | $ | — | $ | 174,737,893 | |||||||||
Purchased Put Options | 651,673 | — | 651,673 | ||||||||||||
Unaffiliated Investment Company | 9,830,986 | — | 9,830,986 | ||||||||||||
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Total Investment Securities | 185,220,552 | — | 185,220,552 | ||||||||||||
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Other Financial Instruments:* | |||||||||||||||
Written Options | (3,376,730 | ) | — | (3,376,730 | ) | ||||||||||
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Total Investments | $ | 181,843,822 | $ | — | $ | 181,843,822 | |||||||||
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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 options contracts. These investments are generally recorded in the financial statements at the unrealized gain or loss on the investment. |
15
AZL Gateway Fund
Notes to the Financial Statements
December 31, 2016
5. Security Purchases and Sales
For the year ended December 31, 2016, 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 | $ | 37,207,011 | $ | 78,727,869 |
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 policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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 of securities for federal income tax purposes at December 31, 2016 is $128,482,791. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 60,941,678 | ||
Unrealized (depreciation) | (4,203,917 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 56,737,761 | ||
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As of the end of its tax year ended December 31, 2016, the Fund has capital loss carry forwards (“CLCFs”) as summarized in the table 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 | $ | 30,601,415 | $ | 2,367,383 | $ | 32,968,798 |
During the year ended December 31, 2016, the Fund utilized $1,344,469 in capital loss carry forwards to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Gateway Fund | $ | 3,778,083 | $ | — | $ | 3,778,083 |
(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, 2015 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Gateway Fund | $ | 2,407,178 | $ | — | $ | 2,407,178 |
(a) Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes.
16
AZL Gateway Fund
Notes to the Financial Statements
December 31, 2016
At December 31, 2016, 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 | $2,178,308 | $— | $(32,978,968) | $57,195,935 | $26,395,275 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies — Form N-PORT and Form N-CEN — also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
9. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
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, 2016, 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, 2016, 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 AZL Gateway Fund as of December 31, 2016, 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 24, 2017
18
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2016, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deduction available to corporate shareholders.
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 — October 25, 2016 (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 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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 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 the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held October 25, 2016, the Manager reported that for the three year period ended June 30, 2016, seven Funds were in the top 40%, two were in the middle 20% and three were in the bottom 40%, and for the one year period ended June 30, 2016, twelve Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2016, six Funds were in the top 40%, one was in the middle 20%, and three were in the bottom 40%. At the Board of Trustees meeting held October 25, 2016, 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 twenty Funds reviewed by the Board of Trustees in the fall of 2016, seventeen 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 2016 for the twenty-one Funds was as follows; (1) eighteen of the Funds had total expense rankings below the 65th percentile (with eleven Funds at or below the 50th percentile); (2) the AZL Russell 1000 Growth Index Fund had a total expense ranking in the 66th percentile, but there was only a very limited peer group for such Fund, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; (3) the AZL International Index Fund had a total expense ranking in the 75th percentile, but there was only a limited peer group for such Fund, the actual management fee was in the 37th percentile, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; and (4) for the AZL Morgan Stanley Global Real Estate Fund, which had a total expense ranking in the 70th percentile, the Manager recommended a temporary management fee waiver of 5 basis points, effective November 1, 2016, which would move the management fee ranking from the 80th to the 60th percentile.
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 2013 through June 30, 2016. 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, all of which currently are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. 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, 2016 were approximately $6.4 billion, and that no single Fund had assets in excess of $1,289 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, 2017, 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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 5701 Golden Hills Drive | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 5701 Golden Hills Drive | 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 5701 Golden Hills Drive | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
24
Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
25
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® Global Equity Index Fund
(formerly AZL® NFJ International Value Fund)
Annual Report
December 31, 2016
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 22
Statement of Operations
Page 22
Statements of Changes in Net Assets
Page 23
Financial Highlights
Page 24
Notes to the Financial Statements
Page 25
Report of Independent Registered Public Accounting Firm
Page 32
Other Information
Page 33
Approval of Investment Advisory and Subadvisory Agreements
Page 34
Information about the Board of Trustees and Officers
Page 38
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® Global Equity Index Fund Review (unaudited)
(formerly AZL® NFJ International Value Fund)
Allianz Investment Management LLC serves as the Manager for the AZL® Global Equity 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, 2016?
For the year ended December 31, 2016 the AZL® Global Equity Index Fund (the “Fund”) returned -0.93%. That compared to a 8.15% for its benchmark the MSCI World Index1.
The Fund underwent a change in subadvisors on October 14, 2016. On that date the Fund, which previously was named the AZL NFJ International Value Fund, became known as the AZL Global Equity Index Fund and changed subadvisors to BlackRock. The Fund’s change in subadvisors also resulted in a shift from active to passive management and a change in its benchmark to the MSCI World Index.
Global equities posted modest returns in 2016, rebounding from a weak performance in 2015. The first half of the year was dominated by low—in some cases negative—interest rates, as many central banks, most notably the European Central Bank (ECB) and the Bank of Japan (BoJ), initiated or intensified their quantitative easing efforts. Late in the period, developed markets rallied as investors embraced the results of the U.S. elections and strong macroeconomic data. Optimism surrounding president-elect Trump’s reflationary policies outweighed concerns over the ECB’s decision to reduce the pace of its asset purchases. A strong U.S. dollar muted gains for U.S. investors, however.
Under the previous subadvisor, the Fund lagged its benchmark. The Fund’s value strategy, particularly a focus on investments with relatively low price-to-earnings ratios2, underperformed during the first two quarters of 2016 amid the low interest rate environment. This effect was especially pronounced in the Fund’s holding in Japan, China, Europe, and the U.K. The negative impact on value was felt across multiple sectors. For instance, the Fund’s investments in Japan, specifically holdings of an insurance company, a regional bank, a chemical company, and a machinery manufacturer, weighed on relative results as those companies underperformed in an environment where investors favored higher growth names.*
Under the previous subadvisor, stock selection in the telecommunications sector added to relative results. The portfolio’s strategy of targeting higher-yielding companies with lower valuations benefited relative performance. In particular, the Fund’s off-benchmark investment in a Japanese telecommunications operator boosted results.*
Following the change in subadvisor, the Fund was managed with a passive approach, which seeks investment results, before fees, expenses and fair value adjustments to its portfolio at the close of the New York Stock Exchange, that correspond to the performance of the MSCI World Index. During the fourth quarter, financial and energy stocks generated the largest returns in the MSCI World Index (in USD). Real estate and consumer staples were the worst performing sectors for the quarter.*
The Fund held derivatives in the form of futures contracts, which it used to hedge its cash position. The futures made a small positive contribution to relative results.*
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, 2016. | |
1 | For a complete description of the Fund’s performance benchmarks please refer to page 2 of this report. | |
2 | Price-to-Earnings (P/E) Ratio The price-earnings ratio (P/E Ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings. |
1
AZL® Global Equity Index Review (unaudited)
Fund Objective
The Fund’s investment objective is to seek to match the performance of the MSCI World 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 90% of its assets, plus the amount of any borrowing for investment purposes, in securities of the MSCI World Index (the “Underlying Index”) and in depositary receipts representing securities of the Underlying Index. | ||
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes. | ||
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. | ||
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. | ||
Small- to mid-capitalization companies typically have a higher risk of failure and historically have experienced a greater degree of volatility. | ||
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 benchmarks, and represents the reinvestment of dividends and capital gains in the Fund.
Average Annual Total Returns as of December 31, 2016 | ||||||||||||||||
Since Inception (5/1/09) | ||||||||||||||||
1 Year | 3 Year | 5 Year | ||||||||||||||
AZL® Global Equity Index Fund | -0.93 | % | -6.38 | % | 2.01 | % | 5.23 | % | ||||||||
MSCI World Index (gross of withholding taxes) | 8.15 | % | 4.38 | % | 11.04 | % | 12.04 | % | ||||||||
MSCI World Index (net of withholding taxes) | 7.51 | % | 3.80 | % | 10.41 | % | 11.41 | % | ||||||||
MSCI EAFE Index (gross of withholding taxes) | 1.51 | % | -1.15 | % | 7.02 | % | 8.15 | % | ||||||||
MSCI EAFE Index (net of withholding taxes) | 1.00 | % | -1.60 | % | 6.53 | % | 7.67 | % | ||||||||
MSCI World Ex-USA Index (gross of withholding taxes) | 3.29 | % | -1.11 | % | 6.59 | % | 8.06 | % | ||||||||
MSCI World Ex-USA Index (net of withholding taxes) | 2.75 | % | -1.59 | % | 6.07 | % | 7.55 | % |
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® Global Equity Index Fund | 1.10 | % |
The above expense ratio is based on the current Fund prospectus dated April 25, 2016, as supplemented October 14, 2016. The Manager voluntarily reduced the management fee to 0.31% on all assets. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 0.80% through April 30, 2018. Additional information pertaining to the December 31, 2016 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.
Prior to October 14, 2016, the Fund’s performance was compared to the MSCI EAFE Index and to the MSCI ACWI Ex-U.S. Index. The comparison index was changed contemporaneously to the MSCI World with the change in the Fund’s subadviser and investment objective. The Morgan Stanley Capital International, Europe World Index (“MSCI World Index”), a broad global equity benchmark that represents large- and mid-cap equity performance across 23 developed markets countries. The Morgan Stanley Capital International, Europe, Australasia and Far East (“MSCI EAFE”) 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. The Morgan Stanley Capital International All Country World Index Ex-U.S. (“MSCI ACWI Ex-U.S.”) Index captures large- and mid-cap representation across 22 of 23 developed markets countries (excluding the U.S.) and 23 emerging markets countries. The Indexes are unmanaged and do not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Index noted as “gross of withholding taxes” reflects the maximum possible reinvestment of dividends with no adjustment for withholding tax deductions or tax credits. 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. The Index noted as “gross of withholding taxes” reflects the maximum possible reinvestment of dividends with no adjustment for withholding tax deductions or tax credits. 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 Global Equity Index Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL Global Equity 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Global Equity Index Fund | $ | 1,000.00 | $ | 1,071.20 | $ | 5.15 | 0.99 | % |
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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Global Equity Index Fund | $ | 1,000.00 | $ | 1,020.16 | $ | 5.03 | 0.99 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Financials | 19.3 | % | |||
Information Technology | 14.6 | ||||
Health Care | 12.2 | ||||
Consumer Discretionary | 12.1 | ||||
Industrials | 10.5 | ||||
Consumer Staples | 9.2 | ||||
Energy | 7.6 | ||||
Materials | 5.0 | ||||
Telecommunication Services | 3.3 | ||||
Real Estate | 3.1 | ||||
Utilities | 2.9 | ||||
|
| ||||
Total Common Stocks and Preferred Stocks | 99.8 | ||||
Right | — | ^ | |||
Money Market | — | ^ | |||
|
| ||||
Total Investment Securities | 99.8 | ||||
Net other assets (liabilities) | 0.2 | ||||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
| Common Stocks (99.6%): |
| ||||||
| Aerospace & Defense (1.7%): |
| ||||||
1,624 | Arconic, Inc. | $ | 30,109 | |||||
15,560 | BAE Systems plc | 112,981 | ||||||
409 | BE Aerospace, Inc. | 24,618 | ||||||
2,591 | Boeing Co. (The) | 403,366 | ||||||
8,877 | Bombardier, Inc., Class B* | 14,283 | ||||||
946 | CAE, Inc. | 13,233 | ||||||
6,703 | Cobham plc | 13,506 | ||||||
106 | Elbit Systems, Ltd. | 10,710 | ||||||
2,545 | European Aeronautic Defence & Space Co. NV | 167,942 | ||||||
1,135 | General Dynamics Corp. | 195,969 | ||||||
210 | Huntington Ingalls Industries, Inc. | 38,680 | ||||||
309 | L-3 Communications Holdings, Inc. | 47,002 | ||||||
1,189 | Lockheed Martin Corp. | 297,179 | ||||||
3,047 | Meggitt plc | 17,204 | ||||||
771 | Northrop Grumman Corp. | 179,319 | ||||||
1,359 | Raytheon Co. | 192,978 | ||||||
531 | Rockwell Collins, Inc. | 49,256 | ||||||
8,888 | Rolls-Royce Holdings plc | 73,081 | ||||||
1,525 | Safran SA | 109,780 | ||||||
6,300 | Singapore Technologies Engineering, Ltd. | 13,988 | ||||||
1,075 | Textron, Inc. | 52,202 | ||||||
422 | Thales SA | 40,883 | ||||||
233 | TransDigm Group, Inc. | 58,008 | ||||||
3,490 | United Technologies Corp. | 382,573 | ||||||
792 | Zodiac Aerospace | 18,179 | ||||||
|
| |||||||
2,557,029 | ||||||||
|
| |||||||
| Air Freight & Logistics (0.6%): |
| ||||||
3,812 | Bollore, Inc. | 13,429 | ||||||
562 | C.H. Robinson Worldwide, Inc. | 41,172 | ||||||
4,517 | Deutsche Post AG | 148,309 | ||||||
721 | Expeditors International of Washington, Inc. | 38,184 | ||||||
1,101 | FedEx Corp. | 205,006 | ||||||
3,442 | Royal Mail plc | 19,581 | ||||||
3,061 | United Parcel Service, Inc., Class B | 350,914 | ||||||
1,300 | Yamato Holdings Co., Ltd. | 26,357 | ||||||
|
| |||||||
842,952 | ||||||||
|
| |||||||
| Airlines (0.2%): |
| ||||||
4,000 | All Nippon Airways Co., Ltd. | 10,760 | ||||||
625 | American Airlines Group, Inc. | 29,181 | ||||||
10,000 | Cathay Pacific Airways, Ltd. | 13,146 | ||||||
766 | Delta Air Lines, Inc. | 37,680 | ||||||
966 | Deutsche Lufthansa AG, Registered Shares | 12,480 | ||||||
1,008 | easyJet plc | 12,466 | ||||||
4,836 | International Consolidated Airlines Group SA | 26,092 | ||||||
400 | Japan Airlines Co., Ltd. | 11,674 | ||||||
5,735 | Qantas Airways, Ltd. | 13,739 | ||||||
2,200 | Singapore Airlines, Ltd. | 14,657 | ||||||
631 | Southwest Airlines Co. | 31,449 | ||||||
338 | United Continental Holdings, Inc.* | 24,633 | ||||||
|
| |||||||
237,957 | ||||||||
|
| |||||||
| Auto Components (0.7%): |
| ||||||
700 | Aisin Sieki Co., Ltd. | 30,297 | ||||||
348 | Autoliv, Inc. | 39,376 | ||||||
852 | BorgWarner, Inc. | 33,603 | ||||||
3,100 | Bridgestone Corp. | 111,528 |
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Auto Components, continued |
| ||||||
797 | Compagnie Generale des Establissements Michelin SCA, Class B | $ | 88,636 | |||||
441 | Continental AG | 85,835 | ||||||
1,324 | Delphi Automotive plc | 89,171 | ||||||
2,100 | Denso Corp. | 90,729 | ||||||
6,575 | GKN plc | 26,780 | ||||||
1,042 | Goodyear Tire & Rubber Co. | 32,167 | ||||||
400 | Koito Manufacturing Co., Ltd. | 21,125 | ||||||
297 | Lear Corp. | 39,314 | ||||||
304 | Linamar Corp. | 13,064 | ||||||
1,752 | Magna Internationl | 76,083 | ||||||
700 | NGK Spark Plug Co., Ltd. | 15,497 | ||||||
900 | NOK Corp. | 18,180 | ||||||
459 | Nokian Renkaat OYJ | 17,107 | ||||||
814 | Schaeffler AG | 12,012 | ||||||
600 | Stanley Electric Co., Ltd. | 16,357 | ||||||
2,900 | Sumitomo Electric Industries, Ltd. | 41,645 | ||||||
700 | Sumitomo Rubber Industries, Ltd. | 11,075 | ||||||
800 | Toyoda Gosei Co., Ltd. | 18,660 | ||||||
600 | Toyota Industries Corp. | 28,499 | ||||||
1,194 | Valeo SA | 68,597 | ||||||
700 | Yokohama Rubber Co., Ltd. (The) | 12,480 | ||||||
|
| |||||||
1,037,817 | ||||||||
|
| |||||||
| Automobiles (1.7%): |
| ||||||
1,517 | Bayerische Motoren Werke AG (BMW) | 142,005 | ||||||
4,210 | Daimler AG, Registered Shares | 312,403 | ||||||
507 | Ferrari NV | 29,491 | ||||||
3,647 | Fiat Chrysler Automobiles NV | 33,122 | ||||||
16,887 | Ford Motor Co. | 204,839 | ||||||
2,600 | Fuji Heavy Industries, Ltd. | 105,772 | ||||||
6,346 | General Motors Co. | 221,095 | ||||||
717 | Harley-Davidson, Inc. | 41,830 | ||||||
7,100 | Honda Motor Co., Ltd. | 206,730 | ||||||
2,400 | Isuzu Motors, Ltd. | 30,302 | ||||||
2,200 | Mazda Motor Corp. | 35,738 | ||||||
2,700 | Mitsubishi Motors Corp. | 15,351 | ||||||
10,600 | Nissan Motor Co., Ltd. | 106,358 | ||||||
1,902 | PSA Peugeot Citroen SA* | 31,002 | ||||||
927 | Renault SA | 82,415 | ||||||
1,700 | Suzuki Motor Corp. | 59,683 | ||||||
541 | Tesla Motors, Inc.* | 115,606 | ||||||
11,700 | Toyota Motor Corp. | 683,126 | ||||||
130 | Volkswagen AG | 18,668 | ||||||
1,100 | Yamaha Motor Co., Ltd. | 24,138 | ||||||
|
| |||||||
2,499,674 | ||||||||
|
| |||||||
| Banks (9.6%): |
| ||||||
1,278 | ABN AMRO Group NV | 28,304 | ||||||
4,000 | Aozora Bank, Ltd. | 14,150 | ||||||
12,677 | Australia & New Zealand Banking Group, Ltd. | 277,464 | ||||||
28,764 | Banco Bilbao Vizcaya Argentaria SA | 194,023 | ||||||
21,685 | Banco de Sabadell SA | 30,181 | ||||||
13,473 | Banco Popular Espanol SA | 13,010 | ||||||
63,839 | Banco Santander SA | 333,207 | ||||||
3,600 | Bank Hapoalim BM | 21,381 | ||||||
5,141 | Bank Leumi Le-Israel Corp.* | 21,138 |
Continued
4
AZL Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Banks, continued |
| ||||||
44,619 | Bank of America Corp. | $ | 986,081 | |||||
4,800 | Bank of East Asia, Ltd. (The) | 18,312 | ||||||
101,515 | Bank of Ireland* | 24,962 | ||||||
2,000 | Bank of Kyoto, Ltd. (The) | 14,809 | ||||||
2,804 | Bank of Montreal | 201,700 | ||||||
5,409 | Bank of Nova Scotia | 301,212 | ||||||
1,540 | Bank of Queensland, Ltd. | 13,156 | ||||||
19,848 | Bankia SA | 20,274 | ||||||
3,202 | Bankinter SA | 24,795 | ||||||
76,053 | Barclays plc | 208,881 | ||||||
3,511 | BB&T Corp. | 165,087 | ||||||
1,721 | Bendigo & Adelaide Bank, Ltd. | 15,744 | ||||||
4,589 | BNP Paribas SA | 292,285 | ||||||
14,500 | BOC Hong Kong Holdings, Ltd. | 51,915 | ||||||
1,775 | Canadian Imperial Bank of Commerce | 144,856 | ||||||
3,000 | Chiba Bank, Ltd. (The) | 18,339 | ||||||
900 | Chugoku Bank, Ltd. (The) | 12,886 | ||||||
1,300 | Chuo Mitsui Trust Holdings, Inc. | 46,195 | ||||||
774 | CIT Group, Inc. | 33,034 | ||||||
12,810 | Citigroup, Inc. | 761,299 | ||||||
2,169 | Citizens Financial Group, Inc. | 77,281 | ||||||
690 | Comerica, Inc. | 46,996 | ||||||
4,125 | Commerzbank AG | 31,456 | ||||||
7,541 | Commonwealth Bank of Australia | 447,174 | ||||||
4,400 | Concordia Financial Group, Ltd. | 21,104 | ||||||
4,079 | Credit Agricole SA | 50,563 | ||||||
13,526 | Criteria Caixacorp SA | 44,676 | ||||||
3,011 | Danske Bank A/S | 91,338 | ||||||
6,900 | DBS Group Holdings, Ltd. | 82,342 | ||||||
4,840 | DnB NOR ASA | 72,029 | ||||||
1,178 | Erste Group Bank AG | 34,485 | ||||||
3,611 | Fifth Third Bancorp | 97,389 | ||||||
566 | First Republic Bank | 52,151 | ||||||
3,000 | Fukuoka Financial Group, Inc. | 13,282 | ||||||
2,300 | Hachijuni Bank, Ltd. (The) | 13,301 | ||||||
3,000 | Hang Seng Bank, Ltd. | 55,605 | ||||||
3,000 | Hiroshima Bank, Ltd. (The) | 13,966 | ||||||
87,855 | HSBC Holdings plc | 710,244 | ||||||
5,232 | Huntington Bancshares, Inc. | 69,167 | ||||||
16,933 | ING Groep NV | 238,262 | ||||||
57,046 | Intesa Sanpaolo SpA | 145,605 | ||||||
1,600 | Japan Post Bank Co., Ltd. | 19,172 | ||||||
15,793 | JPMorgan Chase & Co. | 1,362,779 | ||||||
1,128 | KBC Groep NV | 69,811 | ||||||
5,185 | KeyCorp | 94,730 | ||||||
1,900 | Kyushu Financial Group, Inc. | 12,852 | ||||||
280,151 | Lloyds Banking Group plc | 215,409 | ||||||
617 | M&T Bank Corp. | 96,517 | ||||||
3,600 | Mebuki Financial Group, Inc. | 13,304 | ||||||
2,255 | Mediobanca SpA | 18,402 | ||||||
55,800 | Mitsubishi UFJ Financial Group, Inc. | 343,100 | ||||||
934 | Mizrahi Tefahot Bank, Ltd. | 13,645 | ||||||
104,400 | Mizuho Financial Group, Inc. | 186,929 | ||||||
12,072 | National Australia Bank, Ltd. | 266,390 | ||||||
1,518 | National Bank of Canada | 61,659 | ||||||
3,360 | Natixis | 18,943 |
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Banks, continued |
| ||||||
13,176 | Nordea Bank AB | $ | 146,547 | |||||
12,100 | Oversea-Chinese Banking Corp., Ltd. | 74,263 | ||||||
1,776 | People’s United Financial, Inc. | 34,383 | ||||||
2,118 | PNC Financial Services Group, Inc. | 247,721 | ||||||
748 | Raiffeisen International Bank-Holding AG* | 13,682 | ||||||
6,141 | Regions Financial Corp. | 88,185 | ||||||
8,600 | Resona Holdings, Inc. | 44,268 | ||||||
6,581 | Royal Bank of Canada | 445,449 | ||||||
13,709 | Royal Bank of Scotland Group plc* | 37,857 | ||||||
4,000 | Seven Bank, Ltd. | 11,494 | ||||||
4,000 | Shinsei Bank, Ltd. | 6,728 | ||||||
2,000 | Shizuoka Bank, Ltd. (The) | 16,756 | ||||||
207 | Signature Bank* | 31,091 | ||||||
7,504 | Skandinaviska Enskilda Banken AB, Class A | 78,726 | ||||||
3,450 | Societe Generale | 169,338 | ||||||
14,355 | Standard Chartered plc* | 117,553 | ||||||
5,800 | Sumitomo Mitsui Financial Group, Inc. | 219,907 | ||||||
2,272 | SunTrust Banks, Inc. | 124,619 | ||||||
600 | Suruga Bank, Ltd. | 13,359 | ||||||
7,275 | Svenska Handelsbanken AB, Class A | 101,125 | ||||||
4,262 | Swedbank AB, Class A | 103,055 | ||||||
8,234 | Toronto-Dominion Bank (The) | 406,149 | ||||||
7,432 | U.S. Bancorp | 381,782 | ||||||
27,986 | UniCredit SpA | 80,442 | ||||||
5,800 | United Overseas Bank, Ltd. | 81,416 | ||||||
20,958 | Wells Fargo & Co. | 1,154,996 | ||||||
14,631 | Westpac Banking Corp. | 342,675 | ||||||
1,000 | Yamaguchi Financial Group, Inc. | 10,868 | ||||||
|
| |||||||
14,075,172 | ||||||||
|
| |||||||
| Beverages (2.0%): |
| ||||||
3,332 | Anheuser-Busch InBev NV | 351,832 | ||||||
2,000 | Asahi Breweries, Ltd. | 63,067 | ||||||
864 | Brown-Forman Corp., Class B | 38,811 | ||||||
425 | Carlsberg A/S, Class B | 36,685 | ||||||
2,188 | Coca-Cola Amatil, Ltd. | 15,953 | ||||||
17,928 | Coca-Cola Co. (The) | 743,294 | ||||||
1,074 | Coca-Cola European Partners plc | 33,882 | ||||||
698 | Coca-Cola HBC AG | 15,211 | ||||||
819 | Constellation Brands, Inc., Class C | 125,561 | ||||||
10,934 | Diageo plc | 282,828 | ||||||
834 | Dr Pepper Snapple Group, Inc. | 75,619 | ||||||
423 | Heineken Holding NV | 29,410 | ||||||
1,101 | Heineken NV | 82,456 | ||||||
4,000 | Kirin Holdings Co., Ltd. | 64,950 | ||||||
768 | Molson Coors Brewing Co., Class B | 74,734 | ||||||
1,905 | Monster Beverage Corp.* | 84,468 | ||||||
6,359 | PepsiCo, Inc. | 665,342 | ||||||
985 | Pernod Ricard SA | 106,692 | ||||||
149 | Remy Cointreau SA | 12,707 | ||||||
500 | Suntory Beverage & Food, Ltd. | 20,687 | ||||||
2,869 | Treasury Wine Estates, Ltd. | 22,071 | ||||||
|
| |||||||
2,946,260 | ||||||||
|
| |||||||
| Biotechnology (2.1%): |
| ||||||
7,268 | AbbVie, Inc. | 455,122 | ||||||
436 | Actelion, Ltd., Registered Shares | 94,268 |
Continued
5
AZL Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Biotechnology, continued |
| ||||||
1,048 | Alexion Pharmaceuticals, Inc.* | $ | 128,223 | |||||
593 | Alkermes plc* | 32,959 | ||||||
3,283 | Amgen, Inc. | 480,007 | ||||||
958 | Biogen Idec, Inc.* | 271,670 | ||||||
816 | BioMarin Pharmaceutical, Inc.* | 67,597 | ||||||
3,383 | Celgene Corp.* | 391,582 | ||||||
1,883 | CSL, Ltd. | 136,000 | ||||||
222 | Genmab A/S* | 36,804 | ||||||
5,770 | Gilead Sciences, Inc. | 413,190 | ||||||
1,265 | Grifols SA | 25,131 | ||||||
670 | Incyte Corp.* | 67,181 | ||||||
349 | Regeneron Pharmaceuticals, Inc.* | 128,114 | ||||||
445 | Seattle Genetics, Inc.* | 23,483 | ||||||
3,936 | Shire plc | 223,001 | ||||||
176 | United Therapeutics Corp.* | 25,244 | ||||||
1,200 | Vertex Pharmaceuticals, Inc.* | 88,404 | ||||||
|
| |||||||
3,087,980 | ||||||||
|
| |||||||
| Building Products (0.5%): |
| ||||||
583 | A.O. Smith Corp. | 27,605 | ||||||
4,000 | Asahi Glass Co., Ltd. | 27,180 | ||||||
4,149 | Assa Abloy AB, Class B | 76,998 | ||||||
2,375 | Compagnie de Saint-Gobain SA | 110,579 | ||||||
1,100 | Daikin Industries, Ltd. | 100,751 | ||||||
607 | Fortune Brands Home & Security, Inc. | 32,450 | ||||||
167 | Geberit AG, Registered Shares | 66,852 | ||||||
4,084 | Johnson Controls International plc | 168,220 | ||||||
1,000 | Lixil Group Corp. | 22,664 | ||||||
1,309 | Masco Corp. | 41,391 | ||||||
500 | TOTO, Ltd. | 19,735 | ||||||
|
| |||||||
694,425 | ||||||||
|
| |||||||
| Capital Markets (2.7%): |
| ||||||
3,720 | 3i Group plc | 32,310 | ||||||
3,558 | Aberdeen Asset Management plc | 11,306 | ||||||
210 | Affiliated Managers Group, Inc.* | 30,513 | ||||||
726 | Ameriprise Financial, Inc. | 80,542 | ||||||
768 | ASX, Ltd. | 27,502 | ||||||
4,668 | Bank of New York Mellon Corp. (The) | 221,170 | ||||||
548 | BlackRock, Inc., Class A+ | 208,536 | ||||||
3,811 | Brookfield Asset Management, Inc., Class A | 125,756 | ||||||
5,181 | Charles Schwab Corp. (The) | 204,494 | ||||||
879 | CI Financial Corp. | 18,903 | ||||||
1,543 | CME Group, Inc. | 177,985 | ||||||
8,896 | Credit Suisse Group AG | 127,064 | ||||||
7,000 | Daiwa Securities Group, Inc. | 43,007 | ||||||
5,678 | Deutsche Bank AG, Registered Shares* | 102,739 | ||||||
809 | Deutsche Boerse AG* | 65,898 | ||||||
1,101 | E*TRADE Financial Corp.* | 38,150 | ||||||
451 | Eaton Vance Corp. | 18,888 | ||||||
1,684 | Franklin Resources, Inc. | 66,653 | ||||||
1,641 | Goldman Sachs Group, Inc. (The) | 392,936 | ||||||
1,005 | Hargreaves Lansdown plc | 14,999 | ||||||
5,200 | Hong Kong Exchanges & Clearing, Ltd. | 122,372 | ||||||
454 | IGM Financial, Inc. | 12,918 | ||||||
2,702 | Intercontinental Exchange, Inc. | 152,447 | ||||||
1,642 | Invesco, Ltd. | 49,818 |
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Capital Markets, continued |
| ||||||
2,442 | Investec plc | $ | 16,143 | |||||
2,000 | Japan Exchange Group, Inc. | 28,650 | ||||||
888 | Julius Baer Group, Ltd. | 39,437 | ||||||
1,238 | London Stock Exchange Group plc | 44,474 | ||||||
1,487 | Macquarie Group, Ltd. | 93,715 | ||||||
732 | Moody’s Corp. | 69,006 | ||||||
6,269 | Morgan Stanley | 264,864 | ||||||
473 | MSCI, Inc., Class A | 37,263 | ||||||
472 | NASDAQ OMX Group, Inc. (The) | 31,681 | ||||||
20 | Nex Group plc | 116 | ||||||
15,400 | Nomura Holdings, Inc. | 90,788 | ||||||
919 | Northern Trust Corp. | 81,837 | ||||||
73 | Partners Group Holding AG | 34,174 | ||||||
514 | Raymond James Financial, Inc. | 35,605 | ||||||
1,228 | S&P Global, Inc. | 132,059 | ||||||
1,100 | SBI Holdings, Inc. | 13,963 | ||||||
529 | Schroders plc | 19,508 | ||||||
544 | SEI Investments Co. | 26,852 | ||||||
3,200 | Singapore Exchange, Ltd. | 15,818 | ||||||
1,705 | State Street Corp. | 132,513 | ||||||
1,118 | T. Rowe Price Group, Inc. | 84,141 | ||||||
1,046 | TD Ameritrade Holding Corp. | 45,606 | ||||||
1,467 | Thomson Reuters Corp. | 64,209 | ||||||
701 | Tullett Prebon plc | 3,741 | ||||||
15,993 | UBS Group AG | 250,443 | ||||||
|
| |||||||
4,003,512 | ||||||||
|
| |||||||
| Chemicals (2.8%): |
| ||||||
595 | Agrium, Inc. | 59,815 | ||||||
1,748 | Air Liquide SA | 194,022 | ||||||
893 | Air Products & Chemicals, Inc. | 128,431 | ||||||
700 | Air Water, Inc. | 12,605 | ||||||
1,113 | AkzoNobel NV | 69,498 | ||||||
441 | Albemarle Corp. | 37,961 | ||||||
263 | Arkema SA | 25,690 | ||||||
6,000 | Asahi Kasei Corp. | 52,243 | ||||||
250 | Ashland Global Holdings, Inc. | �� | 27,323 | |||||
832 | Axalta Coating Systems, Ltd.* | 22,630 | ||||||
4,133 | BASF SE | 385,391 | ||||||
586 | Celanese Corp., Series A | 46,142 | ||||||
902 | CF Industries Holdings, Inc. | 28,395 | ||||||
384 | Christian Hansen Holding A/S | 21,245 | ||||||
284 | Covestro AG | 19,535 | ||||||
512 | Croda International plc | 20,082 | ||||||
1,000 | Daicel Chemical Industries, Ltd. | 10,976 | ||||||
4,927 | Dow Chemical Co. (The) | 281,923 | ||||||
3,823 | E.I. du Pont de Nemours & Co. | 280,608 | ||||||
589 | Eastman Chemical Co. | 44,299 | ||||||
1,147 | Ecolab, Inc. | 134,451 | ||||||
34 | EMS-Chemie Holding AG | 17,280 | ||||||
653 | Evonik Industries AG | 19,440 | ||||||
522 | FMC Corp. | 29,524 | ||||||
172 | Frutarom Industries, Ltd. | 8,781 | ||||||
275 | Fuchs Petrolub SE | 11,546 | ||||||
48 | Givaudan SA, Registered Shares | 87,963 | ||||||
500 | Hitachi Chemical Co., Ltd. | 12,479 | ||||||
6,485 | Incitec Pivot, Ltd. | 16,766 |
Continued
6
AZL Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Chemicals, continued |
| ||||||
319 | International Flavor & Fragrances, Inc. | $ | 37,588 | |||||
3,372 | Israel Chemicals, Ltd. | 13,778 | ||||||
758 | Johnson Matthey plc | 29,613 | ||||||
800 | JSR Corp. | 12,589 | ||||||
747 | K+S AG, Registered Shares | 17,854 | ||||||
1,000 | Kaneka Corp. | 8,130 | ||||||
1,500 | Kansai Paint Co., Ltd. | 27,589 | ||||||
726 | Koninklijke DSM NV | 43,457 | ||||||
1,300 | Kuraray Co., Ltd. | 19,456 | ||||||
362 | Lanxess AG | 23,716 | ||||||
812 | Linde AG | 133,127 | ||||||
1,589 | Lyondellbasell Industries NV | 136,305 | ||||||
537 | Methanex Corp. | 23,556 | ||||||
5,800 | Mitsubishi Chemical Holdings Corp. | 37,380 | ||||||
800 | Mitsubishi Gas Chemical Co., Inc. | 13,624 | ||||||
4,000 | Mitsui Chemicals, Inc. | 17,923 | ||||||
1,996 | Monsanto Co. | 209,999 | ||||||
1,289 | Mosaic Co. (The) | 37,806 | ||||||
600 | Nippon Paint Holdings Co., Ltd. | 16,263 | ||||||
600 | Nissan Chemical Industries, Ltd. | 20,005 | ||||||
800 | Nitto Denko Corp. | 61,263 | ||||||
899 | Novozymes A/S, Class B | 30,946 | ||||||
1,427 | Orica, Ltd. | 18,123 | ||||||
3,670 | Potash Corp. of Saskatchewan, Inc. | 66,401 | ||||||
1,164 | PPG Industries, Inc. | 110,301 | ||||||
1,282 | Praxair, Inc. | 150,238 | ||||||
382 | Sherwin Williams Co. | 102,659 | ||||||
1,800 | Shin-Etsu Chemical Co., Ltd. | 138,745 | ||||||
9 | Sika AG, Class B | 43,244 | ||||||
364 | Solvay SA | 42,594 | ||||||
6,000 | Sumitomo Chemical Co., Ltd. | 28,391 | ||||||
485 | Symrise AG | 29,496 | ||||||
429 | Syngenta AG | 169,584 | ||||||
600 | Taiyo Nippon Sanso Corp. | 6,927 | ||||||
700 | Teijin, Ltd. | 14,157 | ||||||
6,000 | Toray Industries, Inc. | 48,501 | ||||||
508 | Umicore SA | 28,911 | ||||||
299 | Valspar Corp. (The) | 30,979 | ||||||
280 | W.R. Grace & Co. | 18,939 | ||||||
682 | Yara International ASA | 26,874 | ||||||
|
| |||||||
4,154,075 | ||||||||
|
| |||||||
| Commercial Services & Supplies (0.4%): |
| ||||||
1,000 | Babcock International Group plc | 11,730 | ||||||
7,131 | Brambles, Ltd. | 63,596 | ||||||
344 | Cintas Corp. | 39,753 | ||||||
2,000 | Dai Nippon Printing Co., Ltd. | 19,723 | ||||||
793 | Edenred | 15,713 | ||||||
6,037 | G4S plc | 17,467 | ||||||
648 | ISS A/S | 21,838 | ||||||
400 | Park24 Co., Ltd. | 10,840 | ||||||
959 | Republic Services, Inc., Class A | 54,711 | ||||||
900 | SECOM Co., Ltd. | 65,685 | ||||||
1,209 | Securitas AB, Class B | 19,022 | ||||||
109 | Societe BIC SA | 14,814 | ||||||
300 | Sohgo Security Services Co., Ltd. | 11,508 | ||||||
334 | Stericycle, Inc.* | 25,731 |
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Commercial Services & Supplies, continued |
| ||||||
2,000 | Toppan Printing Co., Ltd. | $ | 19,063 | |||||
885 | Waste Connections, Inc. | 69,552 | ||||||
2,076 | Waste Management, Inc. | 147,209 | ||||||
|
| |||||||
627,955 | ||||||||
|
| |||||||
| Communications Equipment (0.8%): |
| ||||||
22,118 | Cisco Systems, Inc. | 668,405 | ||||||
266 | F5 Networks, Inc.* | 38,496 | ||||||
501 | Harris Corp. | 51,337 | ||||||
1,365 | Juniper Networks, Inc. | 38,575 | ||||||
628 | Motorola Solutions, Inc. | 52,055 | ||||||
25,871 | Nokia OYJ | 124,400 | ||||||
452 | Palo Alto Networks, Inc.* | 56,523 | ||||||
13,421 | Telefonaktiebolaget LM Ericsson, Class B | 78,273 | ||||||
|
| |||||||
1,108,064 | ||||||||
|
| |||||||
| Construction & Engineering (0.4%): |
| ||||||
1,085 | ACS, Actividades de Construccion y Servicios SA | 34,200 | ||||||
805 | Bouygues SA | 28,807 | ||||||
545 | Cimic Group, Ltd. | 13,699 | ||||||
227 | Eiffage SA | 15,825 | ||||||
2,612 | Ferrovial SA | 46,707 | ||||||
547 | Fluor Corp. | 28,728 | ||||||
89 | Hochtief AG | 12,443 | ||||||
481 | Jacobs Engineering Group, Inc.* | 27,417 | ||||||
800 | JGC Corp. | 14,488 | ||||||
5,000 | Kajima Corp. | 34,522 | ||||||
377 | Koninklijke Boskalis Westminster NV | 13,071 | ||||||
2,600 | Obayashi Corp. | 24,781 | ||||||
2,000 | Shimizu Corp. | 18,263 | ||||||
1,652 | Skanska AB, Class B | 38,952 | ||||||
583 | SNC-Lavalin Group, Inc. | 25,096 | ||||||
4,000 | TAISEI Corp. | 27,962 | ||||||
2,204 | Vinci SA | 149,893 | ||||||
|
| |||||||
554,854 | ||||||||
|
| |||||||
| Construction Materials (0.4%): |
| ||||||
4,102 | Boral, Ltd. | 15,956 | ||||||
3,814 | CRH plc | 131,801 | ||||||
2,471 | Fletcher Building, Ltd. | 18,145 | ||||||
608 | HeidelbergCement AG | 56,715 | ||||||
174 | Imerys SA | 13,182 | ||||||
1,726 | James Hardie Industries SE | 27,324 | ||||||
2,047 | LafargeHolcim, Ltd., Registered Shares | 107,562 | ||||||
239 | Martin Marietta Materials, Inc. | 52,946 | ||||||
5,000 | Taiheiyo Cement Corp. | 15,780 | ||||||
671 | Vulcan Materials Co. | 83,975 | ||||||
|
| |||||||
523,386 | ||||||||
|
| |||||||
| Consumer Finance (0.6%): |
| ||||||
3,000 | ACOM Co., Ltd.* | 13,092 | ||||||
700 | Aeon Credit Service Co., Ltd. | 12,383 | ||||||
1,649 | Ally Financial, Inc. | 31,364 | ||||||
3,530 | American Express Co. | 261,503 | ||||||
2,275 | Capital One Financial Corp. | 198,471 | ||||||
700 | Credit Saison Co., Ltd. | 12,456 | ||||||
1,815 | Discover Financial Services | 130,843 | ||||||
1,386 | Navient Corp. | 22,772 | ||||||
552 | Provident Financial plc | 19,404 |
Continued
7
AZL Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Consumer Finance, continued |
| ||||||
3,553 | Synchrony Financial | $ | 128,867 | |||||
|
| |||||||
831,155 | ||||||||
|
| |||||||
| Containers & Packaging (0.3%): |
| ||||||
5,978 | Amcor, Ltd. | 64,381 | ||||||
351 | Avery Dennison Corp. | 24,647 | ||||||
847 | Ball Corp. | 63,584 | ||||||
109 | CCL Industries, Inc. | 21,418 | ||||||
559 | Crown Holdings, Inc.* | 29,387 | ||||||
1,756 | International Paper Co. | 93,173 | ||||||
370 | Packaging Corp. of America | 31,383 | ||||||
778 | Sealed Air Corp. | 35,275 | ||||||
600 | Toyo Seikan Kaisha, Ltd. | 11,175 | ||||||
987 | WestRock Co. | 50,110 | ||||||
|
| |||||||
424,533 | ||||||||
|
| |||||||
| Distributors (0.1%): |
| ||||||
670 | Genuine Parts Co. | 64,012 | ||||||
700 | Jardine Cycle & Carriage, Ltd. | 19,819 | ||||||
1,183 | LKQ Corp.* | 36,259 | ||||||
|
| |||||||
120,090 | ||||||||
|
| |||||||
| Diversified Consumer Services (0.0%): |
| ||||||
400 | Benesse Holdings, Inc. | 11,007 | ||||||
876 | H&R Block, Inc. | 20,139 | ||||||
|
| |||||||
31,146 | �� | |||||||
|
| |||||||
| Diversified Financial Services (0.9%): |
| ||||||
11,633 | AMP, Ltd. | 42,189 | ||||||
5,327 | Berkshire Hathaway, Inc., Class B* | 868,194 | ||||||
2,251 | Challenger, Ltd. | 18,197 | ||||||
1,420 | Element Fleet Management Corp. | 13,179 | ||||||
212 | Eurazeo | 12,399 | ||||||
446 | EXOR NV | 19,232 | ||||||
12,000 | First Pacific Co., Ltd. | 8,382 | ||||||
415 | Groupe Bruxelles Lambert SA | 34,812 | ||||||
681 | Industrivarden AB, Class C | 12,697 | ||||||
2,138 | Investor AB, Class B | 79,931 | ||||||
1,210 | Kinnevik AB | 29,003 | ||||||
171 | L E Lundbergforetagen AB | 10,486 | ||||||
1,211 | Leucadia National Corp. | 28,156 | ||||||
2,600 | Mitsubishi UFJ Lease & Finance Co., Ltd. | 13,398 | ||||||
317 | Onex Corp. | 21,578 | ||||||
6,500 | ORIX Corp. | 100,714 | ||||||
181 | Pargesa Holding SA | 11,790 | ||||||
812 | Voya Financial, Inc. | 31,847 | ||||||
105 | Wendel | 12,640 | ||||||
|
| |||||||
1,368,824 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (2.6%): |
| ||||||
26,899 | AT&T, Inc. | 1,144,014 | ||||||
597 | BCE, Inc. | 25,806 | ||||||
582 | Belgacom SA | 16,755 | ||||||
6,945 | Bezeq Israeli Telecommunication Corp., Ltd. (The) | 13,196 | ||||||
36,896 | BT Group plc | 167,050 | ||||||
2,763 | CenturyLink, Inc. | 65,704 | ||||||
14,372 | Deutsche Telekom AG, Registered Shares | 246,870 | ||||||
563 | Elisa OYJ | 18,294 | ||||||
8,606 | France Telecom SA | 130,583 |
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Diversified Telecommunication Services, continued |
| ||||||
4,274 | Frontier Communications Corp. | $ | 14,446 | |||||
10,000 | HKT Trust & HKT, Ltd. | 12,239 | ||||||
103 | Iliad SA | 19,782 | ||||||
1,746 | Inmarsat plc | 16,103 | ||||||
13,592 | Koninklijke (Royal) KPN NV | 40,243 | ||||||
1,485 | Level 3 Communications, Inc.* | 83,695 | ||||||
3,200 | Nippon Telegraph & Telephone Corp. | 134,532 | ||||||
468 | Numericable-SFR* | 13,193 | ||||||
21,000 | PCCW, Ltd. | 11,318 | ||||||
492 | SBA Communications Corp., Class A* | 50,804 | ||||||
35,800 | Singapore Telecommunications, Ltd. | 89,866 | ||||||
105 | Swisscom AG, Registered Shares | 46,961 | ||||||
3,158 | TDC A/S* | 16,217 | ||||||
9,590 | Telecom Corp. of New Zealand, Ltd. | 22,669 | ||||||
21,887 | Telecom Italia SpA | 15,817 | ||||||
41,770 | Telecom Italia SpA* | 36,772 | ||||||
3,135 | Telefonica Deutschland Holding AG | 13,395 | ||||||
20,420 | Telefonica SA | 189,328 | ||||||
3,808 | Telenor ASA | 56,815 | ||||||
10,107 | Telia Co AB | 40,678 | ||||||
21,048 | Telstra Corp., Ltd. | 77,340 | ||||||
752 | TELUS Corp. | 23,946 | ||||||
2,193 | TPG Telecom, Ltd. | 10,761 | ||||||
17,957 | �� | Verizon Communications, Inc. | 958,545 | |||||
2,988 | Vocus Communications, Ltd. | 8,316 | ||||||
709 | Zayo Group Holdings, Inc.* | 23,298 | ||||||
|
| |||||||
3,855,351 | ||||||||
|
| |||||||
| Electric Utilities (1.8%): |
| ||||||
912 | Alliant Energy Corp. | 34,556 | ||||||
2,298 | American Electric Power Co., Inc. | 144,682 | ||||||
10,435 | AusNet Services | 11,883 | ||||||
3,000 | Cheung Kong Infrastructure Holdings, Ltd. | 23,862 | ||||||
2,500 | Chubu Electric Power Co., Inc. | 34,879 | ||||||
1,100 | Chugoku Electric Power Co., Inc. (The) | 12,886 | ||||||
7,500 | CLP Holdings, Ltd. | 68,532 | ||||||
3,442 | Contact Energy, Ltd. | 11,113 | ||||||
378 | Dong Energy A/S* | 14,309 | ||||||
3,077 | Duke Energy Corp. | 238,837 | ||||||
1,523 | Edison International | 109,641 | ||||||
9,354 | EDP—Energias de Portugal SA | 28,482 | ||||||
1,079 | Electricite de France | 10,962 | ||||||
225 | Emera, Inc. | 7,607 | ||||||
1,282 | Endesa SA | 27,142 | ||||||
33,339 | Enel SpA | 146,691 | ||||||
737 | Entergy Corp. | 54,147 | ||||||
1,543 | Eversource Energy | 85,220 | ||||||
4,035 | Exelon Corp. | 143,202 | ||||||
2,119 | FirstEnergy Corp. | 65,625 | ||||||
1,790 | Fortis, Inc. | 55,280 | ||||||
1,782 | Fortum OYJ | 27,271 | ||||||
7,500 | HK Electric Investments, Ltd. | 6,184 | ||||||
1,100 | Hokuriku Electric Power Co. | 12,310 | ||||||
6,500 | Hongkong Electric Holdings, Ltd. | 57,268 | ||||||
665 | Hydro One, Ltd. | 11,680 | ||||||
24,593 | Iberdrola SA | 161,245 | ||||||
2,800 | Kansai Electric Power Co., Inc. (The)* | 30,566 |
Continued
8
AZL Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Electric Utilities, continued | ||||||||
1,700 | Kyushu Electric Power Co., Inc. | $ | 18,389 | |||||
3,588 | Mighty River Power, Ltd. | 7,349 | ||||||
2,079 | NextEra Energy, Inc. | 248,358 | ||||||
776 | OGE Energy Corp. | 25,957 | ||||||
2,254 | PG&E Corp. | 136,976 | ||||||
461 | Pinnacle West Capital Corp. | 35,972 | ||||||
3,122 | PPL Corp. | 106,304 | ||||||
4,242 | Scottish & Southern Energy plc | 81,078 | ||||||
4,265 | Southern Co. (The) | 209,795 | ||||||
6,778 | Terna SpA | 31,003 | ||||||
1,800 | Tohoku Electric Power Co., Inc. | 22,715 | ||||||
5,700 | Tokyo Electric Power Co., Inc. (The)* | 22,976 | ||||||
567 | Westar Energy, Inc. | 31,950 | ||||||
2,446 | Xcel Energy, Inc. | 99,552 | ||||||
|
| |||||||
2,714,436 | ||||||||
|
| |||||||
Electrical Equipment (0.9%): | ||||||||
8,464 | ABB, Ltd. | 178,231 | ||||||
172 | Acuity Brands, Inc. | 39,708 | ||||||
933 | AMETEK, Inc. | 45,344 | ||||||
1,959 | Eaton Corp. plc | 131,429 | ||||||
3,004 | Emerson Electric Co. | 167,473 | ||||||
2,000 | Fuji Electric Holdings Co., Ltd. | 10,349 | ||||||
1,303 | Legrand SA | 73,781 | ||||||
200 | Mabuchi Motor Co., Ltd. | 10,388 | ||||||
9,200 | Mitsubishi Electric Corp. | 127,911 | ||||||
1,100 | Nidec Corp. | 94,612 | ||||||
350 | OSRAM Licht AG | 18,372 | ||||||
801 | Prysmian SpA | 20,558 | ||||||
582 | Rockwell Automation, Inc. | 78,221 | ||||||
2,458 | Schneider Electric SA | 170,776 | ||||||
672 | Sensata Technologies Holding NV* | 26,174 | ||||||
996 | Vestas Wind Systems A/S | 64,743 | ||||||
|
| |||||||
1,258,070 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (0.8%): | ||||||||
700 | ALPS Electric Co., Ltd. | 16,852 | ||||||
1,388 | Amphenol Corp., Class A | 93,274 | ||||||
370 | Arrow Electronics, Inc.* | 26,381 | ||||||
523 | Avnet, Inc. | 24,900 | ||||||
593 | CDW Corp. | 30,889 | ||||||
4,662 | Corning, Inc. | 113,147 | ||||||
2,085 | Flextronics International, Ltd.* | 29,961 | ||||||
543 | FLIR Systems, Inc. | 19,651 | ||||||
500 | Hamamatsu Photonics K.K. | 13,118 | ||||||
1,024 | Hexagon AB, Class B | 36,533 | ||||||
100 | Hirose Electric Co., Ltd. | 12,368 | ||||||
300 | Hitachi High-Technologies Corp. | 12,077 | ||||||
20,000 | Hitachi, Ltd. | 107,774 | ||||||
214 | Ingenico Group | 17,084 | ||||||
200 | Keyence Corp. | 137,052 | ||||||
1,600 | Kyocera Corp. | 79,369 | ||||||
900 | Murata Manufacturing Co., Ltd. | 119,866 | ||||||
2,000 | Nippon Electric Glass Co., Ltd. | 10,792 | ||||||
700 | Omron Corp. | 26,794 | ||||||
1,000 | Shimadzu Corp. | 15,896 | ||||||
500 | TDK Corp. | 34,290 |
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Electronic Equipment, Instruments & Components, continued | ||||||||
1,599 | TE Connectivity, Ltd. | $ | 110,779 | |||||
984 | Trimble Navigation, Ltd.* | 29,668 | ||||||
1,000 | Yaskawa Electric Corp. | 15,513 | ||||||
900 | Yokogawa Electric Corp. | 12,997 | ||||||
|
| |||||||
1,147,025 | ||||||||
|
| |||||||
Energy Equipment & Services (0.7%): | ||||||||
1,727 | Baker Hughes, Inc. | 112,203 | ||||||
178 | Core Laboratories NV | 21,367 | ||||||
901 | FMC Technologies, Inc.* | 32,013 | ||||||
3,755 | Halliburton Co. | 203,108 | ||||||
427 | Helmerich & Payne, Inc. | 33,050 | ||||||
1,928 | National-Oilwell Varco, Inc. | 72,184 | ||||||
1,258 | Petrofac, Ltd. | 13,442 | ||||||
29,379 | Saipem SpA* | 16,436 | ||||||
6,148 | Schlumberger, Ltd. | 516,124 | ||||||
432 | Technip-Coflexip SA | 30,651 | ||||||
1,915 | Tenaris SA | 34,131 | ||||||
3,456 | Weatherford International plc* | 17,245 | ||||||
|
| |||||||
1,101,954 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (2.4%): | ||||||||
297 | Alexandria Real Estate Equities, Inc. | 33,006 | ||||||
1,860 | American Tower Corp. | 196,565 | ||||||
13,600 | Ascendas Real Estate Investment Trust | 21,255 | ||||||
661 | AvalonBay Communities, Inc. | 117,096 | ||||||
695 | Boston Properties, Inc. | 87,417 | ||||||
3,789 | British Land Co. plc | 29,354 | ||||||
1,163 | Brixmor Property Group, Inc. | 28,400 | ||||||
349 | Camden Property Trust | 29,340 | ||||||
10,600 | CapitaCommercial Trust | 10,776 | ||||||
10,000 | CapitaMall Trust | 12,968 | ||||||
1,476 | Crown Castle International Corp. | 128,073 | ||||||
5 | Daiwahouse Residential Investment Corp. | 12,645 | ||||||
4,885 | Dexus Property Group | 33,996 | ||||||
716 | Digital Realty Trust, Inc. | 70,354 | ||||||
1,337 | Duke Realty Corp. | 35,511 | ||||||
325 | Equinix, Inc. | 116,158 | ||||||
1,437 | Equity Residential Property Trust | 92,485 | ||||||
327 | Essex Property Trust, Inc. | 76,028 | ||||||
492 | Extra Space Storage, Inc. | 38,002 | ||||||
295 | Federal Realty Investment Trust | 41,922 | ||||||
126 | Fonciere des Regions SA | 10,989 | ||||||
158 | Gecina SA | 21,841 | ||||||
2,344 | General Growth Properties, Inc.* | 58,553 | ||||||
9,072 | GPT Group | 32,890 | ||||||
716 | H&R Real Estate Investment Trust | 11,931 | ||||||
3,070 | Hammerson plc | 21,627 | ||||||
2,044 | HCP, Inc. | 60,748 | ||||||
2,888 | Host Hotels & Resorts, Inc. | 54,410 | ||||||
168 | ICADE | 11,985 | ||||||
957 | Iron Mountain, Inc. | 31,083 | ||||||
4 | Japan Prime Realty Investment Corp. | 15,760 | ||||||
5 | Japan Real Estate Investment Corp. | 27,271 | ||||||
11 | Japan Retail Fund Investment Corp. | 22,282 | ||||||
1,638 | Kimco Realty Corp. | 41,212 | ||||||
844 | Klepierre | 33,145 |
Continued
9
AZL Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Equity Real Estate Investment Trusts, continued |
| ||||||
3,079 | Land Securities Group plc | $ | 40,667 | |||||
3,609 | Liberty International plc | 12,535 | ||||||
566 | Liberty Property Trust | 22,357 | ||||||
9,000 | Link REIT (The) | 58,120 | ||||||
500 | Macerich Co. (The) | 35,420 | ||||||
6,849 | Macquarie Goodman Group | 35,328 | ||||||
510 | Mid-America Apartment Communities, Inc. | 49,939 | ||||||
14,289 | Mirvac Group | 21,928 | ||||||
661 | National Retail Properties, Inc. | 29,216 | ||||||
5 | Nippon Building Fund, Inc. | 27,709 | ||||||
6 | Nippon Prologis REIT, Inc. | 12,268 | ||||||
15 | Nomura Real Estate Master Fund, Inc. | 22,689 | ||||||
2,369 | ProLogis, Inc. | 125,060 | ||||||
627 | Public Storage, Inc. | 140,135 | ||||||
1,090 | Realty Income Corp. | 62,653 | ||||||
394 | Regency Centers Corp. | 27,166 | ||||||
626 | RioCan REIT | 12,417 | �� | |||||
28,193 | Scentre Group | 94,609 | ||||||
3,251 | SERGO plc | 18,395 | ||||||
1,374 | Simon Property Group, Inc. | 244,118 | ||||||
397 | SL Green Realty Corp. | 42,697 | ||||||
491 | Smart Real Estate Investment Trust | 11,810 | ||||||
11,394 | Stockland Trust Group | 37,616 | ||||||
16,500 | Suntec REIT | 18,714 | ||||||
1,048 | UDR, Inc. | 38,231 | ||||||
496 | Unibail-Rodamco SE | 118,218 | ||||||
11 | United Urban Investment Corp. | 16,743 | ||||||
1,670 | Ventas, Inc. | 104,408 | ||||||
4,762 | VEREIT, Inc. | 40,287 | ||||||
12,778 | Vicinity Centres | 27,634 | ||||||
769 | Vornado Realty Trust | 80,261 | ||||||
1,689 | Welltower, Inc. | 113,045 | ||||||
8,947 | Westfield Corp. | 60,711 | ||||||
3,596 | Weyerhaeuser Co. | 108,204 | ||||||
|
| |||||||
3,578,386 | ||||||||
|
| |||||||
| Food & Staples Retailing (2.0%): |
| ||||||
2,500 | Aeon Co., Ltd. | 35,379 | ||||||
1,986 | Alimentation Couche-Tard, Inc. | 90,062 | ||||||
2,550 | Carrefour SA | 61,338 | ||||||
240 | Casino Guichard-Perrachon SA | 11,513 | ||||||
279 | Colruyt SA | 13,800 | ||||||
1,915 | Costco Wholesale Corp. | 306,611 | ||||||
4,690 | CVS Health Corp. | 370,088 | ||||||
2,597 | Distribuidora Internacional de Alimentacion SA | 12,746 | ||||||
850 | Empire Co., Ltd., Class A | 9,953 | ||||||
300 | FamilyMart Co., Ltd. | 19,934 | ||||||
390 | ICA Gruppen AB | 11,884 | ||||||
6,388 | J Sainsbury plc | 19,569 | ||||||
858 | Jean Coutu Group, Inc., Class A | 13,370 | ||||||
1,522 | Jeronimo Martins SGPS SA | 23,605 | ||||||
5,602 | Koninklijke Ahold Delhaize NV | 117,893 | ||||||
4,179 | Kroger Co. (The) | 144,217 | ||||||
200 | LAWSON, Inc. | 14,042 | ||||||
1,033 | Loblaw Cos., Ltd. | 54,509 | ||||||
706 | Metro AG | 23,426 | ||||||
906 | Metro, Inc. | 27,102 |
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Food & Staples Retailing, continued |
| ||||||
4,065 | Rite Aid Corp.* | $ | 33,496 | |||||
3,300 | Seven & I Holdings Co., Ltd. | 125,601 | ||||||
200 | Sundrug Co., Ltd. | 13,821 | ||||||
2,306 | Sysco Corp. | 127,683 | ||||||
38,481 | Tesco plc* | 97,937 | ||||||
100 | Tsuruha Holdings, Inc. | 9,466 | ||||||
4,022 | Walgreens Boots Alliance, Inc. | 332,861 | ||||||
6,826 | Wal-Mart Stores, Inc. | 471,812 | ||||||
4,924 | Wesfarmers, Ltd. | 149,461 | ||||||
218 | Weston (George), Ltd. | 18,445 | ||||||
1,256 | Whole Foods Market, Inc. | 38,635 | ||||||
8,734 | William Morrison Supermarkets plc | 24,808 | ||||||
5,372 | Woolworths, Ltd. | 93,193 | ||||||
|
| |||||||
2,918,260 | ||||||||
|
| |||||||
| Food Products (2.2%): |
| ||||||
2,400 | Ajinomoto Co., Inc. | 48,276 | ||||||
2,776 | Archer-Daniels-Midland Co. | 126,724 | ||||||
344 | Aryzta AG | 15,151 | ||||||
1,397 | Associated British Foods plc | 47,206 | ||||||
11 | Barry Callebaut AG, Registered Shares | 13,466 | ||||||
553 | Bunge, Ltd. | 39,949 | ||||||
300 | Calbee, Inc. | 9,387 | ||||||
795 | Campbell Soup Co. | 48,074 | ||||||
1,979 | ConAgra Foods, Inc. | 78,269 | ||||||
2,702 | Danone SA | 170,999 | ||||||
2,744 | General Mills, Inc. | 169,497 | ||||||
45,600 | Golden Agri-Resources, Ltd. | 13,471 | ||||||
718 | Hershey Co. (The) | 74,263 | ||||||
1,150 | Hormel Foods Corp. | 40,032 | ||||||
288 | Ingredion, Inc. | 35,988 | ||||||
509 | JM Smucker Co. (The) | 65,183 | ||||||
1,260 | Kellogg Co. | 92,875 | ||||||
593 | Kerry Group plc, Class A | 42,398 | ||||||
1,000 | Kikkoman Corp. | 31,948 | ||||||
2,774 | Kraft Heinz Co. (The) | 242,225 | ||||||
4 | Lindt & Spruengli AG | 20,724 | ||||||
1,474 | Marine Harvest | 26,598 | ||||||
472 | McCormick & Co. | 44,052 | ||||||
830 | Mead Johnson Nutrition Co. | 58,731 | ||||||
600 | Meiji Holdings Co., Ltd. | 47,075 | ||||||
6,801 | Mondelez International, Inc., Class A | 301,487 | ||||||
13,608 | Nestle SA, Registered Shares | 976,337 | ||||||
1,000 | Nippon Meat Packers, Inc. | 27,001 | ||||||
800 | Nisshin Seifun Group, Inc. | 11,996 | ||||||
200 | Nissin Foods Holdings Co., Ltd. | 10,496 | ||||||
3,107 | Orkla ASA, Class A | 28,130 | ||||||
1,007 | Saputo, Inc. | 35,637 | ||||||
1,836 | Tate & Lyle plc | 15,987 | ||||||
300 | Toyo Suisan Kaisha, Ltd. | 10,853 | ||||||
1,403 | Tyson Foods, Inc., Class A | 86,537 | ||||||
23,000 | WH Group, Ltd. | 18,519 | ||||||
696 | WhiteWave Foods Co., Class A* | 38,698 | ||||||
10,700 | Wilmar International, Ltd. | 26,407 | ||||||
300 | Yakult Honsha Co., Ltd. | 13,891 | ||||||
500 | Yamazaki Baking Co., Ltd. | 9,651 | ||||||
|
| |||||||
3,214,188 | ||||||||
|
|
Continued
10
AZL Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Gas Utilities (0.2%): |
| ||||||
5,526 | APA Group | $ | 34,136 | |||||
417 | Atmos Energy Corp. | 30,921 | ||||||
1,377 | Gas Natural SDG SA | 25,937 | ||||||
34,000 | Hong Kong & China Gas Co., Ltd. | 60,105 | ||||||
2,585 | Italgas SpA* | 10,170 | ||||||
8,000 | Osaka Gas Co., Ltd. | 30,732 | ||||||
3,000 | Toho Gas Co., Ltd. | 24,368 | ||||||
10,000 | Tokyo Gas Co., Ltd. | 45,148 | ||||||
697 | UGI Corp. | 32,117 | ||||||
|
| |||||||
293,634 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (1.8%): |
| ||||||
6,427 | Abbott Laboratories | 246,861 | ||||||
324 | Align Technology, Inc.* | 31,146 | ||||||
1,991 | Baxter International, Inc. | 88,281 | ||||||
984 | Becton, Dickinson & Co. | 162,901 | ||||||
5,896 | Boston Scientific Corp.* | 127,530 | ||||||
366 | C.R. Bard, Inc. | 82,226 | ||||||
263 | Cochlear, Ltd. | 23,213 | ||||||
461 | Coloplast A/S, Class B | 31,028 | ||||||
192 | Cooper Cos., Inc. (The) | 33,587 | ||||||
2,825 | Danaher Corp. | 219,898 | ||||||
1,165 | DENTSPLY SIRONA, Inc. | 67,255 | ||||||
377 | Dexcom, Inc.* | 22,507 | ||||||
995 | Edwards Lifesciences Corp.* | 93,232 | ||||||
994 | Essilor International SA Compagnie Generale d’Optique | 112,281 | ||||||
747 | Getinge AB, Class B | 11,970 | ||||||
974 | Hologic, Inc.* | 39,077 | ||||||
1,700 | HOYA Corp. | 71,260 | ||||||
352 | IDEXX Laboratories, Inc.* | 41,279 | ||||||
165 | Intuitive Surgical, Inc.* | 104,638 | ||||||
6,162 | Medtronic plc | 438,919 | ||||||
1,100 | Olympus Co., Ltd. | 37,934 | ||||||
548 | ResMed, Inc. | 34,003 | ||||||
3,822 | Smith & Nephew plc | 56,933 | ||||||
211 | Sonova Holding AG, Registered Shares | 25,537 | ||||||
1,318 | St. Jude Medical, Inc. | 105,690 | ||||||
1,473 | Stryker Corp. | 176,480 | ||||||
600 | Sysmex Corp. | 34,686 | ||||||
198 | Teleflex, Inc. | 31,908 | ||||||
1,700 | Terumo Corp. | 62,639 | ||||||
379 | Varian Medical Systems, Inc.* | 34,027 | ||||||
646 | William Demant Holding A/S* | 11,234 | ||||||
940 | Zimmer Holdings, Inc. | 97,008 | ||||||
|
| |||||||
2,757,168 | ||||||||
|
| |||||||
| Health Care Providers & Services (1.8%): |
| ||||||
1,590 | Aetna, Inc. | 197,176 | ||||||
1,356 | Al Noor Hospitals Group plc | 12,812 | ||||||
700 | Alfresa Holdings Corp. | 11,542 | ||||||
920 | AmerisourceBergen Corp. | 71,935 | ||||||
1,183 | Anthem, Inc. | 170,080 | ||||||
1,432 | Cardinal Health, Inc. | 103,061 | ||||||
667 | Centene Corp.* | 37,692 | ||||||
1,117 | Cigna Corp. | 148,997 | ||||||
650 | DaVita, Inc.* | 41,730 |
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Health Care Providers & Services, continued |
| ||||||
240 | Envision Healthcare Corp.* | $ | 15,190 | |||||
2,751 | Express Scripts Holding Co.* | 189,241 | ||||||
966 | Fresenius Medical Care AG & Co., KGaA | 81,889 | ||||||
1,907 | Fresenius SE & Co. KGaA | 148,942 | ||||||
1,324 | HCA Holdings, Inc.* | 98,002 | ||||||
7,247 | Healthscope, Ltd. | 11,935 | ||||||
332 | Henry Schein, Inc.* | 50,368 | ||||||
698 | Humana, Inc. | 142,413 | ||||||
463 | Laboratory Corp. of America Holdings* | 59,440 | ||||||
987 | McKesson Corp. | 138,624 | ||||||
800 | Medipal Holdings Corp. | 12,562 | ||||||
366 | MEDNAX, Inc.* | 24,398 | ||||||
300 | Miraca Holdings, Inc. | 13,438 | ||||||
324 | Patterson Cos., Inc. | 13,294 | ||||||
640 | Quest Diagnostics, Inc. | 58,816 | ||||||
548 | Ramsay Health Care, Ltd. | 27,008 | ||||||
1,923 | Ryman Healthcare, Ltd. | 10,846 | ||||||
1,491 | Sonic Healthcare, Ltd. | 23,006 | ||||||
400 | Suzuken Co., Ltd. | 13,049 | ||||||
4,178 | UnitedHealth Group, Inc. | 668,646 | ||||||
359 | Universal Health Services, Inc., Class B | 38,190 | ||||||
|
| |||||||
2,634,322 | ||||||||
|
| |||||||
| Health Care Technology (0.1%): |
| ||||||
1,514 | Cerner Corp.* | 71,718 | ||||||
700 | M3, Inc. | 17,622 | ||||||
|
| |||||||
89,340 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (1.6%): |
| ||||||
665 | Accor SA | 24,788 | ||||||
929 | Aramark Holdings Corp. | 33,184 | ||||||
2,102 | Aristocrat Leisure, Ltd. | 23,448 | ||||||
1,610 | Carnival Corp., Class A | 83,817 | ||||||
863 | Carnival plc | 43,716 | ||||||
116 | Chipotle Mexican Grill, Inc.* | 43,769 | ||||||
7,995 | Compass Group plc | 147,343 | ||||||
1,460 | Crown, Ltd. | 12,170 | ||||||
480 | Darden Restaurants, Inc. | 34,906 | ||||||
255 | Domino’s Pizza Enterprises, Ltd. | 11,874 | ||||||
200 | Domino’s Pizza, Inc. | 31,848 | ||||||
511 | Flight Centre, Ltd. | 11,495 | ||||||
11,000 | Galaxy Entertainment Group, Ltd. | 47,325 | ||||||
34,800 | Genting Singapore plc | 21,634 | ||||||
2,147 | Hilton Worldwide Holdings, Inc.* | 58,398 | ||||||
736 | InterContinental Hotels Group plc | 32,840 | ||||||
2,078 | Las Vegas Sands Corp. | 110,986 | ||||||
1,487 | Marriott International, Inc., Class A | 122,945 | ||||||
3,731 | McDonald’s Corp. | 454,136 | ||||||
400 | McDonald’s Holdings Co., Ltd. | 10,457 | ||||||
763 | Melco Crown Entertainment, Ltd., ADR | 12,132 | ||||||
2,822 | Merlin Entertainments plc | 15,590 | ||||||
7,600 | MGM China Holdings, Ltd. | 15,690 | ||||||
1,778 | MGM Resorts International* | 51,260 | ||||||
621 | Norwegian Cruise Line Holdings, Ltd.* | 26,411 | ||||||
900 | Oriental Land Co., Ltd. | 50,815 | ||||||
422 | Paddy Power plc | 45,084 | ||||||
873 | Restaurant Brands International, Inc. | 41,585 |
Continued
11
AZL Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Hotels, Restaurants & Leisure, continued |
| ||||||
870 | Royal Caribbean Cruises, Ltd. | $ | 71,375 | |||||
9,600 | Sands China, Ltd. | 41,290 | ||||||
12,000 | Shangri-La Asia, Ltd. | 12,640 | ||||||
10,000 | SJM Holdings, Ltd. | 7,815 | ||||||
372 | Sodexo SA | 42,741 | ||||||
6,432 | Starbucks Corp. | 357,105 | ||||||
3,310 | Tabcorp Holdings, Ltd. | 11,482 | ||||||
5,782 | Tatts Group, Ltd. | 18,665 | ||||||
1,739 | TUI AG | 24,843 | ||||||
710 | Whitbread plc | 32,998 | ||||||
3,335 | William Hill plc | 11,884 | ||||||
448 | Wyndham Worldwide Corp. | 34,214 | ||||||
8,000 | Wynn Macau, Ltd. | 12,667 | ||||||
321 | Wynn Resorts, Ltd. | 27,770 | ||||||
1,588 | Yum! Brands, Inc. | 100,568 | ||||||
|
| |||||||
2,427,703 | ||||||||
|
| |||||||
| Household Durables (0.7%): |
| ||||||
3,899 | Barratt Developments plc | 22,178 | ||||||
503 | Berkeley Group Holdings plc (The) | 17,384 | ||||||
900 | Casio Computer Co., Ltd. | 12,687 | ||||||
1,387 | D.R. Horton, Inc. | 37,907 | ||||||
1,272 | Electrolux AB, Series B | 31,596 | ||||||
447 | Garmin, Ltd. | 21,675 | ||||||
278 | Harman International Industries, Inc. | 30,902 | ||||||
2,648 | Husqvarna AB, Class B | 20,570 | ||||||
600 | Iida Group Holdings Co., Ltd. | 11,360 | ||||||
538 | Leggett & Platt, Inc. | 26,297 | ||||||
726 | Lennar Corp., Class A | 31,167 | ||||||
254 | Mohawk Industries, Inc.* | 50,719 | ||||||
1,951 | Newell Rubbermaid, Inc. | 87,112 | ||||||
1,300 | Nikon Corp. | 20,143 | ||||||
9,900 | Panasonic Corp. | 100,488 | ||||||
1,542 | Persimmon plc | 33,642 | ||||||
1,202 | PulteGroup, Inc. | 22,093 | ||||||
100 | Rinnai Corp. | 8,057 | ||||||
2,000 | Sekisui Chemical Co., Ltd. | 31,834 | ||||||
2,800 | Sekisui House, Ltd. | 46,511 | ||||||
7,000 | Sharp Corp.* | 16,128 | ||||||
6,000 | Sony Corp. | 166,768 | ||||||
16,755 | Taylor Wimpey plc | 31,462 | ||||||
7,500 | Techtronic Industries Co., Ltd. | 26,868 | ||||||
621 | Toll Brothers, Inc.* | 19,251 | ||||||
302 | Whirlpool Corp. | 54,895 | ||||||
|
| |||||||
979,694 | ||||||||
|
| |||||||
| Household Products (1.3%): |
| ||||||
1,025 | Church & Dwight Co., Inc. | 45,295 | ||||||
585 | Clorox Co. (The) | 70,212 | ||||||
3,703 | Colgate-Palmolive Co. | 242,324 | ||||||
467 | Henkel AG & Co. KGaA | 48,499 | ||||||
1,550 | Kimberly-Clark Corp. | 176,886 | ||||||
1,000 | Lion Corp. | 16,393 | ||||||
11,250 | Procter & Gamble Co. (The) | 945,900 | ||||||
2,843 | Reckitt Benckiser Group plc | 240,291 | ||||||
2,567 | Svenska Cellulosa AB, Class B | 72,414 | ||||||
1,600 | Unicharm Corp. | 34,948 | ||||||
|
| |||||||
1,893,162 | ||||||||
|
|
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Independent Power & Renewable Electricity Producers (0.1%): |
| ||||||
2,498 | AES Corp. (The) | $ | 29,026 | |||||
1,306 | Calpine Corp.* | 14,928 | ||||||
500 | Electric Power Development Co., Ltd. | 11,491 | ||||||
6,653 | Meridian Energy, Ltd. | 11,987 | ||||||
|
| |||||||
67,432 | ||||||||
|
| |||||||
| Industrial Conglomerates (2.1%): |
| ||||||
2,643 | 3M Co., Class C | 471,961 | ||||||
12,500 | CK Hutchison Holdings, Ltd. | 141,121 | ||||||
381 | DCC plc | 28,239 | ||||||
39,182 | General Electric Co. | 1,238,151 | ||||||
3,160 | Honeywell International, Inc. | 366,086 | ||||||
1,000 | Jardine Matheson Holdings, Ltd. | 55,163 | ||||||
2,000 | Keihan Electric Railway Co., Ltd. | 13,103 | ||||||
7,600 | Keppel Corp., Ltd. | 30,207 | ||||||
3,942 | Koninklijke Philips Electronics NV | 120,139 | ||||||
7,000 | NWS Holdings, Ltd. | 11,382 | ||||||
456 | Roper Industries, Inc. | 83,484 | ||||||
700 | Seibu Holdings, Inc. | 12,529 | ||||||
6,700 | SembCorp Industries, Ltd. | 13,146 | ||||||
3,345 | Siemens AG, Registered Shares | 411,114 | ||||||
1,528 | Smiths Group plc | 26,539 | ||||||
16,000 | Toshiba Corp.* | 38,661 | ||||||
|
| |||||||
3,061,025 | ||||||||
|
| |||||||
| Insurance (4.1%): |
| ||||||
850 | Admiral Group plc | 19,057 | ||||||
7,119 | AEGON NV | 39,142 | ||||||
1,907 | Aflac, Inc. | 132,727 | ||||||
762 | Ageas NV | 30,152 | ||||||
53,200 | AIA Group, Ltd. | 297,737 | ||||||
28 | Alleghany Corp.* | 17,027 | ||||||
2,006 | Allianz SE, Registered Shares+ | 331,550 | ||||||
1,592 | Allstate Corp. (The) | 117,999 | ||||||
4,699 | American International Group, Inc. | 306,892 | ||||||
1,194 | Aon plc | 133,167 | ||||||
502 | Arch Capital Group, Ltd.* | 43,318 | ||||||
733 | Arthur J. Gallagher & Co. | 38,087 | ||||||
5,260 | Assicurazioni Generali SpA | 78,111 | ||||||
244 | Assurant, Inc. | 22,658 | ||||||
18,246 | Aviva plc | 108,858 | ||||||
8,337 | AXA SA | 210,345 | ||||||
546 | Axis Capital Holdings, Ltd. | 35,637 | ||||||
209 | Baloise Holding AG, Registered Shares | 26,289 | ||||||
2,115 | Chubb, Ltd. | 279,435 | ||||||
647 | Cincinnati Financial Corp. | 49,010 | ||||||
697 | CNP Assurances SA | 12,908 | ||||||
5,400 | Dai-ichi Life Insurance Co., Ltd. | 89,480 | ||||||
5,556 | Direct Line Insurance Group plc | 25,194 | ||||||
92 | Fairfax Financial Holdings, Ltd. | 44,441 | ||||||
928 | FNF Group | 31,515 | ||||||
727 | Gjensidige Forsikring ASA | 11,543 | ||||||
1,141 | Great-West Lifeco, Inc. | 29,891 | ||||||
353 | Hannover Rueck SE | 38,210 | ||||||
1,688 | Hartford Financial Services Group, Inc. (The) | 80,433 | ||||||
396 | Industrial Alliance Insurance & Financial Services, Inc. | 15,749 |
Continued
12
AZL Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Insurance, continued |
| ||||||
9,685 | Insurance Australia Group, Ltd. | $ | 41,730 | |||||
551 | Intact Financial Corp. | 39,442 | ||||||
1,800 | Japan Post Holdings Co., Ltd. | 22,434 | ||||||
29,850 | Legal & General Group plc | 90,901 | ||||||
940 | Lincoln National Corp. | 62,294 | ||||||
1,304 | Loews Corp. | 61,066 | ||||||
8,461 | Manulife Financial Corp. | 150,691 | ||||||
4,960 | MAPFRE SA | 15,133 | ||||||
60 | Markel Corp.* | 54,270 | ||||||
2,255 | Marsh & McLennan Cos., Inc. | 152,415 | ||||||
10,769 | Medibank Private, Ltd. | 21,891 | ||||||
4,084 | MetLife, Inc. | 220,087 | ||||||
2,300 | MS&AD Insurance Group Holdings, Inc. | 71,071 | ||||||
775 | Muenchener Rueckversicherungs-Gesellschaft AG | 146,556 | ||||||
1,400 | NKSJ Holdings, Inc. | 47,280 | ||||||
1,258 | NN Group NV | 42,593 | ||||||
25,343 | Old Mutual plc | 64,280 | ||||||
2,312 | Poste Italiane SpA | 15,335 | ||||||
1,383 | Power Corp. of Canada | 30,957 | ||||||
922 | Power Financial Corp. | 23,048 | ||||||
1,293 | Principal Financial Group, Inc. | 74,813 | ||||||
2,485 | Progressive Corp. (The) | 88,218 | ||||||
1,890 | Prudential Financial, Inc. | 196,673 | ||||||
11,366 | Prudential plc | 226,671 | ||||||
5,450 | QBE Insurance Group, Ltd. | 48,942 | ||||||
288 | Reinsurance Group of America, Inc. | 36,239 | ||||||
4,071 | RSA Insurance Group plc | 29,357 | ||||||
1,955 | Sampo OYJ, Class A | 87,410 | ||||||
893 | SCOR SA | 30,845 | ||||||
900 | Sony Financial Holdings, Inc. | 13,952 | ||||||
1,995 | St. James Place plc | 24,810 | ||||||
7,642 | Standard Life plc | 34,837 | ||||||
3,072 | Sun Life Financial, Inc. | 117,960 | ||||||
6,696 | Suncorp-Metway, Ltd. | 65,118 | ||||||
130 | Swiss Life Holding AG, Registered Shares | 36,793 | ||||||
1,457 | Swiss Re AG | 138,078 | ||||||
2,300 | T&D Holdings, Inc. | 30,291 | ||||||
3,000 | Tokio Marine Holdings, Inc. | 122,687 | ||||||
475 | Torchmark Corp. | 35,036 | ||||||
1,181 | Travelers Cos., Inc. (The) | 144,578 | ||||||
780 | Tryg A/S | 14,106 | ||||||
6,441 | UnipolSai SpA | 13,749 | ||||||
930 | UnumProvident Corp. | 40,855 | ||||||
458 | W.R. Berkley Corp. | 30,462 | ||||||
590 | Willis Towers Watson plc | 72,145 | ||||||
1,182 | XL Group, Ltd. | 44,041 | ||||||
682 | Zurich Insurance Group AG | 187,374 | ||||||
|
| |||||||
6,056,076 | ||||||||
|
| |||||||
| Internet & Direct Marketing Retail (1.4%): |
| ||||||
1,762 | Amazon.com, Inc.* | 1,321,271 | ||||||
602 | Expedia, Inc. | 68,195 | ||||||
1,663 | Liberty Interactive Corp., Class A* | 33,227 | ||||||
1,954 | Netflix, Inc.* | 241,905 | ||||||
218 | Priceline Group, Inc. (The)* | 319,601 | ||||||
3,700 | Rakuten, Inc. | 36,212 |
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Internet & Direct Marketing Retail, continued |
| ||||||
700 | Start Today Co., Ltd. | $ | 12,011 | |||||
466 | TripAdvisor, Inc.* | 21,608 | ||||||
340 | Zalando SE* | 12,986 | ||||||
|
| |||||||
2,067,016 | ||||||||
|
| |||||||
| Internet Software & Services (2.6%): |
| ||||||
694 | Akamai Technologies, Inc.* | 46,276 | ||||||
1,289 | Alphabet, Inc., Class A* | 1,021,468 | ||||||
1,352 | Alphabet, Inc., Class C* | 1,043,501 | ||||||
3,847 | Auto Trader Group plc | 19,367 | ||||||
147 | CoStar Group, Inc.* | 27,708 | ||||||
500 | DeNA Co., Ltd. | 10,893 | ||||||
5,062 | eBay, Inc.* | 150,291 | ||||||
10,157 | Facebook, Inc., Class A* | 1,168,563 | ||||||
700 | Kakaku.com, Inc. | 11,575 | ||||||
179 | MercadoLibre, Inc. | 27,949 | ||||||
300 | mixi, Inc. | 10,929 | ||||||
2,197 | Twitter, Inc.* | 35,811 | ||||||
475 | United Internet AG, Registered Shares | 18,486 | ||||||
386 | VeriSign, Inc.* | 29,363 | ||||||
5,500 | Yahoo! Japan Corp. | 21,110 | ||||||
3,885 | Yahoo!, Inc.* | 150,233 | ||||||
443 | Zillow Group, Inc., Class C* | 16,156 | ||||||
|
| |||||||
3,809,679 | ||||||||
|
| |||||||
| IT Services (2.5%): |
| ||||||
2,731 | Accenture plc, Class C | 319,883 | ||||||
233 | Alliance Data Systems Corp. | 53,241 | ||||||
2,236 | Amadeus IT Holding SA | 101,565 | ||||||
346 | Atos Origin SA | 36,495 | ||||||
1,995 | Automatic Data Processing, Inc. | 205,046 | ||||||
467 | Broadridge Financial Solutions, Inc. | 30,962 | ||||||
715 | Cap Gemini SA | 60,293 | ||||||
1,012 | CGI Group, Inc., Class A* | 48,576 | ||||||
2,632 | Cognizant Technology Solutions Corp., Class A* | 147,471 | ||||||
631 | Computer Sciences Corp. | 37,494 | ||||||
1,800 | Computershare, Ltd. | 16,178 | ||||||
1,487 | Fidelity National Information Services, Inc. | 112,477 | ||||||
1,382 | First Data Corp., Class A* | 19,611 | ||||||
988 | Fiserv, Inc.* | 105,005 | ||||||
371 | FleetCor Technologies, Inc.* | 52,504 | ||||||
9,000 | Fujitsu, Ltd. | 49,860 | ||||||
324 | Gartner, Inc.* | 32,747 | ||||||
604 | Global Payments, Inc. | 41,924 | ||||||
3,992 | International Business Machines Corp. | 662,631 | ||||||
4,269 | MasterCard, Inc., Class A | 440,773 | ||||||
440 | Nomura Research Institute, Ltd. | 13,377 | ||||||
500 | NTT Data Corp. | 24,130 | ||||||
200 | OBIC Co., Ltd. | 8,725 | ||||||
200 | Otsuka Corp. | 9,324 | ||||||
1,419 | Paychex, Inc. | 86,389 | ||||||
4,983 | PayPal Holdings, Inc.* | 196,679 | ||||||
802 | Sabre Corp. | 20,010 | ||||||
647 | Total System Services, Inc. | 31,722 | ||||||
617 | Vantive, Inc., Class A* | 36,786 | ||||||
8,356 | Visa, Inc., Class A | 651,934 | ||||||
1,873 | Western Union Co. | 40,682 |
Continued
13
AZL Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| IT Services, continued |
| ||||||
6,886 | Worldpay Group plc | $ | 22,833 | |||||
|
| |||||||
3,717,327 | ||||||||
|
| |||||||
| Leisure Products (0.1%): |
| ||||||
443 | Hasbro, Inc. | 34,461 | ||||||
1,326 | Mattel, Inc. | 36,531 | ||||||
800 | Namco Bandai Holdings, Inc. | 22,026 | ||||||
239 | Polaris Industries, Inc. | 19,691 | ||||||
300 | Sankyo Co., Ltd. | 9,668 | ||||||
800 | Sega Sammy Holdings, Inc. | 11,880 | ||||||
300 | Shimano, Inc. | 46,963 | ||||||
600 | Yamaha Corp. | 18,288 | ||||||
|
| |||||||
199,508 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (0.4%): |
| ||||||
1,620 | Agilent Technologies, Inc. | 73,807 | ||||||
49 | Eurofins Scientific SE | 20,872 | ||||||
686 | Illumina, Inc.* | 87,835 | ||||||
210 | Lonza Group AG, Registered Shares | 36,316 | ||||||
108 | Mettler-Toledo International, Inc.* | 45,204 | ||||||
872 | QIAGEN NV* | 24,461 | ||||||
583 | Quintiles Transnational Holdings, Inc.* | 44,337 | ||||||
1,746 | Thermo Fisher Scientific, Inc. | 246,362 | ||||||
321 | Waters Corp.* | 43,139 | ||||||
|
| |||||||
622,333 | ||||||||
|
| |||||||
| Machinery (1.8%): |
| ||||||
264 | AGCO Corp. | 15,275 | ||||||
1,121 | Alfa Laval AB | 18,527 | ||||||
607 | Alstom SA* | 16,700 | ||||||
1,300 | AMADA Co., Ltd. | 14,478 | ||||||
291 | Andritz AG | 14,605 | ||||||
3,019 | Atlas Copco AB, Class A | 91,810 | ||||||
1,444 | Atlas Copco AB, Class B | 39,319 | ||||||
2,627 | Caterpillar, Inc. | 243,627 | ||||||
4,138 | CNH Industrial NV | 35,972 | ||||||
720 | Cummins, Inc. | 98,402 | ||||||
1,227 | Deere & Co. | 126,430 | ||||||
617 | Dover Corp. | 46,232 | ||||||
900 | FANUC Corp. | 152,211 | ||||||
458 | Flowserve Corp. | 22,007 | ||||||
1,360 | Fortive Corp. | 72,937 | ||||||
718 | GEA Group AG | 28,776 | ||||||
1,200 | Hino Motors, Ltd. | 12,179 | ||||||
600 | Hitachi Construction Machinery Co., Ltd. | 12,955 | ||||||
200 | Hoshizaki Electric Co., Ltd. | 15,812 | ||||||
6,000 | IHI Corp. | 15,559 | ||||||
1,397 | Illinois Tool Works, Inc. | 171,077 | ||||||
1,011 | IMI plc | 12,891 | ||||||
1,160 | Ingersoll-Rand plc | 87,046 | ||||||
800 | JTEKT Corp. | 12,757 | ||||||
5,000 | Kawasaki Heavy Industries, Ltd. | 15,609 | ||||||
4,000 | Komatsu, Ltd. | 90,297 | ||||||
1,745 | Kone OYJ, Class B | 78,165 | ||||||
5,300 | Kubota Corp. | 75,459 | ||||||
500 | Kurita Water Industries, Ltd. | 10,985 | ||||||
400 | Makita Corp. | 26,761 | ||||||
156 | MAN AG | 15,493 |
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Machinery, continued |
| ||||||
472 | Metso Corp. OYJ | $ | 13,434 | |||||
259 | Middleby Corp. (The)* | 33,362 | ||||||
1,400 | Minebea Co., Ltd. | 13,079 | ||||||
17,000 | Mitsubishi Heavy Industries, Ltd. | 77,237 | ||||||
400 | Nabtesco Corp. | 9,287 | ||||||
1,000 | NGK Insulators, Ltd. | 19,344 | ||||||
1,800 | NSK, Ltd. | 20,764 | ||||||
1,503 | PACCAR, Inc. | 96,042 | ||||||
609 | Parker Hannifin Corp. | 85,260 | ||||||
670 | Pentair plc | 37,567 | ||||||
4,220 | Sandvik AB | 52,119 | ||||||
141 | Schindler Holding AG | 24,836 | ||||||
133 | Schindler Holding AG, Registered Shares | 23,239 | ||||||
1,553 | SKF AB, Class B | 28,519 | ||||||
300 | SMC Corp. | 71,400 | ||||||
234 | Snap-On, Inc. | 40,077 | ||||||
676 | Stanley Black & Decker, Inc. | 77,530 | ||||||
4,000 | Sumitomo Heavy Industries, Ltd. | 25,692 | ||||||
600 | THK Co., Ltd. | 13,226 | ||||||
6,932 | Volvo AB, Class B | 80,808 | ||||||
210 | WABCO Holdings, Inc.* | 22,292 | ||||||
356 | Wabtec Corp. | 29,555 | ||||||
592 | Wartsila Corp. OYJ, Class B | 26,587 | ||||||
830 | Weir Group plc (The) | 19,227 | ||||||
704 | Xylem, Inc. | 34,862 | ||||||
1,432 | Zardoya Otis SA | 12,099 | ||||||
|
| |||||||
2,677,797 | ||||||||
|
| |||||||
| Marine (0.1%): |
| ||||||
17 | A.P. Moeller – Maersk A/S, Class A | 25,599 | ||||||
30 | A.P. Moeller – Maersk A/S, Class B | 47,742 | ||||||
228 | Kuehne & Nagel International AG, Registered Shares | 30,109 | ||||||
5,000 | Mitsui O.S.K. Lines, Ltd. | 13,812 | ||||||
6,000 | Nippon Yusen Kabushiki Kaisha | 11,108 | ||||||
|
| |||||||
128,370 | ||||||||
|
| |||||||
| Media (2.5%): |
| ||||||
1,863 | Altice NV, Class A* | 36,844 | ||||||
734 | Altice NV, Class B* | 14,595 | ||||||
245 | Axel Springer AG | 11,878 | ||||||
1,779 | CBS Corp., Class B | 113,180 | ||||||
948 | Charter Communications, Inc., Class A* | 272,948 | ||||||
10,504 | Comcast Corp., Class A | 725,300 | ||||||
800 | Dentsu, Inc. | 37,688 | ||||||
679 | Discovery Communications, Inc., Class A* | 18,611 | ||||||
836 | Discovery Communications, Inc., Class C* | 22,388 | ||||||
890 | DISH Network Corp., Class A* | 51,558 | ||||||
678 | Eutelsat Communications SA | 13,123 | ||||||
1,100 | Hakuhodo DY Holdings, Inc. | 13,522 | ||||||
1,539 | Interpublic Group of Cos., Inc. (The) | 36,028 | ||||||
13,978 | ITV plc | 35,425 | ||||||
403 | JCDecaux SA | 11,829 | ||||||
470 | Lagardere SCA | 13,054 | ||||||
423 | Liberty Broadband Corp., Class C* | 31,332 | ||||||
2,754 | Liberty Global plc, Series C* | 81,794 | ||||||
1,134 | Liberty Global plc, Class A* | 34,689 |
Continued
14
AZL Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Media, continued |
| ||||||
446 | Liberty Global plc, Class C* | $ | 9,442 | |||||
369 | Liberty SiriusXM Group, Class A* | 12,738 | ||||||
773 | Liberty SiriusXM Group, Class C* | 26,220 | ||||||
1,432 | News Corp., Class A | 16,411 | ||||||
1,064 | Omnicom Group, Inc. | 90,557 | ||||||
3,978 | Pearson plc | 39,915 | ||||||
854 | ProSiebenSat.1 Media AG | 33,009 | ||||||
953 | Publicis Groupe SA | 65,734 | ||||||
318 | REA Group, Ltd. | 12,630 | ||||||
170 | RTL Group | 12,458 | ||||||
509 | Schibsted ASA, Class A | 11,685 | ||||||
534 | Schibsted ASA, Class B | 11,325 | ||||||
321 | Scripps Networks Interactive, Class C | 22,910 | ||||||
1,431 | SES Global, Class A | 31,508 | ||||||
1,928 | Shaw Communications, Inc., Class B | 38,689 | ||||||
7,135 | Sirius XM Holdings, Inc. | 31,751 | ||||||
3,978 | Sky plc | 48,390 | ||||||
787 | Tegna, Inc. | 16,834 | ||||||
227 | Telenet Group Holding NV* | 12,593 | ||||||
3,411 | Time Warner, Inc. | 329,264 | ||||||
400 | Toho Co., Ltd. | 11,306 | ||||||
4,426 | Twenty-First Century Fox, Inc. | 124,105 | ||||||
1,987 | Twenty-First Century Fox, Inc., Class B | 54,146 | ||||||
1,755 | Viacom, Inc., Class B | 61,601 | ||||||
4,628 | Vivendi Universal SA | 87,907 | ||||||
6,771 | Walt Disney Co. (The) | 705,673 | ||||||
5,772 | WPP plc | 129,016 | ||||||
|
| |||||||
3,623,603 | ||||||||
|
| |||||||
| Metals & Mining (1.5%): |
| ||||||
908 | Agnico Eagle Mines, Ltd. | 38,180 | ||||||
10,099 | Alumina, Ltd. | 13,283 | ||||||
6,571 | Anglo American plc* | 92,148 | ||||||
1,773 | Antofagasta plc | 14,596 | ||||||
8,043 | ArcelorMittal* | 59,290 | ||||||
5,443 | Barrick Gold Corp. | 87,129 | ||||||
9,761 | BHP Billiton plc | 154,306 | ||||||
14,150 | BHP Billiton, Ltd. | 252,525 | ||||||
1,073 | Boliden AB | 27,965 | ||||||
2,679 | First Quantum Minerals, Ltd. | 26,640 | ||||||
6,052 | Fortescue Metals Group, Ltd. | 25,551 | ||||||
779 | Franco-Nevada Corp. | 46,583 | ||||||
6,000 | Freeport-McMoRan Copper & Gold, Inc.* | 79,140 | ||||||
837 | Fresnillo plc | 12,428 | ||||||
53,498 | Glencore International plc* | 179,782 | ||||||
4,276 | Goldcorp, Inc. | 58,224 | ||||||
1,100 | Hitachi Metals, Ltd. | 14,866 | ||||||
2,000 | JFE Holdings, Inc. | 30,355 | ||||||
4,800 | Kinross Gold Corp.* | 14,981 | ||||||
1,500 | Kobe Steel, Ltd.* | 14,242 | ||||||
400 | Maruichi Steel Tube, Ltd. | 12,990 | ||||||
400 | Mitsubishi Materials Corp. | 12,212 | ||||||
3,922 | Newcrest Mining, Ltd. | 55,287 | ||||||
2,581 | Newmont Mining Corp. | 87,934 | ||||||
4,000 | Nippon Steel Corp. | 88,983 | ||||||
5,187 | Norsk Hydro ASA | 24,778 | ||||||
1,338 | Nucor Corp. | 79,638 |
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Metals & Mining, continued |
| ||||||
380 | Randgold Resources, Ltd. | $ | 29,053 | |||||
5,562 | Rio Tinto plc | 211,768 | ||||||
1,687 | Rio Tinto, Ltd. | 72,554 | ||||||
1,722 | Silver Wheaton Corp. | 33,273 | ||||||
20,869 | South32, Ltd. | 41,174 | ||||||
2,000 | Sumitomo Metal & Mining Co., Ltd. | 25,727 | ||||||
2,549 | Teck Cominco, Ltd., Class B | 51,018 | ||||||
1,419 | ThyssenKrupp AG | 33,808 | ||||||
3,978 | Turquoise Hill Resources, Ltd.* | 12,771 | ||||||
415 | Voestalpine AG | 16,291 | ||||||
3,593 | Yamana Gold, Inc. | 10,090 | ||||||
|
| |||||||
2,141,563 | ||||||||
|
| |||||||
| Mortgage Real Estate Investment Trusts (0.0%): |
| ||||||
1,279 | Agnc Investment Corp. | 23,188 | ||||||
3,700 | Annaly Capital Management, Inc. | 36,889 | ||||||
|
| |||||||
60,077 | ||||||||
|
| |||||||
| Multiline Retail (0.5%): |
| ||||||
274 | Canadian Tire Corp., Class A | 28,425 | ||||||
1,328 | Dollar General Corp. | 98,365 | ||||||
1,122 | Dollar Tree, Inc.* | 86,596 | ||||||
450 | Dollarama, Inc. | 32,976 | ||||||
400 | Don Quijote Co., Ltd. | 14,779 | ||||||
3,176 | Harvey Norman Holdings, Ltd. | 11,767 | ||||||
1,300 | Isetan Mitsukoshi Holdings, Ltd. | 13,979 | ||||||
900 | J. Front Retailing Co., Ltd. | 12,096 | ||||||
725 | Kohl’s Corp. | 35,801 | ||||||
1,213 | Macy’s, Inc. | 43,438 | ||||||
6,217 | Marks & Spencer Group plc | 26,764 | ||||||
1,700 | MARUI GROUP Co., Ltd. | 24,770 | ||||||
672 | Next plc | 41,121 | ||||||
511 | Nordstrom, Inc. | 24,492 | ||||||
100 | Ryohin Keikaku Co., Ltd. | 19,556 | ||||||
1,000 | Takashimaya Co., Ltd. | 8,234 | ||||||
2,455 | Target Corp. | 177,324 | ||||||
|
| |||||||
700,483 | ||||||||
|
| |||||||
| Multi-Utilities (1.0%): |
| ||||||
2,649 | AGL Energy, Ltd. | 42,138 | ||||||
986 | Ameren Corp. | 51,726 | ||||||
348 | Atco, Ltd. | 11,577 | ||||||
463 | Canadian Utilities, Ltd., Class A | 12,481 | ||||||
1,567 | CenterPoint Energy, Inc. | 38,611 | ||||||
27,595 | Centrica plc | 79,490 | ||||||
1,140 | CMS Energy Corp. | 47,447 | ||||||
1,412 | Consolidated Edison, Inc. | 104,035 | ||||||
2,725 | Dominion Resources, Inc. | 208,707 | ||||||
807 | DTE Energy Co. | 79,498 | ||||||
9,186 | Duet Group | 18,149 | ||||||
9,902 | E.ON AG | 69,055 | ||||||
6,854 | Engie Group | 87,305 | ||||||
573 | Innogy Se* | 19,920 | ||||||
16,461 | National Grid plc | 192,485 | ||||||
1,299 | NiSource, Inc. | 28,760 | ||||||
2,159 | Public Service Enterprise Group, Inc. | 94,737 | ||||||
1,932 | RWE AG* | 24,023 | ||||||
563 | SCANA Corp. | 41,257 |
Continued
15
AZL Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Multi-Utilities, continued |
| ||||||
1,022 | Sempra Energy | $ | 102,854 | |||||
1,255 | Suez Environnement Co. | 18,507 | ||||||
1,772 | Veolia Environnement SA | 30,119 | ||||||
1,565 | WEC Energy Group, Inc. | 91,787 | ||||||
|
| |||||||
1,494,668 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (6.5%): |
| ||||||
608 | AltaGas, Ltd. | 15,353 | ||||||
2,394 | Anadarko Petroleum Corp. | 166,934 | ||||||
597 | Antero Resources Corp.* | 14,119 | ||||||
1,822 | Apache Corp. | 115,642 | ||||||
1,724 | ARC Resources, Ltd. | 29,677 | ||||||
82,130 | BP plc | 510,229 | ||||||
1,817 | Cabot Oil & Gas Corp. | 42,445 | ||||||
1,032 | Caltex Australia, Ltd. | 22,653 | ||||||
1,442 | Cameco Corp. | 15,081 | ||||||
4,953 | Canadian Natural Resources, Ltd. | 157,869 | ||||||
3,747 | Cenovus Energy, Inc. | 56,659 | ||||||
783 | Cheniere Energy, Inc.* | 32,440 | ||||||
8,249 | Chevron Corp. | 970,907 | ||||||
378 | Cimarex Energy Co. | 51,370 | ||||||
633 | Concho Resources, Inc.* | 83,936 | ||||||
5,419 | ConocoPhillips Co. | 271,709 | ||||||
370 | Continental Resources, Inc.* | 19,070 | ||||||
2,681 | Crescent Point Energy Corp. | 36,446 | ||||||
2,268 | Devon Energy Corp. | 103,580 | ||||||
351 | Diamondback Energy, Inc.* | 35,472 | ||||||
4,018 | Enbridge, Inc. | 169,100 | ||||||
4,312 | EnCana Corp. | 50,620 | ||||||
11,437 | ENI SpA | 185,402 | ||||||
2,590 | EOG Resources, Inc. | 261,849 | ||||||
682 | EQT Corp. | 44,603 | ||||||
18,131 | Exxon Mobil Corp. | 1,636,505 | ||||||
1,200 | Galp Energia SGPS SA | 17,836 | ||||||
1,281 | Hess Corp. | 79,793 | ||||||
657 | HollyFrontier Corp. | 21,523 | ||||||
1,272 | Husky Energy, Inc.* | 15,435 | ||||||
500 | Idemitsu Kosan Co., Ltd. | 13,256 | ||||||
1,189 | Imperial Oil, Ltd. | 41,369 | ||||||
3,800 | INPEX Corp. | 37,943 | ||||||
1,260 | Inter Pipeline, Ltd. | 27,819 | ||||||
8,300 | JX Holdings, Inc. | 35,004 | ||||||
705 | Keyera Corp. | 21,247 | ||||||
8,296 | Kinder Morgan, Inc. | 171,810 | ||||||
290 | Koninklijke Vopak NV | 13,679 | ||||||
750 | Lundin Petroleum AB* | 16,266 | ||||||
3,305 | Marathon Oil Corp. | 57,210 | ||||||
2,284 | Marathon Petroleum Corp. | 114,999 | ||||||
632 | Murphy Oil Corp. | 19,674 | ||||||
521 | Neste Oil OYJ | 19,998 | ||||||
781 | Newfield Exploration Co.* | 31,631 | ||||||
1,879 | Noble Energy, Inc. | 71,515 | ||||||
3,340 | Occidental Petroleum Corp. | 237,908 | ||||||
5,352 | �� | Oil Search, Ltd. | 27,627 | |||||
890 | OMV AG | 31,347 | ||||||
828 | ONEOK, Inc. | 47,535 | ||||||
6,801 | Origin Energy, Ltd. | 32,250 |
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Oil, Gas & Consumable Fuels, continued |
| ||||||
686 | Parsley Energy, Inc., Class A* | $ | 24,175 | |||||
1,763 | Pembina Pipelines Corp. | 55,103 | ||||||
635 | Peyto Exploration & Development Corp. | 15,708 | ||||||
2,047 | Phillips 66 | 176,881 | ||||||
782 | Pioneer Natural Resources Co. | 140,815 | ||||||
369 | Plains GP Holdings, LP-CL A | 12,797 | ||||||
775 | Prairiesky Royalty, Ltd. | 18,438 | ||||||
726 | Range Resources Corp. | 24,945 | ||||||
4,942 | Repsol SA | 69,502 | ||||||
18,651 | Royal Dutch Shell plc, Class A | 513,836 | ||||||
16,538 | Royal Dutch Shell plc, Class B | 471,847 | ||||||
6,196 | Santos, Ltd. | 17,894 | ||||||
1,158 | Seven Generations Energy* | 27,007 | ||||||
1,400 | Showa Shell Sekiyu K.K. | 13,008 | ||||||
12,925 | Snam SpA | 53,157 | ||||||
1,865 | Southwestern Energy Co.* | 20,179 | ||||||
3,298 | Spectra Energy Corp. | 135,515 | ||||||
4,696 | Statoil ASA | 85,626 | ||||||
7,254 | Suncor Energy, Inc. | 237,206 | ||||||
749 | Targa Resources Corp. | 41,996 | ||||||
478 | Tesoro Corp. | 41,801 | ||||||
1,000 | TonenGeneral Sekiyu K.K. | 10,525 | ||||||
10,068 | Total SA | 513,875 | ||||||
813 | Tourmaline Oil Corp.* | 21,747 | ||||||
3,870 | TransCanada Corp. | 174,517 | ||||||
1,991 | Valero Energy Corp. | 136,025 | ||||||
1,273 | Veresen, Inc. | 12,431 | ||||||
444 | Vermilion Energy, Inc. | 18,683 | ||||||
3,383 | Williams Cos., Inc. (The) | 105,347 | ||||||
3,315 | Woodside Petroleum, Ltd. | 74,386 | ||||||
|
| |||||||
9,569,316 | ||||||||
|
| |||||||
| Paper & Forest Products (0.1%): |
| ||||||
1,393 | Mondi plc | 28,460 | ||||||
3,000 | OYI Paper Co., Ltd. | 12,196 | ||||||
2,900 | Stora Enso OYJ, Registered Shares | 31,061 | ||||||
2,334 | UPM-Kymmene OYJ | 57,191 | ||||||
350 | West Fraser Timber Co., Ltd. | 12,517 | ||||||
|
| |||||||
141,425 | ||||||||
|
| |||||||
| Personal Products (0.7%): |
| ||||||
413 | Beiersdorf AG | 35,039 | ||||||
1,897 | Coty, Inc., Class A | 34,734 | ||||||
236 | Edgewell Personal Care Co.* | 17,226 | ||||||
935 | Estee Lauder Co., Inc. (The), Class A | 71,518 | ||||||
2,400 | Kao Corp. | 113,566 | ||||||
100 | KOSE Corp. | 8,297 | ||||||
1,101 | L’Oreal SA | 200,680 | ||||||
200 | POLA ORBIS HOLDINGS, Inc. | 16,494 | ||||||
1,500 | Shiseido Co., Ltd. | 37,898 | ||||||
7,297 | Unilever NV | 299,861 | ||||||
5,477 | Unilever plc | 221,508 | ||||||
|
| |||||||
1,056,821 | ||||||||
|
| |||||||
| Pharmaceuticals (5.8%): |
| ||||||
1,722 | Allergan plc* | 361,637 | ||||||
10,100 | Astellas Pharma, Inc. | 140,017 | ||||||
5,529 | AstraZeneca plc | 299,806 |
Continued
16
AZL Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Pharmaceuticals, continued |
| ||||||
3,594 | Bayer AG, Registered Shares | $ | 374,893 | |||||
7,323 | Bristol-Myers Squibb Co. | 427,956 | ||||||
900 | Chugai Pharmaceutical Co., Ltd. | 25,780 | ||||||
2,600 | Daiichi Sankyo Co., Ltd. | 53,107 | ||||||
700 | Dainippon Sumitomo Pharma Co., Ltd. | 12,021 | ||||||
1,200 | Eisai Co., Ltd. | 68,607 | ||||||
4,344 | Eli Lilly & Co. | 319,501 | ||||||
823 | Endo International plc* | 13,555 | ||||||
16 | Galenica AG | 18,021 | ||||||
21,314 | GlaxoSmithKline plc | 406,968 | ||||||
563 | Hikma Pharmaceuticals plc | 13,057 | ||||||
200 | Hisamitsu Pharmaceutical Co., Inc. | 9,978 | ||||||
237 | Jazz Pharmaceuticals plc* | 25,840 | ||||||
11,962 | Johnson & Johnson Co. | 1,378,143 | ||||||
1,000 | Kyowa Hakko Kogyo Co., Ltd. | 13,757 | ||||||
428 | Mallinckrodt plc* | 21,323 | ||||||
12,204 | Merck & Co., Inc. | 718,450 | ||||||
581 | Merck KGaA | 60,625 | ||||||
900 | Mitsubishi Tanabe Pharma Corp. | 17,632 | ||||||
2,216 | Mylan NV* | 84,540 | ||||||
9,823 | Novartis AG, Registered Shares | 714,723 | ||||||
8,596 | Novo Nordisk A/S, Class B | 308,822 | ||||||
1,600 | Ono Pharmaceutical Co., Ltd. | 34,889 | ||||||
411 | Orion OYJ, Class B | 18,290 | ||||||
1,500 | Otsuka Holdings Co., Ltd. | 65,272 | ||||||
562 | Perrigo Co. plc | 46,775 | ||||||
26,778 | Pfizer, Inc. | 869,750 | ||||||
3,109 | Roche Holding AG | 708,604 | ||||||
5,057 | Sanofi-Aventis SA | 408,931 | ||||||
1,400 | Santen Pharmaceutical Co., Ltd. | 17,100 | ||||||
1,200 | Shionogi & Co., Ltd. | 57,265 | ||||||
100 | Taisho Pharmaceutical Holdings Co., Ltd. | 8,284 | ||||||
3,300 | Takeda Pharmacuetical Co., Ltd. | 136,308 | ||||||
120 | Taro Pharmaceutical Industries, Ltd.* | 12,632 | ||||||
4,105 | Teva Pharmaceutical Industries, Ltd., ADR | 148,807 | ||||||
502 | UCB SA | 32,127 | ||||||
1,267 | Valeant Pharmaceuticals International, Inc.* | 18,375 | ||||||
1,957 | Zoetis, Inc. | 104,758 | ||||||
|
| |||||||
8,576,926 | ||||||||
|
| |||||||
| Professional Services (0.6%): |
| ||||||
655 | Adecco SA, Registered Shares | 42,777 | ||||||
996 | Bureau Veritas SA | 19,295 | ||||||
2,593 | Capita Group plc | 16,973 | ||||||
141 | Dun & Bradstreet Corp. | 17,106 | ||||||
545 | Equifax, Inc. | 64,435 | ||||||
4,308 | Experian plc | 83,373 | ||||||
1,827 | IHS Markit, Ltd.* | 64,694 | ||||||
627 | Intertek Group plc | 26,746 | ||||||
282 | Manpower, Inc. | 25,061 | ||||||
1,785 | Nielsen Holdings plc | 74,882 | ||||||
465 | Randstad Holding NV | 25,182 | ||||||
1,900 | Recruit Holdings Co., Ltd. | 76,095 | ||||||
4,976 | Reed Elsevier plc | 88,479 | ||||||
4,473 | RELX NV | 75,178 | ||||||
509 | Robert Half International, Inc. | 24,829 | ||||||
1,229 | Seek, Ltd. | 13,158 |
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Professional Services, continued |
| ||||||
22 | SGS SA, Registered Shares | $ | 44,690 | |||||
702 | Verisk Analytics, Inc.* | 56,981 | ||||||
1,199 | Wolters Kluwer NV | 43,354 | ||||||
|
| |||||||
883,288 | ||||||||
|
| |||||||
| Real Estate Management & Development (0.7%): |
| ||||||
800 | AEON Mall Co., Ltd. | 11,228 | ||||||
165 | Azrieli Group | 7,145 | ||||||
10,400 | CapitaLand, Ltd. | 21,607 | ||||||
1,177 | CBRE Group, Inc., Class A* | 37,064 | ||||||
11,000 | Cheung Kong Property Holdings, Ltd. | 66,709 | ||||||
2,000 | City Developments, Ltd. | 11,395 | ||||||
300 | Daito Trust Construction Co., Ltd. | 45,063 | ||||||
2,900 | Daiwa House Industry Co., Ltd. | 79,121 | ||||||
1,352 | Deutsche Wohnen AG | 42,392 | ||||||
760 | First Capital Realty, Inc. | 11,701 | ||||||
6,900 | Global Logistic Properties, Ltd. | 10,456 | ||||||
4,000 | Hang Lung Group, Ltd. | 13,906 | ||||||
8,000 | Hang Lung Properties, Ltd. | 16,752 | ||||||
4,000 | Henderson Land Development Co., Ltd. | 21,117 | ||||||
5,100 | Hongkong Land Holdings, Ltd. | 32,185 | ||||||
1,400 | Hulic Co., Ltd. | 12,420 | ||||||
3,000 | Hysan Development Co., Ltd. | 12,368 | ||||||
178 | Jones Lang LaSalle, Inc. | 17,985 | ||||||
4,000 | Kerry Properties, Ltd. | 10,779 | ||||||
2,148 | Lend Lease Group | 22,589 | ||||||
6,000 | Mitsubishi Estate Co., Ltd. | 118,950 | ||||||
4,000 | Mitsui Fudosan Co., Ltd. | 92,313 | ||||||
22,000 | New World Development Co., Ltd. | 23,061 | ||||||
700 | Nomura Real Estate Holdings, Inc. | 11,884 | ||||||
12,000 | Sino Land Co., Ltd. | 17,763 | ||||||
1,000 | Sumitomo Realty & Development Co., Ltd. | 26,502 | ||||||
6,000 | Sun Hung Kai Properties, Ltd. | 75,126 | ||||||
2,000 | Swire Pacific, Ltd., Class A | 19,092 | ||||||
4,800 | Swire Properties, Ltd. | 13,153 | ||||||
318 | Swiss Prime Site AG | 26,032 | ||||||
900 | Tokyo Tatemono Co., Ltd. | 12,011 | ||||||
2,200 | Tokyu Fudosan Holdings Corp. | 12,962 | ||||||
3,000 | UOL Group, Ltd. | 12,361 | ||||||
2,095 | Vonovia SE | 68,232 | ||||||
7,000 | Wharf Holdings, Ltd. (The) | 46,003 | ||||||
3,000 | Wheelock & Co., Ltd. | 16,841 | ||||||
|
| |||||||
1,096,268 | ||||||||
|
| |||||||
| Road & Rail (1.1%): |
| ||||||
39 | AMERCO, Inc. | 14,414 | ||||||
7,972 | Aurizon Holdings, Ltd. | 29,004 | ||||||
3,483 | Canadian National Railway Co. | 234,432 | ||||||
613 | Canadian Pacific Railway, Ltd., Class 1 | 87,468 | ||||||
700 | Central Japan Railway Co. | 114,986 | ||||||
12,700 | ComfortDelGro Corp., Ltd. | 21,579 | ||||||
4,176 | CSX Corp. | 150,044 | ||||||
737 | DSV A/S | 32,794 | ||||||
1,500 | East Japan Railway Co. | 129,411 | ||||||
900 | Hankyu Hanshin Holdings, Inc. | 28,832 | ||||||
359 | J.B. Hunt Transport Services, Inc. | 34,848 | ||||||
426 | Kansas City Southern | 36,146 |
Continued
17
AZL Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Road & Rail, continued |
| ||||||
2,000 | Keihin Electric Express Railway Co., Ltd. | $ | 23,151 | |||||
2,000 | Keio Corp. | 16,422 | ||||||
500 | Keisei Electric Railway Co., Ltd. | 12,119 | ||||||
7,000 | Kintetsu Corp. | 26,674 | ||||||
7,000 | MTR Corp., Ltd. | 33,840 | ||||||
3,000 | Nagoya Railroad Co., Ltd. | 14,492 | ||||||
3,000 | Nippon Express Co., Ltd. | 16,116 | ||||||
1,284 | Norfolk Southern Corp. | 138,762 | ||||||
1,100 | Odakyu Electric Railway Co., Ltd. | 21,735 | ||||||
3,000 | Tobu Railway Co., Ltd. | 14,869 | ||||||
4,000 | Tokyu Corp. | 29,350 | ||||||
3,682 | Union Pacific Corp. | 381,750 | ||||||
700 | West Japan Railway Co. | 42,901 | ||||||
|
| |||||||
1,686,139 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (2.3%): |
| ||||||
1,282 | Analog Devices, Inc. | 93,099 | ||||||
4,730 | Applied Materials, Inc. | 152,637 | ||||||
1,300 | ASM Pacific Technology, Ltd. | 13,763 | ||||||
1,610 | ASML Holding NV | 180,364 | ||||||
1,763 | Broadcom, Ltd. | 311,646 | ||||||
5,072 | Infineon Technologies AG | 87,894 | ||||||
20,856 | Intel Corp. | 756,448 | ||||||
618 | KLA-Tencor Corp. | 48,624 | ||||||
701 | Lam Research Corp. | 74,117 | ||||||
1,188 | Linear Technology Corp. | 74,072 | ||||||
1,673 | Marvell Technology Group, Ltd. | 23,205 | ||||||
1,111 | Maxim Integrated Products, Inc. | 42,851 | ||||||
968 | Microchip Technology, Inc. | 62,097 | ||||||
4,963 | Micron Technology, Inc.* | 108,789 | ||||||
2,405 | NVIDIA Corp. | 256,710 | ||||||
1,359 | NXP Semiconductors NV* | 133,196 | ||||||
500 | Qorvo, Inc.* | 26,365 | ||||||
6,442 | QUALCOMM, Inc. | 420,018 | ||||||
300 | ROHM Co., Ltd. | 17,219 | ||||||
820 | Skyworks Solutions, Inc. | 61,221 | ||||||
2,574 | STMicroelectronics NV | 29,180 | ||||||
4,386 | Texas Instruments, Inc. | 320,046 | ||||||
800 | Tokyo Electron, Ltd. | 75,432 | ||||||
962 | Xilinx, Inc. | 58,076 | ||||||
|
| |||||||
3,427,069 | ||||||||
|
| |||||||
| Software (3.2%): |
| ||||||
2,861 | Activision Blizzard, Inc. | 103,311 | ||||||
2,240 | Adobe Systems, Inc.* | 230,608 | ||||||
353 | ANSYS, Inc.* | 32,649 | ||||||
845 | Autodesk, Inc.* | 62,538 | ||||||
1,224 | CA, Inc. | 38,886 | ||||||
1,174 | Cadence Design Systems, Inc.* | 29,608 | ||||||
520 | CDK Global, Inc. | 31,039 | ||||||
506 | Check Point Software Technologies, Ltd.* | 42,736 | ||||||
700 | Citrix Systems, Inc.* | 62,517 | ||||||
76 | Constellation Software, Inc./Canada | 34,539 | ||||||
497 | Dassault Systemes SA | 37,856 | ||||||
879 | Dell Technologies, Inc., Class V* | 48,319 | ||||||
1,315 | Electronic Arts, Inc.* | 103,569 | ||||||
566 | Fortinet, Inc.* | 17,048 |
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Software, continued |
| ||||||
316 | Gemalto NV | $ | 18,242 | |||||
1,093 | Intuit, Inc. | 125,269 | ||||||
400 | Konami Corp. | 16,119 | ||||||
200 | Line Corp.* | 6,821 | ||||||
32,368 | Microsoft Corp. | 2,011,349 | ||||||
877 | Mobileye NV* | 33,431 | ||||||
700 | Nexon Co., Ltd. | 10,118 | ||||||
322 | NICE Systems, Ltd. | 22,099 | ||||||
500 | Nintendo Co., Ltd. | 104,536 | ||||||
948 | Nuance Communications, Inc.* | 14,125 | ||||||
473 | Open Text Corp. | 29,215 | ||||||
200 | Oracle Corp. | 10,066 | ||||||
13,752 | Oracle Corp. | 528,765 | ||||||
814 | Red Hat, Inc.* | 56,736 | ||||||
5,073 | Sage Group plc | 40,788 | ||||||
2,814 | Salesforce.com, Inc.* | 192,646 | ||||||
4,331 | SAP AG | 378,454 | ||||||
813 | ServiceNow, Inc.* | 60,438 | ||||||
515 | Splunk, Inc.* | 26,342 | ||||||
2,977 | Symantec Corp. | 71,121 | ||||||
605 | Synopsys, Inc.* | 35,610 | ||||||
400 | Trend Micro, Inc. | 14,187 | ||||||
295 | VMware, Inc., Class A* | 23,225 | ||||||
462 | Workday, Inc., Class A* | 30,534 | ||||||
|
| |||||||
4,735,459 | ||||||||
|
| |||||||
| Specialty Retail (1.8%): |
| ||||||
200 | ABC-Mart, Inc. | 11,315 | ||||||
290 | Advance Auto Parts, Inc. | 49,045 | ||||||
287 | AutoNation, Inc.* | 13,963 | ||||||
131 | AutoZone, Inc.* | 103,462 | ||||||
597 | Bed Bath & Beyond, Inc. | 24,262 | ||||||
1,143 | Best Buy Co., Inc. | 48,772 | ||||||
756 | CarMax, Inc.* | 48,679 | ||||||
350 | Dick’s Sporting Goods, Inc. | 18,585 | ||||||
3,672 | Dixons Carphone plc | 16,006 | ||||||
177 | Dufry AG, Registered Shares* | 22,076 | ||||||
200 | Fast Retailing Co., Ltd. | 71,364 | ||||||
534 | Foot Locker, Inc. | 37,855 | ||||||
935 | Gap, Inc. (The) | 20,981 | ||||||
4,168 | Hennes & Mauritz AB, Class B | 115,754 | ||||||
100 | Hikari Tsushin, Inc. | 9,309 | ||||||
5,479 | Home Depot, Inc. (The) | 734,624 | ||||||
4,905 | Industria de Diseno Textil SA | 167,361 | ||||||
8,807 | Kingfisher plc | 37,920 | ||||||
1,194 | L Brands, Inc. | 78,613 | ||||||
3,850 | Lowe’s Cos., Inc. | 273,812 | ||||||
300 | Nitori Co., Ltd. | 34,287 | ||||||
427 | O’Reilly Automotive, Inc.* | 118,881 | ||||||
1,704 | Ross Stores, Inc. | 111,782 | ||||||
100 | Shimamura Co., Ltd. | 12,478 | ||||||
292 | Signet Jewelers, Ltd. | 27,524 | ||||||
2,397 | Staples, Inc. | 21,693 | ||||||
492 | Tiffany & Co. | 38,096 | ||||||
2,952 | TJX Cos., Inc. (The) | 221,784 | ||||||
522 | Tractor Supply Co. | 39,573 | ||||||
298 | Ulta Salon, Cosmetics & Fragrance, Inc.* | 75,972 |
Continued
18
AZL Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Specialty Retail, continued |
| ||||||
800 | USS Co., Ltd. | $ | 12,720 | |||||
2,400 | Yamada Denki Co., Ltd. | 12,910 | ||||||
|
| |||||||
2,631,458 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (2.4%): |
| ||||||
23,560 | Apple, Inc. | 2,728,719 | ||||||
1,801 | BlackBerry, Ltd.* | 12,396 | ||||||
900 | Brother Industries, Ltd. | 16,187 | ||||||
4,600 | Canon, Inc. | 128,833 | ||||||
1,900 | Fujifilm Holdings Corp. | 72,000 | ||||||
7,471 | Hewlett Packard Enterprise Co. | 172,879 | ||||||
7,278 | HP, Inc. | 108,006 | ||||||
1,800 | Konica Minolta Holdings, Inc. | 17,833 | ||||||
10,000 | NEC Corp. | 26,421 | ||||||
1,134 | NetApp, Inc. | 39,996 | ||||||
2,600 | Ricoh Co., Ltd. | 21,939 | ||||||
1,172 | Seagate Technology plc | 44,735 | ||||||
1,100 | Seiko Epson Corp. | 23,239 | ||||||
1,367 | Western Digital Corp. | 92,888 | ||||||
3,239 | Xerox Corp. | 28,276 | ||||||
|
| |||||||
3,534,347 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (1.1%): |
| ||||||
869 | Adidas AG | 137,318 | ||||||
600 | ASICS Corp. | 11,961 | ||||||
2,156 | Burberry Group plc | 39,734 | ||||||
215 | Christian Dior SA | 45,038 | ||||||
1,086 | Coach, Inc. | 38,032 | ||||||
2,347 | Compagnie Financiere Richemont SA | 155,445 | ||||||
1,128 | Gildan Activewear, Inc. | 28,643 | ||||||
1,456 | Hanesbrands, Inc. | 31,406 | ||||||
104 | Hermes International SA | 42,645 | ||||||
262 | Hugo Boss AG | 16,164 | ||||||
367 | Kering | 82,264 | ||||||
44,000 | Li & Fung, Ltd. | 19,239 | ||||||
432 | Lululemon Athletica, Inc.* | 28,076 | ||||||
832 | Luxottica Group SpA | 44,808 | ||||||
1,212 | LVMH Moet Hennessy Louis Vuitton SA | 231,068 | ||||||
694 | Michael Kors Holdings, Ltd.* | 29,828 | ||||||
5,897 | Nike, Inc., Class C | 299,744 | ||||||
486 | Pandora A/S | 63,489 | ||||||
320 | PVH Corp. | 28,877 | ||||||
224 | Ralph Lauren Corp. | 20,232 | ||||||
120 | Swatch Group AG (The), Class B | 37,323 | ||||||
210 | Swatch Group AG (The), Registered Shares | 12,838 | ||||||
731 | Under Armour, Inc., Class A* | 21,236 | ||||||
702 | Under Armour, Inc., Class C* | 17,669 | ||||||
1,492 | VF Corp. | 79,598 | ||||||
3,000 | Yue Yuen Industrial Holdings, Ltd. | 10,860 | ||||||
|
| |||||||
1,573,535 | ||||||||
|
| |||||||
| Thrifts & Mortgage Finance (0.0%): |
| ||||||
1,773 | New York Community Bancorp, Inc. | 28,208 | ||||||
|
| |||||||
| Tobacco (1.5%): |
| ||||||
8,543 | Altria Group, Inc. | 577,678 | ||||||
8,203 | British American Tobacco plc | 465,680 | ||||||
4,143 | Imperial Tobacco Group plc, Class A | 180,198 | ||||||
5,100 | Japan Tobacco, Inc. | 167,574 |
| Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Tobacco, continued |
| ||||||
6,783 | Philip Morris International, Inc. | $ | 620,576 | |||||
3,878 | Reynolds American, Inc. | 217,323 | ||||||
739 | Swedish Match AB, Class B | 23,489 | ||||||
|
| |||||||
2,252,518 | ||||||||
|
| |||||||
| Trading Companies & Distributors (0.6%): |
| ||||||
659 | AerCap Holdings NV* | 27,421 | ||||||
2,359 | Ashtead Group plc | 45,695 | ||||||
606 | Brenntag AG | 33,576 | ||||||
1,312 | Bunzl plc | 33,946 | ||||||
1,131 | Fastenal Co. | 53,134 | ||||||
1,061 | Finning International, Inc. | 20,777 | ||||||
6,500 | ITOCHU Corp. | 86,166 | ||||||
6,400 | Marubeni Corp. | 36,213 | ||||||
1,200 | Misumi Group, Inc. | 19,697 | ||||||
7,100 | Mitsubishi Corp. | 150,889 | ||||||
8,300 | Mitsui & Co., Ltd. | 113,851 | ||||||
1,153 | Rexel SA | 18,938 | ||||||
4,700 | Sumitomo Corp. | 55,220 | ||||||
800 | Toyota Tsushu Corp. | 20,789 | ||||||
958 | Travis Perkins plc | 17,120 | ||||||
399 | United Rentals, Inc.* | 42,126 | ||||||
231 | W.W. Grainger, Inc. | 53,651 | ||||||
1,287 | Wolseley plc | 78,615 | ||||||
|
| |||||||
907,824 | ||||||||
|
| |||||||
| Transportation Infrastructure (0.2%): |
| ||||||
2,936 | Abertis Infraestructuras SA | 41,072 | ||||||
348 | Aena SA | 47,472 | ||||||
121 | Aeroports de Paris | 12,961 | ||||||
1,830 | Atlantia SpA | 42,814 | ||||||
3,464 | Auckland International Airport, Ltd. | 15,006 | ||||||
182 | Fraport AG | 10,748 | ||||||
1,770 | Groupe Eurotunnel SA | 16,801 | ||||||
27,700 | Hutchison Port Holdings Trust | 12,046 | ||||||
300 | Japan Airport Terminal Co., Ltd. | 10,834 | ||||||
1,000 | Kamigumi Co., Ltd. | 9,516 | ||||||
348 | Macquarie Infrastructure Corp. | 28,432 | ||||||
1,000 | Mitsubishi Logistics Corp. | 14,115 | ||||||
3,000 | SATS, Ltd. | 10,025 | ||||||
4,299 | Sydney Airport | 18,513 | ||||||
9,185 | Transurban Group | 68,389 | ||||||
|
| |||||||
358,744 | ||||||||
|
| |||||||
| Water Utilities (0.1%): |
| ||||||
800 | American Water Works Co., Inc. | 57,888 | ||||||
930 | Severn Trent plc | 25,441 | ||||||
2,680 | United Utilities Group plc | 29,690 | ||||||
|
| |||||||
113,019 | ||||||||
|
| |||||||
| Wireless Telecommunication Services (0.8%): |
| ||||||
8,000 | KDDI Corp. | 202,009 | ||||||
285 | Millicom International Cellular SA, SDR | 12,179 | ||||||
6,300 | NTT DoCoMo, Inc. | 143,285 | ||||||
1,431 | Rogers Communications, Inc. | 55,204 | ||||||
4,200 | SoftBank Group Corp. | 277,309 | ||||||
3,079 | Sprint Corp.* | 25,925 | ||||||
5,000 | StarHub, Ltd. | 9,673 | ||||||
1,473 | Tele2 AB | 11,813 |
Continued
19
AZL Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
| Fair Value | |||||||
Common Stocks, continued | ||||||||
Wireless Telecommunication Services, continued | ||||||||
1,171 | T-Mobile US, Inc.* | $ | 67,344 | |||||
120,209 | Vodafone Group plc | 295,602 | ||||||
|
| |||||||
1,100,343 | ||||||||
|
| |||||||
Total Common Stocks (Cost $139,878,096) | 146,689,217 | |||||||
|
| |||||||
Preferred Stocks (0.2%): | ||||||||
Automobiles (0.1%): | ||||||||
239 | Bayerische Motoren Werke AG (BMW), 4.42% | 18,329 | ||||||
605 | Porsche Automobil Holding SE, 1.96% | 32,884 | ||||||
811 | Volkswagen AG, 0.13% | 113,607 | ||||||
|
| |||||||
164,820 | ||||||||
|
| |||||||
Household Products (0.1%): | ||||||||
842 | Henkel AG & Co. KGaA, 1.30% | 100,399 | ||||||
|
| |||||||
Total Preferred Stocks (Cost $262,078) | 265,219 | |||||||
|
|
Shares or | Fair Value | |||||||
Rights (0.0%): | ||||||||
Oil, Gas & Consumable Fuels (0.0%): | ||||||||
4,942 | Repsol SA, Expires on 1/09/17* | $ | 1,831 | |||||
10,068 | TOTAL SA, Expires on 1/05/17*(a) | 6,464 | ||||||
|
| |||||||
8,295 | ||||||||
|
| |||||||
Total Rights (Cost $6,391) | 8,295 | |||||||
|
| |||||||
Unaffiliated Investment Company (0.0%): | ||||||||
63,181 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(b) | 63,181 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $63,181) | 63,181 | |||||||
|
| |||||||
Total Investment Securities (Cost $140,209,746)(c) — 99.8% | 147,025,912 | |||||||
Net other assets (liabilities) — 0.2% | 239,448 | |||||||
|
| |||||||
Net Assets — 100.0% | $ | 147,265,360 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
ADR—American Depositary Receipt
SDR—Swedish Depository Receipt
* | Non-income producing security. |
+ | Affiliated Securities |
(a) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2016. The total of all such securities represent 0.00% of the net assets of the fund |
(b) | The rate represents the effective yield at December 31, 2016. |
(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, 2016: (Unaudited)
Country | Percentage | |||
Argentina | — | %NM | ||
Australia | 2.6 | % | ||
Austria | 0.1 | % | ||
Belgium | 0.4 | % | ||
Bermuda | 0.2 | % | ||
Canada | 3.7 | % | ||
Denmark | 0.6 | % | ||
Finland | 0.4 | % | ||
France | 3.5 | % | ||
Germany | 3.4 | % | ||
Hong Kong | 1.1 | % | ||
Ireland (Republic of) | 0.9 | % | ||
Israel | 0.2 | % | ||
Italy | 0.7 | % | ||
Japan | 8.8 | % |
Country | Percentage | |||
Liberia | — | %NM | ||
Luxembourg | 0.1 | % | ||
Netherlands | 1.8 | % | ||
New Zealand | 0.1 | % | ||
Norway | 0.2 | % | ||
Panama | 0.1 | % | ||
Portugal | — | %NM | ||
Singapore | 0.7 | % | ||
Spain | 1.1 | % | ||
Sweden | 1.0 | % | ||
Switzerland | 3.6 | % | ||
United Arab Emirates | — | %NM | ||
United Kingdom | 6.4 | % | ||
United States | 58.3 | % | ||
|
| |||
100.0 | % | |||
|
|
NM | Not meaningful, amount is less than 0.05%. |
Continued
20
AZL Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2016
Futures Contracts
Cash of $13,000 has been segregated to cover margin requirements for the following open contracts as of December 31, 2016:
Description | Type | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
DJ EURO STOXX 50 March Futures (Euro) | Long | 3/17/17 | 1 | $ | 34,490 | $ | 975 | |||||||||||||
FTSE 100 Index March Futures (British Pounds) | Long | 3/17/17 | 1 | 86,870 | 808 | |||||||||||||||
S&P 500 Index E-Mini March Futures (U.S. Dollar) | Long | 3/17/17 | 1 | 111,810 | (622 | ) | ||||||||||||||
|
| |||||||||||||||||||
Total | $ | 1,161 | ||||||||||||||||||
|
|
See accompanying notes to the financial statements.
21
AZL Global Equity Index Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investments in non-affiliates, at cost | $ | 139,714,488 | |||
Investments in affiliates, at cost | 495,258 | ||||
|
| ||||
Total Investment securities, at cost | $ | 140,209,746 | |||
|
| ||||
Investments in non-affiliates, at value | $ | 146,485,826 | |||
Investments in affiliates, at value | 540,086 | ||||
|
| ||||
Total Investment securities, at value | $ | 147,025,912 | |||
Segregated cash for collateral | 13,000 | ||||
Interest and dividends receivable | 184,734 | ||||
Foreign currency, at value (cost $131,975) | 132,336 | ||||
Receivable for capital shares issued | 246 | ||||
Receivable for investments sold | 14,808 | ||||
Receivable for variation margin on futures contracts | 896 | ||||
Reclaims receivable | 48,817 | ||||
Prepaid expenses | 29,734 | ||||
|
| ||||
Total Assets | 147,450,483 | ||||
|
| ||||
Liabilities: | |||||
Cash overdraft | 3,848 | ||||
Payable for capital shares redeemed | 50,348 | ||||
Payable for variation margin on futures contracts | 3,309 | ||||
Manager fees payable | 39,097 | ||||
Administration fees payable | 15,023 | ||||
Distribution fees payable | 31,530 | ||||
Custodian fees payable | 27,287 | ||||
Administrative and compliance services fees payable | 555 | ||||
Trustee fees payable | 421 | ||||
Other accrued liabilities | 13,705 | ||||
|
| ||||
Total Liabilities | 185,123 | ||||
|
| ||||
Net Assets | $ | 147,265,360 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 155,623,153 | |||
Accumulated net investment income/(loss) | 2,854,641 | ||||
Accumulated net realized gains/(losses) from investment transactions | (18,028,788 | ) | |||
Net unrealized appreciation/(depreciation) on investments | 6,816,354 | ||||
|
| ||||
Net Assets | $ | 147,265,360 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 15,727,862 | ||||
Net Asset Value (offering and redemption price per share) | $ | 9.36 | |||
|
|
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Dividends | $ | 4,609,291 | |||
Dividends from affiliates | 1,255 | ||||
Income from securities lending | 108,344 | ||||
Foreign withholding tax | (379,142 | ) | |||
|
| ||||
Total Investment Income | 4,339,748 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 966,173 | ||||
Administration fees | 73,474 | ||||
Distribution fees | 281,668 | ||||
Custodian fees | 41,311 | ||||
Administrative and compliance services fees | 2,162 | ||||
Trustee fees | 6,475 | ||||
Professional fees | 7,683 | ||||
Shareholder reports | 2,329 | ||||
Dividends on securities sold short | 54 | ||||
Other expenses | (24,973 | ) | |||
|
| ||||
Total expenses before reductions | 1,356,356 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (119,978 | ) | |||
|
| ||||
Net expenses | 1,236,378 | ||||
|
| ||||
Net Investment Income/(Loss) | 3,103,370 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | (11,544,939 | ) | |||
Net realized gains/(losses) on futures contracts | 472,950 | ||||
Change in net unrealized appreciation/depreciation on investments | 8,959,236 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | (2,112,753 | ) | |||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 990,617 | |||
|
|
See accompanying notes to the financial statements.
22
Statements of Changes in Net Assets
AZL Global Equity Index Fund | ||||||||||
For the Year Ended December 31, 2016 | For the Year Ended December 31, 2015 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 3,103,370 | $ | 2,426,670 | ||||||
Net realized gains/(losses) on investment transactions | (11,071,989 | ) | (6,390,018 | ) | ||||||
Change in unrealized appreciation/depreciation on investments | 8,959,236 | (11,359,727 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 990,617 | (15,323,075 | ) | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (3,055,401 | ) | (3,594,504 | ) | ||||||
From net realized gains | — | (671,207 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (3,055,401 | ) | (4,265,711 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 145,799,062 | 6,343,293 | ||||||||
Proceeds from dividends reinvested | 3,055,401 | 4,265,710 | ||||||||
Value of shares redeemed | (116,735,502 | ) | (20,862,557 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 32,118,961 | (10,253,554 | ) | |||||||
|
|
|
| |||||||
Change in net assets | 30,054,177 | (29,842,340 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 117,211,183 | 147,053,523 | ||||||||
|
|
|
| |||||||
End of period | $ | 147,265,360 | $ | 117,211,183 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 2,854,641 | $ | 3,055,397 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 16,362,841 | 563,943 | ||||||||
Dividends reinvested | 336,869 | 422,348 | ||||||||
Shares redeemed | (13,037,308 | ) | (1,701,631 | ) | ||||||
|
|
|
| |||||||
Change in shares | 3,662,402 | (715,340 | ) | |||||||
|
|
|
|
See accompanying notes to the financial statements.
23
AZL Global Equity Index Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 9.71 | $ | 11.51 | $ | 12.88 | $ | 11.74 | $ | 12.14 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.20 | 0.23 | 0.28 | 0.25 | 0.19 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (0.30 | ) | (1.66 | ) | (0.89 | ) | 1.11 | 2.14 | |||||||||||||||||
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Total from Investment Activities | (0.10 | ) | (1.43 | ) | (0.61 | ) | 1.36 | 2.33 | |||||||||||||||||
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Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.25 | ) | (0.31 | ) | (0.25 | ) | (0.22 | ) | (0.35 | ) | |||||||||||||||
Net Realized Gains | — | (0.06 | ) | (0.51 | ) | — | (2.38 | ) | |||||||||||||||||
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Total Dividends | (0.25 | ) | (0.37 | ) | (0.76 | ) | (0.22 | ) | (2.73 | ) | |||||||||||||||
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Net Asset Value, End of Period | $ | 9.36 | $ | 9.71 | $ | 11.51 | $ | 12.88 | $ | 11.74 | |||||||||||||||
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Total Return(a) | (0.93 | )% | (12.57 | )% | (5.26 | )% | 11.66 | % | 20.55 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 147,265 | $ | 117,211 | $ | 147,054 | $ | 151,096 | $ | 135,156 | |||||||||||||||
Net Investment Income/(Loss) | 2.75 | % | 1.80 | % | 2.35 | % | 2.10 | % | 2.25 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.20 | % | 1.24 | % | 1.24 | % | 1.23 | % | 1.25 | % | |||||||||||||||
Expenses Net of Reductions | 1.10 | % | 1.24 | % | 1.24 | % | 1.22 | % | 1.24 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.10 | % | 1.24 | % | 1.24 | % | 1.23 | % | 1.25 | % | |||||||||||||||
Portfolio Turnover Rate | 135 | % | 50 | % | 20 | % | 24 | % | 21 | % |
(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.
24
AZL Global Equity Index Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Global Equity Index Fund (formerly, AZL NFJ International Value Fund) (the “Fund”), and 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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.
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 differing treatment on certain investments) 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.
25
AZL Global Equity Index Fund
Notes to the Financial Statements
December 31, 2016
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, 2016 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $4.8 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $10,695 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (“ASU No. 2014-11”), “Transfers & Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and sub-adviser. Any such purchase or sale transaction must be effected without a brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security’s last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. During the year, the Fund engaged in such affiliated transactions at the current market price. During the year ended December 31, 2016, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
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, 2016, 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 $0.2 million as of December 30, 2016. The monthly average notional amount for these contracts was $0.1 million for the year ended December 31, 2016. Realized gains and losses are reported as “Net realized gains/(losses) on futures contracts” on the Statement of Operations.
26
AZL Global Equity Index Fund
Notes to the Financial Statements
December 31, 2016
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, 2016:
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 Risk Exposure | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 1,783 | Payable for variation on futures contracts | $ | 622 |
* | For futures contracts, the amounts represent the cumulative appreciation/(depreciation) of these futures contracts as reported in the Schedule of Portfolio Investments. Only the current day’s variation margin is reported within the Statement of Assets and Liabilities as Variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended December 31, 2016:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives Recognized | Change in Net Unrealized Appreciation/Depreciation on Derivatives Recognized | |||||||
Equity Risk Exposure | ||||||||||
Equity Contracts | Net Realized gains/(losses) on futures contracts/ Change in unrealized appreciation/depreciation on investments | $ | 472,950 | $1,161 |
3. Fees and Transactions with Affiliates and Other Parties
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”), BlackRock 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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit** | |||||||||
AZL Global Equity Index Fund | 0.70 | % | 0.80 | % |
* | From January 1, 2016 through October 13, 2016, The Manager retained three independent money management organizations, Franklin Advisers, Inc., Franklin Mutual Advisers, LLC and Templeton Global Advisors Limited and the annual rate due to the Manager was 0.70% of average daily net assets. Effective October 14, 2016, the annual rate due to the Manager remained at 0.70% of average daily net assets. From January 1, 2016 through October 13, 2016, the Manager did not voluntarily reduced the management fee. Effective October 14, 2016 the Manager voluntarily reduced the management fee to 0.31% on all assets. The manager reserves the right to increase the management fee to the amount shown in the table at any time. |
** | Limit in effect as of October 14, 2016. Prior to that date, the annual expense limit was 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, 2016, 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.
The Manager or an affiliate of the Manager serves as the investment adviser of certain securities in which the Fund invests. At December 31, 2016, these investments are noted as Affiliated Securities in the Fund’s Schedule of Portfolio Investments. A summary of the Fund’s investments in affiliated securities for the year ended December 31, 2016 is as follows:
Fair Value 12/31/2015 | Purchases at Cost | Proceeds from Sales | Fair Value 12/31/2016 | Dividend Income | |||||||||||||||||||||
Allianz SE, Registered Shares | $ | — | $ | 306,737 | $ | — | $ | 331,550 | $ | — | |||||||||||||||
BlackRock Inc., Class A | — | 188,521 | — | 208,536 | 1,255 | ||||||||||||||||||||
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$ | — | $ | 495,258 | $ | — | $ | 540,086 | $ | 1,255 | ||||||||||||||||
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27
AZL Global Equity Index Fund
Notes to the Financial Statements
December 31, 2016
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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the Fund’s average daily net assets, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $1,276 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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 (the “Board” or “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
28
AZL Global Equity Index Fund
Notes to the Financial Statements
December 31, 2016
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, 2016, 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, 2016 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks | |||||||||||||||
Aerospace & Defense | $ | 1,978,775 | $ | 578,254 | $ | 2,557,029 | |||||||||
Air Freight & Logistics | 635,276 | 207,676 | 842,952 | ||||||||||||
Airlines | 122,943 | 115,014 | 237,957 | ||||||||||||
Auto Components | 322,778 | 715,039 | 1,037,817 | ||||||||||||
Automobiles | 583,370 | 1,916,304 | 2,499,674 | ||||||||||||
Banks | 7,557,651 | 6,517,521 | 14,075,172 | ||||||||||||
Beverages | 1,844,514 | 1,101,746 | 2,946,260 | ||||||||||||
Biotechnology | 2,572,776 | 515,204 | 3,087,980 | ||||||||||||
Building Products | 269,666 | 424,759 | 694,425 | ||||||||||||
Capital Markets | 2,805,461 | 1,198,051 | 4,003,512 | ||||||||||||
Chemicals | 2,046,273 | 2,107,802 | 4,154,075 | ||||||||||||
Commercial Services & Supplies | 336,956 | 290,999 | 627,955 | ||||||||||||
Communications Equipment | 905,391 | 202,673 | 1,108,064 | ||||||||||||
Construction & Engineering | 81,241 | 473,613 | 554,854 | ||||||||||||
Construction Materials | 136,921 | 386,465 | 523,386 | ||||||||||||
Consumer Finance | 773,820 | 57,335 | 831,155 | ||||||||||||
Containers & Packaging | 348,977 | 75,556 | 424,533 | ||||||||||||
Distributors | 100,271 | 19,819 | 120,090 | ||||||||||||
Diversified Consumer Services | 20,139 | 11,007 | 31,146 | ||||||||||||
Diversified Financial Services | 962,954 | 405,870 | 1,368,824 | ||||||||||||
Diversified Telecommunication Services | 2,406,475 | 1,448,876 | 3,855,351 | ||||||||||||
Electric Utilities | 1,845,341 | 869,095 | 2,714,436 | ||||||||||||
Electrical Equipment | 553,092 | 704,978 | 1,258,070 | ||||||||||||
Electronic Equipment, Instruments & Components | 478,650 | 668,375 | 1,147,025 | ||||||||||||
Energy Equipment & Services | 1,007,294 | 94,660 | 1,101,954 | ||||||||||||
Equity Real Estate Investment Trusts | 2,635,718 | 942,668 | 3,578,386 | ||||||||||||
Food & Staples Retailing | 2,038,844 | 879,416 | 2,918,260 | ||||||||||||
Food Products | 1,578,221 | 1,635,967 | 3,214,188 | ||||||||||||
Gas Utilities | 73,208 | 220,426 | 293,634 | ||||||||||||
Health Care Equipment & Supplies | 2,289,687 | 467,481 | 2,757,168 | ||||||||||||
Health Care Providers & Services | 2,267,293 | 367,029 | 2,634,322 | ||||||||||||
Health Care Technology | 71,718 | 17,622 | 89,340 | ||||||||||||
Hotels, Restaurants & Leisure | 1,696,409 | 731,294 | 2,427,703 | ||||||||||||
Household Durables | 382,018 | 597,676 | 979,694 | ||||||||||||
Household Products | 1,480,617 | 412,545 | 1,893,162 | ||||||||||||
Independent Power & Renewable Electricity Producers | 43,954 | 23,478 | 67,432 | ||||||||||||
Industrial Conglomerates | 2,159,682 | 901,343 | 3,061,025 | ||||||||||||
Insurance | 3,067,381 | 2,988,695 | 6,056,076 | ||||||||||||
Internet & Direct Marketing Retail | 2,005,807 | 61,209 | 2,067,016 | ||||||||||||
Internet Software & Services | 3,717,319 | 92,360 | 3,809,679 | ||||||||||||
IT Services | 3,374,547 | 342,780 | 3,717,327 | ||||||||||||
Leisure Products | 90,683 | 108,825 | 199,508 | ||||||||||||
Life Sciences Tools & Services | 540,684 | 81,649 | 622,333 | ||||||||||||
Machinery | 1,339,580 | 1,338,217 | 2,677,797 | ||||||||||||
Marine | — | 128,370 | 128,370 | ||||||||||||
Media | 2,928,169 | 695,434 | 3,623,603 | ||||||||||||
Metals & Mining | 625,601 | 1,515,962 | 2,141,563 | ||||||||||||
Multiline Retail | 527,417 | 173,066 | 700,483 | ||||||||||||
Multi-Utilities | 913,477 | 581,191 | 1,494,668 | ||||||||||||
Oil, Gas & Consumable Fuels | 6,782,170 | 2,787,146 | 9,569,316 | ||||||||||||
Paper & Forest Products | 12,517 | 128,908 | 141,425 | ||||||||||||
Personal Products | 123,478 | 933,343 | 1,056,821 | ||||||||||||
Pharmaceuticals | 4,552,042 | 4,024,884 | 8,576,926 | ||||||||||||
Professional Services | 327,988 | 555,300 | 883,288 |
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AZL Global Equity Index Fund
Notes to the Financial Statements
December 31, 2016
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Real Estate Management & Development | $ | 66,750 | $ | 1,029,518 | $ | 1,096,268 | |||||||||
Road & Rail | 1,110,658 | 575,481 | 1,686,139 | ||||||||||||
Semiconductors & Semiconductor Equipment | 3,023,217 | 403,852 | 3,427,069 | ||||||||||||
Software | 4,076,173 | 659,286 | 4,735,459 | ||||||||||||
Specialty Retail | 2,107,958 | 523,500 | 2,631,458 | ||||||||||||
Technology Hardware, Storage & Peripherals | 3,227,895 | 306,452 | 3,534,347 | ||||||||||||
Textiles, Apparel & Luxury Goods | 623,341 | 950,194 | 1,573,535 | ||||||||||||
Tobacco | 1,415,577 | 836,941 | 2,252,518 | ||||||||||||
Trading Companies & Distributors | 197,109 | 710,715 | 907,824 | ||||||||||||
Transportation Infrastructure | 28,432 | 330,312 | 358,744 | ||||||||||||
Water Utilities | 57,888 | 55,131 | 113,019 | ||||||||||||
Wireless Telecommunication Services | 148,473 | 951,870 | 1,100,343 | ||||||||||||
All Other Common Stocks+ | 88,285 | — | 88,285 | ||||||||||||
Preferred Stocks+ | — | 265,219 | 265,219 | ||||||||||||
Rights | — | 8,295 | 8,295 | ||||||||||||
Unaffiliated Investment Company | 63,181 | — | 63,181 | ||||||||||||
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Total Investment Securities | 94,578,171 | 52,447,741 | 147,025,912 | ||||||||||||
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Other Financial Instruments:* | |||||||||||||||
Futures Contracts | 1,161 | — | 1,161 | ||||||||||||
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| ||||||||||
Total Investments | $ | 94,579,332 | $ | 52,447,741 | $ | 147,027,073 | |||||||||
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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, 2016, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL Global Equity Index Fund | $ | 192,978,781 | $ | 158,737,880 |
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 policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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 Global Equity Index Fund
Notes to the Financial Statements
December 31, 2016
Cost of securities for federal income tax purposes at December 31, 2016 is $140,646,415. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 8,841,216 | ||
Unrealized (depreciation) | (2,461,719 | ) | ||
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| |||
Net unrealized appreciation/(depreciation) | $ | 6,379,497 | ||
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As of the end of its tax year ended December 31, 2016, the Fund has capital loss carry forwards (“CLCFs”) as summarized in the table 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 Global Equity Index Fund | $ | 11,151,078 | $ | 6,454,327 | $ | 17,605,405 |
The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Global Equity Index Fund | $ | 3,055,401 | $ | — | $ | 3,055,401 |
(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, 2015 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Global Equity Index Fund | $ | 3,594,506 | $ | 671,205 | $ | 4,265,711 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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 Global Equity Index Fund | $ | 2,869,088 | $ | — | $ | (17,605,405 | ) | $ | 6,378,524 | $ | (8,357,793 | ) |
(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, 2016, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 90% of the Fund.
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies — Form N-PORT and Form N-CEN — also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
10. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
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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 Global Equity Index Fund (formerly, AZL NFJ International Value Fund) (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2016, 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, 2016, by correspondence with the custodian and brokers. 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 AZL Global Equity Index Fund as of December 31, 2016, 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 24, 2017
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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.
33
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL® Global Equity Index Fund
(formerly AZL NFJ International Value Fund)
Approval of New Subadvisory Agreement — June 14, 2016 (Unaudited)
At an in-person meeting of the Board of Trustees (the “Board” or the “Trustees” of Allianz Variable Insurance Products Trust (the “Trust”)) held on June 14, 2016, the Board considered a recommendation by Allianz Investment Management LLC (the “Manager”), the investment manager to the AZL NFJ International Value Fund (the “Fund”), to (a) approve a subadvisory agreement (the “BlackRock Agreement”) between the Manager and BlackRock Investment Management Inc. (“BlackRock”), pursuant to which BlackRock would replace NFJ Investment Group LLC (“NFJ”) as subadviser to the Fund, and (b) change the name of the Fund to “AZL Global Equity Index Fund.” At the June 14 meeting, the Board voted unanimously to approve the BlackRock Agreement, which became effective as to the Fund on October 14, 2016. At the meeting, the Board reviewed materials furnished by the Manager pertaining to BlackRock and the BlackRock Agreement.
Board Consideration of the BlackRock Agreement
At the in-person meeting held on June 14, 2016, the Board considered the Manager’s recommendation that BlackRock replace NFJ as the Fund’s subadviser. At the meeting, the Board reviewed materials furnished by the Manager pertaining to BlackRock and the BlackRock Agreement and unanimously approved the BlackRock Agreement, which became effective as to the Fund October 14, 2016.
The Manager, as investment manager of all of the outstanding series of the Trust, is charged with researching and recommending subadvisers for the subadvised funds of the Trust, including the Fund. The Manager has adopted policies and procedures to assist it in analyzing each subadviser with expertise in a particular asset class for purposes of making the recommendation that a specific subadviser be selected. The Board reviews and considers the information provided by the Manager in deciding which investment advisers to approve. After an investment adviser becomes a subadviser, a similarly rigorous process is instituted by the Manager to monitor and evaluate the investment performance and other responsibilities of the subadviser. As part of its ongoing obligation to monitor and evaluate the performance of the Fund’s subadviser, the Manager reviewed and evaluated NFJ’s management of the Fund, with a focus on the Fund’s investment performance in relation to its benchmark.
The Board, including a majority of the independent Trustees, with the assistance of independent counsel to the independent Trustees, considered whether to approve the BlackRock Agreement for the Fund in light of its experience in governing the Trust and working with the Manager and the subadvisers on matters relating to the mutual funds that are outstanding series of the Trust. The independent Trustees are those Trustees who are not “interested persons” of the Trust within the meaning of the 1940 Act, and are not employees of or affiliated with the Fund, the Manager, NFJ or BlackRock. At least annually, the Board receives from experienced counsel who are independent of the Manager a memorandum discussing the legal standards for the Board’s consideration of proposed investment advisory or subadvisory agreements. In its deliberations, the Board considered all factors that the Trustees believed were relevant. The Board based its decision to approve the BlackRock Agreement on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. The Board approved the termination of the NFJ Agreement and determined that the BlackRock Agreement was reasonable and in the best interests of the Fund, and approved BlackRock as the Fund’s new subadviser. The Board’s decision to approve the BlackRock Agreement reflects the exercise of its business judgment on whether to approve new arrangements and continue existing arrangements. In reaching this decision, 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.
A rule adopted by the SEC under the 1940 Act requires a discussion of certain factors relating to the selection of investment managers and subadvisers and the approval of advisory and subadvisory fees. The factors enumerated by the SEC in the rule are set forth below in italics followed by the Board’s conclusions regarding each factor.
(1) The nature, extent, and quality of services provided by the Subadviser. In deciding to approve BlackRock, the Board considered the reputation, financial strength and resources of BlackRock, and the experience and reputation of its portfolio management team to be involved with the Fund. The Board also considered BlackRock’s investment philosophy and process, particularly in the area of equity index funds. The Board determined that, based upon the Manager’s report, the proposed change to BlackRock as the subadviser likely would benefit the Fund and its shareholders.
In reviewing various other matters, the Board concluded that BlackRock was a recognized firm capable of competently managing the Fund; that the nature, extent and quality of services that BlackRock could provide were at a level at least equal to the services provided by NFJ; that the services contemplated by the BlackRock Agreement are substantially the same as those provided under the NFJ Agreement; that the BlackRock Agreement contains provisions generally comparable to those of other subadvisory agreements for other mutual funds; that BlackRock is staffed with qualified personnel and has significant research capabilities; and that the investment performance of BlackRock in managing a similar fund, as discussed below, is at least satisfactory.
(2) The investment performance of BlackRock. The Board received information about the performance of a BlackRock separate account utilizing the global equity index strategy. The performance information presented to the Board, which covered the nine years ending December 31, 2015, reflected the Fund’s fee structure, and included performance versus a benchmark (the MSCI World Index) and performance rankings relative to a peer group of comparable global large-cap core funds. The Board also received information regarding returns, risk, standard deviation, and tracking error for the five years ending December 31, 2015. The Board noted that the performance of the BlackRock global equity index strategy was better, in most periods, than the performance of the Fund. The Board also considered that the performance of the BlackRock global equity index strategy was consistent with the Fund’s investment objective to seek to match the performance of the MSCI World Index as closely as possible.
(3) The costs of services to be provided and profits to be realized by BlackRock from its relationship with the Fund. The Board compared the fee schedule in the BlackRock Agreement to the fee schedule in the NFJ Agreement. The BlackRock Agreement provides that for the services provided and the expenses assumed by BlackRock, the Manager (out of its fees received from the Fund under the Management Agreement) will pay BlackRock a fee based on average daily net assets of 0.06% on the first $300 million and 0.03% on all assets over $300 million. The NFJ Agreement provided for subadvisory fees at the rate of 0.50% on all assets. The Board noted that the fee schedule in the BlackRock Agreement is lower than the fee schedule in the NFJ Agreement. The Board noted that the fee schedule in the BlackRock Agreement was the result of arm’s-length negotiation between the Manager and BlackRock. The Manager reported that there were no other global index funds in the variable annuity (“VA”) universe for comparison with the Fund’s fees. The Board did take into account information provided by the Manager regarding median management fees in the VA large cap and international core index fund universes. The Board also reviewed information provided by BlackRock regarding its anticipated profitability for acting as subadviser to the Fund. Based upon its review, the Board concluded that the fees proposed to be paid to BlackRock were reasonable.
(4) and (5) The extent to which economies of scale would be realized as the Fund grows, and whether fee levels reflect these economies of scale. The Board noted that the fee schedule in the BlackRock Agreement contains breakpoints that reduce the fee rate on assets above $300 million. The Board also noted that the Fund had approximately $117.2 million in net assets at December 31, 2015. The Board considered the possibility that BlackRock, or the Manager, may realize certain economies of scale as the Fund grows larger. The Board noted that in the fund industry as a whole, as well as among funds similar to the Fund, 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
34
be realized at some level of total assets. Moreover, because different managers have different cost structures and models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Board also noted that the advisory agreements for many funds do not have breakpoints at all.
The Trustees also noted that the fee schedule in the Management Agreement between the Manager and the Fund does not contain breakpoints that would reduce the fee rate as assets increase. However, the Manager has agreed to reduce the fee it collects from the Fund, through at least April 30, 2018, and to “cap” the Fund’s expenses at certain levels, which could have the effect of reducing expenses as would advisory/subadvisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or additional advisory/subadvisory fee breakpoints as the Fund grows larger. The Board receives quarterly reports on the level of Fund assets. The Board reapproved the BlackRock Agreement at a meeting held on October 25, 2016, and expects to consider again whether or not to reapprove the BlackRock Agreement at a meeting to be held prior to December 31, 2017, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the subadvisory fee schedule should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the fee schedule in the BlackRock Agreement was acceptable.
Approval of Investment Advisory and Subadvisory Agreements — October 25, 2016 (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 Fund is 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 Fund is 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 agreement (the “Subadvisory Agreement”) with the Subadviser. 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 Fund, 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 Fund 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 Fund and the companies that service it; and relevant developments in the mutual fund industry and how the Fund and/or Advisory Organizations are responding to them.
35
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 Fund. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Fund. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Fund.
The Advisory Agreement was most recently considered at Board of Trustees meetings held in the fall of 2016. As discussed above, the Subadvisory Agreement with BlackRock was most recently considered at a Board of Trustees meting held June 14, 2016. (Together, the Advisory Agreement and Subadvisory Agreement are referred to as the “Agreements.”) Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadviser. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers the 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 Fund’s assets and the placement of orders for the purchase and sale of the securities of the Fund. As the Fund is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for the Fund to handle day-to-day management of the Fund’s investment portfolio; 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 Subadviser to handle day-to-day portfolio management, the Manager remains responsible for substantial other matters, including continuously monitoring compliance by the Subadviser with the investment policies and restrictions of the Fund, 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 Fund’s portfolio investments and to make available to the Fund’s administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager provides the Trust and the 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 Fund) and executive and other personnel as are necessary for the operation of the Trust and the Fund. 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 Subadviser 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 Subadviser 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 the Fund. 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 the Fund under the Agreements.
(2) The investment performance of the Fund, the Manager and the Subadviser. 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 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 the appropriate benchmark(s), and performance versus peer groups. However, the Board of Trustees also considered the fact that prior October 14, 2016, the Fund was subadvised by a different subadviser (NFJ) and managed pursuant to a different strategy. Accordingly, the investment performance of the Fund and the prior Subadviser prior to October 14, 2016, was not deemed to be pertinent to the Board of Trustee’s assessment of the continuance of the Management Agreement and the BlackRock Agreement for the period following October 14, 2016.
(3) The costs of services to be provided and profits to be realized by the Manager and the Subadviser and their affiliates from their relationship with the Fund. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Fund is 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 Fund overall are generally comparable to the average level of fees paid by Fund peer groups. The Board of Trustees was informed that there is no direct peer group available for comparison of the Fund’s fees and expenses. The Board of Trustees nevertheless received information that the Fund’s “actual” advisory fees are the same as the median weighted advisory fee paid by funds in a composite of the VA Large Cap Core Index (60% weight) and the VA International Core Index (40% weight). 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 Fund 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. Due to the lack of a direct peer group for comparison, no ranking of the Fund’s expenses with a peer group was available.
The Manager has committed to providing the Fund with a high quality of service and working to reduce Fund expenses over time, particularly as the Fund grows larger. The Trustees concluded therefore that the expense ratio of the Fund was not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2013 through June 30, 2016. 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 Fund 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 the Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Fund was not excessive.
36
The Manager, on behalf of the Board of Trustees, endeavored to obtain information on the profitability of the Subadviser in connection with its relationship with the Fund. The Manager was unable to obtain meaningful profitability information from some of the unaffiliated Subadvisers. The Manager assured the Board of Trustees that the Agreement with the Subadviser, which is not affiliated with it, were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. 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 Fund was excessive.
(4) and (5) The extent to which economies of scale would be realized as the Fund grows, and whether fee levels reflect these economies of scale. The Trustees noted that the advisory fee schedule for the Fund does not contain breakpoints that reduce the fee rate on assets above specified levels. 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 Fund, 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 the Fund as of June 30, 2016 were approximately $109.0 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 Fund grows 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, 2017, 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 the Fund’s advisory fee rate schedule was acceptable under the Fund’s circumstances.
37
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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 5701 Golden Hills Drive | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 5701 Golden Hills Drive | 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 5701 Golden Hills Drive | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
38
Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
39
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® Government Money Market Fund
(formerly AZL® Money Market Fund)
Annual Report
December 31, 2016
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® Government Money Market Fund Review (unaudited)
(formerly AZL® Money Market Fund)
Allianz Investment Management LLC serves as the Manager for the AZL® Government 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, 2016?
For the year ended December 31, 2016, the AZL® Government Money Market Fund (the “Fund”) returned 0.01%. That compared to a 0.32% total return for its benchmark, the Three-Month U.S. Treasury Bill Index1.
On May 1, 2016, the Fund converted from a prime money market to a government money market fund. In preparation for this conversion to a government-only strategy, we added exposure to fixed and floating-rate U.S. Government Agency and U.S. Treasury securities in maturities out to two years. All of the current holdings in the portfolio allocated to credit matured on or before the conversion date.*
The fixed-income markets struggled with uncertainty around the Federal Reserve’s (the Fed) strategy for raising interest rates. Market headwinds, including Britain’s Brexit vote in June, money market reform implementation in October, and the U.S. Election results in November, contributed to delays in anticipated rate increases and subsequent volatility during the period. The Fed ultimately raised the federal funds rate by 25 basis points (0.25%) in December.
In that environment, assets flowed out of prime market funds and into constant net asset value government money funds at a rate that exceeded the consensus view. Nearly $1 trillion in assets under management shifted from prime money market funds to government money market funds during the period. The increased demand outstripped the availability of new short-term U.S. government securities, this despite a high volume of existing U.S. Treasury bill and U.S. repurchase agreements (repos). The gap between supply and demand pushed valuations higher and lowered market yields below the federal funds target range.*
Due to uncertainty around the Fed’s rate strategy, federal funds futures did not fully price in a rate increase throughout the year. In this environment, the Fund favored exposure to floating-rate securities when spreads were attractive, and limited exposure to fixed-rate securities with maturities longer than seven months.*
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, 2016. | |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
1
AZL® Government 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
You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time. 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, 2016 | ||||||||||||||||
1 Year | 3 Year | 5 Year | 10 Years | |||||||||||||
AZL® Government Money Market Fund | 0.01 | % | 0.01 | % | 0.00 | % | 0.73 | % | ||||||||
Three-Month U.S. Treasury Bill Index | 0.32 | % | 0.13 | % | 0.11 | % | 0.67 | % |
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® Government Money Market Fund | 0.65 | % |
The above expense ratio is based on the current Fund prospectus dated April 25, 2016. 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, 2018. Additional information pertaining to the December 31, 2016 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, 2016 | ||||||||||||
7 Day Average | 7 Day Effective | 30 Day Average | ||||||||||
AZL® Government 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, 2016 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 Government Money Market Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL Government 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Government Money Market Fund | $ | 1,000.00 | $ | 1,000.10 | $ | 2.21 | 0.44 | % |
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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Government Money Market Fund | $ | 1,000.00 | $ | 1,022.92 | $ | 2.24 | 0.44 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
U.S. Government Agency Mortgages | 66.4 | % | |||
U.S. Treasury Obligations | 5.2 | ||||
Repurchase Agreements | 27.6 | ||||
Money Markets | — | ^ | |||
|
| ||||
Total Investment Securities | 99.2 | ||||
Net other assets (liabilities) | 0.8 | ||||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL Government Money Market Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages (66.4%): | ||||||||
Federal Home Loan Bank (48.6%): | ||||||||
$ | 18,900,000 | 0.23%, 1/4/17(a) | $ | 18,899,509 | ||||
7,000,000 | 0.29%, 1/6/17(a) | 6,999,666 | ||||||
4,500,000 | 0.43%, 1/11/17 | 4,499,951 | ||||||
12,630,000 | 0.36%, 1/11/17(a) | 12,628,626 | ||||||
6,515,000 | 0.37%, 1/13/17(a) | 6,514,133 | ||||||
7,500,000 | 0.34%, 1/20/17(a) | 7,498,575 | ||||||
30,500,000 | 0.43%, 1/25/17(a) | 30,490,897 | ||||||
24,410,000 | 0.42%, 1/27/17(a) | 24,402,373 | ||||||
8,500,000 | 0.37%, 2/1/17(a) | 8,497,189 | ||||||
10,620,000 | 0.44%, 2/2/17(a) | 10,615,681 | ||||||
11,015,000 | 0.45%, 2/8/17(a) | 11,009,675 | ||||||
4,875,000 | 0.46%, 2/10/17(a) | 4,872,454 | ||||||
10,000,000 | 0.75%, 2/14/17(b) | 9,999,381 | ||||||
7,045,000 | 0.47%, 2/15/17(a) | 7,040,791 | ||||||
4,885,000 | 0.59%, 2/21/17(a) | 4,880,848 | ||||||
9,320,000 | 0.51%, 2/22/17(a) | 9,313,000 | ||||||
6,000,000 | 0.52%, 3/3/17(a) | 5,994,612 | ||||||
5,000,000 | 0.51%, 3/10/17(a) | 4,995,089 | ||||||
6,000,000 | 0.70%, 3/14/17(b) | 5,999,768 | ||||||
5,000,000 | 0.72%, 3/15/17(b) | 5,000,000 | ||||||
6,435,000 | 0.54%, 3/22/17(a) | 6,427,146 | ||||||
34,945,000 | 0.54%, 3/24/17(a) | 34,901,510 | ||||||
4,000,000 | 0.54%, 3/29/17(a) | 3,994,683 | ||||||
6,200,000 | 0.49%, 4/11/17(a) | 6,191,561 | ||||||
11,000,000 | 0.48%, 4/19/17(a) | 10,984,028 | ||||||
4,000,000 | 0.55%, 5/1/17(a) | 3,992,667 | ||||||
3,615,000 | 0.46%, 5/4/17(b) | 3,615,000 | ||||||
5,500,000 | 0.49%, 5/10/17(b) | 5,499,602 | ||||||
6,555,000 | 0.63%, 5/30/17 | 6,552,528 | ||||||
8,640,000 | 0.83%, 6/15/17(b) | 8,640,000 | ||||||
9,000,000 | 0.71%, 7/7/17(b) | 9,000,000 | ||||||
3,500,000 | 0.68%, 8/22/17(b) | 3,499,939 | ||||||
3,970,000 | 0.69%, 8/25/17(b) | 3,970,000 | ||||||
5,400,000 | 0.79%, 10/16/17(b) | 5,400,000 | ||||||
4,000,000 | 0.81%, 10/27/17(b) | 3,999,767 | ||||||
2,000,000 | 0.71%, 11/8/17(b) | 2,000,000 | ||||||
4,000,000 | 0.77%, 2/5/18(b) | 4,000,000 | ||||||
|
| |||||||
322,820,649 | ||||||||
|
| |||||||
Federal Farm Credit Bank (6.5%): | ||||||||
2,210,000 | 0.40%, 1/3/17(a) | 2,209,926 | ||||||
2,330,000 | 0.58%, 3/30/17(a) | 2,326,640 | ||||||
4,525,000 | 0.60%, 7/11/17(a) | 4,510,595 | ||||||
7,000,000 | 0.88%, 9/12/17(b) | 7,000,933 | ||||||
10,000,000 | 0.76%, 9/22/17(b) | 9,999,635 | ||||||
10,000,000 | 0.75%, 9/25/17(b) | 9,998,565 | ||||||
3,385,000 | 0.69%, 9/29/17(a) | 3,367,418 | ||||||
3,365,000 | 0.81%, 4/4/18(b) | 3,364,575 | ||||||
|
| |||||||
42,778,287 | ||||||||
|
| |||||||
Federal Home Loan Mortgage Corp. (8.2%): | ||||||||
4,000,000 | 0.39%, 1/17/17(a) | 3,999,271 | ||||||
8,930,000 | 0.42%, 2/3/17(a) | 8,926,439 | ||||||
4,720,000 | 0.50%, 2/17/17(a) | 4,716,857 | ||||||
5,330,000 | 0.50%, 2/27/17(a) | 5,325,696 |
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal Home Loan Mortgage Corp., continued | ||||||||
$ | 3,780,000 | 0.48%, 4/6/17(a) | $ | 3,775,212 | ||||
5,745,000 | 0.52%, 5/10/17(a) | 5,734,295 | ||||||
7,615,000 | 0.50%, 5/15/17(a) | 7,600,828 | ||||||
3,400,000 | 0.87%, 7/21/17(b) | 3,399,807 | ||||||
4,730,000 | 1.00%, 9/29/17 | 4,739,509 | ||||||
1,840,000 | 0.72%, 11/13/17(b) | 1,841,152 | ||||||
4,000,000 | 0.97%, 3/8/18(b) | 4,000,000 | ||||||
|
| |||||||
54,059,066 | ||||||||
|
| |||||||
Federal National Mortgage Association (3.1%): | ||||||||
1,285,000 | 5.00%, 2/13/17 | 1,291,744 | ||||||
1,765,000 | 0.63%, 6/1/17(a) | 1,760,336 | ||||||
12,530,000 | 0.72%, 8/16/17(b) | 12,529,049 | ||||||
5,000,000 | 0.64%, 10/5/17(b) | 4,999,421 | ||||||
|
| |||||||
20,580,550 | ||||||||
|
| |||||||
Total U.S. Government Agency Mortgages (Cost $440,238,552) | 440,238,552 | |||||||
|
| |||||||
U.S. Treasury Obligations (5.2%): | ||||||||
U.S. Treasury Bills (3.7%) | ||||||||
9,000,000 | 0.47%, 3/2/17(a) | 8,992,800 | ||||||
6,700,000 | 0.53%, 3/16/17(a) | 6,692,563 | ||||||
9,000,000 | 0.60%, 4/27/17(a) | 8,982,455 | ||||||
|
| |||||||
24,667,818 | ||||||||
|
| |||||||
U.S. Treasury Notes (1.5%) | ||||||||
4,000,000 | 0.83%, 1/31/18(b) | 3,999,081 | ||||||
6,000,000 | 0.75%, 4/30/18(b) | 6,000,400 | ||||||
|
| |||||||
9,999,481 | ||||||||
|
| |||||||
Total U.S. Treasury Obligations (Cost $34,667,299) | 34,667,299 | |||||||
|
| |||||||
Repurchase Agreements (27.6%): | ||||||||
7,000,000 | Royal Bank of Canada, 0.45%, 1/3/17, (Purchased on 12/30/16, proceeds at maturity $7,000,088, Collateralized by U.S. Treasury Obligations, 0.00%-8.00%, 08/15/20-08/15/36, fair value of $7,140,027) | 7,000,000 | ||||||
15,000,000 | Royal Bank of Canada, 0.48%, 1/3/17, (Purchased on 12/30/16, proceeds at maturity $15,000,200, Collateralized by U.S. Government Agency Obligations, 3.50%-4.00%, 11/01/34-12/01/46, fair value of $15,450,000) | 15,000,000 | ||||||
15,000,000 | Morgan Stanley & Co. LLC, 0.51%, 1/3/17, (Purchased on 12/30/16, proceeds at maturity $15,000,212, Collateralized by U.S. Treasury Obligations, 3.75%-6.38%, 08/15/27-11/15/43, fair value of $15,300,048) | 15,000,000 | ||||||
10,000,000 | Toronto Dominion Bank NY, 0.53%, 1/3/17, (Purchased on 12/30/16, proceeds at maturity $10,000,147, Collateralized by U.S. Treasury Obligations, 2.50%, 02/15/45, fair value of $10,200,011) | 10,000,000 | ||||||
15,000,000 | Toronto Dominion Bank NY, 0.51%, 1/3/17, (Purchased on 12/30/16, proceeds at maturity $15,000,212, Collateralized by U.S. Treasury Notes, 0.13%, 04/15/18, fair value of $15,300,084) | 15,000,000 |
Continued
4
AZL Government Money Market Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
Repurchase Agreements, continued | ||||||||
$ | 20,000,000 | Mitsubishi UFJ Securities USA Inc., 0.50%, 1/3/17, (Purchased on 12/30/16, proceeds at maturity $20,000,278, Collateralized by U.S. Treasury Notes, 0.00%-3.88%, 07/31/20-08/15/41, fair value of $20,400,013) | $ | 20,000,000 | ||||
15,000,000 | Morgan Stanley & Co. LLC, 0.50%, 1/3/17, (Purchased on 12/30/16, proceeds at maturity $15,000,208, Collateralized by U.S. Treasury Obligations, 0.00%-8.75%, 02/02/17-11/15/42, fair value of $15,300,061) | 15,000,000 | ||||||
25,000,000 | Bank of Nova Scotia, 0.50%, 1/3/17, (Purchased on 12/30/16, proceeds at maturity $25,000,347, Collateralized by U.S. Treasury Notes, 1.75%-2.13%, 12/31/20-11/30/21, fair value of $25,501,433) | 25,000,000 | ||||||
20,000,000 | BNP Paribas, 0.50%, 1/3/17, (Purchased on 12/30/16, proceeds at maturity $20,000,278, Collateralized by U.S. Treasury Notes, 0.00%-1.38%, 03/15/17-11/15/21, fair value of $20,400,084) | 20,000,000 | ||||||
15,000,000 | Bank of Montreal, 0.50%, 1/3/17, (Purchased on 12/30/16, proceeds at maturity $15,000,208, Collateralized by U.S. Treasury Notes, 0.00%-4.25%, 11/15/17-2/15/46, fair value of $15,300,024) | 15,000,000 |
Principal Amount | Fair Value | |||||||
Repurchase Agreements, continued | ||||||||
$ | 1,000,000 | Bank of Montreal, 0.50%, 1/3/17, (Purchased on 12/30/16, proceeds at maturity $1,000,014, Collateralized by U.S. Government Agency Obligations, 2.50%-4.00%, 9/1/25-12/1/27, fair value of $1,030,001) | $ | 1,000,000 | ||||
2,000,000 | Mizuho Securities USA, Inc., 0.50%, 1/3/17, (Purchased on 12/30/16, proceeds at maturity $20,000,028, Collateralized by U.S. Treasury Notes, 0.13%, 04/15/20, fair value of $2,040,067) | 2,000,000 | ||||||
3,000,000 | HSBC Securities (USA), Inc., 0.45%, 1/3/17, (Purchased on 12/30/16, proceeds at maturity $3,000,038, Collateralized by U.S. Treasury Notes, 2.63%, 07/15/17, fair value of $3,063,307) | 3,000,000 | ||||||
20,000,000 | Citigroup Global Markets, 0.53%, 1/3/17, (Purchased on 12/30/16, proceeds at maturity $20,000,294, Collateralized by U.S. Treasury Notes, 1.25%, 02/29/20, fair value of $20,400,018) | 20,000,000 | ||||||
|
| |||||||
Total Repurchase Agreements (Cost $183,000,000) | 183,000,000 | |||||||
|
| |||||||
Total Investment Securities (Cost $657,905,851)(c) — 99.2% | 657,905,851 | |||||||
Net other assets (liabilities) — 0.8% | 5,097,659 | |||||||
|
| |||||||
Net Assets — 100.0% | $ | 663,003,510 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
(a) | The rate represents the effective yield at December 31, 2016. |
(b) | Variable Rate Security. The rate represents the rate in effect at December 31, 2016. 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. |
(c) | Aggregate cost for federal income tax and financial reporting purposes is substantially the same. |
See accompanying notes to the financial statements.
5
AZL Government Money Market Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investment securities, at cost | $ | 474,905,851 | |||
|
| ||||
Investment securities, at value | $ | 474,905,851 | |||
Repurchase agreements, at value/cost | 183,000,000 | ||||
Cash | 106,098 | ||||
Interest and dividends receivable | 128,804 | ||||
Receivable for capital shares issued | 5,179,015 | ||||
Prepaid expenses | 3,671 | ||||
|
| ||||
Total Assets | 663,323,439 | ||||
|
| ||||
Liabilities: | |||||
Manager fees payable | 132,122 | ||||
Administration fees payable | 13,143 | ||||
Distribution fees payable | 140,303 | ||||
Custodian fees payable | 9,418 | ||||
Administrative and compliance services fees payable | 1,717 | ||||
Trustee fees payable | 1,304 | ||||
Other accrued liabilities | 21,922 | ||||
|
| ||||
Total Liabilities | 319,929 | ||||
|
| ||||
Net Assets | $ | 663,003,510 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 662,970,663 | |||
Accumulated net realized gains/(losses) from investment transactions | 32,847 | ||||
|
| ||||
Net Assets | $ | 663,003,510 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 662,971,428 | ||||
Net Asset Value (offering and redemption price per share) | $ | 1.00 | |||
|
|
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Interest | $ | 3,131,723 | |||
Dividends | 102 | ||||
|
| ||||
Total Investment Income | 3,131,825 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,464,856 | ||||
Administration fees | 186,841 | ||||
Distribution fees | 1,760,618 | ||||
Custodian fees | 23,133 | ||||
Administrative and compliance services fees | 12,656 | ||||
Trustee fees | 40,705 | ||||
Professional fees | 37,728 | ||||
Shareholder reports | 26,263 | ||||
Other expenses | 19,295 | ||||
|
| ||||
Total expenses before reductions | 4,572,095 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (1,440,270 | ) | |||
|
| ||||
Net expenses | 3,131,825 | ||||
|
| ||||
Net Investment Income/(Loss) | — | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 33,051 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 33,051 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 33,051 | |||
|
|
See accompanying notes to the financial statements.
6
Statements of Changes in Net Assets
AZL Government Money Market Fund | ||||||||||
For the Year Ended December 31, 2016 | For the Year Ended December 31, 2015 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net realized gains/(losses) on investment transactions | $ | 33,051 | $ | 46,026 | ||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 33,051 | 46,026 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net realized gains | (45,885 | ) | (47,987 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (45,885 | ) | (47,987 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 466,951,287 | 418,470,257 | ||||||||
Proceeds from dividends reinvested | 45,885 | 47,987 | ||||||||
Value of shares redeemed | (491,615,856 | ) | (431,216,029 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (24,618,684 | ) | (12,697,785 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (24,631,518 | ) | (12,699,746 | ) | ||||||
Net Assets: | ||||||||||
Beginning of period | 687,635,028 | 700,334,774 | ||||||||
|
|
|
| |||||||
End of period | $ | 663,003,510 | $ | 687,635,028 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 466,951,287 | 418,470,257 | ||||||||
Dividends reinvested | 45,885 | 47,987 | ||||||||
Shares redeemed | (491,615,856 | ) | (431,216,029 | ) | ||||||
|
|
|
| |||||||
Change in shares | (24,618,684 | ) | (12,697,785 | ) | ||||||
|
|
|
|
See accompanying notes to the financial statements.
7
AZL Government Money Market Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | — | (a) | — | (a) | — | (a) | — | (a) | — | (a) | |||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | — | (a) | — | (a) | — | (a) | — | (a) | — | (a) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | — | — | — | — | — | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
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 | % | 0.01 | % | 0.01 | % | — | — | |||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 663,004 | $ | 687,635 | $ | 700,335 | $ | 806,642 | $ | 872,062 | |||||||||||||||
Net Investment Income/(Loss) | — | — | — | — | — | ||||||||||||||||||||
Expenses Before Reductions(c) | 0.65 | % | 0.65 | % | 0.65 | % | 0.65 | % | 0.66 | % | |||||||||||||||
Expenses Net of Reductions(d) | 0.44 | %(d) | 0.26 | % | 0.20 | % | 0.22 | %(d) | 0.29 | %(d) |
(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 Government Money Market Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Government Money Market Fund (formerly, AZL Money Market Fund) (the “Fund”), and 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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.
Repurchase Agreements
The Fund may invest in repurchase agreements with financial institutions such as member banks of the Federal Reserve System or from registered broker/dealers that the adviser deems creditworthy under guidelines approved by the Board, subject to the seller’s agreement to repurchase such securities at a mutually agreed-upon date and price. The repurchase price generally equals the price paid by the Fund plus interest negotiated on the basis of current short-term rates. The seller under a repurchase agreement is required to maintain the value of collateral held pursuant to the agreement at not less than the repurchase price (including accrued interest). Securities subject to repurchase agreements are held by the Fund’s custodian, another qualified sub-custodian, or in the Federal Reserve book-entry system. Master Repurchase Agreements (“MRA”) permit the Fund, under certain circumstances, including an event of default (such as bankruptcy or insolvency), to offset receivables under the MRA with collateral posted by the counterparty and create one net payment due to or from the Fund. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of the MRA counterparty’s bankruptcy or insolvency. Pursuant to the terms of the MRA, the Fund receives securities as collateral with a market value in excess of the repurchase price to be received by the Fund upon the maturity of the transaction. Upon a bankruptcy or insolvency of the MRA counterparty, the Fund would recognize a liability with respect to such excess collateral to reflect the Fund’s obligation under bankruptcy law to return the excess to the counterparty.
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.
9
AZL Government Money Market Fund
Notes to the Financial Statements
December 31, 2016
Money Market Reform
On June 16, 2015, the Board of Trustees of the Fund approved a change to the name and principal investment strategies of the Fund. The Fund will become a government money market fund and will be called the AZL Government Money Market Fund. As a government money market fund, the Fund will be permitted to continue to use a stable net asset value ($1.00 per share), and the Fund will not be required to impose fees on shareholder redemptions or to temporarily suspend redemptions in the event that the Fund’s weekly liquid assets fall below a certain threshold. The changes to the Fund are expected to be fully implemented by May 1, 2016. Prior to such date, it is expected that the Fund gradually will allocate a larger percentage of its assets to government securities.
3. Fees and Transactions with Affiliates and Other Parties
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 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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL Government 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, 2016 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, 2016, the reimbursements that are subject to repayment by the Fund in subsequent years were as follows:
Expires 12/31/17 | Expires 12/31/18 | Expires 12/31/19 | Total | |||||||||||||||||
AZL Government Money Market Fund | $ | 3,323,767 | $ | 2,615,420 | $ | 1,440,270 | $ | 7,379,457 |
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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
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AZL Government Money Market Fund
Notes to the Financial Statements
December 31, 2016
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the Fund’s average daily net assets, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $8,001 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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.
For the year ended December 31, 2016, 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, 2016 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Repurchase Agreements | $ | — | $ | 183,000,000 | $ | 183,000,000 | |||||||||
U.S. Government Agency Mortgages | — | 440,238,552 | 440,238,552 | ||||||||||||
U.S. Treasury Obligations | — | 34,667,299 | 34,667,299 | ||||||||||||
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Total Investment Securities | $ | — | $ | 657,905,851 | $ | 657,905,851 | |||||||||
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5. Federal Tax Information
It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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, 2016 were as follows:
Ordinary Income | Net Long-Term | Return of Capital | Total Distributions(a) | |||||||||||||||||
AZL Government Money Market Fund | $ | 43,861 | $ | 1,901 | $ | 123 | $ | 45,885 |
(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, 2015 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Government Money Market Fund | $ | 47,987 | $ | — | $ | 47,987 |
(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 Government Money Market Fund
Notes to the Financial Statements
December 31, 2016
At December 31, 2016, 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 Government Money Market Fund | $ | 32,847 | $ | — | $ | — | $ | — | $ | 32,847 |
6. 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, 2016, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 90% of the Fund.
7. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies — Form N-PORT and Form N-CEN — also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
8. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
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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 Government Money Market Fund (formerly, AZL Money Market Fund) (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2016, 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, 2016, 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 AZL Government Money Market Fund as of December 31, 2016, 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 24, 2017
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Other Federal Income Tax Information (Unaudited)
During the year ended December 31, 2016, the Fund declared net long-term capital gain distributions of $1,901.
During the year ended December 31, 2016, the Fund declared net short-term capital gain distributions of $43,861.
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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 — October 25, 2016 (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 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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 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 the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held October 25, 2016, the Manager reported that for the three year period ended June 30, 2016, seven Funds were in the top 40%, two were in the middle 20% and three were in the bottom 40%, and for the one year period ended June 30, 2016, twelve Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2016, six Funds were in the top 40%, one was in the middle 20%, and three were in the bottom 40%. At the Board of Trustees meeting held October 25, 2016, 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 twenty Funds reviewed by the Board of Trustees in the fall of 2016, seventeen 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 2016 for the twenty-one Funds was as follows; (1) eighteen of the Funds had total expense rankings below the 65th percentile (with eleven Funds at or below the 50th percentile); (2) the AZL Russell 1000 Growth Index Fund had a total expense ranking in the 66th percentile, but there was only a very limited peer group for such Fund, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; (3) the AZL International Index Fund had a total expense ranking in the 75th percentile, but there was only a limited peer group for such Fund, the actual management fee was in the 37th percentile, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; and (4) for the AZL Morgan Stanley Global Real Estate Fund, which had a total expense ranking in the 70th percentile, the Manager recommended a temporary management fee waiver of 5 basis points, effective November 1, 2016, which would move the management fee ranking from the 80th to the 60th percentile.
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 2013 through June 30, 2016. 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, all of which currently are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. 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, 2016 were approximately $6.4 billion, and that no single Fund had assets in excess of $1,289 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, 2017, 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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 5701 Golden Hills Drive | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 5701 Golden Hills Drive | 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 5701 Golden Hills Drive | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
19
Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
20
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1216 2/16 |
AZL® International Index Fund
Annual Report
December 31, 2016
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 26
Other Information
Page 27
Approval of Investment Advisory and Subadvisory Agreements
Page 28
Information about the Board of Trustees and Officers
Page 31
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, 2016?
For the year ended December 31, 2016, the AZL® International Index Fund (Class 2 Shares) (the “Fund”) returned 0.37%. That compared to a 1.51% total return for its benchmark, the MSCI EAFE Index1.
The Fund seeks investment results, before fees, expenses and fair value adjustments to its portfolio at the close of the New York Stock Exchange, that correspond to the performance of the MSCI EAFE. The Fund takes positions in securities that, in combination, should have similar return characteristics as the return of the Index. The Index is designed to provide a comprehensive measure of international equity markets.*
International equities had their worst start to the year since 2008 as the markets struggled with weakness in China and plunging oil prices. Oil prices stabilized toward the end of the first quarter, which helped decrease global volatility and fuel a recovery in global markets. Equity indexes posted mixed performance in the second quarter amid recovering oil prices, uncertainty about a potential Federal Reserve rate hike and the United Kingdom’s June vote to leave the European Union. The surprise result shocked investors globally and resulted in a sharp two-day sell-off, after which developed markets rallied into the end of June and recovered much of the losses.
The late-June rally continued into the third quarter as the Federal Reserve kept rates unchanged, Japan announced additional fiscal and monetary stimulus, and the Bank of England cut rates. However, weak economic data out of China and a more hawkish tone from Fed officials hindered some performance for the quarter.
The year ended with a global equity rally amid strong global economic data and continued optimism around then president-elect Trump’s reflationary policies. Those factors
outweighed the effects of the ECB’s decision to reduce the pace of its asset purchases and diplomatic tensions between the United States and other major powers. However, a stronger U.S. dollar muted gains for U.S. investors.
In general, international stocks underperformed the S&P 5002 for the period. The energy and materials sectors generated the strongest returns in the MSCI EAFE in U.S. dollar terms. The sectors gained on rising prices for oil and other commodities. Health care stocks and telecommunication services stocks had the largest negative effect on the performance of the Index.
The Fund held derivatives in the form of futures contracts, which it used to hedge its cash position. The futures made a small positive contribution to relative results.*
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, 2016. | |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. | |
2 | 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. |
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. | ||
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, 2016 | ||||||||||||||||||
Inception Date | 1 Year | 3 Year | 5 Year | Since Inception | ||||||||||||||
AZL® International Index Fund (Class 1 Shares) | 10/14/16 | — | — | — | 0.70 | %* | ||||||||||||
AZL® International Index Fund (Class 2 Shares) | 5/1/09 | 0.37 | % | -2.44 | % | 5.87 | % | 6.78 | % | |||||||||
MSCI EAFE Index (gross of withholding taxes) | 5/1/09 | 1.51 | % | -1.15 | % | 7.02 | % | 8.15 | % | |||||||||
MSCI EAFE Index (net of withholding taxes) | 5/1/09 | 1.00 | % | -1.60 | % | 6.53 | % | 7.67 | % |
* | Cumulative Return |
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 (Class 1 Shares) | 0.50 | % | ||
AZL® International Index Fund (Class 2 Shares) | 0.75 | % |
Expense Ratios are based on the current Fund prospectus dated August 31, 2016. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 0.52% for Class 1 Shares and 0.77% for Class 2 Shares through April 30, 2018. Additional information pertaining to the December 31, 2016 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 does not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Index noted as “gross of withholding taxes” reflects the maximum possible reinvestment of dividends with no adjustment for withholding tax deductions or tax credits. 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL International Index Fund, Class 1** | $ | 1,000.00 | $ | 1,007.00 | $ | 0.83 | 0.40 | % | ||||||||||||
AZL International Index Fund, Class 2 | $ | 1,000.00 | $ | 1,039.70 | $ | 3.38 | 0.66 | % |
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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL International Index Fund, Class 1 | $ | 1,000.00 | $ | 1,023.13 | $ | 2.03 | 0.40 | % | ||||||||||||
AZL International Index Fund, Class 2 | $ | 1,000.00 | $ | 1,021.82 | $ | 3.35 | 0.66 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
** | Expenses are equal to the average account value multiplied by the Fund’s annualized expense ratio multiplied by 76/366 to reflect the stub period from commencement of operations 10/17/2016 through 12/31/2016. |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Japan | 23.8 | % | |||
United Kingdom | 17.0 | ||||
France | 9.5 | ||||
Germany | 9.2 | ||||
Switzerland | 9.1 | ||||
Australia | 7.3 | ||||
Netherlands | 3.8 | ||||
Hong Kong | 3.1 | ||||
Spain | 3.1 | ||||
Sweden | 2.8 | ||||
All other countries | 10.3 | ||||
|
| ||||
Total Common Stocks and Preferred Stocks | 99.0 | ||||
Rights | — | ^ | |||
Securities Held as Collateral for Securities on Loan | 0.5 | ||||
Money Market | 0.2 | ||||
|
| ||||
Total Investment Securities | 99.7 | ||||
Net other assets (liabilities) | 0.3 | ||||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05%. |
3
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks (98.5%): | ||||||||
Aerospace & Defense (1.1%): | ||||||||
448,052 | BAE Systems plc | $ | 3,253,291 | |||||
240,475 | Cobham plc | 484,521 | ||||||
321 | Dassault Aviation SA | 358,122 | ||||||
3,310 | Elbit Systems, Ltd. | 334,439 | ||||||
81,598 | European Aeronautic Defence & Space Co. NV | 5,384,577 | ||||||
56,535 | Finmeccanica SpA* | 792,487 | ||||||
108,817 | Meggitt plc | 614,403 | ||||||
259,607 | Rolls-Royce Holdings plc | 2,134,615 | ||||||
44,040 | Safran SA | 3,170,309 | ||||||
219,800 | Singapore Technologies Engineering, Ltd. | 488,027 | ||||||
14,925 | Thales SA | 1,445,933 | ||||||
29,546 | Zodiac Aerospace | 678,175 | ||||||
|
| |||||||
19,138,899 | ||||||||
|
| |||||||
Air Freight & Logistics (0.4%): | ||||||||
120,019 | Bollore, Inc. | 422,808 | ||||||
136,974 | Deutsche Post AG | 4,497,336 | ||||||
128,013 | Royal Mail plc | 728,247 | ||||||
49,400 | Yamato Holdings Co., Ltd. | 1,001,554 | ||||||
|
| |||||||
6,649,945 | ||||||||
|
| |||||||
Airlines (0.2%): | ||||||||
158,000 | All Nippon Airways Co., Ltd. | 425,033 | ||||||
130,954 | Cathay Pacific Airways, Ltd. | 172,149 | ||||||
33,029 | Deutsche Lufthansa AG, Registered Shares | 426,718 | ||||||
25,487 | easyJet plc | 315,188 | ||||||
125,880 | International Consolidated Airlines Group SA | 679,167 | ||||||
16,070 | Japan Airlines Co., Ltd. | 469,000 | ||||||
57,477 | Qantas Airways, Ltd. | 137,695 | ||||||
4,438 | Ryanair Holdings plc, ADR* | 369,508 | ||||||
82,900 | Singapore Airlines, Ltd. | 552,288 | ||||||
|
| |||||||
3,546,746 | ||||||||
|
| |||||||
Auto Components (1.3%): | ||||||||
27,000 | Aisin Sieki Co., Ltd. | 1,168,603 | ||||||
91,900 | Bridgestone Corp. | 3,306,262 | ||||||
25,695 | Compagnie Generale des Establissements Michelin SCA, Class B | 2,857,611 | ||||||
15,541 | Continental AG | 3,024,843 | ||||||
67,100 | Denso Corp. | 2,899,020 | ||||||
241,776 | GKN plc | 984,756 | ||||||
15,900 | Koito Manufacturing Co., Ltd. | 839,708 | ||||||
24,000 | NGK Spark Plug Co., Ltd. | 531,341 | ||||||
14,700 | NOK Corp. | 296,940 | ||||||
16,266 | Nokian Renkaat OYJ | 606,219 | ||||||
23,550 | Schaeffler AG | 347,528 | ||||||
21,200 | Stanley Electric Co., Ltd. | 577,942 | ||||||
106,500 | Sumitomo Electric Industries, Ltd. | 1,529,386 | ||||||
24,700 | Sumitomo Rubber Industries, Ltd. | 390,775 | ||||||
7,200 | Toyoda Gosei Co., Ltd. | 167,937 | ||||||
23,000 | Toyota Industries Corp. | 1,092,453 | ||||||
33,644 | Valeo SA | 1,932,892 | ||||||
14,700 | Yokohama Rubber Co., Ltd. (The) | 262,084 | ||||||
|
| |||||||
22,816,300 | ||||||||
|
| |||||||
Automobiles (3.6%): | ||||||||
46,810 | Bayerische Motoren Werke AG (BMW) | 4,381,853 | ||||||
135,212 | Daimler AG, Registered Shares | 10,033,368 | ||||||
17,367 | Ferrari NV | 1,010,211 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Automobiles, continued | ||||||||
127,500 | Fiat Chrysler Automobiles NV | $ | 1,157,946 | |||||
86,900 | Fuji Heavy Industries, Ltd. | 3,535,221 | ||||||
230,100 | Honda Motor Co., Ltd. | 6,699,797 | ||||||
83,900 | Isuzu Motors, Ltd. | 1,059,308 | ||||||
80,500 | Mazda Motor Corp. | 1,307,700 | ||||||
91,600 | Mitsubishi Motors Corp. | 520,793 | ||||||
340,000 | Nissan Motor Co., Ltd. | 3,411,491 | ||||||
68,528 | PSA Peugeot Citroen SA* | 1,116,997 | ||||||
27,134 | Renault SA | 2,412,349 | ||||||
48,500 | Suzuki Motor Corp. | 1,702,708 | ||||||
376,066 | Toyota Motor Corp. | 21,957,348 | ||||||
4,750 | Volkswagen AG | 682,111 | ||||||
39,600 | Yamaha Motor Co., Ltd. | 868,950 | ||||||
|
| |||||||
61,858,151 | ||||||||
|
| |||||||
Banks (12.3%): | ||||||||
39,824 | ABN AMRO Group NV | 881,976 | ||||||
145,000 | Aozora Bank, Ltd. | 512,954 | ||||||
411,872 | Australia & New Zealand Banking Group, Ltd. | 9,014,739 | ||||||
926,291 | Banco Bilbao Vizcaya Argentaria SA | 6,248,153 | ||||||
765,781 | Banco de Sabadell SA | 1,065,810 | ||||||
506,925 | Banco Popular Espanol SA^ | 489,512 | ||||||
2,059,224 | Banco Santander SA | 10,748,082 | ||||||
150,505 | Bank Hapoalim BM | 893,886 | ||||||
204,839 | Bank Leumi Le-Israel Corp.* | 842,246 | ||||||
175,400 | Bank of East Asia, Ltd. (The) | 669,166 | ||||||
1,709,551 | Bank of Ireland* | 422,106 | ||||||
2,167,044 | Bank of Ireland* | 532,875 | ||||||
46,000 | Bank of Kyoto, Ltd. (The) | 340,604 | ||||||
51,449 | Bank of Queensland, Ltd. | 439,534 | ||||||
699,418 | Bankia SA | 714,445 | ||||||
95,023 | Bankinter SA | 735,807 | ||||||
2,386,857 | Barclays plc | 6,555,535 | ||||||
60,506 | Bendigo & Adelaide Bank, Ltd. | 553,519 | ||||||
149,538 | BNP Paribas SA | 9,524,405 | ||||||
510,000 | BOC Hong Kong Holdings, Ltd. | 1,825,990 | ||||||
96,000 | Chiba Bank, Ltd. (The) | 586,847 | ||||||
25,900 | Chugoku Bank, Ltd. (The) | 370,820 | ||||||
46,903 | Chuo Mitsui Trust Holdings, Inc. | 1,666,686 | ||||||
150,377 | Commerzbank AG | 1,146,734 | ||||||
241,389 | Commonwealth Bank of Australia | 14,314,095 | ||||||
167,400 | Concordia Financial Group, Ltd. | 802,923 | ||||||
158,225 | Credit Agricole SA | 1,961,328 | ||||||
502,466 | Criteria Caixacorp SA | 1,659,619 | ||||||
97,242 | Danske Bank A/S | 2,949,815 | ||||||
248,500 | DBS Group Holdings, Ltd. | 2,965,506 | ||||||
137,984 | DnB NOR ASA | 2,053,482 | ||||||
42,487 | Erste Group Bank AG | 1,243,783 | ||||||
104,000 | Fukuoka Financial Group, Inc. | 460,457 | ||||||
62,300 | Hachijuni Bank, Ltd. (The) | 360,293 | ||||||
108,300 | Hang Seng Bank, Ltd. | 2,007,300 | ||||||
67,000 | Hiroshima Bank, Ltd. (The) | 311,905 | ||||||
2,791,559 | HSBC Holdings plc | 22,567,754 | ||||||
547,318 | ING Groep NV | 7,701,254 | ||||||
139,598 | Intesa Sanpaolo^ | 327,908 | ||||||
1,792,797 | Intesa Sanpaolo SpA | 4,575,992 | ||||||
59,500 | Japan Post Bank Co., Ltd. | 712,960 |
Continued
4
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
35,430 | KBC Groep NV | $ | 2,192,743 | |||||
52,200 | Kyushu Financial Group, Inc. | 353,081 | ||||||
9,068,078 | Lloyds Banking Group plc | 6,972,482 | ||||||
125,860 | Mebuki Financial Group, Inc. | 465,133 | ||||||
85,575 | Mediobanca SpA | 698,329 | ||||||
1,796,700 | Mitsubishi UFJ Financial Group, Inc. | 11,047,468 | ||||||
15,515 | Mizrahi Tefahot Bank, Ltd. | 226,655 | ||||||
3,358,139 | Mizuho Financial Group, Inc. | 6,012,787 | ||||||
373,435 | National Australia Bank, Ltd. | 8,240,515 | ||||||
132,515 | Natixis | 747,108 | ||||||
428,783 | Nordea Bank AB | 4,769,049 | ||||||
436,399 | Oversea-Chinese Banking Corp., Ltd. | 2,678,388 | ||||||
16,501 | Raiffeisen International Bank-Holding AG* | 301,816 | ||||||
311,687 | Resona Holdings, Inc. | 1,604,384 | ||||||
497,135 | Royal Bank of Scotland Group plc* | 1,372,822 | ||||||
94,800 | Seven Bank, Ltd.^ | 272,396 | ||||||
257,000 | Shinsei Bank, Ltd. | 432,279 | ||||||
70,000 | Shizuoka Bank, Ltd. (The) | 586,466 | ||||||
214,491 | Skandinaviska Enskilda Banken AB, Class A | 2,250,262 | ||||||
108,307 | Societe Generale | 5,316,095 | ||||||
463,329 | Standard Chartered plc* | 3,794,207 | ||||||
189,669 | Sumitomo Mitsui Financial Group, Inc. | 7,191,285 | ||||||
24,500 | Suruga Bank, Ltd. | 545,506 | ||||||
213,888 | Svenska Handelsbanken AB, Class A | 2,973,106 | ||||||
127,871 | Swedbank AB, Class A | 3,091,908 | ||||||
741,566 | UniCredit SpA | 2,131,536 | ||||||
182,873 | United Overseas Bank, Ltd. | 2,567,027 | ||||||
468,905 | Westpac Banking Corp. | 10,982,304 | ||||||
29,000 | Yamaguchi Financial Group, Inc. | 315,159 | ||||||
|
| |||||||
213,891,101 | ||||||||
|
| |||||||
Beverages (2.1%): | ||||||||
107,288 | Anheuser-Busch InBev NV | 11,328,732 | ||||||
54,600 | Asahi Breweries, Ltd. | 1,721,739 | ||||||
15,113 | Carlsberg A/S, Class B | 1,304,505 | ||||||
85,950 | Coca-Cola Amatil, Ltd. | 626,681 | ||||||
30,603 | Coca-Cola European Partners plc | 965,459 | ||||||
23,561 | Coca-Cola HBC AG | 513,462 | ||||||
353,167 | Diageo plc | 9,135,297 | ||||||
14,252 | Heineken Holding NV | 990,886 | ||||||
32,551 | Heineken NV | 2,437,824 | ||||||
116,100 | Kirin Holdings Co., Ltd. | 1,885,155 | ||||||
29,978 | Pernod Ricard SA | 3,247,112 | ||||||
3,551 | Remy Cointreau SA | 302,834 | ||||||
19,600 | Suntory Beverage & Food, Ltd. | 810,929 | ||||||
104,220 | Treasury Wine Estates, Ltd. | 801,759 | ||||||
|
| |||||||
36,072,374 | ||||||||
|
| |||||||
Biotechnology (1.0%): | ||||||||
13,656 | Actelion, Ltd., Registered Shares | 2,952,584 | ||||||
64,564 | CSL, Ltd. | 4,663,144 | ||||||
8,027 | Genmab A/S* | 1,330,760 | ||||||
44,702 | Grifols SA | 888,056 | ||||||
126,843 | Shire plc | 7,186,511 | ||||||
|
| |||||||
17,021,055 | ||||||||
|
| |||||||
Building Products (0.8%): | ||||||||
143,000 | Asahi Glass Co., Ltd. | 971,672 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Building Products, continued | ||||||||
141,541 | Assa Abloy AB, Class B | $ | 2,626,738 | |||||
69,844 | Compagnie de Saint-Gobain SA | 3,251,912 | ||||||
33,100 | Daikin Industries, Ltd. | 3,031,679 | ||||||
5,213 | Geberit AG, Registered Shares | 2,086,820 | ||||||
37,500 | Lixil Group Corp. | 849,918 | ||||||
20,100 | TOTO, Ltd. | 793,343 | ||||||
|
| |||||||
13,612,082 | ||||||||
|
| |||||||
Capital Markets (2.3%): | ||||||||
137,296 | 3i Group plc | 1,192,492 | ||||||
122,080 | Aberdeen Asset Management plc | 387,913 | ||||||
27,367 | ASX, Ltd. | 980,026 | ||||||
279,554 | Credit Suisse Group AG | 3,992,933 | ||||||
234,300 | Daiwa Securities Group, Inc. | 1,439,505 | ||||||
194,767 | Deutsche Bank AG, Registered Shares* | 3,524,153 | ||||||
27,159 | Deutsche Boerse AG* | 2,212,275 | ||||||
34,429 | Hargreaves Lansdown plc | 513,848 | ||||||
163,293 | Hong Kong Exchanges & Clearing, Ltd. | 3,842,798 | ||||||
81,588 | Investec plc | 539,355 | ||||||
73,600 | Japan Exchange Group, Inc. | 1,054,326 | ||||||
31,611 | Julius Baer Group, Ltd. | 1,403,865 | ||||||
44,301 | London Stock Exchange Group plc | 1,591,435 | ||||||
43,248 | Macquarie Group, Ltd. | 2,725,590 | ||||||
22 | Nex Group plc | 125 | ||||||
512,900 | Nomura Holdings, Inc. | 3,023,719 | ||||||
2,456 | Partners Group Holding AG | 1,149,760 | ||||||
31,590 | SBI Holdings, Inc. | 400,984 | ||||||
19,912 | Schroders plc | 734,312 | ||||||
113,400 | Singapore Exchange, Ltd. | 560,545 | ||||||
29,594 | Tullett Prebon plc | 157,839 | ||||||
514,406 | UBS Group AG | 8,055,366 | ||||||
|
| |||||||
39,483,164 | ||||||||
|
| |||||||
Chemicals (3.9%): | ||||||||
54,689 | Air Liquide SA | 6,070,315 | ||||||
21,500 | Air Water, Inc. | 387,153 | ||||||
34,967 | AkzoNobel NV | 2,183,425 | ||||||
9,588 | Arkema SA | 936,552 | ||||||
178,000 | Asahi Kasei Corp. | 1,549,881 | ||||||
129,102 | BASF SE | 12,038,437 | ||||||
13,974 | Christian Hansen Holding A/S | 773,122 | ||||||
9,214 | Covestro AG | 633,771 | ||||||
18,560 | Croda International plc | 727,976 | ||||||
37,400 | Daicel Chemical Industries, Ltd. | 410,514 | ||||||
1,142 | EMS-Chemie Holding AG | 580,418 | ||||||
23,602 | Evonik Industries AG | 702,646 | ||||||
5,394 | Frutarom Industries, Ltd. | 275,390 | ||||||
9,840 | Fuchs Petrolub SE | 413,132 | ||||||
1,304 | Givaudan SA, Registered Shares | 2,389,673 | ||||||
15,500 | Hitachi Chemical Co., Ltd. | 386,840 | ||||||
237,562 | Incitec Pivot, Ltd. | 614,190 | ||||||
77,511 | Israel Chemicals, Ltd. | 316,698 | ||||||
27,305 | Johnson Matthey plc | 1,066,742 | ||||||
26,100 | JSR Corp. | 410,717 | ||||||
26,950 | K+S AG, Registered Shares | 644,129 | ||||||
42,000 | Kaneka Corp. | 341,470 | ||||||
32,300 | Kansai Paint Co., Ltd. | 594,076 | ||||||
25,622 | Koninklijke DSM NV | 1,533,674 |
Continued
5
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Chemicals, continued | ||||||||
51,000 | Kuraray Co., Ltd. | $ | 763,257 | |||||
12,921 | Lanxess AG | 846,491 | ||||||
26,221 | Linde AG | 4,298,946 | ||||||
191,400 | Mitsubishi Chemical Holdings Corp. | 1,233,544 | ||||||
26,100 | Mitsubishi Gas Chemical Co., Inc. | 444,474 | ||||||
130,000 | Mitsui Chemicals, Inc. | 582,498 | ||||||
23,200 | Nippon Paint Holdings Co., Ltd. | 628,849 | ||||||
17,300 | Nissan Chemical Industries, Ltd. | 576,799 | ||||||
23,300 | Nitto Denko Corp. | 1,784,286 | ||||||
32,574 | Novozymes A/S, Class B | 1,121,291 | ||||||
54,819 | Orica, Ltd. | 696,196 | ||||||
54,800 | Shin-Etsu Chemical Co., Ltd. | 4,224,007 | ||||||
304 | Sika AG, Class B | 1,460,697 | ||||||
10,466 | Solvay SA | 1,224,704 | ||||||
221,000 | Sumitomo Chemical Co., Ltd. | 1,045,748 | ||||||
17,421 | Symrise AG | 1,059,466 | ||||||
13,122 | Syngenta AG | 5,187,107 | ||||||
18,300 | Taiyo Nippon Sanso Corp. | 211,282 | ||||||
25,200 | Teijin, Ltd. | 509,637 | ||||||
207,000 | Toray Industries, Inc. | 1,673,290 | ||||||
13,451 | Umicore SA | 765,507 | ||||||
25,251 | Yara International ASA | 995,025 | ||||||
|
| |||||||
67,314,042 | ||||||||
|
| |||||||
Commercial Services & Supplies (0.6%): | ||||||||
34,240 | Babcock International Group plc | 401,627 | ||||||
223,895 | Brambles, Ltd. | 1,996,761 | ||||||
77,000 | Dai Nippon Printing Co., Ltd. | 759,321 | ||||||
30,200 | Edenred | 598,409 | ||||||
215,567 | G4S plc | 623,731 | ||||||
23,588 | ISS A/S | 794,944 | ||||||
13,800 | Park24 Co., Ltd. | 373,968 | ||||||
29,700 | SECOM Co., Ltd. | 2,167,643 | ||||||
45,229 | Securitas AB, Class B | 711,633 | ||||||
3,751 | Societe BIC SA | 509,783 | ||||||
9,500 | Sohgo Security Services Co., Ltd. | 364,415 | ||||||
72,000 | Toppan Printing Co., Ltd. | 686,266 | ||||||
|
| |||||||
9,988,501 | ||||||||
|
| |||||||
Communications Equipment (0.4%): | ||||||||
823,850 | Nokia OYJ | 3,961,502 | ||||||
433,329 | Telefonaktiebolaget LM Ericsson, Class B | 2,527,240 | ||||||
|
| |||||||
6,488,742 | ||||||||
|
| |||||||
Construction & Engineering (0.9%): | ||||||||
29,481 | ACS, Actividades de Construccion y Servicios SA | 929,256 | ||||||
29,227 | Bouygues SA | 1,045,909 | ||||||
14,959 | Cimic Group, Ltd. | 376,003 | ||||||
7,595 | Eiffage SA | 529,460 | ||||||
75,770 | Ferrovial SA | 1,354,907 | ||||||
2,977 | Hochtief AG | 416,214 | ||||||
27,400 | JGC Corp. | 496,213 | ||||||
127,000 | Kajima Corp. | 876,860 | ||||||
12,467 | Koninklijke Boskalis Westminster NV | 432,257 | ||||||
91,700 | Obayashi Corp. | 873,994 | ||||||
76,000 | Shimizu Corp. | 693,975 | ||||||
48,011 | Skanska AB, Class B | 1,132,050 | ||||||
148,000 | TAISEI Corp. | 1,034,610 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Construction & Engineering, continued | ||||||||
71,296 | Vinci SA | $ | 4,848,795 | |||||
|
| |||||||
15,040,503 | ||||||||
|
| |||||||
Construction Materials (0.7%): | ||||||||
151,866 | Boral, Ltd. | 590,721 | ||||||
109,203 | CRH plc | 3,773,754 | ||||||
7,800 | CRH plc | 270,838 | ||||||
100,052 | Fletcher Building, Ltd. | 734,712 | ||||||
20,953 | HeidelbergCement AG | 1,954,519 | ||||||
5,203 | Imerys SA | 394,174 | ||||||
62,875 | James Hardie Industries SE | 995,361 | ||||||
64,252 | LafargeHolcim, Ltd., Registered Shares | 3,376,190 | ||||||
165,000 | Taiheiyo Cement Corp. | 520,733 | ||||||
|
| |||||||
12,611,002 | ||||||||
|
| |||||||
Consumer Finance (0.1%): | ||||||||
53,700 | ACOM Co., Ltd.* | 234,339 | ||||||
17,700 | Aeon Credit Service Co., Ltd. | 313,123 | ||||||
21,100 | Credit Saison Co., Ltd. | 375,467 | ||||||
20,973 | Provident Financial plc | 737,230 | ||||||
|
| |||||||
1,660,159 | ||||||||
|
| |||||||
Containers & Packaging (0.1%): | ||||||||
163,449 | Amcor, Ltd. | 1,760,301 | ||||||
23,200 | Toyo Seikan Kaisha, Ltd. | 432,092 | ||||||
|
| |||||||
2,192,393 | ||||||||
|
| |||||||
Distributors (0.0%): | ||||||||
13,588 | Jardine Cycle & Carriage, Ltd. | 384,716 | ||||||
|
| |||||||
Diversified Consumer Services (0.0%): | ||||||||
9,400 | Benesse Holdings, Inc. | 258,656 | ||||||
|
| |||||||
Diversified Financial Services (0.7%): | ||||||||
417,649 | AMP, Ltd. | 1,514,685 | ||||||
84,367 | Challenger, Ltd. | 682,012 | ||||||
6,098 | Eurazeo | 356,646 | ||||||
15,176 | EXOR NV | 654,391 | ||||||
239,081 | First Pacific Co., Ltd. | 166,995 | ||||||
11,379 | Groupe Bruxelles Lambert SA | 954,511 | ||||||
22,562 | Industrivarden AB, Class C | 420,655 | ||||||
64,256 | Investor AB, Class B | 2,402,285 | ||||||
33,224 | Kinnevik AB | 796,346 | ||||||
5,351 | L E Lundbergforetagen AB | 328,145 | ||||||
68,700 | Mitsubishi UFJ Lease & Finance Co., Ltd. | 354,016 | ||||||
187,000 | ORIX Corp. | 2,897,473 | ||||||
5,211 | Pargesa Holding SA | 339,433 | ||||||
3,885 | Wendel | 467,669 | ||||||
|
| |||||||
12,335,262 | ||||||||
|
| |||||||
Diversified Telecommunication Services (2.7%): | ||||||||
22,803 | Belgacom SA | 656,475 | ||||||
272,655 | Bezeq Israeli Telecommunication Corp., Ltd. (The) | 518,073 | ||||||
1,191,043 | BT Group plc | 5,392,556 | ||||||
460,971 | Deutsche Telekom AG, Registered Shares | 7,918,171 | ||||||
20,638 | Elisa OYJ | 670,599 | ||||||
280,425 | France Telecom SA | 4,255,057 | ||||||
349,525 | HKT Trust & HKT, Ltd. | 427,790 | ||||||
3,760 | Iliad SA | 722,124 | ||||||
59,304 | Inmarsat plc | 546,945 | ||||||
482,383 | Koninklijke (Royal) KPN NV | 1,428,237 |
Continued
6
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Diversified Telecommunication Services, continued | ||||||||
97,752 | Nippon Telegraph & Telephone Corp. | $ | 4,109,610 | |||||
12,411 | Numericable-SFR* | 349,863 | ||||||
617,000 | PCCW, Ltd. | 332,521 | ||||||
1,125,900 | Singapore Telecommunications, Ltd. | 2,826,260 | ||||||
3,658 | Swisscom AG, Registered Shares | 1,636,042 | ||||||
114,334 | TDC A/S* | 587,117 | ||||||
269,562 | Telecom Corp. of New Zealand, Ltd. | 637,166 | ||||||
828,154 | Telecom Italia RNC | 598,479 | ||||||
1,431,648 | Telecom Italia SpA* | 1,260,347 | ||||||
102,334 | Telefonica Deutschland Holding AG | 437,254 | ||||||
655,698 | Telefonica SA | 6,079,419 | ||||||
105,969 | Telenor ASA | 1,581,045 | ||||||
366,603 | Telia Co AB | 1,475,463 | ||||||
604,171 | Telstra Corp., Ltd. | 2,220,008 | ||||||
45,014 | TPG Telecom, Ltd. | 220,877 | ||||||
76,768 | Vocus Communications, Ltd. | 213,661 | ||||||
|
| |||||||
47,101,159 | ||||||||
|
| |||||||
Electric Utilities (1.7%): | ||||||||
262,481 | AusNet Services | 298,909 | ||||||
94,570 | Cheung Kong Infrastructure Holdings, Ltd. | 752,200 | ||||||
91,100 | Chubu Electric Power Co., Inc. | 1,270,974 | ||||||
39,200 | Chugoku Electric Power Co., Inc. (The) | 459,221 | ||||||
232,500 | CLP Holdings, Ltd. | 2,124,526 | ||||||
102,132 | Contact Energy, Ltd. | 329,746 | ||||||
11,838 | Dong Energy A/S* | 448,132 | ||||||
326,926 | EDP – Energias de Portugal SA | 995,452 | ||||||
42,587 | Electricite de France^ | 432,670 | ||||||
44,867 | Endesa SA | 949,892 | ||||||
1,073,638 | Enel SpA | 4,723,994 | ||||||
62,835 | Fortum OYJ | 961,594 | ||||||
465,500 | HK Electric Investments, Ltd. | 383,820 | ||||||
25,300 | Hokuriku Electric Power Co. | 283,134 | ||||||
195,500 | Hongkong Electric Holdings, Ltd. | 1,722,435 | ||||||
464,176 | Iberdrola SA | 3,043,400 | ||||||
301,256 | Iberdrola SA | 1,961,949 | ||||||
99,400 | Kansai Electric Power Co., Inc. (The)* | 1,085,106 | ||||||
60,100 | Kyushu Electric Power Co., Inc. | 650,103 | ||||||
112,573 | Mighty River Power, Ltd. | 230,580 | ||||||
17,882 | Red Electrica Corporacion SA | 337,141 | ||||||
141,880 | Scottish & Southern Energy plc | 2,711,766 | ||||||
214,303 | Terna SpA | 980,220 | ||||||
64,000 | Tohoku Electric Power Co., Inc. | 807,655 | ||||||
204,400 | Tokyo Electric Power Co., Inc. (The)* | 823,905 | ||||||
|
| |||||||
28,768,524 | ||||||||
|
| |||||||
Electrical Equipment (1.4%): | ||||||||
265,070 | ABB, Ltd. | 5,581,731 | ||||||
81,000 | Fuji Electric Holdings Co., Ltd. | 419,117 | ||||||
37,688 | Legrand SA | 2,134,051 | ||||||
7,200 | Mabuchi Motor Co., Ltd. | 373,957 | ||||||
272,700 | Mitsubishi Electric Corp. | 3,791,454 | ||||||
33,700 | Nidec Corp. | 2,898,574 | ||||||
12,786 | OSRAM Licht AG | 671,167 | ||||||
28,385 | Prysmian SpA | 728,520 | ||||||
78,934 | Schneider Electric SA | 5,484,148 | ||||||
31,293 | Vestas Wind Systems A/S | 2,034,143 | ||||||
|
| |||||||
24,116,862 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electronic Equipment, Instruments & Components (1.3%): | ||||||||
27,900 | ALPS Electric Co., Ltd. | $ | 671,682 | |||||
20,100 | Hamamatsu Photonics K.K. | 527,328 | ||||||
36,511 | Hexagon AB, Class B | 1,302,600 | ||||||
4,395 | Hirose Electric Co., Ltd. | 543,560 | ||||||
9,900 | Hitachi High-Technologies Corp. | 398,525 | ||||||
682,100 | Hitachi, Ltd. | 3,675,647 | ||||||
8,162 | Ingenico Group | 651,592 | ||||||
6,370 | Keyence Corp. | 4,365,148 | ||||||
45,400 | Kyocera Corp. | 2,252,086 | ||||||
27,000 | Murata Manufacturing Co., Ltd. | 3,595,974 | ||||||
63,000 | Nippon Electric Glass Co., Ltd. | 339,942 | ||||||
27,200 | Omron Corp. | 1,041,123 | ||||||
32,000 | Shimadzu Corp. | 508,678 | ||||||
17,400 | TDK Corp. | 1,193,275 | ||||||
33,200 | Yaskawa Electric Corp. | 515,042 | ||||||
30,900 | Yokogawa Electric Corp. | 446,233 | ||||||
|
| |||||||
22,028,435 | ||||||||
|
| |||||||
Energy Equipment & Services (0.2%): | ||||||||
37,366 | Petrofac, Ltd. | 399,258 | ||||||
854,094 | Saipem SpA* | 477,824 | ||||||
15,532 | Technip-Coflexip SA | 1,102,030 | ||||||
66,638 | Tenaris SA | 1,187,676 | ||||||
|
| |||||||
3,166,788 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (1.8%): | ||||||||
348,982 | Ascendas Real Estate Investment Trust | 545,424 | ||||||
138,044 | British Land Co. plc | 1,069,463 | ||||||
297,100 | CapitaCommercial Trust | 302,024 | ||||||
385,800 | CapitaMall Trust | 500,308 | ||||||
180 | Daiwahouse Residential Investment Corp. | 455,233 | ||||||
136,646 | Dexus Property Group | 950,960 | ||||||
4,798 | Fonciere des Regions SA | 418,446 | ||||||
5,803 | Gecina SA | 802,167 | ||||||
253,839 | GPT Group(a) | 920,283 | ||||||
99,369 | Hammerson plc | 700,002 | ||||||
5,373 | ICADE | 383,292 | ||||||
110 | Japan Prime Realty Investment Corp. | 433,395 | ||||||
184 | Japan Real Estate Investment Corp. | 1,003,581 | ||||||
360 | Japan Retail Fund Investment Corp. | 729,221 | ||||||
31,057 | Klepierre | 1,219,651 | ||||||
111,625 | Land Securities Group plc | 1,474,329 | ||||||
132,719 | Liberty International plc | 460,961 | ||||||
317,500 | Link REIT (The) | 2,050,357 | ||||||
250,987 | Macquarie Goodman Group | 1,294,608 | ||||||
522,397 | Mirvac Group | 801,675 | ||||||
200 | Nippon Building Fund, Inc. | 1,108,349 | ||||||
208 | Nippon Prologis REIT, Inc. | 425,297 | ||||||
560 | Nomura Real Estate Master Fund, Inc. | 847,039 | ||||||
751,699 | Scentre Group | 2,522,529 | ||||||
116,895 | SERGO plc | 661,420 | ||||||
337,376 | Stockland Trust Group | 1,113,809 | ||||||
372,500 | Suntec REIT | 422,478 | ||||||
13,989 | Unibail-Rodamco SE | 3,334,198 | ||||||
427 | United Urban Investment Corp. | 649,941 | ||||||
474,817 | Vicinity Centres | 1,026,867 | ||||||
278,689 | Westfield Corp. | 1,891,065 | ||||||
|
| |||||||
30,518,372 | ||||||||
|
|
Continued
7
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Food & Staples Retailing (1.7%): | ||||||||
92,300 | Aeon Co., Ltd. | $ | 1,306,176 | |||||
78,162 | Carrefour SA | 1,880,114 | ||||||
8,093 | Casino Guichard-Perrachon SA^ | 388,219 | ||||||
8,894 | Colruyt SA | 439,911 | ||||||
97,013 | Distribuidora Internacional de Alimentacion SA | 476,148 | ||||||
11,300 | FamilyMart Co., Ltd. | 750,830 | ||||||
11,875 | ICA Gruppen AB^ | 361,848 | ||||||
239,072 | J Sainsbury plc | 732,371 | ||||||
37,580 | Jeronimo Martins SGPS SA | 582,843 | ||||||
180,925 | Koninklijke Ahold Delhaize NV | 3,807,523 | ||||||
9,200 | LAWSON, Inc. | 645,930 | ||||||
25,384 | Metro AG | 842,284 | ||||||
106,400 | Seven & I Holdings Co., Ltd. | 4,049,697 | ||||||
5,300 | Sundrug Co., Ltd. | 366,265 | ||||||
1,153,936 | Tesco plc* | 2,936,837 | ||||||
4,900 | Tsuruha Holdings, Inc. | 463,832 | ||||||
158,947 | Wesfarmers, Ltd. | 4,824,614 | ||||||
313,110 | William Morrison Supermarkets plc | 889,365 | ||||||
180,504 | Woolworths, Ltd. | 3,131,374 | ||||||
|
| |||||||
28,876,181 | ||||||||
|
| |||||||
Food Products (3.1%): | ||||||||
78,300 | Ajinomoto Co., Inc. | 1,574,990 | ||||||
12,269 | Aryzta AG | 540,384 | ||||||
50,299 | Associated British Foods plc | 1,699,642 | ||||||
318 | Barry Callebaut AG, Registered Shares | 389,296 | ||||||
11,500 | Calbee, Inc. | 359,825 | ||||||
14 | Chocoladefabriken Lindt & Spruengli AG, Registered Shares | 850,597 | ||||||
83,336 | Danone SA | 5,274,021 | ||||||
1,066,582 | Golden Agri-Resources, Ltd. | 315,095 | ||||||
10,056 | Kerry Group plc | 718,383 | ||||||
12,262 | Kerry Group plc, Class A | 876,700 | ||||||
21,000 | Kikkoman Corp. | 670,903 | ||||||
145 | Lindt & Spruengli AG | 751,224 | ||||||
54,039 | Marine Harvest | 975,138 | ||||||
16,152 | Meiji Holdings Co., Ltd. | 1,267,250 | ||||||
438,207 | Nestle SA, Registered Shares | 31,440,136 | ||||||
23,000 | Nippon Meat Packers, Inc. | 621,034 | ||||||
27,945 | Nisshin Seifun Group, Inc. | 419,038 | ||||||
7,900 | Nissin Foods Holdings Co., Ltd. | 414,603 | ||||||
115,226 | Orkla ASA, Class A | 1,043,206 | ||||||
69,433 | Tate & Lyle plc | 604,601 | ||||||
11,700 | Toyo Suisan Kaisha, Ltd. | 423,248 | ||||||
1,134,388 | WH Group, Ltd. | 913,396 | ||||||
283,700 | Wilmar International, Ltd. | 700,153 | ||||||
12,200 | Yakult Honsha Co., Ltd. | 564,905 | ||||||
18,000 | Yamazaki Baking Co., Ltd. | 347,453 | ||||||
|
| |||||||
53,755,221 | ||||||||
|
| |||||||
Gas Utilities (0.4%): | ||||||||
157,731 | APA Group | 974,357 | ||||||
7,706 | Enagas SA | 195,538 | ||||||
49,495 | Gas Natural SDG SA | 932,278 | ||||||
1,074,294 | Hong Kong & China Gas Co., Ltd. | 1,899,129 | ||||||
265,000 | Osaka Gas Co., Ltd. | 1,018,004 | ||||||
53,000 | Toho Gas Co., Ltd. | 430,495 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Gas Utilities, continued | ||||||||
276,000 | Tokyo Gas Co., Ltd. | $ | 1,246,085 | |||||
|
| |||||||
6,695,886 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (0.9%): | ||||||||
8,100 | Cochlear, Ltd. | 714,910 | ||||||
16,784 | Coloplast A/S, Class B | 1,129,642 | ||||||
11,400 | Cyberdyne, Inc.*^ | 160,864 | ||||||
29,024 | Essilor International SA Compagnie Generale d’Optique | 3,278,524 | ||||||
28,181 | Getinge AB, Class B | 451,587 | ||||||
55,800 | HOYA Corp. | 2,338,977 | ||||||
41,100 | Olympus Co., Ltd. | 1,417,357 | ||||||
126,287 | Smith & Nephew plc | 1,881,192 | ||||||
7,526 | Sonova Holding AG, Registered Shares | 910,845 | ||||||
22,100 | Sysmex Corp. | 1,277,612 | ||||||
48,200 | Terumo Corp. | 1,776,009 | ||||||
17,288 | William Demant Holding A/S* | 300,652 | ||||||
|
| |||||||
15,638,171 | ||||||||
|
| |||||||
Health Care Providers & Services (0.7%): | ||||||||
56,349 | Al Noor Hospitals Group plc | 532,422 | ||||||
24,800 | Alfresa Holdings Corp. | 408,920 | ||||||
30,234 | Fresenius Medical Care AG & Co., KGaA | 2,562,961 | ||||||
57,822 | Fresenius SE & Co. KGaA | 4,516,065 | ||||||
227,520 | Healthscope, Ltd. | 374,698 | ||||||
24,400 | Medipal Holdings Corp. | 383,132 | ||||||
8,200 | Miraca Holdings, Inc. | 367,309 | ||||||
19,969 | Ramsay Health Care, Ltd. | 984,171 | ||||||
56,623 | Ryman Healthcare, Ltd. | 319,370 | ||||||
55,636 | Sonic Healthcare, Ltd. | 858,443 | ||||||
11,470 | Suzuken Co., Ltd. | 374,182 | ||||||
|
| |||||||
11,681,673 | ||||||||
|
| |||||||
Health Care Technology (0.0%): | ||||||||
27,400 | M3, Inc. | 689,775 | ||||||
|
| |||||||
Hotels, Restaurants & Leisure (1.4%): | ||||||||
24,109 | Accor SA | 898,680 | ||||||
76,445 | Aristocrat Leisure, Ltd. | 852,778 | ||||||
26,881 | Carnival plc | 1,361,681 | ||||||
231,916 | Compass Group plc | 4,274,039 | ||||||
51,862 | Crown, Ltd. | 432,293 | ||||||
8,337 | Domino’s Pizza Enterprises, Ltd. | 388,210 | ||||||
6,187 | Flight Centre, Ltd. | 139,180 | ||||||
332,000 | Galaxy Entertainment Group, Ltd. | 1,428,392 | ||||||
851,457 | Genting Singapore plc | 529,320 | ||||||
26,496 | InterContinental Hotels Group plc | 1,182,229 | ||||||
10,629 | McDonald’s Holdings Co., Ltd.^ | 277,860 | ||||||
25,814 | Melco Crown Entertainment, Ltd., ADR | 410,443 | ||||||
99,934 | Merlin Entertainments plc | 552,097 | ||||||
133,873 | MGM China Holdings, Ltd. | 276,372 | ||||||
30,800 | Oriental Land Co., Ltd. | 1,739,013 | ||||||
11,216 | Paddy Power plc | 1,198,252 | ||||||
341,932 | Sands China, Ltd. | 1,470,648 | ||||||
207,333 | Shangri-La Asia, Ltd. | 218,397 | ||||||
220,987 | SJM Holdings, Ltd. | 172,700 | ||||||
13,308 | Sodexo SA | 1,529,029 | ||||||
117,336 | Tabcorp Holdings, Ltd. | 407,012 | ||||||
216,069 | Tatts Group, Ltd. | 697,497 |
Continued
8
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Hotels, Restaurants & Leisure, continued | ||||||||
70,199 | TUI AG | $ | 1,002,849 | |||||
25,786 | Whitbread plc | 1,198,446 | ||||||
117,724 | William Hill plc | 419,516 | ||||||
223,600 | Wynn Macau, Ltd.^ | 354,035 | ||||||
|
| |||||||
23,410,968 | ||||||||
|
| |||||||
Household Durables (1.1%): | ||||||||
142,045 | Barratt Developments plc | 807,971 | ||||||
15,787 | Berkeley Group Holdings plc (The) | 545,601 | ||||||
30,700 | Casio Computer Co., Ltd. | 432,764 | ||||||
34,010 | Electrolux AB, Series B | 844,795 | ||||||
58,809 | Husqvarna AB, Class B | 456,835 | ||||||
21,200 | Iida Group Holdings Co., Ltd. | 401,404 | ||||||
49,100 | Nikon Corp. | 760,779 | ||||||
311,700 | Panasonic Corp. | 3,163,849 | ||||||
43,431 | Persimmon plc | 947,550 | ||||||
4,700 | Rinnai Corp. | 378,660 | ||||||
3,179 | SEB SA | 430,700 | ||||||
57,600 | Sekisui Chemical Co., Ltd. | 916,816 | ||||||
85,200 | Sekisui House, Ltd. | 1,415,262 | ||||||
223,000 | Sharp Corp.* | 513,800 | ||||||
178,200 | Sony Corp. | 4,953,006 | ||||||
461,637 | Taylor Wimpey plc | 866,835 | ||||||
197,500 | Techtronic Industries Co., Ltd. | 707,530 | ||||||
|
| |||||||
18,544,157 | ||||||||
|
| |||||||
Household Products (0.8%): | ||||||||
14,614 | Henkel AG & Co. KGaA | 1,517,684 | ||||||
34,000 | Lion Corp. | 557,366 | ||||||
89,007 | Reckitt Benckiser Group plc | 7,522,892 | ||||||
85,706 | Svenska Cellulosa AB, Class B | 2,417,736 | ||||||
57,000 | Unicharm Corp. | 1,245,033 | ||||||
|
| |||||||
13,260,711 | ||||||||
|
| |||||||
Independent Power & Renewable Electricity Producers (0.0%): | ||||||||
19,600 | Electric Power Development Co., Ltd. | 450,432 | ||||||
192,019 | Meridian Energy, Ltd. | 345,979 | ||||||
|
| |||||||
796,411 | ||||||||
|
| |||||||
Industrial Conglomerates (1.7%): | ||||||||
381,744 | CK Hutchison Holdings, Ltd. | 4,309,771 | ||||||
12,559 | DCC plc | 930,860 | ||||||
33,600 | Jardine Matheson Holdings, Ltd. | 1,853,479 | ||||||
1,700 | Jardine Matheson Holdings, Ltd. | 91,953 | ||||||
69,000 | Keihan Electric Railway Co., Ltd. | 452,047 | ||||||
206,200 | Keppel Corp., Ltd. | 819,552 | ||||||
131,415 | Koninklijke Philips Electronics NV | 4,005,084 | ||||||
215,834 | NWS Holdings, Ltd. | 350,944 | ||||||
24,400 | Seibu Holdings, Inc. | 436,714 | ||||||
160,500 | SembCorp Industries, Ltd. | 314,917 | ||||||
107,610 | Siemens AG, Registered Shares | 13,225,719 | ||||||
55,720 | Smiths Group plc | 967,765 | ||||||
568,000 | Toshiba Corp.* | 1,372,491 | ||||||
|
| |||||||
29,131,296 | ||||||||
|
| |||||||
Insurance (5.5%): | ||||||||
30,557 | Admiral Group plc | 685,096 | ||||||
257,533 | AEGON NV | 1,415,987 | ||||||
27,500 | Ageas NV | 1,088,155 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Insurance, continued | ||||||||
1,692,800 | AIA Group, Ltd. | $ | 9,473,846 | |||||
64,518 | Allianz SE, Registered Shares+ | 10,663,491 | ||||||
165,297 | Assicurazioni Generali SpA | 2,454,650 | ||||||
572,625 | Aviva plc | 3,416,346 | ||||||
272,065 | AXA SA | 6,864,274 | ||||||
7,061 | Baloise Holding AG, Registered Shares | 888,158 | ||||||
23,730 | CNP Assurances SA | 439,470 | ||||||
152,300 | Dai-ichi Life Insurance Co., Ltd. | 2,523,668 | ||||||
194,086 | Direct Line Insurance Group plc | 880,082 | ||||||
28,271 | Gjensidige Forsikring ASA | 448,873 | ||||||
8,522 | Hannover Rueck SE | 922,463 | ||||||
343,267 | Insurance Australia Group, Ltd. | 1,479,044 | ||||||
63,800 | Japan Post Holdings Co., Ltd. | 795,151 | ||||||
839,686 | Legal & General Group plc | 2,557,071 | ||||||
174,833 | MAPFRE SA | 533,429 | ||||||
391,433 | Medibank Private, Ltd. | 795,689 | ||||||
71,511 | MS&AD Insurance Group Holdings, Inc. | 2,209,728 | ||||||
22,740 | Muenchener Rueckversicherungs-Gesellschaft AG | 4,300,248 | ||||||
49,925 | NKSJ Holdings, Inc. | 1,686,042 | ||||||
44,741 | NN Group NV | 1,514,834 | ||||||
695,768 | Old Mutual plc | 1,764,759 | ||||||
73,563 | Poste Italiane SpA | 487,921 | ||||||
363,157 | Prudential plc | 7,242,379 | ||||||
193,591 | QBE Insurance Group, Ltd. | 1,738,491 | ||||||
143,820 | RSA Insurance Group plc | 1,037,113 | ||||||
63,138 | Sampo OYJ, Class A | 2,822,951 | ||||||
23,362 | SCOR SA | 806,955 | ||||||
26,200 | Sony Financial Holdings, Inc. | 406,150 | ||||||
74,320 | St. James Place plc | 924,263 | ||||||
278,763 | Standard Life plc | 1,270,771 | ||||||
181,696 | Suncorp-Metway, Ltd. | 1,766,967 | ||||||
4,530 | Swiss Life Holding AG, Registered Shares | 1,282,087 | ||||||
45,630 | Swiss Re AG | 4,324,304 | ||||||
81,836 | T&D Holdings, Inc. | 1,077,764 | ||||||
96,200 | Tokio Marine Holdings, Inc. | 3,934,173 | ||||||
17,591 | Tryg A/S | 318,129 | ||||||
168,326 | UnipolSai SpA | 359,314 | ||||||
21,243 | Zurich Insurance Group AG | 5,836,353 | ||||||
|
| |||||||
95,436,639 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (0.1%): | ||||||||
131,300 | Rakuten, Inc. | 1,285,006 | ||||||
25,000 | Start Today Co., Ltd. | 428,978 | ||||||
11,371 | Zalando SE* | 434,299 | ||||||
|
| |||||||
2,148,283 | ||||||||
|
| |||||||
Internet Software & Services (0.2%): | ||||||||
138,014 | Auto Trader Group plc | 694,800 | ||||||
14,900 | DeNA Co., Ltd. | 324,623 | ||||||
21,100 | Kakaku.com, Inc. | 348,902 | ||||||
5,200 | mixi, Inc. | 189,438 | ||||||
17,719 | United Internet AG, Registered Shares | 689,581 | ||||||
201,200 | Yahoo! Japan Corp. | 772,221 | ||||||
|
| |||||||
3,019,565 | ||||||||
|
| |||||||
IT Services (0.6%): | ||||||||
61,788 | Amadeus IT Holding SA | 2,806,580 | ||||||
12,444 | Atos Origin SA | 1,312,560 |
Continued
9
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
IT Services, continued | ||||||||
23,096 | Cap Gemini SA | $ | 1,947,581 | |||||
61,335 | Computershare, Ltd. | 551,274 | ||||||
263,000 | Fujitsu, Ltd. | 1,457,017 | ||||||
18,546 | Nomura Research Institute, Ltd. | 563,842 | ||||||
17,800 | NTT Data Corp. | 859,043 | ||||||
8,700 | OBIC Co., Ltd. | 379,518 | ||||||
7,700 | Otsuka Corp. | 358,969 | ||||||
253,973 | Worldpay Group plc | 842,135 | ||||||
|
| |||||||
11,078,519 | ||||||||
|
| |||||||
Leisure Products (0.2%): | ||||||||
28,200 | Namco Bandai Holdings, Inc. | 776,410 | ||||||
6,300 | Sankyo Co., Ltd. | 203,018 | ||||||
27,100 | Sega Sammy Holdings, Inc. | 402,447 | ||||||
10,500 | Shimano, Inc. | 1,643,703 | ||||||
23,700 | Yamaha Corp. | 722,378 | ||||||
|
| |||||||
3,747,956 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.2%): | ||||||||
160,422 | ART Advanced Research Technologies, Inc.*(b) | — | ||||||
50,591 | ART Advanced Research Technologies, Inc.*(b) | — | ||||||
165,100 | ART Advanced Research Technologies, Inc.*(b) | — | ||||||
1,543 | Eurofins Scientific SE | 657,253 | ||||||
7,470 | Lonza Group AG, Registered Shares | 1,291,821 | ||||||
31,372 | QIAGEN NV* | 880,026 | ||||||
|
| |||||||
2,829,100 | ||||||||
|
| |||||||
Machinery (2.5%): | ||||||||
44,089 | Alfa Laval AB | 728,654 | ||||||
20,025 | Alstom SA* | 550,935 | ||||||
44,900 | AMADA Co., Ltd. | 500,058 | ||||||
9,566 | Andritz AG | 480,101 | ||||||
94,964 | Atlas Copco AB, Class A | 2,887,936 | ||||||
54,910 | Atlas Copco AB, Class B | 1,495,168 | ||||||
144,265 | CNH Industrial NV | 1,254,110 | ||||||
27,300 | FANUC Corp. | 4,617,042 | ||||||
25,837 | GEA Group AG | 1,035,485 | ||||||
37,000 | Hino Motors, Ltd. | 375,524 | ||||||
16,400 | Hitachi Construction Machinery Co., Ltd. | 354,117 | ||||||
7,000 | Hoshizaki Electric Co., Ltd. | 553,425 | ||||||
179,000 | IHI Corp. | 464,163 | ||||||
38,298 | IMI plc | 488,314 | ||||||
29,900 | JTEKT Corp. | 476,792 | ||||||
200,000 | Kawasaki Heavy Industries, Ltd. | 624,370 | ||||||
130,400 | Komatsu, Ltd. | 2,943,659 | ||||||
47,614 | Kone OYJ, Class B | 2,132,827 | ||||||
149,400 | Kubota Corp. | 2,127,092 | ||||||
15,100 | Kurita Water Industries, Ltd. | 331,747 | ||||||
15,800 | Makita Corp. | 1,057,076 | ||||||
4,681 | MAN AG | 464,890 | ||||||
15,935 | Metso Corp. OYJ | 453,524 | ||||||
45,500 | Minebea Co., Ltd. | 425,080 | ||||||
453,000 | Mitsubishi Heavy Industries, Ltd. | 2,058,141 | ||||||
15,200 | Nabtesco Corp. | 352,922 | ||||||
37,300 | NGK Insulators, Ltd. | 721,545 | ||||||
64,300 | NSK, Ltd. | 741,723 | ||||||
150,526 | Sandvik AB | 1,859,070 | ||||||
5,733 | Schindler Holding AG | 1,009,840 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Machinery, continued | ||||||||
2,833 | Schindler Holding AG, Registered Shares | $ | 495,007 | |||||
56,188 | SKF AB, Class B | 1,031,813 | ||||||
8,100 | SMC Corp. | 1,927,812 | ||||||
80,000 | Sumitomo Heavy Industries, Ltd. | 513,831 | ||||||
17,900 | THK Co., Ltd. | 394,577 | ||||||
217,642 | Volvo AB, Class B | 2,537,113 | ||||||
20,891 | Wartsila Corp. OYJ, Class B | 938,237 | ||||||
31,615 | Weir Group plc (The) | 732,363 | ||||||
358,450 | Yangzijiang Shipbuilding Holdings, Ltd. | 200,625 | ||||||
28,871 | Zardoya Otis SA | 243,930 | ||||||
|
| |||||||
42,580,638 | ||||||||
|
| |||||||
Marine (0.2%): | ||||||||
541 | A.P. Moeller – Maersk A/S, Class A | 814,649 | ||||||
906 | A.P. Moeller – Maersk A/S, Class B | 1,441,814 | ||||||
7,634 | Kuehne & Nagel International AG, Registered Shares | 1,008,122 | ||||||
166,000 | Mitsui O.S.K. Lines, Ltd. | 458,572 | ||||||
220,000 | Nippon Yusen Kabushiki Kaisha^ | 407,291 | ||||||
|
| |||||||
4,130,448 | ||||||||
|
| |||||||
Media (1.3%): | ||||||||
52,414 | Altice NV, Class A* | 1,036,605 | ||||||
16,279 | Altice NV, Class B* | 323,689 | ||||||
6,392 | Axel Springer AG | 309,886 | ||||||
30,477 | Dentsu, Inc. | 1,435,798 | ||||||
23,455 | Eutelsat Communications SA | 453,981 | ||||||
30,100 | Hakuhodo DY Holdings, Inc. | 370,007 | ||||||
512,501 | ITV plc | 1,298,867 | ||||||
11,326 | JCDecaux SA^ | 332,438 | ||||||
19,936 | Lagardere SCA | 553,703 | ||||||
115,987 | Pearson plc | 1,163,812 | ||||||
30,913 | ProSiebenSat.1 Media AG | 1,194,857 | ||||||
26,753 | Publicis Groupe SA | 1,845,305 | ||||||
8,171 | REA Group, Ltd. | 324,528 | ||||||
5,481 | RTL Group | 401,676 | ||||||
11,517 | Schibsted ASA, Class A | 264,394 | ||||||
13,208 | Schibsted ASA, Class B | 280,110 | ||||||
51,430 | SES Global, Class A | 1,132,385 | ||||||
62,268 | Singapore Press Holdings, Ltd. | 151,467 | ||||||
145,561 | Sky plc | 1,770,622 | ||||||
7,593 | Telenet Group Holding NV* | 421,224 | ||||||
15,100 | Toho Co., Ltd. | 426,796 | ||||||
144,929 | Vivendi Universal SA | 2,752,897 | ||||||
182,213 | WPP plc | 4,072,821 | ||||||
|
| |||||||
22,317,868 | ||||||||
|
| |||||||
Metals & Mining (2.8%): | ||||||||
345,631 | Alumina, Ltd.^ | 454,615 | ||||||
197,957 | Anglo American plc* | 2,776,027 | ||||||
57,992 | Antofagasta plc | 477,400 | ||||||
259,672 | ArcelorMittal* | 1,914,213 | ||||||
298,214 | BHP Billiton plc | 4,714,295 | ||||||
450,876 | BHP Billiton, Ltd. | 8,046,452 | ||||||
38,606 | Boliden AB | 1,006,174 | ||||||
219,833 | Fortescue Metals Group, Ltd. | 928,113 | ||||||
32,984 | Fresnillo plc | 489,745 | ||||||
1,727,299 | Glencore International plc* | 5,804,651 |
Continued
10
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Metals & Mining, continued | ||||||||
29,800 | Hitachi Metals, Ltd. | $ | 402,740 | |||||
73,700 | JFE Holdings, Inc. | 1,118,588 | ||||||
45,500 | Kobe Steel, Ltd.* | 431,999 | ||||||
7,500 | Maruichi Steel Tube, Ltd. | 243,565 | ||||||
15,800 | Mitsubishi Materials Corp. | 482,386 | ||||||
108,274 | Newcrest Mining, Ltd. | 1,526,303 | ||||||
114,048 | Nippon Steel Corp. | 2,537,065 | ||||||
189,858 | Norsk Hydro ASA | 906,934 | ||||||
13,231 | Randgold Resources, Ltd. | 1,011,563 | ||||||
174,511 | Rio Tinto plc | 6,644,383 | ||||||
59,989 | Rio Tinto, Ltd. | 2,579,985 | ||||||
751,462 | South32, Ltd. | 1,482,617 | ||||||
69,000 | Sumitomo Metal & Mining Co., Ltd. | 887,596 | ||||||
51,960 | ThyssenKrupp AG | 1,237,944 | ||||||
17,404 | Voestalpine AG | 683,187 | ||||||
|
| |||||||
48,788,540 | ||||||||
|
| |||||||
Multiline Retail (0.3%): | ||||||||
17,600 | Don Quijote Co., Ltd. | 650,269 | ||||||
80,935 | Harvey Norman Holdings, Ltd. | 299,866 | ||||||
44,800 | Isetan Mitsukoshi Holdings, Ltd. | 481,746 | ||||||
32,600 | J. Front Retailing Co., Ltd. | 438,155 | ||||||
228,905 | Marks & Spencer Group plc | 985,418 | ||||||
29,800 | MARUI GROUP Co., Ltd. | 434,203 | ||||||
19,963 | Next plc | 1,221,585 | ||||||
3,300 | Ryohin Keikaku Co., Ltd. | 645,346 | ||||||
45,000 | Takashimaya Co., Ltd. | 370,520 | ||||||
|
| |||||||
5,527,108 | ||||||||
|
| |||||||
Multi-Utilities (1.1%): | ||||||||
95,369 | AGL Energy, Ltd. | 1,517,036 | ||||||
766,352 | Centrica plc | 2,207,542 | ||||||
363,171 | Duet Group | 717,532 | ||||||
282,578 | E.ON AG | 1,970,637 | ||||||
206,420 | Engie Group | 2,629,348 | ||||||
19,623 | Innogy Se* | 682,173 | ||||||
529,198 | National Grid plc | 6,188,119 | ||||||
69,134 | RWE AG* | 859,647 | ||||||
47,126 | Suez Environnement Co. | 694,954 | ||||||
63,828 | Veolia Environnement SA | 1,084,885 | ||||||
|
| |||||||
18,551,873 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (5.2%): | ||||||||
2,652,673 | BP plc | 16,479,624 | ||||||
36,863 | Caltex Australia, Ltd. | 809,148 | ||||||
359,143 | ENI SpA | 5,821,968 | ||||||
46,522 | Galp Energia SGPS SA | 691,454 | ||||||
13,700 | Idemitsu Kosan Co., Ltd. | 363,206 | ||||||
134,200 | INPEX Corp. | 1,339,981 | ||||||
299,470 | JX Holdings, Inc. | 1,262,984 | ||||||
9,900 | Koninklijke Vopak NV | 466,960 | ||||||
21,869 | Lundin Petroleum AB* | 474,282 | ||||||
18,211 | Neste Oil OYJ | 698,994 | ||||||
193,505 | Oil Search, Ltd. | 998,871 | ||||||
21,848 | OMV AG | 769,523 | ||||||
247,528 | Origin Energy, Ltd. | 1,173,780 | ||||||
161,584 | Repsol SA | 2,272,430 | ||||||
610,206 | Royal Dutch Shell plc, Class A | 16,811,250 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
529,003 | Royal Dutch Shell plc, Class B | $ | 15,093,021 | |||||
236,820 | Santos, Ltd. | 683,943 | ||||||
25,100 | Showa Shell Sekiyu K.K. | 233,212 | ||||||
347,063 | Snam SpA | 1,427,383 | ||||||
158,044 | Statoil ASA | 2,881,754 | ||||||
41,000 | TonenGeneral Sekiyu K.K. | 431,528 | ||||||
317,207 | Total SA | 16,190,362 | ||||||
107,044 | Woodside Petroleum, Ltd. | 2,401,963 | ||||||
|
| |||||||
89,777,621 | ||||||||
|
| |||||||
Paper & Forest Products (0.2%): | ||||||||
51,815 | Mondi plc | 1,058,635 | ||||||
108,000 | OYI Paper Co., Ltd. | 439,072 | ||||||
79,485 | Stora Enso OYJ, Registered Shares | 851,347 | ||||||
75,356 | UPM-Kymmene OYJ | 1,846,477 | ||||||
|
| |||||||
4,195,531 | ||||||||
|
| |||||||
Personal Products (1.7%): | ||||||||
14,263 | Beiersdorf AG | 1,210,090 | ||||||
71,100 | Kao Corp. | 3,364,392 | ||||||
4,200 | KOSE Corp. | 348,465 | ||||||
35,469 | L’Oreal SA | 6,464,948 | ||||||
3,200 | POLA ORBIS HOLDINGS, Inc. | 263,906 | ||||||
53,600 | Shiseido Co., Ltd. | 1,354,234 | ||||||
228,650 | Unilever NV | 9,396,070 | ||||||
181,144 | Unilever plc | 7,326,078 | ||||||
|
| |||||||
29,728,183 | ||||||||
|
| |||||||
Pharmaceuticals (7.8%): | ||||||||
298,000 | Astellas Pharma, Inc. | 4,131,167 | ||||||
178,513 | AstraZeneca plc | 9,679,736 | ||||||
116,243 | Bayer AG, Registered Shares | 12,125,414 | ||||||
31,600 | Chugai Pharmaceutical Co., Ltd. | 905,148 | ||||||
85,100 | Daiichi Sankyo Co., Ltd. | 1,738,218 | ||||||
22,800 | Dainippon Sumitomo Pharma Co., Ltd. | 391,545 | ||||||
35,600 | Eisai Co., Ltd. | 2,035,344 | ||||||
510 | Galenica AG | 574,407 | ||||||
684,957 | GlaxoSmithKline plc | 13,078,560 | ||||||
20,280 | Hikma Pharmaceuticals plc | 470,335 | ||||||
8,500 | Hisamitsu Pharmaceutical Co., Inc. | 424,077 | ||||||
36,400 | Kyowa Hakko Kogyo Co., Ltd. | 500,752 | ||||||
18,253 | Merck KGaA | 1,904,623 | ||||||
33,300 | Mitsubishi Tanabe Pharma Corp. | 652,376 | ||||||
314,614 | Novartis AG, Registered Shares | 22,891,341 | ||||||
269,935 | Novo Nordisk A/S, Class B | 9,697,715 | ||||||
58,200 | Ono Pharmaceutical Co., Ltd. | 1,269,096 | ||||||
15,465 | Orion OYJ, Class B | 688,209 | ||||||
55,100 | Otsuka Holdings Co., Ltd. | 2,397,659 | ||||||
98,924 | Roche Holding AG | 22,546,793 | ||||||
163,028 | Sanofi-Aventis SA | 13,183,132 | ||||||
53,100 | Santen Pharmaceutical Co., Ltd. | 648,566 | ||||||
42,100 | Shionogi & Co., Ltd. | 2,009,064 | ||||||
4,800 | Taisho Pharmaceutical Holdings Co., Ltd. | 397,655 | ||||||
100,400 | Takeda Pharmacuetical Co., Ltd. | 4,147,080 | ||||||
2,534 | Taro Pharmaceutical Industries, Ltd.*^ | 266,754 | ||||||
129,485 | Teva Pharmaceutical Industries, Ltd., ADR | 4,693,832 | ||||||
17,853 | UCB SA | 1,142,570 | ||||||
|
| |||||||
134,591,168 | ||||||||
|
|
Continued
11
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Professional Services (1.1%): | ||||||||
23,386 | Adecco SA, Registered Shares | $ | 1,527,309 | |||||
38,204 | Bureau Veritas SA | 740,101 | ||||||
96,644 | Capita Group plc | 632,609 | ||||||
135,507 | Experian plc | 2,622,463 | ||||||
22,769 | Intertek Group plc | 971,269 | ||||||
16,794 | Randstad Holding NV | 909,475 | ||||||
51,900 | Recruit Holdings Co., Ltd. | 2,078,596 | ||||||
154,398 | Reed Elsevier plc | 2,745,372 | ||||||
140,583 | RELX NV | 2,362,788 | ||||||
46,524 | Seek, Ltd. | 498,102 | ||||||
774 | SGS SA, Registered Shares | 1,572,284 | ||||||
42,643 | Wolters Kluwer NV | 1,541,907 | ||||||
|
| |||||||
18,202,275 | ||||||||
|
| |||||||
Real Estate Management & Development (1.9%): | ||||||||
15,060 | AEON Mall Co., Ltd. | 211,367 | ||||||
6,852 | Azrieli Group | 296,703 | ||||||
74,028 | BGP Holdings plc*(b) | 2,376 | ||||||
363,100 | CapitaLand, Ltd. | 754,416 | ||||||
379,244 | Cheung Kong Property Holdings, Ltd. | 2,299,918 | ||||||
57,700 | City Developments, Ltd. | 328,745 | ||||||
9,900 | Daito Trust Construction Co., Ltd. | 1,487,082 | ||||||
80,000 | Daiwa House Industry Co., Ltd. | 2,182,642 | ||||||
47,693 | Deutsche Wohnen AG | 1,495,399 | ||||||
424,200 | Global Logistic Properties, Ltd. | 642,786 | ||||||
124,000 | Hang Lung Group, Ltd. | 431,084 | ||||||
327,000 | Hang Lung Properties, Ltd. | 684,719 | ||||||
154,627 | Henderson Land Development Co., Ltd. | 816,307 | ||||||
167,100 | Hongkong Land Holdings, Ltd. | 1,032,678 | ||||||
40,900 | Hulic Co., Ltd. | 362,835 | ||||||
90,000 | Hysan Development Co., Ltd. | 371,054 | ||||||
7,136 | IMMOEAST AG NPV(BR)*(a)(b) | — | ||||||
99,775 | Kerry Properties, Ltd. | 268,858 | ||||||
78,059 | Lend Lease Group | 820,893 | ||||||
177,000 | Mitsubishi Estate Co., Ltd. | 3,509,052 | ||||||
126,000 | Mitsui Fudosan Co., Ltd. | 2,907,870 | ||||||
798,623 | New World Development Co., Ltd. | 837,152 | ||||||
16,100 | Nomura Real Estate Holdings, Inc. | 273,324 | ||||||
444,601 | Sino Land Co., Ltd. | 658,130 | ||||||
50,000 | Sumitomo Realty & Development Co., Ltd. | 1,325,095 | ||||||
205,000 | Sun Hung Kai Properties, Ltd. | 2,566,759 | ||||||
76,964 | Swire Pacific, Ltd., Class A | 734,717 | ||||||
157,000 | Swire Properties, Ltd. | 430,224 | ||||||
9,911 | Swiss Prime Site AG | 811,327 | ||||||
30,200 | Tokyo Tatemono Co., Ltd. | 403,020 | ||||||
71,200 | Tokyu Fudosan Holdings Corp. | 419,505 | ||||||
71,796 | UOL Group, Ltd. | 295,819 | ||||||
65,821 | Vonovia SE | 2,143,731 | ||||||
192,300 | Wharf Holdings, Ltd. (The) | 1,263,778 | ||||||
108,897 | Wheelock & Co., Ltd. | 611,304 | ||||||
|
| |||||||
33,680,669 | ||||||||
|
| |||||||
Road & Rail (1.2%): | ||||||||
289,504 | Aurizon Holdings, Ltd. | 1,053,271 | ||||||
20,300 | Central Japan Railway Co. | 3,334,588 | ||||||
327,000 | ComfortDelGro Corp., Ltd. | 555,611 | ||||||
26,829 | DSV A/S | 1,193,802 | ||||||
46,513 | East Japan Railway Co. | 4,012,832 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Road & Rail, continued | ||||||||
34,100 | Hankyu Hanshin Holdings, Inc. | $ | 1,092,427 | |||||
68,000 | Keihin Electric Express Railway Co., Ltd. | 787,141 | ||||||
85,000 | Keio Corp. | 697,947 | ||||||
18,600 | Keisei Electric Railway Co., Ltd. | 450,820 | ||||||
256,000 | Kintetsu Corp. | 975,506 | ||||||
207,994 | MTR Corp., Ltd. | 1,005,490 | ||||||
125,000 | Nagoya Railroad Co., Ltd. | 603,837 | ||||||
110,000 | Nippon Express Co., Ltd. | 590,929 | ||||||
41,600 | Odakyu Electric Railway Co., Ltd. | 821,961 | ||||||
142,000 | Tobu Railway Co., Ltd. | 703,806 | ||||||
150,000 | Tokyu Corp. | 1,100,640 | ||||||
23,200 | West Japan Railway Co. | 1,421,867 | ||||||
|
| |||||||
20,402,475 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (1.0%): | ||||||||
36,900 | ASM Pacific Technology, Ltd. | 390,660 | ||||||
52,000 | ASML Holding NV | 5,825,431 | ||||||
159,760 | Infineon Technologies AG | 2,768,537 | ||||||
18,536 | NXP Semiconductors NV* | 1,816,713 | ||||||
22,984 | NXP Semiconductors NV* | 2,252,662 | ||||||
12,300 | ROHM Co., Ltd. | 705,975 | ||||||
91,965 | STMicroelectronics NV | 1,042,546 | ||||||
22,100 | Tokyo Electron, Ltd. | 2,083,825 | ||||||
|
| |||||||
16,886,349 | ||||||||
|
| |||||||
Software (1.4%): | ||||||||
18,277 | Check Point Software Technologies, Ltd.*^ | 1,543,675 | ||||||
18,149 | Dassault Systemes SA | 1,382,404 | ||||||
11,675 | Gemalto NV | 673,979 | ||||||
12,400 | Konami Corp.^ | 499,684 | ||||||
6,100 | Line Corp.* | 208,037 | ||||||
24,763 | Mobileye NV* | 943,966 | ||||||
25,000 | Nexon Co., Ltd. | 361,349 | ||||||
8,416 | NICE Systems, Ltd. | 577,583 | ||||||
16,000 | Nintendo Co., Ltd. | 3,345,158 | ||||||
6,000 | Oracle Corp. | 301,968 | ||||||
152,405 | Sage Group plc | 1,225,365 | ||||||
138,763 | SAP AG | 12,125,463 | ||||||
14,700 | Trend Micro, Inc. | 521,386 | ||||||
|
| |||||||
23,710,017 | ||||||||
|
| |||||||
Specialty Retail (1.0%): | ||||||||
5,200 | ABC-Mart, Inc. | 294,194 | ||||||
127,741 | Dixons Carphone plc | 556,804 | ||||||
6,487 | Dufry AG, Registered Shares* | 809,097 | ||||||
7,500 | Fast Retailing Co., Ltd. | 2,676,169 | ||||||
134,012 | Hennes & Mauritz AB, Class B | 3,721,780 | ||||||
2,900 | Hikari Tsushin, Inc. | 269,966 | ||||||
153,594 | Industria de Diseno Textil SA | 5,240,717 | ||||||
320,659 | Kingfisher plc | 1,380,647 | ||||||
11,300 | Nitori Co., Ltd. | 1,291,468 | ||||||
3,200 | Shimamura Co., Ltd. | 399,285 | ||||||
28,900 | USS Co., Ltd. | 459,503 | ||||||
94,400 | Yamada Denki Co., Ltd. | 507,801 | ||||||
|
| |||||||
17,607,431 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (0.6%): | ||||||||
32,900 | Brother Industries, Ltd. | 591,715 | ||||||
150,600 | Canon, Inc. | 4,217,883 |
Continued
12
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Technology Hardware, Storage & Peripherals, continued | ||||||||
61,700 | Fujifilm Holdings Corp. | $ | 2,338,096 | |||||
63,700 | Konica Minolta Holdings, Inc. | 631,102 | ||||||
368,000 | NEC Corp. | 972,302 | ||||||
94,600 | Ricoh Co., Ltd. | 798,255 | ||||||
39,800 | Seiko Epson Corp. | 840,829 | ||||||
|
| |||||||
10,390,182 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (1.7%): | ||||||||
26,586 | Adidas AG | 4,201,066 | ||||||
21,600 | ASICS Corp. | 430,608 | ||||||
62,818 | Burberry Group plc | 1,157,711 | ||||||
7,691 | Christian Dior SA | 1,611,089 | ||||||
73,693 | Compagnie Financiere Richemont SA | 4,880,785 | ||||||
3,726 | Hermes International SA | 1,527,827 | ||||||
9,329 | Hugo Boss AG | 575,553 | ||||||
10,693 | Kering | 2,396,862 | ||||||
811,120 | Li & Fung, Ltd.^ | 354,660 | ||||||
23,932 | Luxottica Group SpA | 1,288,865 | ||||||
39,070 | LVMH Moet Hennessy Louis Vuitton SA | 7,448,689 | ||||||
15,704 | Pandora A/S | 2,051,509 | ||||||
4,356 | Swatch Group AG (The), Class B^ | 1,354,808 | ||||||
7,028 | Swatch Group AG (The), Registered Shares | 429,660 | ||||||
107,486 | Yue Yuen Industrial Holdings, Ltd. | 389,094 | ||||||
|
| |||||||
30,098,786 | ||||||||
|
| |||||||
Tobacco (1.5%): | ||||||||
262,137 | British American Tobacco plc | 14,881,378 | ||||||
135,331 | Imperial Tobacco Group plc, Class A | 5,886,153 | ||||||
155,300 | Japan Tobacco, Inc. | 5,102,788 | ||||||
26,689 | Swedish Match AB, Class B | 848,296 | ||||||
|
| |||||||
26,718,615 | ||||||||
|
| |||||||
Trading Companies & Distributors (1.4%): | ||||||||
22,341 | AerCap Holdings NV* | 929,609 | ||||||
71,055 | Ashtead Group plc | 1,376,362 | ||||||
21,805 | Brenntag AG | 1,208,128 | ||||||
47,315 | Bunzl plc | 1,224,194 | ||||||
211,300 | ITOCHU Corp. | 2,801,063 | ||||||
232,800 | Marubeni Corp. | 1,317,247 | ||||||
38,700 | Misumi Group, Inc. | 635,215 | ||||||
213,300 | Mitsubishi Corp. | 4,533,043 | ||||||
240,900 | Mitsui & Co., Ltd. | 3,304,424 | ||||||
42,562 | Rexel SA | 699,079 | ||||||
167,700 | Sumitomo Corp. | 1,970,280 | ||||||
30,900 | Toyota Tsushu Corp. | 802,988 | ||||||
34,908 | Travis Perkins plc | 623,828 | ||||||
35,600 | Wolseley plc | 2,174,592 | ||||||
|
| |||||||
23,600,052 | ||||||||
|
| |||||||
Transportation Infrastructure (0.6%): | ||||||||
98,639 | Abertis Infraestructuras SA | 1,379,887 | ||||||
9,558 | Aena SA^ | 1,303,833 | ||||||
4,091 | Aeroports de Paris | 438,209 | ||||||
58,360 | Atlantia SpA | 1,365,354 |
Contracts, Notional Amount or Amount | Fair Value | |||||||
Common Stocks, continued | ||||||||
Transportation Infrastructure, continued | ||||||||
121,970 | Auckland International Airport, Ltd. | $ | 528,387 | |||||
6,143 | Fraport AG | 362,782 | ||||||
69,712 | Groupe Eurotunnel SA | 661,717 | ||||||
716,100 | Hutchison Port Holdings Trust | 311,404 | ||||||
38,000 | Hutchison Port Holdings Trust* | 17,100 | ||||||
7,500 | Japan Airport Terminal Co., Ltd.^ | 270,849 | ||||||
32,000 | Kamigumi Co., Ltd. | 304,507 | ||||||
13,000 | Mitsubishi Logistics Corp. | 183,495 | ||||||
95,000 | SATS, Ltd. | 317,470 | ||||||
155,395 | Sydney Airport | 669,191 | ||||||
287,216 | Transurban Group | 2,138,529 | ||||||
|
| |||||||
10,252,714 | ||||||||
|
| |||||||
Water Utilities (0.1%): | ||||||||
33,387 | Severn Trent plc | 913,321 | ||||||
96,517 | United Utilities Group plc | 1,069,249 | ||||||
|
| |||||||
1,982,570 | ||||||||
|
| |||||||
Wireless Telecommunication Services (1.7%): | ||||||||
258,900 | KDDI Corp. | 6,537,523 | ||||||
8,973 | Millicom International Cellular SA, SDR | 383,433 | ||||||
195,600 | NTT DoCoMo, Inc. | 4,448,663 | ||||||
135,600 | SoftBank Group Corp. | 8,953,101 | ||||||
99,202 | StarHub, Ltd. | 191,913 | ||||||
48,913 | Tele2 AB | 392,252 | ||||||
3,726,461 | Vodafone Group plc | 9,163,616 | ||||||
|
| |||||||
30,070,501 | ||||||||
|
| |||||||
Total Common Stocks (Cost $1,610,290,761) | 1,702,596,059 | |||||||
|
| |||||||
Preferred Stocks (0.5%): | ||||||||
Automobiles (0.3%): | ||||||||
7,717 | Bayerische Motoren Werke AG (BMW), 4.42% | 591,813 | ||||||
21,617 | Porsche Automobil Holding SE, 1.96% | 1,174,962 | ||||||
26,211 | Volkswagen AG, 0.13% | 3,671,692 | ||||||
|
| |||||||
5,438,467 | ||||||||
|
| |||||||
Household Products (0.2%): | ||||||||
25,205 | Henkel AG & Co. KGaA, 1.30% | 3,005,424 | ||||||
|
| |||||||
Total Preferred Stocks (Cost $7,776,170) | 8,443,891 | |||||||
|
| |||||||
Rights (0.0%): | ||||||||
Aerospace & Defense (0.0%): | ||||||||
5,806,258 | Rolls-Royce Redemption Shares, Expires on 1/07/17(b) | 7,154 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.0%): | ||||||||
161,584 | Repsol SA, Expires on 1/09/17 | 59,864 | ||||||
315,371 | TOTAL SA, Expires on 1/05/17(b)^ | 202,476 | ||||||
|
| |||||||
262,340 | ||||||||
|
| |||||||
Total Rights (Cost $201,353) | 269,494 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (0.5%): | ||||||||
$9,211,676 | AZL International Index Fund Securities Lending Collateral Account(c) | 9,211,676 | ||||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 9,211,676 | ||||||
|
|
Continued
13
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2016
Contracts, Notional Amount or Amount | Fair Value | |||||||
Unaffiliated Investment Company (0.2%): | ||||||||
$ | 3,582,043 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(d) | $ | 3,582,043 | ||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $3,582,043) | 3,582,043 | |||||||
|
| |||||||
| Total Investment Securities | 1,724,103,163 | ||||||
Net other assets (liabilities) — 0.3% | 4,606,925 | |||||||
|
| |||||||
Net Assets — 100.0% | $ | 1,728,710,088 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
Amounts shown as “—” are either $0 or rounds to less than $1.
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, 2016. The total value of securities on loan as of December 31, 2016, was $8,052,868. |
+ | Affiliated Securities |
(a) | The sub-adviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2016, these securities represent 0.05% 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, 2016. The total of all such securities represent 0.01% 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, 2016. |
(d) | The rate represents the effective yield at December 31, 2016. |
(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, 2016: (Unaudited)
Country | Percentage | |||
Australia | 7.3 | % | ||
Austria | 0.2 | % | ||
Belgium | 1.2 | % | ||
Bermuda | 0.2 | % | ||
Canada | — | % | ||
China | — | %NM | ||
Denmark | 1.6 | % | ||
Finland | 1.0 | % | ||
France | 9.6 | % | ||
Germany | 9.3 | % | ||
Hong Kong | 3.1 | % | ||
Ireland (Republic of) | 1.0 | % | ||
Israel | 0.7 | % | ||
Italy | 1.9 | % |
Country | Percentage | |||
Japan | 23.8 | % | ||
Luxembourg | 0.3 | % | ||
Netherlands | 3.8 | % | ||
New Zealand | 0.2 | % | ||
Norway | 0.7 | % | ||
Portugal | 0.1 | % | ||
Singapore | 1.2 | % | ||
Spain | 3.1 | % | ||
Sweden | 2.8 | % | ||
Switzerland | 9.1 | % | ||
United Arab Emirates | — | %NM | ||
United Kingdom | 17.1 | % | ||
United States | 0.7 | % | ||
|
| |||
100.0 | % | |||
|
|
NM | Not meaningful, amount is less than 0.05%. |
Continued
14
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2016
Futures Contracts
Cash of $793,179 has been segregated to cover margin requirements for the following open contracts as of December 31, 2016:
Description | Type | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
ASX SPI 200 Index March Futures (Australian Dollar) | Long | 3/16/17 | 20 | $ | 2,031,385 | $ | 29,482 | ||||||||||||||||||
DJ EURO STOXX 50 March Futures (Euro) | Long | 3/17/17 | 171 | 5,897,855 | 101,275 | ||||||||||||||||||||
FTSE 100 Index March Futures (British Pounds) | Long | 3/17/17 | 43 | 3,735,398 | 65,791 | ||||||||||||||||||||
SGX Nikkei 225 Index March Futures (Japanese Yen) | Long | 3/9/17 | 45 | 3,671,701 | 72,506 | ||||||||||||||||||||
|
| ||||||||||||||||||||||||
Total | $ | 269,054 | |||||||||||||||||||||||
|
|
See accompanying notes to the financial statements.
15
AZL International Index Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investments in non-affiliates, at cost | $ | 1,621,938,450 | |||
Investments in affiliates, at cost | 9,123,553 | ||||
|
| ||||
Total Investment securities, at cost | $ | 1,631,062,003 | |||
|
| ||||
Investments in non-affiliates, at value | $ | 1,713,439,672 | |||
Investments in affiliates, at value | 10,663,491 | ||||
|
| ||||
Total Investment securities, at value* | $ | 1,724,103,163 | |||
|
| ||||
Cash | 15,953 | ||||
Segregated cash for collateral | 793,179 | ||||
Interest and dividends receivable | 1,880,137 | ||||
Foreign currency, at value (cost $10,509,860) | 10,519,097 | ||||
Receivable for investments sold | 207,331 | ||||
Receivable for variation margin on futures contracts | 19,882 | ||||
Reclaims receivable | 2,319,322 | ||||
Prepaid expenses | 9,357 | ||||
|
| ||||
Total Assets | 1,739,867,421 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 157,913 | ||||
Payable for capital shares redeemed | 375,277 | ||||
Payable for collateral received on loaned securities | 9,211,676 | ||||
Manager fees payable | 510,218 | ||||
Administration fees payable | 36,993 | ||||
Distribution fees payable | 338,301 | ||||
Custodian fees payable | 49,765 | ||||
Administrative and compliance services fees payable | 4,594 | ||||
Trustee fees payable | 3,489 | ||||
Other accrued liabilities | 469,107 | ||||
|
| ||||
Total Liabilities | 11,157,333 | ||||
|
| ||||
Net Assets | $ | 1,728,710,088 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 1,639,753,674 | |||
Accumulated net investment income/(loss) | 14,300,600 | ||||
Accumulated net realized gains/(losses) from investment transactions | (18,496,548 | ) | |||
Net unrealized appreciation/(depreciation) on investments | 93,152,362 | ||||
|
| ||||
Net Assets | $ | 1,728,710,088 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 123,158,073 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 12,225,328 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.07 | |||
|
| ||||
Class 2 | |||||
Net Assets | $ | 1,605,552,015 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 113,849,308 | ||||
Net Asset Value (offering and redemption price per share) | $ | 14.10 | |||
|
|
* | Includes securities on loan of $8,052,868. |
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Dividends | $ | 24,399,323 | |||
Dividends from affiliates | 185,014 | ||||
Income from securities lending | 344,021 | ||||
Foreign withholding tax | (2,759,837 | ) | |||
|
| ||||
Total Investment Income | 22,168,521 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,803,703 | ||||
Administration fees | 277,579 | ||||
Distribution fees — Class 2 | 1,938,161 | ||||
Custodian fees | 117,478 | ||||
Administrative and compliance services fees | 9,001 | ||||
Trustee fees | 28,775 | ||||
Professional fees | 48,845 | ||||
Shareholder reports | 31,689 | ||||
Recoupment of prior expenses reimbursed by the manager | 37,705 | ||||
Other expenses | 278,852 | ||||
|
| ||||
Total expenses | 5,571,788 | ||||
|
| ||||
Net Investment Income/(Loss) | 16,596,733 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 59,903,782 | ||||
Net realized gains/(losses) from affiliated transactions | (5,292 | ) | |||
Net realized gains/(losses) on futures contracts | 1,301,181 | ||||
Change in net unrealized appreciation/depreciation on investments | (69,297,090 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | (8,097,419 | ) | |||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 8,499,314 | |||
|
|
See accompanying notes to the financial statements.
16
Statements of Changes in Net Assets
AZL International Index Fund | ||||||||||
For the Year Ended December 31, 2016 | For the Year Ended December 31, 2015 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 16,596,733 | $ | 14,714,904 | ||||||
Net realized gains/(losses) on investment transactions | 61,199,671 | 24,583,783 | ||||||||
Change in unrealized appreciation/depreciation on investments | (69,297,090 | ) | (12,593,414 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 8,499,314 | 26,705,273 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1* | — | — | ||||||||
Class 2 | (15,359,017 | ) | (23,639,714 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (15,359,017 | ) | (23,639,714 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Class 1* | ||||||||||
Proceeds from shares issued | 128,504,865 | |||||||||
Value of shares redeemed | (6,235,117 | ) | ||||||||
|
| |||||||||
Total Class 1 Shares | 122,269,748 | |||||||||
|
| |||||||||
Class 2 | ||||||||||
Proceeds from shares issued | 590,662,470 | 105,467,563 | ||||||||
Proceeds from shares issued in merger | 526,478,321 | — | ||||||||
Proceeds from dividends reinvested | 15,359,017 | 23,639,714 | ||||||||
Value of shares redeemed | (95,529,373 | ) | (419,145,072 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | 1,036,970,435 | (290,037,795 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 1,159,240,183 | (290,037,795 | ) | |||||||
|
|
|
| |||||||
Change in net assets | 1,152,380,480 | (286,972,236 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 576,329,608 | 863,301,844 | ||||||||
|
|
|
| |||||||
End of period | $ | 1,728,710,088 | $ | 576,329,608 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 14,300,600 | $ | 13,314,453 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Class 1* | ||||||||||
Shares issued | 12,850,775 | |||||||||
Shares redeemed | (625,447 | ) | ||||||||
|
| |||||||||
Total Class 1 Shares | 12,225,328 | |||||||||
|
| |||||||||
Class 2 | ||||||||||
Shares issued | 42,216,948 | 6,787,158 | ||||||||
Shares issued in merger | 37,338,888 | — | ||||||||
Dividends reinvested | 1,091,615 | 1,634,835 | ||||||||
Shares redeemed | (6,757,221 | ) | (24,955,414 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | 73,890,230 | (16,533,421 | ) | |||||||
|
|
|
| |||||||
Change in shares | 86,115,558 | (16,533,421 | ) | |||||||
|
|
|
|
* | For the period October 17, 2016 (commencement of operations) to December 31, 2016. |
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, | |||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||
Class 1* | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.00 | |||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.12 | ||||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (0.05 | ) | |||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Total from Investment Activities | 0.07 | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Net Asset Value, End of Period | $ | 10.07 | |||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Total Return(a) | 0.70 | %(b) | |||||||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 123,158 | |||||||||||||||||||||||
Net Investment Income/(Loss)(c) | 1.19 | % | |||||||||||||||||||||||
Expenses Before Reductions(d)(c) | 0.40 | % | |||||||||||||||||||||||
Expenses Net of Reductions(c) | 0.40 | % | |||||||||||||||||||||||
Portfolio Turnover Rate(e) | 55 | %(f) | |||||||||||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 14.42 | $ | 15.28 | $ | 16.57 | $ | 13.93 | $ | 12.03 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.15 | 0.58 | 0.42 | 0.29 | 0.26 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (0.10 | ) | (0.79 | ) | (1.43 | ) | 2.65 | 1.89 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 0.05 | (0.21 | ) | (0.99 | ) | 2.94 | 2.15 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.37 | ) | (0.65 | ) | (0.30 | ) | (0.30 | ) | (0.25 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.37 | ) | (0.65 | ) | (0.30 | ) | (0.30 | ) | (0.25 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 14.10 | $ | 14.42 | $ | 15.28 | $ | 16.57 | $ | 13.93 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 0.37 | % | (1.39 | )% | (6.18 | )% | 21.36 | % | 18.04 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 1,605,552 | $ | 576,330 | $ | 863,302 | $ | 808,196 | $ | 567,238 | |||||||||||||||
Net Investment Income/(Loss) | 2.11 | % | 2.16 | % | 2.88 | % | 2.23 | % | 2.66 | % | |||||||||||||||
Expenses Before Reductions(d) | 0.71 | % | 0.75 | % | 0.75 | % | 0.76 | % | 0.80 | % | |||||||||||||||
Expenses Net of Reductions | 0.71 | % | 0.74 | % | 0.75 | % | 0.76 | % | 0.77 | % | |||||||||||||||
Portfolio Turnover Rate(e) | 55 | %(f) | 13 | % | 3 | % | 2 | % | 3 | % |
* | For the period October 17, 2016 (commencement of operations) to December 31, 2016. |
(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) | Not annualized. |
(c) | Annualized for periods less than one year. |
(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. Not annualized for periods less than one year. |
(f) | Cost of purchases and proceeds from sales of portfolio securities incurred to realign the Fund’s portfolio after the fund merger are excluded from the portfolio turnover rate. If such amounts had not been excluded, the portfolio turnover rate would have been 55%. |
See accompanying notes to the financial statements.
18
AZL International Index Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 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 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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.
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
19
AZL International Index Fund
Notes to the Financial Statements
December 31, 2016
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 differing treatment on certain investments) 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, 2016 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $15 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $37,937 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (“ASU No. 2014-11”), “Transfers & Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged, and the remaining contractual maturity of those transactions as of December 31, 2016.
Overnight and Continuous | Less than 30 Days | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions | $ | 8,669,840 | $ | 541,836 | $ | — | $ | — | $ | 9,211,676 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Securities Lending Transactions | 8,669,840 | 541,836 | — | — | 9,211,676 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Borrowings | $ | 8,669,840 | $ | 541,836 | $ | — | $ | — | $ | 9,211,676 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Gross Amount of Recognized Liabilities for Securities Lending Transactions | $ | 9,211,676 | |||||||||||||||||||||||
|
|
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and sub-adviser. Any such purchase or sale transaction must be effected without a brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security’s last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. During the year, the Fund engaged in such affiliated transactions at the current market price.
The Fund is permitted to purchase and sell securities (“crosstrade”) from and to other Allianz Funds as well as other funds and client accounts for which the Adviser or an affiliate of the Adviser serves as investment adviser, pursuant to procedures approved by the Trustees in compliance with Rule 17a-7 under the Act (the “Rule”). Each cross-trade is executed at the current market price in compliance with provisions of the Rule. For the year ended December 31, 2016, the Fund participated in following cross-trade transactions:
Purchases | Sales | Realized (Gain/Loss) | |||||||||||||
AZL International Index Fund | $ | (12,522,325 | ) | $ | 2,540,139 | $ | (419,650 | ) |
20
AZL International Index Fund
Notes to the Financial Statements
December 31, 2016
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, 2016, 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 $15.3 million as of December 31, 2016. The monthly average notional amount for these contracts was $8.2 million for the year ended December 31, 2016. 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, 2016:
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 Risk Exposure |
| |||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 269,054 | 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 the current day’s variation margin is reported within the Statement of Assets and Liabilities as Variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended December 31, 2016:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives Recognized | Change in Net Unrealized Appreciation/Depreciation on Derivatives Recognized | |||||||
Equity Risk Exposure |
| |||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/ Change in unrealized appreciation/depreciation on investments | $ | 1,301,181 | $50,467 |
3. Fees and Transactions with Affiliates and Other Parties
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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL International Index Fund Class 1 | 0.35 | % | 0.52 | % | ||||||
AZL International Index Fund Class 2 | 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, 2016, 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, 2016, there were no voluntary waivers.
21
AZL International Index Fund
Notes to the Financial Statements
December 31, 2016
The Manager or an affiliate of the Manager serves as the investment adviser of certain securities in which the Fund invests. At December 31, 2016, these investments are noted as Affiliated Securities in the Fund’s Schedule of Portfolio Investments. A summary of the Fund’s investments in affiliated securities for the year ended December 31, 2016 is as follows:
Fair Value 12/31/15 | Purchases at Cost | Proceeds from Sales | Net Realized Gain(Loss) | Fair Value 12/31/16 | Dividend Income | |||||||||||||||||||||||||
Allianz SE, Registered Shares | $ | 3,785,479 | $ | 6,692,893 | $ | (60,883 | ) | $ | (5,292 | ) | $ | 10,663,491 | $ | 185,014 | ||||||||||||||||
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|
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|
|
|
|
|
|
|
|
| |||||||||||||||||||
$ | 3,785,479 | $ | 6,692,893 | $ | (60,883 | ) | $ | (5,292 | ) | $ | 10,663,491 | $ | 185,014 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the average daily net assets attributable to Class 2 shares, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $9,431 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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 (the “Board” or “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.
22
AZL International Index Fund
Notes to the Financial Statements
December 31, 2016
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, 2016, 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, 2016 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 | $ | 369,508 | $ | 3,177,238 | $ | — | $ | 3,546,746 | ||||||||||||
Banks | 2,949,815 | 210,941,285 | — | 213,891,100 | ||||||||||||||||
Beverages | 1,304,505 | 34,767,869 | — | 36,072,374 | ||||||||||||||||
Capital Markets | 125 | 39,483,039 | — | 39,483,164 | ||||||||||||||||
Diversified Telecommunication Services | 587,117 | 46,514,042 | — | 47,101,159 | ||||||||||||||||
Electrical Equipment | 2,034,143 | 22,082,719 | — | 24,116,862 | ||||||||||||||||
Health Care Equipment & Supplies | 300,652 | 15,337,519 | — | 15,638,171 | ||||||||||||||||
Hotels, Restaurants & Leisure | 410,443 | 23,000,525 | — | 23,410,968 | ||||||||||||||||
Industrial Conglomerates | 91,953 | 29,039,343 | — | 29,131,296 | ||||||||||||||||
Insurance | 318,129 | 95,118,510 | — | 95,436,639 | ||||||||||||||||
Pharmaceuticals | 4,960,586 | 129,630,582 | — | 134,591,168 | ||||||||||||||||
Real Estate Management & Development | 1,032,678 | 32,645,615 | 2,376 | 33,680,669 | ||||||||||||||||
Road & Rail | 1,193,802 | 19,208,673 | — | 20,402,475 | ||||||||||||||||
Semiconductors & Semiconductor Equipment | 4,069,375 | 12,816,974 | — | 16,886,349 | ||||||||||||||||
Software | 2,487,641 | 21,222,376 | — | 23,710,017 | ||||||||||||||||
Trading Companies & Distributors | 929,609 | 22,670,443 | — | 23,600,052 | ||||||||||||||||
Transportation Infrastructure | 17,100 | 10,235,614 | — | 10,252,714 | ||||||||||||||||
All Other Common Stocks+ | — | 911,644,136 | — | 911,644,136 | ||||||||||||||||
Preferred Stocks+ | — | 8,443,891 | — | 8,443,891 | ||||||||||||||||
Rights | — | 269,494 | — | 269,494 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | 9,211,676 | — | 9,211,676 | ||||||||||||||||
Unaffiliated Investment Company | 3,582,043 | — | — | 3,582,043 | ||||||||||||||||
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Total Investment Securities | 26,639,224 | 1,697,461,563 | 2,376 | 1,724,103,163 | ||||||||||||||||
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Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | 269,054 | — | — | 269,054 | ||||||||||||||||
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| |||||||||||||
Total Investments | $ | 26,908,278 | $ | 1,697,461,563 | $ | 2,376 | $ | 1,724,372,217 | ||||||||||||
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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. |
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, 2016, 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 | $ | 1,123,517,341 | $ | 463,030,745 |
23
AZL International Index Fund
Notes to the Financial Statements
December 31, 2016
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 policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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 of securities for federal income tax purposes at December 31, 2016 is $1,668,227,308. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 134,757,478 | ||
Unrealized (depreciation) | (78,881,623 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 55,875,855 | ||
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Capital loss carry forwards (“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.
During the year ended December 31, 2016, the Fund utilized $11,728,992 in capital loss carry forwards to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL International Index Fund | $ | 15,359,017 | $ | — | $ | 15,359,017 |
(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, 2015 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL International Index Fund | $ | 23,639,714 | $ | — | $ | 23,639,714 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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 Depreciation(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL International Index Fund | $ | 17,736,191 | $ | 15,399,459 | $ | — | $ | 55,820,764 | $ | 88,956,414 |
(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. |
24
AZL International Index Fund
Notes to the Financial Statements
December 31, 2016
8. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies — Form N-PORT and Form N-CEN — also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
9. Acquisition of Funds
Effective as of the close of business October 21, 2016, the Fund acquired all of the net assets of the AZL Invesco International Equity Fund (“Invesco Fund”) and AZL JPMorgan International Opportunities Fund (“JPMorgan Fund”), open-end management investment companies, pursuant to a plan of reorganization approved by the Board on June 14, 2016. The purpose of the transaction was to combine three funds managed by the Manager with comparable investment objectives and strategies. The acquisition was accomplished by a tax-free exchange of 37,338,888 shares of the Fund, valued at $526,478,321, for 18,675,413 shares of the Invesco Fund and 17,741,335 shares of the JPMorgan Fund outstanding as of close of business October 21, 2016, respectively.
The investment portfolios of the Invesco Fund and the JPMorgan Fund were the principal assets acquired by the Fund. At the close of business October 21, 2016, the Invesco Fund investment portfolio had a fair value of $256,253,420 and identified cost of $200,960,237. At the close of business October 21, 2016, the JPMorgan Fund investment portfolio had a fair value of $260,161,852 and identified cost of $237,367,199. For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value; however, the cost basis of the investments received from the Invesco Fund and the JPMorgan Fund were carried forward to align ongoing reporting of the Fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes. Immediately prior to the merger, the Fund’s net assets were $1,026,064,843. All fees and expenses incurred by the Invesco Fund and JPMorgan Fund and the Fund directly in connection with the plan of reorganization were borne equally by the Manager and, collectively, the Invesco Fund and the JPMorgan Fund, except that the expenses borne by the Invesco Fund and the JPMorgan Fund did not exceed $132,000 and $105,000, respectively, as provided by the plan of reorganization.
Assuming the acquisition had been completed on January 1, 2016, the beginning of the annual reporting period of the Fund, the Fund’s pro forma results of operations for year ended December 31, 2016, are as follows:
Net investment income/(loss) | $ | 35,410,805 | ||
Net realized/unrealized gains/(losses) | (32,053,295 | ) | ||
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Change in net assets resulting from operations | $ | 3,357,510 | ||
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Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Invesco Fund and the JPMorgan Fund that have been included in the Fund’s statement of operations since October 22, 2016.
In the calculation of the portfolio turnover as presented in the Financial Highlights, the Fund excluded the cost of purchases and proceeds from sales of portfolio securities that occurred in the effort to realign a combined fund’s portfolio after the merger. The amounts of excluded purchases and sales are as follows:
Cost of purchases | $ | 3,110,562 | ||
Proceeds from sales | — |
25
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, 2016, 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 or 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, 2016, by correspondence with the custodian and brokers or by other 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 AZL International Index Fund as of December 31, 2016, 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 or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Columbus, Ohio
February 24, 2017
26
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
27
Approval of Investment Advisory and Subadvisory Agreements — October 25, 2016 (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 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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
28
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 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 the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held October 25, 2016, the Manager reported that for the three year period ended June 30, 2016, seven Funds were in the top 40%, two were in the middle 20% and three were in the bottom 40%, and for the one year period ended June 30, 2016, twelve Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2016, six Funds were in the top 40%, one was in the middle 20%, and three were in the bottom 40%. At the Board of Trustees meeting held October 25, 2016, 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 twenty Funds reviewed by the Board of Trustees in the fall of 2016, seventeen 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 2016 for the twenty-one Funds was as follows; (1) eighteen of the Funds had total expense rankings below the 65th percentile (with eleven Funds at or below the 50th percentile); (2) the AZL Russell 1000 Growth Index Fund had a total expense ranking in the 66th percentile, but there was only a very limited peer group for such Fund, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; (3) the AZL International Index Fund had a total expense ranking in the 75th percentile, but there was only a limited peer group for such Fund, the actual management fee was in the 37th percentile, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; and (4) for the AZL Morgan Stanley Global Real Estate Fund, which had a total expense ranking in the 70th percentile, the Manager recommended a temporary management fee waiver of 5 basis points, effective November 1, 2016, which would move the management fee ranking from the 80th to the 60th percentile.
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 2013 through June 30, 2016. 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, all of which currently are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
29
(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, 2016 were approximately $6.4 billion, and that no single Fund had assets in excess of $1,289 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, 2017, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
30
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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 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 | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 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 | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
31
Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
32
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® MetWest Total Return Bond Fund
Annual Report
December 31, 2016
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 19
Other Federal Income Tax Information
Page 20
Other Information
Page 21
Approval of Investment Advisory and Subadvisory Agreements
Page 22
Information about the Board of Trustees and Officers
Page 25
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.
|
What factors affected the Fund’s performance during the year ended December 31, 2016?
For the year ended December 31, 2016, the AZL® MetWest Total Return Bond Fund (the “Fund”) returned 2.30%. That compared to a 2.65% total return for its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index1.
Fixed-income markets were largely positive during the year, despite volatility caused by shifting economic and market conditions. Interest rates declined during the first half of the period, before rising through the end of the year amid expectations for a December interest rate hike by the U.S. Federal Reserve. Spreads between U.S. Treasuries and corporate bonds tightened during the year, as investors searched for higher yields. Mortgage-backed securities also rose in value, as these securities held up better against rising interest rates. At same time, the mortgage-backed sector benefited from improving fundamentals, such as ongoing home price appreciation that has helped drive down mortgage loan-to-value ratios, and technical support stemming from a dearth of new supply and a shrinking outstanding balance.
The Fund lagged its benchmark during the period in part because of underweight positions to duration and corporate credit. We maintained this defensive positioning due to our view that we are in the late stages of the current credit cycle. The portfolio’s underweight to duration weighed on relative performance over the first half of the year, as interest rates generally declined through the summer. The Fund’s conservative positioning in the credit sector was rewarded early in the year when volatility spiked, but detracted from relative performance in aggregate as high-yield corporate bonds outpaced the index on a duration-adjusted basis over the course of the year.*
The Fund’s relative performance benefited from an off-benchmark allocation to non-agency mortgage-backed securities, a largely floating-rate sector that
paced securitized products with a return for the year of nearly 5.5%. These assets got a boost from improving fundamentals and technicals, as well as from cash settlements related to litigation stemming from the 2008 financial crisis. Demand for non-agency mortgage-backed securities also rose among insurance companies after a favorable ratings review in December by the National Association of Insurance Commissioners2.*
The Fund’s relative performance was also helped by overweight positions in asset-backed securities and commercial mortgage-backed securities as spreads versus Treasuries tightened throughout the year. Finally, an allocation to high-yield corporate bonds provided a small tailwind to relative performance.*
The Fund had exposure to Treasury futures during the period. These derivatives did not materially affect Fund 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, 2016. | |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. | |
2 |
The National Association of Insurance Commissioners is the U.S. standard setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. |
1
AZL® MetWest Total Return Bond Fund (unaudited)
Fund Objective
The Fund’s investment objective is to maximize long-term total return. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing at least 80% of its net assets in investment-grade fixed income securities or unrated securities that are determined by the Subadvisor to be of similar quality. | ||
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. | ||
Emerging market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries. | ||
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. | ||
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. | ||
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. | ||
Debt securities held by the Fund may decline in value due to rising interest rates. Interest rates in the U.S. are at, or near, historic lows, which may increase the Fund’s exposure to risks related to rising rates. | ||
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, 2016 | ||||||||
Since Inception (11/17/14) | ||||||||
1 Year | ||||||||
AZL® MetWest Total Return Bond Fund | 2.30 | % | 1.31 | % | ||||
Bloomberg Barclays U.S. Aggregate Bond Index | 2.65 | % | 1.88 | % |
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® MetWest Total Return Bond Fund | 0.89 | % |
The above expense ratio is based on the current Fund prospectus dated April 25, 2016, as supplemented October 14, 2016. The Manager voluntarily reduced the management fee to 0.55% on all assets. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 0.91% through April 30, 2018. Additional information pertaining to the December 31, 2016 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 Bloomberg 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 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL MetWest Total Return Bond Fund | $ | 1,000.00 | $ | 980.00 | $ | 4.28 | 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL MetWest Total Return Bond Fund | $ | 1,000.00 | $ | 1,020.81 | $ | 4.37 | 0.86 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
U.S. Treasury Obligations | 32.4 | % | |||
U.S. Government Agency Mortgages | 29.1 | ||||
Corporate Bonds | 20.6 | ||||
Collateralized Mortgage Obligations | 11.1 | ||||
Asset Backed Securities | 7.2 | ||||
Money Markets | 4.5 | ||||
Yankee Dollars | 1.9 | ||||
Municipal Bonds | 0.6 | ||||
|
| ||||
Total Investment Securities | 107.4 | ||||
Net other assets (liabilities) | (7.4 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
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3
AZL MetWest Total Return Bond Fund
Schedule of Portfolio Investments
December 31, 2016
Principal | Fair Value | |||||||
| Asset Backed Securities (7.2%): |
| ||||||
$ | 1,000,000 | Chase Issuance Trust, Class A2, Series 2007-A2, 0.75%, 4/15/19(a) | $ | 1,000,000 | ||||
1,136,723 | Goal Capital Funding Trust, Class A3, Series 2005-2, 1.10%, 5/28/30(a) | 1,122,702 | ||||||
750,000 | Magnetite CLO, Ltd., Class A1, Series 2014-9A, 2.30%, 7/25/26, Callable 1/25/17 @ 100(a)(b) | 750,209 | ||||||
1,000,000 | Magnetite CLO, Ltd., Class A1, Series 2014-11A, 2.13%, 1/18/27, Callable 1/18/17 @ 100(a)(b) | 1,000,013 | ||||||
750,000 | Magnetite CLO, Ltd., Class 2A3, Series 2015-12A, 2.26%, 4/15/27, Callable 1/15/17 @ 100(a)(b) | 750,000 | ||||||
773,747 | Navient Student Loan Trust, Class A, Series 2014-2, 1.40%, 3/25/83, Callable 9/25/33 @ 100(a) | 742,269 | ||||||
747,951 | Navient Student Loan Trust, Class A, Series 2014-3, 1.38%, 3/25/83, Callable 10/25/32 @ 100(a) | 720,990 | ||||||
495,607 | Navient Student Loan Trust, Class A, Series 2014-4, 1.38%, 3/25/83, Callable 1/25/33 @ 100(a) | 481,882 | ||||||
980,714 | Navient Student Loan Trust, Class A, Series 16-1A, 1.46%, 2/25/70, Callable 6/25/33 @ 100(a)(b) | 954,322 | ||||||
965,000 | Navient Student Loan Trust, Class A3, Series 16-2, 2.26%, 6/25/65, Callable 4/25/28 @ 100(a)(b) | 983,490 | ||||||
1,662,541 | Nelnet Student Loan Trust, Class A2, Series 2015-2A, 1.36%, 9/25/47, Callable 5/25/33 @ 100(a)(b) | 1,633,353 | ||||||
2,615,000 | SLC Student Loan Trust, Class 2A3, Series 2006-1, 1.12%, 3/15/55(a) | 2,355,978 | ||||||
1,617,385 | SLC Student Loan Trust, Class 2A3, Series 2008-1, 2.56%, 12/15/32(a) | 1,638,231 | ||||||
891,204 | SLM Student Loan Trust, Class 2A3, Series 2003-7, 1.53%, 9/15/39, Callable 12/15/27 @ 100(a) | 782,679 | ||||||
583,633 | SLM Student Loan Trust, Class 2A3, Series 2003-11, 1.01%, 12/15/22, Callable 3/15/28 @ 100(a)(b) | 581,928 | ||||||
16,680 | SLM Student Loan Trust, Class 2A3, Series 2004-10, 1.28%, 4/25/23(a)(b) | 16,681 | ||||||
187,772 | SLM Student Loan Trust, Class 2A3, Series 2005-6, 1.17%, 1/25/44, Callable 10/25/30 @ 100(a) | 164,396 | ||||||
193,469 | SLM Student Loan Trust, Class 2A3, Series 2006-10, 0.93%, 3/25/44, Callable 10/25/31 @ 100(a) | 163,781 | ||||||
191,982 | SLM Student Loan Trust, Class 2A3, Series 2007-1, 1.10%, 1/27/42(a) | 162,770 | ||||||
1,220,000 | SLM Student Loan Trust, Class 2A3, Series 2008-5, 2.73%, 7/25/29, Callable 7/25/23 @ 100(a) | 1,167,876 | ||||||
240,000 | SLM Student Loan Trust, Class 2A3, Series 2008-9, 3.13%, 10/25/83, Callable 4/25/23 @ 100(a) | 234,284 | ||||||
1,721,115 | SLM Student Loan Trust, Class A, Series 2009-3, 1.51%, 1/25/45(a)(b) | 1,678,255 |
Principal | Fair Value | |||||||
| Asset Backed Securities, continued |
| ||||||
$ | 1,478,816 | SLM Student Loan Trust, Class A, Series 2012-2, 1.46%, 1/25/29, Callable 8/25/24 @ 100(a) | $ | 1,450,575 | ||||
909,083 | SLM Student Loan Trust, Class A, Series 2012-3, 1.41%, 12/26/25(a) | 885,025 | ||||||
1,432,678 | SLM Student Loan Trust, Class A, Series 2013-4, 1.31%, 6/25/27(a) | 1,392,627 | ||||||
1,293,673 | SLM Student Loan Trust, Class A2, Series 2014-2, 1.11%, 10/25/21(a) | 1,291,663 | ||||||
1,970,000 | Wachovia Student Loan Trust, Class 2A3, Series 2006-1, 1.05%, 4/25/40, Callable 10/25/26 @ 100(a)(b) | 1,722,400 | ||||||
|
| |||||||
| Total Asset Backed Securities (Cost $26,334,088) | 25,828,379 | ||||||
|
| |||||||
| Collateralized Mortgage Obligations (11.1%): |
| ||||||
123,863 | 7 WTC Depositor LLC Trust, Class A, Series 2012-7 WTC, 4.08%, 3/13/31(b) | 125,503 | ||||||
1,150,000 | Ameriquest Mortgage Securities, Inc., Class M2, Series 2005-R5, 1.22%, 7/25/35, Callable 1/25/17 @ 100(a) | 1,124,017 | ||||||
1,041,630 | Ameriquest Mortgage Securities, Inc., Class M2, Series 2005-R5, 1.48%, 4/25/35, Callable 1/25/17 @ 100(a) | 1,032,176 | ||||||
| 210,000 | | Babson CLO, Ltd., Class A, Series 2015-IA, 2.31%, 4/20/27, Callable 1/20/17 @ 100(a)(b) | 210,274 | ||||
360,000 | Banc of America Merrill Lynch Large Loan, Class A, Series 2014-520M, 4.18%, 8/15/46(a)(b) | 384,483 | ||||||
1,033,263 | Bank of America Mortgage Securities, Inc., Class 2A3, Series 2005-F, 3.23%, 7/25/35, Callable 8/25/17 @ 100(a) | 968,920 | ||||||
340,000 | Barclays Commercial Mortgages Securities, Class A2, Series 2013-TYSNC, 3.76%, 9/5/32(b) | 355,836 | ||||||
745,130 | Citigroup Mortgage Loan Trust, Inc., Class 2A3, Series 2006-WFH3, 1.00%, 10/25/36, Callable 2/25/21 @ 100(a) | 729,183 | ||||||
1,728,883 | Citigroup Mortgage Loan Trust, Inc., Class 1A1A, Series 2007-AR5, 3.03%, 4/25/37, Callable 2/25/26 @ 100(a) | 1,538,143 | ||||||
390,000 | Commercial Mortgage Trust, Class A, Series 2014-277P, 3.73%, 8/10/49(a)(b) | 404,085 | ||||||
360,000 | Commercial Mortgage Trust, Class A1, Series 2013-300P, 4.35%, 8/10/30(b) | 389,579 | ||||||
365,000 | Commercial Mortgage Trust, Class A, Series 2016-787S, 3.54%, 2/10/36(a)(b) | 372,987 | ||||||
1,304,463 | Credit Suisse Mortgage Capital Certificates, Class A2E, Series 2007-CB2, 4.41%, 2/25/37, Callable 4/25/21 @ 100(a) | 945,502 | ||||||
860,000 | Federal Home Loan Mortgage Corp., Class A3, Series K151, 3.51%, 4/25/30 | 882,901 | ||||||
1,582,164 | Federal National Mortgage Association, Class A3, Series 2015-M2, 3.15%, 12/25/24(a) | 1,601,162 | ||||||
322,806 | First Franklin Mortgage Loan Trust, Class M1, Series 2005-FFH3, 1.27%, 9/25/35, Callable 2/25/17 @ 100(a) | 322,625 | ||||||
1,324,744 | First Franklin Mortgage Loan Trust, Class M1, Series 2005-FF8, 1.25%, 9/25/35, Callable 1/25/17 @ 100(a) | 1,302,563 |
Continued
4
AZL MetWest Total Return Bond Fund
Schedule of Portfolio Investments
December 31, 2016
Principal | Fair Value | |||||||
| Collateralized Mortgage Obligations, continued |
| ||||||
$ | 1,648,518 | First Horizon Alternative Mortgage Securities Trust, Class 2A1, Series 05-AA12, 2.71%, 2/25/36, Callable 8/25/18 @ 100(a) | $ | 1,276,750 | ||||
902,354 | First Horizon Alternative Mortgage Securities Trust, Class 2A1, Series 2005-AR3, 2.98%, 8/25/35, Callable 1/25/17 @ 100(a) | 776,267 | ||||||
1,715,761 | First Horizon Alternative Mortgage Securities Trust, Class 1A1, Series 2006-AA1, 2.77%, 3/25/36, Callable 2/25/20 @ 100(a) | 1,508,873 | ||||||
1,552,729 | First Horizon Alternative Mortgage Securities Trust, Class 2A1, Series 2006-AA1, 2.74%, 4/25/36, Callable 2/25/20 @ 100(a) | 1,351,500 | ||||||
1,564,414 | GMAC Mortgage Corp. Loan Trust, Class 1A1, Series 2006-AR1, 3.41%, 4/19/36, Callable 1/19/20 @ 100(a) | 1,393,170 | ||||||
1,433,570 | GMAC Mortgage Corp. Loan Trust, Class 3A1, Series 2005-AR5, 3.55%, 9/19/35, Callable 8/19/25 @ 100(a) | 1,377,486 | ||||||
549,494 | Honda Auto Receivables Owner Trust, Class A2, Series 2015-4, 0.82%, 7/23/18, Callable 2/21/19 @ 100(a) | 549,142 | ||||||
365,000 | Liberty Street Trust, Class A, Series 2016-225L, 3.60%, 2/10/36(b) | 374,190 | ||||||
1,100,029 | Merrill Lynch First Franklin Mortgage Loan Trust, Class 2A2, Series 2007-4, 0.88%, 7/25/37, Callable 9/25/21 @ 100(a) | 694,368 | ||||||
2,059,582 | Merrill Lynch Mortgage Trust, Class A1A, Series 2007-C1, 5.83%, 6/12/50(a) | 2,078,713 | ||||||
1,854,890 | Morgan Stanley Capital I Trust, Class A3, Series 2011-C1, 4.70%, 9/15/47(b) | 1,943,442 | ||||||
273,253 | Morgan Stanley Mortgage Loan Trust, Class 2A3, Series 2005-6AR, 1.03%, 11/25/35, Callable 9/25/18 @ 100(a) | 272,658 | ||||||
1,470,789 | Morgan Stanley Remic Trust, Class 3A, Series 2014-R8, 1.27%, 6/26/47(a)(b) | 1,414,941 | ||||||
1,122,573 | MortgageIT Trust, Class 2A3, Series 2005-2, 2.27%, 5/25/35, Callable 1/25/17 @ 100(a) | 1,093,854 | ||||||
799,094 | Newcastle Mortgage Securities Trust, Class A4, Series 2006-1, 1.04%, 3/25/36, Callable 1/25/17 @ 100(a) | 792,151 | ||||||
558,140 | Nissan Auto Receivables Owner Trust, Class A2A, Series 2015-C, 0.87%, 11/15/18, Callable 1/15/20 @ 100(a) | 557,825 | ||||||
1,154,914 | Nomura Asset Acceptance Corp., Class 3A1, Series 2005-AR3, 5.69%, 7/25/35, Callable 2/25/20 @ 100(a) | 1,133,335 | ||||||
385,000 | RBSCF Trust, Class A, Series 2013-GSP, 3.96%, 1/13/32(a)(b) | 403,511 | ||||||
2,072,057 | Residential Accredit Loans, Inc., Class A2, Series 2006-QA10, 0.94%, 12/25/36, Callable 2/25/25 @ 100(a) | 1,684,812 | ||||||
115,917 | Toyota Auto Receivables Owner Trust, Class A3, Series 14-A, 0.67%, 12/15/17, Callable 10/15/17 @ 100 | 115,867 |
Principal | Fair Value | |||||||
| Collateralized Mortgage Obligations, continued |
| ||||||
$ | 1,294,434 | WaMu Mortgage Pass-Through Certificates, Class 2A1A, Series 2005-AR6, 0.99%, 4/25/45, Callable 4/25/17 @ 100(a) | $ | 1,215,399 | ||||
1,489,051 | WaMu Mortgage Pass-Through Certificates, Class 2A1A, Series 2005-AR8, 1.05%, 7/25/45, Callable 5/25/17 @ 100(a) | 1,414,353 | ||||||
1,472,672 | WaMu Mortgage Pass-Through Certificates, Class A2, Series 2005-AR3, 2.79%, 3/25/35, Callable 9/25/26 @ 100(a) | 1,480,919 | ||||||
1,179,761 | Wells Fargo Mortgage Backed Securities Trust, Class 2A1, Series 2006-AR2, 2.94%, 3/25/36, Callable 5/25/18 @ 100(a) | 1,176,930 | ||||||
1,216,425 | Wells Fargo Mortgage Backed Securities Trust, Class 1A1, Series 2006-AR12, 3.21%, 9/25/36, Callable 2/25/17 @ 100(a) | 1,140,991 | ||||||
|
| |||||||
| Total Collateralized Mortgage Obligations (Cost $40,137,486) | 39,911,386 | ||||||
|
| |||||||
| Corporate Bonds (20.6%): |
| ||||||
| Aerospace & Defense (0.3%): |
| ||||||
960,000 | United Technologies Corp., 1.78%, 5/4/18(a) | 960,209 | ||||||
|
| |||||||
| Airlines (0.8%): |
| ||||||
1,410,404 | Continental Airlines 2009-2, Series A, 7.25%, 11/10/19 | 1,576,127 | ||||||
339,328 | U.S. Airways 2001-1G PTT, Class G, Series 2001, 7.08%, 9/20/22 | 363,929 | ||||||
902,896 | U.S. Airways 2010-1A PTT, Series A, 6.25%, 10/22/24 | 1,002,214 | ||||||
|
| |||||||
2,942,270 | ||||||||
|
| |||||||
| Automobiles (0.1%): |
| ||||||
400,000 | General Motors Co., 3.50%, 10/2/18 | 407,960 | ||||||
|
| |||||||
| Banks (3.6%): |
| ||||||
650,000 | Bank of America Corp., 6.00%, 9/1/17 | 668,836 | ||||||
500,000 | Bank of America Corp., 5.00%, 5/13/21, MTN | 544,519 | ||||||
1,000,000 | Bank of America Corp., 4.10%, 7/24/23 | 1,044,600 | ||||||
2,000,000 | Bank of America NA, 5.30%, 3/15/17 | 2,015,490 | ||||||
350,000 | Bank of America NA, Series BKNT, 6.10%, 6/15/17 | 357,116 | ||||||
2,000,000 | Bear Stearns Co., Inc., 7.25%, 2/1/18 | 2,116,476 | ||||||
2,000,000 | Citigroup, Inc., 1.63%, 11/24/17(a) | 2,004,184 | ||||||
700,000 | Citigroup, Inc., 5.50%, 9/13/25 | 769,308 | ||||||
1,415,000 | JPMorgan Chase & Co., 6.00%, 1/15/18 | 1,476,022 | ||||||
510,000 | Wells Fargo & Co., 2.50%, 3/4/21 | 506,221 | ||||||
1,560,000 | Wells Fargo & Co., 3.00%, 4/22/26 | 1,488,602 | ||||||
350,000 | Wells Fargo Bank NA, 2.15%, 12/6/19 | 349,783 | ||||||
|
| |||||||
13,341,157 | ||||||||
|
| |||||||
| Beverages (0.5%): |
| ||||||
959,000 | Anheuser-Busch InBev NV, 3.65%, 2/1/26, Callable 11/1/25 @ 100 | 973,568 | ||||||
366,000 | Anheuser-Busch InBev NV, 4.90%, 2/1/46, Callable 8/1/45 @ 100 | 395,598 | ||||||
400,000 | DS Services Holdings, Inc., 10.00%, 9/1/21, Callable 9/1/17 @ 105(b) | 438,500 | ||||||
|
| |||||||
1,807,666 | ||||||||
|
|
Continued
5
AZL MetWest Total Return Bond Fund
Schedule of Portfolio Investments
December 31, 2016
Principal | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Biotechnology (0.9%): |
| ||||||
$ | 600,000 | Abbvie, Inc., 4.70%, 5/14/45, Callable 11/14/44 @ 100 | $ | 588,678 | ||||
700,000 | Amgen, Inc., 4.40%, 5/1/45, Callable 11/1/44 @ 100 | 670,982 | ||||||
500,000 | Amgen, Inc., 4.56%, 6/15/48, Callable 12/15/47 @ 100(b) | 483,628 | ||||||
660,000 | Celgene Corp., 5.00%, 8/15/45, Callable 2/15/45 @ 100 | 686,222 | ||||||
500,000 | Gilead Sciences, Inc., 4.75%, 3/1/46, Callable 9/1/45 @ 100 | 517,336 | ||||||
400,000 | Gilead Sciences, Inc., 4.15%, 3/1/47, Callable 9/1/46 @ 100 | 379,921 | ||||||
|
| |||||||
3,326,767 | ||||||||
|
| |||||||
| Capital Markets (1.7%): |
| ||||||
1,500,000 | Goldman Sachs Group, Inc. (The), 5.95%, 1/18/18 | 1,562,613 | ||||||
1,000,000 | Goldman Sachs Group, Inc. (The), 2.38%, 1/22/18 | 1,005,945 | ||||||
400,000 | Goldman Sachs Group, Inc. (The), 3.85%, 7/8/24, Callable 4/8/24 @ 100 | 408,316 | ||||||
400,000 | Morgan Stanley, 4.75%, 3/22/17 | 403,013 | ||||||
1,750,000 | Morgan Stanley, 1.60%, 1/5/18(a) | 1,756,754 | ||||||
430,000 | Morgan Stanley, Series G, 7.30%, 5/13/19 | 479,140 | ||||||
500,000 | Morgan Stanley, 5.50%, 7/24/20 | 547,605 | ||||||
|
| |||||||
6,163,386 | ||||||||
|
| |||||||
| Chemicals (0.1%): |
| ||||||
180,000 | Axalta Coating Systems, 4.88%, 8/15/24, Callable 8/15/19 @ 103.66(b) | 180,000 | ||||||
|
| |||||||
| Commercial Services & Supplies (0.1%): |
| ||||||
200,000 | Clean Harbors, Inc., 5.13%, 6/1/21, Callable 2/6/17 @ 102.56 | 204,540 | ||||||
|
| |||||||
| Consumer Finance (0.6%): |
| ||||||
1,000,000 | Discover Bank, 2.00%, 2/21/18 | 999,818 | ||||||
400,000 | Ford Motor Credit Co. LLC, 2.15%, 1/9/18 | 400,579 | ||||||
600,000 | General Motors Financial Co., Inc., 3.10%, 1/15/19 | 606,368 | ||||||
|
| |||||||
2,006,765 | ||||||||
|
| |||||||
| Diversified Financial Services (0.3%): |
| ||||||
400,000 | Berkshire Hathaway Finance Corp., 4.30%, 5/15/43 | 413,253 | ||||||
575,000 | Berkshire Hathaway, Inc., 4.50%, 2/11/43 | 611,404 | ||||||
|
| |||||||
1,024,657 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (0.8%): |
| ||||||
500,000 | AT&T, Inc., 3.80%, 3/15/22 | 512,570 | ||||||
835,000 | AT&T, Inc., 4.75%, 5/15/46, Callable 11/15/45 @ 100 | 791,095 | ||||||
210,000 | SBA Communications Corp., 4.88%, 9/1/24, Callable 9/1/19 @ 103.66(b) | 207,375 | ||||||
700,000 | Verizon Communications, Inc., 3.85%, 11/1/42, Callable 5/1/42 @ 100 | 606,575 | ||||||
800,000 | Verizon Communications, Inc., 4.86%, 8/21/46 | 810,635 | ||||||
|
| |||||||
2,928,250 | ||||||||
|
|
Principal | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Electric Utilities (1.8%): |
| ||||||
$ | 780,000 | American Transmission Systems, Inc., 5.00%, 9/1/44, Callable 3/1/44 @ 100(b) | $ | 815,555 | ||||
500,000 | Appalachian Power Co., Series H, 5.95%, 5/15/33 | 578,492 | ||||||
400,000 | Cleco Power LLC, 6.00%, 12/1/40 | 486,471 | ||||||
1,000,000 | Duke Energy Progress, Inc., 4.15%, 12/1/44, Callable 6/1/44 @ 100 | 993,512 | ||||||
936,000 | Duquesne Light Holdings, Inc., 6.40%, 9/15/20(b) | 1,044,377 | ||||||
750,000 | Jersey Central Power & Light Co., 6.40%, 5/15/36 | 827,615 | ||||||
300,000 | Midamerican Energy Co., 4.25%, 5/1/46, Callable 11/1/45 @ 100 | 308,978 | ||||||
1,500,000 | Oncor Electric Delivery Co. LLC, 4.10%, 6/1/22, Callable 3/1/22 @ 100 | 1,601,965 | ||||||
|
| |||||||
6,656,965 | ||||||||
|
| |||||||
| Equity Real Estate Investment Trusts (1.9%): |
| ||||||
575,000 | HCP, Inc., 4.00%, 12/1/22, Callable 10/1/22 @ 100 | 591,912 | ||||||
875,000 | HCP, Inc., 4.25%, 11/15/23, Callable 8/15/23 @ 100 | 898,528 | ||||||
400,000 | HCP, Inc., 3.88%, 8/15/24, Callable 5/17/24 @ 100 | 399,800 | ||||||
175,000 | HCP, Inc., 3.40%, 2/1/25, Callable 11/1/24 @ 100 | 167,444 | ||||||
750,000 | Highwoods Realty LP, 7.50%, 4/15/18 | 800,168 | ||||||
1,150,000 | SL Green Realty Corp., 5.00%, 8/15/18, Callable 6/15/18 @ 100 | 1,197,709 | ||||||
1,500,000 | WEA Finance LLC, 2.70%, 9/17/19, Callable 8/17/19 @ 100(b) | 1,517,171 | ||||||
1,440,000 | Welltower, Inc., 3.75%, 3/15/23, Callable 12/15/22 @ 100 | 1,468,953 | ||||||
|
| |||||||
7,041,685 | ||||||||
|
| |||||||
| Food & Staples Retailing (0.5%): |
| ||||||
590,000 | Supermarkets & Pharmacies, 2.88%, 6/1/26, Callable 3/1/26 @ 100 | 562,369 | ||||||
790,000 | Walgreens Boots Alliance, Inc., 3.80%, 11/18/24, Callable 8/18/24 @ 100 | 804,041 | ||||||
300,000 | Walgreens Boots Alliance, Inc., 4.80%, 11/18/44, Callable 5/18/44 @ 100 | 308,343 | ||||||
|
| |||||||
1,674,753 | ||||||||
|
| |||||||
| Food Products (0.4%): |
| ||||||
630,000 | Kraft Heinz Foods Co., 1.60%, 6/30/17 | 630,505 | ||||||
795,000 | Kraft Heinz Foods Co., 3.95%, 7/15/25, Callable 4/15/25 @ 100 | 805,363 | ||||||
170,000 | Lamb Weston HLD, 4.88%, 11/1/26, Callable 11/1/21 @ 102.44(b) | 168,194 | ||||||
|
| |||||||
1,604,062 | ||||||||
|
| |||||||
| Gas Utilities (0.3%): |
| ||||||
850,000 | KeySpan Gas East Corp., 5.82%, 4/1/41(b) | 1,013,499 | ||||||
|
| |||||||
| Health Care Equipment & Supplies (0.1%): |
| ||||||
190,000 | Hill-Rom Holdings, Inc., 5.75%, 9/1/23, Callable 9/1/18 @ 104.31(b) | 196,175 | ||||||
|
|
Continued
6
AZL MetWest Total Return Bond Fund
Schedule of Portfolio Investments
December 31, 2016
Principal | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Health Care Providers & Services (0.8%): |
| ||||||
$ | 100,000 | Aetna, Inc., 1.70%, 6/7/18 | $ | 99,907 | ||||
350,000 | Aetna, Inc., 4.38%, 6/15/46, Callable 12/15/45 @ 100 | 351,451 | ||||||
350,000 | Centene Corp., 4.75%, 1/15/25, Callable 1/15/20 @ 103.56 | 341,688 | ||||||
300,000 | DaVita Healthcare Partners, Inc., 5.00%, 5/1/25, Callable 5/1/20 @ 102.5 | 295,125 | ||||||
750,000 | HCA, Inc., 6.50%, 2/15/20 | 820,500 | ||||||
96,000 | Molina Healthcare, Inc., 5.38%, 11/15/22, Callable 8/15/22 @ 100 | 97,440 | ||||||
350,000 | Tenet Healthcare Corp., 4.46%, 6/15/20, Callable 2/6/17 @ 102(a) | 352,625 | ||||||
620,000 | UnitedHealth Group, Inc., 4.63%, 7/15/35 | 675,824 | ||||||
|
| |||||||
3,034,560 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (0.3%): |
| ||||||
200,000 | Aramark Services, Inc., 4.75%, 6/1/26, Callable 6/1/21 @ 102.38(b) | 198,000 | ||||||
377,000 | Churchill Downs, Inc., 5.38%, 12/15/21, Callable 2/6/17 @ 104.03 | 391,138 | ||||||
400,000 | Hilton Worldwide Finance LLC, 5.63%, 10/15/21, Callable 1/23/17 @ 102.81 | 413,200 | ||||||
|
| |||||||
1,002,338 | ||||||||
|
| |||||||
| Household Products (0.0%): |
| ||||||
100,000 | Spectrum Brands, Inc., 5.75%, 7/15/25, Callable 7/15/20 @ 102.88 | 103,750 | ||||||
|
| |||||||
| Independent Power & Renewable Electricity Producers (0.3%): |
| ||||||
1,000,000 | IPALCO Enterprises, Inc., 5.00%, 5/1/18, Callable 4/1/18 @ 100 | 1,032,500 | ||||||
|
| |||||||
| Industrial Conglomerates (0.1%): |
| ||||||
273,000 | General Electric Capital Corp., 5.88%, 1/14/38, MTN | 343,578 | ||||||
|
| |||||||
| Insurance (1.2%): |
| ||||||
1,900,000 | Farmers Exchange Capital III, 5.45%, 10/15/54, Callable 10/15/34 @ 100(a)(b) | 1,850,335 | ||||||
900,000 | Nationwide Financial Services, Inc., 5.30%, 11/18/44(b) | 937,212 | ||||||
1,000,000 | Protective Life Global, 1.50%, 6/8/18(a)(b) | 1,000,135 | ||||||
605,000 | Protective Life Global Funding, 2.70%, 11/25/20(b) | 605,881 | ||||||
|
| |||||||
4,393,563 | ||||||||
|
| |||||||
| IT Services (0.1%): |
| ||||||
382,000 | First Data Corp., 5.00%, 1/15/24, Callable 1/15/19 @ 102.5(b) | 384,032 | ||||||
|
| |||||||
| Life Sciences Tools & Services (0.1%): |
| ||||||
200,000 | Quintiles Transnational, 4.88%, 5/15/23, Callable 5/15/18 @ 103.66(b) | 203,000 | ||||||
|
| |||||||
| Media (0.8%): |
| ||||||
400,000 | Altice US Finance I Corp., 5.38%, 7/15/23, Callable 7/15/18 @ 104.03(b) | 415,000 | ||||||
100,000 | CCO Holdings LLC, 5.88%, 4/1/24, Callable 4/1/19 @ 104.41(b) | 106,750 | ||||||
380,000 | CCO Holdings LLC, 5.75%, 2/15/26, Callable 2/15/21 @ 102.88(b) | 393,300 |
Principal | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Media, continued |
| ||||||
$ | 400,000 | Charter Communications Operating LLC/Capital, 4.46%, 7/23/22, Callable 5/23/22 @ 100 | $ | 418,012 | ||||
500,000 | Charter Communications Operating LLC/Capital, 6.48%, 10/23/45, Callable 4/23/45 @ 100 | 578,040 | ||||||
200,000 | CSC Holdings LLC, 5.50%, 4/15/27, Callable 4/15/22 @ 102.75(b) | 202,500 | ||||||
175,000 | CSC Holdings, Inc., 8.63%, 2/15/19 | 193,375 | ||||||
200,000 | Dish DBS Corp., 5.88%, 7/15/22 | 210,500 | ||||||
200,000 | Sirius XM Radio, Inc., 4.25%, 5/15/20, Callable 2/6/17 @ 102.13(b) | 203,000 | ||||||
|
| |||||||
2,720,477 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (1.0%): |
| ||||||
350,000 | Anadarko Petroleum Corp., 4.50%, 7/15/44, Callable 1/15/44 @ 100 | 328,843 | ||||||
600,000 | Boardwalk Pipeline Partners LP, 4.95%, 12/15/24, Callable 9/15/24 @ 100 | 616,061 | ||||||
700,000 | Energy Transfer Partners LP, 5.95%, 10/1/43, Callable 4/1/43 @ 100 | 721,439 | ||||||
475,000 | Noble Energy, Inc., 5.05%, 11/15/44, Callable 5/15/44 @ 100 | 476,400 | ||||||
430,000 | Rockies Express Pipeline LLC, 6.85%, 7/15/18(b) | 454,188 | ||||||
450,000 | Spectra Energy Partners LP, 4.50%, 3/15/45, Callable 9/15/44 @ 100 | 427,883 | ||||||
700,000 | Williams Partners LP, 6.30%, 4/15/40 | 747,174 | ||||||
|
| |||||||
3,771,988 | ||||||||
|
| |||||||
| Road & Rail (0.1%): |
| ||||||
215,000 | Burlington North Santa Fe LLC, 4.15%, 4/1/45, Callable 10/1/44 @ 100 | 218,033 | ||||||
|
| |||||||
| Software (0.2%): |
| ||||||
640,000 | Microsoft Corp., 3.75%, 2/12/45, Callable 8/12/44 @ 100 | 600,161 | ||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (0.3%): |
| ||||||
920,000 | Apple, Inc., 4.65%, 2/23/46, Callable 8/23/45 @ 100 | 993,461 | ||||||
|
| |||||||
| Trading Companies & Distributors (0.2%): |
| ||||||
800,000 | International Lease Finance Corp., 7.13%, 9/1/18(b) | 862,000 | ||||||
|
| |||||||
| Wireless Telecommunication Services (0.3%): |
| ||||||
150,000 | Metropcs Wireless, Inc., 6.63%, 11/15/20, Callable 1/17/17 @ 102.21 | 153,375 | ||||||
400,000 | Sprint Communications, Inc., 9.00%, 11/15/18(b) | 441,000 | ||||||
155,000 | T-Mobile USA, Inc., 6.63%, 4/28/21, Callable 4/28/17 @ 103.32 | 161,781 | ||||||
200,000 | T-Mobile USA, Inc., 6.73%, 4/28/22, Callable 4/28/17 @ 103.37 | 209,000 | ||||||
|
| |||||||
965,156 | ||||||||
|
| |||||||
| Total Corporate Bonds (Cost $74,115,370) | 74,109,363 | ||||||
|
| |||||||
| Yankee Dollars (1.9%): |
| ||||||
| Banks (0.3%): |
| ||||||
1,100,000 | HBOS plc, Series G, 6.75%, 5/21/18(b) | 1,159,947 | ||||||
|
| |||||||
| Capital Markets (0.2%): |
| ||||||
610,000 | Credit Suisse GP Funding, Ltd., 3.13%, 12/10/20 | 608,093 | ||||||
|
|
Continued
7
AZL MetWest Total Return Bond Fund
Schedule of Portfolio Investments
December 31, 2016
Principal | Fair Value | |||||||
| Yankee Dollars, continued |
| ||||||
| Diversified Telecommunication Services (0.1%): |
| ||||||
$ | 400,000 | Virgin Media Secured Finance plc, 5.25%, 1/15/26, Callable 1/15/20 @ 102.63(b) | $ | 395,000 | ||||
|
| |||||||
| Industrial Conglomerates (0.6%): |
| ||||||
1,441,000 | GE Capital International Funding, 4.42%, 11/15/35 | 1,510,034 | ||||||
465,000 | Siemens Financieringsmat, 2.00%, 9/15/23(b) | 438,746 | ||||||
|
| |||||||
1,948,780 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (0.1%): |
| ||||||
350,000 | Shell International Finance BV, 4.38%, 5/11/45 | 354,542 | ||||||
|
| |||||||
| Pharmaceuticals (0.5%): |
| ||||||
800,000 | Actavis Funding SCS, 3.80%, 3/15/25, Callable 12/15/24 @ 100 | 800,942 | ||||||
400,000 | Actavis Funding SCS, 4.55%, 3/15/35, Callable 9/15/34 @ 100 | 395,917 | ||||||
200,000 | Grifols Worldwide OP, Ltd., 5.25%, 4/1/22, Callable 4/1/17 @ 103.94 | 207,000 | ||||||
400,000 | VRX Escrow Corp., 5.88%, 5/15/23, Callable 5/15/18 @ 102.94(b) | 302,000 | ||||||
200,000 | VRX Escrow Corp., 6.13%, 4/15/25, Callable 4/15/20 @ 103.06(b) | 150,250 | ||||||
|
| |||||||
1,856,109 | ||||||||
|
| |||||||
| Professional Services (0.0%): |
| ||||||
146,000 | IHS Markit, Ltd., 5.00%, 11/1/22, Callable 8/1/22 @ 100(b) | 151,475 | ||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (0.1%): |
| ||||||
200,000 | NXP BV/NXP Funding LLC, 4.13%, 6/1/21(b) | 206,500 | ||||||
|
| |||||||
| Total Yankee Dollars (Cost $6,816,790) | 6,680,446 | ||||||
|
| |||||||
| Municipal Bonds (0.6%): |
| ||||||
| New York (0.6%): |
| ||||||
1,125,000 | New York NY, Build America Bonds, GO, 5.05%, 10/1/24 | 1,268,978 | ||||||
750,000 | New York City Municipal Finance Authority Water & Sewer System Revenue, 5.95%, 6/15/42 | 966,900 | ||||||
|
| |||||||
2,235,878 | ||||||||
|
| |||||||
| Total Municipal Bonds (Cost $2,235,320) | 2,235,878 | ||||||
|
| |||||||
| U.S. Government Agency Mortgages (29.1%): |
| ||||||
| Federal Home Loan Bank (0.6%) |
| ||||||
2,095,000 | 1.25%, 6/28/30, Callable 6/28/17 @ 100(a) | 2,086,993 | ||||||
|
| |||||||
2,086,993 | ||||||||
|
| |||||||
| Federal Home Loan Mortgage Corp. (0.5%) |
| ||||||
1,960,000 | 3.00%, 12/1/46, Pool #G08741 | 1,948,263 | ||||||
|
| |||||||
1,948,263 | ||||||||
|
| |||||||
| Federal Home Loan Mortgage Corporation (13.1%) |
| ||||||
776,649 | 3.00%, 3/1/31, Pool #G18592 | 797,569 | ||||||
3,594,493 | 2.50%, 12/1/31, Pool #G18622 | 3,604,186 | ||||||
3,178,251 | 3.50%, 4/1/44, Pool #G07848 | 3,273,054 | ||||||
3,235,884 | 3.50%, 1/1/45, Pool #G07924 | 3,327,349 | ||||||
3,386,860 | 3.50%, 4/1/45, Pool #G60023 | 3,487,909 | ||||||
3,482,503 | 3.50%, 6/1/45, Pool #G60080 | 3,581,068 | ||||||
388,518 | 3.50%, 10/1/45, Pool #G60238 | 399,340 |
Principal | Fair Value | |||||||
| U.S. Government Agency Mortgages, continued |
| ||||||
| Federal Home Loan Mortgage Corporation, continued |
| ||||||
$ | 3,187,604 | 4.00%, 12/1/45, Pool #G60344 | $ | 3,371,005 | ||||
1,221,819 | 4.00%, 3/1/46, Pool #G08699 | 1,284,069 | ||||||
1,064,385 | 3.50%, 3/1/46, Pool #G08698 | 1,090,738 | ||||||
4,778,676 | 3.50%, 4/1/46, Pool #G08702 | 4,897,269 | ||||||
2,623,629 | 4.00%, 5/1/46, Pool #G08707 | 2,757,618 | ||||||
3,066,164 | 3.50%, 6/1/46, Pool #G08711 | 3,142,466 | ||||||
2,955,651 | 3.00%, 6/1/46, Pool #G08710 | 2,937,987 | ||||||
1,450,812 | 3.00%, 8/1/46, Pool #G08715 | 1,442,130 | ||||||
2,871,905 | 3.50%, 8/1/46, Pool #G08716 | 2,943,445 | ||||||
388,298 | 3.00%, 8/1/46, Pool #G08721 | 385,974 | ||||||
1,930,381 | 3.00%, 10/1/46, Pool #G08726 | 1,918,821 | ||||||
813,429 | 3.50%, 9/1/46, Pool #G08722 | 833,707 | ||||||
2,072,555 | 3.00%, 11/1/46, Pool #G08732 | 2,060,144 | ||||||
|
| |||||||
47,535,848 | ||||||||
|
| |||||||
| Federal National Mortgage Association (11.6%) |
| ||||||
1,104,249 | 4.12%, 4/1/20, Pool #464959 | 1,173,087 | ||||||
1,627,080 | 3.67%, 10/1/20, Pool #AE0918 | 1,714,029 | ||||||
968,732 | 3.43%, 10/1/20, Pool #466386 | 1,014,816 | ||||||
1,704,570 | 3.42%, 10/1/20, Pool #FN0009 | 1,779,221 | ||||||
2,459,260 | 3.76%, 12/1/20, Pool #FN0001 | 2,595,632 | ||||||
987,156 | 3.94%, 1/1/21, Pool #466969 | 1,047,781 | ||||||
1,107,751 | 4.62%, 4/1/21, Pool #467731 | 1,209,719 | ||||||
957,143 | 3.93%, 7/1/21, Pool #468518 | 1,022,497 | ||||||
1,245,000 | 3.06%, 5/1/22, Pool #471258 | 1,282,248 | ||||||
770,987 | 2.51%, 8/1/26, Pool #AN2270 | 746,350 | ||||||
1,745,331 | 2.50%, 9/1/26, Pool #MA2740 | 1,774,928 | ||||||
1,384,443 | 2.97%, 5/1/27, Pool #AL6829 | 1,378,835 | ||||||
780,000 | 2.49%, 9/1/28, Pool #AN2840 | 727,539 | ||||||
780,000 | 2.61%, 11/1/28, Pool #AN2913 | 734,616 | ||||||
715,224 | 3.53%, 12/1/30, Pool #AN0475 | 736,531 | ||||||
2,495,000 | 2.50%, 1/25/31, TBA | 2,498,947 | ||||||
1,444,350 | 3.50%, 1/1/32, Pool #AB4262 | 1,491,033 | ||||||
815,912 | 3.00%, 10/1/33, Pool #MA1676 | 832,551 | ||||||
1,715,890 | 3.50%, 4/1/43, Pool #MA1404 | 1,769,877 | ||||||
1,280,000 | 4.00%, 1/25/46, TBA | 1,345,675 | ||||||
3,625,000 | 3.00%, 1/25/46, TBA | 3,601,126 | ||||||
3,035,000 | 4.00%, 12/29/49, Pool #AL9549 | 3,193,441 | ||||||
1,425,826 | 4.50%, 12/31/49, Pool #AL9107 | 1,533,545 | ||||||
1,353,907 | 4.50%, 2/1/46, Pool #AL9106 | 1,456,761 | ||||||
255,599 | 4.50%, 12/31/49, Pool #AL9108 | 274,973 | ||||||
2,279,330 | 4.00%, 9/1/46, Pool #AL9027 | 2,396,859 | ||||||
1,934,057 | 4.50%, 12/31/49, Pool #AL9105 | 2,082,345 | ||||||
|
| |||||||
41,414,962 | ||||||||
|
| |||||||
| Government National Mortgage Association (3.3%) |
| ||||||
2,015,000 | 3.50%, 1/20/46, TBA | 2,094,616 | ||||||
1,780,000 | 3.00%, 1/20/46, TBA | 1,802,285 | ||||||
1,389,994 | 3.50%, 3/20/46, Pool #MA3521 | 1,446,478 | ||||||
1,432,015 | 3.50%, 4/20/46, Pool #MA3597 | 1,490,208 | ||||||
1,702,711 | 3.50%, 5/20/46, Pool #MA3663 | 1,771,904 | ||||||
558,933 | 3.50%, 9/20/46, Pool #MA3937 | 581,776 | ||||||
2,655,000 | 3.00%, 12/20/46, Pool #MA4126 | 2,692,086 | ||||||
|
| |||||||
11,879,353 | ||||||||
|
| |||||||
| Total U.S. Government Agency Mortgages (Cost $106,156,338) | 104,865,419 | ||||||
|
|
Continued
8
AZL MetWest Total Return Bond Fund
Schedule of Portfolio Investments
December 31, 2016
Principal | Fair Value | |||||||
| U.S. Treasury Obligations (32.4%): |
| ||||||
| U.S. Treasury Bills (0.1%) |
| ||||||
$ | 191,000 | 0.51%, 4/6/17(c)(d) | $ | 190,740 | ||||
|
| |||||||
| U.S. Treasury Bonds (2.9%) |
| ||||||
10,740,000 | 2.88%, 11/15/46 | 10,369,137 | ||||||
|
| |||||||
| U.S. Treasury Inflation Index Bonds (1.2%) |
| ||||||
1,950,000 | 1.38%, 2/15/44 | 2,207,220 | ||||||
2,160,000 | 0.75%, 2/15/45 | 2,086,353 | ||||||
|
| |||||||
4,293,573 | ||||||||
|
| |||||||
| U.S. Treasury Inflation Index Notes (1.5%) |
| ||||||
5,195,000 | 0.38%, 7/15/25 | 5,266,706 | ||||||
|
| |||||||
| U.S. Treasury Notes (26.7%) |
| ||||||
840,000 | 0.75%, 10/31/17 | 839,246 | ||||||
3,985,000 | 1.00%, 12/31/17 | 3,988,112 | ||||||
15,880,000 | 1.00%, 11/30/18 | 15,829,136 | ||||||
7,375,000 | 1.50%, 12/31/18 | 7,417,923 | ||||||
3,540,000 | 1.50%, 1/31/19 | 3,559,222 | ||||||
8,640,000 | 1.25%, 10/31/21 | 8,378,104 | ||||||
15,990,000 | 1.63%, 11/30/21 | 15,870,699 | ||||||
16,700,000 | 2.00%, 12/31/21 | 16,761,323 | ||||||
1,640,000 | 1.50%, 1/31/22 | 1,602,972 | ||||||
3,550,000 | 1.88%, 5/31/22 | 3,521,433 | ||||||
19,190,000 | 2.00%, 11/15/26 | 18,463,620 | ||||||
|
| |||||||
96,231,790 | ||||||||
|
| |||||||
| Total U.S. Treasury Obligations (Cost $117,043,502) | 116,351,946 | ||||||
|
|
Shares | Fair Value | |||||||
| Unaffiliated Investment Company (4.5%): |
| ||||||
15,954,735 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(c) | $ | 15,954,735 | |||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $15,954,735) | 15,954,735 | ||||||
|
| |||||||
| Total Investment Securities | |||||||
| (Cost $388,793,629)(e) — 107.4% | 385,937,552 | ||||||
| Net other assets (liabilities) — (7.4)% | (26,685,026 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 359,252,526 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
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, 2016. 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) | The rate represents the effective yield at December 31, 2016. |
(d) | All or a portion of this security has been pledged as collateral for open derivative positions. |
(e) | 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) | |||||||||||||||
U.S. Treasury 2-Year Note March Futures | Long | 3/31/17 | 51 | $ | 11,051,063 | $ | (3,609 | ) | ||||||||||||
U.S. Treasury 5-Year Note March Futures | Long | 3/31/17 | 170 | 20,002,891 | (70,411 | ) | ||||||||||||||
|
| |||||||||||||||||||
Total | $ | (74,020 | ) | |||||||||||||||||
|
|
See accompanying notes to the financial statements.
9
AZL MetWest Total Return Bond Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investment securities, at cost | $ | 388,793,629 | |||
|
| ||||
Investment securities, at value | $ | 385,937,552 | |||
Cash | 53,637 | ||||
Interest and dividends receivable | 1,658,894 | ||||
Receivable for capital shares issued | 4,313 | ||||
Receivable for investments sold | 6,150,443 | ||||
Receivable for variation margin on futures contracts | 31,078 | ||||
Prepaid expenses | 2,120 | ||||
|
| ||||
Total Assets | 393,838,037 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 34,162,514 | ||||
Payable for capital shares redeemed | 153,997 | ||||
Manager fees payable | 166,539 | ||||
Administration fees payable | 10,290 | ||||
Distribution fees payable | 75,700 | ||||
Custodian fees payable | 7,700 | ||||
Administrative and compliance services fees payable | 940 | ||||
Trustee fees payable | 714 | ||||
Other accrued liabilities | 7,117 | ||||
|
| ||||
Total Liabilities | 34,585,511 | ||||
|
| ||||
Net Assets | $ | 359,252,526 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 355,694,289 | |||
Accumulated net investment income/(loss) | 5,581,105 | ||||
Accumulated net realized gains/(losses) from investment transactions | 907,229 | ||||
Net unrealized appreciation/(depreciation) on investments | (2,930,097 | ) | |||
|
| ||||
Net Assets | $ | 359,252,526 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 35,682,863 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.07 | |||
|
|
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Interest | $ | 8,869,404 | |||
Dividends | 14,684 | ||||
Income from securities lending | 1,598 | ||||
|
| ||||
Total Investment Income | 8,885,686 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,308,851 | ||||
Administration fees | 140,235 | ||||
Distribution fees | 962,024 | ||||
Custodian fees | 16,181 | ||||
Administrative and compliance services fees | 6,782 | ||||
Trustee fees | 23,157 | ||||
Professional fees | 20,981 | ||||
Shareholder reports | 6,673 | ||||
Other expenses | 10,271 | ||||
|
| ||||
Total expenses before reductions | 3,495,155 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (192,402 | ) | |||
|
| ||||
Net expenses | 3,302,753 | ||||
|
| ||||
Net Investment Income/(Loss) | 5,582,933 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 1,101,758 | ||||
Net realized gains/(losses) on futures contracts | (103,100 | ) | |||
Change in net unrealized appreciation/depreciation on investments | 2,799,110 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 3,797,768 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 9,380,701 | |||
|
|
See accompanying notes to the financial statements.
10
Statements of Changes in Net Assets
AZL MetWest Total Return Bond Fund | ||||||||||
For the Year Ended December 31, 2016 | For the Year Ended December 31, 2015 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 5,582,933 | $ | 4,199,188 | ||||||
Net realized gains/(losses) on investment transactions | 998,658 | 2,302,920 | ||||||||
Change in unrealized appreciation/depreciation on investments | 2,799,110 | (7,165,505 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 9,380,701 | (663,397 | ) | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (4,414,608 | ) | (404,915 | ) | ||||||
From net realized gains | (2,155,528 | ) | (1,184,623 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (6,570,136 | ) | (1,589,538 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 48,657,852 | 30,697,489 | ||||||||
Proceeds from dividends reinvested | 6,570,136 | 1,589,537 | ||||||||
Value of shares redeemed | (91,454,875 | ) | (52,951,167 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (36,226,887 | ) | (20,664,141 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (33,416,322 | ) | (22,917,076 | ) | ||||||
Net Assets: | ||||||||||
Beginning of period | 392,668,848 | 415,585,924 | ||||||||
|
|
|
| |||||||
End of period | $ | 359,252,526 | $ | 392,668,848 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 5,581,105 | $ | 4,412,780 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 4,747,076 | 3,036,646 | ||||||||
Dividends reinvested | 638,497 | 158,163 | ||||||||
Shares redeemed | (8,920,718 | ) | (5,249,979 | ) | ||||||
|
|
|
| |||||||
Change in shares | (3,535,145 | ) | (2,055,170 | ) | ||||||
|
|
|
|
See accompanying notes to the financial statements.
11
AZL MetWest Total Return Bond Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, 2016 | Year Ended December 31, 2015 | November 17, 2014 to December 31, 2014 (a) | |||||||||||||
Net Asset Value, Beginning of Period | $ | 10.01 | $ | 10.07 | $ | 10.00 | |||||||||
|
|
|
|
|
| ||||||||||
Investment Activities: | |||||||||||||||
Net Investment Income/(Loss) | 0.16 | 0.11 | 0.01 | ||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.07 | (0.13 | ) | 0.06 | |||||||||||
|
|
|
|
|
| ||||||||||
Total from Investment Activities | 0.23 | (0.02 | ) | 0.07 | |||||||||||
|
|
|
|
|
| ||||||||||
Dividends to Shareholders From: | |||||||||||||||
Net Investment Income | (0.11 | ) | (0.01 | ) | — | ||||||||||
Net Realized Gains | (0.06 | ) | (0.03 | ) | — | ||||||||||
|
|
|
|
|
| ||||||||||
Total Dividends | (0.17 | ) | (0.04 | ) | — | ||||||||||
|
|
|
|
|
| ||||||||||
Net Asset Value, End of Period | $ | 10.07 | $ | 10.01 | $ | 10.07 | |||||||||
|
|
|
|
|
| ||||||||||
Total Return(b) | 2.30 | % | (0.20 | )% | 0.70 | %(c) | |||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||
Net Assets, End of Period (000’s) | $ | 359,253 | $ | 392,669 | $ | 415,586 | |||||||||
Net Investment Income/(Loss)(d) | 1.45 | % | 1.02 | % | 0.56 | % | |||||||||
Expenses Before Reductions(d)(e) | 0.91 | % | 0.89 | % | 0.91 | % | |||||||||
Expenses Net of Reductions(d) | 0.86 | % | 0.84 | % | 0.86 | % | |||||||||
Portfolio Turnover Rate | 185 | % | 256 | % | 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 the 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.
12
AZL MetWest Total Return Bond Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 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 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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.
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) 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 MetWest Total Return Bond Fund
Notes to the Financial Statements
December 31, 2016
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, 2016 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $1.4 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $154 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (“ASU No. 2014-11”), “Transfers & Servicing (Topic 860): Repurchaseto- Maturity Transactions, Repurchase Financings, and Disclosures”. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
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, 2016, 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 $31.1 million as of December 31, 2016. The monthly average notional amount for these contracts was $31.0 million for the year ended December 31, 2016. 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, 2016:
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 Contracts | Receivable for variation margin on futures contracts | $ | — | Payable for variation margin on futures contracts | $ | 74,020 |
* | For futures contracts, the amounts represent the cumulative appreciation/depreciation of these futures contracts as reported in the Schedule of Portfolio Investments. Only the current day’s variation margin is reported within the Statement of Assets and Liabilities as Variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended December 31, 2016:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives Recognized | Change in Net Unrealized Appreciation/Depreciation on Derivatives Recognized | |||||||
Interest Rate Risk Exposure |
| |||||||||
Interest Rate Contracts | Net realized gains/(losses) on futures contracts/Change in unrealized appreciation/depreciation on investments | $ | (103,100 | ) | $ | (42,555 | ) |
14
AZL MetWest Total Return Bond Fund
Notes to the Financial Statements
December 31, 2016
3. Fees and Transactions with Affiliates and Other Parties
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 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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, 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 | % |
* | Effective October 14, 2016, 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 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, 2016, 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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the Fund’s average daily net assets, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $4,373 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 in total for both trusts.
4. Investment Valuation Summary
The valuation techniques employed by the Fund, as described below, maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The inputs used for valuing the Fund’s investments are summarized in the three broad levels listed below:
● | Level 1 — quoted prices in active markets for identical assets |
● | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayments speeds, credit risk, etc.) |
● | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
15
AZL MetWest Total Return Bond Fund
Notes to the Financial Statements
December 31, 2016
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 (the “Board” or “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, 2016, 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, 2016 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Asset Backed Securities | $ | — | $ | 25,828,379 | $ | 25,828,379 | |||||||||
Collateralized Mortgage Obligations | — | 39,911,386 | 39,911,386 | ||||||||||||
Corporate Bonds+ | — | 74,109,363 | 74,109,363 | ||||||||||||
Yankee Dollars+ | — | 6,680,446 | 6,680,446 | ||||||||||||
Municipal Bonds | — | 2,235,878 | 2,235,878 | ||||||||||||
U.S. Government Agency Mortgages | — | 104,865,419 | 104,865,419 | ||||||||||||
U.S. Treasury Obligations | — | 116,351,946 | 116,351,946 | ||||||||||||
Unaffiliated Investment Company | 15,954,735 | — | 15,954,735 | ||||||||||||
|
|
|
|
|
| ||||||||||
Total Investment Securities | 15,954,735 | 369,982,817 | 385,937,552 | ||||||||||||
|
|
|
|
|
| ||||||||||
Other Financial Instruments:* | |||||||||||||||
Futures Contracts | (74,020 | ) | — | (74,020 | ) | ||||||||||
|
|
|
|
|
| ||||||||||
Total Investments | $ | 15,880,715 | $ | 369,982,817 | $ | 385,863,532 | |||||||||
|
|
|
|
|
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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, 2016, 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 | $ | 645,448,689 | $ | 647,641,058 |
For the year ended December 31, 2016, cost of purchases and proceeds from sales of long-term U.S. government securities included above were as follows:
Purchases | Sales | |||||||||
AZL MetWest Total Return Bond Fund | $ | 596,007,214 | $ | 577,326,434 |
16
AZL MetWest Total Return Bond Fund
Notes to the Financial Statements
December 31, 2016
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.
7. Federal Tax Information
It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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 of securities for federal income tax purposes at December 31, 2016 is $388,938,920. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 1,539,032 | ||
Unrealized (depreciation) | (4,540,400 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | (3,001,368 | ) | |
|
|
The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL MetWest Total Return Bond Fund | $ | 6,537,404 | $ | 32,732 | $ | 6,570,136 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2015 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL MetWest Total Return Bond Fund | $ | 1,589,538 | $ | — | $ | 1,589,538 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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 MetWest Total Return Bond Fund | $ | 6,146,483 | $ | 413,122 | $ | — | $ | (3,001,368 | ) | $ | 3,558,237 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies – Form N-PORT and Form N-CEN – also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
17
AZL MetWest Total Return Bond Fund
Notes to the Financial Statements
December 31, 2016
9. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
18
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, 2016, 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 or 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, 2016, 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 AZL MetWest Total Return Bond Fund as of December 31, 2016, 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 the each of the years or periods in the three-year period then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Columbus, Ohio
February 24, 2017
19
Other Federal Income Tax Information (Unaudited)
During the year ended December 31, 2016, the Fund declared net long-term capital gain distributions of $32,732.
During the year ended December 31, 2016, the Fund declared net short-term capital gain distributions of $2,122,796.
20
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
21
Approval of Investment Advisory and Subadvisory Agreements — October 25, 2016 (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 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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 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 the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held October 25, 2016, the Manager reported that for the three year period ended June 30, 2016, seven Funds were in the top 40%, two were in the middle 20% and three were in the bottom 40%, and for the one year period ended June 30, 2016, twelve Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2016, six Funds were in the top 40%, one was in the middle 20%, and three were in the bottom 40%. At the Board of Trustees meeting held October 25, 2016, 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 twenty Funds reviewed by the Board of Trustees in the fall of 2016, seventeen 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 2016 for the twenty-one Funds was as follows; (1) eighteen of the Funds had total expense rankings below the 65th percentile (with eleven Funds at or below the 50th percentile); (2) the AZL Russell 1000 Growth Index Fund had a total expense ranking in the 66th percentile, but there was only a very limited peer group for such Fund, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; (3) the AZL International Index Fund had a total expense ranking in the 75th percentile, but there was only a limited peer group for such Fund, the actual management fee was in the 37th percentile, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; and (4) for the AZL Morgan Stanley Global Real Estate Fund, which had a total expense ranking in the 70th percentile, the Manager recommended a temporary management fee waiver of 5 basis points, effective November 1, 2016, which would move the management fee ranking from the 80th to the 60th percentile.
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 2013 through June 30, 2016. 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, all of which currently are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
23
(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, 2016 were approximately $6.4 billion, and that no single Fund had assets in excess of $1,289 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, 2017, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
24
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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 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 | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 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 | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
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Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® Mid Cap Index Fund
Annual Report
December 31, 2016
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 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® 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.
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What factors affected the Fund’s performance during the year ended December 31, 2016?
For the year ended December 31, 2016, the AZL® Mid Cap Index Fund (Class 2 Shares) (the “Fund”) returned 19.52%. That compared to a 20.74% total return for its benchmark, the S&P MidCap 400 Index1.
The Fund takes positions in securities that, in combination, should have similar return characteristics as the return of the Index. The Index is designed to provide a comprehensive measure of mid-cap stocks’ performance.*
U.S. equities started the year on a down note. Stock prices fell on fears of a global economic slowdown; cratering oil prices; and terrorist attacks in Istanbul, Jakarta and Pakistan. Volatility also increased as investors prepared for a possible interest rate increase by the Federal Reserve.
A rebound in oil prices in February helped fuel a recovery in domestic equity markets that continued into the second quarter. The stock rally suffered a brief downturn in June as investors were shocked by the United Kingdom’s vote to leave the European Union. However, investor concerns quickly eased and the second quarter ended on a strong note.
That upward momentum in domestic equity markets carried through to the second half of the reporting period, driven by a dovish Federal Reserve decision to keep rates unchanged. Stock prices also benefited from earnings releases that surpassed many analyst expectations.
In the fourth quarter, the U.S. economy continued to strengthen as shown by strong macroeconomic data and a tightening labor market. Improving conditions meant the Fed’s decision in December to raise rates by 25 basis points (0.25%) did not come as a big surprise. While many investors were shocked by Donald Trump’s election win, markets did not show the same type of volatility as seen following the Brexit vote in June; most major U.S. indexes posted solid gains in November.
From a sector perspective, materials, industrials, and utilities stocks generated the strongest returns in the Index. Most of the sectors contributed positively to Index returns in 2016.
The Fund held derivatives in the form of futures contracts, which it used to hedge its cash position. The futures had a small positive impact on relative results.*
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, 2016. | |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
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. | ||
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, 2016 | ||||||||||||||||||||
Inception Date | 1 Year | 3 Year | 5 Year | Since Inception | ||||||||||||||||
AZL® Mid Cap Index Fund (Class 1 Shares) | 10/14/16 | — | — | — | 9.00 | %* | ||||||||||||||
AZL® Mid Cap Index Fund (Class 2 Shares) | 5/1/09 | 19.52 | % | 8.31 | % | 14.60 | % | 16.14 | % | |||||||||||
S&P MidCap 400 Index | 5/1/09 | 20.74 | % | 9.04 | % | 15.33 | % | 17.02 | % | |||||||||||
* Cumulative Return |
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® Mid Cap Index Fund (Class 1 Shares) | 0.32 | % | ||
AZL® Mid Cap Index Fund (Class 2 Shares) | 0.57 | % |
Expense Ratios are based on the current Fund prospectus dated August 31, 2016. 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, 2018. Additional information pertaining to the December 31, 2016 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 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Mid Cap Index Fund, Class 1** | $ | 1,000.00 | $ | 1,090.00 | $ | 0.67 | 0.31 | % | ||||||||||||
AZL Mid Cap Index Fund, Class 2 | $ | 1,000.00 | $ | 1,110.00 | $ | 2.97 | 0.56 | % |
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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Mid Cap Index Fund, Class 1 | $ | 1,000.00 | $ | 1,023.58 | $ | 1.58 | 0.31 | % | ||||||||||||
AZL Mid Cap Index Fund, Class 2 | $ | 1,000.00 | $ | 1,022.30 | $ | 2.85 | 0.56 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
** | Expenses are equal to the average account value multiplied by the Fund’s annualized expense ratio multiplied by 76/366 to reflect the stub period from commencement of operations 10/17/2016 through 12/31/2016. |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 18.6 | % | |||
Financials | 16.0 | ||||
Industrials | 14.5 | ||||
Consumer Discretionary | 11.3 | ||||
Real Estate | 10.2 | ||||
Health Care | 7.5 | ||||
Materials | 7.2 | ||||
Utilities | 5.3 | ||||
Consumer Staples | 4.4 | ||||
Energy | 3.9 | ||||
Telecommunication Services | 0.2 | ||||
|
| ||||
Total Common Stocks and Private Placements | 99.1 | ||||
Securities Held as Collateral for Securities on Loan | 20.6 | ||||
Money Market | 0.9 | ||||
|
| ||||
Total Investment Securities | 120.6 | ||||
Net other assets (liabilities) | (20.6 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Mid Cap Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks (97.9%): | ||||||||
Aerospace & Defense (2.1%): | ||||||||
79,574 | BE Aerospace, Inc. | $ | 4,789,559 | |||||
34,752 | Curtiss-Wright Corp. | 3,418,207 | ||||||
22,950 | Esterline Technologies Corp.* | 2,047,140 | ||||||
36,095 | Huntington Ingalls Industries, Inc. | 6,648,338 | ||||||
40,454 | KLX, Inc.* | 1,824,880 | ||||||
45,795 | Orbital ATK, Inc. | 4,017,595 | ||||||
27,403 | Teledyne Technologies, Inc.* | 3,370,569 | ||||||
36,685 | Triumph Group, Inc.^ | 972,153 | ||||||
|
| |||||||
27,088,441 | ||||||||
|
| |||||||
Airlines (0.4%): | ||||||||
246,924 | JetBlue Airways Corp.* | 5,536,036 | ||||||
|
| |||||||
Auto Components (0.5%): | ||||||||
107,198 | Dana Holding Corp. | 2,034,618 | ||||||
217,718 | Gentex Corp.^ | 4,286,867 | ||||||
|
| |||||||
6,321,485 | ||||||||
|
| |||||||
Automobiles (0.3%): | ||||||||
37,014 | Thor Industries, Inc. | 3,703,251 | ||||||
|
| |||||||
Banks (7.2%): | ||||||||
116,572 | Associated Banc-Corp. | 2,879,328 | ||||||
68,135 | BancorpSouth, Inc. | 2,115,592 | ||||||
33,693 | Bank of Hawaii Corp.^ | 2,988,232 | ||||||
70,504 | Bank of the Ozarks, Inc.^ | 3,707,805 | ||||||
59,080 | Cathay General Bancorp | 2,246,812 | ||||||
54,469 | Chemical Financial Corp. | 2,950,586 | ||||||
68,046 | Commerce Bancshares, Inc.^ | 3,933,739 | ||||||
43,591 | Cullen/Frost Bankers, Inc.^ | 3,846,034 | ||||||
110,692 | East West Bancorp, Inc. | 5,626,474 | ||||||
165,323 | F.N.B. Corp. | 2,650,128 | ||||||
182,803 | First Horizon National Corp.^ | 3,657,888 | ||||||
137,270 | Fulton Financial Corp. | 2,580,676 | ||||||
63,950 | Hancock Holding Co. | 2,756,245 | ||||||
46,514 | International Bancshares Corp. | 1,897,771 | ||||||
54,777 | MB Financial, Inc. | 2,587,118 | ||||||
93,931 | PacWest Bancorp | 5,113,604 | ||||||
59,800 | PrivateBancorp, Inc. | 3,240,562 | ||||||
54,385 | Prosperity Bancshares, Inc.^ | 3,903,755 | ||||||
41,833 | Signature Bank* | 6,283,317 | ||||||
39,973 | SVB Financial Group* | 6,861,766 | ||||||
95,942 | Synovus Financial Corp. | 3,941,297 | ||||||
135,517 | TCF Financial Corp. | 2,654,778 | ||||||
52,022 | Trustmark Corp.^ | 1,854,584 | ||||||
33,575 | UMB Financial Corp.^ | 2,589,304 | ||||||
173,411 | Umpqua Holdings Corp. | 3,256,659 | ||||||
201,630 | Valley National Bancorp^ | 2,346,973 | ||||||
72,338 | Webster Financial Corp.^ | 3,926,507 | ||||||
|
| |||||||
92,397,534 | ||||||||
|
| |||||||
Beverages (0.1%): | ||||||||
7,287 | Boston Beer Co., Inc. (The), Class A*^ | 1,237,697 | ||||||
|
| |||||||
Biotechnology (0.4%): | ||||||||
33,181 | United Therapeutics Corp.*^ | 4,759,151 | ||||||
|
| |||||||
Building Products (0.8%): | ||||||||
112,394 | A.O. Smith Corp. | 5,321,855 | ||||||
30,227 | Lennox International, Inc.^ | 4,629,870 | ||||||
|
| |||||||
9,951,725 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Capital Markets (3.5%): | ||||||||
63,400 | CBOE Holdings, Inc.^ | $ | 4,684,626 | |||||
88,551 | Eaton Vance Corp.^ | 3,708,516 | ||||||
31,171 | FactSet Research Systems, Inc.^ | 5,094,277 | ||||||
25,410 | Federated Investors, Inc., Class B^ | 718,595 | ||||||
114,855 | Janus Capital Group, Inc. | 1,524,126 | ||||||
70,952 | Legg Mason, Inc. | 2,122,174 | ||||||
29,372 | MarketAxess Holdings, Inc. | 4,315,334 | ||||||
73,337 | MSCI, Inc., Class A | 5,777,488 | ||||||
97,814 | Raymond James Financial, Inc. | 6,775,575 | ||||||
104,910 | SEI Investments Co. | 5,178,358 | ||||||
52,649 | Stifel Financial Corp.* | 2,629,818 | ||||||
68,616 | Waddell & Reed Financial, Inc., Class A^ | 1,338,698 | ||||||
88,297 | WisdomTree Investments, Inc.^ | 983,629 | ||||||
|
| |||||||
44,851,214 | ||||||||
|
| |||||||
Chemicals (2.8%): | ||||||||
48,390 | Ashland Global Holdings, Inc. | 5,288,543 | ||||||
48,960 | Cabot Corp. | 2,474,438 | ||||||
26,521 | Minerals Technologies, Inc. | 2,048,747 | ||||||
7,327 | NewMarket Corp. | 3,105,476 | ||||||
127,679 | Olin Corp.^ | 3,269,859 | ||||||
66,329 | PolyOne Corp. | 2,125,181 | ||||||
104,338 | RPM International, Inc. | 5,616,515 | ||||||
34,998 | Scotts Miracle-Gro Co. (The)^ | 3,344,059 | ||||||
35,188 | Sensient Technologies Corp. | 2,765,073 | ||||||
56,781 | Valspar Corp. (The) | 5,883,080 | ||||||
|
| |||||||
35,920,971 | ||||||||
|
| |||||||
Commercial Services & Supplies (1.3%): | ||||||||
41,454 | Clean Harbors, Inc.*^ | 2,306,915 | ||||||
79,796 | Copart, Inc.* | 4,421,497 | ||||||
38,002 | Deluxe Corp.^ | 2,721,323 | ||||||
44,356 | Herman Miller, Inc. | 1,516,975 | ||||||
32,862 | HNI Corp. | 1,837,643 | ||||||
24,357 | MSA Safety, Inc. | 1,688,671 | ||||||
75,753 | Rollins, Inc.^ | 2,558,936 | ||||||
|
| |||||||
17,051,960 | ||||||||
|
| |||||||
Communications Equipment (1.5%): | ||||||||
148,348 | ARRIS International plc* | 4,469,724 | ||||||
311,690 | Brocade Communications Systems, Inc. | 3,893,008 | ||||||
104,816 | Ciena Corp.*^ | 2,558,559 | ||||||
27,005 | InterDigital, Inc. | 2,466,907 | ||||||
70,485 | NetScout Systems, Inc.* | 2,220,278 | ||||||
24,969 | Plantronics, Inc. | 1,367,302 | ||||||
39,404 | ViaSat, Inc.*^ | 2,609,333 | ||||||
|
| |||||||
19,585,111 | ||||||||
|
| |||||||
Construction & Engineering (1.2%): | ||||||||
120,895 | Aecom Technology Corp.* | 4,395,742 | ||||||
23,226 | Dycom Industries, Inc.*^ | 1,864,816 | ||||||
45,819 | Emcor Group, Inc. | 3,242,152 | ||||||
30,110 | Granite Construction, Inc. | 1,656,050 | ||||||
107,837 | KBR, Inc. | 1,799,800 | ||||||
17,810 | Valmont Industries, Inc. | 2,509,429 | ||||||
|
| |||||||
15,467,989 | ||||||||
|
| |||||||
Construction Materials (0.3%): | ||||||||
36,582 | Eagle Materials, Inc., Class A | 3,604,424 | ||||||
|
|
Continued
4
AZL Mid Cap Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Consumer Finance (0.3%): | ||||||||
335,671 | SLM Corp.* | $ | 3,699,094 | |||||
|
| |||||||
Containers & Packaging (1.7%): | ||||||||
49,383 | AptarGroup, Inc.^ | 3,627,181 | ||||||
73,586 | Bemis Co., Inc.^ | 3,518,883 | ||||||
20,061 | Greif, Inc., Class A | 1,029,330 | ||||||
124,693 | Owens-Illinois, Inc.* | 2,170,905 | ||||||
72,708 | Packaging Corp. of America | 6,167,092 | ||||||
28,869 | Silgan Holdings, Inc.^ | 1,477,515 | ||||||
78,225 | Sonoco Products Co. | 4,122,458 | ||||||
|
| |||||||
22,113,364 | ||||||||
|
| |||||||
Distributors (0.3%): | ||||||||
32,543 | Pool Corp. | 3,395,537 | ||||||
|
| |||||||
Diversified Consumer Services (0.7%): | ||||||||
47,051 | DeVry Education Group, Inc. | 1,467,991 | ||||||
3,710 | Graham Holdings Co., Class B | 1,899,335 | ||||||
148,943 | Service Corp. International | 4,229,981 | ||||||
37,166 | Sotheby’s*^ | 1,481,437 | ||||||
|
| |||||||
9,078,744 | ||||||||
|
| |||||||
Electric Utilities (1.9%): | ||||||||
168,362 | Great Plains Energy, Inc. | 4,604,701 | ||||||
86,235 | Hawaiian Electric Industries, Inc. | 2,851,791 | ||||||
39,977 | IDACORP, Inc. | 3,220,147 | ||||||
155,497 | OGE Energy Corp.^ | 5,201,375 | ||||||
63,549 | PNM Resources, Inc. | 2,179,731 | ||||||
110,351 | Westar Energy, Inc. | 6,218,279 | ||||||
|
| |||||||
24,276,024 | ||||||||
|
| |||||||
Electrical Equipment (0.8%): | ||||||||
33,547 | EnerSys | 2,620,021 | ||||||
40,176 | Hubbell, Inc. | 4,688,539 | ||||||
35,345 | Regal-Beloit Corp. | 2,447,641 | ||||||
|
| |||||||
9,756,201 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (4.0%): | ||||||||
69,962 | Arrow Electronics, Inc.* | 4,988,291 | ||||||
99,618 | Avnet, Inc. | 4,742,813 | ||||||
31,448 | Belden, Inc. | 2,351,367 | ||||||
64,712 | Cognex Corp. | 4,116,977 | ||||||
28,348 | IPG Photonics Corp.*^ | 2,798,231 | ||||||
146,261 | Jabil Circuit, Inc.^ | 3,461,998 | ||||||
130,707 | Keysight Technologies, Inc.* | 4,779,955 | ||||||
65,522 | Knowles Corp.*^ | 1,094,873 | ||||||
17,265 | Littlelfuse, Inc. | 2,620,309 | ||||||
83,398 | National Instruments Corp. | 2,570,326 | ||||||
22,933 | SYNNEX Corp. | 2,775,352 | ||||||
26,714 | Tech Data Corp.* | 2,262,142 | ||||||
190,199 | Trimble Navigation, Ltd.* | 5,734,499 | ||||||
84,153 | VeriFone Systems, Inc.* | 1,492,033 | ||||||
97,854 | Vishay Intertechnology, Inc.^ | 1,585,235 | ||||||
39,933 | Zebra Technologies Corp., Class A*^ | 3,424,654 | ||||||
|
| |||||||
50,799,055 | ||||||||
|
| |||||||
Energy Equipment & Services (1.6%): | ||||||||
50,050 | Diamond Offshore Drilling, Inc.*^ | 885,885 | ||||||
30,092 | Dril-Quip, Inc.*^ | 1,807,025 | ||||||
240,249 | Ensco plc, Class A, ADR^ | 2,335,220 | ||||||
222,594 | Nabors Industries, Ltd. | 3,650,542 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Energy Equipment & Services, continued | ||||||||
200,956 | Noble Corp. plc | $ | 1,189,660 | |||||
74,867 | Oceaneering International, Inc. | 2,111,998 | ||||||
37,598 | Oil States International, Inc.* | 1,466,322 | ||||||
111,505 | Patterson-UTI Energy, Inc.^ | 3,001,714 | ||||||
100,974 | Rowan Cos. plc, Class A*^ | 1,907,399 | ||||||
112,827 | Superior Energy Services, Inc.^ | 1,904,520 | ||||||
|
| |||||||
20,260,285 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (9.9%): | ||||||||
61,782 | Alexandria Real Estate Equities, Inc. | 6,865,834 | ||||||
103,190 | American Campus Communities, Inc.^ | 5,135,766 | ||||||
67,958 | Camden Property Trust | 5,713,229 | ||||||
67,670 | Care Capital Properties, Inc. | 1,691,750 | ||||||
110,760 | Communications Sales & Leasing, Inc.^ | 2,814,412 | ||||||
91,074 | Corecivic, Inc. | 2,227,670 | ||||||
76,141 | Corporate Office Properties Trust | 2,377,122 | ||||||
273,491 | Cousins Properties, Inc.^ | 2,327,408 | ||||||
71,107 | DCT Industrial Trust, Inc. | 3,404,603 | ||||||
112,130 | Douglas Emmett, Inc. | 4,099,473 | ||||||
275,669 | Duke Realty Corp. | 7,321,770 | ||||||
58,214 | Education Realty Trust, Inc.^ | 2,462,452 | ||||||
49,884 | EPR Properties | 3,580,175 | ||||||
73,876 | Equity One, Inc. | 2,267,254 | ||||||
92,646 | First Industrial Realty Trust, Inc. | 2,598,720 | ||||||
91,014 | Healthcare Realty Trust, Inc. | 2,759,544 | ||||||
78,599 | Highwoods Properties, Inc. | 4,009,335 | ||||||
89,306 | Hospitality Properties Trust | 2,834,572 | ||||||
72,171 | Kilroy Realty Corp. | 5,284,361 | ||||||
64,634 | Lamar Advertising Co., Class A^ | 4,345,990 | ||||||
89,469 | LaSalle Hotel Properties^ | 2,726,120 | ||||||
114,994 | Liberty Property Trust | 4,542,263 | ||||||
36,745 | Life Storage, Inc. | 3,132,879 | ||||||
71,491 | Mack-Cali Realty Corp.^ | 2,074,669 | ||||||
251,895 | Medical Properties Trust, Inc.^ | 3,098,309 | ||||||
114,908 | National Retail Properties, Inc.^ | 5,078,934 | ||||||
152,554 | Omega Healthcare Investors, Inc.^ | 4,768,838 | ||||||
31,515 | Potlatch Corp. | 1,312,600 | ||||||
76,684 | Quality Care Properties* | 1,188,602 | ||||||
97,002 | Rayonier, Inc. | 2,580,253 | ||||||
81,324 | Regency Centers Corp. | 5,607,290 | ||||||
182,954 | Senior Housing Properties Trust | 3,463,319 | ||||||
76,085 | Tanger Factory Outlet Centers, Inc. | 2,722,321 | ||||||
47,494 | Taubman Centers, Inc. | 3,511,231 | ||||||
73,722 | Urban Edge Properties^ | 2,028,092 | ||||||
148,964 | Washington Prime Group, Inc. | 1,550,715 | ||||||
92,902 | Weingarten Realty Investors | 3,324,963 | ||||||
|
| |||||||
126,832,838 | ||||||||
|
| |||||||
Food & Staples Retailing (0.6%): | ||||||||
30,563 | Casey’s General Stores, Inc.^ | 3,633,329 | ||||||
104,487 | Sprouts Farmers Market, Inc.*^ | 1,976,894 | ||||||
39,101 | United Natural Foods, Inc.*^ | 1,865,900 | ||||||
|
| |||||||
7,476,123 | ||||||||
|
| |||||||
Food Products (3.1%): | ||||||||
73,046 | Dean Foods Co.^ | 1,590,942 | ||||||
142,522 | Flowers Foods, Inc.^ | 2,846,164 | ||||||
79,656 | Hain Celestial Group, Inc.* | 3,108,974 |
Continued
5
AZL Mid Cap Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Food Products, continued | ||||||||
56,297 | Ingredion, Inc. | $ | 7,034,873 | |||||
108,765 | Lamb Weston Holding, Inc.* | 4,116,755 | ||||||
15,459 | Lancaster Colony Corp. | 2,185,748 | ||||||
50,818 | Post Holdings, Inc.*^ | 4,085,259 | ||||||
67,930 | Snyders-Lance, Inc.^ | 2,604,436 | ||||||
15,373 | Tootsie Roll Industries, Inc. | 611,077 | ||||||
44,518 | TreeHouse Foods, Inc.*^ | 3,213,754 | ||||||
137,697 | WhiteWave Foods Co., Class A* | 7,655,954 | ||||||
|
| |||||||
39,053,936 | ||||||||
|
| |||||||
Gas Utilities (2.1%): | ||||||||
80,706 | Atmos Energy Corp. | 5,984,350 | ||||||
66,997 | National Fuel Gas Co.^ | 3,794,710 | ||||||
68,322 | New Jersey Resources Corp.^ | 2,425,431 | ||||||
41,197 | ONE Gas, Inc. | 2,634,960 | ||||||
37,398 | Southwest Gas Corp. | 2,865,435 | ||||||
134,913 | UGI Corp. | 6,216,791 | ||||||
40,337 | WGL Holdings, Inc. | 3,076,906 | ||||||
|
| |||||||
26,998,583 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (3.8%): | ||||||||
31,673 | ABIOMED, Inc.* | 3,568,914 | ||||||
58,385 | Align Technology, Inc.* | 5,612,550 | ||||||
55,404 | Globus Medical, Inc., Class A*^ | 1,374,573 | ||||||
34,179 | Halyard Health, Inc.*^ | 1,263,939 | ||||||
47,372 | Hill-Rom Holdings, Inc. | 2,659,464 | ||||||
69,397 | IDEXX Laboratories, Inc.* | 8,138,187 | ||||||
34,782 | LivaNova plc*^ | 1,564,147 | ||||||
39,017 | NuVasive, Inc.*^ | 2,628,185 | ||||||
109,647 | ResMed, Inc.^ | 6,803,597 | ||||||
66,969 | STERIS plc | 4,513,040 | ||||||
34,422 | Teleflex, Inc.^ | 5,547,105 | ||||||
57,192 | West Pharmaceutical Services, Inc. | 4,851,597 | ||||||
|
| |||||||
48,525,298 | ||||||||
|
| |||||||
Health Care Providers & Services (1.8%): | ||||||||
70,896 | HealthSouth Corp.^ | 2,923,751 | ||||||
32,043 | LifePoint Hospitals, Inc.*^ | 1,820,042 | ||||||
72,155 | MEDNAX, Inc.*^ | 4,809,852 | ||||||
31,863 | Molina Healthcare, Inc.*^ | 1,728,886 | ||||||
49,454 | Owens & Minor, Inc.^ | 1,745,232 | ||||||
61,784 | Tenet Healthcare Corp.* | 916,875 | ||||||
63,222 | VCA Antech, Inc.* | 4,340,190 | ||||||
34,447 | WellCare Health Plans, Inc.* | 4,721,995 | ||||||
|
| |||||||
23,006,823 | ||||||||
|
| |||||||
Health Care Technology (0.1%): | ||||||||
145,760 | Allscripts Healthcare Solutions, Inc.* | 1,488,210 | ||||||
|
| |||||||
Hotels, Restaurants & Leisure (2.7%): | ||||||||
39,641 | Brinker International, Inc.^ | 1,963,419 | ||||||
14,095 | Buffalo Wild Wings, Inc.* | 2,176,268 | ||||||
35,125 | Cheesecake Factory, Inc. (The) | 2,103,285 | ||||||
10,206 | Churchill Downs, Inc. | 1,535,493 | ||||||
19,069 | Cracker Barrel Old Country Store, Inc.^ | 3,184,142 | ||||||
37,452 | Domino’s Pizza, Inc. | 5,963,855 | ||||||
71,815 | Dunkin’ Brands Group, Inc.^ | 3,765,979 | ||||||
20,055 | International Speedway Corp., Class A | 738,024 | ||||||
25,555 | Jack in the Box, Inc. | 2,852,960 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Hotels, Restaurants & Leisure, continued | ||||||||
17,151 | Panera Bread Co., Class A*^ | $ | 3,517,499 | |||||
21,298 | Papa John’s International, Inc.^ | 1,822,683 | ||||||
49,146 | Texas Roadhouse, Inc. | 2,370,803 | ||||||
160,108 | Wendy’s Co. (The)^ | 2,164,660 | ||||||
|
| |||||||
34,159,070 | ||||||||
|
| |||||||
Household Durables (1.5%): | ||||||||
58,404 | CalAtlantic Group, Inc.^ | 1,986,320 | ||||||
22,344 | Helen of Troy, Ltd.* | 1,886,951 | ||||||
66,525 | KB Home^ | 1,051,760 | ||||||
2,757 | NVR, Inc.* | 4,601,434 | ||||||
38,011 | Tempur Sealy International, Inc.*^ | 2,595,391 | ||||||
117,154 | Toll Brothers, Inc.* | 3,631,774 | ||||||
114,127 | TRI Pointe Homes, Inc.*^ | 1,310,178 | ||||||
40,141 | Tupperware Brands Corp.^ | 2,112,219 | ||||||
|
| |||||||
19,176,027 | ||||||||
|
| |||||||
Household Products (0.2%): | ||||||||
49,294 | Energizer Holdings, Inc. | 2,199,005 | ||||||
|
| |||||||
Industrial Conglomerates (0.4%): | ||||||||
50,279 | Carlisle Cos., Inc. | 5,545,271 | ||||||
|
| |||||||
Insurance (4.3%): | ||||||||
7,325 | Alleghany Corp.* | 4,454,479 | ||||||
56,763 | American Financial Group, Inc. | 5,001,956 | ||||||
29,081 | Aspen Insurance Holdings, Ltd. | 1,599,455 | ||||||
90,120 | Brown & Brown, Inc. | 4,042,783 | ||||||
134,925 | CNO Financial Group, Inc. | 2,583,814 | ||||||
50,222 | Endurance Specialty Holdings, Ltd. | 4,640,512 | ||||||
21,432 | Everest Re Group, Ltd. | 4,637,885 | ||||||
85,595 | First American Financial Corp. | 3,135,345 | ||||||
283,731 | Genworth Financial, Inc., Class A* | 1,081,015 | ||||||
33,484 | Hanover Insurance Group, Inc. (The) | 3,047,379 | ||||||
38,657 | Kemper Corp. | 1,712,505 | ||||||
8,494 | Mercury General Corp.^ | 511,424 | ||||||
190,530 | Old Republic International Corp. | 3,620,070 | ||||||
35,801 | Primerica, Inc.^ | 2,475,639 | ||||||
49,708 | Reinsurance Group of America, Inc. | 6,254,757 | ||||||
11,228 | RenaissanceRe Holdings, Ltd.^ | 1,529,478 | ||||||
75,837 | W.R. Berkley Corp. | 5,043,919 | ||||||
|
| |||||||
55,372,415 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (0.1%): | ||||||||
24,409 | HSN, Inc. | 837,229 | ||||||
|
| |||||||
Internet Software & Services (0.4%): | ||||||||
37,096 | comScore, Inc.*^ | 1,171,492 | ||||||
37,330 | j2 Global, Inc.^ | 3,053,594 | ||||||
28,456 | WebMD Health Corp.* | 1,410,564 | ||||||
|
| |||||||
5,635,650 | ||||||||
|
| |||||||
IT Services (3.8%): | ||||||||
58,169 | Acxiom Corp.* | 1,558,929 | ||||||
92,757 | Broadridge Financial Solutions, Inc. | 6,149,789 | ||||||
107,803 | Computer Sciences Corp. | 6,405,654 | ||||||
76,655 | Convergys Corp. | 1,882,647 | ||||||
68,484 | CoreLogic, Inc.* | 2,522,266 | ||||||
25,311 | DST Systems, Inc. | 2,712,074 | ||||||
64,274 | Gartner, Inc.* | 6,496,173 | ||||||
60,915 | Jack Henry & Associates, Inc. | 5,408,034 |
Continued
6
AZL Mid Cap Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
IT Services, continued | ||||||||
111,201 | Leidos Holdings, Inc. | $ | 5,686,819 | |||||
50,651 | Maximus, Inc.^ | 2,825,819 | ||||||
12,323 | NeuStar, Inc., Class A* | 411,588 | ||||||
35,297 | Science Applications International Corp. | 2,993,186 | ||||||
30,209 | WEX, Inc.* | 3,371,324 | ||||||
|
| |||||||
48,424,302 | ||||||||
|
| |||||||
Leisure Products (0.7%): | ||||||||
70,417 | Brunswick Corp. | 3,840,543 | ||||||
45,882 | Polaris Industries, Inc.^ | 3,780,218 | ||||||
47,212 | Vista Outdoor, Inc.* | 1,742,123 | ||||||
|
| |||||||
9,362,884 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.9%): | ||||||||
16,419 | Bio-Rad Laboratories, Inc., Class A* | 2,992,855 | ||||||
29,556 | Bio-Techne Corp. | 3,039,244 | ||||||
37,470 | Charles River Laboratories International, Inc.* | 2,854,839 | ||||||
41,850 | PAREXEL International Corp.* | 2,750,382 | ||||||
|
| |||||||
11,637,320 | ||||||||
|
| |||||||
Machinery (4.9%): | ||||||||
53,146 | AGCO Corp.^ | 3,075,028 | ||||||
36,985 | CLARCOR, Inc. | 3,050,153 | ||||||
38,792 | Crane Co. | 2,797,679 | ||||||
101,058 | Donaldson Co., Inc.^ | 4,252,521 | ||||||
42,844 | Graco, Inc. | 3,559,908 | ||||||
59,482 | IDEX Corp. | 5,356,949 | ||||||
69,648 | ITT, Inc. | 2,686,323 | ||||||
73,481 | Joy Global, Inc. | 2,057,468 | ||||||
60,747 | Kennametal, Inc. | 1,898,951 | ||||||
48,272 | Lincoln Electric Holdings, Inc. | 3,701,014 | ||||||
40,099 | Nordson Corp. | 4,493,093 | ||||||
56,244 | OshKosh Corp. | 3,633,925 | ||||||
83,412 | Terex Corp. | 2,629,980 | ||||||
53,726 | Timken Co. | 2,132,922 | ||||||
85,454 | Toro Co. | 4,781,151 | ||||||
118,584 | Trinity Industries, Inc.^ | 3,291,892 | ||||||
68,703 | Wabtec Corp.^ | 5,703,724 | ||||||
41,907 | Woodward, Inc. | 2,893,678 | ||||||
|
| |||||||
61,996,359 | ||||||||
|
| |||||||
Marine (0.2%): | ||||||||
42,670 | Kirby Corp.*^ | 2,837,555 | ||||||
|
| |||||||
Media (1.3%): | ||||||||
46,839 | AMC Networks, Inc., Class A*^ | 2,451,553 | ||||||
3,724 | Cable One, Inc. | 2,315,323 | ||||||
83,561 | Cinemark Holdings, Inc. | 3,205,399 | ||||||
33,541 | John Wiley & Sons, Inc., Class A | 1,827,985 | ||||||
99,705 | Live Nation, Inc.*^ | 2,652,153 | ||||||
29,414 | Meredith Corp.^ | 1,739,838 | ||||||
88,408 | New York Times Co. (The), Class A | 1,175,826 | ||||||
74,135 | Time, Inc. | 1,323,310 | ||||||
|
| |||||||
16,691,387 | ||||||||
|
| |||||||
Metals & Mining (2.1%): | ||||||||
80,145 | Allegheny Technologies, Inc.^ | 1,276,710 | ||||||
35,052 | Carpenter Technology Corp.^ | 1,267,831 | ||||||
92,166 | Commercial Metals Co. | 2,007,375 | ||||||
26,836 | Compass Minerals International, Inc.^ | 2,102,601 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Metals & Mining, continued | ||||||||
56,600 | Reliance Steel & Aluminum Co. | $ | 4,501,964 | |||||
51,338 | Royal Gold, Inc. | 3,252,262 | ||||||
189,785 | Steel Dynamics, Inc. | 6,752,550 | ||||||
130,478 | United States Steel Corp. | 4,307,079 | ||||||
33,072 | Worthington Industries, Inc.^ | 1,568,936 | ||||||
|
| |||||||
27,037,308 | ||||||||
|
| |||||||
Multiline Retail (0.3%): | ||||||||
35,399 | Big Lots, Inc.^ | 1,777,384 | ||||||
234,972 | J.C. Penney Co., Inc.*^ | 1,952,617 | ||||||
|
| |||||||
3,730,001 | ||||||||
|
| |||||||
Multi-Utilities (1.0%): | ||||||||
42,111 | Black Hills Corp. | 2,583,089 | ||||||
151,985 | MDU Resources Group, Inc.^ | 4,372,609 | ||||||
38,501 | NorthWestern Corp.^ | 2,189,552 | ||||||
65,603 | Vectren Corp. | 3,421,196 | ||||||
|
| |||||||
12,566,446 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (2.3%): | ||||||||
134,196 | CONSOL Energy, Inc. | 2,446,393 | ||||||
325,322 | Denbury Resources, Inc.*^ | 1,197,185 | ||||||
74,460 | Energen Corp.* | 4,294,108 | ||||||
118,851 | Gulfport Energy Corp.* | 2,571,936 | ||||||
137,605 | HollyFrontier Corp.^ | 4,507,940 | ||||||
182,723 | QEP Resources, Inc.* | 3,363,930 | ||||||
74,139 | SM Energy Co. | 2,556,313 | ||||||
60,784 | Western Refining, Inc. | 2,300,674 | ||||||
55,964 | World Fuel Services Corp. | 2,569,307 | ||||||
259,938 | WPX Energy, Inc.* | 3,787,297 | ||||||
|
| |||||||
29,595,083 | ||||||||
|
| |||||||
Paper & Forest Products (0.3%): | ||||||||
50,518 | Domtar Corp.^ | 1,971,718 | ||||||
108,184 | Louisiana-Pacific Corp.* | 2,047,923 | ||||||
|
| |||||||
4,019,641 | ||||||||
|
| |||||||
Personal Products (0.4%): | ||||||||
331,525 | Avon Products, Inc.* | 1,670,886 | ||||||
45,528 | Edgewell Personal Care Co.*^ | 3,323,089 | ||||||
|
| |||||||
4,993,975 | ||||||||
|
| |||||||
Pharmaceuticals (0.5%): | ||||||||
67,284 | Akorn, Inc.*^ | 1,468,810 | ||||||
96,737 | Catalent, Inc.* | 2,608,029 | ||||||
42,015 | Prestige Brands Holdings, Inc.* | 2,188,982 | ||||||
|
| |||||||
6,265,821 | ||||||||
|
| |||||||
Professional Services (0.6%): | ||||||||
25,567 | CEB, Inc. | 1,549,360 | ||||||
34,261 | FTI Consulting, Inc.* | 1,544,486 | ||||||
52,406 | Manpower, Inc. | 4,657,321 | ||||||
|
| |||||||
7,751,167 | ||||||||
|
| |||||||
Real Estate Management & Development (0.4%): | ||||||||
34,260 | Alexander & Baldwin, Inc. | 1,537,246 | ||||||
35,634 | Jones Lang LaSalle, Inc. | 3,600,460 | ||||||
|
| |||||||
5,137,706 | ||||||||
|
| |||||||
Road & Rail (1.1%): | ||||||||
69,651 | Avis Budget Group, Inc.* | 2,554,799 | ||||||
47,160 | Genesee & Wyoming, Inc., Class A* | 3,273,376 |
Continued
7
AZL Mid Cap Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Road & Rail, continued | ||||||||
32,991 | Landstar System, Inc. | $ | 2,814,132 | |||||
54,131 | Old Dominion Freight Line, Inc.* | 4,643,898 | ||||||
36,533 | Werner Enterprises, Inc.^ | 984,564 | ||||||
|
| |||||||
14,270,769 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (2.8%): | ||||||||
577,384 | Advanced Micro Devices, Inc.* | 6,547,534 | ||||||
49,727 | Cirrus Logic, Inc.* | 2,811,565 | ||||||
76,092 | Cree, Inc.*^ | 2,008,068 | ||||||
240,253 | Cypress Semiconductor Corp.^ | 2,748,494 | ||||||
100,805 | Integrated Device Technology, Inc.* | 2,374,966 | ||||||
103,850 | Intersil Corp., Class A | 2,315,855 | ||||||
86,654 | Microsemi Corp.* | 4,676,716 | ||||||
29,422 | Monolithic Power Systems, Inc.^ | 2,410,544 | ||||||
31,151 | Silicon Laboratories, Inc.* | 2,024,815 | ||||||
26,327 | Synaptics, Inc.*^ | 1,410,601 | ||||||
156,009 | Teradyne, Inc. | 3,962,629 | ||||||
85,875 | Versum Materials, Inc.* | 2,410,511 | ||||||
|
| |||||||
35,702,298 | ||||||||
|
| |||||||
Software (4.2%): | ||||||||
88,030 | ACI Worldwide, Inc.* | 1,597,745 | ||||||
67,359 | ANSYS, Inc.* | 6,230,034 | ||||||
223,481 | Cadence Design Systems, Inc.* | 5,636,191 | ||||||
116,264 | CDK Global, Inc. | 6,939,797 | ||||||
31,172 | CommVault Systems, Inc.* | 1,602,241 | ||||||
24,424 | Fair Isaac Corp. | 2,911,829 | ||||||
110,718 | Fortinet, Inc.* | 3,334,826 | ||||||
54,668 | Manhattan Associates, Inc.* | 2,899,044 | ||||||
83,943 | Mentor Graphics Corp. | 3,096,657 | ||||||
88,195 | PTC, Inc.* | 4,080,783 | ||||||
117,675 | Synopsys, Inc.* | 6,926,351 | ||||||
25,644 | Tyler Technologies, Inc.*^ | 3,661,194 | ||||||
22,699 | Ultimate Software Group, Inc. (The)*^ | 4,139,163 | ||||||
|
| |||||||
53,055,855 | ||||||||
|
| |||||||
Specialty Retail (2.1%): | ||||||||
51,170 | Aaron’s, Inc.^ | 1,636,928 | ||||||
134,171 | American Eagle Outfitters, Inc.^ | 2,035,374 | ||||||
40,664 | Cabela’s, Inc., Class A* | 2,380,877 | ||||||
104,821 | Chico’s FAS, Inc. | 1,508,374 | ||||||
59,799 | CST Brands, Inc. | 2,879,322 | ||||||
68,104 | Dick’s Sporting Goods, Inc. | 3,616,322 | ||||||
81,243 | GameStop Corp., Class A^ | 2,052,198 | ||||||
29,006 | Murphy U.S.A., Inc.*^ | 1,782,999 | ||||||
407,690 | Office Depot, Inc. | 1,842,759 | ||||||
28,685 | Restoration Hardware Holdings, Inc.*^ | 880,630 | ||||||
113,428 | Sally Beauty Holdings, Inc.*^ | 2,996,768 | ||||||
64,029 | Williams-Sonoma, Inc.^ | 3,098,363 | ||||||
|
| |||||||
26,710,914 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (0.5%): | ||||||||
77,509 | 3D Systems Corp.*^ | 1,030,095 | ||||||
56,830 | Diebold, Inc.^ | 1,429,275 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Common Stocks, continued | ||||||||
Technology Hardware, Storage & Peripherals, continued | ||||||||
95,285 | NCR Corp.* | $ | 3,864,759 | |||||
|
| |||||||
6,324,129 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (0.8%): | ||||||||
38,798 | Carter’s, Inc. | 3,351,758 | ||||||
24,528 | Deckers Outdoor Corp.*^ | 1,358,606 | ||||||
31,737 | Fossil Group, Inc.*^ | 820,719 | ||||||
93,998 | Kate Spade & Co.* | 1,754,943 | ||||||
103,351 | Skechers U.S.A., Inc., Class A* | 2,540,368 | ||||||
|
| |||||||
9,826,394 | ||||||||
|
| |||||||
Thrifts & Mortgage Finance (0.7%): | ||||||||
377,756 | New York Community Bancorp, Inc.^ | 6,010,098 | ||||||
71,247 | Washington Federal, Inc. | 2,447,334 | ||||||
|
| |||||||
8,457,432 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.8%): | ||||||||
31,932 | GATX Corp.^ | 1,966,373 | ||||||
35,369 | MSC Industrial Direct Co., Inc., Class A | 3,267,741 | ||||||
79,548 | NOW, Inc.*^ | 1,628,348 | ||||||
19,692 | Watsco, Inc. | 2,916,779 | ||||||
|
| |||||||
9,779,241 | ||||||||
|
| |||||||
Water Utilities (0.3%): | ||||||||
138,291 | Aqua America, Inc. | 4,154,262 | ||||||
|
| |||||||
Wireless Telecommunication Services (0.2%): | ||||||||
72,955 | Telephone & Data Systems, Inc. | 2,106,211 | ||||||
|
| |||||||
Total Common Stocks (Cost $1,048,312,857) | 1,249,596,231 | |||||||
|
| |||||||
Private Placements (1.2%): | ||||||||
Internet & Direct Marketing Retail (0.1%): | ||||||||
$ | 37,815 | Flipkart, Series D, 0.00%(a) | 1,821,927 | |||||
|
| |||||||
Internet Software & Services (0.9%): | ||||||||
76,914 | Airbnb, Inc., Series D, 0.00%(a) | 7,527,573 | ||||||
245,606 | Dropbox, Inc., 0.00%*(a)(b) | 2,674,649 | ||||||
33,446 | Peixe Urbano, Inc., 0.00%*(a) | — | ||||||
116,948 | Survey Monkey, Inc., 0.00%*(a)(b) | 1,189,361 | ||||||
|
| |||||||
11,391,583 | ||||||||
|
| |||||||
Software (0.2%): | ||||||||
229,712 | Palantir Technologies, Inc., Series G, 0.00%*(a)(b) | 1,858,371 | ||||||
67,672 | Palantir Technologies, Inc., Series H, 0.00%*(a)(b) | 547,466 | ||||||
67,672 | Palantir Technologies, Inc., Series H-1, 0.00%*(a)(b) | 547,466 | ||||||
|
| |||||||
2,953,303 | ||||||||
|
| |||||||
Total Private Placements (Cost $10,424,499) | 16,166,813 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (20.6%): | ||||||||
263,052,609 | AZL Mid Cap Index Fund Securities Lending Collateral Account(c) | 263,052,609 | ||||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 263,052,609 | ||||||
|
|
Continued
8
AZL Mid Cap Index Fund
Schedule of Portfolio Investments
December 31, 2016
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Unaffiliated Investment Company (0.9%): | ||||||||
$ | 10,964,972 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(d) | $ | 10,964,972 | ||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $10,964,972) | 10,964,972 | |||||||
|
| |||||||
| Total Investment Securities (Cost $1,332,754,937)(e) — 120.6% | 1,539,780,625 | ||||||
Net other assets (liabilities) — (20.6)% | (262,929,825 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 1,276,850,800 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
ADR—American Depositary Receipt
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2016. The total value of securities on loan as of December 31, 2016, was $255,955,049. |
(a) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2016. The total of all such securities represent 1.27% 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, 2016, these securities represent 0.53% 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, 2016. |
(d) | The rate represents the effective yield at December 31, 2016. |
(e) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Amounts shown as “—” are either $0 or rounds to less than $1.
Futures Contracts
Cash of $510,000 has been segregated to cover margin requirements for the following open contracts as of December 31, 2016:
Description | Type | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
S&P Midcap 400 E-Mini March Futures | Long | 3/17/17 | 76 | $ | 12,609,160 | $ | (119,755 | ) |
See accompanying notes to the financial statements.
9
AZL Mid Cap Index Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investment securities, at cost | $ | 1,332,754,937 | |||
|
| ||||
Investment securities, at value* | $ | 1,539,780,625 | |||
Segregated cash for collateral | 510,000 | ||||
Interest and dividends receivable | 1,674,095 | ||||
Receivable for capital shares issued | 8,161 | ||||
Receivable for variation margin on futures contracts | 7,590 | ||||
Receivable for investments sold | 571,932 | ||||
Reclaims receivable | 9,079 | ||||
Prepaid expenses | 5,874 | ||||
|
| ||||
Total Assets | 1,542,567,356 | ||||
|
| ||||
Liabilities: | |||||
Foreign currency, at value (cost $1) | 1 | ||||
Payable for capital shares redeemed | 1,863,001 | ||||
Payable for collateral received on loaned securities | 263,052,609 | ||||
Payable for variation margin on futures contracts | 60,609 | ||||
Manager fees payable | 274,255 | ||||
Administration fees payable | 22,952 | ||||
Distribution fees payable | 262,670 | ||||
Custodian fees payable | 15,982 | ||||
Administrative and compliance services fees payable | 3,454 | ||||
Trustee fees payable | 2,623 | ||||
Other accrued liabilities | 158,400 | ||||
|
| ||||
Total Liabilities | 265,716,556 | ||||
|
| ||||
Net Assets | $ | 1,276,850,800 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 1,008,936,371 | |||
Accumulated net investment income/(loss) | 5,728,469 | ||||
Accumulated net realized gains/(losses) from investment transactions | 55,458,478 | ||||
Net unrealized appreciation/(depreciation) on investments | 206,727,482 | ||||
|
| ||||
Net Assets | $ | 1,276,850,800 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 54,300,265 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 4,980,585 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.90 | |||
|
| ||||
Class 2 | |||||
Net Assets | $ | 1,222,550,535 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 56,985,665 | ||||
Net Asset Value (offering and redemption price per share) | $ | 21.45 | |||
|
|
* | Includes securities on loan of $255,955,049. |
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Dividends | $ | 9,150,580 | |||
Income from securities lending | 516,335 | ||||
Foreign tax reclaims received | 1,617 | ||||
|
| ||||
Total Investment Income | 9,668,532 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 1,418,487 | ||||
Administration fees | 139,646 | ||||
Distribution fees — Class 2 | 1,390,894 | ||||
Custodian fees | 16,517 | ||||
Administrative and compliance services fees | 4,333 | ||||
Trustee fees | 13,431 | ||||
Professional fees | 32,167 | ||||
Shareholder reports | 27,767 | ||||
Other expenses | 138,414 | ||||
|
| ||||
Total expenses | 3,181,656 | ||||
|
| ||||
Net Investment Income/(Loss) | 6,486,876 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 63,293,385 | ||||
Net realized gains/(losses) on futures contracts | 3,423,786 | ||||
Change in net unrealized appreciation/depreciation on investments | 79,261,381 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 145,978,552 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 152,465,428 | |||
|
|
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, 2016 | For the Year Ended December 31, 2015 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 6,486,876 | $ | 4,347,410 | ||||||
Net realized gains/(losses) on investment transactions | 66,717,171 | 58,625,808 | ||||||||
Change in unrealized appreciation/depreciation on investments | 79,261,381 | (65,603,021 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 152,465,428 | (2,629,803 | ) | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1* | — | |||||||||
Class 2 | (4,261,287 | ) | (4,559,575 | ) | ||||||
From net realized gains: | ||||||||||
Class 1* | — | |||||||||
Class 2 | (57,736,235 | ) | (25,937,606 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (61,997,522 | ) | (30,497,181 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Class 1* | ||||||||||
Proceeds from shares issued | 51,600,599 | |||||||||
Value of shares redeemed | (1,868,942 | ) | ||||||||
|
| |||||||||
Total Class 1 Shares | 49,731,657 | |||||||||
|
| |||||||||
Class 2 | ||||||||||
Proceeds from shares issued | 392,352,971 | 60,095,979 | ||||||||
Proceeds from shares issued in merger | 371,150,604 | — | ||||||||
Proceeds from dividends reinvested | 61,997,522 | 30,497,181 | ||||||||
Value of shares redeemed | (94,941,552 | ) | (205,814,061 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | 730,559,545 | (115,220,901 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 780,291,202 | (115,220,901 | ) | |||||||
|
|
|
| |||||||
Change in net assets | 870,759,108 | (148,347,885 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 406,091,692 | 554,439,577 | ||||||||
|
|
|
| |||||||
End of period | $ | 1,276,850,800 | $ | 406,091,692 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 5,728,469 | $ | 4,347,882 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Class 1* | ||||||||||
Shares issued | 5,159,658 | |||||||||
Shares redeemed | (179,073 | ) | ||||||||
|
| |||||||||
Total Class 1 Shares | 4,980,585 | |||||||||
|
| |||||||||
Class 2 | ||||||||||
Shares issued | 19,931,749 | 2,584,482 | ||||||||
Shares issued in merger | 19,109,902 | — | ||||||||
Dividends reinvested | 3,156,696 | 1,434,486 | ||||||||
Shares redeemed | (4,459,133 | ) | (8,374,607 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | 37,739,214 | (4,355,639 | ) | |||||||
|
|
|
| |||||||
Change in shares | 42,719,799 | (4,355,639 | ) | |||||||
|
|
|
|
* | For the period October 17, 2016 (commencement of operations) to December 31, 2016. |
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, | |||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||
Class 1* | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.00 | |||||||||||||||||||||||
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| ||||||||||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.12 | ||||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.78 | ||||||||||||||||||||||||
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| ||||||||||||||||||||||||
Total from Investment Activities | 0.90 | ||||||||||||||||||||||||
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Net Asset Value, End of Period | $ | 10.90 | |||||||||||||||||||||||
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| ||||||||||||||||||||||||
Total Return(a) | 9.00 | %(b) | |||||||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 54,300 | |||||||||||||||||||||||
Net Investment Income/(Loss)(c) | 1.26 | % | |||||||||||||||||||||||
Expenses Before Reductions(c)(d) | 0.31 | % | |||||||||||||||||||||||
Expenses Net of Reductions(c) | 0.31 | % | |||||||||||||||||||||||
Portfolio Turnover Rate(e) | 86 | %(f) | |||||||||||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 21.10 | $ | 23.49 | $ | 22.43 | $ | 17.27 | $ | 15.10 | |||||||||||||||
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| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.13 | 0.30 | 0.19 | 0.14 | 0.14 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 3.67 | (0.91 | ) | 1.85 | 5.47 | 2.45 | |||||||||||||||||||
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| ||||||||||||||||
Total from Investment Activities | 3.80 | (0.61 | ) | 2.04 | 5.61 | 2.59 | |||||||||||||||||||
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| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.24 | ) | (0.27 | ) | (0.16 | ) | (0.14 | ) | (0.07 | ) | |||||||||||||||
Net Realized Gains | (3.21 | ) | (1.51 | ) | (0.82 | ) | (0.31 | ) | (0.35 | ) | |||||||||||||||
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| ||||||||||||||||
Total Dividends | (3.45 | ) | (1.78 | ) | (0.98 | ) | (0.45 | ) | (0.42 | ) | |||||||||||||||
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| ||||||||||||||||
Net Asset Value, End of Period | $ | 21.45 | $ | 21.10 | $ | 23.49 | $ | 22.43 | $ | 17.27 | |||||||||||||||
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|
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| ||||||||||||||||
Total Return(a) | 19.52 | % | (2.67 | )% | 9.21 | % | 32.71 | % | 17.22 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 1,222,550 | $ | 406,092 | $ | 554,440 | $ | 492,994 | $ | 311,979 | |||||||||||||||
Net Investment Income/(Loss) | 1.14 | % | 0.95 | % | 0.88 | % | 0.86 | % | 1.04 | % | |||||||||||||||
Expenses Before Reductions(d) | 0.57 | % | 0.57 | % | 0.57 | % | 0.58 | % | 0.60 | % | |||||||||||||||
Expenses Net of Reductions | 0.57 | % | 0.57 | % | 0.57 | % | 0.58 | % | 0.60 | % | |||||||||||||||
Portfolio Turnover Rate(e) | 86 | %(f) | 26 | % | 13 | % | 12 | % | 9 | % |
* | For the period October 17, 2016 (commencement of operations) to December 31, 2016. |
(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) | Not annualized. |
(c) | Annualized for periods less than one year. |
(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. Not annualized for periods less than one year. |
(f) | Cost of purchases and proceeds from sales of portfolio securities incurred to realign the Fund’s portfolio after the fund merger are excluded from the portfolio turnover rate. If such amounts had not been excluded, the portfolio turnover rate would have been 86%. |
See accompanying notes to the financial statements.
12
AZL Mid Cap Index Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.��� The Trust consists of 23 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 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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.
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) 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, 2016
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, 2016 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $107.3 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $51,548 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (“ASU No. 2014-11”), “Transfers & Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged, and the remaining contractual maturity of those transactions as of December 31, 2016.
Overnight and Continuous | Less than 30 Days | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions | |||||||||||||||||||||||||
Common Stocks | $ | 262,296,875 | $ | 755,734 | $ | — | $ | — | $ | 263,052,609 | |||||||||||||||
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|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Securities Lending Transactions | 262,296,875 | 755,734 | — | — | 263,052,609 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Borrowings | $ | 262,296,875 | $ | 755,734 | $ | — | $ | — | $ | 263,052,609 | |||||||||||||||
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|
|
|
|
|
|
|
| ||||||||||||||||
Gross Amount of Recognized Liabilities for Securities Lending Transactions | $ | 263,052,609 | |||||||||||||||||||||||
|
|
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and sub-adviser. Any such purchase or sale transaction must be effected without a brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security’s last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. During the year, the Fund engaged in such affiliated transactions at the current market price.
The Fund is permitted to purchase and sell securities (“crosstrade”) from and to other Allianz Funds as well as other funds and client accounts for which the Adviser or an affiliate of the Adviser serves as investment adviser, pursuant to procedures approved by the Trustees in compliance with Rule 17a-7 under the Act (the “Rule”). Each cross-trade is executed at the current market price in compliance with provisions of the Rule. For the year ended December 31, 2016, the Fund participated in following cross-trade transactions:
Purchases | Sales | Realized (Gain/Loss) | |||||||||||||
AZL Mid Cap Index Fund | $ | (22,202,874 | ) | $ | 42,965,519 | $ | 13,661,619 |
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, 2016, 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
14
AZL Mid Cap Index Fund
Notes to the Financial Statements
December 31, 2016
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 $12.6 million as of December 31, 2016. The monthly average notional amount for these contracts was $15.9 million for the year ended December 31, 2016. 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, 2016:
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 Risk Exposure | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | — | Payable for variation margin on futures contracts | $ | 119,755 |
* | For futures contracts, the amounts represent the cumulative appreciation/depreciation of these futures contracts as reported in the Schedule of Portfolio Investments. Only the current day’s variation margin is reported within the Statement of Assets and Liabilities as Variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended December 31, 2016:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives Recognized | Change in Net Unrealized Appreciation/Depreciation on Derivatives Recognized | |||||||
Equity Risk Exposure | ||||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/Change in unrealized appreciation/depreciation on investments | $ | 3,423,786 | $(121,446) |
3. Fees and Transactions with Affiliates and Other Parties
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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, 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 Class 1 | 0.25 | % | 0.46 | % | ||||||
AZL Mid Cap Index Fund Class 2 | 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, 2016, 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, 2016, 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 (“SEC” or the “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.”
15
AZL Mid Cap Index Fund
Notes to the Financial Statements
December 31, 2016
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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the average daily net assets attributable to Class 2 shares, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $5,917 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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 (the “Board” or “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.
16
AZL Mid Cap Index Fund
Notes to the Financial Statements
December 31, 2016
The following is a summary of the valuation inputs used as of December 31, 2016 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Common Stocks+ | $ | 1,249,596,231 | $ | — | $ | — | $ | 1,249,596,231 | ||||||||||||
Private Placements | — | — | 16,166,813 | 16,166,813 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | 263,052,609 | — | 263,052,609 | ||||||||||||||||
Unaffiliated Investment Company | 10,964,972 | — | — | 10,964,972 | ||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||
Total Investment Securities | 1,260,561,203 | 263,052,609 | 16,166,813 | 1,539,780,625 | ||||||||||||||||
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|
| |||||||||||||
Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | (119,755 | ) | — | — | (119,755 | ) | ||||||||||||||
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|
|
|
|
|
|
| |||||||||||||
Total Investments | $ | 1,260,441,448 | $ | 263,052,609 | $ | 16,166,813 | $ | 1,539,660,870 | ||||||||||||
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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. |
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, 2016, 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 | $ | 799,709,818 | $ | 503,939,591 |
6. Restricted Securities
A restricted security is a security which has been purchase 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, 2016 are identified below.
Security | Acquisition Date(a) | Acquisition Cost | Shares or Principal Amount | Fair Value | Percentage of Net Assets | ||||||||||||||||||||
Dropbox, Inc., 0.00% | 5/1/12 | 2,023,261 | 245,606 | 2,674,649 | 0.21 | % | |||||||||||||||||||
Palantir Technologies, Inc., Series G, 0.00% | 7/19/12 | 702,919 | 229,712 | 1,858,371 | 0.15 | % | |||||||||||||||||||
Palantir Technologies, Inc., Series H, 0.00% | 10/25/13 | 237,529 | 67,672 | 547,466 | 0.04 | % | |||||||||||||||||||
Palantir Technologies, Inc., Series H-1, 0.00% | 10/25/13 | 237,529 | 67,672 | 547,466 | 0.04 | % | |||||||||||||||||||
Survey Monkey, Inc., 0.00% | 11/25/14 | 1,923,795 | 116,948 | 1,189,361 | 0.09 | % |
(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.
8. Federal Tax Information
It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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AZL Mid Cap Index Fund
Notes to the Financial Statements
December 31, 2016
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 of securities for federal income tax purposes at December 31, 2016 is $1,339,486,289. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 224,348,840 | ||
Unrealized (depreciation) | (24,054,504 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 200,294,336 | ||
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Capital loss carry forwards (“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.
During the year December 31, 2016, the Fund utilized $6,039,847 in capital loss carry forwards to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Mid Cap Index Fund | $ | 5,707,139 | $ | 56,290,383 | $ | 61,997,522 |
(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, 2015 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Mid Cap Index Fund | $ | 6,629,568 | $ | 23,867,613 | $ | 30,497,181 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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 | $ | 5,728,468 | $ | 62,070,074 | $ | — | $ | 200,115,887 | $ | 267,914,429 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies — Form N-PORT and Form N-CEN — also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
10. Acquisition of Funds
Effective as of the close of business October 28, 2016, the Fund acquired all of the net assets of the AZL MFS Mid Cap Value Fund (“MFS Fund”) and AZL Multi-Manager Mid Cap Growth Fund (“Multi-Manager Fund”), open-end management investment companies, pursuant to a plan of reorganization approved by the Board on June 14, 2016. The purpose of the transaction was to combine three funds managed by the Manager with comparable investment objectives and strategies. The acquisition was accomplished by a tax-free exchange of 19,109,902 shares of the Fund, valued at $371,150,604, for 14,455,985 shares of the MFS Fund and 22,531,620 shares of the Multi-Manager Fund outstanding as of close of business October 28, 2016, respectively.
The investment portfolios of the MFS Fund and the Multi-Manager Fund were the principal assets acquired by the Fund. At the close of business October 28, 2016, the MFS Fund investment portfolio had a fair value of $115,513,349 and identified cost of $103,862,645. At the close of business October 28, 2016, the Multi-Manager Fund investment portfolio had a fair value of $255,669,178 and identified cost of $225,762,772. For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value; however, the cost basis of the investments received from the MFS Fund and the Multi-Manager Fund were carried forward to align ongoing reporting of the Fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes. Immediately prior to the merger, the Fund’s net assets were $706,992,732. All fees and expenses incurred by the MFS Fund and Multi-Manager Fund and the Fund directly in connection with the plan of reorganization were borne equally by the Manager and, collectively, the MFS Fund and the Multi-Manager Fund, except that the expenses borne by the MFS Fund and the Multi-Manager Fund did not exceed $54,000 and $79,500, respectively, as provided by the plan of reorganization.
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AZL Mid Cap Index Fund
Notes to the Financial Statements
December 31, 2016
Assuming the acquisition had been completed on January 1, 2016, the beginning of the annual reporting period of the Fund, the Fund’s pro forma results of operations for the year ended December 31, 2016, are as follows:
Net investment income/(loss) | $ | 10,972,258 | ||
Net realized/unrealized gains/(losses) | 141,363,828 | |||
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Change in net assets resulting from operations | $ | 152,336,086 | ||
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Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the MFS Fund and the Multi-Manager Fund that have been included in the Fund’s statement of operations since October 29, 2016.
In the calculation of the portfolio turnover as presented in the Financial Highlights, the Fund excluded the cost of purchases and proceeds from sales of portfolio securities that occurred in the effort to realign a combined fund’s portfolio after the merger. The amounts of excluded purchases and sales are as follows:
Cost of purchases | $ | 103,757,923 | ||
Proceeds from sales | — |
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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 Mid Cap Index Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2016, 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 or 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, 2016, by correspondence with the custodian and brokers. 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 AZL Mid Cap Index Fund as of December 31, 2016, 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 or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Columbus, Ohio
February 24, 2017
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2016, 56.61% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deductions available to corporate shareholders.
During the year ended December 31, 2016, the Fund declared net long-term capital gain distributions of $56,290,383.
During the year ended December 31, 2016, the Fund declared net short-term capital gain distributions of $1,445,843.
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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 — October 25, 2016 (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 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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 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 the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held October 25, 2016, the Manager reported that for the three year period ended June 30, 2016, seven Funds were in the top 40%, two were in the middle 20% and three were in the bottom 40%, and for the one year period ended June 30, 2016, twelve Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2016, six Funds were in the top 40%, one was in the middle 20%, and three were in the bottom 40%. At the Board of Trustees meeting held October 25, 2016, 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 twenty Funds reviewed by the Board of Trustees in the fall of 2016, seventeen 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 2016 for the twenty-one Funds was as follows; (1) eighteen of the Funds had total expense rankings below the 65th percentile (with eleven Funds at or below the 50th percentile); (2) the AZL Russell 1000 Growth Index Fund had a total expense ranking in the 66th percentile, but there was only a very limited peer group for such Fund, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; (3) the AZL International Index Fund had a total expense ranking in the 75th percentile, but there was only a limited peer group for such Fund, the actual management fee was in the 37th percentile, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; and (4) for the AZL Morgan Stanley Global Real Estate Fund, which had a total expense ranking in the 70th percentile, the Manager recommended a temporary management fee waiver of 5 basis points, effective November 1, 2016, which would move the management fee ranking from the 80th to the 60th percentile.
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 2013 through June 30, 2016. 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, all of which currently are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. 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, 2016 were approximately $6.4 billion, and that no single Fund had assets in excess of $1,289 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, 2017, 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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 5701 Golden Hills Drive | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 5701 Golden Hills Drive | 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 5701 Golden Hills Drive | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
26
Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
27
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® Moderate Index Strategy Fund
(formerly AZL® Invesco Equity and Income Fund)
Annual Report
December 31, 2016
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 5
Statement of Operations
Page 5
Statements of Changes in Net Assets
Page 6
Financial Highlights
Page 7
Notes to the Financial Statements
Page 8
Report of Independent Registered Public Accounting Firm
Page 14
Other Federal Income Tax Information
Page 15
Other Information
Page 16
Approval of Investment Advisory Agreement
Page 17
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® Moderate Index Strategy Fund Review (unaudited)
(formerly AZL® Invesco Equity and Income Fund)
Allianz Investment Management LLC serves as the Manager for the AZL® Moderate Index Strategy Fund. | ||
What factors affected the Fund’s performance during the year ended December 31, 2016?
For the year ended December 31, 2016, the AZL® Moderate Index Strategy Fund (the “Fund”) returned 8.91%. That compared to a 11.96%, 2.65% and 8.21% total return for its benchmarks, the S&P 500 Index1, Bloomberg Barclays U.S. Aggregate Bond Index1 and the Moderate Composite Index1, respectively.
Prior to October 14, 2016 the Fund was called the AZL Invesco Equity and Income Fund and was subadvised by Invesco Advisers, Inc. Effective October 14, 2016, the Fund’s name was changed to the AZL MVP Moderate Index Strategy Fund and Allianz Investment Management LLC (the “Manager”) assumed direct responsibility for the day-to-day management of the Fund’s assets.
Overall, 2016 brought a favorable economic backdrop for stocks. Major equity categories posted gains during the period under review, as U.S. economic growth remained steady, corporate earnings in most sectors proved robust, central banks in many major economies continued to pursue accommodative strategies, and merger activity increased. Even so, the path of equity returns was not linear. For example, global markets declined sharply following Britain’s June vote to leave the European Union, but stocks recovered quickly. Meanwhile, U.S. equities posted particularly strong gains during a year-end rally after Donald Trump’s victory in the U.S. presidential election. The S&P 500 Index gained 11.96% during the period while the MSCI EAFE Index2, burdened in part by the impact of a strengthening dollar, rose 1.00%.
Fixed-income markets were generally positive during the period under review. The U.S. Federal Reserve raised the federal funds rate for the second time in a decade and indicated that more rate hikes are likely in 2017. Spreads between U.S. Treasuries and corporate bonds tightened during the year, as investors searched for higher yields. The Bloomberg Barclays U.S. Aggregate Index gained 2.65% during the period under review.
The Fund outperformed its composite benchmark for the 12-month period under review. Most of this outperformance occurred in the first 10 months while the Fund was managed by the previous subadvisor. During this initial period, strong stock selection and underweight allocations in consumer discretionary and health care stocks were large contributors to the Fund’s performance relative to its composite benchmark. Stock selection and an overweight allocation to energy stocks also enhanced relative performance, as did stock selection in consumer staples.*
Under the previous subadvisor, weak stock selection within materials was a large detractor from relative performance. In particular, low exposure to metal mining companies hurt relative performance when these stocks rallied on rising metal prices. Additionally, stock selection within telecommunication services hampered relative performance, as did an overweight allocation to financial stocks, which performed poorly in the first half of 2016.*
The high-quality bonds and convertible bonds, including the Fund’s use of futures to gain exposure to U.S. Treasuries, in the fixed-income portion of the portfolio posted positive performance, but underperformed equities. As a result, these holdings detracted from the Fund’s performance relative to its composite benchmark.*
While managed by the previous subadvisor, the Fund made use of currency forward contracts for the purpose of hedging currency exposure to non-U.S.-based companies held in the portfolio. Derivatives were used solely for the purpose of hedging and not for speculative purposes or for leverage. The use of currency forward contracts had a positive impact on the Fund’s performance during the period, largely due to the strength of the U.S. dollar compared to the foreign currencies in which the Fund’s non-U.S. holdings were denominated.*
Following the changes which occurred on October 14, 2016 through December 31, 2016, the Fund had a total return of 2.04%, and performed in line with its composite benchmark (2.33% total return).
Allocations to small- and mid-cap U.S. equities supported relative returns as they collectively outperformed the larger stocks found in the S&P 500. The Fund’s relative performance was hurt by a strategic allocation to international equity as non-U.S. equity markets broadly lagged their domestic counterparts 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, 2016. |
1 | For a complete description of the Fund’s performance benchmarks please refer to page 2 of this report. |
2 | 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. |
1
AZL® Moderate Index Strategy 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 a combination of five underlying index funds (the”Index Strategy Underlying Funds”), allocating 50% - 80% of its assets in the underlying equity index funds and 30% - 50% of its assets in the underlying bond index fund.
Investment Concerns
The Fund invests in underlying funds, so its investment performance is directly related to the performance of those underlying funds. Before investing, investors should assess the risks associated with and types of investments made by each of the underlying funds in which the Fund invests.
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.
Stocks are more volatile and carry more risk and return potential than other forms of investments.
Small- to mid-capitalization companies typically have a higher risk of failure and historically have experienced a greater degree of volatility.
Bonds offer a relatively stable level of income, although bond prices will fluctuate, providing the potential for principal gain or loss.
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, 2016 | ||||||||||||||||
1 Year | 3 Year | 5 Year | 10 Year | |||||||||||||
AZL® Moderate Index Strategy Fund | 8.91 | % | 4.84 | % | 9.96 | % | 5.41 | % | ||||||||
S&P 500 Index | 11.96 | % | 8.87 | % | 14.66 | % | 6.95 | % | ||||||||
Bloomberg Barclays U.S. Aggregate Bond Index | 2.65 | % | 3.03 | % | 2.23 | % | 4.34 | % | ||||||||
Moderate Composite Index | 8.21 | % | 6.58 | % | 9.68 | % | 6.30 | % |
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® Moderate Index Strategy Fund | 1.06 | % |
The above expense ratio is based on the current Fund prospectus dated April 25, 2016, as supplemented October 14, 2016. The Manager voluntarily reduced the management fee to 0.05% on all assets. 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 0.20% through April 30, 2018. Additional information pertaining to the December 31, 2016 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.
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 0.45%.
The Fund’s performance is measured against the Standard and Poor’s 500 Index (“S&P 500”), the Bloomberg Barclays U.S. Aggregate Bond Index and the Moderate Composite Index (“Composite”). 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 Bloomberg 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. The Composite is a blended index comprised of (60%) of the S&P 500 and (40%) of the Bloomberg Barclays U.S. Aggregate Bond Index. 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 Moderate Index Strategy Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL Moderate Index Strategy 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Moderate Index Strategy Fund | $ | 1,000.00 | $ | 1,070.60 | $ | 3.54 | 0.68 | % |
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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Moderate Index Strategy Fund | $ | 1,000.00 | $ | 1,021.70 | $ | 3.46 | 0.68 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Affiliated Investment Companies | 100.1 | % | |||
|
| ||||
Total Investment Securities | 100.1 | ||||
Net other assets (liabilities) | (0.1 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Moderate Index Strategy Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Affiliated Investment Companies (100.1%): |
| ||||||
3,239,153 | AZL Mid Cap Index Fund, Class 2 | $ | 69,479,826 | |||||
7,598,489 | AZL International Index Fund, Class 2 | 107,138,700 | ||||||
26,023,268 | AZL Enhanced Bond Index Fund | 277,668,274 | ||||||
2,604,043 | AZL Small Cap Stock Index Fund, Class 2 | 37,055,527 | ||||||
16,368,846 | AZL S&P 500 Index Fund, Class 2 | 230,145,977 | ||||||
|
| |||||||
| Total Affiliated Investment Company (Cost $702,906,562) | 721,488,304 | ||||||
|
| |||||||
| Total Investment Securities (Cost $702,906,562)(a) — 100.1% | 721,488,304 | ||||||
| Net other assets (liabilities) — (0.1)% | (554,656 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 720,933,648 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
(a) | See Federal Tax Information listed in the Notes to the Financial Statements. |
See accompanying notes to the financial statements.
4
AZL Moderate Index Strategy Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investments in affiliates, at cost | $ | 702,906,562 | |||
|
| ||||
Investments in affiliates, at value | $ | 721,488,304 | |||
Interest and dividends receivable | 22 | ||||
Foreign currency, at value (cost $134,589) | 130,891 | ||||
Reclaims receivable | 155,170 | ||||
Prepaid expenses | 6,451 | ||||
|
| ||||
Total Assets | 721,780,838 | ||||
|
| ||||
Liabilities: | |||||
Cash overdraft | 460,925 | ||||
Payable for investments purchased | 20,927 | ||||
Payable for capital shares redeemed | 267,876 | ||||
Manager fees payable | 30,720 | ||||
Administration fees payable | 15,608 | ||||
Custodian fees payable | 28,116 | ||||
Administrative and compliance services fees payable | 1,924 | ||||
Trustee fees payable | 1,461 | ||||
Other accrued liabilities | 19,633 | ||||
|
| ||||
Total Liabilities | 847,190 | ||||
|
| ||||
Net Assets | $ | 720,933,648 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 522,207,165 | |||
Accumulated net investment income/(loss) | 15,434,325 | ||||
Accumulated net realized gains/(losses) from investment transactions | 164,719,798 | ||||
Net unrealized appreciation/(depreciation) on investments | 18,572,360 | ||||
|
| ||||
Net Assets | $ | 720,933,648 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 46,390,756 | ||||
Net Asset Value (offering and redemption price per share) | $ | 15.54 | |||
|
|
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Dividends | $ | 16,348,743 | |||
Interest | 6,881,622 | ||||
Income from securities lending | 848,186 | ||||
Foreign withholding tax | (321,274 | ) | |||
|
| ||||
Total Investment Income | 23,757,277 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 7,975,911 | ||||
Administration fees | 327,261 | ||||
Distribution fees | 2,432,960 | ||||
Custodian fees | 55,511 | ||||
Administrative and compliance services fees | 19,643 | ||||
Trustee fees | 70,283 | ||||
Professional fees | 50,956 | ||||
Shareholder reports | 31,932 | ||||
Other expenses | 29,075 | ||||
|
| ||||
Total expenses before reductions | 10,993,532 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (1,506,142 | ) | |||
|
| ||||
Net expenses | 9,487,390 | ||||
|
| ||||
Net Investment Income/(Loss) | 14,269,887 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 173,427,810 | ||||
Net realized gains/(losses) from affiliated transactions | 500,462 | ||||
Net realized gains/(losses) on futures contracts | (3,563,863 | ) | |||
Net realized gains/(losses) on forward currency contracts | 3,447,963 | ||||
Change in net unrealized appreciation/depreciation on investments | (97,323,376 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 76,488,996 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 90,758,883 | |||
|
|
See accompanying notes to the financial statements.
5
Statements of Changes in Net Assets
AZL Moderate Index Strategy Fund | ||||||||||
For the Year Ended December 31, 2016 | For the Year Ended December 31, 2015 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 14,269,887 | $ | 16,132,512 | ||||||
Net realized gains/(losses) on investment transactions | 173,812,372 | 43,069,085 | ||||||||
Change in unrealized appreciation/depreciation on investments | (97,323,376 | ) | (90,907,456 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 90,758,883 | (31,705,859 | ) | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (23,360,750 | ) | (28,472,229 | ) | ||||||
From net realized gains | (39,514,827 | ) | (55,076,961 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (62,875,577 | ) | (83,549,190 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 32,714,418 | 125,000,767 | ||||||||
Proceeds from dividends reinvested | 62,875,577 | 83,549,190 | ||||||||
Value of shares redeemed | (685,045,161 | ) | (127,884,154 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (589,455,166 | ) | 80,665,803 | |||||||
|
|
|
| |||||||
Change in net assets | (561,571,860 | ) | (34,589,246 | ) | ||||||
Net Assets: | ||||||||||
Beginning of period | 1,282,505,508 | 1,317,094,754 | ||||||||
|
|
|
| |||||||
End of period | $ | 720,933,648 | $ | 1,282,505,508 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 15,434,325 | $ | 22,200,342 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 2,178,543 | 7,784,392 | ||||||||
Dividends reinvested | 4,163,946 | 5,607,328 | ||||||||
Shares redeemed | (45,256,962 | ) | (7,908,631 | ) | ||||||
|
|
|
| |||||||
Change in shares | (38,914,473 | ) | 5,483,089 | |||||||
|
|
|
|
See accompanying notes to the financial statements.
6
AZL Moderate Index Strategy Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 15.03 | $ | 16.50 | $ | 15.73 | $ | 12.73 | $ | 11.54 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.32 | 0.19 | 0.23 | 0.11 | 0.15 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.00 | (0.61 | ) | 1.10 | 3.02 | 1.22 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.32 | (0.42 | ) | 1.33 | 3.13 | 1.37 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.30 | ) | (0.36 | ) | (0.13 | ) | (0.13 | ) | (0.18 | ) | |||||||||||||||
Net Realized Gains | (0.51 | ) | (0.69 | ) | (0.43 | ) | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.81 | ) | (1.05 | ) | (0.56 | ) | (0.13 | ) | (0.18 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 15.54 | $ | 15.03 | $ | 16.50 | $ | 15.73 | $ | 12.73 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 8.91 | % | (2.47 | )% | 8.50 | % | 24.67 | % | 11.91 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 720,934 | $ | 1,282,506 | $ | 1,317,095 | $ | 1,072,014 | $ | 575,068 | |||||||||||||||
Net Investment Income/(Loss) | 1.25 | % | 1.22 | % | 1.57 | % | 1.20 | % | 1.46 | % | |||||||||||||||
Expenses Before Reductions(b) | 0.96 | % | 1.05 | % | 1.05 | % | 1.06 | % | 1.07 | % | |||||||||||||||
Expenses Net of Reductions | 0.83 | % | 0.96 | % | 0.96 | % | 0.97 | % | 0.98 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 0.83 | % | 0.96 | % | 0.96 | % | 0.97 | % | 0.98 | % | |||||||||||||||
Portfolio Turnover Rate | 190 | % | 117 | % | 119 | % | 52 | % | 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 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.
7
AZL Moderate Index Strategy Fund
Notes to the Financial Statements
December 31, 2016
1. Organization
The Allianz Variable Insurance Products Fund of Funds 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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Moderate Index Strategy Fund (formerly, AZL Invesco Equity and Income Fund) (the “Fund”), and 22 are presented in separate reports.
The Fund is a “fund of funds,” which means that the Fund invests primarily in other mutual funds. Underlying Funds invest in stock, bonds, and other securities and reflect varying amounts of potential investment risk and reward. The Underlying Funds record their investments at fair value. Periodically, the Fund will adjust its asset allocation as it seeks to achieve its investment objective.
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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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.
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) 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.
8
AZL Moderate Index Strategy Fund
Notes to the Financial Statements
December 31, 2016
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, 2016 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $164 million for the period ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $83,577 during the period ended December 31, 2016. 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.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and sub-adviser. Any such purchase or sale transaction must be effected without a brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security’s last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. During the year ended December 31, 2016, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
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 period ended December 31, 2016, 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 $46.1 million for the period ended December 31, 2016. Realized gains and losses are reported as “Net realized gains/(losses) on futures contracts” on the Statement of Operations.
Forward Currency Contracts
During the period ended December 31, 2016, 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
9
AZL Moderate Index Strategy Fund
Notes to the Financial Statements
December 31, 2016
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 monthly average amount for these contracts was $49.8 million for the period ended December 31, 2016.
Summary of Derivative Instruments
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, 2016:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives Recognized | Change in Unrealized Appreciation/ Depreciation on Derivatives Recognized | |||||||
Equity Risk Exposure | ||||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts / Change in unrealized appreciation/depreciation on investments | $ | (3,089,421 | ) | $ | — | ||||
Foreign Exchange Risk Exposure | ||||||||||
Foreign Currency Contracts | Net realized gains/(losses) on forward currency contracts / Change in unrealized appreciation/depreciation on investments | 3,447,963 | (652,289 | ) | ||||||
Foreign Contracts | Net realized gains/(losses) on futures contracts / Change in unrealized appreciation/depreciation on investments | 1,365,202 | — | |||||||
Interest Rate Risk Exposure | ||||||||||
Interest Rate Contracts | Net realized gains/(losses) on futures contracts/Change in unrealized appreciation/depreciation on investments | (1,839,644 | ) | — |
3. Fees and Transactions with Affiliates and Other Parties
The Manager provides investment advisory and management services for the Fund. 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, acquired fund fees and expenses, 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, 2018. Expenses incurred for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.”
For the year ended December 31, 2016, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit** | |||||||||
AZL Moderate Index Strategy Fund | 0.40 | % | 0.20 | % |
* | From January 1, 2016 through October 13, 2016, The Manager retained BlackRock as subadvisor and the annual rate due to the Manager was 0.75% of average daily net assets and 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. Effective October 14, 2016, the Manager retained Metropolitan West as subadvser and the annual rate due to the Manager decreased to 0.40% of average daily net assets and voluntarily reduced the management fee to 0.05% on all assets. The Manager reserves the right to increase the management fee to the amount shown in the table at any time. |
** | Limit in effect as of October 14, 2016. Prior to that date, the annual expense limit was 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, 2016, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the period can be found on the Statement of Operations.
The Manager or an affiliate of the Manager serves as the investment adviser of certain securities in which the Fund invests. At December 31, 2016, these investments are noted as Affiliated Securities in the Fund’s Schedule of Portfolio Investments. A summary of the Fund’s investments in affiliated securities for the year ended December 31, 2016 is as follows:
Fair Value 12/31/2015 | Purchases at Cost | Proceeds from Sales | Net Realized Gain(Loss) | Fair Value 12/31/2016 | Dividend Income | |||||||||||||||||||||||||
AZL Mid Cap Index Fund, Class 2 | $ | — | $ | 65,293,628 | $ | (2,763,420 | ) | $ | 156,746 | $ | 69,479,826 | $ | — | |||||||||||||||||
AZL International Index Fund, Class 2 | — | 108,822,713 | (2,712,047 | ) | (36,535 | ) | 107,138,700 | — | ||||||||||||||||||||||
AZL Enhanced Bond Index Fund | — | 291,208,346 | (7,232,126 | ) | (97,784 | ) | 277,668,274 | — | ||||||||||||||||||||||
AZL Small Cap Stock Index Fund, Class 2 | — | 32,646,814 | (1,019,255 | ) | 62,277 | 37,055,527 | — | |||||||||||||||||||||||
AZL S&P 500 Index Fund, Class 2 | — | 228,786,658 | (11,333,092 | ) | 415,758 | 230,145,977 | — | |||||||||||||||||||||||
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$ | — | $ | 726,758,159 | $ | (25,059,940 | ) | $ | 500,462 | $ | 721,488,304 | $ | — | ||||||||||||||||||
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10
AZL Moderate Index Strategy Fund
Notes to the Financial Statements
December 31, 2016
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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the Fund’s average daily net assets, 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. Effective October 14, 2016, the Fund was no longer liable for this fee.
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 Senior Counsel. During the year ended December 31, 2016, $13,506 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 in total for both trusts.
During the year ended December 31, 2016, the Fund paid approximately $49 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.
Investments in other investment companies are valued at their published net asset value (“NAV”). Security prices are generally provided by an independent third party pricing service approved by the Trust’s Board of Trustees (the “Board” or “Trustees”) as of the close of the New York Stock Exchange (“NYSE”) (generally 4:00 pm Eastern Time). The investments utilizing Level 1 valuations represent investments in open-end investment companies.
For the year ended December 31, 2016, 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, 2016 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Affiliated Investment Company | $ | 721,488,304 | $ | — | $ | 721,488,304 | |||||||||
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Total Investments | $ | 721,488,304 | $ | — | $ | 721,488,304 | |||||||||
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11
AZL Moderate Index Strategy Fund
Notes to the Financial Statements
December 31, 2016
5. Security Purchases and Sales
For the year ended December 31, 2016, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL Moderate Index Strategy Fund | $ | 2,016,419,533 | $ | 2,547,980,866 |
For the year ended December 31, 2016, cost of purchases and proceeds from sales of long-term U.S. government securities included above were as follows:
Purchases | Sales | |||||||||
AZL Moderate Index Strategy Fund | $ | 1,116,812,225 | $ | 1,258,645,281 |
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 policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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 of securities for federal income tax purposes at December 31, 2016 is $ 702,933,466. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 24,791,903 | ||
Unrealized (depreciation) | (6,237,065 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 18,554,838 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Moderate Index Strategy Fund | $ | 23,360,750 | $ | 39,514,827 | $ | 62,875,577 |
(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, 2015 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Moderate Index Strategy Fund | $ | 32,498,489 | $ | 51,050,701 | $ | 83,549,190 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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 Moderate Index Strategy Fund | $ | 30,962,487 | $ | 149,218,540 | $ | — | $ | 18,545,456 | $ | 198,726,483 |
(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 Moderate Index Strategy Fund
Notes to the Financial Statements
December 31, 2016
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, 2016, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 90% of the Fund.
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies — Form N-PORT and Form N-CEN — also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
10. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
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 Moderate Index Strategy Fund (formerly, 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, 2016, 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, 2016, by correspondence with the transfer agents of the underlying funds. 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 AZL Moderate Index Strategy Fund as of December 31, 2016, 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 24, 2017
14
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2016, 55.18% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deductions available to corporate shareholders.
During the year ended December 31, 2016, the Fund declared net long-term capital gain distributions of $39,514,827.
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 Agreements (Unaudited)
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL Moderate Index Strategy Fund
(formerly, AZL Invesco Equity and Income Fund)
Approval of Investment Advisory Agreement (Unaudited)
Subject to the general supervision of the Board of Trustees and in accordance with the Fund’s investment objectives and restrictions, investment advisory services are provided to the Fund by Allianz Investment Management LLC (the “Manager”). The Manager manages the Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of the Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board of Trustees, is responsible for the management of the Fund. For management services, the Fund pays the Manager an investment advisory fee based upon the Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of the Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2018.
Prior to October 14, 2016, the Fund was called the AZL Invesco Equity and Income Fund and was subadvised by Invesco Advisers, Inc., which was responsible for the day-to-day management of the Fund’s investments. At a meeting held on June 14, 2016, the Board of Trustees approved various changes to the Fund, which resulted in Invesco Advisers, Inc. being terminated as the subadviser to the Fund, effective October 14, 2016, and the Manager assuming direct responsibility for the day-to-day management of the Fund’s assets. At the same time, the Fund’s investment strategies changed such that the Fund became a fund of funds, which invests primarily in the shares of other mutual funds managed by the Manager (the “Underlying Funds”).
In reviewing the services provided by the Manager and the terms of the Management Agreement, the Board receives and reviews information related to the Manager’s experience and expertise in the variable insurance marketplace. Currently, the Fund is 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 Fund is offered only through Allianz Life and Allianz of New York variable products.
As required by the Investment Company Act of 1940 (the “1940 Act”), the Trust’s Board has reviewed and approved the Management Agreement with the Manager. The Board’s decision to approve this contract reflects the exercise of its business judgment on whether to approve new arrangements and continue the existing arrangements. During its review of the contract, the Board considered many factors, among the most material of which are: the Fund’s investment objectives, the Manager’s management philosophy, personnel, processes and investment performance, including its compliance history and the adequacy of its 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 considered the compensation and benefits received by the Manager. This includes fees received for services provided to a Fund by employees of the Manager or of affiliates of the Manager and research services received by the Manager 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 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 Underlying Funds 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 the Manager’s compensation: the nature and quality of the services provided by the Manager, including the performance of the funds; the Manager’s cost of providing the services; the extent to which the Manager may realize “economies of scale” as the funds grow larger; any indirect benefits that may accrue to the Manager and its affiliates as a result of the Manager’s relationship with the funds; performance and expenses of comparable funds; the profitability to the Manager from acting as adviser to the funds; and the extent which the independent Board members are fully informed about all facts bearing on the Manager’s services and fees. The Trust’s Board is aware of these factors and took them into account in its review of the Management Agreement for the Fund.
The Board considered and weighed these circumstances in light of its experience in governing the Trust, 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 Fund and the Manager. 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 the Management Agreement is informed by reports covering such matters as: the Manager’s investment philosophy, personnel and processes, and the Fund’s investment performance (in absolute terms as well as in relationship to its benchmark). In connection with comparing the performance of the Fund versus its benchmark, the Board receives reports on the extent to which the Fund’s performance may be attributed to various applicable factors, such as asset class allocation decisions and volatility management strategies, the performance of the Underlying Funds, rebalancing decisions, and the impact of cash positions and Fund fees and expenses. The Board also receives reports on 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 nature and extent of the advisory and other services provided to the Fund by the Manager and its affiliates; compliance and audit reports concerning the Fund and the companies that service them; and relevant developments in the mutual fund industry and how the Fund and/or the Manager are responding to them.
The Board also receives financial information about the Manager, including reports on the compensation and benefits the Manager derives from its relationships with the Fund. These reports cover not only the fees under the Management Agreement, but also fees, if any, received for providing other services to the Fund. The reports also discuss any indirect or “fall out” benefits the Manager or its affiliates may derive from its relationship with the Fund.
The Management Agreement was most recently considered at Board of Trustees meetings held in the fall of 2016. Information relevant to the approval of such Agreement was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreement was approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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 Agreement with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/ continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreement, in respect of the Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Management Agreement on the totality of the circumstances and relevant
17
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 each 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 the investment adviser and the approval of the advisory fee. 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. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers the Fund’s business and other affairs. The Trustees noted that the Manager also provides the Trust and the 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 Fund) and executive and other personnel as are necessary for the operation of the Trust and the Fund. 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 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 is responsible for maintaining and monitoring its own compliance program, and this compliance program has been 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 was 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 the Fund under the Management Agreement.
(2) The investment performance of the Fund and the Manager. In connection with the fall 2016 contract review process, Trustees received extensive information on the performance results of the Fund. However, the Board of Trustees also considered the fact that prior October 14, 2016, the Fund was subadvised by Invesco Advisers, Inc., and managed pursuant to a different strategy. Accordingly, the investment performance of the Fund and the Subadviser prior to October 14, 2016, were not deemed to be pertinent to the Board of Trustee’s assessment of the continuance of the Management Agreement for the period following October 14, 2016.
(3) The costs of services to be provided and profits to be realized by the Manager and its affiliates from the relationship with the Fund. The Board considered that the Manager receives an advisory fee from the Fund. The Manager reported that the advisory fee paid by the Fund put the Fund in the 19th percentile of the customized peer group. Trustees were provided with information on the total expense ratios of the Fund and other funds in the customized peer groups, and the Manager reported upon the challenges in making peer group comparisons for the Fund.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2013 through June 30, 2016. 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 Fund 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 the Fund.
Based upon the information provided, the Board concluded that the Fund’s advisory fees and expense ratios are not unreasonable, and determined that there was no evidence that the Manager’s level of profitability from its relationship with the Fund was excessive.
(4) and (5) The extent to which economies of scale would be realized as the Fund grows, and whether fee levels reflect these economies of scale. The Trustees noted that the advisory fee schedule for the Fund does not contain breakpoints that reduce the fee rate on assets above specified levels. 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 services provided by the Manager. The Trustees noted that in the fund industry as a whole, as well as among funds similar to the Fund, 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 the Fund as of June 30, 2016 were approximately $1.2 billion.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in the Fund’s advisory fee rate schedule was acceptable under the Fund’s circumstances.
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 Fund grows larger. The Board receives quarterly reports on the level of Fund assets. It expects to consider whether or not to approve the Management Agreement at a meeting to be held prior to December 31, 2017, 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.
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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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 5701 Golden Hills Drive | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 5701 Golden Hills Drive | 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 5701 Golden Hills Drive | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
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Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® Morgan Stanley Global Real Estate Fund
Annual Report
December 31, 2016
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, 2016?
For the year ended December 31, 2016, the AZL® Morgan Stanley Global Real Estate Fund (Class 2 Shares) (the “Fund”) returned 3.14%. That compared to a 4.99% total return for its benchmark, the FTSE EPRA/NAREIT Developed Real Estate Index1.
The global real estate securities market was up during the period ended December 31, 2016. Overall, property stocks were influenced by transactional evidence in the private markets of strong investor demand for core assets at valuations that signaled a willingness to accept low expected returns. In addition, low government bond yields, coupled with continued credit availability and low borrowing rates, bolstered share prices of listed property companies.
Property stocks in the U.S. experienced the strongest gains over the period. The sector benefited from the low interest rate environment for most of the year. Though there was a partial reversal of this theme following the U.S. elections in November, the sector rallied in December amid growing confidence for stronger economic growth. Property stocks in Asia also delivered strong gains, driven in particular by strength in the Asian REIT markets, which benefited from strong investor demand for yield investments. Meanwhile, in Europe property stocks declined in USD terms, primarily driven by significant weakness in the U.K. due to the outcome of the Brexit vote, the resulting period of uncertainty and the associated depreciation of the pound.
The Fund underperformed its benchmark during the period primarily due to investor preference during the first half of 2016 for yield-oriented stocks and market segments with perceived defensive characteristics, such as the Japan-REIT sector and U.S. net lease and health care sectors. Investors also moved away from sectors deemed more economically sensitive, despite these stocks trading at very attractive discounted valuations. These sectors include the U.S. apartment and lodging sectors and the Hong Kong, Tokyo and New York office markets. An overweight allocation to the U.K. prior to the Brexit vote was also a significant detractor from full-year performance.*
Performance within the Asian portfolio—in particular, stock selection in Japan and Hong Kong—detracted from the Fund’s relative performance. Performance of stocks within the European portfolio also detracted from relative results, although an underweight allocation to Europe contributed modestly to relative performance. The Fund’s Europe portfolio also benefited from an overweight allocation to Norway and stock selection in Sweden. However, these benefits were more than offset by the negative effect of the overweight allocation to the U.K. and an underweight allocation to Germany.*
In the U.S. portfolio, the Fund benefited from an overweight allocation to and stock selection in the hotel sector and stock selection in the health care sector. However, this benefit was offset by relative losses from an overweight allocation to the mall sector and an underweight allocation to the industrial, data center and net lease sectors.*
The Fund outperformed in the second half of 2016 amid a partial reversal of investor sentiment that interest rates would remain low. This reversal was not sufficient to offset the underperformance for the full year.
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, 2016. |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
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.
Emerging market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries.
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, 2016 | ||||||||||||||||||||||||
Inception Date | 1 Year | 3 Year | 5 Year | 10 Year | Since Inception | |||||||||||||||||||
AZL® Morgan Stanley Global Real Estate Fund (Class 1 Shares) | 10/14/16 | — | — | — | — | 0.50 | %* | |||||||||||||||||
AZL® Morgan Stanley Global Real Estate Fund (Class 2 Shares) | 5/1/06 | 3.14 | % | 5.00 | % | 9.14 | % | 1.57 | % | — | ||||||||||||||
FTSE EPRA/NAREIT Developed Real Estate Index (gross of withholding taxes) | 5/1/06 | 4.99 | % | 6.78 | % | 10.33 | % | 2.23 | % | 4.32 | % | |||||||||||||
FTSE EPRA/NAREIT Developed Real Estate Index (net of withholding taxes) | 5/1/06 | 4.06 | % | 5.90 | % | 9.48 | % | 1.48 | % | 3.58 | % |
*Cumulative | Return |
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 (Class 1 Shares) | 1.04 | % | ||
AZL® Morgan Stanley Global Real Estate Fund (Class 2 Shares) | 1.29 | % |
Expense Ratios are based on the current Fund prospectus dated August 31, 2016. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.10% for Class 1 Shares and 1.35% for Class 2 Shares through April 30, 2018. Additional information pertaining to the December 31, 2016 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, disposal and development of income-producing real estate. The Indexes do not reflect the deduction of fees associated with a mutual fund, such as investment management and fund accounting fees. The Index noted as “gross of withholding taxes” reflects the maximum possible reinvestment of dividends with no adjustment for withholding tax deductions or tax credits. 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid 7/1/16 - 12/31/16* | Annualized 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Morgan Stanley Global Real Estate Fund, Class 1** | $ | 1,000.00 | $ | 1,005.00 | $ | 2.14 | 1.03 | % | ||||||||||||
AZL Morgan Stanley Global Real Estate Fund, Class 2 | $ | 1,000.00 | $ | 966.10 | $ | 6.38 | 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid 7/1/16 - 12/31/16* | Annualized 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Morgan Stanley Global Real Estate Fund, Class 1 | $ | 1,000.00 | $ | 1,019.96 | $ | 5.23 | 1.03 | % | ||||||||||||
AZL Morgan Stanley Global Real Estate Fund, Class 2 | $ | 1,000.00 | $ | 1,018.65 | $ | 6.55 | 1.29 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
** | Expenses are equal to the average account value multiplied by the Fund’s annualized expense ratio multiplied by 76/366 to reflect the stub period from commencement of operations 10/17/2016 through 12/31/2016. |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
United States | 54.7 | % | |||
Japan | 11.0 | ||||
Hong Kong | 8.0 | ||||
United Kingdom | 5.6 | ||||
Australia | 4.9 | ||||
France | 3.0 | ||||
Canada | 2.1 | ||||
Bermuda | 2.1 | ||||
Germany | 1.5 | ||||
Singapore | 1.2 | ||||
All other countries | 3.9 | ||||
|
| ||||
Total Common Stocks | 98.0 | ||||
Securities Held as Collateral for Securities on Loan | 8.6 | ||||
Money Market | 1.4 | ||||
|
| ||||
Total Investment Securities | 108.0 | ||||
Net other assets (liabilities) | (8.0 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Morgan Stanley Global Real Estate Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks (98.0%): |
| ||||||
| Diversified Real Estate Activities (9.8%): |
| ||||||
111,091 | CapitaLand, Ltd. | $ | 230,815 | |||||
46,521 | Hang Lung Properties, Ltd. | 97,412 | ||||||
124,201 | Henderson Land Development Co., Ltd. | 655,682 | ||||||
180,311 | Mitsubishi Estate Co., Ltd. | 3,574,694 | ||||||
146,098 | Mitsui Fudosan Co., Ltd. | 3,371,698 | ||||||
454,801 | New World Development Co., Ltd. | 476,743 | ||||||
56,331 | Sumitomo Realty & Development Co., Ltd. | 1,492,878 | ||||||
248,971 | Sun Hung Kai Properties, Ltd. | 3,117,308 | ||||||
59,738 | UOL Group, Ltd. | 246,137 | ||||||
117,399 | Wharf Holdings, Ltd. (The) | 771,536 | ||||||
|
| |||||||
14,034,903 | ||||||||
|
| |||||||
| Diversified REITs (6.5%): | |||||||
90 | Activia Properties, Inc. | 424,378 | ||||||
2,149 | Fonciere des Regions SA | 187,420 | ||||||
5,100 | Gecina SA | 704,989 | ||||||
201,749 | GPT Group | 731,432 | ||||||
4,569 | H&R Real Estate Investment Trust | 76,133 | ||||||
350,678 | Hibernia REIT plc | 455,703 | ||||||
11,558 | Hispania Activos Inmobiliarios SA | 136,035 | ||||||
7,099 | ICADE | 506,420 | ||||||
24 | Kenedix Office Investment Corp. | 137,863 | ||||||
164,023 | Land Securities Group plc | 2,166,396 | ||||||
5,945 | Liberty Property Trust^ | 234,828 | ||||||
29,336 | Merlin Properties Socimi SA | 319,556 | ||||||
213,790 | Mirvac Group | 328,084 | ||||||
583 | Nomura Real Estate Master Fund, Inc. | 881,828 | ||||||
15,866 | Spirit Realty Capital, Inc. | 172,305 | ||||||
177,508 | Stockland Trust Group | 586,023 | ||||||
20,783 | STORE Capital Corp.^ | 513,548 | ||||||
90,064 | Suntec REIT | 102,148 | ||||||
420 | United Urban Investment Corp. | 639,286 | ||||||
|
| |||||||
9,304,375 | ||||||||
|
| |||||||
| Health Care Facilities (0.1%): | |||||||
20,641 | Extendicare, Inc. | 151,905 | ||||||
|
| |||||||
| Health Care REITs (4.7%): | |||||||
14,571 | Healthcare Realty Trust, Inc. | 441,793 | ||||||
7,272 | Medequities Realty Trust, Inc.^ | 80,719 | ||||||
27,887 | Senior Housing Properties Trust | 527,901 | ||||||
46,287 | Ventas, Inc.^ | 2,893,863 | ||||||
41,190 | Welltower, Inc. | 2,756,847 | ||||||
|
| |||||||
6,701,123 | ||||||||
|
| |||||||
| Hotel & Resort REITs (3.6%): | |||||||
8,600 | Cdl Hospitality Trusts | 7,955 | ||||||
24,471 | Chesapeake Lodging Trust | 632,820 | ||||||
132,515 | Host Hotels & Resorts, Inc.^ | 2,496,583 | ||||||
236 | Japan Hotel REIT Investment Corp. | 158,501 | ||||||
45,306 | LaSalle Hotel Properties^ | 1,380,474 | ||||||
20,054 | Xenia Hotels & Resorts, Inc. | 389,449 | ||||||
|
| |||||||
5,065,782 | ||||||||
|
| |||||||
| Hotels, Resorts & Cruise Lines (1.1%): | |||||||
56,792 | Hilton Worldwide Holdings, Inc.*^ | 1,544,742 | ||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Industrial REITs (3.9%): | |||||||
167,798 | Ascendas Real Estate Investment Trust | $ | 262,251 | |||||
2,833 | DCT Industrial Trust, Inc. | 135,644 | ||||||
30,000 | Duke Realty Corp. | 796,800 | ||||||
62,600 | Ec World REIT | 32,861 | ||||||
246 | GLP J-REIT | 283,396 | ||||||
200,917 | Macquarie Goodman Group | 1,036,343 | ||||||
161,592 | Mapletree Logistics Trust | 113,515 | ||||||
138 | Nippon Prologis REIT, Inc. | 282,168 | ||||||
35,277 | ProLogis, Inc. | 1,862,273 | ||||||
19,957 | Rexford Industrial Realty, Inc.^ | 462,803 | ||||||
61,077 | SERGO plc | 345,588 | ||||||
|
| |||||||
5,613,642 | ||||||||
|
| |||||||
| Office REITs (15.5%): | |||||||
99,106 | Beni Stabili SpA | 56,607 | ||||||
36,161 | Boston Properties, Inc. | 4,548,330 | ||||||
19,074 | Brookfield Canada Office Properties | 372,671 | ||||||
198,340 | CapitaCommercial Trust | 201,627 | ||||||
10,930 | Columbia Property Trust, Inc. | 236,088 | ||||||
6,448 | Corporate Office Properties Trust | 201,307 | ||||||
45,458 | Cousins Properties, Inc.^ | 386,848 | ||||||
41 | Daiwa Office Investment Corp. | 206,884 | ||||||
29,923 | Derwent Valley Holdings plc | 1,020,861 | ||||||
55,226 | Dexus Property Group | 384,334 | ||||||
25,593 | Douglas Emmett, Inc.^ | 935,680 | ||||||
9,886 | Dream Office Real Estate Investment Trust | 143,964 | ||||||
111,682 | Great Portland Estates plc | 918,312 | ||||||
273,873 | Green REIT plc | 395,170 | ||||||
32,046 | Hudson Pacific Properties, Inc.^ | 1,114,560 | ||||||
69,059 | Investa Office Fund | 235,491 | ||||||
165 | Japan Real Estate Investment Corp. | 899,952 | ||||||
8,241 | Mack-Cali Realty Corp.^ | 239,154 | ||||||
141 | Mori Hills REIT Investment Corp., Class C | 190,629 | ||||||
202 | Mori Trust Sogo REIT, Inc. | 319,049 | ||||||
185 | Nippon Building Fund, Inc. | 1,025,225 | ||||||
206 | ORIX JREIT, Inc. | 325,140 | ||||||
53,110 | Paramount Group, Inc. | 849,229 | ||||||
8,028 | �� | Parkway, Inc.* | 178,623 | |||||
3,386 | SL Green Realty Corp.^ | 364,164 | ||||||
59,778 | Vornado Realty Trust | 6,239,029 | ||||||
10,681 | Workspace Group plc | 103,875 | ||||||
|
| |||||||
22,092,803 | ||||||||
|
| |||||||
| Real Estate Development (2.0%): | |||||||
299,540 | Cheung Kong Property Holdings, Ltd. | 1,816,554 | ||||||
85,925 | China Overseas Land & Investment, Ltd. | 226,644 | ||||||
20,000 | China Resources Land, Ltd. | 45,095 | ||||||
87,641 | Sino Land Co., Ltd. | 129,733 | ||||||
82,899 | St. Modwen Properties plc | 310,299 | ||||||
111,764 | Urban & Civic plc | 310,424 | ||||||
|
| |||||||
2,838,749 | ||||||||
|
| |||||||
| Real Estate Operating Companies (8.9%): | |||||||
5,769 | ADO Properties SA | 194,130 | ||||||
26,941 | Atrium European Real Estate, Ltd. | 111,416 | ||||||
14,175 | Atrium Ljungberg AB, Class B | 221,468 |
Continued
4
AZL Morgan Stanley Global Real Estate Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Real Estate Operating Companies, continued | |||||||
2,485,087 | BGP Holdings plc*(a)(b) | $ | 79,774 | |||||
3,705 | BR Properties SA* | 8,542 | ||||||
7,317 | BUWOG-Bauen Und Wohnen Gesellschaft mbH | 170,179 | ||||||
21,729 | Castellum AB | 297,928 | ||||||
191,608 | Citycon OYJ | 471,438 | ||||||
462 | Deutsche Euroshop AG | 18,814 | ||||||
24,104 | Deutsche Wohnen AG | 755,773 | ||||||
49,288 | Entra ASA | 489,794 | ||||||
39,432 | First Capital Realty, Inc. | 607,121 | ||||||
125,462 | Global Logistic Properties, Ltd. | 190,111 | ||||||
478,052 | Hongkong Land Holdings, Ltd. | 3,016,888 | ||||||
24,541 | Hufvudstaden AB | 387,165 | ||||||
20,556 | Hulic Co., Ltd. | 182,358 | ||||||
296,669 | Hysan Development Co., Ltd. | 1,223,113 | ||||||
40,411 | Inmobiliaria Colonial SA | 280,208 | ||||||
10,066 | Kennedy Wilson Europe Real Estate Plc | 118,896 | ||||||
1,273 | LEG Immobilien AG | 98,741 | ||||||
214,000 | LXB Retail Properties plc | 96,711 | ||||||
61,964 | Norwegian Property ASA | 71,738 | ||||||
9,037 | PSP Swiss Property AG | 781,081 | ||||||
575,529 | Swire Properties, Ltd. | 1,577,112 | ||||||
1,119 | Swiss Prime Site AG | 91,603 | ||||||
15,638 | Unite Group plc | 116,885 | ||||||
31,938 | Vonovia SE | 1,040,192 | ||||||
966 | Wihlborgs Fastigheter AB | 17,949 | ||||||
|
| |||||||
12,717,128 | ||||||||
|
| |||||||
| Residential REITs (12.0%): | |||||||
80 | Advance Residence Investment | 211,530 | ||||||
7,158 | American Homes 4 Rent, Class A^ | 150,175 | ||||||
16,201 | Apartment Investment & Management Co., Class A | 736,335 | ||||||
24,819 | AvalonBay Communities, Inc. | 4,396,685 | ||||||
16,258 | Boardwalk REIT^ | 589,163 | ||||||
23,155 | Camden Property Trust | 1,946,641 | ||||||
1,635 | Equity Lifestyle Properties, Inc. | 117,884 | ||||||
94,220 | Equity Residential Property Trust | 6,063,998 | ||||||
9,769 | Essex Property Trust, Inc. | 2,271,293 | ||||||
1,045 | Invincible Investment Corp. | 469,017 | ||||||
136 | Japan Rental Housing Investment Corp. | 91,240 | ||||||
285 | Mid-America Apartment Communities, Inc. | 27,907 | ||||||
1,117 | Monogram Residential Trust, Inc.^ | 12,086 | ||||||
|
| |||||||
17,083,954 | ||||||||
|
| |||||||
| Retail REITs (24.7%): | |||||||
6,220 | Acadia Realty Trust^ | 203,270 | ||||||
214,382 | British Land Co. plc | 1,660,874 | ||||||
17,591 | Brixmor Property Group, Inc.^ | 429,572 | ||||||
132,866 | Capital & Regional plc | 89,969 | ||||||
202,752 | CapitaMall Trust | 262,931 | ||||||
3,334 | CBL & Associates Properties, Inc.^ | 38,341 | ||||||
19,507 | Crombie REIT | 197,322 | ||||||
9,411 | DDR Corp. | 143,706 | ||||||
23,967 | Equity One, Inc. | 735,547 | ||||||
12,119 | Eurocommercial Properties NV | 466,511 |
Shares or Principal Amount | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Retail REITs, continued | |||||||
1,453 | Federal Realty Investment Trust | $ | 206,486 | |||||
133,271 | General Growth Properties, Inc.* | 3,329,110 | ||||||
79,413 | Hammerson plc | 559,422 | ||||||
232 | Japan Retail Fund Investment Corp. | 469,942 | ||||||
34,233 | Kimco Realty Corp. | 861,302 | ||||||
19,523 | Klepierre | 766,695 | ||||||
80,286 | Liberty International plc | 278,850 | ||||||
186,384 | Link REIT (The) | 1,203,634 | ||||||
842 | Macerich Co. (The) | 59,647 | ||||||
49,893 | Mapletree Commercial Trust | 48,004 | ||||||
4,865 | Mercialys SA | 98,572 | ||||||
28,563 | National Retail Properties, Inc.^ | 1,262,485 | ||||||
40,497 | Regency Centers Corp. | 2,792,268 | ||||||
32,073 | RioCan REIT | 636,205 | ||||||
506,108 | Scentre Group | 1,698,383 | ||||||
2,518 | Shaftesbury plc | 28,154 | ||||||
33,024 | Shopping Centres Australasia Property Group | 52,736 | ||||||
57,449 | Simon Property Group, Inc. | 10,206,963 | ||||||
6,545 | Smart Real Estate Investment Trust | 157,421 | ||||||
43,711 | Tanger Factory Outlet Centers, Inc.^ | 1,563,980 | ||||||
6,095 | Taubman Centers, Inc.^ | 450,603 | ||||||
8,507 | Unibail-Rodamco SE | 2,027,594 | ||||||
3,093 | Vastned Retail NV | 120,055 | ||||||
121,868 | Vicinity Centres | 263,559 | ||||||
6,270 | Wereldhave NV | 281,896 | ||||||
238,854 | Westfield Corp. | 1,620,762 | ||||||
|
| |||||||
35,272,771 | ||||||||
|
| |||||||
| Specialized REITs (5.2%): | |||||||
15,118 | CubeSmart^ | 404,709 | ||||||
6,285 | Digital Realty Trust, Inc. | 617,564 | ||||||
15,842 | Gaming & Leisure Properties, Inc. | 485,082 | ||||||
12,096 | Life Storage, Inc. | 1,031,305 | ||||||
18,700 | Public Storage, Inc. | 4,179,450 | ||||||
14,263 | QTS Realty Trust, Inc., Class A | 708,159 | ||||||
|
| |||||||
7,426,269 | ||||||||
|
| |||||||
| Total Common Stocks (Cost $126,492,348) | 139,848,146 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (8.6%): |
| ||||||
$ | 12,208,144 | AZL Morgan Stanley Global Real Estate Fund Securities Lending Collateral Account(c) | 12,208,144 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 12,208,144 | ||||||
|
| |||||||
| Unaffiliated Investment Company (1.4%): | |||||||
2,001,712 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(d) | 2,001,712 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $2,001,712) | 2,001,712 | ||||||
|
| |||||||
| Total Investment Securities (Cost $140,702,204)(e) — 108.0% | 154,058,002 | ||||||
| Net other assets (liabilities) — (8.0%) | (11,417,222 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 142,640,780 | |||||
|
|
Continued
5
AZL Morgan Stanley Global Real Estate Fund
Schedule of Portfolio Investments
December 31, 2016
Percentages indicated are based on net assets as of December 31, 2016.
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2016. The total value of securities on loan as of December 31, 2016, was $12,037,043. |
(a) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2016. The total of all such securities represent 0.00% of the net assets of the fund. |
(b) | The sub-adviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2016, these securities represent 0.06% 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, 2016. |
(d) | The rate represents the effective yield at December 31, 2016. |
(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, 2016: (Unaudited)
Country | Percentage | |||
Australia | 4.6 | % | ||
Austria | 0.1 | % | ||
Belize | — | %NM | ||
Bermuda | 2.0 | % | ||
Canada | 1.9 | % | ||
Finland | 0.3 | % | ||
France | 2.8 | % | ||
Germany | 1.4 | % | ||
Hong Kong | 7.4 | % | ||
Ireland | 0.6 | % | ||
Italy | — | %NM | ||
Japan | 10.0 | % | ||
Jersey | 0.1 | % | ||
Netherlands | 0.6 | % | ||
Norway | 0.4 | % | ||
Singapore | 1.1 | % | ||
Spain | 0.5 | % | ||
Sweden | 0.6 | % | ||
Switzerland | 0.6 | % | ||
United Kingdom | 5.2 | % | ||
United States | 59.8 | % | ||
|
| |||
100.0% | ||||
|
|
NM | Not meaningful, amount is less than 0.05%. |
See accompanying notes to the financial statements.
6
AZL Morgan Stanley Global Real Estate Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investment securities, at cost | $ | 140,702,204 | |||
|
| ||||
Investment securities, at value* | $ | 154,058,002 | |||
Cash | 16,601 | ||||
Interest and dividends receivable | 501,057 | ||||
Foreign currency, at value (cost $354,127) | 356,387 | ||||
Receivable for capital shares issued | 4,158 | ||||
Receivable for investments sold | 153,515 | ||||
Reclaims receivable | 97,761 | ||||
Prepaid expenses | 725 | ||||
|
| ||||
Total Assets | 155,188,206 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 140,193 | ||||
Payable for capital shares redeemed | 1,652 | ||||
Payable for collateral received on loaned securities | 12,208,144 | ||||
Manager fees payable | 104,557 | ||||
Administration fees payable | 4,768 | ||||
Distribution fees payable | 24,235 | ||||
Custodian fees payable | 55,813 | ||||
Administrative and compliance services fees payable | 382 | ||||
Trustee fees payable | 290 | ||||
Other accrued liabilities | 7,392 | ||||
|
| ||||
Total Liabilities | 12,547,426 | ||||
|
| ||||
Net Assets | $ | 142,640,780 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 120,584,170 | |||
Accumulated net investment income/(loss) | 4,937,255 | ||||
Accumulated net realized gains/(losses) from investment transactions | 3,766,532 | ||||
Net unrealized appreciation/(depreciation) on investments | 13,352,823 | ||||
|
| ||||
Net Assets | $ | 142,640,780 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 27,302,161 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 2,717,183 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.05 | |||
|
| ||||
Class 2 | |||||
Net Assets | $ | 115,338,619 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 10,803,436 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.68 | |||
|
|
* | Includes securities on loan of $12,037,043. |
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Dividends | $ | 4,750,257 | |||
Interest | 99 | ||||
Income from securities lending | 22,394 | ||||
Foreign withholding tax | (157,351 | ) | |||
|
| ||||
Total Investment Income | 4,615,399 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 1,358,769 | ||||
Administration fees | 69,437 | ||||
Distribution fees — Class 2 | 363,166 | ||||
Custodian fees | 107,922 | ||||
Administrative and compliance services fees | 2,542 | ||||
Trustee fees | 8,686 | ||||
Professional fees | 7,693 | ||||
Shareholder reports | 8,488 | ||||
Other expenses | 4,563 | ||||
|
| ||||
Total expenses before reductions | 1,931,266 | ||||
Less expense contractually waived/reimbursed by the Manager | (3,457 | ) | |||
|
| ||||
Net expenses | 1,927,809 | ||||
|
| ||||
Net Investment Income/(Loss) | 2,687,590 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 31,730,308 | ||||
Change in net unrealized appreciation/depreciation on investments | (29,229,799 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 2,500,509 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 5,188,099 | |||
|
|
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, 2016 | For the Year Ended December 31, 2015 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 2,687,590 | $ | 2,977,179 | ||||||
Net realized gains/(losses) on investment transactions | 31,730,308 | 11,695,363 | ||||||||
Change in unrealized appreciation/depreciation on investments | (29,229,799 | ) | (16,591,846 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 5,188,099 | (1,919,304 | ) | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1* | — | |||||||||
Class 2 | (2,169,052 | ) | (6,642,549 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (2,169,052 | ) | (6,642,549 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Class 1* | ||||||||||
Proceeds from shares issued | 28,447,922 | |||||||||
Value of shares redeemed | (1,261,028 | ) | ||||||||
|
| |||||||||
Total Class 1 Shares | 27,186,894 | |||||||||
|
| |||||||||
Class 2 | ||||||||||
Proceeds from shares issued | 63,236,584 | 5,996,897 | ||||||||
Proceeds from dividends reinvested | 2,169,052 | 6,642,549 | ||||||||
Value of shares redeemed | (112,791,976 | ) | (32,148,044 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | (47,386,340 | ) | (19,508,598 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (20,199,446 | ) | (19,508,598 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (17,180,399 | ) | (28,070,451 | ) | ||||||
Net Assets: | ||||||||||
Beginning of period | 159,821,179 | 187,891,630 | ||||||||
|
|
|
| |||||||
End of period | $ | 142,640,780 | $ | 159,821,179 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 4,937,255 | $ | 1,109,689 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Class 1* | ||||||||||
Shares issued | 2,844,799 | |||||||||
Shares redeemed | (127,616 | ) | ||||||||
|
| |||||||||
Total Class 1 Shares | 2,717,183 | |||||||||
|
| |||||||||
Class 2 | ||||||||||
Shares issued | 5,948,478 | 528,462 | ||||||||
Dividends reinvested | 198,087 | 660,293 | ||||||||
Shares redeemed | (10,546,438 | ) | (2,895,533 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | (4,399,873 | ) | (1,706,778 | ) | ||||||
|
|
|
| |||||||
Change in shares | (1,682,690 | ) | (1,706,778 | ) | ||||||
|
|
|
|
* | For the period October 17, 2016 (commencement of operations) to December 31, 2016. |
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, | |||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||
Class 1* | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.00 | |||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | — | ^+ | |||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.05 | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Total from Investment Activities | 0.05 | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Net Asset Value, End of Period | $ | 10.05 | |||||||||||||||||||||||
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Total Return(a) | 0.50 | %(b) | |||||||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $27,302 | ||||||||||||||||||||||||
Net Investment Income/(Loss)(c) | 0.13 | % | |||||||||||||||||||||||
Expenses Before Reductions(c)(d) | 1.04 | % | |||||||||||||||||||||||
Expenses Net of Reductions(c) | 1.03 | % | |||||||||||||||||||||||
Portfolio Turnover Rate(e) | 52 | % | |||||||||||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.51 | $ | 11.11 | $ | 9.86 | $ | 9.99 | $ | 7.82 | |||||||||||||||
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Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.20 | ^ | 0.22 | 0.18 | 0.16 | 0.16 | |||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.13 | (0.39 | ) | 1.17 | 0.14 | 2.16 | |||||||||||||||||||
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Total from Investment Activities | 0.33 | (0.17 | ) | 1.35 | 0.30 | 2.32 | |||||||||||||||||||
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Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.16 | ) | (0.43 | ) | (0.10 | ) | (0.43 | ) | (0.15 | ) | |||||||||||||||
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Total Dividends | (0.16 | ) | (0.43 | ) | (0.10 | ) | (0.43 | ) | (0.15 | ) | |||||||||||||||
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Net Asset Value, End of Period | $ | 10.68 | $ | 10.51 | $ | 11.11 | $ | 9.86 | $ | 9.99 | |||||||||||||||
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Total Return(a) | 3.14 | % | (1.34 | )% | 13.77 | % | 3.02 | % | 29.86 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 115,339 | $ | 159,821 | $ | 187,892 | $ | 181,795 | $ | 183,841 | |||||||||||||||
Net Investment Income/(Loss) | 1.84 | % | 1.70 | % | 1.67 | % | 1.43 | % | 1.69 | % | |||||||||||||||
Expenses Before Reductions(d) | 1.29 | % | 1.29 | % | 1.29 | % | 1.29 | % | 1.34 | % | |||||||||||||||
Expenses Net of Reductions | 1.29 | % | 1.29 | % | 1.28 | % | 1.29 | % | 1.34 | % | |||||||||||||||
Portfolio Turnover Rate(e) | 52 | % | 25 | % | 32 | % | 29 | % | 34 | % |
* | For the period October 17, 2016 (commencement of operations) to December 31, 2016. |
^ | Average shares method used in calculation. |
+ | Represents less than $0.005. |
(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) | Not annualized. |
(c) | Annualized for periods less than one year. |
(d) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. Not annualized for periods less than one year. |
(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.
9
AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 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 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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.
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 differing treatment on certain investments) 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, 2016
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, 2016 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $9.5 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $2,124 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (“ASU No. 2014-11”), “Transfers & Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged, and the remaining contractual maturity of those transactions as of December 31, 2016.
Overnight and Continuous | Less than 30 Days | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions |
| ||||||||||||||||||||||||
Common Stocks | $ | 12,208,144 | $ | — | $ | — | $ | — | $ | 12,208,144 | |||||||||||||||
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| ||||||||||||||||
Total Securities Lending Transactions | 12,208,144 | — | — | — | 12,208,144 | ||||||||||||||||||||
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| ||||||||||||||||
Total Borrowings | $ | 12,208,144 | $ | — | $ | — | $ | — | $ | 12,208,144 | |||||||||||||||
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Gross Amount of Recognized Liabilities for Securities Lending Transactions | $ | 12,208,144 | |||||||||||||||||||||||
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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. Fees and Transactions with Affiliates and Other Parties
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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, 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 Class 1 | 0.90 | % | 1.10 | % | ||||||
AZL Morgan Stanley Global Real Estate Fund Class 2 | 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.”
11
AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements
December 31, 2016
At December 31, 2016, the reimbursements that are subject to repayment by the Fund in subsequent years were as follows:
Expires 12/31/2019 | Total | |||||||||
AZL Morgan Stanley Global Real Estate Fund | $ | 3,457 | $ | 3,457 |
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, 2016, 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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the average daily net assets attributable to Class 2 shares, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $1,714 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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 (the “Board” or “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.
12
AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements
December 31, 2016
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, 2016 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 | $ | — | $ | 14,034,903 | $ | — | $ | 14,034,903 | ||||||||||||
Diversified REITs | 996,814 | 8,307,561 | — | 9,304,375 | ||||||||||||||||
Hotel & Resort REITs | 4,899,326 | 166,456 | — | 5,065,782 | ||||||||||||||||
Industrial REITs | 3,290,381 | 2,323,261 | — | 5,613,642 | ||||||||||||||||
Office REITs | 15,809,647 | 6,283,156 | — | 22,092,803 | ||||||||||||||||
Real Estate Development | — | 2,838,749 | — | 2,838,749 | ||||||||||||||||
Real Estate Operating Companies | 615,663 | 12,021,691 | 79,774 | 12,717,128 | ||||||||||||||||
Residential REITs | 16,312,167 | 771,787 | — | 17,083,954 | ||||||||||||||||
Retail REITs | 23,274,228 | 11,998,543 | — | 35,272,771 | ||||||||||||||||
All Other Common Stocks+ | 15,824,039 | — | — | 15,824,039 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | 12,208,144 | — | 12,208,144 | ||||||||||||||||
Unaffiliated Investment Company | 2,001,712 | — | — | 2,001,712 | ||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||
Total Investments | $ | 83,023,977 | $ | 70,954,251 | $ | 79,774 | $ | 154,058,002 | ||||||||||||
|
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|
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|
|
+ | 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 a the end of the period.
5. Security Purchases and Sales
For the year ended December 31, 2016, 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 | $ | 76,867,958 | $ | 184,233,486 |
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 policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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.
13
AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements
December 31, 2016
Cost of securities for federal income tax purposes at December 31, 2016 is $147,548,329. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 15,688,405 | ||
Unrealized (depreciation) | (9,178,732 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 6,509,673 | ||
|
|
The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Morgan Stanley Global Real Estate Fund | $ | 2,169,052 | $ | — | $ | 2,169,052 |
(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, 2015 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Morgan Stanley Global Real Estate Fund | $ | 6,642,549 | $ | – | $ | 6,642,549 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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 | $ | 5,872,845 | $ | 9,677,067 | $ | — | $ | 6,506,698 | $ | 22,056,610 |
(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. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies — Form N-PORT and Form N-CEN — also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
9. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
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 Global Real Estate Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2016, 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 or 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, 2016, 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 AZL Morgan Stanley Global Real Estate Fund as of December 31, 2016, 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 or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Columbus, Ohio
February 24, 2017
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2016, 2.87% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deductions 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 — October 25, 2016 (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 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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 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 the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held October 25, 2016, the Manager reported that for the three year period ended June 30, 2016, seven Funds were in the top 40%, two were in the middle 20% and three were in the bottom 40%, and for the one year period ended June 30, 2016, twelve Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2016, six Funds were in the top 40%, one was in the middle 20%, and three were in the bottom 40%. At the Board of Trustees meeting held October 25, 2016, 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 twenty Funds reviewed by the Board of Trustees in the fall of 2016, seventeen 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 2016 for the twenty-one Funds was as follows; (1) eighteen of the Funds had total expense rankings below the 65th percentile (with eleven Funds at or below the 50th percentile); (2) the AZL Russell 1000 Growth Index Fund had a total expense ranking in the 66th percentile, but there was only a very limited peer group for such Fund, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; (3) the AZL International Index Fund had a total expense ranking in the 75th percentile, but there was only a limited peer group for such Fund, the actual management fee was in the 37th percentile, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; and (4) for the AZL Morgan Stanley Global Real Estate Fund, which had a total expense ranking in the 70th percentile, the Manager recommended a temporary management fee waiver of 5 basis points, effective November 1, 2016, which would move the management fee ranking from the 80th to the 60th percentile.
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 2013 through June 30, 2016. 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, all of which currently are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. 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, 2016 were approximately $6.4 billion, and that no single Fund had assets in excess of $1,289 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, 2017, 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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 5701 Golden Hills Drive | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 5701 Golden Hills Drive | 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 5701 Golden Hills Drive | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
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Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® Pyramis® Multi-Strategy Fund
(formerly AZL® Franklin Templeton Founding Strategy Plus Fund)
Annual Report
December 31, 2016
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 15
Statement of Operations
Page 15
Statements of Changes in Net Assets
Page 16
Financial Highlights
Page 17
Notes to the Financial Statements
Page 18
Report of Independent Registered Public Accounting Firm
Page 25
Other Federal Income Tax Information
Page 26
Other Information
Page 27
Approval of Investment Advisory and Subadvisory Agreements
Page 28
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® Pyramis® Multi-Strategy Fund Review (unaudited)
(formerly AZL® Franklin Templeton Founding Strategy Plus Fund)
Allianz Investment Management LLC serves as the Manager for the AZL® Pyramis® Multi-Strategy Fund. FIAM LLC and Geode Capital Management, LLC serve as the Subadvisers to the Pyramis® Fixed-Income Strategy and Geode Equity Strategy, respectively.
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What factors affected the Fund’s performance during the year ended December 31, 2016?
For the year ended December 31, 2016, the AZL® Pyramis® Multi-Strategy Fund (the “Fund”) returned 6.52%. That compared to a 11.96%, 2.65% and 6.35% total return for its benchmarks, the S&P 500 Index1, the Bloomberg Barclays U.S. Aggregate Bond Index1, and the Balanced Composite Index1, respectively.
The Fund underwent a change in subadvisors on October 14, 2016. Under the previous subadvisor, the Fund invested in a portfolio of four underlying mutual funds. Under the Fund’s current subadvisers, approximately 60% of the Fund’s assets will be managed by the subadviser, FIAM LLC, and invested primarily in investment-grade fixed-income securities, and approximately 40% of the Fund’s assets will be allocated to and managed by the sub-subadviser, Geode Capital Management, LLC, and invested primarily in large cap common stocks. The percentage allocations to each strategy will be monitored regularly by the Manager, but generally will not exceed plus or minus 3% of the 60%/40% allocation.*
The global economy grew moderately during the 12-month period, despite slower growth in some countries. Domestic equities tumbled early in the period amid investor concerns over a slowing Chinese economy and falling commodity prices. Stocks rebounded as China’s central bank announced stimulus measures and the U.S. Federal Reserve adopted a cautious tone on interest rates. The U.K.’s Brexit roiled stock markets in June, but equities recovered quickly. Stocks also dipped before the U.S. presidential election but rallied after the election of Donald Trump. Most major bond sectors rose during the period.
Bonds performed well in the first half of the period, due in large part to a decline in interest rates, an improvement in commodity prices, an accommodative monetary policy and mostly stable U.S. economic conditions. The second half of the year proved more challenging for bonds as interest rates moved higher and inflation expectations rose.
Under the previous subadvisor, the Fund measured its performance against a composite index composed of a 60% weighting in the S&P 500 Index and a 40% weighting in the Bloomberg Barclays U.S. Aggregate Bond Index.*
The Fund’s returns during this period were helped by exposure in its underlying funds to fixed income assets, particularly among high-yield corporate bonds and exposure to corporate credits in the energy and communications sectors. The Fund also benefited from investments by its underlying funds in a California-based information technology company, a New Jersey-based global pharmaceutical company and a U.K.-based global tobacco company. Stock selection by an underlying fund in the materials and industrials sectors, as well as stock selection in the energy sector, also benefited relative results. However, individual fixed income securities of several oil and gas companies detracted from Fund results during this period. The Fund was also hurt by stock selection in the health care and financials sectors.*
The Global Bond portfolio used derivatives during the period, including FX forward contracts to manage foreign currency exposures, and interest rate swaps to hedge against duration and yield curve risks. The fund benefited from many currency positions during the period, including those held through FX forwards. However, select currency positions dragged on relative results, such as underweighted positions in the Japanese yen, the euro and the Australian dollar.*
Under the current subadvisors, the Fund’s relative performance benefited from exposure to high-yield bonds and Treasury inflation-protected securities, as well from an underweight position in mortgage-backed securities. The Fund also benefited from stock selection in the health care sector and the financials sector, particularly among large banks. The choice of stocks in the energy sector dragged on relative results.*
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, 2016. |
1 | For a complete description of the Fund’s performance benchmarks please refer to page 2 of this report. |
1
AZL® Pyramis® Multi-Strategy Fund Review (unaudited)
Fund Objective
The Fund’s investment objective is to seek a high level of current income while maintaining prospects for 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 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. | ||
Emerging market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries. | ||
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. | ||
Bonds offer a relatively stable level of income, although bond prices will fluctuate, providing the potential for principal gain or loss. Intermediate-term, higher-quality bonds generally offer less risk than longer-term bonds and a lower rate of return. | ||
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. | ||
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. | ||
Debt securities held by the Fund may decline in value due to rising interest rates. Interest rates are at, or near, historic lows, which may increase the Fund’s exposure to risks related to rising rates. | ||
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, 2016 | ||||||||||||||||
1 Year | 3 Year | 5 Year | Since Inception (10/23/09) | |||||||||||||
AZL® Pyramis® Multi-Strategy Fund | 6.52 | % | 0.94 | % | 6.88 | % | 6.22 | % | ||||||||
S&P 500 Index | 11.96 | % | 8.87 | % | 14.66 | % | 13.05 | % | ||||||||
Bloomberg Barclays U.S. Aggregate Bond Index | 2.65 | % | 3.03 | % | 2.23 | % | 3.56 | % | ||||||||
Balanced Composite Index | 6.35 | % | 5.41 | % | 7.20 | % | 7.54 | % |
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® Pyramis® Multi-Strategy Fund | 1.04 | % |
The above expense ratio is based on the current Fund prospectus dated April 25, 2016, as supplemented October 14, 2016. The Manager voluntarily reduced the management fee to 0.45% on all assets. The Manager and the Funds have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 0.71% through April 30, 2018. Additional information pertaining to the December 31, 2016 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 and Poor’s 500 Index (“S&P 500”) and the Bloomberg 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 Bloomberg 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. The Balanced Composite Index is a blended index comprised of (40%) of the S&P 500 and (60%) of the Bloomberg Barclays U.S. Aggregate Bond Index. 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 Pyramis Multi-Strategy Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL Pyramis Multi-Strategy 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Pyramis Multi-Strategy Fund | $ | 1,000.00 | $ | 1,044.40 | $ | 4.63 | 0.90 | % |
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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Pyramis Multi-Strategy Fund | $ | 1,000.00 | $ | 1,020.61 | $ | 4.57 | 0.90 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Common Stocks | 41.5 | % | |||
U.S. Treasury Obligations | 20.3 | ||||
Corporate Bonds | 15.4 | ||||
U.S. Government Agency Mortgages | 10.3 | ||||
Yankee Dollars | 8.9 | ||||
Money Markets | 4.2 | ||||
Municipal Bonds | 1.2 | ||||
Asset Backed Securities | 0.2 | ||||
Collateralized Mortgage Obligations | 0.1 | ||||
Convertible Preferred Stocks | — | ^ | |||
Foreign Bonds | — | ^ | |||
|
| ||||
Total Investment Securities | 102.1 | ||||
Net other assets (liabilities) | (2.1 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL Pyramis Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks (41.5%): |
| ||||||
| Aerospace & Defense (1.2%): |
| ||||||
17,818 | Boeing Co. (The) | $ | 2,773,906 | |||||
7,015 | General Dynamics Corp. | 1,211,210 | ||||||
4,079 | Moog, Inc., Class A* | 267,909 | ||||||
3,417 | Northrop Grumman Corp. | 794,726 | ||||||
7,542 | Raytheon Co. | 1,070,964 | ||||||
24,789 | Spirit AeroSystems Holdings, Inc., Class A | 1,446,438 | ||||||
|
| |||||||
7,565,153 | ||||||||
|
| |||||||
| Air Freight & Logistics (0.0%): |
| ||||||
230 | CEVA Group plc(a) | 22,965 | ||||||
|
| |||||||
| Airlines (0.5%): |
| ||||||
33,705 | Delta Air Lines, Inc. | 1,657,949 | ||||||
12,375 | Hawaiian Holdings, Inc.* | 705,375 | ||||||
8,862 | United Continental Holdings, Inc.* | 645,863 | ||||||
|
| |||||||
3,009,187 | ||||||||
|
| |||||||
| Auto Components (0.5%): |
| ||||||
56,798 | Gentex Corp. | 1,118,353 | ||||||
11,024 | Lear Corp. | 1,459,247 | ||||||
14,818 | Tenneco, Inc.* | 925,680 | ||||||
|
| |||||||
3,503,280 | ||||||||
|
| |||||||
| Automobiles (0.4%): |
| ||||||
159,751 | Ford Motor Co. | 1,937,780 | ||||||
19,236 | General Motors Co. | 670,182 | ||||||
|
| |||||||
2,607,962 | ||||||||
|
| |||||||
| Banks (2.5%): |
| ||||||
205,711 | Bank of America Corp. | 4,546,213 | ||||||
12,704 | Citigroup, Inc. | 754,999 | ||||||
68,389 | JPMorgan Chase & Co. | 5,901,288 | ||||||
1,471 | U.S. Bancorp | 75,565 | ||||||
89,292 | Wells Fargo & Co. | 4,920,882 | ||||||
|
| |||||||
16,198,947 | ||||||||
|
| |||||||
| Beverages (0.7%): |
| ||||||
22,908 | Coca-Cola Co. (The) | 949,766 | ||||||
33,755 | PepsiCo, Inc. | 3,531,785 | ||||||
|
| |||||||
4,481,551 | ||||||||
|
| |||||||
| Biotechnology (1.6%): |
| ||||||
30,972 | AbbVie, Inc. | 1,939,467 | ||||||
20,524 | Amgen, Inc. | 3,000,813 | ||||||
4,746 | Biogen Idec, Inc.* | 1,345,871 | ||||||
38,049 | Gilead Sciences, Inc. | 2,724,689 | ||||||
10,525 | United Therapeutics Corp.* | 1,509,601 | ||||||
|
| |||||||
10,520,441 | ||||||||
|
| |||||||
| Building Products (0.1%): |
| ||||||
17,563 | Owens Corning, Inc. | 905,548 | ||||||
|
| |||||||
| Capital Markets (0.8%): |
| ||||||
3,898 | Donnelley Financial Solutions, Inc.* | 89,576 | ||||||
11,559 | Goldman Sachs Group, Inc. (The) | 2,767,802 | ||||||
2,842 | Lazard, Ltd., Class A | 116,777 | ||||||
52,812 | Morgan Stanley | 2,231,307 | ||||||
9,698 | Morningstar, Inc. | 713,385 | ||||||
|
| |||||||
5,918,847 | ||||||||
|
| |||||||
| Chemicals (1.0%): |
| ||||||
5,236 | Celanese Corp., Series A | 412,283 | ||||||
41,535 | Dow Chemical Co. (The) | 2,376,632 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Chemicals, continued |
| ||||||
7,179 | E.I. du Pont de Nemours & Co. | $ | 526,939 | |||||
21,301 | LyondellBasell Industries NV, Class A | 1,827,200 | ||||||
3,498 | Monsanto Co. | 368,025 | ||||||
14,113 | Trinseo SA | 836,900 | ||||||
|
| |||||||
6,347,979 | ||||||||
|
| |||||||
| Commercial Services & Supplies (0.0%): |
| ||||||
1,947 | LSC Communications, Inc. | 57,787 | ||||||
|
| |||||||
| Communications Equipment (0.9%): |
| ||||||
117,983 | Cisco Systems, Inc. | 3,565,447 | ||||||
8,679 | F5 Networks, Inc.* | 1,256,025 | ||||||
2,444 | InterDigital, Inc. | 223,259 | ||||||
32,470 | Juniper Networks, Inc. | 917,602 | ||||||
|
| |||||||
5,962,333 | ||||||||
|
| |||||||
| Consumer Finance (0.9%): |
| ||||||
25,270 | American Express Co. | 1,872,002 | ||||||
23,751 | Capital One Financial Corp. | 2,072,036 | ||||||
24,351 | Discover Financial Services | 1,755,464 | ||||||
|
| |||||||
5,699,502 | ||||||||
|
| |||||||
| Containers & Packaging (0.1%): |
| ||||||
18,977 | Owens-Illinois, Inc.* | 330,390 | ||||||
|
| |||||||
| Diversified Financial Services (0.7%): |
| ||||||
29,240 | Berkshire Hathaway, Inc., Class B* | 4,765,535 | ||||||
|
| |||||||
| Diversified Telecommunication Services (1.7%): |
| ||||||
122,990 | AT&T, Inc. | 5,230,765 | ||||||
55,815 | CenturyLink, Inc. | 1,327,281 | ||||||
86,359 | Verizon Communications, Inc. | 4,609,843 | ||||||
|
| |||||||
11,167,889 | ||||||||
|
| |||||||
| Electric Utilities (0.5%): |
| ||||||
19,399 | Duke Energy Corp. | 1,505,750 | ||||||
12,862 | Exelon Corp. | 456,472 | ||||||
4,536 | FirstEnergy Corp. | 140,480 | ||||||
7,920 | NextEra Energy, Inc. | 946,123 | ||||||
2,489 | Vistra Energy Corp. | 38,580 | ||||||
|
| |||||||
3,087,405 | ||||||||
|
| |||||||
| Electrical Equipment (0.2%): |
| ||||||
20,442 | Eaton Corp. plc | 1,371,454 | ||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (0.0%): |
| ||||||
7,806 | Corning, Inc. | 189,452 | ||||||
1,186 | Tech Data Corp.* | 100,430 | ||||||
|
| |||||||
289,882 | ||||||||
|
| |||||||
| Energy Equipment & Services (0.2%): |
| ||||||
1,427 | Baker Hughes, Inc. | 92,712 | ||||||
5,844 | Dril-Quip, Inc.* | 350,932 | ||||||
11,220 | FMC Technologies, Inc.* | 398,647 | ||||||
3,517 | Schlumberger, Ltd. | 295,252 | ||||||
|
| |||||||
1,137,543 | ||||||||
|
| |||||||
| Equity Real Estate Investment Trusts (0.6%): |
| ||||||
6,403 | Corecivic, Inc. | 156,617 | ||||||
8,742 | Public Storage, Inc. | 1,953,837 | ||||||
32,136 | Quality Care Properties* | 498,108 | ||||||
40,473 | Weyerhaeuser Co. | 1,217,833 | ||||||
|
| |||||||
3,826,395 | ||||||||
|
|
Continued
4
AZL Pyramis Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Food & Staples Retailing (1.1%): |
| ||||||
33,573 | CVS Health Corp. | $ | 2,649,245 | |||||
20,797 | Walgreens Boots Alliance, Inc. | 1,721,160 | ||||||
41,457 | Wal-Mart Stores, Inc. | 2,865,508 | ||||||
|
| |||||||
7,235,913 | ||||||||
|
| |||||||
| Food Products (0.7%): |
| ||||||
26,873 | Campbell Soup Co. | 1,625,010 | ||||||
8,212 | JM Smucker Co. (The) | 1,051,629 | ||||||
9,456 | Pilgrim’s Pride Corp. | 179,569 | ||||||
1,618 | Sanderson Farms, Inc. | 152,480 | ||||||
27,978 | Tyson Foods, Inc., Class A | 1,725,684 | ||||||
|
| |||||||
4,734,372 | ||||||||
|
| |||||||
| Gas Utilities (0.0%): |
| ||||||
4,339 | UGI Corp. | 199,941 | ||||||
|
| |||||||
| Health Care Equipment & Supplies (0.3%): |
| ||||||
3,212 | Baxter International, Inc. | 142,420 | ||||||
16,907 | Danaher Corp. | 1,316,041 | ||||||
16,622 | Hologic, Inc.* | 666,875 | ||||||
1,166 | Medtronic plc | 83,054 | ||||||
564 | St. Jude Medical, Inc. | 45,227 | ||||||
|
| |||||||
2,253,617 | ||||||||
|
| |||||||
| Health Care Providers & Services (1.9%): |
| ||||||
16,308 | Aetna, Inc. | 2,022,355 | ||||||
14,027 | Anthem, Inc. | 2,016,662 | ||||||
1,406 | Cigna Corp. | 187,546 | ||||||
29,041 | Express Scripts Holding Co.* | 1,997,730 | ||||||
408 | Humana, Inc. | 83,244 | ||||||
12,948 | McKesson Corp. | 1,818,547 | ||||||
22,666 | UnitedHealth Group, Inc. | 3,627,467 | ||||||
227 | Universal Health Services, Inc., Class B | 24,148 | ||||||
4,789 | WellCare Health Plans, Inc.* | 656,476 | ||||||
|
| |||||||
12,434,175 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (0.5%): |
| ||||||
30,892 | Carnival Corp., Class A | 1,608,238 | ||||||
21,091 | Darden Restaurants, Inc. | 1,533,737 | ||||||
3,505 | McDonald’s Corp. | 426,629 | ||||||
|
| |||||||
3,568,604 | ||||||||
|
| |||||||
| Household Durables (0.1%): |
| ||||||
8,233 | Garmin, Ltd. | 399,218 | ||||||
|
| |||||||
| Household Products (1.0%): |
| ||||||
30,605 | Colgate-Palmolive Co. | 2,002,791 | ||||||
53,176 | Procter & Gamble Co. (The) | 4,471,038 | ||||||
|
| |||||||
6,473,829 | ||||||||
|
| |||||||
| Industrial Conglomerates (0.9%): |
| ||||||
16,541 | 3M Co., Class C | 2,953,727 | ||||||
81,419 | General Electric Co. | 2,572,840 | ||||||
4,268 | Honeywell International, Inc. | 494,448 | ||||||
|
| |||||||
6,021,015 | ||||||||
|
| |||||||
| Insurance (0.3%): |
| ||||||
17,136 | Aflac, Inc. | 1,192,666 | ||||||
264 | Everest Re Group, Ltd. | 57,130 | ||||||
1,531 | Lincoln National Corp. | 101,459 | ||||||
7,674 | Prudential Financial, Inc. | 798,556 | ||||||
|
| |||||||
2,149,811 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Internet & Direct Marketing Retail (0.8%): |
| ||||||
6,801 | Amazon.com, Inc.* | $ | 5,099,866 | |||||
|
| |||||||
| Internet Software & Services (1.8%): |
| ||||||
4,227 | Alphabet, Inc., Class A* | 3,349,686 | ||||||
2,403 | Alphabet, Inc., Class C* | 1,854,683 | ||||||
63,261 | eBay, Inc.* | 1,878,219 | ||||||
43,781 | Facebook, Inc., Class A* | 5,037,005 | ||||||
|
| |||||||
12,119,593 | ||||||||
|
| |||||||
| IT Services (0.6%): |
| ||||||
4,237 | Accenture plc, Class C | 496,280 | ||||||
16,715 | Cognizant Technology Solutions Corp., Class A* | 936,542 | ||||||
8,957 | International Business Machines Corp. | 1,486,773 | ||||||
229 | MasterCard, Inc., Class A | 23,644 | ||||||
6,083 | Science Applications International Corp. | 515,838 | ||||||
8,840 | Visa, Inc., Class A | 689,697 | ||||||
563 | Western Union Co. | 12,228 | ||||||
|
| |||||||
4,161,002 | ||||||||
|
| |||||||
| Machinery (0.7%): |
| ||||||
7,356 | Allison Transmission Holdings, Inc. | 247,824 | ||||||
12,587 | Cummins, Inc. | 1,720,266 | ||||||
406 | Deere & Co. | 41,834 | ||||||
588 | Illinois Tool Works, Inc. | 72,006 | ||||||
20,122 | Ingersoll-Rand plc | 1,509,954 | ||||||
1,263 | Ingersoll-Rand plc | 94,776 | ||||||
1,112 | OshKosh Corp. | 71,846 | ||||||
3,467 | Stanley Black & Decker, Inc. | 397,631 | ||||||
2,413 | Toro Co. | 135,007 | ||||||
|
| |||||||
4,291,144 | ||||||||
|
| |||||||
| Media (1.4%): |
| ||||||
36,053 | Comcast Corp., Class A | 2,489,460 | ||||||
15,790 | Discovery Communications, Inc., Class C* | 422,856 | ||||||
45,044 | MSG Networks, Inc., Class A* | 968,446 | ||||||
7,975 | Time Warner, Inc. | 769,827 | ||||||
5,216 | Tribune Co.#(a) | — | ||||||
29,654 | Twenty-First Century Fox, Inc. | 831,498 | ||||||
34,484 | Walt Disney Co. (The) | 3,593,922 | ||||||
|
| |||||||
9,076,009 | ||||||||
|
| |||||||
| Metals & Mining (0.3%): |
| ||||||
14,716 | Nucor Corp. | 875,896 | ||||||
15,106 | Reliance Steel & Aluminum Co. | 1,201,532 | ||||||
|
| |||||||
2,077,428 | ||||||||
|
| |||||||
| Mortgage Real Estate Investment Trusts (0.1%): |
| ||||||
15,544 | Chimera Investment Corp. | 264,559 | ||||||
69,257 | MFA Financial, Inc. | 528,431 | ||||||
|
| |||||||
792,990 | ||||||||
|
| |||||||
| Multiline Retail (0.6%): |
| ||||||
3,227 | Big Lots, Inc. | 162,028 | ||||||
20,847 | Kohl’s Corp. | 1,029,425 | ||||||
16,151 | Macy’s, Inc. | 578,367 | ||||||
26,893 | Target Corp. | 1,942,481 | ||||||
|
| |||||||
3,712,301 | ||||||||
|
| |||||||
| Multi-Utilities (0.2%): |
| ||||||
2,607 | MDU Resources Group, Inc. | 75,003 | ||||||
33,851 | Public Service Enterprise Group, Inc. | 1,485,382 | ||||||
|
| |||||||
1,560,385 | ||||||||
|
|
Continued
5
AZL Pyramis Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels (2.3%): | ||||||||
52,425 | Antero Resources Corp.* | $ | 1,239,851 | |||||
75,429 | Chesapeake Energy Corp.* | 529,512 | ||||||
14,016 | Chevron Corp. | 1,649,683 | ||||||
62,095 | Exxon Mobil Corp. | 5,604,694 | ||||||
4,718 | Noble Energy, Inc. | 179,567 | ||||||
13,260 | ONEOK, Inc. | 761,257 | ||||||
116,529 | Southwestern Energy Co.* | 1,260,844 | ||||||
3,137 | Spectra Energy Corp. | 128,899 | ||||||
14,384 | Tesoro Corp. | 1,257,881 | ||||||
28,428 | Valero Energy Corp. | 1,942,201 | ||||||
502 | Warrior Coal LLC Units A(a) | 135,791 | ||||||
1,176 | Warrior Coal LLC Units B(a) | 318,108 | ||||||
|
| |||||||
15,008,288 | ||||||||
|
| |||||||
Pharmaceuticals (2.5%): | ||||||||
3,704 | Allergan plc* | 777,877 | ||||||
34,035 | Bristol-Myers Squibb Co. | 1,989,005 | ||||||
512 | Eli Lilly & Co. | 37,658 | ||||||
51,462 | Johnson & Johnson Co. | 5,928,938 | ||||||
3,252 | Mallinckrodt plc* | 162,015 | ||||||
62,624 | Merck & Co., Inc. | 3,686,675 | ||||||
131,192 | Pfizer, Inc. | 4,261,116 | ||||||
|
| |||||||
16,843,284 | ||||||||
|
| |||||||
Professional Services (0.0%): | ||||||||
2,990 | Robert Half International, Inc. | 145,852 | ||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (2.0%): | ||||||||
61,194 | Applied Materials, Inc. | 1,974,730 | ||||||
106,686 | Intel Corp. | 3,869,502 | ||||||
20,171 | KLA-Tencor Corp. | 1,587,054 | ||||||
41,943 | QUALCOMM, Inc. | 2,734,684 | ||||||
4,799 | Skyworks Solutions, Inc. | 358,293 | ||||||
32,807 | Texas Instruments, Inc. | 2,393,927 | ||||||
|
| |||||||
12,918,190 | ||||||||
|
| |||||||
Software (1.6%): | ||||||||
5,358 | CA, Inc. | 170,224 | ||||||
2,901 | Citrix Systems, Inc.* | 259,088 | ||||||
5,067 | Dell Technologies, Inc., Class V* | 278,533 | ||||||
10,199 | Intuit, Inc. | 1,168,907 | ||||||
133,774 | Microsoft Corp. | 8,312,716 | ||||||
6,997 | Oracle Corp. | 269,035 | ||||||
|
| |||||||
10,458,503 | ||||||||
|
| |||||||
Specialty Retail (1.3%): | ||||||||
6,428 | Aaron’s, Inc. | 205,632 | ||||||
53,134 | American Eagle Outfitters, Inc. | 806,043 | ||||||
36,034 | Bed Bath & Beyond, Inc. | 1,464,422 | ||||||
35,382 | Best Buy Co., Inc. | 1,509,750 | ||||||
23,163 | Dick’s Sporting Goods, Inc. | 1,229,955 | ||||||
13,695 | GameStop Corp., Class A | 345,936 | ||||||
1,171 | GNC Holdings, Inc., Class A | 12,928 | ||||||
20,358 | Home Depot, Inc. (The) | 2,729,600 | ||||||
33,689 | Staples, Inc. | 304,885 | ||||||
|
| |||||||
8,609,151 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Common Stocks, continued | ||||||||
Technology Hardware, Storage & Peripherals (2.3%): | ||||||||
88,802 | Apple, Inc. | $ | 10,285,047 | |||||
82,855 | Hewlett Packard Enterprise Co. | 1,917,265 | ||||||
116,600 | HP, Inc. | 1,730,344 | ||||||
18,619 | Seagate Technology plc | 710,687 | ||||||
163,934 | Xerox Corp. | 1,431,144 | ||||||
|
| |||||||
16,074,487 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (0.2%): | ||||||||
34,250 | Michael Kors Holdings, Ltd.* | 1,472,065 | ||||||
|
| |||||||
Tobacco (0.9%): | ||||||||
48,683 | Altria Group, Inc. | 3,291,944 | ||||||
22,036 | Philip Morris International, Inc. | 2,016,074 | ||||||
6,194 | Reynolds American, Inc. | 347,111 | ||||||
|
| |||||||
5,655,129 | ||||||||
|
| |||||||
Total Common Stocks (Cost $258,315,562) | 274,324,137 | |||||||
|
| |||||||
Convertible Preferred Stocks (0.0%): | ||||||||
Air Freight & Logistics (0.0%): | ||||||||
49 | CEVA Group plc, Series A-2(a) | 10,924 | ||||||
6 | CEVA Group plc, Series A-1(a) | 1,950 | ||||||
|
| |||||||
12,874 | ||||||||
|
| |||||||
Total Convertible Preferred Stocks (Cost $11,360) | 12,874 | |||||||
|
| |||||||
Asset Backed Securities (0.2%): | ||||||||
776,000 | Blackbird Capital Aircraft, Class A, Series 16-1A, 4.21%, 12/16/41, Callable 12/15/24 @ 100(b)(c) | 770,180 | ||||||
250,000 | Blackbird Capital Aircraft, Class AA, Series 16-1A, 2.49%, 12/16/41, Callable 12/15/24 @ 100(b)(c) | 250,391 | ||||||
|
| |||||||
Total Asset Backed Securities (Cost $1,025,995) | 1,020,571 | |||||||
|
| |||||||
Collateralized Mortgage Obligations (0.1%): | ||||||||
103,000 | MSCG Trust, Class C, Series 2016-SNR, 5.21%, 11/15/34(c) | 102,936 | ||||||
146,000 | MSCG Trust, Class B, Series 2016-SNR, 4.18%, 11/15/34(c) | 145,534 | ||||||
414,000 | MSCG Trust, Class A, Series 2016-SNR, 3.35%, 11/15/34(b)(c) | 412,454 | ||||||
|
| |||||||
Total Collateralized Mortgage Obligations (Cost $662,986) | 660,924 | |||||||
|
| |||||||
Corporate Bonds (15.4%): | ||||||||
Aerospace & Defense (0.2%): | ||||||||
$ | 274,000 | Alcoa, Inc., 5.13%, 10/1/24, Callable 7/1/24 @ 100 | 280,850 | |||||
400,000 | Huntington Ingalls Industries, Inc., 5.00%, 11/15/25, Callable 11/15/20 @ 102.5(c) | 415,500 | ||||||
500,000 | KLX, Inc., 5.88%, 12/1/22, Callable 12/1/17 @ 104.41(c) | 515,000 | ||||||
|
| |||||||
1,211,350 | ||||||||
|
| |||||||
Automobiles (0.3%): | ||||||||
330,000 | General Motors Co., 3.50%, 10/2/18 | 336,567 |
Continued
6
AZL Pyramis Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2016
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Automobiles, continued |
| ||||||
$ | 213,000 | General Motors Co., 6.60%, 4/1/36, Callable 10/1/35 @ 100 | $ | 243,460 | ||||
453,000 | General Motors Co., 6.25%, 10/2/43 | 500,783 | ||||||
171,000 | General Motors Co., 5.20%, 4/1/45 | 164,829 | ||||||
357,000 | General Motors Co., 6.75%, 4/1/46, Callable 10/1/45 @ 100 | 418,650 | ||||||
|
| |||||||
1,664,289 | ||||||||
|
| |||||||
| Banks (1.3%): |
| ||||||
640,000 | Bank of America Corp., 4.20%, 8/26/24 | 651,971 | ||||||
130,000 | Bank of America Corp., 4.00%, 1/22/25, MTN | 130,163 | ||||||
660,000 | Bank of America Corp., Series L, 3.95%, 4/21/25 | 657,023 | ||||||
266,000 | Bank of America Corp., 3.88%, 8/1/25, MTN | 270,477 | ||||||
66,000 | Bank of America Corp., Series G, 4.45%, 3/3/26 | 68,016 | ||||||
396,000 | Bank of America Corp., Series G, 3.50%, 4/19/26 | 390,722 | ||||||
397,000 | Bank of America Corp., 4.25%, 10/22/26 | 401,806 | ||||||
730,000 | Citigroup, Inc., 4.05%, 7/30/22 | 755,538 | ||||||
1,000,000 | Citigroup, Inc., 4.30%, 11/20/26 | 1,009,128 | ||||||
250,000 | Citizens Bank NA/RI, 2.55%, 5/13/21, Callable 4/13/21 @ 100 | 248,465 | ||||||
2,005,000 | JPMorgan Chase & Co., 3.88%, 9/10/24 | 2,028,732 | ||||||
231,000 | JPMorgan Chase & Co., 2.95%, 10/1/26, Callable 7/1/26 @ 100 | 220,487 | ||||||
1,422,000 | JPMorgan Chase & Co., 4.13%, 12/15/26 | 1,451,373 | ||||||
550,000 | Regions Financial Corp., 3.20%, 2/8/21, Callable 1/8/21 @ 100 | 557,783 | ||||||
|
| |||||||
8,841,684 | ||||||||
|
| |||||||
| Beverages (0.5%): |
| ||||||
992,000 | Anheuser-Busch InBev NV, 3.30%, 2/1/23, Callable 12/1/22 @ 100 | 1,009,590 | ||||||
939,000 | Anheuser-Busch InBev NV, 4.70%, 2/1/36, Callable 8/1/35 @ 100 | 987,704 | ||||||
1,074,000 | Anheuser-Busch InBev NV, 4.90%, 2/1/46, Callable 8/1/45 @ 100 | 1,160,855 | ||||||
|
| |||||||
3,158,149 | ||||||||
|
| |||||||
| Capital Markets (0.2%): |
| ||||||
399,000 | Goldman Sachs Group, Inc. (The), 2.55%, 10/23/19 | 401,929 | ||||||
276,000 | Intercontinental Exchange, Inc., 3.75%, 12/1/25, Callable 9/1/25 @ 100 | 283,038 | ||||||
154,000 | IntercontinentalExchange, 2.75%, 12/1/20, Callable 11/1/20 @ 100 | 155,389 | ||||||
523,000 | Morgan Stanley, 4.88%, 11/1/22 | 560,519 | ||||||
114,000 | Tiaa Asset Management Finance LLC, 2.95%, 11/1/19(c) | 115,968 | ||||||
|
| |||||||
1,516,843 | ||||||||
|
| |||||||
| Chemicals (0.2%): |
| ||||||
350,000 | CF Industries Holdings, Inc., 3.45%, 6/1/23 | 314,650 | ||||||
350,000 | CF Industries, Inc., 4.95%, 6/1/43 | 286,125 | ||||||
500,000 | Platform Specialty Products, 6.50%, 2/1/22, Callable 2/1/18 @ 103.25(c) | 503,750 | ||||||
|
| |||||||
1,104,525 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Commercial Services & Supplies (0.2%): |
| ||||||
$ | 500,000 | ADT Corp., 6.25%, 10/15/21 | $ | 542,500 | ||||
500,000 | Prime Securities Services Borrower / Finance, 9.25%, 5/15/23, Callable 5/15/19 @ 104.63(c) | 544,375 | ||||||
|
| |||||||
1,086,875 | ||||||||
|
| |||||||
| Consumer Finance (2.2%): |
| ||||||
2,050,000 | Ally Financial, Inc., 3.75%, 11/18/19 | 2,058,774 | ||||||
320,000 | Capital One Financial Co., 2.45%, 4/24/19, Callable 3/24/19 @ 100 | 322,026 | ||||||
534,000 | Capital One NA, 2.95%, 7/23/21, Callable 6/23/21 @ 100 | 535,979 | ||||||
1,000,000 | Discover Bank, 3.20%, 8/9/21, Callable 7/9/21 @ 100 | 1,005,858 | ||||||
1,000,000 | Discover Financial Services, 5.20%, 4/27/22 | 1,077,350 | ||||||
600,000 | Ford Motor Credit Co. LLC, 5.00%, 5/15/18 | 623,538 | ||||||
533,000 | Ford Motor Credit Co. LLC, 2.24%, 6/15/18 | 533,722 | ||||||
600,000 | Ford Motor Credit Co. LLC, 2.88%, 10/1/18 | 607,166 | ||||||
1,000,000 | Ford Motor Credit Co. LLC, 2.60%, 11/4/19 | 998,515 | ||||||
751,000 | Ford Motor Credit Co. LLC, 5.88%, 8/2/21 | 829,380 | ||||||
383,000 | General Motors Financial Co., 3.50%, 7/10/19 | 389,992 | ||||||
500,000 | General Motors Financial Co., 4.20%, 3/1/21, Callable 2/1/21 @ 100 | 515,874 | ||||||
400,000 | General Motors Financial Co., 3.20%, 7/6/21, Callable 6/6/21 @ 100 | 396,663 | ||||||
2,363,000 | General Motors Financial Co., 4.38%, 9/25/21 | 2,451,173 | ||||||
200,000 | General Motors Financial Co., 4.25%, 5/15/23 | 202,403 | ||||||
161,000 | Hyundai Capital America, 2.88%, 8/9/18(c) | 162,875 | ||||||
378,000 | Hyundai Capital America, 2.55%, 2/6/19(c) | 380,211 | ||||||
900,000 | SLM Corp., 5.50%, 1/15/19 | 933,750 | ||||||
510,000 | Synchrony Financial, 3.75%, 8/15/21, Callable 6/15/21 @ 100 | 524,187 | ||||||
610,000 | Synchrony Financial, 4.25%, 8/15/24, Callable 5/15/24 @ 100 | 620,948 | ||||||
|
| |||||||
15,170,384 | ||||||||
|
| |||||||
| Diversified Consumer Services (0.3%): |
| ||||||
900,000 | Apx Group, Inc., 6.38%, 12/1/19, Callable 2/6/17 @ 103.19 | 925,875 | ||||||
500,000 | Apx Group, Inc., 8.75%, 12/1/20, Callable 2/6/17 @ 104.38 | 503,750 | ||||||
700,000 | Laureate Education, Inc., 9.25%, 9/1/19, Callable 2/6/17 @ 104.63(c) | 714,875 | ||||||
|
| |||||||
2,144,500 | ||||||||
|
| |||||||
| Diversified Financial Services (0.1%): |
| ||||||
500,000 | Peachtree Funding Trust, 3.98%, 2/15/25(c) | 487,857 | ||||||
|
| |||||||
| Diversified Telecommunication Services (0.5%): |
| ||||||
322,000 | AT&T, Inc., 2.45%, 6/30/20, Callable 5/30/20 @ 100 | 319,756 | ||||||
614,000 | AT&T, Inc., 3.60%, 2/17/23, Callable 12/17/22 @ 100 | 619,231 | ||||||
28,000 | CenturyLink, Inc., 5.15%, 6/15/17 | 28,420 | ||||||
62,000 | CenturyLink, Inc., 6.15%, 9/15/19 | 66,340 |
Continued
7
AZL Pyramis Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2016
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Diversified Telecommunication Services, continued | ||||||||
$ | 500,000 | Verizon Communications, Inc., 6.25%, 4/1/37 | $ | 592,800 | ||||
930,000 | Verizon Communications, Inc., 5.01%, 8/21/54 | 925,129 | ||||||
500,000 | Zayo Group LLC/Zayo Capital, 6.38%, 5/15/25, Callable 5/15/20 @ 103.19 | 522,500 | ||||||
|
| |||||||
3,074,176 | ||||||||
|
| |||||||
Electric Utilities (0.3%): | ||||||||
110,000 | Emera U.S. Finance LP, 2.15%, 6/15/19(c) | 109,818 | ||||||
174,000 | Emera U.S. Finance LP, 3.55%, 6/15/26, Callable 3/15/26 @ 100(c) | 171,047 | ||||||
109,000 | Emera US Finance, LP, 2.70%, 6/15/21, Callable 5/15/21 @ 100(c) | 107,893 | ||||||
436,000 | Exelon Corp., 3.95%, 6/15/25, Callable 3/15/25 @ 100 | 448,224 | ||||||
305,000 | FirstEnergy Solutions Co., 6.05%, 8/15/21(a) | 120,475 | ||||||
679,000 | FirstEnergy, Inc., 2.75%, 3/15/18, Callable 2/15/18 @ 100 | 685,168 | ||||||
117,000 | NV Energy, Inc., 6.25%, 11/15/20 | 132,684 | ||||||
2,581,000 | Texas Competitive Electric Holdings Co. LLC, 11.50%, 10/1/20(c)(g) | 25,810 | ||||||
|
| |||||||
1,801,119 | ||||||||
|
| |||||||
Energy Equipment & Services (0.1%): | ||||||||
234,000 | Halliburton Co., 3.80%, 11/15/25, Callable 8/15/25 @ 100 | 237,720 | ||||||
205,000 | Halliburton Co., 4.85%, 11/15/35, Callable 5/15/35 @ 100 | 216,199 | ||||||
280,000 | Halliburton Co., 5.00%, 11/15/45, Callable 5/15/45 @ 100 | 301,964 | ||||||
|
| |||||||
755,883 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (2.2%): | ||||||||
500,000 | American Tower Corp., 2.80%, 6/1/20, Callable 5/1/20 @ 100 | 500,265 | ||||||
1,000,000 | Brandywine Operating Partners LP, 4.10%, 10/1/24, Callable 7/1/24 @ 100 | 986,652 | ||||||
279,000 | Brandywine Realty Trust, 4.95%, 4/15/18, Callable 3/15/18 @ 100 | 288,409 | ||||||
528,000 | Brixmor Operating Partners LP, 3.25%, 9/15/23, Callable 7/15/23 @ 100 | 511,889 | ||||||
1,000,000 | Brixmor Operating Partners LP, 3.85%, 2/1/25, Callable 11/1/24 @ 100 | 984,711 | ||||||
1,114,000 | DDR Corp., 4.63%, 7/15/22, Callable 4/15/22 @ 100 | 1,179,464 | ||||||
173,000 | DDR Corp., 4.25%, 2/1/26, Callable 11/1/25 @ 100 | 173,967 | ||||||
315,000 | Digital Realty Trust, LP, 3.95%, 7/1/22, Callable 5/1/22 @ 100 | 323,690 | ||||||
900,000 | Digital Realty Trust, LP, 4.75%, 10/1/25, Callable 7/1/25 @ 100 | 934,125 | ||||||
183,000 | Duke Realty, LP, 3.63%, 4/15/23, Callable 1/15/23 @ 100 | 185,887 | ||||||
500,000 | Equinix, Inc., 5.75%, 1/1/25, Callable 1/1/20 @ 102.88 | 522,500 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Equity Real Estate Investment Trusts, continued | ||||||||
$ | 500,000 | HCP, Inc., 3.15%, 8/1/22, Callable 5/1/22 @ 100 | $ | 493,698 | ||||
800,000 | HCP, Inc., 3.88%, 8/15/24, Callable 5/17/24 @ 100 | 799,601 | ||||||
500,000 | Health Care REIT, Inc., 4.13%, 4/1/19, Callable 1/1/19 @ 100 | 519,110 | ||||||
307,000 | Health Care REIT, Inc., 4.00%, 6/1/25, Callable 3/1/25 @ 100 | 313,751 | ||||||
735,000 | Lexington Realty Trust, 4.40%, 6/15/24, Callable 3/15/24 @ 100 | 720,190 | ||||||
113,000 | Mid-America Apartments cOMMUNITIES, Inc., 4.00%, 11/15/25, Callable 8/15/25 @ 100 | 114,532 | ||||||
526,000 | OMEGA Healthcare Investors, 5.25%, 1/15/26, Callable 10/15/25 @ 100 | 540,396 | ||||||
549,000 | Omega Hlthcare Investors, 4.38%, 8/1/23, Callable 6/1/23 @ 100 | 543,618 | ||||||
1,628,000 | Omega Hlthcare Investors, 4.50%, 4/1/27, Callable 1/1/27 @ 100 | 1,562,352 | ||||||
600,000 | Sabra Health/Capital Corp., 5.50%, 2/1/21, Callable 2/6/17 @ 104.13 | 616,500 | ||||||
700,000 | Tanger Properties LP, 3.88%, 12/1/23, Callable 9/1/23 @ 100 | 709,908 | ||||||
275,000 | Tanger Properties LP, 3.75%, 12/1/24, Callable 9/1/24 @ 100 | 274,451 | ||||||
111,000 | Ventas Realty LP, 4.00%, 4/30/19, Callable 1/30/19 @ 100 | 115,071 | ||||||
118,000 | Ventas Realty LP, 3.13%, 6/15/23, Callable 3/15/23 @ 100 | 115,836 | ||||||
1,361,000 | Ventas Realty LP, 3.50%, 2/1/25, Callable 11/1/24 @ 100 | 1,339,939 | ||||||
151,000 | Ventas Realty LP, 4.13%, 1/15/26, Callable 10/15/25 @ 100 | 154,368 | ||||||
|
| |||||||
15,524,880 | ||||||||
|
| |||||||
Food & Staples Retailing (0.1%): | ||||||||
244,000 | CVS Health, 3.50%, 7/20/22, Callable 5/20/22 @ 100 | 250,709 | ||||||
271,000 | Walgreens Boots Alliance, Inc., 3.30%, 11/18/21, Callable 9/18/21 @ 100 | 276,086 | ||||||
|
| |||||||
526,795 | ||||||||
|
| |||||||
Food Products (0.1%): | ||||||||
350,000 | Post Holdings, Inc., 6.75%, 12/1/21, Callable 12/1/17 @ 103.38(c) | 373,625 | ||||||
|
| |||||||
Health Care Providers & Services (0.5%): | ||||||||
400,000 | Community Health System, Inc., 6.88%, 2/1/22, Callable 2/1/18 @ 103.44 | 278,000 | ||||||
400,000 | DaVita HealthCare Partners, Inc., 5.13%, 7/15/24, Callable 7/15/19 @ 102.56 | 399,000 | ||||||
355,000 | HCA, Inc., 3.75%, 3/15/19 | 364,763 | ||||||
1,900,000 | HCA, Inc., 6.50%, 2/15/20 | 2,078,599 | ||||||
25,000 | HCA, Inc., 5.88%, 3/15/22 | 26,938 | ||||||
20,000 | HCA, Inc., 4.75%, 5/1/23 | 20,475 | ||||||
400,000 | Tenet Healthcare Corp., 8.13%, 4/1/22 | 377,400 | ||||||
|
| |||||||
3,545,175 | ||||||||
|
|
Continued
8
AZL Pyramis Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2016
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Hotels, Restaurants & Leisure (0.3%): |
| ||||||
$ | 500,000 | Landry’s, Inc., 6.75%, 10/15/24, Callable 10/15/19 @ 103.38(c) | $ | 507,500 | ||||
86,000 | McDonald’s Corp., 2.75%, 12/9/20, Callable 11/9/20 @ 100 | 86,959 | ||||||
227,000 | McDonald’s Corp., 3.70%, 1/30/26, Callable 10/30/25 @ 100 | 231,108 | ||||||
117,000 | McDonald’s Corp., 4.70%, 12/9/35, Callable 6/9/35 @ 100 | 123,776 | ||||||
900,000 | Scientific Games Interna, 6.63%, 5/15/21, Callable 5/15/17 @ 104.97 | 760,500 | ||||||
|
| |||||||
1,709,843 | ||||||||
|
| |||||||
| Independent Power & Renewable Electricity Producers (0.1%): |
| ||||||
500,000 | IPALCO Enterprises, Inc., 3.45%, 7/15/20, Callable 6/15/20 @ 100 | 508,750 | ||||||
230,000 | NRG Energy, 6.25%, 5/1/24, Callable 5/1/19 @ 103.13 | 223,675 | ||||||
|
| |||||||
732,425 | ||||||||
|
| |||||||
| Insurance (0.6%): |
| ||||||
218,000 | American International Group, Inc., 3.30%, 3/1/21, Callable 2/1/21 @ 100 | 223,294 | ||||||
809,000 | American International Group, Inc., 3.75%, 7/10/25, Callable 4/10/25 @ 100 | 814,221 | ||||||
500,000 | Pacific Life Insurance Co., 9.25%, 6/15/39(c) | 738,562 | ||||||
436,000 | Pacific Lifecorp, 5.13%, 1/30/43(c) | 445,649 | ||||||
497,000 | Teachers Insurance & Annuity Association, 4.90%, 9/15/44(c) | 537,633 | ||||||
1,042,000 | Unum Group, 5.75%, 8/15/42 | 1,121,835 | ||||||
|
| |||||||
3,881,194 | ||||||||
|
| |||||||
| Internet Software & Services (0.1%): |
| ||||||
350,000 | Genesys/Greeneden LUX/US, 10.00%, 11/30/24, Callable 11/30/19 @ 107.5(c) | 371,875 | ||||||
|
| |||||||
| IT Services (0.1%): |
| ||||||
500,000 | First Data Corp., 5.38%, 8/15/23, Callable 8/15/18 @ 102.69(c) | 518,750 | ||||||
|
| |||||||
| Life Sciences Tools & Services (0.0%): |
| ||||||
66,000 | Thermo Fisher Scientific, 2.40%, 2/1/19 | 66,502 | ||||||
|
| |||||||
| Machinery (0.0%): |
| ||||||
34,000 | Ingersoll-Rand Global Holding Co., Ltd., 2.88%, 1/15/19 | 34,609 | ||||||
|
| |||||||
| Media (1.2%): |
| ||||||
322,000 | 21st Century Fox America, 6.15%, 2/15/41 | 380,851 | ||||||
395,000 | 21st Century Fox America, 7.75%, 12/1/45 | 547,762 | ||||||
500,000 | Altice US Finance I Corp., 5.38%, 7/15/23, Callable 7/15/18 @ 104.03(c) | 518,750 | ||||||
400,000 | AMC Networks, Inc., 5.00%, 4/1/24, Callable 4/1/20 @ 102.5 | 402,000 | ||||||
750,000 | MHGE Parent LLC/Finance, 8.50%, 8/1/19, Callable 2/6/17 @ 101(c) | 753,750 | ||||||
500,000 | Neptune Finco Corp., 6.63%, 10/15/25, Callable 10/15/20 @ 103.31(c) | 546,250 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
�� | Corporate Bonds, continued |
| ||||||
| Media, continued |
| ||||||
$ | 500,000 | Sirius XM Radio, Inc., 5.38%, 4/15/25, Callable 4/15/20 @ 102.69(c) | $ | 497,500 | ||||
716,000 | Time Warner Cable, Inc., 8.25%, 4/1/19 | 804,569 | ||||||
1,000,000 | Time Warner Cable, Inc., 4.13%, 2/15/21, Callable 11/15/20 @ 100 | 1,033,842 | ||||||
623,000 | Time Warner Cable, Inc., 4.00%, 9/1/21, Callable 6/1/21 @ 100 | 639,779 | ||||||
155,000 | Time Warner Cable, Inc., 6.55%, 5/1/37 | 175,468 | ||||||
280,000 | Time Warner Cable, Inc., 7.30%, 7/1/38 | 344,440 | ||||||
1,500,000 | Time Warner Cable, Inc., 6.75%, 6/15/39 | 1,743,872 | ||||||
69,000 | Time Warner Cable, Inc., 5.50%, 9/1/41, Callable 3/1/41 @ 100 | 70,146 | ||||||
46,000 | Viacom, Inc., 2.50%, 9/1/18 | 46,138 | ||||||
|
| |||||||
8,505,117 | ||||||||
|
| |||||||
| Metals & Mining (0.0%): |
| ||||||
110,000 | Freeport-McMoRan, Inc., 2.30%, 11/14/17 | 109,175 | ||||||
|
| |||||||
| Multi-Utilities (0.1%): |
| ||||||
339,000 | Sempra Energy, 6.00%, 10/15/39 | 403,935 | ||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (1.7%): |
| ||||||
800,000 | Access Midstream Partner, 4.88%, 3/15/24, Callable 3/15/19 @ 102.44 | 807,826 | ||||||
624,000 | Anadarko Finance Co., 7.50%, 5/1/31 | 794,132 | ||||||
149,000 | Anadarko Petroleum Corp., 4.85%, 3/15/21, Callable 2/15/21 @ 100 | 159,763 | ||||||
308,000 | Anadarko Petroleum Corp., 5.55%, 3/15/26, Callable 12/15/25 @ 100 | 344,732 | ||||||
78,000 | Anadarko Petroleum Corp., 6.45%, 9/15/36 | 92,833 | ||||||
410,000 | Anadarko Petroleum Corp., 6.60%, 3/15/46, Callable 9/15/45 @ 100 | 505,677 | ||||||
400,000 | Antero Resources Corp., 5.13%, 12/1/22, Callable 6/1/17 @ 103.84 | 404,000 | ||||||
88,000 | Columbia Pipeline Group, 2.45%, 6/1/18 | 88,430 | ||||||
132,000 | Columbia Pipeline Group, 4.50%, 6/1/25, Callable 3/1/25 @ 100 | 138,675 | ||||||
500,000 | Crestwood Midstream Partners, 6.13%, 3/1/22, Callable 1/23/17 @ 104.59 | 512,500 | ||||||
166,000 | DCP Midstream Operating LLC, 2.50%, 12/1/17, Callable 11/1/17 @ 100 | 165,170 | ||||||
302,000 | DCP Midstream Operating LLC, 2.70%, 4/1/19, Callable 3/1/19 @ 100 | 298,225 | ||||||
1,500,000 | DCP Midstream Operating LLC, 5.35%, 3/15/20(c) | 1,556,251 | ||||||
117,000 | Enable Midstream Partners LP, 2.40%, 5/15/19, Callable 4/15/19 @ 100 | 114,870 | ||||||
124,000 | Enable Midstream PartnerS LP, 3.90%, 5/15/24, Callable 2/15/24 @ 100 | 117,620 | ||||||
400,000 | Endeavor Energy Resource, 7.00%, 8/15/21, Callable 2/6/17 @ 105.25(c) | 416,000 | ||||||
111,000 | Kinder Morgan (Delaware), Inc., 3.05%, 12/1/19, Callable 11/1/19 @ 100 | 112,594 | ||||||
195,000 | Kinder Morgan Energy Partners LP, 2.65%, 2/1/19 | 196,026 | ||||||
42,000 | Kinder Morgan Energy Partners LP, 6.55%, 9/15/40 | 46,184 |
Continued
9
AZL Pyramis Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2016
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Oil, Gas & Consumable Fuels, continued |
| ||||||
$ | 979,000 | Kinder Morgan Energy Partners LP, 5.50%, 3/1/44, Callable 9/1/43 @ 100 | $ | 998,103 | ||||
112,000 | Kinder Morgan, Inc./Delawa, 5.05%, 2/15/46, Callable 8/15/45 @ 100 | 110,869 | ||||||
70,000 | MPLX LP, 4.00%, 2/15/25, Callable 11/15/24 @ 100 | 68,040 | ||||||
38,000 | Phillips 66 Partners LP, 2.65%, 2/15/20, Callable 1/15/20 @ 100 | 37,883 | ||||||
500,000 | Sabine Pass Liquefaction LLC, 5.75%, 5/15/24, Callable 2/15/24 @ 100 | 536,250 | ||||||
233,000 | Southwestern Energy Co., 6.70%, 1/23/25, Callable 10/23/24 @ 100(b) | 238,243 | ||||||
400,000 | Sunoco LP/Finance Corp., 6.25%, 4/15/21, Callable 4/15/18 @ 103.13 | 407,500 | ||||||
103,000 | Western Gas Partners, LP, 4.65%, 7/1/26, Callable 4/1/26 @ 100 | 106,646 | ||||||
1,565,000 | Williams Companies, Inc., 4.55%, 6/24/24, Callable 3/24/24 @ 100 | 1,553,264 | ||||||
349,000 | Williams Companies, Inc., 5.75%, 6/24/44, Callable 12/24/43 @ 100 | 338,530 | ||||||
299,000 | Williams Cos., Inc. (The), 3.70%, 1/15/23, Callable 10/15/22 @ 100 | 288,535 | ||||||
239,000 | Williams Partners LP, 3.60%, 3/15/22, Callable 1/15/22 @ 100 | 240,265 | ||||||
162,000 | Williams Partners LP, 4.50%, 11/15/23, Callable 8/15/23 @ 100 | 166,410 | ||||||
285,000 | Williams Partners LP, 4.30%, 3/4/24, Callable 12/4/23 @ 100 | 287,796 | ||||||
|
| |||||||
12,249,842 | ||||||||
|
| |||||||
| Pharmaceuticals (0.1%): |
| ||||||
500,000 | Endo Finance LLC, 6.00%, 7/15/23, Callable 7/15/18 @ 104.5(c) | 438,125 | ||||||
|
| |||||||
| Professional Services (0.1%): |
| ||||||
350,000 | Ceridian Hcm Holding, Inc., 11.00%, 3/15/21, Callable 2/6/17 @ 108.25(c) | 359,625 | ||||||
|
| |||||||
| Real Estate Management & Development (0.3%): |
| ||||||
1,625,000 | CBRE Services, Inc., 5.00%, 3/15/23, Callable 3/15/18 @ 102.5 | 1,676,334 | ||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (0.1%): |
| ||||||
400,000 | QORVO, Inc., 7.00%, 12/1/25, Callable 12/1/20 @ 103.5 | 443,000 | ||||||
|
| |||||||
| Software (0.3%): |
| ||||||
1,100,000 | Inception Merger Sub, Inc. /Rackspace Hosting, Inc., 8.63%, 11/15/24, Callable 11/15/19 @ 106.47(c) | 1,164,295 | ||||||
500,000 | Solera LLC, 10.50%, 3/1/24, Callable 3/1/19 @ 107.88(c) | 562,500 | ||||||
350,000 | Sophia LP/Finance, Inc., 9.00%, 9/30/23, Callable 9/30/18 @ 104.5(c) | 371,875 | ||||||
|
| |||||||
2,098,670 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued |
| ||||||
| Specialty Retail (0.1%): |
| ||||||
$ | 400,000 | L Brands, Inc., 6.75%, 7/1/36 | $ | 405,000 | ||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (0.1%): |
| ||||||
441,000 | Hewlett-Packard Co., 3.60%, 10/15/20, Callable 9/15/20 @ 100 | 448,635 | ||||||
|
| |||||||
| Tobacco (0.4%): |
| ||||||
212,000 | Altria Group, Inc., 4.00%, 1/31/24 | 224,003 | ||||||
94,000 | Reynolds American, Inc., 3.25%, 6/12/20 | 96,318 | ||||||
320,000 | Reynolds American, Inc., 4.00%, 6/12/22 | 334,695 | ||||||
232,000 | Reynolds American, Inc., 4.45%, 6/12/25, Callable 3/12/25 @ 100 | 244,948 | ||||||
120,000 | Reynolds American, Inc., 5.70%, 8/15/35, Callable 2/15/35 @ 100 | 137,837 | ||||||
923,000 | Reynolds American, Inc., 5.85%, 8/15/45, Callable 2/15/45 @ 100 | 1,092,949 | ||||||
400,000 | Vector Group, Ltd., 7.75%, 2/15/21, Callable 2/6/17 @ 105.81 | 417,000 | ||||||
|
| |||||||
2,547,750 | ||||||||
|
| |||||||
| Trading Companies & Distributors (0.2%): |
| ||||||
200,000 | Air Lease Corp., 2.13%, 1/15/18 | 200,356 | ||||||
442,000 | Air Lease Corp., 2.63%, 9/4/18, Callable 8/4/18 @ 100 | 445,082 | ||||||
471,000 | Air Lease Corp., 3.75%, 2/1/22, Callable 12/1/21 @ 100 | 485,152 | ||||||
|
| |||||||
1,130,590 | ||||||||
|
| |||||||
| Wireless Telecommunication Services (0.2%): |
| ||||||
950,000 | T-Mobile USA, Inc., 6.63%, 4/1/23, Callable 4/1/18 @ 103.31 | 1,007,000 | ||||||
|
| |||||||
| Total Corporate Bonds (Cost $102,737,655) | 101,126,105 | ||||||
|
| |||||||
| Foreign Bonds (0.0%): |
| ||||||
| Sovereign Bonds (0.0%): |
| ||||||
50,000 | Korea Treasury Bond, Series 2103, 2.00%, 3/10/21+ | 41 | ||||||
2,000 | Philippine Government, Series 5-72, 2.13%, 5/23/18+ | 40 | ||||||
|
| |||||||
81 | ||||||||
|
| |||||||
| Total Foreign Bonds (Cost $0) | 81 | ||||||
|
| |||||||
| Yankee Dollars (8.9%): |
| ||||||
| Banks (1.4%): |
| ||||||
430,000 | Barclays Bank plc, 3.25%, 1/12/21 | 430,419 | ||||||
585,000 | Barclays Bank plc, 4.38%, 1/12/26 | 592,501 | ||||||
205,000 | HSBC Holdings plc, 4.25%, 3/14/24 | 208,306 | ||||||
656,000 | Intesa Sanpaolo SpA, 5.71%, 1/15/26(c) | 626,007 | ||||||
530,000 | Rabobank Nederland NY, 4.38%, 8/4/25 | 543,848 | ||||||
490,000 | Royal Bank of Canada, 4.65%, 1/27/26 | 522,009 | ||||||
2,550,000 | Royal Bank of Scotland Group plc, 6.13%, 12/15/22 | 2,711,499 | ||||||
452,000 | Royal Bank of Scotland Group plc, 6.10%, 6/10/23 | 473,113 | ||||||
1,659,000 | Royal Bank of Scotland Group plc, 6.00%, 12/19/23 | 1,723,210 | ||||||
2,212,000 | Royal Bank of Scotland Group plc, 5.13%, 5/28/24 | 2,205,543 | ||||||
|
| |||||||
10,036,455 | ||||||||
|
|
Continued
10
AZL Pyramis Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2016
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Yankee Dollars, continued |
| ||||||
| Capital Markets (0.8%): |
| ||||||
$ | 470,000 | Credit Suisse Group Fun, Ltd., 2.75%, 3/26/20 | $ | 465,920 | ||||
670,000 | Credit Suisse Group Fun, Ltd., 3.80%, 9/15/22 | 675,942 | ||||||
787,000 | Credit Suisse Group Fun, Ltd., 3.80%, 6/9/23 | 786,133 | ||||||
470,000 | Credit Suisse Group Fun, Ltd., 3.75%, 3/26/25 | 462,857 | ||||||
42,000 | Credit Suisse New York, 6.00%, 2/15/18 | 43,684 | ||||||
860,000 | Deutsche Bank AG, 2.85%, 5/10/19 | 856,348 | ||||||
979,000 | Deutsche Bank AG, 4.50%, 4/1/25 | 937,514 | ||||||
314,000 | Thomson Reuters Corp., 3.85%, 9/29/24, Callable 6/29/24 @ 100 | 320,373 | ||||||
491,000 | UBS Group AG, 4.13%, 9/24/25(c) | 500,460 | ||||||
|
| |||||||
5,049,231 | ||||||||
|
| |||||||
| Diversified Financial Services (0.7%): |
| ||||||
754,000 | Banco Nacional de Desenvolvimento Economico, 6.37%, 6/16/18(c) | 787,764 | ||||||
1,820,000 | Banco Nacional de Desenvolvimento Economico, 4.00%, 4/14/19(c) | 1,828,135 | ||||||
126,000 | Banco Nacional de Desenvolvimento Economico, 6.50%, 6/10/19(c) | 133,837 | ||||||
966,000 | Banco Nacional de Desenvolvimento Economico, 5.50%, 7/12/20(c) | 1,000,612 | ||||||
334,000 | Banco Nacional de Desenvolvimento Economico, 5.75%, 9/26/23(c) | 334,912 | ||||||
308,000 | Petroleos Mexicanos, 5.75%, 3/1/18 | 318,549 | ||||||
|
| |||||||
4,403,809 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (0.2%): |
| ||||||
400,000 | Columbus International, Inc., 7.38%, 3/30/21, Callable 3/30/18 @ 103.69(c) | 425,656 | ||||||
700,000 | Telecom Italia SpA, 5.30%, 5/30/24(c) | 684,250 | ||||||
300,000 | Telesat Canada, 8.88%, 11/15/24, Callable 11/15/19 @ 106.66(c) | 312,750 | ||||||
|
| |||||||
1,422,656 | ||||||||
|
| |||||||
Food Products (0.3%): | ||||||||
500,000 | Fage International / Fage USA, 5.63%, 8/15/26, Callable 8/15/21 @ 102.81(c) | 501,250 | ||||||
1,200,000 | JBS Investments GMBH, 7.75%, 10/28/20, Callable 10/28/17 @ 103.88(c) | 1,273,560 | ||||||
|
| |||||||
1,774,810 | ||||||||
|
| |||||||
| Media (0.4%): | |||||||
1,000,000 | Altice Finco SA, 9.88%, 12/15/20, Callable 2/6/17 @ 104.94(c) | 1,055,000 | ||||||
1,300,000 | Altice SA, 7.75%, 5/15/22, Callable 5/15/17 @ 105.81(c) | 1,387,750 | ||||||
200,000 | MDC Partners, Inc., 6.50%, 5/1/24, Callable 5/1/19 @ 104.88(c) | 180,000 | ||||||
|
| |||||||
2,622,750 | ||||||||
|
| |||||||
| Metals & Mining (0.4%): | |||||||
200,000 | BHP Billiton Finance USA, Ltd., 6.25%, 10/19/75, Callable 10/19/20 @ 100(b)(c) | 216,540 | ||||||
456,000 | BHP Billiton Finance USA, Ltd., 6.75%, 10/19/75, Callable 10/20/25 @ 100(b)(c) | 511,860 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Yankee Dollars, continued |
| ||||||
| Metals & Mining, continued | |||||||
$ | 200,000 | Codelco, Inc., 4.88%, 11/4/44(c) | $ | 196,267 | ||||
1,500,000 | Codelco, Inc., 4.88%, 11/4/44(c) | 1,471,999 | ||||||
|
| |||||||
2,396,666 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (2.2%): | |||||||
164,000 | Canadian Natural Resources, Ltd., 1.75%, 1/15/18 | 163,604 | ||||||
28,000 | Canadian Natural Resources, Ltd., 5.85%, 2/1/35 | 29,801 | ||||||
489,000 | Cenovus Energy, Inc., 5.70%, 10/15/19 | 523,103 | ||||||
330,000 | Empresa Nacional del Pet, 4.38%, 10/30/24(c) | 329,644 | ||||||
135,000 | Enbridge, Inc., 4.25%, 12/1/26, Callable 9/1/26 @ 100 | 138,225 | ||||||
156,000 | Enbridge, Inc., 5.50%, 12/1/46, Callable 5/29/46 @ 100 | 166,923 | ||||||
234,000 | Petrobras Global Finance Co., 4.38%, 5/20/23 | 204,446 | ||||||
823,000 | Petrobras Global Finance Co., 5.63%, 5/20/43 | 608,362 | ||||||
1,793,000 | Petrobras Global Finance Co., 7.25%, 3/17/44 | 1,582,680 | ||||||
1,087,000 | Petrobras International Finance Co., 5.75%, 1/20/20 | 1,100,588 | ||||||
3,241,000 | Petrobras International Finance Co., 5.38%, 1/27/21 | 3,169,698 | ||||||
450,000 | Petroleos Mexicanos, 3.50%, 7/18/18 | 454,050 | ||||||
237,000 | Petroleos Mexicanos, 8.00%, 5/3/19 | 260,108 | ||||||
151,000 | Petroleos Mexicanos, 6.00%, 3/5/20 | 159,267 | ||||||
515,000 | Petroleos Mexicanos, 3.50%, 7/23/20 | 504,056 | ||||||
285,000 | Petroleos Mexicanos, 3.50%, 1/30/23 | 261,630 | ||||||
650,000 | Petroleos Mexicanos, 4.63%, 9/21/23(c) | 632,320 | ||||||
1,169,000 | Petroleos Mexicanos, 4.88%, 1/18/24 | 1,133,474 | ||||||
694,000 | Petroleos Mexicanos, 4.50%, 1/23/26 | 632,234 | ||||||
256,000 | Petroleos Mexicanos, 6.50%, 3/13/27(d) | 264,064 | ||||||
696,000 | Petroleos Mexicanos, 6.50%, 6/2/41 | 651,839 | ||||||
563,000 | Petroleos Mexicanos, 5.50%, 6/27/44 | 468,529 | ||||||
673,000 | Petroleos Mexicanos, 5.63%, 1/23/46 | 558,590 | ||||||
1,123,000 | Petroleos Mexicanos, 6.75%, 9/21/47(c) | 1,061,010 | ||||||
|
| |||||||
15,058,245 | ||||||||
|
| |||||||
| Pharmaceuticals (0.6%): | |||||||
230,000 | Actavis Funding SCS, 2.45%, 6/15/19 | 230,974 | ||||||
820,000 | Actavis Funding SCS, 3.45%, 3/15/22, Callable 1/15/22 @ 100 | 832,307 | ||||||
225,000 | Mylan NV, 2.50%, 6/7/19(c) | 223,782 | ||||||
459,000 | Mylan NV, 3.15%, 6/15/21, Callable 5/15/21 @ 100(c) | 450,456 | ||||||
226,000 | Mylan NV, 3.95%, 6/15/26, Callable 3/15/26 @ 100(c) | 211,502 | ||||||
200,000 | Perrigo Finance plc, 3.50%, 12/15/21, Callable 10/15/21 @ 100 | 201,604 | ||||||
600,000 | Perrigo Finance plc, 3.90%, 12/15/24, Callable 9/15/24 @ 100 | 587,353 | ||||||
324,000 | Teva Pharmaceuticals Industries, Ltd., 2.20%, 7/21/21 | 309,967 |
Continued
11
AZL Pyramis Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2016
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Pharmaceuticals, continued | ||||||||
$ | 232,000 | Teva Pharmaceuticals Industries, Ltd., 2.80%, 7/21/23 | $ | 219,609 | ||||
276,000 | Teva Pharmaceuticals Industries, Ltd., 3.15%, 10/1/26 | 254,452 | ||||||
470,000 | VRX Escrow Corp., 6.13%, 4/15/25, Callable 4/15/20 @ 103.06(c) | 353,088 | ||||||
|
| |||||||
3,875,094 | ||||||||
|
| |||||||
Software (0.1%): | ||||||||
350,000 | Open Text Corp., 5.63%, 1/15/23, Callable 1/15/18 @ 104.22(c) | 365,750 | ||||||
|
| |||||||
Sovereign Bonds (1.1%): | ||||||||
900,000 | Dominican Republic, 5.50%, 1/27/25(c) | 867,834 | ||||||
4,500,000 | Republic of Argentina, Series X, 7.00%, 4/17/17(e) | 4,686,750 | ||||||
1,500,000 | Republic of Belarus, 8.95%, 1/26/18(c) | 1,546,800 | ||||||
|
| |||||||
7,101,384 | ||||||||
|
| |||||||
Tobacco (0.2%): | ||||||||
462,000 | Imperial Tobacco Finance, 3.75%, 7/21/22, Callable 5/21/22 @ 100(c) | 474,276 | ||||||
700,000 | Imperial Tobacco Finance, 4.25%, 7/21/25, Callable 4/21/25 @ 100(c) | 722,558 | ||||||
|
| |||||||
1,196,834 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.5%): | ||||||||
900,000 | Aercap Ireland Capital, Ltd./and AerCap Global Aviation Trust, 5.00%, 10/1/21 | 946,125 | ||||||
1,450,000 | Aercap Ireland Capital, Ltd./and AerCap Global Aviation Trust, 4.63%, 7/1/22 | 1,493,500 | ||||||
500,000 | Fly Leasing, Ltd., 6.38%, 10/15/21, Callable 10/15/17 @ 104.78 | 520,000 | ||||||
|
| |||||||
2,959,625 | ||||||||
|
| |||||||
Total Yankee Dollars (Cost $58,698,402) | 58,263,309 | |||||||
|
| |||||||
Municipal Bonds (1.2%): | ||||||||
Puerto Rico (0.0%): | ||||||||
4,000 | Puerto Rico Commonwealth, GO, Series A, 8.00%, 7/1/35, Callable 7/1/20 @ 100 | 2,690 | ||||||
|
| |||||||
California (0.5%): | ||||||||
1,995,000 | California State, Build America Bonds, GO, 7.50%, 4/1/34 | 2,895,233 | ||||||
|
| |||||||
2,895,233 | ||||||||
|
| |||||||
Illinois (0.7%): | ||||||||
5,315,000 | Chicago Illinois, Taxable Project, GO, Series B, 5.43%, 1/1/42 | 4,805,216 | ||||||
|
| |||||||
4,805,216 | ||||||||
|
| |||||||
Total Municipal Bonds (Cost $8,133,552) | 7,703,139 | |||||||
|
| |||||||
U.S. Government Agency Mortgages (10.3%): | ||||||||
Federal National Mortgage Association (8.2%) | ||||||||
1,948,229 | 3.00%, 6/1/29 | 2,000,981 | ||||||
1,600,000 | 2.50%, 1/25/31 | 1,602,531 | ||||||
2,000,000 | 2.50%, 12/1/31 | 2,004,937 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal National Mortgage Association, continued | ||||||||
$ | 4,528,789 | 5.50%, 9/1/41 | $ | 5,075,052 | ||||
747,574 | 3.00%, 8/1/42 | 747,361 | ||||||
581,420 | 3.00%, 10/1/42 | 581,255 | ||||||
1,086,726 | 3.00%, 10/1/42 | 1,086,415 | ||||||
1,082,024 | 3.00%, 11/1/42 | 1,081,714 | ||||||
400,644 | 3.00%, 12/1/42 | 400,530 | ||||||
1,683,612 | 3.00%, 1/1/43 | 1,683,133 | ||||||
4,286,980 | 4.00%, 11/1/45 | 4,508,856 | ||||||
100,000 | 3.00%, 1/25/46 | 99,341 | ||||||
5,000,000 | 4.50%, 1/25/47 | 5,377,929 | ||||||
1,000,000 | 4.00%, 1/25/46 | 1,051,309 | ||||||
16,939,465 | 3.50%, 2/1/46 | 17,374,321 | ||||||
4,845,240 | 4.00%, 4/1/46 | 5,119,692 | ||||||
399,961 | 3.00%, 8/1/46 | 397,767 | ||||||
400,000 | 3.00%, 12/1/46 | 397,806 | ||||||
2,700,000 | 3.00%, 12/1/46 | 2,685,188 | ||||||
500,000 | 3.00%, 12/1/46 | 497,257 | ||||||
499,950 | 3.00%, 1/1/47 | 497,626 | ||||||
|
| |||||||
54,271,001 | ||||||||
|
| |||||||
Federal Home Loan Mortgage Corp. (1.2%) | ||||||||
3,000,000 | 4.00%, 1/15/46 | 3,150,996 | ||||||
3,990,050 | 3.00%, 11/1/46 | 3,966,156 | ||||||
799,970 | 3.00%, 1/1/47 | 795,180 | ||||||
|
| |||||||
7,912,332 | ||||||||
|
| |||||||
Government National Mortgage Association (0.8%) | ||||||||
2,100,000 | 3.50%, 1/20/46 | 2,182,975 | ||||||
2,900,000 | 3.00%, 1/20/46 | 2,936,307 | ||||||
|
| |||||||
5,119,282 | ||||||||
|
| |||||||
Federal Home Loan Mortgage Corporation (0.1%) | ||||||||
600,389 | 5.00%, 2/1/38 | 659,702 | ||||||
|
| |||||||
| Total U.S. Government Agency Mortgages (Cost $68,864,906) | 67,962,317 | ||||||
|
| |||||||
U.S. Treasury Obligations (20.3%): | ||||||||
U.S. Treasury Bills (1.7%) | ||||||||
10,803,000 | 0.53%, 4/20/17(e) | 10,785,618 | ||||||
250,000 | 0.67%, 8/17/17(e)^ | 248,941 | ||||||
|
| |||||||
11,034,559 | ||||||||
|
| |||||||
U.S. Treasury Inflation Index Bonds (1.4%) | ||||||||
1,430,000 | 1.38%, 2/15/44 | 1,618,628 | ||||||
6,447,000 | 0.75%, 2/15/45 | 6,227,184 | ||||||
1,150,000 | 1.00%, 2/15/46 | 1,178,177 | ||||||
|
| |||||||
9,023,989 | ||||||||
|
| |||||||
U.S. Treasury Bonds (1.8%) | ||||||||
1,029,000 | 3.00%, 11/15/45 | 1,014,932 | ||||||
11,342,000 | 2.88%, 11/15/46 | 10,950,349 | ||||||
|
| |||||||
11,965,281 | ||||||||
|
| |||||||
U.S. Treasury Notes (13.8%) | ||||||||
11,592,000 | 0.75%, 9/30/18 | 11,513,661 | ||||||
12,085,000 | 1.38%, 12/15/19 | 12,056,201 |
Continued
12
AZL Pyramis Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2016
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
U.S. Treasury Obligations, continued | ||||||||
U.S. Treasury Notes, continued | ||||||||
$ | 30,000,000 | 1.75%, 12/31/20 | $ | 29,990,641 | ||||
2,851,000 | 1.25%, 3/31/21 | 2,785,182 | ||||||
910,000 | 1.38%, 4/30/21 | 892,689 | ||||||
13,364,000 | 1.13%, 9/30/21 | 12,890,514 | ||||||
4,791,000 | 1.63%, 11/30/21 | 4,755,254 | ||||||
6,324,000 | 1.38%, 9/30/23 | 5,988,777 | ||||||
3,900,800 | 1.50%, 8/15/26 | 3,587,671 | ||||||
6,434,000 | 2.00%, 11/15/26 | 6,190,460 | ||||||
|
| |||||||
90,651,050 | ||||||||
|
| |||||||
U.S. Treasury Inflation Index Notes (1.6%) | ||||||||
2,238,000 | 0.25%, 1/15/25 | 2,246,332 | ||||||
5,000,000 | 0.63%, 1/15/26 | 5,131,316 | ||||||
3,330,000 | 0.13%, 7/15/26 | 3,247,355 | ||||||
|
| |||||||
10,625,003 | ||||||||
|
| |||||||
Total U.S. Treasury Obligations (Cost $136,485,567) | 133,299,882 | |||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Unaffiliated Investment Company (4.2%): | ||||||||
$ | 27,299,140 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(e) | $ | 27,299,140 | ||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $27,299,140) | 27,299,140 | |||||||
|
| |||||||
Total Investment Securities (Cost $662,235,124)(f) — 102.1% | 671,672,479 | |||||||
Net other assets (liabilities) — (2.1)% | (13,945,112 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 657,727,367 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
GO—General Obligation
MTN—Medium Term Note
^ | All or a portion of the security has been pledged as collateral for open derivative positions. |
# | Security issued in connection with a pending litigation settlement. |
* | Non-income producing security. |
+ | The principal amount is disclosed in local currency and the fair value is disclosed in U.S. Dollars. |
(a) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2016. The total of all such securities represent 0.09% of the net assets of the fund. |
(b) | Variable rate security. The rate presented represents the rate in effect at December 31, 2016. The date presented represents the final maturity date. |
(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) | 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, 2016, these securities represent 0.04% of the net assets of the fund. |
(e) | The rate represents the effective yield at December 31, 2016. |
(f) | See Federal Tax Information listed in the Notes to the Financial Statements. |
(g) | Defaulted bond |
Continued
13
AZL Pyramis Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2016
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, 2016: (Unaudited)
Country | Percentage | ||||
Argentina | 0.7% | ||||
Australia | 0.1% | ||||
Austria | 0.2% | ||||
Barbados | 0.1% | ||||
Belarus | 0.2% | ||||
Bermuda | 0.1% | ||||
Brazil | 0.7% | ||||
Canada | 0.5% | ||||
Cayman Islands | 0.5% | ||||
Chile | 0.3% | ||||
Dominican Republic | 0.1% | ||||
Germany | 0.3% | ||||
Guernsey | 0.4% | ||||
Hong Kong | 0.2% |
Country | Percentage | ||||
Ireland (Republic of) | 1.2% | ||||
Italy | 0.2% | ||||
Jersey | 0.1% | ||||
Luxembourg | 0.6% | ||||
Mexico | 1.0% | ||||
Netherlands | 1.1% | ||||
Panama | 0.2% | ||||
Philippines | —%NM | ||||
Republic of Korea (South) | —%NM | ||||
Switzerland | 0.1% | ||||
United Kingdom | 1.3% | ||||
United States | 89.8% | ||||
|
| ||||
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) | ||||||||||||||||||||
S&P 500 Index E-Mini March Futures | Long | 3/17/17 | 29 | $ | 3,242,490 | $ | (29,701 | ) |
See accompanying notes to the financial statements.
14
AZL Pyramis Multi-Strategy Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investment securities, at cost | $ | 662,235,124 | |||
|
| ||||
Investment securities, at value | $ | 671,672,479 | |||
Cash | 328,139 | ||||
Interest and dividends receivable | 3,182,089 | ||||
Foreign currency, at value (cost $143,813) | 126,802 | ||||
Receivable for investments sold | 7,693,271 | ||||
Reclaims receivable | 168,078 | ||||
Prepaid expenses | 3,684 | ||||
|
| ||||
Total Assets | 683,174,542 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 24,731,659 | ||||
Payable for capital shares redeemed | 176,578 | ||||
Payable for variation margin on futures contracts | 13,793 | ||||
Manager fees payable | 195,283 | ||||
Administration fees payable | 17,527 | ||||
Distribution fees payable | 139,892 | ||||
Custodian fees payable | 148,360 | ||||
Administrative and compliance services fees payable | 1,763 | ||||
Trustee fees payable | 1,339 | ||||
Other accrued liabilities | 20,981 | ||||
|
| ||||
Total Liabilities | 25,447,175 | ||||
|
| ||||
Net Assets | $ | 657,727,367 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 627,236,719 | |||
Accumulated net investment income/(loss) | 405,526 | ||||
Accumulated net realized gains/(losses) from investment transactions | 20,635,021 | ||||
Net unrealized appreciation/(depreciation) on investments | 9,450,101 | ||||
|
| ||||
Net Assets | $ | 657,727,367 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 52,919,690 | ||||
Net Asset Value (offering and redemption price per share) | $ | 12.43 | |||
|
|
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Dividends | $ | 12,569,239 | |||
Interest | 11,374,642 | ||||
Income from securities lending | 417,796 | ||||
Foreign withholding tax | (657,440 | ) | |||
|
| ||||
Total Investment Income | 23,704,237 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 4,803,459 | ||||
Administration fees | 233,904 | ||||
Distribution fees | 1,715,519 | ||||
Custodian fees | 279,641 | ||||
Administrative and compliance services fees | 11,510 | ||||
Trustee fees | 38,793 | ||||
Professional fees | 35,500 | ||||
Shareholder reports | 22,137 | ||||
Other expenses | 23,842 | ||||
|
| ||||
Total expenses before reductions | 7,164,305 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (345,472 | ) | |||
Less expense contractually waived/reimbursed by the Manager | (134,642 | ) | |||
|
| ||||
Net expenses | 6,684,191 | ||||
|
| ||||
Net Investment Income/(Loss) | 17,020,046 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 21,359,668 | ||||
Net realized gains/(losses) on futures contracts | 508,784 | ||||
Net realized gains/(losses) on swap agreements | (2,145,967 | ) | |||
Net realized gains/(losses) on forward currency contracts | (9,917,268 | ) | |||
Change in net unrealized appreciation/depreciation on investments | 15,349,957 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 25,155,174 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 42,175,220 | |||
|
|
See accompanying notes to the financial statements.
15
Statements of Changes in Net Assets
AZL Pyramis Multi-Strategy Fund | ||||||||||
For the Year Ended December 31, 2016 | For the Year Ended December 31, 2015 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 17,020,046 | $ | 17,911,656 | ||||||
Net realized gains/(losses) on investment transactions | 9,805,217 | 10,556,957 | ||||||||
Change in unrealized appreciation/depreciation on investments | 15,349,957 | (70,236,946 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 42,175,220 | (41,768,333 | ) | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (9,919,576 | ) | (31,650,523 | ) | ||||||
From net realized gains | (12,249,273 | ) | (19,578,033 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (22,168,849 | ) | (51,228,556 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 5,635,660 | 67,861,575 | ||||||||
Proceeds from dividends reinvested | 22,168,849 | 51,228,556 | ||||||||
Value of shares redeemed | (125,514,703 | ) | (86,175,340 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (97,710,194 | ) | 32,914,791 | |||||||
|
|
|
| |||||||
Change in net assets | (77,703,823 | ) | (60,082,098 | ) | ||||||
Net Assets: | ||||||||||
Beginning of period | 735,431,190 | 795,513,288 | ||||||||
|
|
|
| |||||||
End of period | $ | 657,727,367 | $ | 735,431,190 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 405,526 | $ | 9,080,621 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 465,828 | 5,171,923 | ||||||||
Dividends reinvested | 1,814,145 | 4,247,808 | ||||||||
Shares redeemed | (10,357,832 | ) | (6,412,496 | ) | ||||||
|
|
|
| |||||||
Change in shares | (8,077,859 | ) | 3,007,235 | |||||||
|
|
|
|
See accompanying notes to the financial statements.
16
AZL Pyramis Multi-Strategy Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 12.06 | $ | 13.72 | $ | 13.86 | $ | 12.01 | $ | 10.75 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.34 | 0.32 | 0.32 | 0.15 | 0.27 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.44 | (1.07 | ) | (0.01 | ) | 2.01 | 1.31 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 0.78 | (0.75 | ) | 0.31 | 2.16 | 1.58 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.18 | ) | (0.56 | ) | (0.22 | ) | (0.22 | ) | (0.27 | ) | |||||||||||||||
Net Realized Gains | (0.23 | ) | (0.35 | ) | (0.23 | ) | (0.09 | ) | (0.05 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.41 | ) | (0.91 | ) | (0.45 | ) | (0.31 | ) | (0.32 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 12.43 | $ | 12.06 | $ | 13.72 | $ | 13.86 | $ | 12.01 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 6.52 | % | (5.46 | )% | 2.14 | % | 18.12 | % | 14.78 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 657,727 | $ | 735,431 | $ | 795,513 | $ | 711,214 | $ | 409,883 | |||||||||||||||
Net Investment Income/(Loss) | 2.48 | % | 2.31 | % | 2.51 | % | 2.10 | % | 2.80 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.04 | % | 1.04 | % | 1.04 | % | 1.05 | % | 1.09 | % | |||||||||||||||
Expenses Net of Reductions | 0.97 | % | 1.04 | % | 1.04 | % | 1.05 | % | 1.09 | % | |||||||||||||||
Portfolio Turnover Rate | 148 | % | 35 | % | 23 | % | 24 | % | 19 | % |
(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.
17
AZL Pyramis Multi-Strategy Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Pyramis Multi-Strategy Fund (formerly, AZL Franklin Templeton Founding Strategy Plus Fund) (the “Fund”), and 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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.
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 variable 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
18
AZL Pyramis Multi-Strategy Fund
Notes to the Financial Statements
December 31, 2016
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.
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.
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) 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.
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, 2016 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $43 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $41,685 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (“ASU No. 2014-11”), “Transfers & Servicing (Topic 860): Repurchase to-Maturity Transactions, Repurchase Financings, and Disclosures”. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and sub-adviser. Any such purchase or sale transaction must be effected without a brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security’s last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. During the year ended December 31, 2016, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
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 Pyramis Multi-Strategy Fund
Notes to the Financial Statements
December 31, 2016
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, 2016, the Fund entered into forward currency contracts in connections 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 monthly average for these contracts was $165.8 million for the year ended December 31, 2016.
Futures Contracts
During the year ended December 31, 2016, 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 $3.2 million as of December 31, 2016. The monthly average notional amount for these contracts was $0.5 million for the year ended December 31, 2016. Realized gains and losses are reported as “Net realized gains/(losses) on futures contracts” on the Statement of Operations.
Swap Agreements
During the year ended December 31, 2016, the Fund invested 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 entered into swap agreements to manage its exposure to market, interest rate, foreign currencies 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 the 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 Fund is a 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, 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, 2016, the Fund did not have any outstanding interest rate swap agreements. The monthly average gross notional amount for interest rate swaps was $23.5 for the year ended December 31, 2016.
20
AZL Pyramis Multi-Strategy Fund
Notes to the Financial Statements
December 31, 2016
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, 2016:
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 Risk Exposure |
| |||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | — | Payable for variation margin on futures contracts | $ | (29,701 | ) |
* | For futures contracts, the amounts represent the cumulative appreciation/depreciation of these futures contracts as reported in the Schedule of Portfolio Investments. Only the current day’s variation margin is reported within the Statement of Assets and Liabilities as Variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended December 31, 2016:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives Recognized | Change in Net Unrealized Appreciation/Depreciation on Derivatives Recognized | |||||||
Equity Risk Exposure |
| |||||||||
Equity Contracts | Net Realized gains/(losses) on futures contracts/Change in unrealized appreciation/depreciation on investments | $ | 508,784 | $ | (29,701 | ) | ||||
Foreign Exchange Risk Exposure | ||||||||||
Forward Currency Contracts | Net Realized gains/(losses) on forward currency contracts/Change in unrealized appreciation/depreciation on investments | (9,917,268 | ) | (494,229 | ) | |||||
Interest Rate Risk Exposure | ||||||||||
Interest Rate Swap Agreements | Net realized gains/(losses) on swap agreements/Change in unrealized appreciation/depreciation on investments | (1,740,442 | ) | 745,672 |
3. Fees and Transactions with Affiliates and Other Parties
The Manager provides investment advisory and management services for the Fund. The Manager has retained two independent money management organizations (the “Subadviser”), FIAM LLC (“FIAM”) and Geode Capital Management, LLC (“Geode”) to make investment decisions on behalf of the Fund. Pursuant to subadvisory agreements with the Manager and FIAM, and the Manager and Geode 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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit** | |||||||||
AZL Pyramis Multi-Strategy Fund | 0.70 | % | 0.71 | % |
* | From January 1, 2016 through October 13, 2016, The Manager retained three independent money management organizations, Franklin Advisers, Inc., Franklin Mutual Advisers, LLC and Templeton Global Advisors Limited and the annual rate due to the Manager was 0.70% of average daily net assets. Effective October 14, 2016, the Manager retained BlackRock as subadviser and the annual rate due to the Manager decreased to 0.70% of average daily net assets and voluntarily reduced the management fee to 0.45% on all assets. The Manager reserves the right to increase the management fee to the amount shown in the table at any time. |
** | Limit in effect as of October 14, 2016. Prior to that date, the annual expense limit was 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, 2016, the reimbursements that are subject to repayment by the Fund in subsequent years were as follows:
Expires 12/31/19 | Total | |||||||||
AZL Pyramis Multi-Strategy Fund | $ | 134,642 | $ | 134,642 |
21
AZL Pyramis Multi-Strategy Fund
Notes to the Financial Statements
December 31, 2016
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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the Fund’s average daily net assets, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $7,472 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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 (the “Board” or “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.
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
22
AZL Pyramis Multi-Strategy Fund
Notes to the Financial Statements
December 31, 2016
categorized as Level 2 in the fair value hierarchy. The Fund generally values index options at the average of the closing bid and ask quotations on the principal exchange on which the option is traded and are typically categorized as Level 1 in the fair value hierarchy. For options where market quotations are not readily available, fair value procedures as described below may be applied.
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, 2016, 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, 2016 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks | |||||||||||||||
Air Freight & Logistics | $ | — | $ | 22,965 | $ | 22,965 | |||||||||
Oil, Gas & Consumable Fuels | 14,554,389 | 453,899 | 15,008,288 | ||||||||||||
All Other Common Stocks+ | 259,292,885 | — | 259,292,885 | ||||||||||||
Convertible Preferred Stocks+ | — | 12,874 | 12,874 | ||||||||||||
Asset Backed Securities | — | 1,020,571 | 1,020,571 | ||||||||||||
Collateralized Mortgage Obligations | — | 660,924 | 660,924 | ||||||||||||
Corporate Bonds+ | — | 101,126,105 | 101,126,105 | ||||||||||||
Foreign Bonds+ | — | 81 | 81 | ||||||||||||
Yankee Dollars+ | — | 58,263,309 | 58,263,309 | ||||||||||||
Municipal Bonds | — | 7,703,139 | 7,703,139 | ||||||||||||
U.S. Government Agency Mortgages | — | 67,962,317 | 67,962,317 | ||||||||||||
U.S. Treasury Obligations | — | 133,299,882 | 133,299,882 | ||||||||||||
Unaffiliated Investment Company | 27,299,140 | — | 27,299,140 | ||||||||||||
|
|
|
|
|
| ||||||||||
Total Investment Securities | 301,146,414 | 370,526,066 | 671,672,480 | ||||||||||||
|
|
|
|
|
| ||||||||||
Other Financial Instruments:* | |||||||||||||||
Futures Contracts | (29,701 | ) | — | (29,701 | ) | ||||||||||
|
|
|
|
|
| ||||||||||
Total Investments | $ | 301,116,713 | $ | 370,526,066 | $ | 671,642,779 | |||||||||
|
|
|
|
|
|
+ | 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, 2016, 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 Multi-Strategy Fund | $ | 879,750,019 | $ | 905,104,210 |
For the year ended December 31, 2016, cost of purchases and proceeds from sales of long-term U.S. government securities included above were as follows:
Purchases | Sales | |||||||||
AZL Pyramis Multi-Strategy Fund | 121,942,129 | 474,077,993 |
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, 2016 are identified below.
Security | Acquisition Date(a) | Acquisition Cost | Shares or Principal Amount | Fair Value | Percentage of Assets | ||||||||||||||||||||
Petroleos Mexicanos, 6.50%, 3/13/27 | 12/6/16 | $ | 253,689 | 256,000 | $ | 264,064 | 0.04 | % |
(a) | Acquisition date represents the initial purchase date of the security. |
23
AZL Pyramis Multi-Strategy Fund
Notes to the Financial Statements
December 31, 2016
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 policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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 of securities for federal income tax purposes at December 31, 2016 is $662,474,353. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 20,263,805 | ||
Unrealized (depreciation) | (11,065,679 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 9,198,126 | ||
|
|
The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Pyramis Multi-Strategy Fund | $ | 9,919,612 | $ | 12,249,237 | $ | 22,168,849 |
(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, 2015 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Pyramis Multi-Strategy Fund | $ | 31,650,523 | $ | 19,578,033 | $ | 51,228,556 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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 Multi-Strategy Fund | $ | 21,250,075 | $ | — | $ | — | $ | 9,240,573 | $ | 30,490,648 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies — Form N-PORT and Form N-CEN — also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
10. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
24
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 Multi-Strategy Fund (formerly, 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, 2016, 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, 2016, 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 AZL Pyramis Multi-Strategy Fund as of December 31, 2016, 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 24, 2017
25
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2016, 62.41% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deductions available to
corporate shareholders.
During the year ended December 31, 2016, the Fund declared net long-term capital gain distributions of $12,249,237.
During the year ended December 31, 2016, the Fund declared net short-term capital gain distributions of $75.
26
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (“Commission”) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
27
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL® Pyramis Multi-Strategy Fund
(formerly AZL Franklin Templeton Founding Strategy Plus Fund)
Approval of New Subadvisory Agreement – June 14, 2016 (Unaudited)
At an in-person meeting of the Board of Trustees (the “Board” or the “Trustees” of Allianz Variable Insurance Products Trust (the “Trust”)) held on June 14, 2016, the Board considered a recommendation by Allianz Investment Management LLC (the “Manager”), the investment manager to the AZL Franklin Templeton Strategy Plus Fund (the “Fund”), to (a) approve a subadvisory agreement (the “FIAM Agreement”) between the Manager and FIAM LLC (“FIAM”), and a sub-subadvisory agreement (the “Geode Agreement”) between FIAM and Geode Capital Management, LLC (“Geode”), pursuant to which FIAM (as subadviser) and Geode (as sub-subadviser) would replace Franklin Mutual Advisers, LLC, Franklin Advisers Inc., and Templeton Global Advisers Limited (together, “Franklin Templeton”), the prior subadvisers to the Fund, and (b) change the name of the Fund to “AZL Pyramis® Multi-Strategy Fund.” At the June 14 meeting, the Board voted unanimously to approve the FIAM Agreement and the Geode Agreement, which became effective as to the Fund on October 14, 2016. At the meeting, the Board reviewed materials furnished by the Manager pertaining to FIAM and Geode and the FIAM Agreement and the Geode Agreement.
Board Consideration of the FIAM Agreement and the Geode Agreement
At the in-person meeting held on June 14, 2016, the Board considered the Manager’s recommendation that FIAM (as subadviser) and Geode (as sub-subadviser) replace Franklin Templeton as the Fund’s subadviser. At the meeting, the Board reviewed materials furnished by the Manager pertaining to FIAM and Geode and the FIAM Agreement and the Geode Agreement and unanimously approved the FIAM Agreement and the Geode Agreement, which became effective as to the Fund October 14, 2016.
The Manager, as investment manager of all of the outstanding series of the Trust, is charged with researching and recommending subadvisers for the subadvised funds of the Trust, including the Fund. The Manager has adopted policies and procedures to assist it in analyzing each subadviser with expertise in a particular asset class for purposes of making the recommendation that a specific subadviser be selected. The Board reviews and considers the information provided by the Manager in deciding which investment advisers to approve. After an investment adviser becomes a subadviser, a similarly rigorous process is instituted by the Manager to monitor and evaluate the investment performance and other responsibilities of the subadviser. As part of its ongoing obligation to monitor and evaluate the performance of the Fund’s subadviser, the Manager reviewed and evaluated Franklin Templeton’s management of the Fund, with a focus on the Fund’s investment performance in relation to its benchmark.
The Board, including a majority of the independent Trustees, with the assistance of independent counsel to the independent Trustees, considered whether to approve the FIAM Agreement and the Geode Agreement for the Fund in light of its experience in governing the Trust and working with the Manager and the subadvisers on matters relating to the mutual funds that are outstanding series of the Trust. The independent Trustees are those Trustees who are not “interested persons” of the Trust within the meaning of the 1940 Act, and are not employees of or affiliated with the Fund, the Manager, Franklin Templeton, FIAM or Geode. At least annually, the Board receives from experienced counsel who are independent of the Manager a memorandum discussing the legal standards for the Board’s consideration of proposed investment advisory or subadvisory agreements. In its deliberations, the Board considered all factors that the Trustees believed were relevant. The Board based its decision to approve the FIAM Agreement and the Geode Agreement on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. The Board approved the termination of the Franklin Templeton Agreement and determined that the FIAM Agreement and the Geode Agreement were reasonable and in the best interests of the Fund, and approved FIAM and Geode as the Fund’s new subadviser and sub-subadviser, respectively. The Board’s decision to approve the FIAM Agreement and the Geode Agreement reflects the exercise of its business judgment on whether to approve new arrangements and continue existing arrangements. In reaching this decision, 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.
A rule adopted by the SEC under the 1940 Act requires a discussion of certain factors relating to the selection of investment managers and subadvisers and the approval of advisory and subadvisory fees. The factors enumerated by the SEC in the rule are set forth below in italics followed by the Board’s conclusions regarding each factor.
(1) The nature, extent, and quality of services provided by the Subadviser. In deciding to approve FIAM and Geode, the Board considered the reputation, financial strength and resources of FIAM and Geode, and the experience and reputation of their respective portfolio management teams to be involved with the Fund. The Board also considered the respective investment philosophy and process of FIAM and Geode, particularly in the areas of active equity, for Geode, and fixed income, for FIAM. The Board has prior knowledge of FIAM as a result of its service as subadviser to another fund of the Trust, the AZL Pyramis® Total Bond Fund. The Board determined that, based upon the Manager’s report, the proposed change to FIAM and Geode as the subadviser and sub-subadviser likely would benefit the Fund and its shareholders.
In reviewing various other matters, the Board concluded that FIAM and Geode are recognized firms capable of competently managing the Fund; that the nature, extent and quality of services that FIAM and Geode could provide were at a level at least equal to the services previously provided by Franklin Templeton; that the services contemplated by the FIAM Agreement and the Geode Agreement are substantially the same as those provided under the Franklin Templeton Agreement; that the FIAM Agreement and the Geode Agreement contain provisions generally comparable to those of other subadvisory agreements for other mutual funds; that FIAM and Geode are staffed with qualified personnel and have significant research capabilities; and that the investment performance of FIAM and Geode in managing similar funds, as discussed below, is at least satisfactory.
(2) The investment performance of FIAM and Geode. The Board received information about hypothetical back-tested performance for the Fund, as proposed to be managed by FIAM and Geode. The performance information presented to the Board, which covered the nine years ending December 31, 2015, and included performance versus a composite benchmark (60% the S&P 500 Index and 40% the Barclays U.S. Aggregate Bond Index) and performance rankings relative to a peer group of comparable mixed-asset target allocation conservative funds. The Board also received information regarding returns, risk, standard deviation, and tracking error for the five years ending December 31, 2015. The Board noted that the hypothetical performance of the AZL Pyramis® Multi-Strategy Fund was better than the actual performance of the Fund, as managed by Franklin Templeton, for the last 1, 2, 3, and 5 year periods, ending December 31, 2015.
(3) The costs of services to be provided and profits to be realized by FIAM and Geode from their relationship with the Fund. The Board compared the fee schedule in the FIAM Agreement and the Geode Agreement to the fee schedule in the Franklin Templeton Agreement. The Board noted that the fee schedules in the FIAM Agreement and the Geode Agreement are lower than the fee schedules in the Franklin Templeton Agreement. The Board noted that the fee schedules in the FIAM Agreement and the Geode Agreement are the result of arm’s-length negotiation among the Manager, FIAM and Geode. The Manager also reported that the Fund’s total expense ratio (which includes management fees and operating expenses) would be in the 5th percentile in the category of variable annuity balanced funds. The Board also reviewed information provided by FIAM regarding its anticipated profitability for acting as subadviser to the Fund. Information regarding profitability of Geode was not provided. Based upon its review, the Board concluded that the fees proposed to be paid to FIAM and to Geode were reasonable.
(4) and (5) The extent to which economies of scale would be realized as the Fund grows, and whether fee levels reflect these economies of scale. The Board noted that the fee schedules in the FIAM Agreement and the Geode Agreement contain breakpoints that reduce the fee rate on assets above certain levels. The Board also noted that the Fund had approximately $735.4 million in net assets at December 31, 2015. The Board considered the possibility that FIAM, Geode, or the Manager, may realize certain
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economies of scale as the Fund grows larger. The Board noted that in the fund industry as a whole, as well as among funds similar to the Fund, 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 models, it is difficult to draw meaningful conclusions from the breakpoints that may have been adopted by other funds. The Board also noted that the advisory agreements for many funds do not have breakpoints at all.
The Trustees also noted that the fee schedule in the Management Agreement between the Manager and the Fund does not contain breakpoints that would reduce the fee rate as assets increase. However, the Manager has agreed to reduce the fee it collects from the Fund, through at least April 30, 2018, and to “cap” the Fund’s expenses at certain levels, which could have the effect of reducing expenses as does advisory/subadvisory fee breakpoints. The Manager has committed to continue to consider the continuation of fee “caps” and/or additional advisory/subadvisory fee breakpoints as the Fund grows larger. The Board receives quarterly reports on the level of Fund assets. The Board reapproved the FIAM Agreement and the Geode Agreement at a meeting held on October 25, 2016, and expects to consider again whether or not to reapprove the FIAM Agreement and the Geode Agreement at a meeting to be held prior to December 31, 2017, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the subadvisory fee schedule should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the fee schedules in the FIAM Agreement and the Geode Agreement were acceptable.
Approval of Investment Advisory and Subadvisory Agreements — October 25, 2016 (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 Fund is 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 Fund is 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 sub-subadviser is considered for this discussion to be a Subadviser). 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 Fund, 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 Fund 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
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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 Fund and the companies that service it; and relevant developments in the mutual fund industry and how the Fund 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 Fund. These reports cover not only the fees under the advisory contracts, but also fees, if any, received for providing other services to the Fund. The reports also discuss any indirect or “fall out” benefits an Advisory Organization may derive from its relationship with the Fund.
The Advisory and Subadvisory Agreements (collectively, the “Agreements”) were most recently considered at Board of Trustees meetings held in the fall of 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. In connection with such meetings, the Trustees requested and evaluated extensive materials from the Manager, including performance and expense information for other investment companies with similar investment objectives derived from data compiled by an independent third party provider and other sources believed to be reliable by the Manager. Prior to voting, the Trustees reviewed the proposed approval/continuance of the Agreements with management and with experienced counsel who are independent of the Manager and received a memorandum from such counsel discussing the legal standards for their consideration of the proposed approvals/continuances. The independent (“disinterested”) Trustees also discussed the proposed approvals/continuances in a private session with such counsel at which no representatives of the Manager were present. In reaching their determinations relating to the approval and/or continuance of the Agreements, in respect of each Fund, the Trustees considered all factors they believed relevant. The Board based its decision to approve the Agreements on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. Not all of the factors and considerations discussed above and below are necessarily relevant to every Fund, and the Board did not assign relative weights to factors discussed herein or deem any one or group of them to be controlling in and of themselves.
An SEC Rule requires that shareholder reports include a discussion of certain factors relating to the selection of investment advisers and the approval of advisory fees. The “factors” enumerated by the SEC are set forth below in italics, as well as the Board’s conclusions regarding such factors:
(1) The nature, extent and quality of services provided by the Manager and Subadvisers. The Trustees noted that the Manager, subject to the control of the Board of Trustees, administers the 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 Fund’s assets and the placement of orders for the purchase and sale of the securities of the Fund. As the Fund is a manager of managers fund, the Manager is authorized, under the Advisory Agreement, to retain one or more Subadvisers for the Fund to handle day-to-day management of the Fund’s investment portfolio; 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 Fund’s portfolio investments and to make available to the Fund’s administrator such information as is necessary for the conduct of its duties.
The Trustees also noted that the Manager provides the Trust and the 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 Fund) and executive and other personnel as are necessary for the operation of the Trust and the Fund. 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 the Fund. 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 the Fund under the Agreements.
(2) The investment performance of the Fund, 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 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 the appropriate benchmark(s), and performance versus peer groups. However, the Board of Trustees also considered the fact that prior October 14, 2016, the Fund was subadvised by a different subadviser (Franklin) and managed pursuant to a different strategy. Accordingly, the investment performance of the Fund and the prior Subadvisers prior to October 14, 2016, were not deemed to be pertinent to the Board of Trustee’s assessment of the continuance of the Management Agreement, the FIAM Agreement and the Geode Agreement for the period following October 14, 2016.
(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 Fund. The Manager has supplied information to the Board of Trustees pertaining to the level of investment advisory fees to which the Fund is 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. The Board of Trustees received information that the Fund paid “actual” advisory fees in a percentage amount within the 14th percentile for the Fund’s applicable category (50-70% equity funds). 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 Fund is 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 2016 for the Fund was in the 6th percentile.
The Manager has committed to providing the Fund with a high quality of service and working to reduce Fund expenses over time, particularly as the Fund grows larger. The Trustees concluded therefore that the expense ratio of the Fund was not unreasonable.
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2013 through June 30, 2016. 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
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certain fall-out benefits to the Manager and its affiliates. The Trustees focused on profitability of the Manager’s relationships with the Fund 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 the Fund and, based on their review, concluded that they were satisfied that the Manager’s level of profitability from its relationship with the Fund 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. 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 currently are not affiliated with it, were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. 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 Fund was excessive.
(4) and (5) The extent to which economies of scale would be realized as the Fund grows, and whether fee levels reflect these economies of scale. The Trustees noted that the advisory fee schedule for the Fund does not contain breakpoints that reduce the fee rate on assets above specified levels. 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 Fund, 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 the Fund as of June 30, 2016 were approximately $686.7 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 Fund grows 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, 2017, 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 the Fund’s advisory fee rate schedule was acceptable under the 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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 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 | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 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 | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
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Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® Pyramis® Total Bond Fund
Annual Report
December 31, 2016
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 Federal Income Tax Information
Page 26
Other Information
Page 27
Approval of Investment Advisory and Subadvisory Agreements
Page 28
Information about the Board of Trustees and Officers
Page 31
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® Total Bond Fund Review (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® Pyramis® Total Bond Fund and FIAM LLC serves as Subadviser to the Fund.
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What factors affected the Fund’s performance during the year ended December 31, 2016?
For the period ended December 31, 2016, the AZL® Pyramis® Total Bond Fund (Class 2 Shares) (the “Fund”) returned 5.51%. That compared to a 2.65% total return for its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index1.
Bonds performed well in the first half of the year, due in large part to a decline in interest rates, an improvement in commodity prices, an accommodative monetary policy and mostly stable U.S. economic conditions. These improved conditions were enough to overcome the market volatility from early in the year.
The second half of the year proved more challenging for bonds, especially after the U.S. presidential election. Interest rates reversed their earlier decline as inflation expectations rose following the election. In addition, prospects for faster economic growth were fueled by proposed increases in infrastructure spending and tax cuts by the incoming administration. Investors favored stocks in this environment, and retreated from the bond market, fueling a slump in bond prices. In December, the Federal Reserve raised short-term interest rates for the first time since late 2015 and offered future guidance that suggested more hikes in 2017, which put further pressure on bond prices.
The Fund performed well in 2016, both on a relative and absolute basis, benefiting from strong security selection and sector selection. In absolute terms, the Fund followed the broader market and performed more weakly in the second half, particularly after the election. Relative to the
benchmark, the Fund’s performance was enhanced by its exposure to high-yield and investment-grade corporate bonds, especially REITs2, energy, and financials. The Fund also benefited from its holdings in emerging market bonds, some of which were aided by the improvement in commodity prices.*
Higher inflation expectations throughout the year proved beneficial for the Fund because of its position in Treasury inflation-protected securities, or TIPS. In addition, the Fund’s relatively small position in Treasuries and mortgage-backed securities boosted relative performance as these bonds were negatively impacted by rising interest rates.*
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, 2016. |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
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® Pyramis® Total 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.
Emerging market investing may be subject to additional economic, political, liquidity, and currency risks not associated with more developed countries. | ||
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. | ||
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. | ||
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. | ||
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. | ||
Debt securities held by the Fund may decline in value due to rising interest rates. Interest rates in the U.S. are at, or near, historic lows, which may increase the Fund’s exposure to risks related to rising rates. | ||
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, 2016 | ||||||||||||||||
Inception Date | 1 Year | 3 Year | Since Inception | |||||||||||||
AZL® Pyramis® Total Bond Fund (Class 1 Shares) | 10/28/16 | — | — | -2.30 | %* | |||||||||||
AZL® Pyramis® Total Bond Fund (Class 2 Shares) | 9/5/12 | 5.51 | % | 3.29 | % | 1.88 | % | |||||||||
Bloomberg Barclays U.S. Aggregate Bond Index | 9/5/12 | 2.65 | % | 3.03 | % | 1.71 | % |
* | Cumulative Return |
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® Pyramis® Total Bond Fund (Class 1 Shares) | 0.57 | % | ||
AZL® Pyramis® Total Bond Fund (Class 2 Shares) | 0.82 | % |
Expense Ratios are based on the current Fund prospectus dated August 31, 2016. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 0.70% for Class 1 Shares and 0.95% for Class 2 Shares through April 30, 2018. Additional information pertaining to the December 31, 2016 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 Bloomberg 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 Total Bond Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL Pyramis Total 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 7/1/16 | Ending 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Pyramis Total Bond Fund, Class 1** | $ | 1,000.00 | $ | 977.00 | $ | 0.99 | 0.59 | % | ||||||||||||
AZL Pyramis Total Bond Fund, Class 2 | $ | 1,000.00 | $ | 989.70 | $ | 4.15 | 0.83 | % |
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 7/1/16 | Ending 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Pyramis Total Bond Fund, Class 1 | $ | 1,000.00 | $ | 1,022.17 | $ | 3.00 | 0.59 | % | ||||||||||||
AZL Pyramis Total Bond Fund, Class 2 | $ | 1,000.00 | $ | 1,020.96 | $ | 4.22 | 0.83 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
** | Expenses are equal to the average account value multiplied by the Fund’s annualized expense ratio multiplied by 62/366 to reflect the stub period from commencement of operations 10/31/2016 through 12/31/2016. |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Corporate Bonds | 31.0 | % | |||
U.S. Treasury Obligations | 26.6 | ||||
U.S. Government Agency Mortgages | 18.9 | ||||
Yankee Dollars | 15.7 | ||||
Money Markets | 6.9 | ||||
Securities Held as Collateral for Securities on Loan | 6.4 | ||||
Collateralized Mortgage Obligations | 2.8 | ||||
Municipal Bonds | 2.4 | ||||
Asset Backed Securities | 0.2 | ||||
Common Stocks | 0.1 | ||||
Warrants | — | ^ | |||
|
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Total Investment Securities | 111.0 | ||||
Net other assets (liabilities) | (11.0 | ) | |||
|
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Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL Pyramis Total Bond Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
| Asset Backed Securities (0.2%): |
| ||||||
$ | 250,000 | Blackbird Capital Aircraft, Class AA, Series 16-1A, 2.49%, 12/16/41, Callable 12/15/24 @ 100(a)(b) | $ | 250,391 | ||||
811,000 | Blackbird Capital Aircraft, Class A, Series 16-1A, 4.21%, 12/16/41, Callable 12/15/24 @ 100(a)(b) | 804,917 | ||||||
59,130 | Countrywide Asset-Backed Certificates Trust, Class AF5, Series 2004-7, 5.87%, 1/25/35, Callable 1/25/17 @ 100(a) | 60,486 | ||||||
|
| |||||||
| Total Asset Backed Securities (Cost $1,122,490) | 1,115,794 | ||||||
|
| |||||||
| Collateralized Mortgage Obligations (2.8%): |
| ||||||
1,750 | Banc of America Commercial Mortgage Trust, Class A4, Series 2007-1, 5.45%, 1/15/49 | 1,749 | ||||||
29,318 | Banc of America Commercial Mortgage Trust, Class A4, Series 2006-3, 5.89%, 7/10/44(a) | 29,279 | ||||||
102,435 | Banc of America Commercial Mortgage Trust, Class A4, Series 2007-2, 5.80%, 4/10/49(a) | 102,358 | ||||||
176,823 | CDGJ Commercial Mortgage Trust, Class DPA, Series 2014-BXCH, 3.70%, 12/15/27(a)(b) | 177,156 | ||||||
88,000 | Credit Suisse Mortgage Trust, Class B, Series 2015-TOWN, 2.60%, 3/15/17(a)(b) | 86,530 | ||||||
85,000 | Credit Suisse Mortgage Trust, Class C, Series 2015-TOWN, 2.95%, 3/15/28(a)(b) | 83,356 | ||||||
129,000 | Credit Suisse Mortgage Trust, Class D, Series 2015-TOWN, 3.90%, 3/15/28(a)(b) | 128,286 | ||||||
581,000 | Credit Suisse Mortgage Trust, Class E, Series 2015-TOWN, 4.85%, 3/15/28(a)(b) | 579,939 | ||||||
2,000,000 | GAHR Commercial Mortgage Trust, Class BFX, Series 2015-NRF, 3.49%, 12/15/34(a)(b) | 2,030,264 | ||||||
390,000 | GAHR Commercial Mortgage Trust, Class CFX, Series 2015-NRF, 3.38%, 12/15/34(b) | 391,959 | ||||||
1,330,000 | GAHR Commercial Mortgage Trust, Class DFX, Series 2015-NRF, 3.38%, 12/15/34(b) | 1,322,592 | ||||||
2,689,469 | GE Capital Commercial Mortgage Corp., Class A4, Series 2007-C1, 5.54%, 12/10/49 | 2,693,086 | ||||||
12,475 | Hilton USA Trust, Class DFX, Series 2013-HLT, 4.41%, 11/5/30(b) | 12,423 | ||||||
4,218,014 | JPMorgan Chase Commercial Mortgage Securities Corp., Class A4, Series 2007-LD11, 5.75%, 6/15/49(a) | 4,243,432 | ||||||
127,000 | JPMorgan Chase Commercial Mortgage Securities Corp., Class C, Series 2014-BXH, 2.35%, 4/15/27(a)(b) | 125,393 | ||||||
271,000 | JPMorgan Chase Commercial Mortgage Securities Corp., Class D, Series 2014-BXH, 2.95%, 4/15/27(a)(b) | 266,343 | ||||||
1,021,458 | Merrill Lynch/Countrywide Commercial Mortgage Trust, Class A4, Series 2007-6, 5.48%, 3/12/51(a) | 1,023,846 | ||||||
667,000 | Mscg Trust, Class A, Series 2016-SNR, 3.35%, 11/15/34(a)(b) | 664,509 | ||||||
235,000 | Mscg Trust, Class B, Series 2016-SNR, 4.18%, 11/15/34(b) | 234,249 | ||||||
165,000 | Mscg Trust, Class C, Series 2016-SNR, 5.21%, 11/15/34(b) | 164,898 | ||||||
25,103 | Wachovia Bank Commercial Mortgage Trust, Class A1A, Series 2006-C26, 6.01%, 6/15/45(a) | 25,056 |
Principal Amount | Fair Value | |||||||
| Collateralized Mortgage Obligations, continued |
| ||||||
$ | 1,245,432 | Wachovia Bank Commercial Mortgage Trust, Class A4, Series 2007-C31, 5.51%, 4/15/47 | $ | 1,247,867 | ||||
1,032,199 | Wachovia Bank Commercial Mortgage Trust, Class A3, Series 2007-C32, 5.89%, 6/15/49(a) | 1,038,478 | ||||||
|
| |||||||
| Total Collateralized Mortgage Obligations (Cost $17,852,117) | 16,673,048 | ||||||
|
| |||||||
| Corporate Bonds (31.0%): |
| ||||||
| Aerospace & Defense (0.3%): |
| ||||||
409,000 | Alcoa, Inc., 5.13%, 10/1/24, Callable 7/1/24 @ 100^ | 419,225 | ||||||
600,000 | Huntington Ingalls Indus, 5.00%, 11/15/25, Callable 11/15/20 @ 102.5(b) | 623,250 | ||||||
747,000 | KLX, Inc., 5.88%, 12/1/22, Callable 12/1/17 @ 104.41(b) | 769,410 | ||||||
|
| |||||||
1,811,885 | ||||||||
|
| |||||||
| Airlines (0.0%): |
| ||||||
72,627 | Continental Airlines 1998-1, Class A, Series 981, 6.65%, 9/15/17 | 73,626 | ||||||
|
| |||||||
| Automobiles (0.4%): |
| ||||||
493,000 | General Motors Co., 3.50%, 10/2/18 | 502,811 | ||||||
318,000 | General Motors Co., 6.60%, 4/1/36, Callable 10/1/35 @ 100 | 363,476 | ||||||
676,000 | General Motors Co., 6.25%, 10/2/43 | 747,304 | ||||||
255,000 | General Motors Co., 5.20%, 4/1/45 | 245,798 | ||||||
533,000 | General Motors Co., 6.75%, 4/1/46, Callable 10/1/45 @ 100 | 625,044 | ||||||
|
| |||||||
2,484,433 | ||||||||
|
| |||||||
| Banks (2.5%): |
| ||||||
956,000 | Bank of America Corp., 4.20%, 8/26/24 | 973,881 | ||||||
194,000 | Bank of America Corp., 4.00%, 1/22/25, MTN | 194,244 | ||||||
986,000 | Bank of America Corp., Series L, 3.95%, 4/21/25 | 981,552 | ||||||
397,000 | Bank of America Corp., 3.88%, 8/1/25, MTN | 403,682 | ||||||
690,000 | Bank of America Corp., 3.50%, 4/19/26^ | 680,804 | ||||||
593,000 | Bank of America Corp., 4.25%, 10/22/26^ | 600,179 | ||||||
1,090,000 | Citigroup, Inc., 4.05%, 7/30/22 | 1,128,133 | ||||||
1,493,000 | Citigroup, Inc., 4.30%, 11/20/26 | 1,506,628 | ||||||
250,000 | Citizens Bank NARI, 2.55%, 5/13/21, Callable 4/13/21 @ 100 | 248,465 | ||||||
253,000 | Citizens Bank of Rhode Island, 2.50%, 3/14/19, Callable 2/14/19 @ 100, MTN | 254,949 | ||||||
400,000 | Huntington National Bank (The), 2.20%, 4/1/19, Callable 3/1/19 @ 100 | 400,351 | ||||||
2,994,000 | JPMorgan Chase & Co., 3.88%, 9/10/24 | 3,029,440 | ||||||
478,000 | JPMorgan Chase & Co., 2.95%, 10/1/26, Callable 7/1/26 @ 100^ | 456,245 | ||||||
1,990,000 | JPMorgan Chase & Co., 4.13%, 12/15/26 | 2,031,105 | ||||||
1,278,000 | Regions Bank, Series BKNT, 7.50%, 5/15/18 | 1,369,158 | ||||||
500,000 | Regions Bank, 6.45%, 6/26/37 | 563,064 | ||||||
260,000 | Regions Financial Corp., 3.20%, 2/8/21, Callable 1/8/21 @ 100^ | 263,679 | ||||||
|
| |||||||
15,085,559 | ||||||||
|
| |||||||
| Beverages (0.8%): | |||||||
1,481,000 | Anheuser-Busch InBev SA/NV, 3.30%, 2/1/23, Callable 12/1/22 @ 100 | 1,507,261 | ||||||
1,402,000 | Anheuser-Busch InBev SA/NV, 4.70%, 2/1/36, Callable 8/1/35 @ 100 | 1,474,719 |
Continued
4
AZL Pyramis Total Bond Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Beverages, continued | ||||||||
$ | 1,604,000 | Anheuser-Busch InBev SA/NV, 4.90%, 2/1/46, Callable 8/1/45 @ 100 | $ | 1,733,716 | ||||
|
| |||||||
4,715,696 | ||||||||
|
| |||||||
Building Products (0.2%): | ||||||||
1,195,000 | Building Materials Corp., 5.38%, 11/15/24, Callable 11/15/19 @ 102.69(b) | 1,227,863 | ||||||
|
| |||||||
Capital Markets (0.6%): | ||||||||
282,000 | Affiliated Managers Group, Inc., 4.25%, 2/15/24 | 283,472 | ||||||
524,000 | Affiliated Managers Group, Inc., 3.50%, 8/1/25 | 494,420 | ||||||
596,000 | Goldman Sachs Group, Inc. (The), 2.55%, 10/23/19^ | 600,376 | ||||||
230,000 | Intercontinental Exchange, Inc., 2.75%, 12/1/20, Callable 11/1/20 @ 100 | 232,074 | ||||||
412,000 | Intercontinental Exchange, Inc., 3.75%, 12/1/25, Callable 9/1/25 @ 100^ | 422,505 | ||||||
464,000 | Lazard Group LLC, 4.25%, 11/14/20 | 485,696 | ||||||
781,000 | Morgan Stanley, 4.88%, 11/1/22 | 837,028 | ||||||
114,000 | Tiaa Asset Management Finance LLC, 2.95%, 11/1/19(b) | 115,968 | ||||||
165,000 | Tiaa Asset Management Finance LLC, 4.13%, 11/1/24(b) | 166,656 | ||||||
|
| |||||||
3,638,195 | ||||||||
|
| |||||||
Chemicals (0.3%): | ||||||||
550,000 | CF Industires, Inc., 3.45%, 6/1/23^ | 494,450 | ||||||
550,000 | CF Industries, Inc., 4.95%, 6/1/43 | 449,625 | ||||||
747,000 | Platform Specialty Products, 6.50%, 2/1/22, Callable 2/1/18 @ 103.25(b) | 752,603 | ||||||
|
| |||||||
1,696,678 | ||||||||
|
| |||||||
Commercial Services & Supplies (0.3%): | ||||||||
747,000 | Adt Corp., 6.25%, 10/15/21^ | 810,495 | ||||||
747,000 | Prime Securities Services Brw / Finance, 9.25%, 5/15/23, Callable 5/15/19 @ 104.63(b) | 813,296 | ||||||
|
| |||||||
1,623,791 | ||||||||
|
| |||||||
Consumer Finance (3.7%): | ||||||||
3,306,000 | Ally Financial, Inc., 3.75%, 11/18/19 | 3,320,149 | ||||||
478,000 | Capital One Financial Corp., 2.45%, 4/24/19, Callable 3/24/19 @ 100 | 481,027 | ||||||
797,000 | Capital One NA, Series BNKT, 2.95%, 7/23/21, Callable 6/23/21 @ 100 | 799,954 | ||||||
250,000 | Discover Bank, 7.00%, 4/15/20 | 277,595 | ||||||
644,000 | Discover Bank, Series BKNT, 3.20%, 8/9/21, Callable 7/9/21 @ 100^ | 647,773 | ||||||
1,000,000 | Discover Financial Services, 5.20%, 4/27/22 | 1,077,350 | ||||||
896,000 | Ford Motor Credit Co. LLC, 5.00%, 5/15/18 | 931,150 | ||||||
796,000 | Ford Motor Credit Co. LLC, 2.24%, 6/15/18 | 797,079 | ||||||
896,000 | Ford Motor Credit Co. LLC, 2.88%, 10/1/18 | 906,702 | ||||||
1,493,000 | Ford Motor Credit Co. LLC, 2.60%, 11/4/19 | 1,490,782 | ||||||
1,121,000 | Ford Motor Credit Co. LLC, 5.88%, 8/2/21 | 1,237,997 | ||||||
110,000 | General Motors Financial Co., Inc., 2.63%, 7/10/17 | 110,595 | ||||||
269,000 | General Motors Financial Co., Inc., 4.75%, 8/15/17 | 274,102 | ||||||
175,000 | General Motors Financial Co., Inc., 3.25%, 5/15/18 | 177,293 |
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Consumer Finance, continued | ||||||||
$ | 572,000 | General Motors Financial Co., Inc., 3.50%, 7/10/19 | $ | 582,442 | ||||
747,000 | General Motors Financial Co., Inc., 4.20%, 3/1/21, Callable 2/1/21 @ 100 | 770,715 | ||||||
3,528,000 | General Motors Financial Co., Inc., 4.38%, 9/25/21 | 3,659,643 | ||||||
299,000 | General Motors Financial Co., Inc., 4.25%, 5/15/23 | 302,592 | ||||||
240,000 | Hyundai Capital America, Inc., 2.88%, 8/9/18(b) | 242,794 | ||||||
564,000 | Hyundai Capital America, Inc., 2.55%, 2/6/19(b) | 567,299 | ||||||
747,000 | Navient Corp., 8.00%, 3/25/20, MTN | 828,722 | ||||||
1,344,000 | SLM Corp., 5.50%, 1/15/19^ | 1,394,399 | ||||||
206,000 | Synchrony Financial, 3.00%, 8/15/19, Callable 7/15/19 @ 100 | 208,670 | ||||||
510,000 | Synchrony Financial, 3.75%, 8/15/21, Callable 6/15/21 @ 100 | 524,187 | ||||||
314,000 | Synchrony Financial, 4.25%, 8/15/24, Callable 5/15/24 @ 100 | 319,636 | ||||||
|
| |||||||
21,930,647 | ||||||||
|
| |||||||
Diversified Consumer Services (0.7%): | ||||||||
1,344,000 | APX Group, Inc., 6.38%, 12/1/19, Callable 2/6/17 @ 103.19^ | 1,382,640 | ||||||
1,000,000 | APX Group, Inc., 8.75%, 12/1/20, Callable 2/6/17 @ 104.38 | 1,007,500 | ||||||
500,000 | Cengage Learning, Inc., 9.50%, 6/15/24, Callable 6/15/19 @ 107.13(b) | 443,750 | ||||||
1,100,000 | Laureate Education, Inc., 9.25%, 9/1/19, Callable 2/6/17 @ 104.63(b) | 1,123,375 | ||||||
|
| |||||||
3,957,265 | ||||||||
|
| |||||||
Diversified Financial Services (0.2%): | ||||||||
500,000 | Peachtree Funding Trust, 3.98%, 2/15/25(b) | 487,857 | ||||||
460,000 | Pemex Proj FDG Master TR, 5.75%, 3/1/18 | 475,755 | ||||||
|
| |||||||
963,612 | ||||||||
|
| |||||||
Diversified Telecommunication Services (0.9%): | ||||||||
481,000 | AT&T, Inc., 2.45%, 6/30/20, Callable 5/30/20 @ 100 | 477,648 | ||||||
917,000 | AT&T, Inc., 3.60%, 2/17/23, Callable 12/17/22 @ 100 | 924,813 | ||||||
42,000 | CenturyLink, Inc., Series R, 5.15%, 6/15/17 | 42,630 | ||||||
93,000 | CenturyLink, Inc., Series Q, 6.15%, 9/15/19 | 99,510 | ||||||
545,000 | Embarq Corp., 8.00%, 6/1/36 | 510,938 | ||||||
747,000 | Verizon Communications, Inc., 6.25%, 4/1/37 | 885,643 | ||||||
1,389,000 | Verizon Communications, Inc., 5.01%, 8/21/54 | 1,381,724 | ||||||
747,000 | Zayo Group LLC/Zayo Capital, 6.38%, 5/15/25, Callable 5/15/20 @ 103.19 | 780,615 | ||||||
|
| |||||||
5,103,521 | ||||||||
|
| |||||||
Electric Utilities (1.3%): | ||||||||
164,000 | Emera US Finance LP, 2.15%, 6/15/19(b) | 163,729 | ||||||
163,000 | Emera US Finance LP, 2.70%, 6/15/21, Callable 5/15/21 @ 100(b) | 161,344 | ||||||
260,000 | Emera US Finance LP, 3.55%, 6/15/26, Callable 3/15/26 @ 100^(b) | 255,588 | ||||||
651,000 | Exelon Corp., 3.95%, 6/15/25, Callable 3/15/25 @ 100 | 669,252 |
Continued
5
AZL Pyramis Total Bond Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Electric Utilities, continued | ||||||||
$ | 1,014,000 | FirstEnergy Corp., Series A, 2.75%, 3/15/18, Callable 2/15/18 @ 100 | $ | 1,023,211 | ||||
2,306,000 | FirstEnergy Corp., Series B, 4.25%, 3/15/23, Callable 12/15/22 @ 100 | 2,383,932 | ||||||
1,625,000 | FirstEnergy Corp., Series C, 7.38%, 11/15/31 | 2,094,459 | ||||||
455,000 | FirstEnergy Solutions Co., 6.05%, 8/15/21** | 179,725 | ||||||
772,528 | NSG Holdings, LLC/NSG Holdings, Inc., 7.75%, 12/15/25(b) | 833,365 | ||||||
175,000 | NV Energy, Inc., 6.25%, 11/15/20 | 198,458 | ||||||
56,000 | PG&E Corp., 2.40%, 3/1/19, Callable 2/1/19 @ 100 | 56,213 | ||||||
|
| |||||||
8,019,276 | ||||||||
|
| |||||||
Energy Equipment & Services (0.2%): | ||||||||
349,000 | Halliburton Co., 3.80%, 11/15/25, Callable 8/15/25 @ 100^ | 354,548 | ||||||
306,000 | Halliburton Co., 4.85%, 11/15/35, Callable 5/15/35 @ 100 | 322,716 | ||||||
418,000 | Halliburton Co., 5.00%, 11/15/45, Callable 5/15/45 @ 100 | 450,790 | ||||||
|
| |||||||
1,128,054 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (4.8%): | ||||||||
82,000 | Alexandria Real Estate Equities, Inc., 2.75%, 1/15/20, Callable 12/15/19 @ 100 | 81,811 | ||||||
152,000 | American Campus Communities, Inc., 3.75%, 4/15/23, Callable 1/15/23 @ 100 | 153,358 | ||||||
747,000 | American Tower Corp., 2.80%, 6/1/20, Callable 5/1/20 @ 100 | 747,396 | ||||||
161,000 | AvalonBay Communities, Inc., 3.63%, 10/1/20, Callable 7/1/20 @ 100 | 167,180 | ||||||
514,000 | BPG Subsidiary, Inc., 3.88%, 8/15/22, Callable 6/15/22 @ 100 | 523,995 | ||||||
279,000 | Brandywine Operating Partners LP, 4.95%, 4/15/18, Callable 3/15/18 @ 100^ | 288,409 | ||||||
357,000 | Brandywine Operating Partners LP, 3.95%, 2/15/23, Callable 11/15/22 @ 100 | 355,618 | ||||||
394,000 | Brandywine Operating Partners LP, 4.10%, 10/1/24, Callable 7/1/24 @ 100 | 388,741 | ||||||
394,000 | Brandywine Operating Partners LP, 4.55%, 10/1/29, Callable 7/1/29 @ 100 | 385,630 | ||||||
788,000 | Brixmor Operating Partnership, 3.25%, 9/15/23, Callable 7/15/23 @ 100 | 763,956 | ||||||
300,000 | Brixmor Operating Partnership, 3.85%, 2/1/25, Callable 11/1/24 @ 100 | 295,413 | ||||||
279,000 | Brixmor Operating Partnership, 4.13%, 6/15/26, Callable 3/15/26 @ 100 | 278,156 | ||||||
134,000 | Camden Property Trust, 2.95%, 12/15/22, Callable 9/15/22 @ 100 | 131,203 | ||||||
381,000 | Corporate Office Properties Trust, 3.70%, 6/15/21, Callable 4/15/21 @ 100 | 388,873 | ||||||
334,000 | Corporate Office Properties Trust, 5.00%, 7/1/25, Callable 4/1/25 @ 100 | 341,165 | ||||||
1,114,000 | DDR Corp., 4.63%, 7/15/22, Callable 4/15/22 @ 100 | 1,179,464 | ||||||
218,000 | DDR Corp., 3.63%, 2/1/25, Callable 11/1/24 @ 100 | 210,884 |
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Equity Real Estate Investment Trusts, continued | ||||||||
$ | 258,000 | DDR Corp., 4.25%, 2/1/26, Callable 11/1/25 @ 100 | $ | 259,441 | ||||
484,000 | Digital Realty Trust LP, 3.95%, 7/1/22, Callable 5/1/22 @ 100 | 497,352 | ||||||
491,000 | Digital Realty Trust LP, 4.75%, 10/1/25, Callable 7/1/25 @ 100 | 509,617 | ||||||
458,000 | Digital Realty Trust, Inc., 3.40%, 10/1/20, Callable 9/1/20 @ 100 | 465,884 | ||||||
700,000 | Duke Realty Corp., 4.38%, 6/15/22, Callable 3/15/22 @ 100 | 745,995 | ||||||
256,000 | Duke Realty Corp., 3.88%, 10/15/22, Callable 7/15/22 @ 100 | 266,272 | ||||||
273,000 | Duke Realty Corp., 3.63%, 4/15/23, Callable 1/15/23 @ 100 | 277,307 | ||||||
146,000 | Duke Realty LP, 3.75%, 12/1/24, Callable 9/1/24 @ 100^ | 147,906 | ||||||
100,000 | Duke Realty LP, 3.25%, 6/30/26, Callable 3/30/26 @ 100 | 96,709 | ||||||
747,000 | Equinix, Inc., 5.75%, 1/1/25, Callable 1/1/20 @ 102.88^ | 780,615 | ||||||
70,000 | Equity Commonwealth, 5.88%, 9/15/20, Callable 3/15/20 @ 100 | 74,805 | ||||||
500,000 | Equity One, Inc., 3.75%, 11/15/22, Callable 8/15/22 @ 100 | 510,671 | ||||||
1,000,000 | Government Properties Income Trust, 3.75%, 8/15/19, Callable 7/15/19 @ 100 | 1,010,986 | ||||||
747,000 | HCP, Inc., 3.15%, 8/1/22, Callable 5/1/22 @ 100^ | 737,585 | ||||||
800,000 | HCP, Inc., 3.88%, 8/15/24, Callable 5/17/24 @ 100 | 799,601 | ||||||
143,000 | Health Care REIT, Inc., 2.25%, 3/15/18^ | 143,611 | ||||||
500,000 | Health Care REIT, Inc., 4.13%, 4/1/19, Callable 1/1/19 @ 100 | 519,110 | ||||||
458,000 | Health Care REIT, Inc., 4.00%, 6/1/25, Callable 3/1/25 @ 100 | 468,072 | ||||||
135,000 | Lexington Realty Trust, 4.40%, 6/15/24, Callable 3/15/24 @ 100 | 132,280 | ||||||
1,493,000 | Liberty Property LP, 4.13%, 6/15/22, Callable 3/15/22 @ 100 | 1,555,015 | ||||||
184,000 | Liberty Property LP, 3.38%, 6/15/23, Callable 3/15/23 @ 100 | 182,956 | ||||||
260,000 | Liberty Property LP, 3.25%, 10/1/26, Callable 7/1/26 @ 100 | 248,975 | ||||||
250,000 | Mack-Cali Realty LP, 2.50%, 12/15/17, Callable 11/15/17 @ 100 | 250,773 | ||||||
500,000 | Mack-Cali Realty LP, 4.50%, 4/18/22, Callable 1/18/22 @ 100 | 503,132 | ||||||
401,000 | Mack-Cali Realty LP, 3.15%, 5/15/23, Callable 2/15/23 @ 100 | 362,540 | ||||||
113,000 | Mid-America Apartment Communities, Inc., 4.00%, 11/15/25, Callable 8/15/25 @ 100 | 114,532 | ||||||
1,573,000 | Mid-America Apartments LP, 4.30%, 10/15/23, Callable 7/15/23 @ 100^ | 1,640,835 | ||||||
820,000 | Omega Healthcare Investors, Inc., 4.38%, 8/1/23, Callable 6/1/23 @ 100 | 811,961 |
Continued
6
AZL Pyramis Total Bond Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued | |||||||
| Equity Real Estate Investment Trusts, continued | |||||||
$ | 126,000 | Omega Healthcare Investors, Inc., 4.95%, 4/1/24, Callable 1/1/24 @ 100 | $ | 127,673 | ||||
128,000 | Omega Healthcare Investors, Inc., 4.50%, 1/15/25, Callable 10/15/24 @ 100 | 125,437 | ||||||
785,000 | Omega Healthcare Investors, Inc., 5.25%, 1/15/26, Callable 10/15/25 @ 100 | 806,484 | ||||||
2,431,000 | Omega Healthcare Investors, Inc., 4.50%, 4/1/27, Callable 1/1/27 @ 100 | 2,332,971 | ||||||
70,000 | Post Apartment Homes LP, 3.38%, 12/1/22, Callable 9/1/22 @ 100 | 69,610 | ||||||
68,000 | Retail Opportunity Investments Corp., 5.00%, 12/15/23, Callable 9/15/23 @ 100 | 69,657 | ||||||
104,000 | Retail Opportunity Investments Corp., 4.00%, 12/15/24, Callable 9/15/24 @ 100 | 99,725 | ||||||
900,000 | Sabra Healthcare REIT, Inc., 5.50%, 2/1/21, Callable 2/6/17 @ 104.13 | 924,750 | ||||||
161,000 | Tanger Properties LP, 3.88%, 12/1/23, Callable 9/1/23 @ 100 | 163,279 | ||||||
411,000 | Tanger Properties LP, 3.75%, 12/1/24, Callable 9/1/24 @ 100 | 410,179 | ||||||
342,000 | Tanger Properties LP, 3.13%, 9/1/26, Callable 6/1/26 @ 100 | 321,255 | ||||||
111,000 | Ventas Realty LP/Capital Corp., 4.00%, 4/30/19, Callable 1/30/19 @ 100 | 115,071 | ||||||
750,000 | Ventas Realty LP/Capital Corp., 4.25%, 3/1/22, Callable 12/1/21 @ 100 | 792,884 | ||||||
118,000 | Ventas Realty LP/Capital Corp., 3.13%, 6/15/23, Callable 3/15/23 @ 100 | 115,836 | ||||||
240,000 | Ventas Realty LP/Capital Corp., 3.50%, 2/1/25, Callable 11/1/24 @ 100^ | 236,286 | ||||||
225,000 | Ventas Realty LP/Capital Corp., 4.13%, 1/15/26, Callable 10/15/25 @ 100^ | 230,019 | ||||||
118,000 | Ventas Realty LP/Capital Corp., 4.38%, 2/1/45, Callable 8/1/44 @ 100 | 110,786 | ||||||
67,000 | Weingarten Realty Investors, 3.38%, 10/15/22, Callable 7/15/22 @ 100 | 66,808 | ||||||
814,000 | WP Carey, Inc., 4.00%, 2/1/25, Callable 11/1/24 @ 100 | 785,411 | ||||||
|
| |||||||
28,699,911 | ||||||||
|
| |||||||
| Food & Staples Retailing (0.1%): | |||||||
364,000 | CVS Health Corp., 3.50%, 7/20/22, Callable 5/20/22 @ 100 | 374,008 | ||||||
405,000 | Walgreens Boots Alliance, Inc., 3.30%, 11/18/21, Callable 9/18/21 @ 100 | 412,602 | ||||||
|
| |||||||
786,610 | ||||||||
|
| |||||||
| Food Products (0.1%): | |||||||
550,000 | Post Holdings, Inc., 6.75%, 12/1/21, Callable 12/1/17 @ 103.38(b) | 587,125 | ||||||
|
| |||||||
| Health Care Providers & Services (0.9%): | |||||||
643,000 | Community Health System, Inc., 6.88%, 2/1/22, Callable 2/1/18 @ 103.44^ | 446,885 | ||||||
600,000 | DaVita Healthcare Partner, 5.13%, 7/15/24, Callable 7/15/19 @ 102.56 | 598,500 | ||||||
530,000 | HCA, Inc., 3.75%, 3/15/19 | 544,575 | ||||||
2,837,000 | HCA, Inc., 6.50%, 2/15/20 | 3,103,677 |
Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued | |||||||
| Health Care Providers & Services, continued | |||||||
$ | 37,000 | HCA, Inc., 5.88%, 3/15/22 | $ | 39,868 | ||||
30,000 | HCA, Inc., 4.75%, 5/1/23 | 30,713 | ||||||
637,000 | Tenet Healthcare Corp., 8.13%, 4/1/22 | 601,010 | ||||||
|
| |||||||
5,365,228 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (0.4%): | |||||||
747,000 | Landry’s, Inc., 6.75%, 10/15/24, Callable 10/15/19 @ 103.38(b) | 758,205 | ||||||
128,000 | McDonald’s Corp., 2.75%, 12/9/20, Callable 11/9/20 @ 100^ | 129,427 | ||||||
339,000 | McDonald’s Corp., 3.70%, 1/30/26, Callable 10/30/25 @ 100 | 345,135 | ||||||
175,000 | McDonald’s Corp., 4.70%, 12/9/35, Callable 6/9/35 @ 100 | 185,135 | ||||||
444,000 | Scientific Games Interna, 6.63%, 5/15/21, Callable 5/15/17 @ 104.97 | 375,180 | ||||||
900,000 | Scientific Games International, Inc., Registered Shares, 6.63%, 5/15/21, Callable 5/15/17 @ 104.97 | 760,500 | ||||||
|
| |||||||
2,553,582 | ||||||||
|
| |||||||
| Independent Power & Renewable Electricity Producers (0.4%): |
| ||||||
1,000,000 | Dynegy, Inc., 7.38%, 11/1/22, Callable 11/1/18 @ 103.69^ | 954,999 | ||||||
763,000 | IPALCO Enterprises, Inc., 3.45%, 7/15/20, Callable 6/15/20 @ 100 | 776,353 | ||||||
391,000 | NRG Energy, Inc., 6.25%, 5/1/24, Callable 5/1/19 @ 103.13^ | 380,248 | ||||||
|
| |||||||
2,111,600 | ||||||||
|
| |||||||
| Insurance (2.0%): | |||||||
326,000 | American International Group, Inc., 3.30%, 3/1/21, Callable 2/1/21 @ 100^ | 333,916 | ||||||
1,208,000 | American International Group, Inc., 3.75%, 7/10/25, Callable 4/10/25 @ 100 | 1,215,796 | ||||||
600,000 | Aon plc, 5.00%, 9/30/20 | 646,349 | ||||||
1,643,000 | Five Corners Funding Trust, 4.42%, 11/15/23(b) | 1,737,010 | ||||||
700,000 | Liberty Mutual Group, Inc., 5.00%, 6/1/21(b) | 761,579 | ||||||
180,000 | Liberty Mutual Group, Inc., 4.25%, 6/15/23(b) | 188,456 | ||||||
1,460,000 | Marsh & McLennan Cos., Inc., 4.80%, 7/15/21, Callable 4/15/21 @ 100 | 1,587,000 | ||||||
1,136,000 | Pacific Life Corp., 6.00%, 2/10/20(b) | 1,227,441 | ||||||
500,000 | Pacific Life Corp., 9.25%, 6/15/39(b) | 738,562 | ||||||
651,000 | Pacific Life Corp., 5.13%, 1/30/43(b) | 665,407 | ||||||
497,000 | Teachers Insurance & Annuity Association of America, 4.90%, 9/15/44(b) | 537,633 | ||||||
463,000 | Unum Group, 3.88%, 11/5/25 | 452,511 | ||||||
1,556,000 | Unum Group, 5.75%, 8/15/42 | 1,675,216 | ||||||
|
| |||||||
11,766,876 | ||||||||
|
| |||||||
| Internet Software & Services (0.1%): | |||||||
550,000 | Genesys/Greeneden Lux/US, 10.00%, 11/30/24, Callable 11/30/19 @ 107.5(b) | 584,375 | ||||||
|
| |||||||
| IT Services (0.1%): | |||||||
747,000 | First Data Corp., 5.38%, 8/15/23, Callable 8/15/18 @ 102.69(b) | 775,013 | ||||||
|
| |||||||
| Life Sciences Tools & Services (0.0%): | |||||||
99,000 | Thermo Fisher Scientific, Inc., 2.40%, 2/1/19 | 99,753 | ||||||
|
|
Continued
7
AZL Pyramis Total Bond Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Machinery (0.0%): | ||||||||
$ | 51,000 | Ingersoll-Rand Global Holding Co., Ltd., 2.88%, 1/15/19 | $ | 51,913 | ||||
|
| |||||||
Media (2.3%): | ||||||||
481,000 | 21st Century Fox, Inc., 6.15%, 2/15/41 | 568,911 | ||||||
590,000 | 21st Century Fox, Inc., 7.75%, 12/1/45 | 818,176 | ||||||
747,000 | Altice US Finance I Corp., 5.38%, 7/15/23, Callable 7/15/18 @ 104.03(b) | 775,013 | ||||||
747,000 | AMC Networks, Inc., 5.00%, 4/1/24, Callable 4/1/20 @ 102.5 | 750,735 | ||||||
747,000 | CCO Holdings LLC/Capital Corp., 5.88%, 4/1/24, Callable 4/1/19 @ 104.41^(b) | 797,423 | ||||||
1,150,000 | MHGE Parent LLC/Finance, 8.50%, 8/1/19, Callable 2/6/17 @ 101(b) | 1,155,750 | ||||||
500,000 | Neptune Finco Corp., 6.63%, 10/15/25, Callable 10/15/20 @ 103.31(b) | 546,250 | ||||||
747,000 | Sirius XM Radio, Inc., 5.38%, 4/15/25, Callable 4/15/20 @ 102.69(b) | 743,265 | ||||||
1,069,000 | Time Warner Cable, Inc., 8.25%, 4/1/19 | 1,201,235 | ||||||
1,493,000 | Time Warner Cable, Inc., 4.13%, 2/15/21, Callable 11/15/20 @ 100 | 1,543,526 | ||||||
930,000 | Time Warner Cable, Inc., 4.00%, 9/1/21, Callable 6/1/21 @ 100 | 955,048 | ||||||
231,000 | Time Warner Cable, Inc., 6.55%, 5/1/37 | 261,504 | ||||||
418,000 | Time Warner Cable, Inc., 7.30%, 7/1/38 | 514,199 | ||||||
2,240,000 | Time Warner Cable, Inc., 6.75%, 6/15/39 | 2,604,181 | ||||||
103,000 | Time Warner Cable, Inc., 5.50%, 9/1/41, Callable 3/1/41 @ 100 | 104,711 | ||||||
69,000 | Viacom, Inc., 2.50%, 9/1/18 | 69,207 | ||||||
|
| |||||||
13,409,134 | ||||||||
|
| |||||||
Metals & Mining (0.0%): | ||||||||
164,000 | Freeport-McMoRan, Inc., 2.30%, 11/14/17^ | 162,770 | ||||||
|
| |||||||
Multi-Utilities (0.3%): | ||||||||
1,371,000 | Dominion Resources, Inc., Series 06-B, 3.30%, 9/30/66, Callable 1/27/17 @ 100(a) | 1,055,670 | ||||||
49,000 | Puget Energy, Inc., 6.00%, 9/1/21 | 54,877 | ||||||
506,000 | Sempra Energy, 6.00%, 10/15/39 | 602,923 | ||||||
|
| |||||||
1,713,470 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (3.9%): | ||||||||
1,195,000 | Access Midstream Partner, 4.88%, 3/15/24, Callable 3/15/19 @ 102.44 | 1,206,691 | ||||||
543,000 | Anadarko Finance Co., Series B, 7.50%, 5/1/31 | 691,047 | ||||||
222,000 | Anadarko Petroleum Corp., 4.85%, 3/15/21, Callable 2/15/21 @ 100^ | 238,037 | ||||||
460,000 | Anadarko Petroleum Corp., 5.55%, 3/15/26, Callable 12/15/25 @ 100^ | 514,860 | ||||||
122,000 | Anadarko Petroleum Corp., 6.45%, 9/15/36 | 145,200 | ||||||
612,000 | Anadarko Petroleum Corp., 6.60%, 3/15/46, Callable 9/15/45 @ 100^ | 754,816 | ||||||
600,000 | Antero Resources Corp., 5.13%, 12/1/22, Callable 6/1/17 @ 103.84^ | 606,000 | ||||||
131,000 | Columbia Pipeline Group, 2.45%, 6/1/18 | 131,640 | ||||||
197,000 | Columbia Pipeline Group, 4.50%, 6/1/25, Callable 3/1/25 @ 100 | 206,962 | ||||||
434,000 | Columbia Pipeline Group, Inc., 3.30%, 6/1/20, Callable 5/1/20 @ 100 | 442,112 |
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Oil, Gas & Consumable Fuel, continued | ||||||||
$ | 747,000 | Crestwood Midstream Partners, 6.13%, 3/1/22, Callable 1/23/17 @ 104.59 | $ | 765,675 | ||||
248,000 | DCP Midstream Operating LLC, 2.50%, 12/1/17, Callable 11/1/17 @ 100 | 246,760 | ||||||
302,000 | DCP Midstream Operating LLC, 2.70%, 4/1/19, Callable 3/1/19 @ 100^ | 298,225 | ||||||
500,000 | DCP Midstream Operating LLC, 5.35%, 3/15/20(b) | 518,750 | ||||||
1,941,000 | DCP Midstream Operating LLC, 4.75%, 9/30/21^(b) | 1,965,262 | ||||||
163,000 | DCP Midstream Operating LLC, 3.88%, 3/15/23, Callable 12/15/22 @ 100^ | 156,786 | ||||||
185,000 | DCP Midstream Operating LLC, 5.60%, 4/1/44, Callable 10/1/43 @ 100 | 168,813 | ||||||
1,000,000 | El Paso Pipeline Partners LP, 5.00%, 10/1/21, Callable 7/1/21 @ 100 | 1,064,747 | ||||||
175,000 | Enable Midstream Partners LP, 2.40%, 5/15/19, Callable 4/15/19 @ 100 | 171,815 | ||||||
124,000 | Enable Midstream Partners LP, 3.90%, 5/15/24, Callable 2/15/24 @ 100^ | 117,620 | ||||||
292,000 | Enbridge Energy Partners LP, 4.38%, 10/15/20, Callable 9/15/20 @ 100 | 304,840 | ||||||
600,000 | Endeavor Energy Resource, 7.00%, 8/15/21, Callable 2/6/17 @ 105.25^(b) | 624,000 | ||||||
49,000 | Kinder Morgan (Delaware), Inc., 3.05%, 12/1/19, Callable 11/1/19 @ 100 | 49,703 | ||||||
167,000 | Kinder Morgan (Delaware), Inc., 5.05%, 2/15/46, Callable 8/15/45 @ 100^ | 165,314 | ||||||
63,000 | Kinder Morgan Energy Partners LP, 6.55%, 9/15/40 | 69,277 | ||||||
1,462,000 | Kinder Morgan Energy Partners LP, 5.50%, 3/1/44, Callable 9/1/43 @ 100 | 1,490,527 | ||||||
896,000 | Marathon Petroleum Corp., 5.13%, 3/1/21 | 978,133 | ||||||
1,163,000 | Midstates Petroleum Co., Inc., 10.75%, 10/1/20**,(c) | — | ||||||
105,000 | MPLX LP, 4.00%, 2/15/25, Callable 11/15/24 @ 100 | 102,061 | ||||||
57,000 | Phillips 66 Partners LP, 2.65%, 2/15/20, Callable 1/15/20 @ 100 | 56,825 | ||||||
747,000 | Sabine Pass Liquefaction, 5.75%, 5/15/24, Callable 2/15/24 @ 100 | 801,158 | ||||||
346,000 | Southeast Supply Header LLC, 4.25%, 6/15/24, Callable 3/15/24 @ 100(b) | 326,244 | ||||||
1,127,000 | Southwestern Energy Co., 5.80%, 1/23/20, Callable 12/23/19 @ 100^ | 1,160,810 | ||||||
348,000 | Southwestern Energy Co., 6.70%, 1/23/25, Callable 10/23/24 @ 100^(a) | 355,830 | ||||||
747,000 | Sunoco LP/Finance Corp., 6.25%, 4/15/21, Callable 4/15/18 @ 103.13 | 761,006 | ||||||
824,000 | Western Gas Partners LP, 5.38%, 6/1/21, Callable 3/1/21 @ 100 | 886,258 | ||||||
154,000 | Western Gas Partners LP, 4.65%, 7/1/26, Callable 4/1/26 @ 100^ | 159,452 | ||||||
446,000 | Williams Cos., Inc., 3.70%, 1/15/23, Callable 10/15/22 @ 100 | 430,390 |
Continued
8
AZL Pyramis Total Bond Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued | |||||||
| Oil, Gas & Consumable Fuel, continued | |||||||
$ | 2,337,000 | Williams Cos., Inc., 4.55%, 6/24/24, Callable 3/24/24 @ 100^ | $ | 2,319,472 | ||||
521,000 | Williams Cos., Inc., 5.75%, 6/24/44, Callable 12/24/43 @ 100^ | 505,370 | ||||||
222,000 | Williams Partners LP, 4.00%, 11/15/21, Callable 8/15/21 @ 100 | 227,847 | ||||||
357,000 | Williams Partners LP, 3.60%, 3/15/22, Callable 1/15/22 @ 100 | 358,889 | ||||||
242,000 | Williams Partners LP, 4.50%, 11/15/23, Callable 8/15/23 @ 100 | 248,588 | ||||||
426,000 | Williams Partners LP, 4.30%, 3/4/24, Callable 12/4/23 @ 100 | 430,179 | ||||||
|
| |||||||
23,223,991 | ||||||||
|
| |||||||
| Pharmaceuticals (0.1%): | |||||||
747,000 | ENDO Finance/ENDO, Ltd./E Finc, 6.00%, 7/15/23, Callable 7/15/18 @ 104.5(b) | 654,559 | ||||||
85,000 | Zoetis, Inc., 1.88%, 2/1/18 | 85,000 | ||||||
|
| |||||||
739,559 | ||||||||
|
| |||||||
| Professional Services (0.1%): | |||||||
500,000 | Ceridian Hcm Holding, Inc., 11.00%, 3/15/21, Callable 2/6/17 @ 108.25(b) | 513,750 | ||||||
|
| |||||||
| Real Estate Management & Development (0.4%): | |||||||
2,426,000 | CBRE Services, Inc., 5.00%, 3/15/23, Callable 3/15/18 @ 102.5 | 2,502,637 | ||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (0.1%): | |||||||
650,000 | Qorvo, Inc., 7.00%, 12/1/25, Callable 12/1/20 @ 103.5 | 719,875 | ||||||
|
| |||||||
| Software (0.5%): | |||||||
1,800,000 | Inception Mrgr/Rackspace, 8.63%, 11/15/24, Callable 11/15/19 @ 106.47^(b) | 1,905,210 | ||||||
500,000 | Solera LLC/Solera Financial, 10.50%, 3/1/24, Callable 3/1/19 @ 107.88^(b) | 562,500 | ||||||
500,000 | Sophia LP/Finance, Inc., 9.00%, 9/30/23, Callable 9/30/18 @ 104.5(b) | 531,250 | ||||||
|
| |||||||
2,998,960 | ||||||||
|
| |||||||
| Specialty Retail (0.1%): | |||||||
600,000 | L Brands, Inc., 6.75%, 7/1/36 | 607,500 | ||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (0.0%): | |||||||
218,000 | HP Enterprise Co., 6.35%, 10/15/45, Callable 4/15/45 @ 100 | 220,202 | ||||||
|
| |||||||
| Tobacco (0.8%): | |||||||
317,000 | Altria Group, Inc., 4.00%, 1/31/24 | 334,948 | ||||||
140,000 | Reynolds American, Inc., 3.25%, 6/12/20 | 143,453 | ||||||
478,000 | Reynolds American, Inc., 4.00%, 6/12/22 | 499,951 | ||||||
346,000 | Reynolds American, Inc., 4.45%, 6/12/25, Callable 3/12/25 @ 100 | 365,311 | ||||||
179,000 | Reynolds American, Inc., 5.70%, 8/15/35, Callable 2/15/35 @ 100 | 205,606 | ||||||
600,000 | Reynolds American, Inc., 7.25%, 6/15/37 | 786,133 | ||||||
1,378,000 | Reynolds American, Inc., 5.85%, 8/15/45, Callable 2/15/45 @ 100 | 1,631,726 | ||||||
600,000 | Vector Group, Ltd., 7.75%, 2/15/21, Callable 2/6/17 @ 105.81 | 625,500 | ||||||
|
| |||||||
4,592,628 | ||||||||
|
|
Principal Amount | Fair Value | |||||||
| Corporate Bonds, continued | |||||||
| Trading Companies & Distributors (0.8%): | |||||||
$ | 299,000 | Air Lease Corp., 2.13%, 1/15/18 | $ | 299,532 | ||||
442,000 | Air Lease Corp., 2.63%, 9/4/18, Callable 8/4/18 @ 100^ | 445,082 | ||||||
499,000 | Air Lease Corp., 4.75%, 3/1/20 | 529,182 | ||||||
379,000 | Air Lease Corp., 3.88%, 4/1/21, Callable 3/1/21 @ 100^ | 389,388 | ||||||
348,000 | Air Lease Corp., 3.38%, 6/1/21, Callable 5/1/21 @ 100 | 352,822 | ||||||
703,000 | Air Lease Corp., 3.75%, 2/1/22, Callable 12/1/21 @ 100 | 724,123 | ||||||
1,987,000 | Air Lease Corp., 4.25%, 9/15/24, Callable 6/15/24 @ 100 | 2,018,203 | ||||||
|
| |||||||
4,758,332 | ||||||||
|
| |||||||
| Wireless Telecommunication Services (0.3%): | |||||||
1,500,000 | T-Mobile USA, Inc., 6.63%, 4/1/23, Callable 4/1/18 @ 103.31 | 1,590,000 | ||||||
|
| |||||||
| Total Corporate Bonds (Cost $182,965,878) | 184,594,895 | ||||||
|
| |||||||
| Yankee Dollars (15.7%): | |||||||
| Airlines (0.3%): | |||||||
1,643,000 | Air Canada, 7.75%, 4/15/21^(b) | 1,836,053 | ||||||
|
| |||||||
1,836,053 | ||||||||
|
| |||||||
| Banks (2.6%): | |||||||
642,000 | Barclays plc, 3.25%, 1/12/21^ | 642,625 | ||||||
874,000 | Barclays plc, 4.38%, 1/12/26 | 885,206 | ||||||
205,000 | HSBC Holdings plc, 4.25%, 3/14/24 | 208,306 | ||||||
980,000 | Intesa Sanpaolo SpA, 5.71%, 1/15/26^(b) | 935,193 | ||||||
791,000 | Rabobank Nederland, 4.38%, 8/4/25 | 811,667 | ||||||
200,000 | RBS Citizens Financial Group, Inc., 4.15%, 9/28/22(b) | 202,434 | ||||||
490,000 | Royal Bank of Canada, 4.65%, 1/27/26^ | 522,009 | ||||||
3,808,000 | Royal Bank of Scotland Group plc, 6.13%, 12/15/22 | 4,049,171 | ||||||
675,000 | Royal Bank of Scotland Group plc, 6.10%, 6/10/23 | 706,529 | ||||||
2,477,000 | Royal Bank of Scotland Group plc, 6.00%, 12/19/23 | 2,572,870 | ||||||
3,303,000 | Royal Bank of Scotland Group plc, 5.13%, 5/28/24^ | 3,293,359 | ||||||
|
| |||||||
14,829,369 | ||||||||
|
| |||||||
| Capital Markets (1.3%): | |||||||
1,175,000 | Credit Suisse GP Fun, Ltd., 3.80%, 6/9/23 | 1,173,706 | ||||||
720,000 | Credit Suisse Group AG, 2.75%, 3/26/20 | 713,750 | ||||||
1,000,000 | Credit Suisse Group AG, 3.80%, 9/15/22 | 1,008,868 | ||||||
720,000 | Credit Suisse Group AG, 3.75%, 3/26/25 | 709,057 | ||||||
63,000 | Credit Suisse, NY, 6.00%, 2/15/18 | 65,527 | ||||||
1,284,000 | Deutsche Bank AG, Series G, 2.85%, 5/10/19 | 1,278,548 | ||||||
1,462,000 | Deutsche Bank AG, 4.50%, 4/1/25^ | 1,400,046 | ||||||
469,000 | Thomson Reuters Corp., 3.85%, 9/29/24, Callable 6/29/24 @ 100 | 478,518 | ||||||
733,000 | UBS Group AG, 4.13%, 9/24/25(b) | 747,123 | ||||||
|
| |||||||
7,575,143 | ||||||||
|
|
Continued
9
AZL Pyramis Total Bond Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
| Yankee Dollars, continued | |||||||
| Commercial Services & Supplies (0.2%): | |||||||
$ | 1,493,000 | GardaWorld Security Corp., 7.25%, 11/15/21, Callable 2/6/17 @ 105.44(b) | $ | 1,388,490 | ||||
|
| |||||||
| Diversified Financial Services (1.0%): | |||||||
1,126,000 | Banco Nacional de Desenvolvimento Economico, 6.37%, 6/16/18^(b) | 1,176,422 | ||||||
2,718,000 | Banco Nacional de Desenvolvimento Economico, 4.00%, 4/14/19^(b) | 2,730,150 | ||||||
326,000 | Banco Nacional de Desenvolvimento Economico, 6.50%, 6/10/19(b) | 346,277 | ||||||
1,442,000 | Banco Nacional de Desenvolvimento Economico, 5.50%, 7/12/20(b) | 1,493,667 | ||||||
334,000 | Banco Nacional de Desenvolvimento Economico, 5.75%, 9/26/23^(b) | 334,912 | ||||||
|
| |||||||
6,081,428 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (0.3%): | |||||||
700,000 | Columbus International, Inc., 7.38%, 3/30/21, Callable 3/30/18 @ 103.69(b) | 744,898 | ||||||
1,100,000 | Telecome Italia SpA, 5.30%, 5/30/24(b) | 1,075,250 | ||||||
300,000 | Telesat Canada/Telesat L, 8.88%, 11/15/24, Callable 11/15/19 @ 106.66(b) | 312,750 | ||||||
|
| |||||||
2,132,898 | ||||||||
|
| |||||||
| Food Products (0.4%): | |||||||
500,000 | Fage International / Fage USA, 5.63%, 8/15/26, Callable 8/15/21 @ 102.81(b) | 501,250 | ||||||
1,910,000 | JBS Investments GMBH, 7.75%, 10/28/20, Callable 10/28/17 @ 103.88(b) | 2,027,083 | ||||||
|
| |||||||
2,528,333 | ||||||||
|
| |||||||
| Insurance (0.0%): | |||||||
200,000 | AIA Group, Ltd., 2.25%, 3/11/19(b) | 200,633 | ||||||
|
| |||||||
| Life Sciences Tools & Services (0.1%): | |||||||
500,000 | DPX Holdings BV, 7.50%, 2/1/22, Callable 2/6/17 @ 105.63(b) | 528,750 | ||||||
|
| |||||||
| Machinery (0.0%): | |||||||
107,000 | Ingersoll-Rand Lux Financial Holding, 2.63%, 5/1/20, Callable 4/1/20 @ 100 | 107,237 | ||||||
|
| |||||||
| Media (0.6%): | |||||||
1,493,000 | Altice SA, 9.88%, 12/15/20, Callable 2/6/17 @ 104.94^(b) | 1,575,115 | ||||||
2,226,000 | Altice SA, 7.75%, 5/15/22, Callable 5/15/17 @ 105.81^(b) | 2,376,256 | ||||||
200,000 | MDC Partners, Inc., 6.50%, 5/1/24, Callable 5/1/19 @ 104.88^(b) | 180,000 | ||||||
|
| |||||||
4,131,371 | ||||||||
|
| |||||||
| Metals & Mining (0.6%): | |||||||
400,000 | BHP Billiton, Ltd., 6.25%, 10/19/75, Callable 10/19/20 @ 100(a)(b) | 433,080 | ||||||
681,000 | BHP Billiton, Ltd., 6.75%, 10/19/75, Callable 10/20/25 @ 100^(a)(b) | 764,423 | ||||||
200,000 | Codelco, Inc., 4.88%, 11/4/44^(b) | 196,267 | ||||||
2,240,000 | Codelco, Inc., Registered Shares, 4.88%, 11/4/44(b) | 2,198,185 | ||||||
|
| |||||||
3,591,955 | ||||||||
|
|
Principal Amount | Fair Value | |||||||
| Yankee Dollars, continued | |||||||
| Oil, Gas & Consumable Fuels (4.5%): | |||||||
$ | 164,000 | Canadian Natural Resources, Ltd., 1.75%, 1/15/18 | $ | 163,604 | ||||
1,009,000 | Canadian Natural Resources, Ltd., 3.90%, 2/1/25, Callable 11/1/24 @ 100 | 1,011,983 | ||||||
309,000 | Canadian Natural Resources, Ltd., 5.85%, 2/1/35 | 328,877 | ||||||
730,000 | Cenovus Energy, Inc., 5.70%, 10/15/19 | 780,910 | ||||||
330,000 | Empresa Nacional del Petroleo, 4.38%, 10/30/24(b) | 329,644 | ||||||
218,000 | Enbridge, Inc., 4.25%, 12/1/26, Callable 9/1/26 @ 100^ | 223,208 | ||||||
252,000 | Enbridge, Inc., 5.50%, 12/1/46, Callable 5/29/46 @ 100 | 269,645 | ||||||
1,344,000 | Navios Maritime Holdings/Finance, 7.38%, 1/15/22, Callable 2/6/17 @ 105.53(b) | 806,400 | ||||||
349,000 | Petrobras Global Finance BV, 4.38%, 5/20/23 | 304,921 | ||||||
1,229,000 | Petrobras Global Finance BV, 5.63%, 5/20/43 | 908,477 | ||||||
2,677,000 | Petrobras Global Finance BV, 7.25%, 3/17/44^ | 2,362,989 | ||||||
1,623,000 | Petrobras International Finance Co., 5.75%, 1/20/20 | 1,643,288 | ||||||
4,840,000 | Petrobras International Finance Co., 5.38%, 1/27/21^ | 4,733,520 | ||||||
672,000 | Petroleos Mexicanos, 3.50%, 7/18/18 | 678,048 | ||||||
354,000 | Petroleos Mexicanos, 8.00%, 5/3/19 | 388,515 | ||||||
225,000 | Petroleos Mexicanos, 6.00%, 3/5/20 | 237,319 | ||||||
769,000 | Petroleos Mexicanos, 3.50%, 7/23/20 | 752,659 | ||||||
426,000 | Petroleos Mexicanos, 3.50%, 1/30/23 | 391,068 | ||||||
971,000 | Petroleos Mexicanos, 4.63%, 9/21/23(b) | 944,589 | ||||||
1,746,000 | Petroleos Mexicanos, 4.88%, 1/18/24^ | 1,692,939 | ||||||
1,036,000 | Petroleos Mexicanos, 4.50%, 1/23/26^ | 943,796 | ||||||
1,220,000 | Petroleos Mexicanos, 6.50%, 3/13/27(d) | 1,258,430 | ||||||
1,039,000 | Petroleos Mexicanos, 6.50%, 6/2/41 | 973,075 | ||||||
841,000 | Petroleos Mexicanos, 5.50%, 6/27/44 | 699,880 | ||||||
1,005,000 | Petroleos Mexicanos, 5.63%, 1/23/46 | 834,150 | ||||||
1,677,000 | Petroleos Mexicanos, 6.75%, 9/21/47(b) | 1,584,430 | ||||||
747,000 | Teine Energy, Ltd., 6.88%, 9/30/22, Callable 9/30/17 @ 105.16(b) | 762,874 | ||||||
|
| |||||||
26,009,238 | ||||||||
|
| |||||||
| Pharmaceuticals (1.0%): | |||||||
865,000 | Actavis Funding SCS, 2.45%, 6/15/19 | 868,662 | ||||||
1,224,000 | Actavis Funding SCS, 3.45%, 3/15/22, Callable 1/15/22 @ 100 | 1,242,371 | ||||||
336,000 | Mylan NV, 2.50%, 6/7/19(b) | 334,182 | ||||||
685,000 | Mylan NV, 3.15%, 6/15/21, Callable 5/15/21 @ 100(b) | 672,249 | ||||||
337,000 | Mylan NV, 3.95%, 6/15/26, Callable 3/15/26 @ 100(b) | 315,381 | ||||||
200,000 | Perrigo Co. plc, 2.30%, 11/8/18 | 199,734 | ||||||
200,000 | Perrigo Finance plc, 3.50%, 12/15/21, Callable 10/15/21 @ 100 | 201,604 | ||||||
400,000 | Perrigo Finance plc, 3.90%, 12/15/24, Callable 9/15/24 @ 100 | 391,569 | ||||||
484,000 | Teva Pharmaceuticals, 2.20%, 7/21/21^ | 463,037 | ||||||
346,000 | Teva Pharmaceuticals, 2.80%, 7/21/23^ | 327,520 | ||||||
412,000 | Teva Pharmaceuticals Ne, 3.15%, 10/1/26^ | 379,834 |
Continued
10
AZL Pyramis Total Bond Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Pharmaceuticals, continued | ||||||||
$ | 807,000 | VRX Escrow Corp., 6.13%, 4/15/25, Callable 4/15/20 @ 103.06^(b) | $ | 606,259 | ||||
|
| |||||||
6,002,402 | ||||||||
|
| |||||||
Software (0.1%): | ||||||||
550,000 | Open Text Corp., 5.63%, 1/15/23, Callable 1/15/18 @ 104.22(b) | 574,750 | ||||||
|
| |||||||
Sovereign Bonds (1.7%): | ||||||||
1,344,000 | Dominican Republic, 5.50%, 1/27/25(b) | 1,295,965 | ||||||
6,720,000 | Republic of Argentina, 4/17/17(e) | 6,998,880 | ||||||
1,500,000 | Republic of Belarus, 8.95%, 1/26/18(b) | 1,546,800 | ||||||
|
| |||||||
9,841,645 | ||||||||
|
| |||||||
Tobacco (0.3%): | ||||||||
690,000 | Imperial Tobacco Group plc, 3.75%, 7/21/22, Callable 5/21/22 @ 100(b) | 708,334 | ||||||
690,000 | Imperial Tobacco Group plc, 4.25%, 7/21/25, Callable 4/21/25 @ 100(b) | 712,236 | ||||||
|
| |||||||
1,420,570 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.7%): | ||||||||
1,344,000 | Aercap Ireland Capital, Ltd./ and AerCap Global Aviation Trust, 5.00%, 10/1/21 | 1,412,880 | ||||||
2,165,000 | Aercap Ireland Capital, Ltd./ and AerCap Global Aviation Trust, 4.63%, 7/1/22 | 2,229,950 | ||||||
747,000 | FLY Leasing, Ltd., 6.38%, 10/15/21, Callable 10/15/17 @ 104.78 | 776,880 | ||||||
|
| |||||||
4,419,710 | ||||||||
|
| |||||||
Total Yankee Dollars (Cost $94,349,885) | 93,199,975 | |||||||
|
| |||||||
Municipal Bonds (2.4%): | ||||||||
California (0.5%): | ||||||||
10,000 | California State, Build America Bonds, GO, 7.35%, 11/1/39 | 14,198 | ||||||
15,000 | California State, Build America Bonds, GO, 7.63%, 3/1/40 | 22,193 | ||||||
460,000 | California State, Build America Bonds, GO, 7.30%, 10/1/39 | 651,029 | ||||||
400,000 | California State, Build America Bonds, GO, 7.50%, 4/1/34 | 565,400 | ||||||
1,125,000 | California State, Build America Bonds, GO, 7.55%, 4/1/39 | 1,664,606 | ||||||
|
| |||||||
2,917,426 | ||||||||
|
| |||||||
Illinois (1.9%): | ||||||||
220,000 | Illinois State, Build America Bonds, GO, 6.20%, 7/1/21 | 231,176 | ||||||
1,935,000 | Illinois State, Build America Bonds, GO, 7.35%, 7/1/35 | 2,094,018 | ||||||
425,000 | Illinois State, Build America Bonds, GO, Series 3, 6.73%, 4/1/35 | 433,211 | ||||||
10,000 | Illinois State, Build America Bonds, GO, Series 3, 5.55%, 4/1/19 | 10,323 | ||||||
1,340,000 | Illinois State, Build America Bonds, GO, 5.88%, 3/1/19 | 1,420,547 | ||||||
420,000 | Illinois State, Build America Bonds, GO, 4.00%, 12/1/20 | 414,246 |
Principal Amount | Fair Value | |||||||
Municipal Bonds, continued | ||||||||
Illinois, continued | ||||||||
$ | 15,000 | Illinois State, Build America Bonds, GO, 5.37%, 3/1/17 | $ | 15,089 | ||||
645,000 | Illinois State, Build America Bonds, GO, 5.67%, 3/1/18 | 667,407 | ||||||
105,000 | Chicago Illinois, Taxable Project, GO, Series B, 5.43%, 1/1/42 | 85,126 | ||||||
770,000 | Chicago Illinois, Taxable Project, GO, Series B, 6.31%, 1/1/44 | 686,347 | ||||||
80,000 | Chicago Illinois, GO, Series B, 5.63%, 1/1/22 | 79,952 | ||||||
395,000 | Chicago Illinois, Taxable Project, GO, Series C1, 7.78%, 1/1/35 | 412,684 | ||||||
4,440,000 | Illinois State, Build America Bonds, GO, 5.10%, 6/1/33 | 3,924,161 | ||||||
315,000 | Illinois State, Build America Bonds, GO, 6.63%, 2/1/35 | 321,889 | ||||||
176,000 | Illinois State, Build America Bonds, GO, 4.35%, 6/1/18 | 178,672 | ||||||
125,000 | Illinois State, Build America Bonds, GO, 4.95%, 6/1/23 | 128,523 | ||||||
|
| |||||||
11,103,371 | ||||||||
|
| |||||||
Total Municipal Bonds (Cost $14,580,835) | 14,020,797 | |||||||
|
| |||||||
U.S. Government Agency Mortgages (18.9%): | ||||||||
Federal Home Loan Mortgage Corporation (4.8%) | ||||||||
93,354 | 3.00%, 2/1/31, Pool #G15741 | 95,942 | ||||||
470,012 | 3.00%, 4/1/31, Pool #G15799 | 483,073 | ||||||
24,101 | 3.00%, 5/1/31, Pool #J34616 | 24,769 | ||||||
77,921 | 3.00%, 6/1/31, Pool #J34680 | 80,092 | ||||||
177,403 | 2.50%, 7/1/31, Pool #J34888 | 177,933 | ||||||
454,323 | 4.00%, 6/1/33, Pool #G30718 | 482,518 | ||||||
3,102,000 | 5.00%, 2/1/38, Pool #G60365 | 3,408,448 | ||||||
158,621 | 3.50%, 4/1/40, Pool #V81744 | 163,381 | ||||||
165,606 | 3.50%, 5/1/40, Pool #V81750 | 170,587 | ||||||
274,007 | 3.50%, 6/1/40, Pool #V81792 | 282,246 | ||||||
120,149 | 3.50%, 8/1/40, Pool #V81886 | 123,272 | ||||||
109,343 | 3.50%, 9/1/40, Pool #V81958 | 112,332 | ||||||
1,118,475 | 4.00%, 1/1/41, Pool #A96413 | 1,180,890 | ||||||
929,824 | 4.00%, 2/1/41, Pool #A96807 | 981,641 | ||||||
117,178 | 4.50%, 3/1/41, Pool #A97673 | 126,131 | ||||||
195,100 | 4.50%, 4/1/41, Pool #A97942 | 210,268 | ||||||
507,336 | 5.00%, 6/1/41, Pool #G06596 | 564,211 | ||||||
2,590,512 | 4.50%, 1/1/42, Pool #G60517 | 2,796,447 | ||||||
91,696 | 3.50%, 8/1/42, Pool #Q10047 | 94,450 | ||||||
85,942 | 3.50%, 8/1/42, Pool #Q10164 | 88,515 | ||||||
91,193 | 3.50%, 8/1/42, Pool #Q10434 | 93,904 | ||||||
69,264 | 3.50%, 8/1/42, Pool #Q10392 | 71,335 | ||||||
100,253 | 3.50%, 9/1/42, Pool #Q11244 | 103,224 | ||||||
62,329 | 3.50%, 11/1/42, Pool #G07231 | 64,192 | ||||||
78,021 | 4.00%, 11/1/42, Pool #Q13121 | 82,812 | ||||||
194,849 | 3.00%, 12/1/42, Pool #C04320 | 194,769 | ||||||
735,781 | 3.50%, 4/1/43, Pool #Q17209 | 757,540 | ||||||
835,313 | 3.50%, 4/1/43, Pool #G07921 | 860,760 | ||||||
152,374 | 4.00%, 5/1/43, Pool #Q18481 | 161,128 | ||||||
65,156 | 4.00%, 7/1/43, Pool #Q19597 | 68,488 | ||||||
826,238 | 3.00%, 10/1/43, Pool #G08553 | 824,195 | ||||||
84,380 | 4.00%, 10/1/43, Pool #Q22499 | 89,228 |
Continued
11
AZL Pyramis Total Bond Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
| U.S. Government Agency Mortgages, continued | |||||||
| Federal Home Loan Mortgage Corporation, continued | |||||||
$ | 165,027 | 4.00%, 1/1/44, Pool #V80950 | $ | 174,503 | ||||
542,384 | 4.00%, 1/1/45, Pool #Q30720 | 570,124 | ||||||
84,168 | 3.50%, 3/1/45, Pool #Q32328 | 86,471 | ||||||
174,573 | 3.50%, 3/1/45, Pool #Q32008 | 179,346 | ||||||
85,007 | 3.50%, 3/1/45, Pool #Q31974 | 87,302 | ||||||
468,229 | 3.50%, 5/1/45, Pool #Q33547 | 480,454 | ||||||
60,181 | 3.00%, 5/1/45, Pool #Q33468 | 59,848 | ||||||
511,626 | 3.50%, 6/1/45, Pool #Q34164 | 525,003 | ||||||
539,788 | 3.50%, 6/1/45, Pool #Q34311 | 554,384 | ||||||
80,138 | 3.50%, 6/1/45, Pool #Q33791 | 82,220 | ||||||
350,767 | 3.00%, 6/1/45, Pool #Q34156 | 348,831 | ||||||
33,699 | 3.00%, 7/1/45, Pool #Q34979 | 33,591 | ||||||
92,885 | 3.00%, 7/1/45, Pool #Q34759 | 92,415 | ||||||
174,066 | 4.00%, 8/1/45, Pool #Q35845 | 183,421 | ||||||
34,753 | 4.00%, 9/1/45, Pool #Q37853 | 36,609 | ||||||
33,916 | 4.00%, 11/1/45, Pool #Q38812 | 35,646 | ||||||
47,798 | 4.00%, 2/1/46, Pool #Q38783 | 50,241 | ||||||
24,662 | 4.00%, 2/1/46, Pool #Q38879 | 25,987 | ||||||
29,328 | 4.00%, 2/1/46, Pool #Q38782 | 30,900 | ||||||
625,400 | 3.50%, 5/1/46, Pool #G60553 | 642,826 | ||||||
197,739 | 3.50%, 5/1/46, Pool #G60603 | 203,136 | ||||||
999,999 | 3.00%, 10/1/46, Pool #Q43734 | 994,011 | ||||||
3,449,978 | 3.00%, 12/1/46, Pool #G08737 | 3,429,318 | ||||||
53,021 | 3.00%, 12/1/46, Pool #Q44977 | 52,703 | ||||||
4,046,879 | 3.00%, 12/1/46, Pool #G08741 | 4,022,646 | ||||||
|
| |||||||
28,000,657 | ||||||||
|
| |||||||
| Federal National Mortgage Association (11.2%) | |||||||
81,398 | 2.50%, 10/1/28, Pool #AU2669 | 81,673 | ||||||
602,171 | 3.50%, 9/1/29, Pool #AL5878 | 633,285 | ||||||
2,384,941 | 3.50%, 11/1/30, Pool #AL7688 | 2,498,698 | ||||||
32,937 | 3.00%, 12/1/30, Pool #BC3672 | 33,850 | ||||||
1,400,000 | 2.50%, 1/25/31, TBA | 1,402,215 | ||||||
31,000 | 3.00%, 4/1/31, Pool #BC7657 | 31,864 | ||||||
24,182 | 3.00%, 5/1/31, Pool #BA7510 | 24,859 | ||||||
156,939 | 2.50%, 6/1/31, Pool #BC8752 | 157,325 | ||||||
24,195 | 3.00%, 6/1/31, Pool #BD1758 | 24,873 | ||||||
99,993 | 3.00%, 6/1/31, Pool #BC1183 | 102,788 | ||||||
32,230 | 3.00%, 6/1/31, Pool #BD1541 | 33,132 | ||||||
311,415 | 2.50%, 7/1/31, Pool #AS7620 | 312,183 | ||||||
1,073,714 | 3.00%, 7/1/31, Pool #AS7629 | 1,103,394 | ||||||
294,247 | 3.00%, 7/1/31, Pool #BC1464 | 302,572 | ||||||
202,818 | 2.50%, 7/1/31, Pool #BC1473 | 203,379 | ||||||
39,831 | 3.00%, 7/1/31, Pool #BC8738 | 40,944 | ||||||
63,038 | 2.50%, 7/1/31, Pool #AS7526 | 63,212 | ||||||
192,546 | 2.50%, 7/1/31, Pool #BD3945 | 193,021 | ||||||
191,424 | 2.50%, 8/1/31, Pool #AS7642 | 191,896 | ||||||
500,000 | 2.50%, 1/1/32, Pool #MA2868 | 501,641 | ||||||
12,973 | 4.50%, 7/1/33, Pool #729327 | 14,054 | ||||||
6,905 | 4.50%, 7/1/33, Pool #720240 | 7,438 | ||||||
15,591 | 4.50%, 8/1/33, Pool #729713 | 16,909 | ||||||
13,528 | 4.50%, 8/1/33, Pool #727160 | 14,674 | ||||||
64,671 | 4.50%, 8/1/33, Pool #729380 | 70,144 | ||||||
11,028 | 4.50%, 8/1/33, Pool #727029 | 11,916 | ||||||
24,527 | 4.50%, 8/1/33, Pool #726956 | 26,605 | ||||||
8,292 | 4.50%, 8/1/33, Pool #723124 | 8,919 |
Principal Amount | Fair Value | |||||||
| U.S. Government Agency Mortgages, continued | |||||||
| Federal National Mortgage Association, continued | |||||||
$ | 21,453 | 4.50%, 8/1/33, Pool #726928 | $ | 23,273 | ||||
19,222 | 4.50%, 9/1/33, Pool #734922 | 20,849 | ||||||
49,077 | 4.50%, 9/1/33, Pool #727147 | 53,238 | ||||||
57,761 | 4.50%, 12/1/33, Pool #AL5321 | 62,338 | ||||||
216,163 | 3.50%, 1/1/34, Pool #AS1611 | 224,634 | ||||||
29,428 | 3.50%, 1/1/34, Pool #AS1614 | 30,573 | ||||||
151,129 | 3.50%, 1/1/34, Pool #AS1612 | 156,832 | ||||||
70,400 | 3.50%, 1/1/34, Pool #AS1406 | 73,152 | ||||||
53,096 | 6.00%, 10/1/34, Pool #AL2130 | 61,805 | ||||||
346,785 | 5.50%, 11/1/34, Pool #725946 | 388,914 | ||||||
168,601 | 5.50%, 1/1/35, Pool #735141 | 188,878 | ||||||
119,441 | 4.50%, 9/1/35, Pool #AB8198 | 129,535 | ||||||
86,944 | 5.50%, 9/1/36, Pool #AD0500 | 97,521 | ||||||
601,064 | 6.00%, 1/1/37, Pool #932030 | 681,108 | ||||||
118,865 | 6.00%, 3/1/37, Pool #889506 | 134,736 | ||||||
158,359 | 6.00%, 1/1/38, Pool #889371 | 184,911 | ||||||
55,193 | 6.00%, 3/1/38, Pool #889219 | 64,110 | ||||||
29,076 | 6.00%, 7/1/38, Pool #889733 | 33,426 | ||||||
177,752 | 4.50%, 3/1/39, Pool #AB0051 | 191,581 | ||||||
769,737 | 4.50%, 4/1/39, Pool #AB0043 | 835,364 | ||||||
293,889 | 5.00%, 6/1/39, Pool #AL7550 | 322,314 | ||||||
808,679 | 5.00%, 6/1/39, Pool #AL7521 | 887,104 | ||||||
209,860 | 6.00%, 5/1/40, Pool #AL2129 | 244,529 | ||||||
52,820 | 4.00%, 12/1/40, Pool #AE7856 | 55,752 | ||||||
110,871 | 4.00%, 12/1/40, Pool #AA4757 | 116,609 | ||||||
159,805 | 4.00%, 9/1/41, Pool #AJ0784 | 168,759 | ||||||
574,562 | 4.00%, 10/1/41, Pool #AL2512 | 606,350 | ||||||
18,788 | 6.00%, 1/1/42, Pool #AL2128 | 21,854 | ||||||
366,734 | 3.00%, 9/1/42, Pool #AB6126 | 366,630 | ||||||
145,770 | 3.50%, 9/1/42, Pool #AP4100 | 150,295 | ||||||
285,225 | 3.00%, 10/1/42, Pool #AB6509 | 285,144 | ||||||
533,111 | 3.00%, 10/1/42, Pool #AB6504 | 532,959 | ||||||
530,804 | 3.00%, 11/1/42, Pool #AB6976 | 530,652 | ||||||
34,023 | 3.50%, 12/1/42, Pool #AQ9054 | 35,085 | ||||||
196,542 | 3.00%, 12/1/42, Pool #AB7282 | 196,486 | ||||||
179,423 | 3.50%, 1/1/43, Pool #AQ9328 | 185,025 | ||||||
1,021,398 | 3.00%, 1/1/43, Pool #AL3181 | 1,021,106 | ||||||
825,923 | 3.00%, 1/1/43, Pool #AB7586 | 825,688 | ||||||
35,946 | 3.50%, 2/1/43, Pool #AR1797 | 37,054 | ||||||
321,779 | 3.00%, 2/1/43, Pool #AB7846 | 321,687 | ||||||
402,289 | 2.50%, 2/1/43, Pool #AB8465 | 384,788 | ||||||
43,714 | 3.50%, 3/1/43, Pool #AR7567 | 45,056 | ||||||
42,070 | 3.50%, 3/1/43, Pool #AR6751 | 43,370 | ||||||
111,930 | 3.50%, 3/1/43, Pool #AL3409 | 115,400 | ||||||
222,685 | 3.50%, 8/1/43, Pool #AL7261 | 229,688 | ||||||
478,838 | 3.00%, 9/1/43, Pool #AL5059 | 478,702 | ||||||
272,997 | 3.50%, 3/1/44, Pool #AL7377 | 281,539 | ||||||
577,300 | 3.00%, 6/1/44, Pool #AL7195 | 577,135 | ||||||
637,512 | 5.00%, 11/1/44, Pool #AL7307 | 699,376 | ||||||
59,293 | 4.00%, 12/1/44, Pool #AW9502 | 62,359 | ||||||
32,817 | 4.00%, 12/1/44, Pool #AY0045 | 34,517 | ||||||
264,277 | 4.00%, 12/1/44, Pool #AX8459 | 279,199 | ||||||
490,695 | 4.00%, 3/1/45, Pool #AL6541 | 518,427 | ||||||
133,298 | 3.50%, 3/1/45, Pool #AY5352 | 137,045 | ||||||
174,805 | 3.50%, 5/1/45, Pool #AZ1192 | 179,615 | ||||||
131,557 | 3.50%, 5/1/45, Pool #AY9074 | 135,253 |
Continued
12
AZL Pyramis Total Bond Fund
Schedule of Portfolio Investments
December 31, 2016
Principal Amount | Fair Value | |||||||
| U.S. Government Agency Mortgages, continued | |||||||
| Federal National Mortgage Association, continued | |||||||
$ | 80,049 | 4.00%, 5/1/45, Pool #AZ1876 | $ | 84,452 | ||||
132,980 | 3.50%, 5/1/45, Pool #AZ0727 | 136,726 | ||||||
141,073 | 3.00%, 5/1/45, Pool #AS4972 | 140,331 | ||||||
176,447 | 3.50%, 5/1/45, Pool #AY9324 | 181,400 | ||||||
218,892 | 3.50%, 5/1/45, Pool #AY9287 | 225,038 | ||||||
93,827 | 4.00%, 6/1/45, Pool #AZ2719 | 98,983 | ||||||
86,320 | 4.00%, 6/1/45, Pool #AZ3341 | 91,061 | ||||||
349,032 | 5.00%, 6/1/45, Pool #AZ3448 | 380,322 | ||||||
1,559,201 | 3.50%, 6/1/45, Pool #AY5622 | 1,602,953 | ||||||
244,629 | 3.50%, 7/1/45, Pool #AZ3198 | 251,483 | ||||||
38,289 | 3.50%, 7/1/45, Pool #AS5312 | 39,363 | ||||||
793,319 | 3.50%, 7/1/45, Pool #AZ0814 | 814,677 | ||||||
801,447 | 4.00%, 7/1/45, Pool #AZ0833 | 845,438 | ||||||
402,893 | 4.00%, 7/1/45, Pool #AZ1783 | 423,815 | ||||||
53,336 | 3.00%, 8/1/45, Pool #AZ3728 | 53,055 | ||||||
310,223 | 3.00%, 8/1/45, Pool #AS5634 | 308,590 | ||||||
269,520 | 3.50%, 8/1/45, Pool #AY8424 | 276,777 | ||||||
137,677 | 3.00%, 8/1/45, Pool #AZ8288 | 136,953 | ||||||
524,049 | 4.00%, 10/1/45, Pool #AL7413 | 553,697 | ||||||
1,121,944 | 4.00%, 10/1/45, Pool #AL7593 | 1,185,436 | ||||||
116,964 | 4.00%, 11/1/45, Pool #AZ0560 | 123,059 | ||||||
147,940 | 3.50%, 12/1/45, Pool #AL7890 | 152,073 | ||||||
46,213 | 4.00%, 12/1/45, Pool #BC0997 | 48,623 | ||||||
162,111 | 4.00%, 12/1/45, Pool #BA6404 | 170,542 | ||||||
82,215 | 4.00%, 12/1/45, Pool #AS6350 | 86,898 | ||||||
4,100,000 | 4.00%, 1/25/46, TBA | 4,310,365 | ||||||
800,000 | 4.50%, 1/25/46, TBA | 860,469 | ||||||
15,470,356 | 3.50%, 3/1/46, Pool #BC0300 | 15,867,514 | ||||||
98,938 | 4.00%, 4/1/46, Pool #BC7809 | 104,114 | ||||||
66,205 | 4.00%, 4/1/46, Pool #BC3920 | 69,669 | ||||||
24,806 | 4.00%, 5/1/46, Pool #BC2276 | 26,103 | ||||||
1,271,481 | 3.50%, 6/1/46, Pool #BC1145 | 1,305,833 | ||||||
171,260 | 3.50%, 8/1/46, Pool #AL8970 | 176,107 | ||||||
311,913 | 3.50%, 8/1/46, Pool #AL8990 | 320,533 | ||||||
300,112 | 4.00%, 8/1/46, Pool #AL8881 | 316,874 | ||||||
1,681,573 | 3.00%, 9/1/46, Pool #BC2817 | 1,672,348 | ||||||
195,516 | 3.50%, 11/1/46, Pool #BC9014 | 201,065 | ||||||
10,800,040 | 3.00%, 12/1/49, Pool #MA2863 | 10,749,837 | ||||||
443,311 | 5.00%, 2/1/38, Pool #310165 | 485,979 | ||||||
|
| |||||||
67,735,347 | ||||||||
|
| |||||||
| Government National Mortgage Association (2.9%) | |||||||
18,799 | 5.00%, 6/15/34, Pool #629493 | 20,788 | ||||||
322,881 | 5.50%, 6/15/35, Pool #783800 | 360,172 | ||||||
14,958 | 5.00%, 3/15/38, Pool #676766 | 16,517 | ||||||
6,671 | 5.00%, 4/15/38, Pool #672672 | 7,293 | ||||||
36,337 | 5.00%, 8/15/38, Pool #687818 | 39,982 | ||||||
207,025 | 5.00%, 1/15/39, Pool #705997 | 226,331 | ||||||
345,180 | 5.00%, 3/15/39, Pool #646746 | 380,857 | ||||||
2,425 | 5.00%, 3/15/39, Pool #697946 | 2,669 | ||||||
423,405 | 4.00%, 10/15/40, Pool #783143 | 450,456 | ||||||
958,365 | 4.50%, 3/20/41, Pool #4978 | 1,032,909 | ||||||
688,456 | 4.00%, 5/20/41, Pool #5054 | 735,405 | ||||||
344,919 | 4.50%, 5/20/41, Pool #005055 | 371,749 | ||||||
355,545 | 4.50%, 6/15/41, Pool #366975 | 388,550 | ||||||
225,187 | 4.50%, 6/20/41, Pool #005082 | 242,577 |
Principal Amount | Fair Value | |||||||
| U.S. Government Agency Mortgages, continued | |||||||
| Government National Mortgage Association, continued | |||||||
$ | 779,717 | 4.00%, 10/20/41, Pool #5203 | $ | 830,842 | ||||
820,809 | 3.50%, 12/20/41, Pool #5258 | 856,425 | ||||||
465,256 | 3.00%, 12/20/42, Pool #MA0624 | 473,069 | ||||||
82,853 | 3.00%, 1/20/43, Pool #MA0698 | 84,245 | ||||||
1,021,740 | 3.50%, 2/20/43, Pool #MA0783 | 1,067,026 | ||||||
871,146 | 3.50%, 4/20/43, Pool #783976 | 909,756 | ||||||
666,671 | 4.00%, 7/20/45, Pool #MA2962 | 708,591 | ||||||
6,600,000 | 3.00%, 1/20/46, TBA | 6,682,629 | ||||||
49,174 | 3.50%, 5/20/46, Pool #AS4272 | 51,245 | ||||||
34,879 | 3.50%, 5/20/46, Pool #AR9166 | 36,363 | ||||||
45,729 | 3.50%, 5/20/46, Pool #AR9028 | 47,674 | ||||||
61,730 | 3.50%, 6/20/46, Pool #AS4285 | 64,331 | ||||||
39,391 | 3.50%, 6/20/46, Pool #AT4134 | 41,058 | ||||||
61,151 | 3.50%, 6/20/46, Pool #AT4133 | 63,882 | ||||||
179,359 | 3.50%, 6/20/46, Pool #AT4139 | 186,989 | ||||||
595,135 | Class JA, Series 2015-H21, 2.50%, 6/20/65 | 602,534 | ||||||
|
| |||||||
16,982,914 | ||||||||
|
| |||||||
| Total U.S. Government Agency Mortgages | 112,718,918 | ||||||
|
| |||||||
| U.S. Treasury Obligations (26.6%): | |||||||
| U.S Treasury Inflation Index (1.1%) | |||||||
4,972,000 | 0.13%, 7/15/26 | 4,848,604 | ||||||
1,717,000 | 1.00%, 2/15/46 | 1,759,069 | ||||||
|
| |||||||
6,607,673 | ||||||||
|
| |||||||
| U.S. Treasury Bonds (3.0%) | |||||||
6,620,000 | 2.25%, 8/15/46 | 5,566,228 | ||||||
13,132,000 | 2.88%, 11/15/46 | 12,678,539 | ||||||
|
| |||||||
18,244,767 | ||||||||
|
| |||||||
| U.S. Treasury Inflation Index Bonds (4.3%) | |||||||
3,342,000 | 0.25%, 1/15/25 | 3,354,443 | ||||||
7,466,000 | 0.63%, 1/15/26 | 7,662,081 | ||||||
4,362,000 | 1.38%, 2/15/44 | 4,937,382 | ||||||
9,627,000 | 0.75%, 2/15/45 | 9,298,759 | ||||||
|
| |||||||
25,252,665 | ||||||||
|
| |||||||
| U.S. Treasury Notes (18.2%) | |||||||
11,200,000 | 0.75%, 10/31/17 | 11,189,942 | ||||||
14,000,000 | 0.75%, 10/31/18 | 13,899,368 | ||||||
29,865,000 | 1.75%, 12/31/20 | 29,855,683 | ||||||
17,547,000 | 1.25%, 3/31/21 | 17,141,910 | ||||||
5,324,000 | 1.38%, 4/30/21 | 5,222,722 | ||||||
15,033,000 | 2.25%, 12/31/23 | 15,040,050 | ||||||
17,000,000 | 1.50%, 8/15/26 | 15,635,359 | ||||||
|
| |||||||
107,985,034 | ||||||||
|
| |||||||
| Total U.S. Treasury Obligations (Cost $161,988,482) | 158,090,139 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (6.4%): | |||||||
37,958,300 | AZL Pyramis Total Bond Fund Securities Lending Collateral Account(f) | 37,958,300 | ||||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 37,958,300 | ||||||
|
|
Continued
13
AZL Pyramis Total Bond Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Unaffiliated Investment Company (6.9%): | ||||||||
41,038,663 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(e) | $ | 41,038,663 | |||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $41,038,663) | 41,038,663 | |||||||
|
| |||||||
Common Stock(0.1%): | ||||||||
Oil, Gas & Consumable Fuels (0.1%): | ||||||||
31,892 | Goodrich Petroleum Corp.* | 398,650 | ||||||
|
| |||||||
Total Common Stock (Cost $282,021) | 398,650 | |||||||
|
|
Shares | Fair Value | |||||||
Warrant (—%): | ||||||||
Oil, Gas & Consumable Fuels (—%): | ||||||||
3,749 | Midstates Petroleum Co., Inc., 4/21/20** | $ | — | |||||
|
| |||||||
Total Warrant (Cost $—) | — | |||||||
|
| |||||||
Total Investment Securities (Cost $665,907,307)(g) —111.0% | 659,809,179 | |||||||
Net other assets (liabilities) — (11.0)% | (65,612,689 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 594,196,490 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
GO—General Obligation
MTN—Medium Term Note
TBA—To Be Announced Security
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2016. The total value of securities on loan as of December 31, 2016, was $36,629,110. |
** | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2016. The total of all such securities represent 0.03% of the net assets of the fund. |
(a) | Variable rate security. The rate presented represents the rate in effect at December 31, 2016. 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) | Defaulted bond. |
(d) | 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, 2016, these securities represent 0.21% of the net assets of the fund. |
(e) | The rate represents the effective yield at December 31, 2016. |
(f) | 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, 2016. |
(g) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Amounts | shown as “—” are either $0 or rounds 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, 2016: (Unaudited)
Country | Percentage | |||
Argentina | 1.1 | % | ||
Australia | 0.2 | % | ||
Austria | 0.3 | % | ||
Barbados | 0.1 | % | ||
Belarus | 0.2 | % | ||
Bermuda | 0.1 | % | ||
Brazil | 0.9 | % | ||
Canada | 1.4 | % | ||
Cayman Islands | 1.0 | % | ||
Chile | 0.4 | % | ||
Dominican Republic | 0.2 | % | ||
Germany | 0.4 | % | ||
Guernsey | 0.6 | % |
Country | Percentage | |||
Hong Kong | — | %NM | ||
Ireland | 0.7 | % | ||
Italy | 0.3 | % | ||
Jersey | 0.1 | % | ||
Luxembourg | 1.0 | % | ||
Marshall Islands | 0.1 | % | ||
Mexico | 1.8 | % | ||
Netherlands | 1.1 | % | ||
Switzerland | — | %NM | ||
United Kingdom | 2.2 | % | ||
United States | 85.8 | % | ||
|
| |||
100.0 | % | |||
|
|
NM | Not meaningful, amount is less than 0.05%. |
Continued
14
AZL Pyramis Total Bond Fund
Schedule of Portfolio Investments
December 31, 2016
Securities Sold Short (-0.09%):
Security Description | Coupon Rate | Maturity Date | Par Amount | Proceeds Received | Fair Value | Unrealized Appreciation/ Deprecation | ||||||||||||||
Federal National Mortgage Association, TBA | 3.00% | 1/25/46 | $ | (5,700,000 | ) | $ | (5,631,052 | ) | $ | (5,662,459 | ) | $ | (75,235 | ) | ||||||
|
|
|
|
|
| |||||||||||||||
$ | (5,631,052 | ) | $ | (5,662,459 | ) | $ | (75,235 | ) | ||||||||||||
|
|
|
|
|
|
See accompanying notes to the financial statements.
15
AZL Pyramis Total Bond Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investment securities, at cost | $ | 665,907,307 | |||
|
| ||||
Investment securities, at value* | $ | 659,809,179 | |||
Cash | 11,268 | ||||
Interest and dividends receivable | 4,828,966 | ||||
Receivable for investments sold | 11,337,452 | ||||
Prepaid expenses | 2,603 | ||||
|
| ||||
Total Assets | 675,989,468 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 37,436,023 | ||||
Payable for capital shares redeemed | 259,212 | ||||
Payable for collateral received on loaned securities | 37,958,300 | ||||
Securities sold short (Proceeds received $5,631,052) | 5,662,459 | ||||
Interest payable on securities sold short | 58,806 | ||||
Manager fees payable | 250,728 | ||||
Administration fees payable | 20,676 | ||||
Distribution fees payable | 119,863 | ||||
Custodian fees payable | 7,036 | ||||
Administrative and compliance services fees payable | 1,554 | ||||
Trustee fees payable | 1,180 | ||||
Other accrued liabilities | 17,141 | ||||
|
| ||||
Total Liabilities | 81,792,978 | ||||
|
| ||||
Net Assets | $ | 594,196,490 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 594,814,443 | |||
Accumulated net investment income/(loss) | 13,992,248 | ||||
Accumulated net realized gains/(losses) from investment transactions | (8,436,838 | ) | |||
Net unrealized appreciation/(depreciation) on investments | (6,173,363 | ) | |||
|
| ||||
Net Assets | $ | 594,196,490 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 25,980,878 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 2,658,712 | ||||
Net Asset Value (offering and redemption price per share) | $ | 9.77 | |||
|
| ||||
Class 2 | |||||
Net Assets | $ | 568,215,612 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 56,524,173 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.05 | |||
|
|
* | Includes securities on loan of $36,629,110. |
For the Year Ended December 31, 2016
Investment Income: | |||||
Interest | $ | 17,527,593 | |||
Dividends | 24,591 | ||||
Income from securities lending | 202,072 | ||||
|
| ||||
Total Investment Income | 17,754,256 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,284,078 | ||||
Administration fees | 207,112 | ||||
Distribution fees — Class 2 | 1,130,896 | ||||
Custodian fees | 15,109 | ||||
Administrative and compliance services fees | 7,724 | ||||
Trustee fees | 25,052 | ||||
Professional fees | 28,539 | ||||
Shareholder reports | 10,805 | ||||
Dividends on securities sold short | 39,492 | ||||
Other expenses | 13,145 | ||||
|
| ||||
Total expenses | 3,761,952 | ||||
|
| ||||
Net Investment Income/(Loss) | 13,992,304 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | (8,261,364 | ) | |||
Net realized gains/(losses) on securities held short | (14,382 | ) | |||
Change in net unrealized appreciation/depreciation on investments | 12,855,018 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 4,579,272 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 18,571,576 | |||
|
|
See accompanying notes to the financial statements.
16
Statements of Changes in Net Assets
AZL Pyramis Total Bond Fund | ||||||||||
For the Year Ended December 31, 2016 | For the Year Ended December 31, 2015 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 13,992,304 | $ | 13,405,475 | ||||||
Net realized gains/(losses) on investment transactions | (8,275,746 | ) | 1,711,779 | |||||||
Change in unrealized appreciation/depreciation on investments | 12,855,018 | (19,116,703 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 18,571,576 | (3,999,449 | ) | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1* | — | |||||||||
Class 2 | (13,963,456 | ) | (8,819,612 | ) | ||||||
From net realized gains: | ||||||||||
Class 1* | — | |||||||||
Class 2 | (291,097 | ) | — | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (14,254,553 | ) | (8,819,612 | ) | ||||||
|
|
|
| |||||||
Class 1* | ||||||||||
Proceeds from shares issued | 27,626,424 | |||||||||
Value of shares redeemed | (1,019,113 | ) | ||||||||
|
| |||||||||
Total Class 1 Shares | 26,607,311 | |||||||||
|
| |||||||||
Class 2 | ||||||||||
Proceeds from shares issued | 247,759,920 | 30,825,237 | ||||||||
Proceeds from dividends reinvested | 14,254,553 | 8,819,612 | ||||||||
Value of shares redeemed | (131,947,402 | ) | (50,907,371 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | 130,067,071 | (11,262,522 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 156,674,382 | (11,262,522 | ) | |||||||
|
|
|
| |||||||
Change in net assets | 160,991,405 | (24,081,583 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 433,205,085 | 457,286,668 | ||||||||
|
|
|
| |||||||
End of period | $ | 594,196,490 | $ | 433,205,085 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 13,992,248 | $ | 13,963,415 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Class 1* | ||||||||||
Shares issued | 2,762,699 | |||||||||
Shares redeemed | (103,987 | ) | ||||||||
|
| |||||||||
Total Class 1 Shares | 2,658,712 | |||||||||
|
| |||||||||
Class 2 | ||||||||||
Shares issued | 24,088,225 | 3,014,168 | ||||||||
Dividends reinvested | 1,390,688 | 883,729 | ||||||||
Shares redeemed | (12,936,249 | ) | (5,007,809 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | 12,542,664 | (1,109,912 | ) | |||||||
|
|
|
| |||||||
Change in shares | 15,201,376 | (1,109,912 | ) | |||||||
|
|
|
|
* | For the period October 31, 2016 (commencement of operations) to December 31, 2016. |
See accompanying notes to the financial statements.
17
AZL Pyramis Total Bond Fund
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended 2016 | Year Ended 2015 | Year Ended 2014 | Year Ended 2013 | September 4, 2012 to December 31, 2012(a) | |||||||||||||||||||||
Class 1* | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.00 | |||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.24 | ||||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (0.47 | ) | |||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Total from Investment Activities | (0.23 | ) | |||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Net Asset Value, End of Period | $ | 9.77 | |||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Total Return(b) | (2.30 | )%(c) | |||||||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 25,981 | |||||||||||||||||||||||
Net Investment Income/(Loss)(d) | 3.03 | % | |||||||||||||||||||||||
Expenses Before Reductions(d)(e) | 0.59 | % | |||||||||||||||||||||||
Expenses Net of Reductions(d) | 0.59 | % | |||||||||||||||||||||||
Portfolio Turnover Rate(f) | 119 | % | |||||||||||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 9.85 | $ | 10.14 | $ | 9.78 | $ | 10.06 | $ | 10.00 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.26 | 0.31 | 0.18 | 0.12 | 0.02 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.29 | (0.40 | ) | 0.34 | (0.34 | ) | 0.04 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 0.55 | (0.09 | ) | 0.52 | (0.22 | ) | 0.06 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.34 | ) | (0.20 | ) | (0.16 | ) | (0.04 | ) | — | ||||||||||||||||
Net Realized Gains | (0.01 | ) | — | — | (0.02 | ) | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.35 | ) | (0.20 | ) | (0.16 | ) | (0.06 | ) | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 10.05 | $ | 9.85 | $ | 10.14 | $ | 9.78 | $ | 10.06 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(b) | 5.51 | % | (0.89 | )% | 5.37 | % | (2.20 | )% | 0.60 | %(c) | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 568,216 | $ | 433,205 | $ | 457,287 | $ | 370,623 | $ | 357,699 | |||||||||||||||
Net Investment Income/(Loss) | 3.06 | % | 2.93 | % | 2.11 | % | 1.24 | % | 0.78 | % | |||||||||||||||
Expenses Before Reductions(e) | 0.83 | % | 0.82 | % | 0.81 | % | 0.81 | % | 0.80 | % | |||||||||||||||
Expenses Net of Reductions | 0.83 | % | 0.82 | % | 0.81 | % | 0.81 | % | 0.80 | % | |||||||||||||||
Portfolio Turnover Rate(f) | 119 | % | 123 | % | 421 | % | 488 | % | 303 | %(c) |
* | For the period October 31, 2016 (commencement of operations) to December 31, 2016. |
(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) | Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. Not annualized for periods less than one year. |
See accompanying notes to the financial statements.
18
AZL Pyramis Total Bond Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 separate investment portfolios (individually a “Fund,” collectively, the “Funds”), of which one is included in this report, the AZL Pyramis Total Bond Fund (the “Fund”), and 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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.
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.
19
AZL Pyramis Total Bond Fund
Notes to the Financial Statements
December 31, 2016
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) 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, 2016 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $32.3 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $20,063 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (“ASU No. 2014-11”), “Transfers & Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged, and the remaining contractual maturity of those transactions as of December 31, 2016.
Overnight and Continuous | Less than 30 Days | Between 30 & 90 Days | Greater 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions |
| ||||||||||||||||||||||||
Corporate Debt Securities | $ | 37,958,300 | $ | — | $ | — | $ | — | $ | 37,958,300 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Securities Lending Transactions | 37,958,300 | — | — | — | 37,958,300 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Borrowings | $ | 37,958,300 | $ | — | $ | — | $ | — | $ | 37,958,300 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Gross Amount of Recognized Liabilities for Securities Lending Transactions | $ | 37,958,300 | |||||||||||||||||||||||
|
|
TBA Purchase and Sale Commitments
The Fund may enter into to-be-announced (TBA) purchase or sale commitments, pursuant to which it agrees to purchase or sell, respectively, mortgage-backed securities for a fixed unit price, with payment and delivery at a scheduled future date beyond the customary settlement period for such securities. With TBA transactions, the particular securities to be delivered are not identified at the trade date; however, delivered securities must meet specified terms, including issuer, rate, and mortgage term, and be within industry-accepted “good delivery” standards. The Fund may enter into TBA purchase transactions with the intention of taking possession of the underlying securities, may elect to extend the settlement by “rolling” the transaction, and/or may use TBAs to gain interim exposure to underlying securities. Until settlement, the Fund maintains liquid assets sufficient to settle its TBA commitments.
20
AZL Pyramis Total Bond Fund
Notes to the Financial Statements
December 31, 2016
To mitigate counterparty risk, the Fund has entered into agreements with TBA counterparties that provide for collateral and the right to offset amounts due to or from those counterparties under specified conditions. Subject to minimum transfer amounts, collateral requirements are determined and transfers made based on the net aggregate unrealized gain or loss on all TBA commitments with a particular counterparty. At any time, the Fund’s risk of loss from a particular counterparty related to its TBA commitments is the aggregate unrealized gain on appreciated TBAs in excess of unrealized loss on depreciated TBAs and collateral held, if any, by such counterparty. As of December 31, 2016, no collateral had been posted by the Fund to counterparties for TBAs.
3. Fees and Transactions with Affiliates and Other Parties
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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL Pyramis Total Bond Fund Class 1 | 0.50 | % | 0.70 | % | ||||||
AZL Pyramis Total Bond Fund Class 2 | 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, 2016, 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, 2016, 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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the average daily net assets attributable to Class 2 shares, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $4,934 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 in total for both trusts.
21
AZL Pyramis Total Bond Fund
Notes to the Financial Statements
December 31, 2016
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 (the “Board” or “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, 2016 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 | $ | — | $ | 1,115,794 | $ | — | $ | 1,115,794 | ||||||||||||
Collateralized Mortgage Obligations | — | 16,673,048 | — | 16,673,048 | ||||||||||||||||
Corporate Bonds+ | — | 184,594,895 | — | ^ | 184,594,895 | |||||||||||||||
Yankee Dollars+ | — | 93,199,975 | — | 93,199,975 | ||||||||||||||||
Municipal Bonds | — | 14,020,797 | — | 14,020,797 | ||||||||||||||||
U.S. Government Agency Mortgages | — | 112,718,918 | — | 112,718,918 | ||||||||||||||||
U.S. Treasury Obligations | — | 158,090,139 | — | 158,090,139 | ||||||||||||||||
Common Stock+ | 398,650 | — | — | 398,650 | ||||||||||||||||
Warrant+ | — | — | — | ^ | — | |||||||||||||||
Securities Held as Collateral for Securities on Loan | — | 37,958,300 | — | 37,958,300 | ||||||||||||||||
Unaffiliated Investment Company | 41,038,663 | ��� | — | 41,038,663 | ||||||||||||||||
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| |||||||||||||
Total Investment Securities | 41,437,313 | 618,371,866 | — | ^ | 659,809,179 | |||||||||||||||
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| |||||||||||||
Securities Sold Short | — | (5,662,459 | ) | — | (5,662,459 | ) | ||||||||||||||
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| |||||||||||||
Total Investments | $ | 41,437,313 | $ | 612,709,407 | $ | — | ^ | $ | 654,146,720 | |||||||||||
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^ | Represents the interest in securities that were determined to have a value of zero at December 31, 2016. |
+ | 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, 2016, 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 Total Bond Fund | $ | 535,932,005 | $ | 603,539,898 |
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AZL Pyramis Total Bond Fund
Notes to the Financial Statements
December 31, 2016
For the year ended December 31, 2016, cost of purchases and proceeds from sales of long-term U.S. government securities included above were as follows:
Purchases | Sales | |||||||||
AZL Pyramis Total Bond Fund | $ | 398,411,859 | $ | 264,863,653 |
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, 2016 are identified below.
Security | Acquisition Date(a) | Acquisition Cost | Shares or Amount | Fair Value | Percentage of Assets | ||||||||||||||||||||
Petroleos Mexicanos, 6.50%, 3/13/27 | 12/6/16 | $ | 1,208,947 | 1,220,000 | $ | 1,258,430 | 0.21 | % |
(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.
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.
8. Federal Tax Information
It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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 of securities for federal income tax purposes at December 31, 2016 is $667,003,550. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 4,837,695 | ||
Unrealized (depreciation) | (12,032,066 | ) | ||
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| |||
Net unrealized appreciation/(depreciation) | $ | (7,194,371 | ) | |
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As of the end of its tax year ended December 31, 2016, the Fund has capital loss carry forwards (“CLCFs”) as summarized in the table 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 Pyramis Total Bond Fund | $ | 5,467,140 | $ | 1,873,453 | $ | 7,340,593 |
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AZL Pyramis Total Bond Fund
Notes to the Financial Statements
December 31, 2016
The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Pyramis Total Bond Fund | $ | 13,963,471 | $ | 291,082 | $ | 14,254,553 |
(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, 2015 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Pyramis Total Bond Fund | $ | 8,819,612 | $ | – | $ | 8,819,612 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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 Total Bond Fund | $ | 13,992,246 | $ | — | $ | (7,340,593 | ) | $ | (7,269,606 | ) | $ | (617,953 | ) |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies — Form N-PORT and Form N-CEN — also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
10. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
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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 Total Bond Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2016, 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 years or 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, 2016, 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 AZL Pyramis Total Bond Fund as of December 31, 2016, 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 or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Columbus, Ohio
February 24, 2017
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Other Federal Income Tax Information (Unaudited)
During the year ended December 31, 2016, the Fund declared net long-term capital gain distributions of $291,082.
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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 — October 25, 2016 (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 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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
28
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 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 the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held October 25, 2016, the Manager reported that for the three year period ended June 30, 2016, seven Funds were in the top 40%, two were in the middle 20% and three were in the bottom 40%, and for the one year period ended June 30, 2016, twelve Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2016, six Funds were in the top 40%, one was in the middle 20%, and three were in the bottom 40%. At the Board of Trustees meeting held October 25, 2016, 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 twenty Funds reviewed by the Board of Trustees in the fall of 2016, seventeen 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 2016 for the twenty-one Funds was as follows; (1) eighteen of the Funds had total expense rankings below the 65th percentile (with eleven Funds at or below the 50th percentile); (2) the AZL Russell 1000 Growth Index Fund had a total expense ranking in the 66th percentile, but there was only a very limited peer group for such Fund, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; (3) the AZL International Index Fund had a total expense ranking in the 75th percentile, but there was only a limited peer group for such Fund, the actual management fee was in the 37th percentile, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; and (4) for the AZL Morgan Stanley Global Real Estate Fund, which had a total expense ranking in the 70th percentile, the Manager recommended a temporary management fee waiver of 5 basis points, effective November 1, 2016, which would move the management fee ranking from the 80th to the 60th percentile.
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 2013 through June 30, 2016. 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, all of which currently are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
29
(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, 2016 were approximately $6.4 billion, and that no single Fund had assets in excess of $1,289 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, 2017, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
30
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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 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 | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 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 | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
31
Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
32
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® Russell 1000 Growth Index Fund
Annual Report
December 31, 2016
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® 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, 2016?
For the year ended December 31, 2016, the AZL® Russell 1000 Growth Index Fund (Class 2 Shares) (the “Fund”) returned 6.43%. That compared to a 7.08% total return for its benchmark, the Russell 1000® Growth Index1.
The Fund takes positions in securities that, in combination, should have similar return characteristics as the return of the Index. The Index is designed to provide a comprehensive measure of growth stocks’ performance.*
U.S. equities started the year on a down note. Stock prices fell on fears of a global economic slowdown; cratering oil prices; and terrorist attacks in Istanbul, Jakarta and Pakistan. Volatility also increased as investors prepared for a possible interest rate increase by the Federal Reserve.
A rebound in oil prices in February helped fuel a recovery in domestic equity markets that continued into the second quarter. The stock rally suffered a brief downturn in June as investors were shocked by the United Kingdom’s vote to leave the European Union. But investor concerns quickly eased and the second quarter ended on a strong note.
That upward momentum in domestic equity markets carried through to the second half of the reporting period, driven by a dovish Federal Reserve decision to keep rates unchanged. Stock prices also benefited from earnings releases that surpassed many analyst expectations.
In the fourth quarter, the U.S. economy continued to strengthen as shown by strong macroeconomic data and a tightening labor market. Improving conditions meant the Fed’s decision in December to raise rates by 25 basis
points (0.25%) did not come as a big surprise. While many investors were shocked by Donald Trump’s election win, markets did not show the same type of volatility as seen following the Brexit vote in June; most major U.S. indexes posted solid gains in November.
In general, growth stocks underperformed value stocks for the period. From a sector perspective, telecommunication services, energy, and utilities stocks generated the strongest returns in the Index. Health care was the only detractor from returns for the year as the sector came under pressure from lawmakers on drug pricing practices.
The Fund held derivatives in the form of futures contracts, which it used to hedge its cash position. The futures 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, 2016. |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
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 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, 2016 | ||||||||||||||||||||
Inception Data | 1 Year | 3 Year | 5 Year | Since Inception | ||||||||||||||||
AZL® Russell 1000 Growth Index Fund (Class 1 Shares ) | 10/14/16 | — | — | — | 2.80 | %* | ||||||||||||||
AZL® Russell 1000 Growth Index Fund (Class 2 Shares) | 4/30/10 | 6.43 | % | 7.79 | % | 13.67 | % | 11.90 | % | |||||||||||
Russell 1000® Growth Index | 4/30/10 | 7.08 | % | 8.55 | % | 14.50 | % | 12.77 | % |
* | Cumulative Return |
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 (Class 1 Shares ) | 0.53 | % | ||
AZL® Russell 1000 Growth Index Fund (Class 2 Shares) | 0.78 | % |
Expense Ratios are based on the current Fund prospectus dated August 31, 2016. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 0.59% for Class 1 Shares and 0.84% for Class 2 Shares through April 30, 2018. Additional information pertaining to the December 31, 2016 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Russell 1000 Growth Index Fund, Class 1** | $ | 1,000.00 | $ | 1,028.00 | $ | 0.97 | 0.46 | % | ||||||||||||
AZL Russell 1000 Growth Index Fund, Class 2 | $ | 1,000.00 | $ | 1,054.00 | $ | 3.67 | 0.71 | % |
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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Russell 1000 Growth Index Fund, Class 1 | $ | 1,000.00 | $ | 1,022.82 | $ | 2.34 | 0.46 | % | ||||||||||||
AZL Russell 1000 Growth Index Fund, Class 2 | $ | 1,000.00 | $ | 1,021.57 | $ | 3.61 | 0.71 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
** | Expenses are equal to the average account value multiplied by the Fund’s annualized expense ratio multiplied by 76/366 to reflect the stub period from commencement of operations 10/17/2016 through 12/31/2016. |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 31.4 | % | |||
Consumer Discretionary | 20.4 | ||||
Health Care | 15.7 | ||||
Industrials | 10.8 | ||||
Consumer Staples | 9.3 | ||||
Materials | 3.5 | ||||
Financials | 2.7 | ||||
Real Estate | 2.6 | ||||
Telecommunication Services | 1.2 | ||||
Energy | 0.6 | ||||
Utilities | — | ^ | |||
|
| ||||
Total Common Stocks and Preferred Stocks | 98.2 | ||||
Securities Held as Collateral for Securities on Loan | 12.5 | ||||
Money Market | 1.8 | ||||
|
| ||||
Total Investment Securities | 112.5 | ||||
Net other assets (liabilities) | (12.5 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks (97.6%): | ||||||||
Aerospace & Defense (2.7%): | ||||||||
10,524 | BE Aerospace, Inc. | $ | 633,440 | |||||
61,583 | Boeing Co. (The) | 9,587,240 | ||||||
9,575 | BWX Technologies, Inc. | 380,128 | ||||||
10,470 | General Dynamics Corp. | 1,807,750 | ||||||
1,962 | HEICO Corp.^ | 151,368 | ||||||
3,955 | HEICO Corp., Class A | 268,545 | ||||||
9,552 | Hexcel Corp.^ | 491,355 | ||||||
3,997 | Huntington Ingalls Industries, Inc. | 736,207 | ||||||
26,264 | Lockheed Martin Corp. | 6,564,424 | ||||||
17,167 | Northrop Grumman Corp. | 3,992,701 | ||||||
11,701 | Raytheon Co. | 1,661,542 | ||||||
13,397 | Rockwell Collins, Inc. | 1,242,706 | ||||||
6,474 | Spirit AeroSystems Holdings, Inc., Class A | 377,758 | ||||||
8,596 | Textron, Inc. | 417,422 | ||||||
5,157 | TransDigm Group, Inc. | 1,283,887 | ||||||
|
| |||||||
29,596,473 | ||||||||
|
| |||||||
Air Freight & Logistics (1.3%): | ||||||||
14,656 | C.H. Robinson Worldwide, Inc.^ | 1,073,699 | ||||||
13,190 | Expeditors International of Washington, Inc.^ | 698,542 | ||||||
25,752 | FedEx Corp. | 4,795,022 | ||||||
71,405 | United Parcel Service, Inc., Class B | 8,185,870 | ||||||
|
| |||||||
14,753,133 | ||||||||
|
| |||||||
Airlines (0.7%): | ||||||||
10,160 | Alaska Air Group, Inc.^ | 901,497 | ||||||
61,964 | Delta Air Lines, Inc. | 3,048,009 | ||||||
2,137 | JetBlue Airways Corp.* | 47,912 | ||||||
65,916 | Southwest Airlines Co. | 3,285,253 | ||||||
|
| |||||||
7,282,671 | ||||||||
|
| |||||||
Auto Components (0.3%): | ||||||||
2,035 | Adient plc* | 119,251 | ||||||
2,828 | BorgWarner, Inc.^ | 111,536 | ||||||
28,114 | Delphi Automotive plc | 1,893,478 | ||||||
18,736 | Gentex Corp.^ | 368,912 | ||||||
6,306 | Lear Corp. | 834,725 | ||||||
3,532 | Visteon Corp. | 283,761 | ||||||
|
| |||||||
3,611,663 | ||||||||
|
| |||||||
Automobiles (0.4%): | ||||||||
18,641 | Harley-Davidson, Inc.^ | 1,087,516 | ||||||
12,072 | Tesla Motors, Inc.*^ | 2,579,666 | ||||||
4,948 | Thor Industries, Inc.^ | 495,047 | ||||||
|
| |||||||
4,162,229 | ||||||||
|
| |||||||
Banks (0.3%): | ||||||||
22,490 | Citizens Financial Group, Inc. | 801,319 | ||||||
379 | First Hawaiian, Inc.^ | 13,197 | ||||||
12,031 | First Republic Bank | 1,108,537 | ||||||
3,207 | Signature Bank* | 481,691 | ||||||
3,940 | SVB Financial Group* | 676,340 | ||||||
5,455 | Western Alliance Bancorp* | 265,713 | ||||||
|
| |||||||
3,346,797 | ||||||||
|
| |||||||
Beverages (3.0%): | ||||||||
5,270 | Brown-Forman Corp., Class A^ | 243,738 | ||||||
18,061 | Brown-Forman Corp., Class B^ | 811,300 | ||||||
300,950 | Coca-Cola Co. (The) | 12,477,387 | ||||||
17,081 | Constellation Brands, Inc., Class C | 2,618,688 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Beverages, continued | ||||||||
19,095 | Dr Pepper Snapple Group, Inc. | $ | 1,731,344 | |||||
43,110 | Monster Beverage Corp.* | 1,911,497 | ||||||
129,979 | PepsiCo, Inc. | 13,599,703 | ||||||
|
| |||||||
33,393,657 | ||||||||
|
| |||||||
Biotechnology (5.6%): | ||||||||
167,087 | AbbVie, Inc. | 10,462,988 | ||||||
9,762 | Acadia Pharmaceuticals, Inc.*^ | 281,536 | ||||||
3,184 | Agios Pharmaceuticals, Inc.*^ | 132,868 | ||||||
22,392 | Alexion Pharmaceuticals, Inc.* | 2,739,661 | ||||||
15,456 | Alkermes plc*^ | 859,044 | ||||||
6,684 | Alnylam Pharmaceuticals, Inc.*^ | 250,249 | ||||||
77,577 | Amgen, Inc. | 11,342,534 | ||||||
22,588 | Biogen Idec, Inc.* | 6,405,505 | ||||||
17,669 | BioMarin Pharmaceutical, Inc.* | 1,463,700 | ||||||
79,321 | Celgene Corp.* | 9,181,406 | ||||||
136,809 | Gilead Sciences, Inc. | 9,796,892 | ||||||
16,757 | Incyte Corp.* | 1,680,224 | ||||||
1,688 | Intercept Pharmaceuticals, Inc.*^ | 183,401 | ||||||
5,728 | Intrexon Corp.*^ | 139,190 | ||||||
12,409 | Ionis Pharmaceuticals, Inc.*^ | 593,522 | ||||||
5,859 | Juno Therapeutics, Inc.*^ | 110,442 | ||||||
8,844 | Neurocrine Biosciences, Inc.*^ | 342,263 | ||||||
30,439 | OPKO Health, Inc.*^ | 283,083 | ||||||
8,003 | Regeneron Pharmaceuticals, Inc.*^ | 2,937,821 | ||||||
9,901 | Seattle Genetics, Inc.*^ | 522,476 | ||||||
1,267 | United Therapeutics Corp.*^ | 181,726 | ||||||
25,380 | Vertex Pharmaceuticals, Inc.* | 1,869,745 | ||||||
|
| |||||||
61,760,276 | ||||||||
|
| |||||||
Building Products (0.4%): | ||||||||
14,998 | A.O. Smith Corp. | 710,155 | ||||||
9,900 | Allegion plc | 633,600 | ||||||
15,719 | Fortune Brands Home & Security, Inc.^ | 840,339 | ||||||
20,354 | Johnson Controls International plc | 838,381 | ||||||
3,791 | Lennox International, Inc.^ | 580,667 | ||||||
22,152 | Masco Corp. | 700,446 | ||||||
|
| |||||||
4,303,588 | ||||||||
|
| |||||||
Capital Markets (1.6%): | ||||||||
4,816 | Affiliated Managers Group, Inc.* | 699,765 | ||||||
4,917 | Ameriprise Financial, Inc. | 545,492 | ||||||
3,884 | Artisan Partners Asset Management, Inc., Class A^ | 115,549 | ||||||
8,345 | CBOE Holdings, Inc.^ | 616,612 | ||||||
95,557 | Charles Schwab Corp. (The)^ | 3,771,634 | ||||||
1,594 | Donnelley Financial Solutions, Inc.*^ | 36,630 | ||||||
11,324 | Eaton Vance Corp.^ | 474,249 | ||||||
4,125 | FactSet Research Systems, Inc.^ | 674,149 | ||||||
879 | Federated Investors, Inc., Class B^ | 24,858 | ||||||
814 | Interactive Brokers Group, Inc., Class A^ | 29,719 | ||||||
29,060 | Intercontinental Exchange, Inc. | 1,639,565 | ||||||
7,155 | Invesco, Ltd. | 217,083 | ||||||
2,053 | Lazard, Ltd., Class A | 84,358 | ||||||
1,155 | LPL Financial Holdings, Inc.^ | 40,668 | ||||||
3,777 | MarketAxess Holdings, Inc. | 554,917 | ||||||
15,615 | Moody’s Corp. | 1,472,026 | ||||||
1,831 | Morningstar, Inc. | 134,688 |
Continued
4
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Capital Markets, continued |
| ||||||
�� | 9,361 | MSCI, Inc., Class A | $ | 737,460 | ||||
19,105 | NorthStar Asset Management Group, Inc.^ | 285,047 | ||||||
27,190 | S&P Global, Inc. | 2,924,012 | ||||||
13,169 | SEI Investments Co. | 650,022 | ||||||
19,088 | T. Rowe Price Group, Inc. | 1,436,563 | ||||||
22,844 | TD Ameritrade Holding Corp. | 995,998 | ||||||
|
| |||||||
18,161,064 | ||||||||
|
| |||||||
| Chemicals (2.6%): |
| ||||||
2,725 | Advansix, Inc.* | 60,332 | ||||||
17,581 | Air Products & Chemicals, Inc. | 2,528,499 | ||||||
16,954 | Axalta Coating Systems, Ltd.* | 461,149 | ||||||
1,441 | Celanese Corp., Series A | 113,464 | ||||||
90,254 | E.I. du Pont de Nemours & Co. | 6,624,643 | ||||||
26,881 | Ecolab, Inc.^ | 3,150,990 | ||||||
11,098 | FMC Corp. | 627,703 | ||||||
8,212 | International Flavor & Fragrances, Inc.^ | 967,620 | ||||||
15,814 | LyondellBasell Industries NV, Class A | 1,356,525 | ||||||
29,217 | Monsanto Co. | 3,073,921 | ||||||
702 | NewMarket Corp.^ | 297,536 | ||||||
27,357 | PPG Industries, Inc. | 2,592,349 | ||||||
25,862 | Praxair, Inc. | 3,030,768 | ||||||
13,432 | RPM International, Inc. | 723,045 | ||||||
4,271 | Scotts Miracle-Gro Co. (The) | 408,094 | ||||||
8,297 | Sherwin Williams Co. | 2,229,736 | ||||||
8,071 | Valspar Corp. (The) | 836,236 | ||||||
446 | Valvoline, Inc.^ | 9,589 | ||||||
4,003 | W.R. Grace & Co. | 270,763 | ||||||
|
| |||||||
29,362,962 | ||||||||
|
| |||||||
| Commercial Services & Supplies (0.6%): |
| ||||||
9,137 | Cintas Corp. | 1,055,872 | ||||||
605 | Clean Harbors, Inc.*^ | 33,668 | ||||||
10,073 | Copart, Inc.*^ | 558,145 | ||||||
11,966 | Covanta Holding Corp.^ | 186,670 | ||||||
14,196 | KAR Auction Services, Inc. | 605,034 | ||||||
1,563 | LSC Communications, Inc. | 46,390 | ||||||
19,376 | Pitney Bowes, Inc.^ | 294,321 | ||||||
9,877 | Rollins, Inc.^ | 333,645 | ||||||
5,067 | RR Donnelley & Sons Co.^ | 82,693 | ||||||
8,010 | Stericycle, Inc.*^ | 617,090 | ||||||
37,801 | Waste Management, Inc. | 2,680,469 | ||||||
|
| |||||||
6,493,997 | ||||||||
|
| |||||||
| Communications Equipment (0.3%): |
| ||||||
3,998 | Arista Networks, Inc.* | 386,886 | ||||||
4,430 | ARRIS International plc* | 133,476 | ||||||
13,177 | CommScope Holding Co., Inc.* | 490,184 | ||||||
6,900 | F5 Networks, Inc.* | 998,568 | ||||||
2,045 | Motorola Solutions, Inc.^ | 169,510 | ||||||
8,950 | Palo Alto Networks, Inc.*^ | 1,119,198 | ||||||
|
| |||||||
3,297,822 | ||||||||
|
| |||||||
| Construction & Engineering (0.0%): |
| ||||||
4,076 | Quanta Services, Inc.* | 142,049 | ||||||
1,835 | Valmont Industries, Inc. | 258,551 | ||||||
|
| |||||||
400,600 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Construction Materials (0.3%): |
| ||||||
4,823 | Eagle Materials, Inc., Class A | $ | 475,210 | |||||
5,918 | Martin Marietta Materials, Inc. | 1,311,015 | ||||||
12,698 | Vulcan Materials Co. | 1,589,154 | ||||||
|
| |||||||
3,375,379 | ||||||||
|
| |||||||
| Consumer Finance (0.1%): |
| ||||||
851 | Credit Acceptance Corp.*^ | 185,101 | ||||||
13,952 | Discover Financial Services | 1,005,800 | ||||||
|
| |||||||
1,190,901 | ||||||||
|
| |||||||
| Containers & Packaging (0.5%): |
| ||||||
1,629 | AptarGroup, Inc.^ | 119,650 | ||||||
8,634 | Avery Dennison Corp. | 606,279 | ||||||
17,599 | Ball Corp. | 1,321,156 | ||||||
1,573 | Bemis Co., Inc.^ | 75,221 | ||||||
12,450 | Berry Plastics Group, Inc.* | 606,689 | ||||||
13,882 | Crown Holdings, Inc.* | 729,777 | ||||||
23,193 | Graphic Packaging Holding Co.^ | 289,449 | ||||||
16,536 | Owens-Illinois, Inc.* | 287,892 | ||||||
9,607 | Packaging Corp. of America | 814,866 | ||||||
20,217 | Sealed Air Corp. | 916,638 | ||||||
3,777 | Silgan Holdings, Inc.^ | 193,307 | ||||||
|
| |||||||
5,960,924 | ||||||||
|
| |||||||
| Distributors (0.2%): |
| ||||||
14,187 | Genuine Parts Co. | 1,355,426 | ||||||
31,406 | LKQ Corp.* | 962,594 | ||||||
4,154 | Pool Corp. | 433,428 | ||||||
|
| |||||||
2,751,448 | ||||||||
|
| |||||||
| Diversified Consumer Services (0.1%): |
| ||||||
19,330 | Service Corp. International | 548,972 | ||||||
13,969 | ServiceMaster Global Holdings, Inc.*^ | 526,212 | ||||||
|
| |||||||
1,075,184 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (1.1%): |
| ||||||
8,160 | SBA Communications Corp., Class A* | 842,602 | ||||||
210,748 | Verizon Communications, Inc. | 11,249,728 | ||||||
16,813 | Zayo Group Holdings, Inc.* | 552,475 | ||||||
|
| |||||||
12,644,805 | ||||||||
|
| |||||||
| Electrical Equipment (0.3%): |
| ||||||
4,479 | Acuity Brands, Inc. | 1,034,021 | ||||||
4,388 | AMETEK, Inc. | 213,257 | ||||||
10,722 | Emerson Electric Co. | 597,752 | ||||||
3,625 | Hubbell, Inc. | 423,038 | ||||||
10,594 | Rockwell Automation, Inc. | 1,423,833 | ||||||
|
| |||||||
3,691,901 | ||||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (0.5%): |
| ||||||
30,901 | Amphenol Corp., Class A | 2,076,547 | ||||||
16,777 | CDW Corp. | 873,914 | ||||||
8,382 | Cognex Corp.^ | 533,263 | ||||||
10,639 | Fitbit, Inc., Class A*^ | 77,877 | ||||||
3,074 | IPG Photonics Corp.*^ | 303,435 | ||||||
8,431 | National Instruments Corp.^ | 259,843 | ||||||
20,513 | Trimble Navigation, Ltd.* | 618,467 | ||||||
11,322 | VeriFone Systems, Inc.*^ | 200,739 | ||||||
4,381 | Zebra Technologies Corp., Class A*^ | 375,715 | ||||||
|
| |||||||
5,319,800 | ||||||||
|
|
Continued
5
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Equity Real Estate Investment Trusts (2.5%): |
| ||||||
853 | Alexandria Real Estate Equities, Inc. | $ | 94,794 | |||||
43,495 | American Tower Corp. | 4,596,551 | ||||||
2,679 | Boston Properties, Inc. | 336,965 | ||||||
1,085 | Care Capital Properties, Inc.^ | 27,125 | ||||||
32,823 | Crown Castle International Corp. | 2,848,052 | ||||||
12,413 | CubeSmart | 332,296 | ||||||
6,367 | Cyrusone, Inc.^ | 284,796 | ||||||
11,502 | Digital Realty Trust, Inc.^ | 1,130,187 | ||||||
7,694 | Empire State Realty Trust, Inc., Class A^ | 155,342 | ||||||
7,134 | Equinix, Inc. | 2,549,763 | ||||||
7,876 | Equity Lifestyle Properties, Inc. | 567,860 | ||||||
2,805 | Essex Property Trust, Inc.^ | 652,163 | ||||||
12,406 | Extra Space Storage, Inc.^ | 958,239 | ||||||
7,274 | Federal Realty Investment Trust | 1,033,708 | ||||||
19,303 | Gaming & Leisure Properties, Inc. | 591,058 | ||||||
10,281 | Healthcare Trust of America, Inc., Class A | 299,280 | ||||||
26,786 | Iron Mountain, Inc.^ | 870,009 | ||||||
8,452 | Lamar Advertising Co., Class A^ | 568,312 | ||||||
3,067 | Life Storage, Inc. | 261,492 | ||||||
7,067 | Omega Healthcare Investors, Inc.^ | 220,914 | ||||||
1,919 | Outfront Media, Inc. | 47,726 | ||||||
15,221 | Public Storage, Inc.^ | 3,401,894 | ||||||
1,843 | Regency Centers Corp. | 127,075 | ||||||
2,083 | Senior Housing Properties Trust^ | 39,431 | ||||||
28,784 | Simon Property Group, Inc. | 5,114,052 | ||||||
8,641 | Tanger Factory Outlet Centers, Inc.^ | 309,175 | ||||||
2,978 | Taubman Centers, Inc. | 220,164 | ||||||
10,924 | Ventas, Inc. | 682,968 | ||||||
|
| |||||||
28,321,391 | ||||||||
|
| |||||||
| Food & Staples Retailing (2.3%): |
| ||||||
4,003 | Casey’s General Stores, Inc.^ | 475,877 | ||||||
44,974 | Costco Wholesale Corp. | 7,200,787 | ||||||
104,383 | CVS Health Corp. | 8,236,862 | ||||||
98,079 | Kroger Co. (The) | 3,384,706 | ||||||
106,128 | Rite Aid Corp.* | 874,495 | ||||||
13,337 | Sprouts Farmers Market, Inc.*^ | 252,336 | ||||||
54,118 | Sysco Corp. | 2,996,514 | ||||||
4,702 | US Foods Holding Corp.* | 129,211 | ||||||
18,283 | Walgreens Boots Alliance, Inc. | 1,513,101 | ||||||
5,543 | Whole Foods Market, Inc.^ | 170,503 | ||||||
|
| |||||||
25,234,392 | ||||||||
|
| |||||||
| Food Products (1.5%): |
| ||||||
6,170 | Blue Buffalo Pet Products, Inc.* | 148,327 | ||||||
19,199 | Campbell Soup Co.^ | 1,160,964 | ||||||
35,579 | ConAgra Foods, Inc. | 1,407,149 | ||||||
16,286 | Flowers Foods, Inc.^ | 325,231 | ||||||
61,344 | General Mills, Inc. | 3,789,220 | ||||||
7,812 | Hain Celestial Group, Inc.* | 304,902 | ||||||
14,447 | Hershey Co. (The) | 1,494,253 | ||||||
24,358 | Hormel Foods Corp.^ | 847,902 | ||||||
5,227 | Ingredion, Inc. | 653,166 | ||||||
23,625 | Kellogg Co. | 1,741,399 | ||||||
7,890 | Kraft Heinz Co. (The) | 688,955 | ||||||
11,859 | Lamb Weston Holding, Inc.* | 448,863 | ||||||
11,910 | McCormick & Co. | 1,111,560 | ||||||
6,943 | Mead Johnson Nutrition Co. | 491,287 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Food Products, continued |
| ||||||
1,278 | Pilgrim’s Pride Corp.^ | $ | 24,269 | |||||
3,803 | Post Holdings, Inc.*^ | 305,723 | ||||||
1,786 | TreeHouse Foods, Inc.*^ | 128,931 | ||||||
14,051 | Tyson Foods, Inc., Class A | 866,666 | ||||||
17,885 | WhiteWave Foods Co., Class A* | 994,406 | ||||||
|
| |||||||
16,933,173 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (2.6%): |
| ||||||
4,087 | ABIOMED, Inc.* | 460,523 | ||||||
1,832 | Alere, Inc.* | 71,393 | ||||||
7,442 | Align Technology, Inc.* | 715,399 | ||||||
5,731 | Baxter International, Inc. | 254,113 | ||||||
21,575 | Becton, Dickinson & Co. | 3,571,741 | ||||||
139,018 | Boston Scientific Corp.* | 3,006,959 | ||||||
7,567 | C.R. Bard, Inc. | 1,700,002 | ||||||
3,808 | Cooper Cos., Inc. (The) | 666,133 | ||||||
16,483 | Danaher Corp. | 1,283,037 | ||||||
8,477 | Dexcom, Inc.*^ | 506,077 | ||||||
21,754 | Edwards Lifesciences Corp.* | 2,038,350 | ||||||
6,284 | Hill-Rom Holdings, Inc.^ | 352,784 | ||||||
28,715 | Hologic, Inc.* | 1,152,046 | ||||||
9,153 | IDEXX Laboratories, Inc.* | 1,073,372 | ||||||
3,893 | Intuitive Surgical, Inc.* | 2,468,824 | ||||||
14,331 | ResMed, Inc.^ | 889,239 | ||||||
19,897 | St. Jude Medical, Inc. | 1,595,540 | ||||||
34,715 | Stryker Corp.^ | 4,159,204 | ||||||
832 | Teleflex, Inc.^ | 134,077 | ||||||
9,828 | Varian Medical Systems, Inc.* | 882,358 | ||||||
7,398 | West Pharmaceutical Services, Inc. | 627,572 | ||||||
10,099 | Zimmer Holdings, Inc. | 1,042,217 | ||||||
|
| |||||||
28,650,960 | ||||||||
|
| |||||||
| Health Care Providers & Services (3.6%): |
| ||||||
2,646 | Acadia Healthcare Co., Inc.*^ | 87,583 | ||||||
11,814 | Aetna, Inc. | 1,465,054 | ||||||
16,983 | AmerisourceBergen Corp. | 1,327,901 | ||||||
7,397 | Anthem, Inc. | 1,063,467 | ||||||
31,148 | Cardinal Health, Inc. | 2,241,722 | ||||||
12,662 | Centene Corp.* | 715,530 | ||||||
8,749 | Cigna Corp. | 1,167,029 | ||||||
6,791 | DaVita, Inc.* | 435,982 | ||||||
8,469 | Envision Healthcare Corp.*^ | 536,003 | ||||||
57,644 | Express Scripts Holding Co.*^ | 3,965,331 | ||||||
21,417 | HCA Holdings, Inc.*^ | 1,585,286 | ||||||
8,428 | Henry Schein, Inc.* | 1,278,612 | ||||||
14,465 | Humana, Inc. | 2,951,294 | ||||||
4,731 | Laboratory Corp. of America Holdings* | 607,366 | ||||||
23,192 | McKesson Corp. | 3,257,316 | ||||||
6,632 | MEDNAX, Inc.*^ | 442,089 | ||||||
8,628 | Patterson Cos., Inc.^ | 354,007 | ||||||
1,223 | Premier, Inc., Class A*^ | 37,130 | ||||||
8,294 | Tenet Healthcare Corp.* | 123,083 | ||||||
96,950 | UnitedHealth Group, Inc. | 15,515,877 | ||||||
2,166 | Universal Health Services, Inc., Class B | 230,419 | ||||||
8,012 | VCA Antech, Inc.* | 550,024 | ||||||
4,196 | WellCare Health Plans, Inc.* | 575,188 | ||||||
|
| |||||||
40,513,293 | ||||||||
|
|
Continued
6
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Technology (0.2%): | ||||||||
4,012 | athenahealth, Inc.*^ | $ | 421,942 | |||||
30,290 | Cerner Corp.*^ | 1,434,837 | ||||||
6,421 | Inovalon Holdings, Inc., Class A* | 66,136 | ||||||
9,861 | Veeva Systems, Inc., Class A*^ | 401,343 | ||||||
|
| |||||||
2,324,258 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure (3.1%): | ||||||||
10,727 | Aramark Holdings Corp. | 383,168 | ||||||
5,085 | Brinker International, Inc.^ | 251,860 | ||||||
2,908 | Chipotle Mexican Grill, Inc.*^ | 1,097,247 | ||||||
2,384 | Choice Hotels International, Inc. | 133,623 | ||||||
11,981 | Darden Restaurants, Inc.^ | 871,258 | ||||||
5,132 | Domino’s Pizza, Inc.^ | 817,220 | ||||||
9,460 | Dunkin’ Brands Group, Inc.^ | 496,082 | ||||||
859 | Extended Stay America, Inc. | 13,873 | ||||||
47,494 | Hilton Worldwide Holdings, Inc.* | 1,291,837 | ||||||
204 | Hyatt Hotels Corp., Class A* | 11,273 | ||||||
37,459 | Las Vegas Sands Corp. | 2,000,685 | ||||||
25,048 | Marriott International, Inc., Class A^ | 2,070,969 | ||||||
85,909 | McDonald’s Corp. | 10,456,842 | ||||||
4,436 | MGM Resorts International* | 127,890 | ||||||
1,284 | Norwegian Cruise Line Holdings, Ltd.*^ | 54,609 | ||||||
2,301 | Panera Bread Co., Class A*^ | 471,912 | ||||||
7,387 | Six Flags Entertainment Corp. | 442,925 | ||||||
147,294 | Starbucks Corp. | 8,177,762 | ||||||
3,970 | Vail Resorts, Inc. | 640,401 | ||||||
12,384 | Wendy’s Co. (The)^ | 167,432 | ||||||
11,321 | Wyndham Worldwide Corp.^ | 864,585 | ||||||
7,505 | Wynn Resorts, Ltd.^ | 649,258 | ||||||
35,905 | Yum China Holdings, Inc.*^ | 937,839 | ||||||
35,881 | Yum! Brands, Inc. | 2,272,344 | ||||||
|
| |||||||
34,702,894 | ||||||||
|
| |||||||
Household Durables (0.6%): | ||||||||
968 | CalAtlantic Group, Inc.^ | 32,922 | ||||||
19,105 | D.R. Horton, Inc. | 522,140 | ||||||
3,343 | Harman International Industries, Inc. | 371,608 | ||||||
13,623 | Leggett & Platt, Inc.^ | 665,892 | ||||||
9,722 | Lennar Corp., Class A | 417,365 | ||||||
802 | Lennar Corp., Class B | 27,669 | ||||||
5,019 | Mohawk Industries, Inc.* | 1,002,194 | ||||||
48,482 | Newell Brands, Inc.^ | 2,164,720 | ||||||
361 | NVR, Inc.* | 602,509 | ||||||
10,591 | PulteGroup, Inc.^ | 194,663 | ||||||
5,470 | Tempur Sealy International, Inc.*^ | 373,492 | ||||||
7,519 | Toll Brothers, Inc.* | 233,089 | ||||||
5,153 | Tupperware Brands Corp.^ | 271,151 | ||||||
754 | Whirlpool Corp.^ | 137,055 | ||||||
|
| |||||||
7,016,469 | ||||||||
|
| |||||||
Household Products (0.7%): | ||||||||
26,429 | Church & Dwight Co., Inc. | 1,167,898 | ||||||
11,371 | Clorox Co. (The)^ | 1,364,747 | ||||||
16,039 | Colgate-Palmolive Co. | 1,049,592 | ||||||
2,057 | Energizer Holdings, Inc.^ | 91,763 | ||||||
31,586 | Kimberly-Clark Corp. | 3,604,594 | ||||||
2,536 | Spectrum Brands Holdings, Inc.^ | 310,229 | ||||||
|
| |||||||
7,588,823 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Industrial Conglomerates (2.4%): | ||||||||
60,756 | 3M Co., Class C | $ | 10,849,199 | |||||
1,936 | Carlisle Cos., Inc. | 213,521 | ||||||
184,391 | General Electric Co. | 5,826,756 | ||||||
78,574 | Honeywell International, Inc. | 9,102,798 | ||||||
5,253 | Roper Industries, Inc.^ | 961,719 | ||||||
|
| |||||||
26,953,993 | ||||||||
|
| |||||||
Insurance (0.8%): | ||||||||
984 | AmTrust Financial Services^ | 26,942 | ||||||
27,124 | Aon plc | 3,025,139 | ||||||
12,412 | Arthur J. Gallagher & Co. | 644,928 | ||||||
800 | Brown & Brown, Inc. | 35,888 | ||||||
1,851 | Erie Indemnity Co., Class A | 208,145 | ||||||
5,614 | Lincoln National Corp. | 372,040 | ||||||
53,788 | Marsh & McLennan Cos., Inc. | 3,635,530 | ||||||
5,785 | Progressive Corp. (The) | 205,368 | ||||||
8,931 | XL Group, Ltd. | 332,769 | ||||||
|
| |||||||
8,486,749 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (4.1%): | ||||||||
40,206 | Amazon.com, Inc.* | 30,149,274 | ||||||
12,295 | Expedia, Inc. | 1,392,778 | ||||||
37,882 | Groupon, Inc.*^ | 125,768 | ||||||
1,049 | Liberty Expedia Holdings, Class A* | 41,614 | ||||||
25,791 | Liberty Interactive Corp., Class A* | 515,304 | ||||||
1,574 | Liberty Ventures, Series A, Class A* | 58,033 | ||||||
42,076 | Netflix, Inc.* | 5,209,009 | ||||||
5,108 | Priceline Group, Inc. (The)* | 7,488,634 | ||||||
11,712 | TripAdvisor, Inc.* | 543,085 | ||||||
|
| |||||||
45,523,499 | ||||||||
|
| |||||||
Internet Software & Services (7.5%): | ||||||||
15,762 | Akamai Technologies, Inc.*^ | 1,051,010 | ||||||
30,349 | Alphabet, Inc., Class A* | 24,050,066 | ||||||
30,676 | Alphabet, Inc., Class C* | 23,676,351 | ||||||
605 | Commercehub, Inc. Com, Series A* | 9,081 | ||||||
664 | Commercehub, Inc. Com, Series C* | 9,980 | ||||||
3,285 | CoStar Group, Inc.* | 619,190 | ||||||
110,146 | eBay, Inc.* | 3,270,235 | ||||||
231,941 | Facebook, Inc., Class A* | 26,684,813 | ||||||
4,816 | GoDaddy, Inc., Class A*^ | 168,319 | ||||||
5,662 | IAC/InterActiveCorp* | 366,841 | ||||||
3,492 | Match Group, Inc.*^ | 59,713 | ||||||
1,213 | Nutanix, Inc., Class A*^ | 32,217 | ||||||
19,530 | Pandora Media, Inc.*^ | 254,671 | ||||||
1,584 | Twilio, Inc., Series A*^ | 45,698 | ||||||
57,630 | Twitter, Inc.*^ | 939,369 | ||||||
9,763 | VeriSign, Inc.*^ | 742,671 | ||||||
5,439 | Yelp, Inc.*^ | 207,389 | ||||||
3,665 | Zillow Group, Inc., Class A*^ | 133,589 | ||||||
7,339 | Zillow Group, Inc., Class C*^ | 267,653 | ||||||
|
| |||||||
82,588,856 | ||||||||
|
| |||||||
IT Services (6.8%): | ||||||||
64,393 | Accenture plc, Class C^ | 7,542,353 | ||||||
5,943 | Alliance Data Systems Corp.^ | 1,357,976 | ||||||
47,040 | Automatic Data Processing, Inc. | 4,834,770 | ||||||
2,500 | Black Knight Financial Services, Inc., Class A*^ | 94,500 |
Continued
7
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
IT Services, continued | ||||||||
10,966 | Booz Allen Hamilton Holding Corp. | $ | 395,544 | |||||
12,137 | Broadridge Financial Solutions, Inc. | 804,683 | ||||||
62,291 | Cognizant Technology Solutions Corp., Class A* | 3,490,165 | ||||||
5,385 | CoreLogic, Inc.* | 198,330 | ||||||
16,826 | CSRA, Inc. | 535,740 | ||||||
3,379 | DST Systems, Inc. | 362,060 | ||||||
5,127 | Euronet Worldwide, Inc.* | 371,349 | ||||||
19,039 | Fidelity National Information Services, Inc. | 1,440,110 | ||||||
32,157 | First Data Corp., Class A* | 456,308 | ||||||
22,875 | Fiserv, Inc.* | 2,431,155 | ||||||
9,432 | FleetCor Technologies, Inc.* | 1,334,817 | ||||||
8,223 | Gartner, Inc.* | 831,099 | ||||||
15,505 | Genpact, Ltd.* | 377,391 | ||||||
15,795 | Global Payments, Inc. | 1,096,331 | ||||||
62,378 | International Business Machines Corp.^ | 10,354,123 | ||||||
8,095 | Jack Henry & Associates, Inc. | 718,674 | ||||||
6,715 | Leidos Holdings, Inc. | 343,405 | ||||||
99,728 | MasterCard, Inc., Class A | 10,296,915 | ||||||
33,235 | Paychex, Inc. | 2,023,347 | ||||||
116,784 | PayPal Holdings, Inc.*^ | 4,609,464 | ||||||
21,357 | Sabre Corp.^ | 532,857 | ||||||
4,612 | Square, Inc., Class A* | 62,862 | ||||||
13,317 | Teradata Corp.*^ | 361,823 | ||||||
17,090 | Total System Services, Inc. | 837,923 | ||||||
15,943 | Vantive, Inc., Class A* | 950,522 | ||||||
197,080 | Visa, Inc., Class A^ | 15,376,181 | ||||||
50,661 | Western Union Co.^ | 1,100,357 | ||||||
3,978 | WEX, Inc.* | 443,945 | ||||||
|
| |||||||
75,967,079 | ||||||||
|
| |||||||
Leisure Products (0.3%): | ||||||||
7,555 | Brunswick Corp. | 412,050 | ||||||
11,566 | Hasbro, Inc.^ | 899,719 | ||||||
35,133 | Mattel, Inc.^ | 967,914 | ||||||
6,203 | Polaris Industries, Inc.^ | 511,065 | ||||||
943 | Vista Outdoor, Inc.*^ | 34,797 | ||||||
|
| |||||||
2,825,545 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.8%): | ||||||||
8,774 | Agilent Technologies, Inc. | 399,743 | ||||||
3,780 | Bio-Techne Corp. | 388,697 | ||||||
10,742 | Bruker Corp. | 227,516 | ||||||
4,818 | Charles River Laboratories International, Inc.* | 367,083 | ||||||
15,067 | Illumina, Inc.* | 1,929,179 | ||||||
2,702 | Mettler-Toledo International, Inc.* | 1,130,949 | ||||||
2,310 | Patheon NV*^ | 66,320 | ||||||
2,359 | PerkinElmer, Inc. | 123,022 | ||||||
11,543 | Quintiles Transnational Holdings, Inc.* | 877,845 | ||||||
18,425 | Thermo Fisher Scientific, Inc. | 2,599,768 | ||||||
410 | VWR Corp.*^ | 10,262 | ||||||
7,905 | Waters Corp.* | 1,062,353 | ||||||
|
| |||||||
9,182,737 | ||||||||
|
| |||||||
Machinery (1.2%): | ||||||||
8,032 | Deere & Co. | 827,617 | ||||||
12,071 | Donaldson Co., Inc.^ | 507,948 | ||||||
8,129 | Flowserve Corp.^ | 390,598 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Machinery, continued | ||||||||
8,242 | Fortive Corp. | $ | 442,018 | |||||
5,697 | Graco, Inc.^ | 473,364 | ||||||
7,271 | IDEX Corp. | 654,826 | ||||||
30,389 | Illinois Tool Works, Inc.^ | 3,721,437 | ||||||
13,304 | Ingersoll-Rand plc | 998,332 | ||||||
3,988 | Lincoln Electric Holdings, Inc.^ | 305,760 | ||||||
5,976 | Manitowoc Foodservice, Inc.*^ | 115,516 | ||||||
5,821 | Middleby Corp. (The)*^ | 749,803 | ||||||
5,885 | Nordson Corp. | 659,414 | ||||||
3,121 | PACCAR, Inc. | 199,432 | ||||||
4,368 | Snap-On, Inc.^ | 748,107 | ||||||
1,853 | Stanley Black & Decker, Inc. | 212,521 | ||||||
11,023 | Toro Co. | 616,737 | ||||||
5,445 | WABCO Holdings, Inc.* | 577,987 | ||||||
8,849 | Wabtec Corp.^ | 734,644 | ||||||
9,601 | Xylem, Inc.^ | 475,442 | ||||||
|
| |||||||
13,411,503 | ||||||||
|
| |||||||
Media (5.4%): | ||||||||
6,149 | AMC Networks, Inc., Class A*^ | 321,839 | ||||||
480 | Cable One, Inc.^ | 298,430 | ||||||
39,332 | CBS Corp., Class B^ | 2,502,302 | ||||||
20,677 | Charter Communications, Inc., Class A* | 5,953,322 | ||||||
10,899 | Cinemark Holdings, Inc.^ | 418,086 | ||||||
1,757 | Clear Channel Outdoor Holdings, Inc., Class A^ | 8,873 | ||||||
230,522 | Comcast Corp., Class A | 15,917,544 | ||||||
14,227 | Discovery Communications, Inc., Class A*^ | 389,962 | ||||||
21,290 | Discovery Communications, Inc., Class C* | 570,146 | ||||||
17,435 | DISH Network Corp., Class A* | 1,010,010 | ||||||
41,324 | Interpublic Group of Cos., Inc. (The) | 967,395 | ||||||
3,124 | Lions Gate Entertainment Corp., Class A* | 84,036 | ||||||
9,030 | Lions Gate Entertainment Corp., Class B* | 221,596 | ||||||
7,746 | Live Nation, Inc.*^ | 206,044 | ||||||
197 | Madison Square Garden Co. (The), Class A* | 33,787 | ||||||
24,348 | Omnicom Group, Inc.^ | 2,072,258 | ||||||
2,817 | Regal Entertainment Group, Class A^ | 58,030 | ||||||
8,490 | Scripps Networks Interactive, Class C^ | 605,931 | ||||||
183,101 | Sirius XM Holdings, Inc.^ | 814,799 | ||||||
53,339 | Time Warner, Inc. | 5,148,814 | ||||||
835 | Tribune Media Co., Class A^ | 29,208 | ||||||
87,004 | Twenty-First Century Fox, Inc. | 2,439,592 | ||||||
38,811 | Twenty-First Century Fox, Inc., Class B | 1,057,600 | ||||||
823 | Viacom, Inc., Class A^ | 31,686 | ||||||
31,341 | Viacom, Inc., Class B | 1,100,069 | ||||||
167,783 | Walt Disney Co. (The) | 17,486,344 | ||||||
|
| |||||||
59,747,703 | ||||||||
|
| |||||||
Metals & Mining (0.1%): | ||||||||
29,570 | Freeport-McMoRan Copper & Gold, Inc.* | 390,028 | ||||||
440 | Royal Gold, Inc. | 27,874 | ||||||
3,914 | Southern Copper Corp.^ | 125,013 | ||||||
3,791 | Steel Dynamics, Inc. | 134,884 | ||||||
|
| |||||||
677,799 | ||||||||
|
| |||||||
Multiline Retail (0.5%): | ||||||||
29,328 | Dollar General Corp.^ | 2,172,324 | ||||||
23,351 | Dollar Tree, Inc.* | 1,802,230 |
Continued
8
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Multiline Retail, continued | ||||||||
12,705 | Nordstrom, Inc. | $ | 608,951 | |||||
6,581 | Target Corp. | 475,346 | ||||||
|
| |||||||
5,058,851 | ||||||||
|
| |||||||
Multi-Utilities (0.0%): | ||||||||
3,921 | Dominion Resources, Inc. | 300,309 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.6%): | ||||||||
26,953 | Apache Corp. | 1,710,707 | ||||||
33,397 | Cabot Oil & Gas Corp. | 780,154 | ||||||
5,035 | Chesapeake Energy Corp.*^ | 35,346 | ||||||
1,530 | Cimarex Energy Co. | 207,927 | ||||||
3,990 | Continental Resources, Inc.*^ | 205,645 | ||||||
4,819 | Devon Energy Corp. | 220,084 | ||||||
1,968 | Diamondback Energy, Inc.*^ | 198,886 | ||||||
6,361 | EOG Resources, Inc. | 643,097 | ||||||
5,240 | Newfield Exploration Co.* | 212,220 | ||||||
21,530 | ONEOK, Inc.^ | 1,236,037 | ||||||
1,737 | Parsley Energy, Inc., Class A* | 61,212 | ||||||
50,386 | Southwestern Energy Co.*^ | 545,177 | ||||||
11,105 | Spectra Energy Corp. | 456,304 | ||||||
11,738 | Williams Cos., Inc. (The) | 365,521 | ||||||
|
| |||||||
6,878,317 | ||||||||
|
| |||||||
Personal Products (0.2%): | ||||||||
2,995 | Coty, Inc., Class A^ | 54,838 | ||||||
22,336 | Estee Lauder Co., Inc. (The), Class A | 1,708,481 | ||||||
7,593 | Herbalife, Ltd.*^ | 365,527 | ||||||
1,682 | Nu Skin Enterprises, Inc., Class A | 80,366 | ||||||
|
| |||||||
2,209,212 | ||||||||
|
| |||||||
Pharmaceuticals (2.9%): | ||||||||
8,679 | Akorn, Inc.*^ | 189,463 | ||||||
20,475 | Allergan plc*^ | 4,299,955 | ||||||
172,825 | Bristol-Myers Squibb Co. | 10,099,893 | ||||||
100,693 | Eli Lilly & Co. | 7,405,970 | ||||||
49,109 | Johnson & Johnson Co. | 5,657,848 | ||||||
14,935 | Mylan NV* | 569,770 | ||||||
43,452 | Pfizer, Inc. | 1,411,321 | ||||||
46,966 | Zoetis, Inc. | 2,514,090 | ||||||
|
| |||||||
32,148,310 | ||||||||
|
| |||||||
Professional Services (0.4%): | ||||||||
1,520 | Dun & Bradstreet Corp. | 184,406 | ||||||
12,206 | Equifax, Inc. | 1,443,116 | ||||||
29,032 | Nielsen Holdings plc | 1,217,892 | ||||||
13,091 | Robert Half International, Inc.^ | 638,579 | ||||||
5,481 | TransUnion* | 169,527 | ||||||
15,786 | Verisk Analytics, Inc.* | 1,281,350 | ||||||
|
| |||||||
4,934,870 | ||||||||
|
| |||||||
Real Estate Management & Development (0.1%): | ||||||||
30,855 | CBRE Group, Inc., Class A*^ | 971,624 | ||||||
|
| |||||||
Road & Rail (0.3%): | ||||||||
390 | AMERCO, Inc.^ | 144,140 | ||||||
7,995 | Avis Budget Group, Inc.* | 293,257 | ||||||
1,235 | Hertz Global Holdings, Inc.* | 26,627 | ||||||
9,116 | J.B. Hunt Transport Services, Inc. | 884,890 | ||||||
4,342 | Landstar System, Inc.^ | 370,373 | ||||||
4,305 | Old Dominion Freight Line, Inc.*^ | 369,326 | ||||||
13,675 | Union Pacific Corp. | 1,417,823 | ||||||
|
| |||||||
3,506,436 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Semiconductors & Semiconductor Equipment (3.1%): | ||||||||
80,255 | Applied Materials, Inc. | $ | 2,589,829 | |||||
38,912 | Broadcom, Ltd. | 6,878,474 | ||||||
3,999 | Cree, Inc.*^ | 105,534 | ||||||
43,931 | Intel Corp. | 1,593,377 | ||||||
16,063 | KLA-Tencor Corp. | 1,263,837 | ||||||
13,125 | Lam Research Corp.^ | 1,387,706 | ||||||
11,518 | Linear Technology Corp. | 718,147 | ||||||
29,104 | Maxim Integrated Products, Inc. | 1,122,541 | ||||||
21,641 | Microchip Technology, Inc.^ | 1,388,270 | ||||||
52,485 | NVIDIA Corp.^ | 5,602,249 | ||||||
3,433 | ON Semiconductor Corp.*^ | 43,805 | ||||||
1,451 | Qorvo, Inc.*^ | 76,511 | ||||||
31,388 | QUALCOMM, Inc. | 2,046,498 | ||||||
17,941 | Skyworks Solutions, Inc.^ | 1,339,475 | ||||||
103,742 | Texas Instruments, Inc. | 7,570,054 | ||||||
8,791 | Versum Materials, Inc.*^ | 246,763 | ||||||
8,291 | Xilinx, Inc. | 500,528 | ||||||
|
| |||||||
34,473,598 | ||||||||
|
| |||||||
Software (7.1%): | ||||||||
57,719 | Activision Blizzard, Inc. | 2,084,233 | ||||||
50,330 | Adobe Systems, Inc.* | 5,181,473 | ||||||
2,358 | ANSYS, Inc.* | 218,091 | ||||||
2,936 | Atlassian Corp. plc, Class A*^ | 70,699 | ||||||
17,836 | Autodesk, Inc.* | 1,320,042 | ||||||
30,748 | Cadence Design Systems, Inc.*^ | 775,465 | ||||||
15,995 | CDK Global, Inc. | 954,742 | ||||||
15,975 | Citrix Systems, Inc.* | 1,426,727 | ||||||
2,388 | Dell Technologies, Inc., Class V* | 131,268 | ||||||
29,977 | Electronic Arts, Inc.* | 2,360,989 | ||||||
3,130 | FireEye, Inc.*^ | 37,247 | ||||||
14,919 | Fortinet, Inc.* | 449,360 | ||||||
7,449 | Guidewire Software, Inc.*^ | 367,459 | ||||||
25,122 | Intuit, Inc. | 2,879,232 | ||||||
7,380 | Manhattan Associates, Inc.* | 391,361 | ||||||
782,793 | Microsoft Corp. | 48,642,756 | ||||||
17,493 | Nuance Communications, Inc.* | 260,646 | ||||||
29,918 | Oracle Corp. | 1,150,347 | ||||||
5,236 | PTC, Inc.* | 242,270 | ||||||
18,643 | Red Hat, Inc.* | 1,299,417 | ||||||
66,029 | Salesforce.com, Inc.* | 4,520,345 | ||||||
16,231 | ServiceNow, Inc.* | 1,206,613 | ||||||
13,470 | Splunk, Inc.*^ | 688,991 | ||||||
15,941 | SS&C Technologies Holdings, Inc.^ | 455,913 | ||||||
9,022 | Symantec Corp. | 215,536 | ||||||
1,575 | Synopsys, Inc.* | 92,705 | ||||||
5,632 | Tableau Software, Inc., Class A*^ | 237,389 | ||||||
3,405 | Tyler Technologies, Inc.*^ | 486,132 | ||||||
2,833 | Ultimate Software Group, Inc. (The)*^ | 516,598 | ||||||
2,640 | VMware, Inc., Class A*^ | 207,847 | ||||||
11,993 | Workday, Inc., Class A*^ | 792,617 | ||||||
|
| |||||||
79,664,510 | ||||||||
|
| |||||||
Specialty Retail (4.1%): | ||||||||
7,291 | Advance Auto Parts, Inc.^ | 1,233,054 | ||||||
2,672 | AutoNation, Inc.*^ | 129,993 | ||||||
3,033 | AutoZone, Inc.* | 2,395,433 | ||||||
1,831 | Bed Bath & Beyond, Inc.^ | 74,412 |
Continued
9
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Specialty Retail, continued | ||||||||
4,129 | Burlington Stores, Inc.* | $ | 349,933 | |||||
567 | Cabela’s, Inc., Class A*^ | 33,198 | ||||||
19,896 | CarMax, Inc.*^ | 1,281,103 | ||||||
7,015 | Dick’s Sporting Goods, Inc. | 372,497 | ||||||
12,475 | Foot Locker, Inc. | 884,353 | ||||||
1,344 | Gap, Inc. (The)^ | 30,159 | ||||||
128,673 | Home Depot, Inc. (The) | 17,252,475 | ||||||
4,507 | L Brands, Inc. | 296,741 | ||||||
92,324 | Lowe’s Cos., Inc. | 6,566,082 | ||||||
7,393 | Michaels Cos., Inc. (The)*^ | 151,187 | ||||||
2,328 | Murphy U.S.A., Inc.*^ | 143,102 | ||||||
9,743 | O’Reilly Automotive, Inc.*^ | 2,712,549 | ||||||
40,585 | Ross Stores, Inc. | 2,662,376 | ||||||
15,087 | Sally Beauty Holdings, Inc.*^ | 398,599 | ||||||
6,556 | Signet Jewelers, Ltd.^ | 617,969 | ||||||
68,215 | TJX Cos., Inc. (The) | 5,124,993 | ||||||
13,738 | Tractor Supply Co. | 1,041,478 | ||||||
6,029 | Ulta Salon, Cosmetics & Fragrance, Inc.* | 1,537,033 | ||||||
7,196 | Urban Outfitters, Inc.*^ | 204,942 | ||||||
9,109 | Williams-Sonoma, Inc.^ | 440,785 | ||||||
|
| |||||||
45,934,446 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (5.4%): | ||||||||
518,852 | Apple, Inc. | 60,093,439 | ||||||
12,707 | NCR Corp.* | 515,396 | ||||||
|
| |||||||
60,608,835 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (1.3%): | ||||||||
5,167 | Carter’s, Inc.^ | 446,377 | ||||||
5,456 | Coach, Inc. | 191,069 | ||||||
38,814 | Hanesbrands, Inc.^ | 837,218 | ||||||
13,170 | Kate Spade & Co.*^ | 245,884 | ||||||
9,988 | Lululemon Athletica, Inc.*^ | 649,120 | ||||||
16,746 | Michael Kors Holdings, Ltd.*^ | 719,743 | ||||||
136,773 | Nike, Inc., Class C | 6,952,171 | ||||||
360 | Ralph Lauren Corp.^ | 32,515 | ||||||
13,413 | Skechers U.S.A., Inc., Class A* | 329,692 | ||||||
18,816 | Under Armour, Inc., Class A*^ | 546,605 | ||||||
19,107 | Under Armour, Inc., Class C* | 480,923 | ||||||
35,090 | VF Corp.^ | 1,872,052 | ||||||
|
| |||||||
13,303,369 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Common Stocks, continued | ||||||||
Tobacco (1.6%): | ||||||||
202,365 | Altria Group, Inc. | $ | 13,683,922 | |||||
17,119 | Philip Morris International, Inc. | 1,566,217 | ||||||
52,498 | Reynolds American, Inc. | 2,941,988 | ||||||
|
| |||||||
18,192,127 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.5%): | ||||||||
4,939 | Air Lease Corp.^ | 169,556 | ||||||
29,640 | Fastenal Co.^ | 1,392,487 | ||||||
20,665 | HD Supply Holdings, Inc.* | 878,469 | ||||||
344 | Herc Holdings, Inc. Com* | 13,815 | ||||||
1,806 | MSC Industrial Direct Co., Inc., Class A^ | 166,856 | ||||||
7,769 | United Rentals, Inc.*^ | 820,251 | ||||||
5,699 | W.W. Grainger, Inc.^ | 1,323,593 | ||||||
2,675 | Watsco, Inc. | 396,221 | ||||||
|
| |||||||
5,161,248 | ||||||||
|
| |||||||
Wireless Telecommunication Services (0.1%): | ||||||||
18,129 | T-Mobile US, Inc.*^ | 1,042,598 | ||||||
|
| |||||||
Total Common Stocks (Cost $999,160,711) | 1,086,977,050 | |||||||
|
| |||||||
Preferred Stock (0.6%): | ||||||||
Software (0.6%): | ||||||||
841,419 | Palantir Technologies, Inc., Series I*(a)(b) | 6,807,080 | ||||||
|
| |||||||
Total Preferred Stock (Cost $5,157,898) | 6,807,080 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (12.5%): | ||||||||
$ | 139,871,200 | AZL Russell 1000 Growth Index Fund Securities Lending Collateral Account(c) | $ | 139,871,200 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 139,871,200 | ||||||
|
| |||||||
Unaffiliated Investment Company (1.8%): | ||||||||
20,389,102 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(d) | 20,389,102 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $20,389,102) | 20,389,102 | |||||||
|
| |||||||
| Total Investment Securities (Cost $1,164,578,911)(e) — 112.5% | 1,254,044,432 | ||||||
Net other assets (liabilities) — (12.5)% | (139,425,576 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 1,114,618,856 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2016. The total value of securities on loan as of December 31, 2016, was $136,052,595. |
(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, 2016, these securities represent 0.61% 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, 2016. The total of all such securities represent 0.61% 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, 2016. |
Continued
10
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2016
(d) | The rate represents the effective yield at December 31, 2016. |
(e) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Futures Contracts
Cash of $865,200 has been segregated to cover margin requirements for the following open contracts as of December 31, 2016:
Description | Type | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
NASDAQ 100 E-Mini March Futures | Long | 3/17/17 | 91 | $ | 8,852,480 | $ | 42,302 | |||||||||||||
S&P 500 Index E-Mini March Futures | Long | 3/17/17 | 113 | 12,634,530 | 26,583 | |||||||||||||||
|
| |||||||||||||||||||
Total | $ | 68,885 | ||||||||||||||||||
|
|
See accompanying notes to the financial statements.
11
AZL Russell 1000 Growth Index Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investments securities, at cost | $ | 1,164,578,911 | |||
|
| ||||
Investments securities, at value* | $ | 1,254,044,432 | |||
Segregated cash for collateral | 865,200 | ||||
Interest and dividends receivable | 1,058,055 | ||||
Prepaid expenses | 4,831 | ||||
|
| ||||
Total Assets | 1,255,972,518 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 216,212 | ||||
Payable for capital shares redeemed | 305,791 | ||||
Payable for collateral received on loaned securities | 139,871,200 | ||||
Payable for variation margin on futures contracts | 149,475 | ||||
Manager fees payable | 372,083 | ||||
Administration fees payable | 17,329 | ||||
Distribution fees payable | 228,003 | ||||
Custodian fees payable | 20,835 | ||||
Administrative and compliance services fees payable | 3,016 | ||||
Trustee fees payable | 2,291 | ||||
Other accrued liabilities | 167,427 | ||||
|
| ||||
Total Liabilities | 141,353,662 | ||||
|
| ||||
Net Assets | $ | 1,114,618,856 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 926,834,799 | |||
Accumulated net investment income/(loss) | 2,624,252 | ||||
Accumulated net realized gains/(losses) from investment transactions | 95,625,399 | ||||
Net unrealized appreciation/(depreciation) on investments | 89,534,406 | ||||
|
| ||||
Net Assets | $ | 1,114,618,856 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 49,296,554 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 4,797,229 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.28 | |||
|
| ||||
Class 2 | |||||
Net Assets | $ | 1,065,322,302 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 82,037,358 | ||||
Net Asset Value (offering and redemption price per share) | $ | 12.99 | |||
|
|
* | Includes securities on loan of $136,052,595. |
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Dividends | $ | 5,030,112 | |||
Dividends from affiliates | 1,731 | ||||
Interest | (91 | ) | |||
Income from securities lending | 115,020 | ||||
Foreign withholding tax | (3,265 | ) | |||
|
| ||||
Total Investment Income | 5,143,507 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 1,330,240 | ||||
Administration fees | 73,478 | ||||
Distribution fees — Class 2 | 730,261 | ||||
Custodian fees | 15,563 | ||||
Administrative and compliance services fees | 2,424 | ||||
Trustee fees | 6,966 | ||||
Professional fees | 22,321 | ||||
Shareholder reports | 15,027 | ||||
Other expenses | 84,822 | ||||
|
| ||||
Total expenses before reductions | 2,281,102 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (134,929 | ) | |||
|
| ||||
Net expenses | 2,146,173 | ||||
|
| ||||
Net Investment Income/(Loss) | 2,997,334 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 96,143,002 | ||||
Net realized gains/(losses) from affiliated transactions | 246,933 | ||||
Net realized gains/(losses) on futures contracts | 1,402,471 | ||||
Change in net unrealized appreciation/depreciation on investments | (70,716,720 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 27,075,686 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 30,073,020 | |||
|
|
See accompanying notes to the financial statements.
12
Statements of Changes in Net Assets
AZL Russell 1000 Growth Index Fund | ||||||||||
For the Year Ended December 31, 2016 | For the Year Ended December 31, 2015 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 2,997,334 | $ | 967,120 | ||||||
Net realized gains/(losses) on investment transactions | 97,792,406 | 19,179,577 | ||||||||
Change in unrealized appreciation/depreciation on investments | (70,716,720 | ) | (13,368,318 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 30,073,020 | 6,778,379 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1* | — | |||||||||
Class 2 | (985,572 | ) | (1,087,102 | ) | ||||||
From net realized gains: | ||||||||||
Class 1* | — | |||||||||
Class 2 | (19,179,274 | ) | (13,564,718 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (20,164,846 | ) | (14,651,820 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Class 1* | ||||||||||
Proceeds from shares issued | 49,657,962 | |||||||||
Value of shares redeemed | (1,702,381 | ) | ||||||||
|
| |||||||||
Total Class 1 Shares | 47,955,581 | |||||||||
|
| |||||||||
Class 2 | ||||||||||
Proceeds from shares issued | 412,589,929 | 12,932,548 | ||||||||
Proceeds from shares issued in merger | 579,445,361 | — | ||||||||
Proceeds from dividends reinvested | 20,164,846 | 14,651,820 | ||||||||
Value of shares redeemed | (56,974,870 | ) | (48,440,168 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | 955,225,266 | (20,855,800 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 1,003,180,847 | (20,855,800 | ) | |||||||
|
|
|
| |||||||
Change in net assets | 1,013,089,021 | (28,729,241 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 101,529,835 | 130,259,076 | ||||||||
|
|
|
| |||||||
End of period | $ | 1,114,618,856 | $ | 101,529,835 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 2,624,252 | $ | 984,244 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Class 1* | ||||||||||
Shares issued | 4,965,790 | |||||||||
Shares redeemed | (168,561 | ) | ||||||||
|
| |||||||||
Total Class 1 Shares | 4,797,229 | |||||||||
|
| |||||||||
Class 2 | ||||||||||
Shares issued | 32,588,598 | 754,465 | ||||||||
Shares issued in merger | 45,518,096 | — | ||||||||
Dividends reinvested | 1,601,656 | 994,018 | ||||||||
Shares redeemed | (4,298,679 | ) | (2,734,582 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | 75,409,671 | (986,099 | ) | |||||||
|
|
|
| |||||||
Change in shares | 80,206,900 | (986,099 | ) | |||||||
|
|
|
|
* | For the period October 17, 2016 (commencement of operations) to December 31, 2016. |
See accompanying notes to the financial statements.
13
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, | |||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||
Class 1* | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.00 | |||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.03 | ||||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.25 | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Total from Investment Activities | 0.28 | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Net Asset Value, End of Period | $ | 10.28 | |||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Total Return(a) | 2.80 | %(b) | |||||||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 49,297 | |||||||||||||||||||||||
Net Investment Income/(Loss)(c) | 1.26 | % | |||||||||||||||||||||||
Expenses Before Reductions(c)(d) | 0.50 | % | |||||||||||||||||||||||
Expenses Net of Reductions(c) | 0.45 | % | |||||||||||||||||||||||
Portfolio Turnover Rate(e) | 158 | %(f) | |||||||||||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 15.32 | $ | 17.11 | $ | 16.55 | $ | 12.63 | $ | 11.10 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.04 | 0.19 | 0.17 | 0.18 | 0.12 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.84 | 0.54 | 1.80 | 3.90 | 1.48 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 0.88 | 0.73 | 1.97 | 4.08 | 1.60 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.16 | ) | (0.19 | ) | (0.17 | ) | (0.16 | ) | (0.07 | ) | |||||||||||||||
Net Realized Gains | (3.05 | ) | (2.33 | ) | (1.24 | ) | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (3.21 | ) | (2.52 | ) | (1.41 | ) | (0.16 | ) | (0.07 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 12.99 | $ | 15.32 | $ | 17.11 | $ | 16.55 | $ | 12.63 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 6.43 | % | 4.86 | % | 12.21 | % | 32.48 | % | 14.40 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 1,065,322 | $ | 101,530 | $ | 130,259 | $ | 144,335 | $ | 145,865 | |||||||||||||||
Net Investment Income/(Loss) | 0.99 | % | 0.86 | % | 0.83 | % | 0.89 | % | 1.09 | % | |||||||||||||||
Expenses Before Reductions(d) | 0.77 | % | 0.78 | % | 0.78 | % | 0.78 | % | 0.80 | % | |||||||||||||||
Expenses Net of Reductions | 0.72 | % | 0.78 | % | 0.78 | % | 0.78 | % | 0.80 | % | |||||||||||||||
Portfolio Turnover Rate(e) | 158 | %(f) | 14 | % | 13 | % | 13 | % | 16 | % |
* | For the period October 17, 2016 (commencement of operations) to December 31, 2016. |
(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) | Not annualized. |
(c) | Annualized for periods less than one year. |
(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. Not annualized for periods less than one year. |
(f) | Cost of purchases and proceeds from sales of portfolio securities incurred to realign the Fund’s portfolio after the fund merger are excluded from the portfolio turnover rate. If such amounts had not been excluded, the portfolio turnover rate would have been 158%. |
See accompanying notes to the financial statements.
14
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 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 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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.
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) 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 Russell 1000 Growth Index Fund
Notes to the Financial Statements
December 31, 2016
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, 2016 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $39.1 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $12,690 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (“ASU No. 2014-11”), “Transfers & Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged, and the remaining contractual maturity of those transactions as of December 31, 2016.
Overnight and Continuous | Less than 30 Days | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions | |||||||||||||||||||||||||
Common Stocks | $ | 139,427,256 | $ | 443,944 | $ | — | $ | — | $ | 139,871,200 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Securities Lending Transactions | 139,427,256 | 443,944 | — | — | 139,871,200 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Borrowings | $ | 139,427,256 | $ | 443,944 | $ | — | $ | — | $ | 139,871,200 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Gross Amount of Recognized Liabilities for Securities Lending Transactions |
| $ | 139,871,200 | ||||||||||||||||||||||
|
|
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and sub-adviser. Any such purchase or sale transaction must be effected without a brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security’s last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. During the year ending December 31, 2016, the Fund engaged in such affiliated transactions at the current market price.
The Fund is permitted to purchase and sell securities (“crosstrade”) from and to other Allianz Funds as well as other funds and client accounts for which the Adviser or an affiliate of the Adviser serves as investment adviser, pursuant to procedures approved by the Trustees in compliance with Rule 17a-7 under the Act (the “Rule”). Each cross-trade is executed at the current market price in compliance with provisions of the Rule. For the year ended December 31, 2016, the Fund participated in following cross-trade transactions:
Purchases | Sales | Realized (Gain/Loss) | |||||||||||||
AZL Russell 1000 Growth Index Fund | $ | (7,675,886 | ) | $ | 7,124,799 | $ | 130,593 |
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.
16
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements
December 31, 2016
Futures Contracts
During the year ended December 31, 2016, 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 $21.5 million as of December 31, 2016. The monthly average notional amount for these contracts was $8.0 million for the year ended December 31, 2016. 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, 2016:
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 Risk Exposure | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 68,885 | 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 the current day’s variation margin is reported within the Statement of Assets and Liabilities as Variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended December 31, 2016:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives Recognized | Change in Net Unrealized Appreciation/Depreciation on Derivatives Recognized | |||||||
Equity Risk Exposure | ||||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/ Change in unrealized appreciation/depreciation on investments | $ | 1,402,471 | $74,923 |
3. Fees and Transactions with Affiliates and Other Parties
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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, 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 Class 1 | 0.39 | % | 0.59 | % | ||||||
AZL Russell 1000 Growth Index Fund Class 2 | 0.39 | % | 0.84 | % |
* | Effective October 14, 2016 the Manager voluntarily reduced the management fee to 0.39% on all assets. The manager reserves the right to increase the management fee to the amount shown in the table 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, 2016, 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.
17
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements
December 31, 2016
The Manager or an affiliate of the Manager serves as the investment adviser of certain securities in which the Fund invests. At December 31, 2016, these investments are noted as Affiliated Securities in the Fund’s Schedule of Portfolio Investments. A summary of the Fund’s investments in affiliated securities for the year ended December 31, 2016 is as follows:
Fair Value 12/31/15 | Purchases at Cost | Proceeds from Sales | Fair Value 12/31/16 | Dividend Income | |||||||||||||||||||||
BlackRock Inc., Class A | $ | 128,717 | $ | — | $ | (3,953,144 | ) | $ | — | $ | 1,731 | ||||||||||||||
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|
|
|
|
|
|
|
| ||||||||||||||||
$ | 128,717 | $ | — | $ | (3,953,144 | ) | $ | — | $ | 1,731 | |||||||||||||||
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|
|
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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the average daily net assets attributable to Class 2 shares, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $3,523 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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 (the “Board” or “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.
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AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements
December 31, 2016
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, 2016 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Common Stocks+ | $ | 1,086,977,050 | $ | — | $ | — | $ | 1,086,977,050 | ||||||||||||
Preferred Stock | — | — | 6,807,080 | 6,807,080 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | 139,871,200 | — | 139,871,200 | ||||||||||||||||
Unaffiliated Investment Company | 20,389,102 | — | — | 20,389,102 | ||||||||||||||||
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Total Investment Securities | 1,107,366,152 | 139,871,200 | 6,807,080 | 1,254,044,432 | ||||||||||||||||
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Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | 68,885 | — | — | 68,885 | ||||||||||||||||
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Total Investments | $ | 1,107,435,037 | $ | 139,871,200 | $ | 6,807,080 | $ | 1,254,113,317 | ||||||||||||
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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. |
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, 2016, 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 | $ | 809,388,727 | $ | 515,887,455 |
6. Restricted Securities
A restricted security is a security which has been purchase 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, 2016 are identified below.
Security | Acquisition Date(a) | Acquisition Cost | Shares or Principal Amount | Fair Value | Percentage of Net Assets | ||||||||||||||||||||
Palantir Technologies, Inc., Series I | 2/7/14 | $ | 5,157,898 | 841,419 | $ | 6,807,080 | 0.61 | % |
(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.
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AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements
December 31, 2016
8. Federal Tax Information
It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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 of securities for federal income tax purposes at December 31, 2016 is $1,170,014,161. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 103,220,324 | ||
Unrealized (depreciation) | (19,190,052 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 84,030,272 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Russell 1000 Growth Index Fund | $ | 985,572 | $ | 19,179,274 | $ | 20,164,846 |
(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, 2015 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Russell 1000 Growth Index Fund | $ | 1,623,004 | $ | 13,028,816 | $ | 14,651,820 |
(a) | Total distributions paid may differ from that presented in the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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 (Deficit) | |||||||||||||||||||||
AZL Russell 1000 Growth Index Fund | $ | 13,766,981 | $ | 89,986,804 | $ | — | $ | 84,030,272 | $ | 187,784,057 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies — Form N-PORT and Form N-CEN – also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
10. Acquisition of Funds
Effective as of the close of business October 21, 2016, the Fund acquired all of the net assets of the AZL BlackRock Capital Appreciation Fund (“BlackRock Fund”) and AZL Boston Company Research Growth Fund (“Boston Growth Fund”), open-end management investment companies, pursuant to a plan of reorganization approved by the Board on June 14, 2016. The purpose of the transaction was to combine three funds managed by the Manager with comparable investment objectives and strategies. The acquisition was accomplished by a tax-free exchange of 45,518,096 shares of the Fund, valued at $579,445,361, for 28,320,890 shares of the BlackRock Fund and 20,745,274 shares of the Boston Growth Fund outstanding as of close of business October 21, 2016, respectively.
The investment portfolios of the BlackRock Fund and the Boston Growth Fund were the principal assets acquired by the Fund. At the close of business October 21, 2016, the BlackRock Fund investment portfolio had a fair value of $382,242,669 and identified cost of $301,480,467. At the close of business October 21, 2016, the Boston Growth Fund investment portfolio had a fair value of $197,287,489 and identified cost of $158,801,738. For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value; however, the cost basis of the investments received from the BlackRock Fund and Boston Growth Fund were carried forward to align ongoing reporting of the Fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes. Immediately prior to the merger, the Fund’s net
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AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements
December 31, 2016
assets were $584,863,042. All fees and expenses incurred by the BlackRock Fund and Boston Growth Fund and the Fund directly in connection with the plan of reorganization were borne equally by the Manager and, collectively, the BlackRock Fund and the Boston Growth Fund, except that the expenses borne by the BlackRock Fund and the Boston Growth Fund did not exceed $68,500 and $48,000, respectively, as provided by the plan of reorganization.
Assuming the acquisition had been completed on January 1, 2016, the beginning of the annual reporting period of the Fund, the Fund’s pro forma results of operations for the year ended December 31, 2016, are as follows:
Net investment income/(loss) | $ | 4,806,132 | ||
Net realized/unrealized gains/(losses) | 35,280,643 | |||
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Change in net assets resulting from operations | $ | 40,086,775 |
Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the BlackRock Fund and the Boston Company Fund that have been included in the Fund’s statement of operations since October 22, 2016.
In the calculation of the portfolio turnover as presented in the Financial Highlights, the Fund excluded the cost of purchases and proceeds from sales of portfolio securities that occurred in the effort to realign a combined fund’s portfolio after the merger. The amounts of excluded purchases and sales are as follows:
Cost of purchases | $ | 112,646,784 | ||
Proceeds from sales | — |
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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 Growth Index Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2016, 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 or 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, 2016, by correspondence with the custodian and brokers. 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 AZL Russell 1000 Growth Index Fund as of December 31, 2016, 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 or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Columbus, Ohio
February 24, 2017
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2016, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deductions available to corporate shareholders.
During the year ended December 31, 2016, the Fund declared net long-term capital gain distributions of $19,179,274.
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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 — October 25, 2016 (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 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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 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 the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held October 25, 2016, the Manager reported that for the three year period ended June 30, 2016, seven Funds were in the top 40%, two were in the middle 20% and three were in the bottom 40%, and for the one year period ended June 30, 2016, twelve Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2016, six Funds were in the top 40%, one was in the middle 20%, and three were in the bottom 40%. At the Board of Trustees meeting held October 25, 2016, 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 twenty Funds reviewed by the Board of Trustees in the fall of 2016, seventeen 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 2016 for the twenty-one Funds was as follows; (1) eighteen of the Funds had total expense rankings below the 65th percentile (with eleven Funds at or below the 50th percentile); (2) the AZL Russell 1000 Growth Index Fund had a total expense ranking in the 66th percentile, but there was only a very limited peer group for such Fund, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; (3) the AZL International Index Fund had a total expense ranking in the 75th percentile, but there was only a limited peer group for such Fund, the actual management fee was in the 37th percentile, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; and (4) for the AZL Morgan Stanley Global Real Estate Fund, which had a total expense ranking in the 70th percentile, the Manager recommended a temporary management fee waiver of 5 basis points, effective November 1, 2016, which would move the management fee ranking from the 80th to the 60th percentile.
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 2013 through June 30, 2016. 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, all of which currently are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. 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, 2016 were approximately $6.4 billion, and that no single Fund had assets in excess of $1,289 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, 2017, 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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 5701 Golden Hills Drive | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 5701 Golden Hills Drive | 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 5701 Golden Hills Drive | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
28
Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
29
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® Russell 1000 Value Index Fund
Annual Report
December 31, 2016
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 23
Other Federal Income Tax Information
Page 24
Other Information
Page 25
Approval of Investment Advisory and Subadvisory Agreements
Page 26
Information about the Board of Trustees and Officers
Page 29
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, 2016?
For the year ended December 31, 2016, the AZL® Russell 1000 Value Index Fund (Class 2 Shares) (the “Fund”) returned 16.15%. That compared to a 17.34% total return for its benchmark, the Russell 1000® Value Index1.
The Fund takes positions in securities that, in combination, should have similar return characteristics as the return of the Index. The Index is designed to provide a comprehensive measure of value stocks’ performance.*
U.S. equities started the year on a down note. Stock prices fell on fears of a global economic slowdown; cratering oil prices; and terrorist attacks in Istanbul, Jakarta and Pakistan. Volatility also increased as investors prepared for a possible interest rate increase by the Federal Reserve.
A rebound in oil prices in February helped fuel a recovery in domestic equity markets that continued into the second quarter. The stock rally suffered a brief downturn in June as investors were shocked by the United Kingdom’s vote to leave the European Union. However, investor concerns quickly eased and the second quarter ended on a strong note.
That upward momentum in domestic equity markets carried through to the second half of the reporting period, driven by a dovish Federal Reserve decision to keep rates unchanged. Stock prices also benefited from earnings releases that surpassed many analyst expectations.
In the fourth quarter, the U.S. economy continued to strengthen as shown by strong macroeconomic data and a tightening labor market. Improving conditions meant the Fed’s decision in December to raise rates by 25 basis
points (0.25%) did not come as a big surprise. While many investors were shocked by Donald Trump’s election win, markets did not show the same type of volatility as seen following the Brexit vote in June; most major U.S. indexes posted solid gains in November.
In general, value stocks outperformed growth stocks for the period. From a sector perspective, materials, energy, and telecommunication services stocks generated the strongest returns in the Index. Most of the sectors contributed positively to Index returns in 2016.
The Fund held derivatives in the form of futures contracts, which it used to hedge its cash position. The futures 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, 2016. | |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
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 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, 2016 | ||||||||||||||||||||
Inception Data | 1 Year | 3 Year | 5 Year | Since Inception | ||||||||||||||||
AZL® Russell 1000 Value Index Fund (Class 1 Shares) | 10/14/16 | — | — | — | 7.90 | %* | ||||||||||||||
AZL® Russell 1000 Value Index Fund (Class 2 Shares) | 4/30/10 | 16.15 | % | 7.72 | % | 13.90 | % | 11.00 | % | |||||||||||
Russell 1000® Value Index | 4/30/10 | 17.34 | % | 8.59 | % | 14.80 | % | 11.86 | % |
* | Cumulative Return |
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® Russell 1000 Value Index Fund (Class 1 Shares) | 0.52 | % | ||
AZL® Russell 1000 Value Index Fund (Class 2 Shares) | 0.77 | % |
Expense Ratios are based on the current Fund prospectus dated August 31, 2016. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 0.59% for Class 1 Shares and 0.84% for Class 2 Shares through April 30, 2018. Additional information pertaining to the December 31, 2016 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 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid 7/1/16 - 12/31/16* | Annualized During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Russell 1000 Value Index Fund, Class 1** | $ | 1,000.00 | $ | 1,079.00 | $ | 0.99 | 0.46 | % | ||||||||||||
AZL Russell 1000 Value Index Fund, Class 2 | $ | 1,000.00 | $ | 1,097.00 | $ | 3.74 | 0.71 | % |
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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid 7/1/16 - 12/31/16* | Annualized During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Russell 1000 Value Index Fund, Class 1 | $ | 1,000.00 | $ | 1,022.82 | $ | 2.34 | 0.46 | % | ||||||||||||
AZL Russell 1000 Value Index Fund, Class 2 | $ | 1,000.00 | $ | 1,021.57 | $ | 3.61 | 0.71 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
** | Expenses are equal to the average account value multiplied by the Fund’s annualized expense ratio multiplied by 76/366 to reflect the stub period from commencement of operations 10/17/2016 through 12/31/2016. |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Financials | 26.6 | % | |||
Energy | 13.5 | ||||
Health Care | 10.1 | ||||
Industrials | 9.7 | ||||
Information Technology | 9.3 | ||||
Consumer Staples | 7.9 | ||||
Utilities | 6.0 | ||||
Real Estate | 4.5 | ||||
Consumer Discretionary | 4.4 | ||||
Telecommunication Services | 3.7 | ||||
Materials | 2.6 | ||||
|
| ||||
Total Common Stocks | 98.3 | ||||
Securities Held as Collateral for Securities on Loan | 10.8 | ||||
Money Market | 1.5 | ||||
|
| ||||
Total Investment Securities | 110.6 | ||||
Net other assets (liabilities) | (10.6 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks (98.3%): |
| ||||||
| Aerospace & Defense (1.6%): |
| ||||||
46,171 | Arconic, Inc.^ | $ | 856,010 | |||||
15,024 | General Dynamics Corp. | 2,594,044 | ||||||
826 | Huntington Ingalls Industries, Inc. | 152,141 | ||||||
8,081 | L-3 Communications Holdings, Inc. | 1,229,201 | ||||||
6,316 | Orbital ATK, Inc. | 554,103 | ||||||
19,361 | Raytheon Co. | 2,749,262 | ||||||
6,177 | Spirit AeroSystems Holdings, Inc., Class A | 360,428 | ||||||
19,212 | Textron, Inc. | 932,935 | ||||||
81,650 | United Technologies Corp. | 8,950,472 | ||||||
|
| |||||||
18,378,596 | ||||||||
|
| |||||||
| Air Freight & Logistics (0.0%): |
| ||||||
5,822 | Expeditors International of Washington, Inc.^ | 308,333 | ||||||
|
| |||||||
| Airlines (0.6%): |
| ||||||
2,291 | Alaska Air Group, Inc.^ | 203,280 | ||||||
55,618 | American Airlines Group, Inc.^ | 2,596,804 | ||||||
3,371 | Copa Holdings SA, Class A^ | 306,188 | ||||||
17,869 | Delta Air Lines, Inc. | 878,976 | ||||||
30,883 | JetBlue Airways Corp.* | 692,397 | ||||||
7,725 | Spirit Airlines, Inc.* | 446,969 | ||||||
33,335 | United Continental Holdings, Inc.* | 2,429,455 | ||||||
|
| |||||||
7,554,069 | ||||||||
|
| |||||||
| Auto Components (0.2%): |
| ||||||
7,787 | Adient plc* | 456,318 | ||||||
19,831 | BorgWarner, Inc.^ | 782,135 | ||||||
10,868 | Gentex Corp.^ | 213,991 | ||||||
27,829 | Goodyear Tire & Rubber Co.^ | 859,081 | ||||||
1,375 | Lear Corp. | 182,009 | ||||||
|
| |||||||
2,493,534 | ||||||||
|
| |||||||
| Automobiles (0.9%): |
| ||||||
408,284 | Ford Motor Co. | 4,952,485 | ||||||
147,383 | General Motors Co. | 5,134,824 | ||||||
777 | Tesla Motors, Inc.*^ | 166,037 | ||||||
|
| |||||||
10,253,346 | ||||||||
|
| |||||||
| Banks (12.4%): |
| ||||||
16,143 | Associated Banc-Corp. | 398,732 | ||||||
1,081,364 | Bank of America Corp. | 23,898,144 | ||||||
4,586 | Bank of Hawaii Corp.^ | 406,732 | ||||||
10,743 | BankUnited, Inc. | 404,904 | ||||||
85,640 | BB&T Corp.^ | 4,026,793 | ||||||
2,770 | BOK Financial Corp.^ | 230,021 | ||||||
21,013 | CIT Group, Inc. | 896,835 | ||||||
308,928 | Citigroup, Inc. | 18,359,591 | ||||||
32,759 | Citizens Financial Group, Inc. | 1,167,203 | ||||||
18,474 | Comerica, Inc. | 1,258,264 | ||||||
9,443 | Commerce Bancshares, Inc.^ | 545,900 | ||||||
5,749 | Cullen/Frost Bankers, Inc.^ | 507,234 | ||||||
14,623 | East West Bancorp, Inc. | 743,287 | ||||||
80,283 | Fifth Third Bancorp^ | 2,165,233 | ||||||
2,343 | First Hawaiian, Inc.^ | 81,583 | ||||||
23,770 | First Horizon National Corp.^ | 475,638 | ||||||
3,113 | First Republic Bank | 286,832 | ||||||
112,063 | Huntington Bancshares, Inc. | 1,481,473 | ||||||
383,010 | JPMorgan Chase & Co. | 33,049,932 | ||||||
113,721 | KeyCorp | 2,077,683 | ||||||
15,698 | M&T Bank Corp.^ | 2,455,638 | ||||||
12,158 | PacWest Bancorp | 661,882 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Banks, continued |
| ||||||
32,421 | People’s United Financial, Inc.^ | $ | 627,671 | |||||
52,505 | PNC Financial Services Group, Inc. | 6,140,985 | ||||||
11,088 | Popular, Inc. | 485,876 | ||||||
133,745 | Regions Financial Corp. | 1,920,578 | ||||||
2,345 | Signature Bank* | 352,219 | ||||||
52,969 | SunTrust Banks, Inc. | 2,905,350 | ||||||
1,309 | SVB Financial Group*^ | 224,703 | ||||||
12,769 | Synovus Financial Corp. | 524,551 | ||||||
17,001 | TCF Financial Corp.^ | 333,050 | ||||||
170,776 | U.S. Bancorp^ | 8,772,763 | ||||||
480,768 | Wells Fargo & Co. | 26,495,123 | ||||||
4,401 | Western Alliance Bancorp* | 214,373 | ||||||
21,021 | Zions Bancorp^ | 904,744 | ||||||
|
| |||||||
145,481,520 | ||||||||
|
| |||||||
| Beverages (0.7%): |
| ||||||
370 | Brown-Forman Corp., Class A | 17,113 | ||||||
1,226 | Brown-Forman Corp., Class B^ | 55,072 | ||||||
103,431 | Coca-Cola Co. (The) | 4,288,249 | ||||||
18,043 | Molson Coors Brewing Co., Class B | 1,755,764 | ||||||
19,784 | PepsiCo, Inc. | 2,070,000 | ||||||
|
| |||||||
8,186,198 | ||||||||
|
| |||||||
| Biotechnology (0.0%): |
| ||||||
1,128 | Alnylam Pharmaceuticals, Inc.*^ | 42,232 | ||||||
682 | Juno Therapeutics, Inc.*^ | 12,856 | ||||||
3,429 | OPKO Health, Inc.*^ | 31,890 | ||||||
3,266 | United Therapeutics Corp.*^ | 468,442 | ||||||
|
| |||||||
555,420 | ||||||||
|
| |||||||
| Building Products (0.4%): |
| ||||||
5,021 | Armstrong World Industries, Inc.*^ | 209,878 | ||||||
76,017 | Johnson Controls International plc | 3,131,140 | ||||||
322 | Lennox International, Inc.^ | 49,321 | ||||||
12,618 | Masco Corp. | 398,981 | ||||||
11,944 | Owens Corning, Inc.^ | 615,833 | ||||||
9,438 | USG Corp.*^ | 272,569 | ||||||
|
| |||||||
4,677,722 | ||||||||
|
| |||||||
| Capital Markets (4.2%): |
| ||||||
752 | Affiliated Managers Group, Inc.* | 109,266 | ||||||
11,504 | Ameriprise Financial, Inc. | 1,276,254 | ||||||
110,076 | Bank of New York Mellon Corp. (The) | 5,215,400 | ||||||
13,138 | BlackRock, Inc., Class A+ | 4,999,535 | ||||||
25,096 | Charles Schwab Corp. (The) | 990,539 | ||||||
35,505 | CME Group, Inc. | 4,095,502 | ||||||
1,242 | Donnelley Financial Solutions, Inc.*^ | 28,541 | ||||||
29,396 | E*TRADE Financial Corp.* | 1,018,571 | ||||||
37,767 | Franklin Resources, Inc. | 1,494,818 | ||||||
40,567 | Goldman Sachs Group, Inc. (The) | 9,713,767 | ||||||
6,055 | Interactive Brokers Group, Inc., Class A^ | 221,068 | ||||||
32,449 | Intercontinental Exchange, Inc. | 1,830,773 | ||||||
36,065 | Invesco, Ltd. | 1,094,212 | ||||||
11,903 | Lazard, Ltd., Class A | 489,094 | ||||||
11,386 | Legg Mason, Inc. | 340,555 | ||||||
7,370 | LPL Financial Holdings, Inc.^ | 259,498 | ||||||
1,925 | Moody’s Corp. | 181,470 | ||||||
150,062 | Morgan Stanley | 6,340,119 | ||||||
11,758 | NASDAQ OMX Group, Inc. (The) | 789,197 | ||||||
21,781 | Northern Trust Corp. | 1,939,598 |
Continued
4
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Capital Markets, continued |
| ||||||
13,351 | Raymond James Financial, Inc. | $ | 924,824 | |||||
41,443 | State Street Corp. | 3,220,950 | ||||||
6,206 | T. Rowe Price Group, Inc. | 467,064 | ||||||
2,931 | TD Ameritrade Holding Corp. | 127,792 | ||||||
31,503 | Thomson Reuters Corp. | 1,379,202 | ||||||
|
| |||||||
48,547,609 | ||||||||
|
| |||||||
| Chemicals (1.5%): |
| ||||||
2,736 | Air Products & Chemicals, Inc. | 393,492 | ||||||
11,843 | Albemarle Corp.^ | 1,019,445 | ||||||
6,513 | Ashland Global Holdings, Inc. | 711,806 | ||||||
6,618 | Cabot Corp. | 334,474 | ||||||
14,133 | Celanese Corp., Series A | 1,112,832 | ||||||
24,203 | CF Industries Holdings, Inc.^ | 761,910 | ||||||
118,002 | Dow Chemical Co. (The) | 6,752,075 | ||||||
15,610 | Eastman Chemical Co. | 1,174,028 | ||||||
2,808 | FMC Corp. | 158,820 | ||||||
21,459 | Huntsman Corp. | 409,438 | ||||||
20,427 | LyondellBasell Industries NV, Class A | 1,752,228 | ||||||
16,124 | Monsanto Co. | 1,696,406 | ||||||
36,642 | Mosaic Co. (The)^ | 1,074,710 | ||||||
55 | NewMarket Corp.^ | 23,311 | ||||||
21,073 | Platform Speciality Products Corp.*^ | 206,726 | ||||||
3,779 | Praxair, Inc. | 442,861 | ||||||
436 | Scotts Miracle-Gro Co. (The) | 41,660 | ||||||
3,180 | Valvoline, Inc.^ | 68,370 | ||||||
3,399 | W.R. Grace & Co. | 229,908 | ||||||
4,101 | Westlake Chemical Corp. | 229,615 | ||||||
|
| |||||||
18,594,115 | ||||||||
|
| |||||||
| Commercial Services & Supplies (0.2%): |
| ||||||
5,219 | Clean Harbors, Inc.*^ | 290,437 | ||||||
1,133 | LSC Communications, Inc. | 33,627 | ||||||
24,743 | Republic Services, Inc., Class A | 1,411,589 | ||||||
1,038 | RR Donnelley & Sons Co.^ | 16,940 | ||||||
523 | Stericycle, Inc.*^ | 40,292 | ||||||
8,370 | Waste Management, Inc. | 593,517 | ||||||
|
| |||||||
2,386,402 | ||||||||
|
| |||||||
| Communications Equipment (1.8%): |
| ||||||
15,785 | ARRIS International plc* | 475,602 | ||||||
41,495 | Brocade Communications Systems, Inc. | 518,273 | ||||||
529,560 | Cisco Systems, Inc. | 16,003,304 | ||||||
4,921 | EchoStar Corp., Class A*^ | 252,890 | ||||||
13,167 | Harris Corp. | 1,349,222 | ||||||
39,258 | Juniper Networks, Inc. | 1,109,431 | ||||||
16,418 | Motorola Solutions, Inc.^ | 1,360,888 | ||||||
|
| |||||||
21,069,610 | ||||||||
|
| |||||||
| Construction & Engineering (0.2%): |
| ||||||
15,854 | Aecom Technology Corp.* | 576,451 | ||||||
11,290 | Chicago Bridge & Iron Co. NV | 358,458 | ||||||
14,516 | Fluor Corp.^ | 762,381 | ||||||
12,333 | Jacobs Engineering Group, Inc.* | 702,981 | ||||||
14,061 | KBR, Inc. | 234,678 | ||||||
11,361 | Quanta Services, Inc.* | 395,931 | ||||||
482 | Valmont Industries, Inc.^ | 67,914 | ||||||
|
| |||||||
3,098,794 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Construction Materials (0.0%): |
| ||||||
653 | Martin Marietta Materials, Inc. | $ | 144,659 | |||||
810 | Vulcan Materials Co. | 101,372 | ||||||
|
| |||||||
246,031 | ||||||||
|
| |||||||
| Consumer Finance (1.5%): |
| ||||||
46,920 | Ally Financial, Inc. | 892,418 | ||||||
84,114 | American Express Co. | 6,231,166 | ||||||
50,531 | Capital One Financial Corp. | 4,408,324 | ||||||
28,892 | Discover Financial Services | 2,082,824 | ||||||
31,640 | Navient Corp.^ | 519,845 | ||||||
5,724 | Onemain Holdings, Inc.* | 126,729 | ||||||
11,411 | Santander Consumer USA Holdings, Inc.* | 154,049 | ||||||
43,932 | SLM Corp.* | 484,131 | ||||||
87,831 | Synchrony Financial | 3,185,630 | ||||||
|
| |||||||
18,085,116 | ||||||||
|
| |||||||
| Containers & Packaging (0.4%): |
| ||||||
5,002 | AptarGroup, Inc.^ | 367,397 | ||||||
564 | Avery Dennison Corp.^ | 39,604 | ||||||
8,722 | Bemis Co., Inc.^ | 417,086 | ||||||
10,243 | Graphic Packaging Holding Co.^ | 127,833 | ||||||
43,120 | International Paper Co. | 2,287,947 | ||||||
10,749 | Sonoco Products Co.^ | 566,472 | ||||||
26,175 | WestRock Co. | 1,328,905 | ||||||
|
| |||||||
5,135,244 | ||||||||
|
| |||||||
| Distributors (0.0%): |
| ||||||
899 | Genuine Parts Co.^ | 85,890 | ||||||
|
| |||||||
| Diversified Consumer Services (0.1%): |
| ||||||
467 | Graham Holdings Co., Class B^ | 239,081 | ||||||
21,743 | H&R Block, Inc.^ | 499,871 | ||||||
|
| |||||||
738,952 | ||||||||
|
| |||||||
| Diversified Financial Services (2.9%): |
| ||||||
198,965 | Berkshire Hathaway, Inc., Class B* | 32,427,315 | ||||||
34,591 | Leucadia National Corp. | 804,241 | ||||||
21,450 | Voya Financial, Inc. | 841,269 | ||||||
|
| |||||||
34,072,825 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (3.6%): |
| ||||||
648,214 | AT&T, Inc. | 27,568,541 | ||||||
56,351 | CenturyLink, Inc.^ | 1,340,027 | ||||||
118,917 | Frontier Communications Corp.^ | 401,939 | ||||||
30,795 | Level 3 Communications, Inc.* | 1,735,606 | ||||||
4,660 | SBA Communications Corp., Class A* | 481,192 | ||||||
214,668 | Verizon Communications, Inc. | 11,458,978 | ||||||
|
| |||||||
42,986,283 | ||||||||
|
| |||||||
| Electric Utilities (3.6%): |
| ||||||
23,882 | Alliant Energy Corp. | 904,889 | ||||||
51,917 | American Electric Power Co., Inc. | 3,268,694 | ||||||
6,047 | Avangrid, Inc.^ | 229,060 | ||||||
72,519 | Duke Energy Corp. | 5,628,925 | ||||||
33,429 | Edison International | 2,406,554 | ||||||
18,945 | Entergy Corp. | 1,391,889 | ||||||
33,380 | Eversource Energy | 1,843,577 | ||||||
93,465 | Exelon Corp. | 3,317,073 | ||||||
44,877 | FirstEnergy Corp. | 1,389,841 | ||||||
23,278 | Great Plains Energy, Inc. | 636,653 | ||||||
11,622 | Hawaiian Electric Industries, Inc. | 384,340 |
Continued
5
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electric Utilities, continued | ||||||||
48,442 | NextEra Energy, Inc. | $ | 5,786,880 | |||||
20,824 | OGE Energy Corp.^ | 696,563 | ||||||
52,350 | PG&E Corp. | 3,181,310 | ||||||
11,688 | Pinnacle West Capital Corp. | 912,015 | ||||||
71,520 | PPL Corp. | 2,435,256 | ||||||
99,206 | Southern Co. (The) | 4,879,943 | ||||||
14,839 | Westar Energy, Inc. | 836,178 | ||||||
53,684 | Xcel Energy, Inc. | 2,184,939 | ||||||
|
| |||||||
42,314,579 | ||||||||
|
| |||||||
Electrical Equipment (0.6%): | ||||||||
19,638 | AMETEK, Inc. | 954,407 | ||||||
48,195 | Eaton Corp. plc | 3,233,403 | ||||||
56,463 | Emerson Electric Co. | 3,147,812 | ||||||
2,127 | Hubbell, Inc. | 248,221 | ||||||
4,509 | Regal-Beloit Corp.^ | 312,248 | ||||||
2,928 | Rockwell Automation, Inc. | 393,523 | ||||||
|
| |||||||
8,289,614 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (0.5%): | ||||||||
9,534 | Arrow Electronics, Inc.* | 679,774 | ||||||
13,389 | Avnet, Inc. | 637,450 | ||||||
99,985 | Corning, Inc. | 2,426,637 | ||||||
5,493 | Dolby Laboratories, Inc., Class A | 248,229 | ||||||
2,729 | Fitbit, Inc., Class A*^ | 19,976 | ||||||
14,022 | FLIR Systems, Inc. | 507,456 | ||||||
456 | IPG Photonics Corp.*^ | 45,012 | ||||||
19,144 | Jabil Circuit, Inc.^ | 453,138 | ||||||
17,928 | Keysight Technologies, Inc.* | 655,627 | ||||||
2,367 | National Instruments Corp.^ | 72,951 | ||||||
5,694 | Trimble Navigation, Ltd.* | 171,674 | ||||||
1,026 | Zebra Technologies Corp., Class A*^ | 87,990 | ||||||
|
| |||||||
6,005,914 | ||||||||
|
| |||||||
Energy Equipment & Services (2.3%): | ||||||||
46,188 | Baker Hughes, Inc. | 3,000,834 | ||||||
6,954 | Diamond Offshore Drilling, Inc.*^ | 123,086 | ||||||
4,097 | Dril-Quip, Inc.*^ | 246,025 | ||||||
32,663 | Ensco plc, Class A, ADR^ | 317,484 | ||||||
23,783 | FMC Technologies, Inc.*^ | 845,010 | ||||||
2,007 | Frank’s International NV | 24,706 | ||||||
1,871 | Frank’s International NV^ | 23,032 | ||||||
90,109 | Halliburton Co. | 4,873,995 | ||||||
10,233 | Helmerich & Payne, Inc. | 792,034 | ||||||
29,816 | Nabors Industries, Ltd.^ | 488,982 | ||||||
39,599 | National-Oilwell Varco, Inc.^ | 1,482,587 | ||||||
26,166 | Noble Corp. plc^ | 154,903 | ||||||
9,765 | Oceaneering International, Inc. | 275,471 | ||||||
15,625 | Patterson-UTI Energy, Inc.^ | 420,625 | ||||||
13,592 | Rowan Cos. plc, Class A*^ | 256,753 | ||||||
6,302 | RPC, Inc.^ | 124,843 | ||||||
146,416 | Schlumberger, Ltd. | 12,291,623 | ||||||
15,010 | Superior Energy Services, Inc.^ | 253,369 | ||||||
35,731 | Transocean, Ltd.*^ | 526,675 | ||||||
96,666 | Weatherford International plc*^ | 482,363 | ||||||
|
| |||||||
27,004,400 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (4.4%): | ||||||||
7,294 | Alexandria Real Estate Equities, Inc. | 810,582 | ||||||
13,702 | American Campus Communities, Inc.^ | 681,949 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Equity Real Estate Investment Trusts, continued | ||||||||
18,027 | American Homes 4 Rent, Class A^ | $ | 378,206 | |||||
16,340 | Apartment Investment & Management Co., Class A | 742,653 | ||||||
17,788 | Apple Hospitality REIT, Inc.^ | 355,404 | ||||||
14,480 | AvalonBay Communities, Inc.^ | 2,565,131 | ||||||
13,337 | Boston Properties, Inc. | 1,677,528 | ||||||
18,625 | Brandywine Realty Trust^ | 307,499 | ||||||
20,706 | Brixmor Property Group, Inc.^ | 505,641 | ||||||
8,960 | Camden Property Trust | 753,267 | ||||||
8,175 | Care Capital Properties, Inc.^ | 204,375 | ||||||
12,199 | Columbia Property Trust, Inc. | 263,498 | ||||||
13,217 | Communications Sales & Leasing, Inc.^ | 335,844 | ||||||
11,645 | Corecivic, Inc.^ | 284,837 | ||||||
10,226 | Corporate Office Properties Trust | 319,256 | ||||||
4,155 | Crown Castle International Corp. | 360,529 | ||||||
6,144 | CubeSmart | 164,475 | ||||||
957 | Cyrusone, Inc.^ | 42,807 | ||||||
9,750 | DCT Industrial Trust, Inc. | 466,830 | ||||||
33,302 | DDR Corp. | 508,522 | ||||||
4,762 | Digital Realty Trust, Inc.^ | 467,914 | ||||||
14,514 | Douglas Emmett, Inc.^ | 530,632 | ||||||
36,571 | Duke Realty Corp. | 971,326 | ||||||
5,085 | Empire State Realty Trust, Inc., Class A^ | 102,666 | ||||||
6,827 | EPR Properties | 489,974 | ||||||
13,216 | Equity Commonwealth* | 399,652 | ||||||
9,905 | Equity One, Inc. | 303,984 | ||||||
37,616 | Equity Residential Property Trust | 2,420,965 | ||||||
3,988 | Essex Property Trust, Inc.^ | 927,210 | ||||||
24,736 | Forest City Realty Trust, Inc., Class A | 515,498 | ||||||
60,251 | General Growth Properties, Inc.* | 1,505,070 | ||||||
48,980 | HCP, Inc.^ | 1,455,686 | ||||||
3,874 | Healthcare Trust of America, Inc., Class A | 112,772 | ||||||
10,371 | Highwoods Properties, Inc. | 529,025 | ||||||
10,294 | Hospitality Properties Trust | 326,732 | ||||||
77,634 | Host Hotels & Resorts, Inc.^ | 1,462,625 | ||||||
9,491 | Kilroy Realty Corp.^ | 694,931 | ||||||
42,398 | Kimco Realty Corp. | 1,066,734 | ||||||
15,326 | Liberty Property Trust^ | 605,377 | ||||||
1,705 | Life Storage, Inc. | 145,368 | ||||||
15,009 | Macerich Co. (The) | 1,063,238 | ||||||
11,819 | Mid-America Apartment Communities, Inc. | 1,157,316 | ||||||
14,984 | National Retail Properties, Inc.^ | 662,293 | ||||||
19,444 | NorthStar Realty Finance Corp. | 294,577 | ||||||
12,539 | Omega Healthcare Investors, Inc.^ | 391,969 | ||||||
11,614 | Outfront Media, Inc. | 288,840 | ||||||
19,511 | Paramount Group, Inc.^ | 311,981 | ||||||
15,668 | Piedmont Office Realty Trust, Inc., Class A^ | 327,618 | ||||||
54,978 | ProLogis, Inc. | 2,902,288 | ||||||
7,717 | Quality Care Properties*^ | 119,614 | ||||||
13,281 | Rayonier, Inc.^ | 353,275 | ||||||
27,217 | Realty Income Corp.^ | 1,564,433 | ||||||
8,870 | Regency Centers Corp. | 611,587 | ||||||
25,698 | Retail Properties of America, Inc., Class A | 393,950 | ||||||
22,380 | Senior Housing Properties Trust^ | 423,653 | ||||||
2,997 | Simon Property Group, Inc. | 532,477 | ||||||
10,187 | SL Green Realty Corp.^ | 1,095,612 | ||||||
51,917 | Spirit Realty Capital, Inc. | 563,819 |
Continued
6
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Equity Real Estate Investment Trusts, continued | ||||||||
16,336 | STORE Capital Corp.^ | $ | 403,663 | |||||
6,765 | Sun Communities, Inc.^ | 518,267 | ||||||
1,065 | Tanger Factory Outlet Centers, Inc.^ | 38,106 | ||||||
3,165 | Taubman Centers, Inc. | 233,988 | ||||||
27,689 | UDR, Inc.^ | 1,010,095 | ||||||
24,516 | Ventas, Inc.^ | 1,532,740 | ||||||
101,237 | VEREIT, Inc. | 856,465 | ||||||
17,957 | Vornado Realty Trust^ | 1,874,172 | ||||||
12,603 | Weingarten Realty Investors | 451,061 | ||||||
37,694 | Welltower, Inc.^ | 2,522,858 | ||||||
77,790 | Weyerhaeuser Co. | 2,340,701 | ||||||
10,861 | WP Carey, Inc. | 641,776 | ||||||
|
| |||||||
52,245,406 | ||||||||
|
| |||||||
Food & Staples Retailing (1.6%): | ||||||||
6,427 | CVS Health Corp. | 507,155 | ||||||
71,806 | Walgreens Boots Alliance, Inc. | 5,942,665 | ||||||
159,150 | Wal-Mart Stores, Inc. | 11,000,447 | ||||||
27,738 | Whole Foods Market, Inc.^ | 853,221 | ||||||
|
| |||||||
18,303,488 | ||||||||
|
| |||||||
Food Products (1.8%): | ||||||||
60,786 | Archer-Daniels-Midland Co. | 2,774,881 | ||||||
14,586 | Bunge, Ltd. | 1,053,693 | ||||||
9,949 | ConAgra Foods, Inc. | 393,483 | ||||||
1,953 | Flowers Foods, Inc.^ | 39,001 | ||||||
2,798 | Hain Celestial Group, Inc.* | 109,206 | ||||||
3,691 | Hormel Foods Corp.^ | 128,484 | ||||||
2,286 | Ingredion, Inc. | 285,659 | ||||||
12,289 | JM Smucker Co. (The)^ | 1,573,729 | ||||||
2,071 | Kellogg Co. | 152,653 | ||||||
54,868 | Kraft Heinz Co. (The) | 4,791,074 | ||||||
3,316 | Lamb Weston Holding, Inc.* | 125,511 | ||||||
12,547 | Mead Johnson Nutrition Co. | 887,826 | ||||||
157,129 | Mondelez International, Inc., Class A | 6,965,529 | ||||||
5,481 | Pilgrim’s Pride Corp.^ | 104,084 | ||||||
12,116 | Pinnacle Foods, Inc. | 647,600 | ||||||
2,932 | Post Holdings, Inc.*^ | 235,703 | ||||||
4,065 | TreeHouse Foods, Inc.*^ | 293,452 | ||||||
16,402 | Tyson Foods, Inc., Class A | 1,011,675 | ||||||
|
| |||||||
21,573,243 | ||||||||
|
| |||||||
Gas Utilities (0.2%): | ||||||||
10,628 | Atmos Energy Corp. | 788,066 | ||||||
7,974 | National Fuel Gas Co.^ | 451,647 | ||||||
18,114 | UGI Corp. | 834,694 | ||||||
|
| |||||||
2,074,407 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (2.2%): | ||||||||
154,393 | Abbott Laboratories^ | 5,930,235 | ||||||
7,628 | Alere, Inc.* | 297,263 | ||||||
46,585 | Baxter International, Inc. | 2,065,579 | ||||||
1,149 | Cooper Cos., Inc. (The) | 200,995 | ||||||
46,933 | Danaher Corp.^ | 3,653,265 | ||||||
24,137 | DENTSPLY SIRONA, Inc. | 1,393,429 | ||||||
559 | Hill-Rom Holdings, Inc. | 31,382 | ||||||
147,534 | Medtronic plc | 10,508,847 | ||||||
8,939 | St. Jude Medical, Inc. | 716,818 | ||||||
3,858 | Teleflex, Inc.^ | 621,717 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Equipment & Supplies, continued | ||||||||
9,156 | Zimmer Holdings, Inc. | $ | 944,899 | |||||
|
| |||||||
26,364,429 | ||||||||
|
| |||||||
Health Care Providers & Services (1.3%): | ||||||||
5,169 | Acadia Healthcare Co., Inc.*^ | 171,094 | ||||||
23,682 | Aetna, Inc. | 2,936,804 | ||||||
20,154 | Anthem, Inc. | 2,897,541 | ||||||
19,943 | Brookdale Senior Living, Inc.*^ | 247,692 | ||||||
2,617 | Cardinal Health, Inc.^ | 188,345 | ||||||
4,769 | Centene Corp.* | 269,496 | ||||||
17,808 | Cigna Corp. | 2,375,409 | ||||||
10,594 | DaVita, Inc.* | 680,135 | ||||||
3,657 | Envision Healthcare Corp.*^ | 231,452 | ||||||
7,656 | Express Scripts Holding Co.* | 526,656 | ||||||
10,425 | HCA Holdings, Inc.*^ | 771,659 | ||||||
953 | Humana, Inc. | 194,441 | ||||||
5,938 | Laboratory Corp. of America Holdings* | 762,320 | ||||||
3,905 | LifePoint Hospitals, Inc.*^ | 221,804 | ||||||
2,941 | MEDNAX, Inc.*^ | 196,047 | ||||||
3,430 | Premier, Inc., Class A*^ | 104,135 | ||||||
14,939 | Quest Diagnostics, Inc. | 1,372,894 | ||||||
6,787 | Universal Health Services, Inc., Class B | 722,001 | ||||||
389 | WellCare Health Plans, Inc.* | 53,324 | ||||||
|
| |||||||
14,923,249 | ||||||||
|
| |||||||
Health Care Technology (0.0%): | ||||||||
20,211 | Allscripts Healthcare Solutions, Inc.*^ | 206,354 | ||||||
|
| |||||||
Hotels, Restaurants & Leisure (0.6%): | ||||||||
14,926 | Aramark Holdings Corp. | 533,157 | ||||||
42,955 | Carnival Corp., Class A^ | 2,236,237 | ||||||
1,123 | Choice Hotels International, Inc. | 62,944 | ||||||
6,866 | Extended Stay America, Inc. | 110,886 | ||||||
6,805 | Hilton Worldwide Holdings, Inc.*^ | 185,096 | ||||||
2,438 | Hyatt Hotels Corp., Class A* | 134,724 | ||||||
10,186 | International Game Technology plc | 259,947 | ||||||
8,106 | Marriott International, Inc., Class A^ | 670,204 | ||||||
45,437 | MGM Resorts International*^ | 1,309,948 | ||||||
15,134 | Norwegian Cruise Line Holdings, Ltd.*^ | 643,649 | ||||||
17,698 | Royal Caribbean Cruises, Ltd. | 1,451,944 | ||||||
9,725 | Wendy’s Co. (The)^ | 131,482 | ||||||
754 | Wynn Resorts, Ltd.^ | 65,229 | ||||||
|
| |||||||
7,795,447 | ||||||||
|
| |||||||
Household Durables (0.3%): | ||||||||
7,086 | CalAtlantic Group, Inc.^ | 240,995 | ||||||
16,481 | D.R. Horton, Inc. | 450,426 | ||||||
11,623 | Garmin, Ltd.^ | 563,599 | ||||||
3,883 | Harman International Industries, Inc. | 431,634 | ||||||
8,820 | Lennar Corp., Class A | 378,643 | ||||||
690 | Lennar Corp., Class B | 23,805 | ||||||
1,397 | Mohawk Industries, Inc.* | 278,953 | ||||||
26,232 | PulteGroup, Inc.^ | 482,144 | ||||||
8,877 | Toll Brothers, Inc.*^ | 275,187 | ||||||
7,038 | Whirlpool Corp.^ | 1,279,297 | ||||||
|
| |||||||
4,404,683 | ||||||||
|
| |||||||
Household Products (2.4%): | ||||||||
2,079 | Clorox Co. (The)^ | 249,522 | ||||||
74,935 | Colgate-Palmolive Co. | 4,903,746 |
Continued
7
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Household Products, continued | |||||||
4,581 | Energizer Holdings, Inc.^ | $ | 204,358 | |||||
5,567 | Kimberly-Clark Corp. | 635,306 | ||||||
269,284 | Procter & Gamble Co. (The) | 22,641,399 | ||||||
|
| |||||||
28,634,331 | ||||||||
|
| |||||||
| Independent Power & Renewable Electricity Producers (0.1%): |
| ||||||
69,135 | AES Corp. (The) | 803,349 | ||||||
36,589 | Calpine Corp.*^ | 418,212 | ||||||
32,133 | NRG Energy, Inc. | 393,951 | ||||||
|
| |||||||
1,615,512 | ||||||||
|
| |||||||
| Industrial Conglomerates (2.2%): |
| ||||||
4,750 | Carlisle Cos., Inc. | 523,878 | ||||||
780,419 | General Electric Co. | 24,661,240 | ||||||
5,147 | Roper Industries, Inc.^ | 942,313 | ||||||
|
| |||||||
26,127,431 | ||||||||
|
| |||||||
| Insurance (5.2%): |
| ||||||
42,247 | Aflac, Inc. | 2,940,391 | ||||||
807 | Alleghany Corp.* | 490,753 | ||||||
9,477 | Allied World Assurance Co. Holdings AG | 509,010 | ||||||
39,303 | Allstate Corp. (The) | 2,913,138 | ||||||
7,170 | American Financial Group, Inc. | 631,820 | ||||||
107,068 | American International Group, Inc. | 6,992,610 | ||||||
796 | American National Insurance Co. | 99,190 | ||||||
8,891 | AmTrust Financial Services^ | 243,436 | ||||||
12,028 | Arch Capital Group, Ltd.* | 1,037,895 | ||||||
5,970 | Arthur J. Gallagher & Co. | 310,201 | ||||||
4,387 | Aspen Insurance Holdings, Ltd. | 241,285 | ||||||
5,962 | Assurant, Inc. | 553,631 | ||||||
14,422 | Assured Guaranty, Ltd. | 544,719 | ||||||
9,588 | Axis Capital Holdings, Ltd. | 625,809 | ||||||
11,844 | Brown & Brown, Inc. | 531,322 | ||||||
48,606 | Chubb, Ltd. | 6,421,825 | ||||||
15,731 | Cincinnati Financial Corp. | 1,191,623 | ||||||
2,937 | CNA Financial Corp.^ | 121,886 | ||||||
6,702 | Endurance Specialty Holdings, Ltd. | 619,265 | ||||||
696 | Erie Indemnity Co., Class A | 78,265 | ||||||
2,432 | Everest Re Group, Ltd. | 526,285 | ||||||
11,544 | First American Financial Corp. | 422,857 | ||||||
27,547 | FNF Group^ | 935,496 | ||||||
4,582 | Hanover Insurance Group, Inc. (The) | 417,008 | ||||||
41,100 | Hartford Financial Services Group, Inc. (The) | 1,958,415 | ||||||
19,643 | Lincoln National Corp. | 1,301,742 | ||||||
29,397 | Loews Corp. | 1,376,662 | ||||||
1,433 | Markel Corp.* | 1,296,149 | ||||||
500 | Mercury General Corp.^ | 30,105 | ||||||
97,791 | MetLife, Inc. | 5,269,956 | ||||||
26,182 | Old Republic International Corp.^ | 497,458 | ||||||
28,300 | Principal Financial Group, Inc.^ | 1,637,438 | ||||||
5,693 | ProAssurance Corp. | 319,947 | ||||||
55,213 | Progressive Corp. (The) | 1,960,062 | ||||||
46,460 | Prudential Financial, Inc. | 4,834,627 | ||||||
6,700 | Reinsurance Group of America, Inc. | 843,061 | ||||||
776 | RenaissanceRe Holdings, Ltd.^ | 105,707 | ||||||
12,464 | Torchmark Corp. | 919,345 | ||||||
30,677 | Travelers Cos., Inc. (The) | 3,755,478 | ||||||
25,242 | UnumProvident Corp. | 1,108,881 |
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Insurance, continued | |||||||
8,154 | Validus Holdings, Ltd. | $ | 448,552 | |||||
10,048 | W.R. Berkley Corp. | 668,292 | ||||||
444 | White Mountains Insurance Group, Ltd. | 371,206 | ||||||
18,442 | XL Group, Ltd. | 687,149 | ||||||
|
| |||||||
58,789,952 | ||||||||
|
| |||||||
| Internet & Direct Marketing Retail (0.1%): |
| ||||||
4,691 | Liberty Expedia Holdings, Class A*^ | 186,092 | ||||||
19,798 | Liberty Interactive Corp., Class A* | 395,564 | ||||||
7,037 | Liberty Ventures, Series A, Class A* | 259,454 | ||||||
|
| |||||||
841,110 | ||||||||
|
| |||||||
| Internet Software & Services (0.4%): |
| ||||||
2,070 | Akamai Technologies, Inc.*^ | 138,028 | ||||||
1,561 | Commercehub, Inc. Com, Series A* | 23,431 | ||||||
2,640 | Commercehub, Inc. Com, Series C* | 39,679 | ||||||
1,643 | IAC/InterActiveCorp* | 106,450 | ||||||
332 | Nutanix, Inc., Class A*^ | 8,818 | ||||||
3,493 | Pandora Media, Inc.*^ | 45,549 | ||||||
356 | Twilio, Inc., Series A*^ | 10,271 | ||||||
8,027 | Twitter, Inc.*^ | 130,840 | ||||||
91,476 | Yahoo!, Inc.* | 3,537,376 | ||||||
1,680 | Yelp, Inc.*^ | 64,058 | ||||||
1,704 | Zillow Group, Inc., Class A*^ | 62,111 | ||||||
3,415 | Zillow Group, Inc., Class C*^ | 124,545 | ||||||
|
| |||||||
4,291,156 | ||||||||
|
| |||||||
| IT Services (0.7%): |
| ||||||
15,536 | Amdocs, Ltd. | 904,972 | ||||||
885 | Booz Allen Hamilton Holding Corp. | 31,922 | ||||||
14,621 | Computer Sciences Corp. | 868,780 | ||||||
3,927 | CoreLogic, Inc.* | 144,631 | ||||||
14,832 | Fidelity National Information Services, Inc. | 1,121,892 | ||||||
28,951 | International Business Machines Corp.^ | 4,805,577 | ||||||
7,090 | Leidos Holdings, Inc. | 362,583 | ||||||
|
| |||||||
8,240,357 | ||||||||
|
| |||||||
| Leisure Products (0.0%): |
| ||||||
1,822 | Brunswick Corp. | 99,372 | ||||||
5,409 | Vista Outdoor, Inc.*^ | 199,592 | ||||||
|
| |||||||
298,964 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (0.6%): |
| ||||||
25,102 | Agilent Technologies, Inc. | 1,143,647 | ||||||
2,247 | Bio-Rad Laboratories, Inc., Class A*^ | 409,583 | ||||||
1,538 | Patheon NV*^ | 44,156 | ||||||
9,285 | PerkinElmer, Inc. | 484,213 | ||||||
23,931 | QIAGEN NV* | 670,547 | ||||||
3,077 | Quintiles Transnational Holdings, Inc.* | 234,006 | ||||||
22,562 | Thermo Fisher Scientific, Inc. | 3,183,498 | ||||||
7,940 | VWR Corp.*^ | 198,738 | ||||||
|
| |||||||
6,368,388 | ||||||||
|
| |||||||
| Machinery (2.2%): |
| ||||||
7,536 | AGCO Corp.^ | 436,033 | ||||||
14,638 | Allison Transmission Holdings, Inc. | 493,154 | ||||||
58,638 | Caterpillar, Inc.^ | 5,438,088 | ||||||
10,038 | Colfax Corp.* | 360,665 | ||||||
5,269 | Crane Co. | 380,000 | ||||||
16,649 | Cummins, Inc. | 2,275,419 |
Continued
8
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Machinery, continued | |||||||
24,905 | Deere & Co. | $ | 2,566,211 | |||||
1,120 | Donaldson Co., Inc.^ | 47,130 | ||||||
16,164 | Dover Corp. | 1,211,169 | ||||||
5,043 | Flowserve Corp.^ | 242,316 | ||||||
23,397 | Fortive Corp. | 1,254,781 | ||||||
573 | IDEX Corp. | 51,604 | ||||||
13,454 | Ingersoll-Rand plc^ | 1,009,588 | ||||||
9,780 | ITT, Inc. | 377,215 | ||||||
2,437 | Lincoln Electric Holdings, Inc.^ | 186,845 | ||||||
7,660 | Manitowoc Foodservice, Inc.*^ | 148,068 | ||||||
7,552 | OshKosh Corp. | 487,935 | ||||||
32,749 | PACCAR, Inc. | 2,092,661 | ||||||
14,059 | Parker Hannifin Corp. | 1,968,260 | ||||||
17,360 | Pentair plc^ | 973,375 | ||||||
1,679 | Snap-On, Inc. | 287,562 | ||||||
13,821 | Stanley Black & Decker, Inc. | 1,585,130 | ||||||
11,453 | Terex Corp. | 361,113 | ||||||
7,030 | Timken Co. | 279,091 | ||||||
15,346 | Trinity Industries, Inc.^ | 426,005 | ||||||
8,838 | Xylem, Inc.^ | 437,658 | ||||||
|
| |||||||
25,377,076 | ||||||||
|
| |||||||
| Marine (0.0%): |
| ||||||
5,714 | Kirby Corp.*^ | 379,981 | ||||||
|
| |||||||
| Media (0.8%): |
| ||||||
2,056 | Clear Channel Outdoor Holdings, Inc., Class A^ | 10,383 | ||||||
18,868 | Comcast Corp., Class A | 1,302,835 | ||||||
1,281 | Discovery Communications, Inc., Class A*^ | 35,112 | ||||||
1,838 | Discovery Communications, Inc., Class C* | 49,222 | ||||||
5,454 | DISH Network Corp., Class A* | 315,950 | ||||||
4,381 | John Wiley & Sons, Inc., Class A | 238,765 | ||||||
2,753 | Liberty Broadband Corp., Class A* | 199,482 | ||||||
10,831 | Liberty Broadband Corp., Class C*^ | 802,252 | ||||||
9,842 | Liberty SiriusXM Group, Class A* | 339,746 | ||||||
19,226 | Liberty SiriusXM Group, Class C* | 652,146 | ||||||
1,806 | Lions Gate Entertainment Corp., Class A* | 48,581 | ||||||
1,807 | Lions Gate Entertainment Corp., Class B* | 44,344 | ||||||
6,084 | Live Nation, Inc.*^ | 161,834 | ||||||
1,892 | Madison Square Garden Co. (The), Class A* | 324,497 | ||||||
38,963 | News Corp., Class A | 446,516 | ||||||
13,194 | News Corp., Class B^ | 155,689 | ||||||
6,275 | Regal Entertainment Group, Class A^ | 129,265 | ||||||
22,547 | Tegna, Inc. | 482,280 | ||||||
28,502 | Time Warner, Inc. | 2,751,299 | ||||||
7,078 | Tribune Media Co., Class A^ | 247,588 | ||||||
25,774 | Twenty-First Century Fox, Inc. | 722,703 | ||||||
12,021 | Twenty-First Century Fox, Inc., Class B | 327,572 | ||||||
219 | Viacom, Inc., Class A^ | 8,432 | ||||||
3,775 | Viacom, Inc., Class B | 132,503 | ||||||
|
| |||||||
9,928,996 | ||||||||
|
| |||||||
| Metals & Mining (0.7%): |
| ||||||
15,084 | Alcoa Corp.* | 423,559 | ||||||
3,647 | Compass Minerals International, Inc.^ | 285,742 | ||||||
109,387 | Freeport-McMoRan Copper & Gold, Inc.*^ | 1,442,815 | ||||||
56,302 | Newmont Mining Corp. | 1,918,209 | ||||||
33,495 | Nucor Corp. | 1,993,622 | ||||||
7,288 | Reliance Steel & Aluminum Co. | 579,688 |
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Metals & Mining, continued | |||||||
6,256 | Royal Gold, Inc. | $ | 396,318 | |||||
5,044 | Southern Copper Corp.^ | 161,105 | ||||||
21,019 | Steel Dynamics, Inc. | 747,856 | ||||||
32,544 | Tahoe Resources, Inc. | 306,564 | ||||||
16,008 | United States Steel Corp.^ | 528,424 | ||||||
|
| |||||||
8,783,902 | ||||||||
|
| |||||||
| Mortgage Real Estate Investment Trusts (0.3%): |
| ||||||
35,816 | Agnc Investment Corp.^ | 649,344 | ||||||
106,789 | Annaly Capital Management, Inc. | 1,064,686 | ||||||
20,307 | Chimera Investment Corp.^ | 345,625 | ||||||
40,055 | MFA Financial, Inc.^ | 305,620 | ||||||
25,103 | Starwood Property Trust, Inc. | 551,011 | ||||||
37,446 | Two Harbors Investment Corp. | 326,529 | ||||||
|
| |||||||
3,242,815 | ||||||||
|
| |||||||
| Multiline Retail (0.6%): |
| ||||||
2,054 | Dillard’s, Inc., Class A^ | 128,765 | ||||||
30,980 | J.C. Penney Co., Inc.*^ | 257,444 | ||||||
19,469 | Kohl’s Corp.^ | 961,379 | ||||||
32,650 | Macy’s, Inc.^ | 1,169,197 | ||||||
55,356 | Target Corp. | 3,998,364 | ||||||
|
| |||||||
6,515,149 | ||||||||
|
| |||||||
| Multi-Utilities (1.9%): |
| ||||||
25,560 | Ameren Corp.^ | 1,340,878 | ||||||
45,798 | CenterPoint Energy, Inc. | 1,128,463 | ||||||
29,583 | CMS Energy Corp. | 1,231,244 | ||||||
32,288 | Consolidated Edison, Inc. | 2,378,980 | ||||||
60,864 | Dominion Resources, Inc. | 4,661,573 | ||||||
18,810 | DTE Energy Co. | 1,852,973 | ||||||
21,001 | MDU Resources Group, Inc.^ | 604,199 | ||||||
33,765 | NiSource, Inc. | 747,557 | ||||||
53,229 | Public Service Enterprise Group, Inc. | 2,335,689 | ||||||
13,794 | SCANA Corp. | 1,010,824 | ||||||
26,410 | Sempra Energy^ | 2,657,902 | ||||||
8,521 | Vectren Corp. | 444,370 | ||||||
33,490 | WEC Energy Group, Inc.^ | 1,964,189 | ||||||
|
| |||||||
22,358,841 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (11.2%): |
| ||||||
58,751 | Anadarko Petroleum Corp. | 4,096,707 | ||||||
19,476 | Antero Resources Corp.*^ | 460,607 | ||||||
12,398 | Apache Corp.^ | 786,901 | ||||||
14,718 | Cabot Oil & Gas Corp. | 343,812 | ||||||
21,057 | Cheniere Energy, Inc.*^ | 872,392 | ||||||
57,282 | Chesapeake Energy Corp.*^ | 402,120 | ||||||
197,790 | Chevron Corp. | 23,279,884 | ||||||
8,368 | Cimarex Energy Co. | 1,137,211 | ||||||
14,791 | Concho Resources, Inc.* | 1,961,287 | ||||||
130,374 | ConocoPhillips Co. | 6,536,952 | ||||||
24,573 | CONSOL Energy, Inc.^ | 447,966 | ||||||
5,211 | Continental Resources, Inc.*^ | 268,575 | ||||||
50,203 | Devon Energy Corp. | 2,292,771 | ||||||
6,166 | Diamondback Energy, Inc.*^ | 623,136 | ||||||
10,110 | Energen Corp.* | 583,044 | ||||||
51,323 | EOG Resources, Inc. | 5,188,755 | ||||||
18,338 | EQT Corp.^ | 1,199,305 | ||||||
438,747 | Exxon Mobil Corp. | 39,601,305 |
Continued
9
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Oil, Gas & Consumable Fuels, continued | |||||||
13,588 | Gulfport Energy Corp.* | $ | 294,044 | |||||
29,860 | Hess Corp.^ | 1,859,979 | ||||||
16,807 | HollyFrontier Corp.^ | 550,597 | ||||||
203,019 | Kinder Morgan, Inc. | 4,204,523 | ||||||
16,977 | Kosmos Energy LLC*^ | 119,009 | ||||||
15,534 | Laredo Petroleum Holdings, Inc.*^ | 219,651 | ||||||
89,453 | Marathon Oil Corp.^ | 1,548,431 | ||||||
55,464 | Marathon Petroleum Corp. | 2,792,612 | ||||||
17,667 | Murphy Oil Corp.^ | 549,974 | ||||||
15,518 | Newfield Exploration Co.* | 628,479 | ||||||
44,626 | Noble Energy, Inc. | 1,698,466 | ||||||
80,184 | Occidental Petroleum Corp. | 5,711,506 | ||||||
16,049 | Parsley Energy, Inc., Class A* | 565,567 | ||||||
10,573 | PBF Energy, Inc., Class A^ | 294,775 | ||||||
47,389 | Phillips 66 | 4,094,883 | ||||||
17,087 | Pioneer Natural Resources Co. | 3,076,856 | ||||||
25,858 | QEP Resources, Inc.* | 476,046 | ||||||
21,539 | Range Resources Corp. | 740,080 | ||||||
2,130 | Rice Energy, Inc.* | 45,476 | ||||||
9,293 | SM Energy Co.^ | 320,423 | ||||||
62,524 | Spectra Energy Corp. | 2,569,111 | ||||||
16,470 | Targa Resources Corp.^ | 923,473 | ||||||
12,584 | Tesoro Corp. | 1,100,471 | ||||||
49,623 | Valero Energy Corp. | 3,390,243 | ||||||
21,796 | Whiting Petroleum Corp.*^ | 261,988 | ||||||
60,424 | Williams Cos., Inc. (The) | 1,881,603 | ||||||
7,482 | World Fuel Services Corp.^ | 343,499 | ||||||
34,469 | WPX Energy, Inc.*^ | 502,213 | ||||||
|
| |||||||
130,846,708 | ||||||||
|
| |||||||
| Paper & Forest Products (0.0%): |
| ||||||
6,742 | Domtar Corp.^ | 263,140 | ||||||
|
| |||||||
| Personal Products (0.1%): |
| ||||||
45,456 | Coty, Inc., Class A^ | 832,300 | ||||||
6,383 | Edgewell Personal Care Co.*^ | 465,895 | ||||||
4,241 | Nu Skin Enterprises, Inc., Class A^ | 202,635 | ||||||
|
| |||||||
1,500,830 | ||||||||
|
| |||||||
| Pharmaceuticals (6.0%): |
| ||||||
14,356 | Allergan plc*^ | 3,014,904 | ||||||
20,716 | Endo International plc*^ | 341,193 | ||||||
239,087 | Johnson & Johnson Co. | 27,545,213 | ||||||
11,421 | Mallinckrodt plc* | 568,994 | ||||||
291,474 | Merck & Co., Inc. | 17,159,074 | ||||||
32,930 | Mylan NV* | 1,256,280 | ||||||
14,462 | Perrigo Co. plc^ | 1,203,672 | ||||||
587,955 | Pfizer, Inc. | 19,096,778 | ||||||
|
| |||||||
70,186,108 | ||||||||
|
| |||||||
| Professional Services (0.1%): |
| ||||||
2,347 | Dun & Bradstreet Corp. | 284,738 | ||||||
7,015 | Manpower, Inc. | 623,423 | ||||||
8,514 | Nielsen Holdings plc | 357,162 | ||||||
|
| |||||||
1,265,323 | ||||||||
|
| |||||||
| Real Estate Management & Development (0.1%): |
| ||||||
3,702 | Howard Hughes Corp. (The)*^ | 422,398 | ||||||
4,636 | Jones Lang LaSalle, Inc. | 468,422 |
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Real Estate Management & Development, continued |
| ||||||
14,722 | Realogy Holdings Corp. | $ | 378,797 | |||||
|
| |||||||
1,269,617 | ||||||||
|
| |||||||
| Road & Rail (1.4%): |
| ||||||
250 | AMERCO, Inc.^ | 92,398 | ||||||
100,566 | CSX Corp. | 3,613,336 | ||||||
5,824 | Genesee & Wyoming, Inc., Class A*^ | 404,244 | ||||||
6,257 | Hertz Global Holdings, Inc.* | 134,901 | ||||||
11,361 | Kansas City Southern | 963,981 | ||||||
31,087 | Norfolk Southern Corp. | 3,359,572 | ||||||
2,758 | Old Dominion Freight Line, Inc.*^ | 236,609 | ||||||
5,792 | Ryder System, Inc.^ | 431,156 | ||||||
74,788 | Union Pacific Corp. | 7,754,020 | ||||||
|
| |||||||
16,990,217 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (3.0%): |
| ||||||
32,299 | Analog Devices, Inc.^ | 2,345,553 | ||||||
32,929 | Applied Materials, Inc. | 1,062,619 | ||||||
6,853 | Cree, Inc.*^ | 180,851 | ||||||
31,644 | Cypress Semiconductor Corp.^ | 362,007 | ||||||
7,487 | First Solar, Inc.*^ | 240,258 | ||||||
452,480 | Intel Corp. | 16,411,450 | ||||||
3,486 | Lam Research Corp.^ | 368,575 | ||||||
13,336 | Linear Technology Corp. | 831,500 | ||||||
42,218 | Marvell Technology Group, Ltd. | 585,564 | ||||||
109,242 | Micron Technology, Inc.* | 2,394,585 | ||||||
38,167 | ON Semiconductor Corp.*^ | 487,011 | ||||||
12,055 | Qorvo, Inc.*^ | 635,660 | ||||||
122,530 | QUALCOMM, Inc. | 7,988,956 | ||||||
1,690 | Skyworks Solutions, Inc.^ | 126,175 | ||||||
6,233 | Sunpower Corp.*^ | 41,200 | ||||||
21,973 | Teradyne, Inc. | 558,114 | ||||||
1,707 | Versum Materials, Inc.*^ | 47,915 | ||||||
18,169 | Xilinx, Inc. | 1,096,863 | ||||||
|
| |||||||
35,764,856 | ||||||||
|
| |||||||
| Software (1.5%): |
| ||||||
6,812 | ANSYS, Inc.* | 630,042 | ||||||
3,856 | Autodesk, Inc.* | 285,383 | ||||||
30,683 | CA, Inc.^ | 974,799 | ||||||
20,452 | Dell Technologies, Inc., Class V* | 1,124,246 | ||||||
12,556 | FireEye, Inc.*^ | 149,416 | ||||||
5,871 | Nuance Communications, Inc.* | 87,478 | ||||||
280,647 | Oracle Corp. | 10,790,877 | ||||||
6,861 | PTC, Inc.* | 317,458 | ||||||
1,476 | SS&C Technologies Holdings, Inc.^ | 42,214 | ||||||
55,551 | Symantec Corp. | 1,327,113 | ||||||
14,353 | Synopsys, Inc.* | 844,818 | ||||||
6,034 | VMware, Inc., Class A*^ | 475,057 | ||||||
78,442 | Zynga, Inc.*^ | 201,596 | ||||||
|
| |||||||
17,250,497 | ||||||||
|
| |||||||
| Specialty Retail (0.6%): |
| ||||||
4,242 | AutoNation, Inc.*^ | 206,373 | ||||||
13,856 | Bed Bath & Beyond, Inc.^ | 563,108 | ||||||
29,188 | Best Buy Co., Inc.^ | 1,245,451 | ||||||
3,249 | Burlington Stores, Inc.* | 275,353 | ||||||
4,743 | Cabela’s, Inc., Class A*^ | 277,703 | ||||||
8,061 | CST Brands, Inc. | 388,137 |
Continued
10
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Software, continued | |||||||
2,060 | Dick’s Sporting Goods, Inc. | $ | 109,386 | |||||
1,476 | Foot Locker, Inc. | 104,634 | ||||||
11,072 | GameStop Corp., Class A^ | 279,679 | ||||||
21,621 | Gap, Inc. (The)^ | 485,175 | ||||||
20,784 | L Brands, Inc.^ | 1,368,418 | ||||||
2,320 | Michaels Cos., Inc. (The)*^ | 47,444 | ||||||
1,568 | Murphy U.S.A., Inc.*^ | 96,385 | ||||||
4,151 | Penske Automotive Group, Inc.^ | 215,188 | ||||||
740 | Signet Jewelers, Ltd.^ | 69,752 | ||||||
67,253 | Staples, Inc. | 608,640 | ||||||
11,511 | Tiffany & Co.^ | 891,297 | ||||||
2,134 | Urban Outfitters, Inc.*^ | 60,776 | ||||||
|
| |||||||
7,292,899 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (1.4%): |
| ||||||
48,489 | Apple, Inc. | 5,615,996 | ||||||
181,498 | Hewlett Packard Enterprise Co. | 4,199,864 | ||||||
182,689 | HP, Inc. | 2,711,105 | ||||||
30,386 | NetApp, Inc. | 1,071,714 | ||||||
29,698 | Western Digital Corp. | 2,017,979 | ||||||
106,065 | Xerox Corp. | 925,947 | ||||||
|
| |||||||
16,542,605 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (0.2%): |
| ||||||
23,850 | Coach, Inc.^ | 835,227 | ||||||
8,523 | PVH Corp. | 769,116 | ||||||
5,539 | Ralph Lauren Corp.^ | 500,282 | ||||||
|
| |||||||
2,104,625 | ||||||||
|
| |||||||
| Thrifts & Mortgage Finance (0.1%): |
| ||||||
49,784 | New York Community Bancorp, Inc.^ | 792,063 | ||||||
6,165 | TFS Financial Corp. | 117,382 | ||||||
|
| |||||||
909,445 | ||||||||
|
| |||||||
| Tobacco (1.3%): |
| ||||||
145,577 | Philip Morris International, Inc. | 13,318,840 | ||||||
33,600 | Reynolds American, Inc. | 1,882,944 | ||||||
|
| |||||||
15,201,784 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Trading Companies & Distributors (0.1%): |
| ||||||
5,249 | Air Lease Corp.^ | $ | 180,198 | |||||
2,089 | Herc Holdings, Inc. Com*^ | 83,894 | ||||||
2,689 | MSC Industrial Direct Co., Inc., Class A^ | 248,437 | ||||||
1,394 | United Rentals, Inc.*^ | 147,179 | ||||||
5,121 | WESCO International, Inc.* | 340,802 | ||||||
|
| |||||||
1,000,510 | ||||||||
|
| |||||||
| Transportation Infrastructure (0.1%): |
| ||||||
7,829 | Macquarie Infrastructure Corp. | 639,629 | ||||||
|
| |||||||
| Water Utilities (0.2%): |
| ||||||
18,893 | American Water Works Co., Inc. | 1,367,097 | ||||||
18,318 | Aqua America, Inc.^ | 550,273 | ||||||
|
| |||||||
1,917,370 | ||||||||
|
| |||||||
| Wireless Telecommunication Services (0.1%): |
| ||||||
79,163 | Sprint Corp.*^ | 666,552 | ||||||
10,322 | Telephone & Data Systems, Inc. | 297,996 | ||||||
11,429 | T-Mobile US, Inc.*^ | 657,282 | ||||||
1,461 | United States Cellular Corp.*^ | 63,875 | ||||||
|
| |||||||
1,685,705 | ||||||||
|
| |||||||
| Total Common Stocks (Cost $1,001,172,170) | 1,158,866,651 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (10.8%): |
| ||||||
$ | 126,757,974 | AZL Russell 1000 Value Index Fund Securities Lending Collateral Account(a) | 126,757,974 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 126,757,974 | ||||||
|
| |||||||
| Unaffiliated Investment Company (1.5%): |
| ||||||
17,912,646 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(b) | 17,912,646 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $17,912,646) | 17,912,646 | ||||||
|
| |||||||
| Total Investment Securities | 1,303,537,271 | ||||||
| Net other assets (liabilities) — (10.6)% | (124,992,359 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 1,178,544,912 | |||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
ADR—American Depositary Receipt
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2016. The total value of securities on loan as of December 31, 2016, was $123,642,575. |
+ | 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, 2016. |
(b) | The rate represents the effective yield at December 31, 2016. |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Continued
11
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2016
Futures Contracts
Cash of $841,200 has been segregated to cover margin requirements for the following open contracts as of December 31, 2016:
Description | Type | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
S&P 500 Index E-Mini March Futures | Long | 3/17/17 | 177 | $ | 19,790,370 | $ | 41,639 |
See accompanying notes to the financial statements.
12
AZL Russell 1000 Value Index Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investments in non-affiliates, at cost | $ | 1,141,727,039 | |||
Investments in affiliates, at cost | 4,115,751 | ||||
|
| ||||
Total Investment securities, at cost | $ | 1,145,842,790 | |||
|
| ||||
Investments in non-affiliates, at value | $ | 1,298,537,736 | |||
Investments in affiliates, at value | 4,999,535 | ||||
|
| ||||
Total Investment securities, at value* | $ | 1,303,537,271 | |||
Cash | 706 | ||||
Segregated cash for collateral | 841,200 | ||||
Interest and dividends receivable | 2,098,047 | ||||
Receivable for capital shares issued | 11,375 | ||||
Receivable for variation margin on futures contracts | 2,670 | ||||
Receivable for investments sold | 29,000 | ||||
Reclaims receivable | 177,257 | ||||
Prepaid expenses | 4,759 | ||||
|
| ||||
Total Assets | 1,306,702,285 | ||||
|
| ||||
Liabilities: | |||||
Foreign currency, at value (cost $1,670) | 1,007 | ||||
Payable for capital shares redeemed | 474,210 | ||||
Payable for collateral received on loaned securities | 126,757,974 | ||||
Payable for variation margin on futures contracts | 83,056 | ||||
Manager fees payable | 393,795 | ||||
Administration fees payable | 22,663 | ||||
Distribution fees payable | 212,466 | ||||
Custodian fees payable | 30,995 | ||||
Administrative and compliance services fees payable | 3,180 | ||||
Trustee fees payable | 2,415 | ||||
Other accrued liabilities | 175,612 | ||||
|
| ||||
Total Liabilities | 128,157,373 | ||||
|
| ||||
Net Assets | $ | 1,178,544,912 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 912,899,776 | |||
Accumulated net investment income/(loss) | 7,988,610 | ||||
Accumulated net realized gains/(losses) from investment transactions | 102,828,028 | ||||
Net unrealized appreciation/(depreciation) on investments | 154,828,498 | ||||
|
| ||||
Net Assets | $ | 1,178,544,912 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 187,248,438 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 17,346,302 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.79 | |||
|
| ||||
Class 2 | |||||
Net Assets | $ | 991,296,474 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 74,023,014 | ||||
Net Asset Value (offering and redemption price per share) | $ | 13.39 | |||
|
|
* | Includes securities on loan of $123,642,575. |
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Dividends | $ | 10,128,140 | |||
Dividends from affiliates | 42,818 | ||||
Interest | 3,888 | ||||
Income from securities lending | 148,684 | ||||
Foreign withholding tax | (2,701 | ) | |||
|
| ||||
Total Investment Income | 10,320,829 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 1,655,791 | ||||
Administration fees | 93,768 | ||||
Distribution fees — Class 2 | 845,370 | ||||
Custodian fees | 27,933 | ||||
Administrative and compliance services fees | 2,262 | ||||
Trustee fees | 6,792 | ||||
Professional fees | 27,081 | ||||
Shareholder reports | 19,735 | ||||
Other expenses | 97,599 | ||||
|
| ||||
Total expenses before reductions | 2,776,331 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (157,418 | ) | |||
|
| ||||
Net expenses | 2,618,913 | ||||
|
| ||||
Net Investment Income/(Loss) | 7,701,916 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 109,760,672 | ||||
Net realized gains/(losses) from affiliated transactions | 790,455 | ||||
Net realized gains/(losses) on securities held short | 25,274 | ||||
Net realized gains/(losses) on futures contracts | 1,361,619 | ||||
Change in net unrealized appreciation/depreciation on investments | (18,283,699 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 93,654,321 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 101,356,237 | |||
|
|
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, 2016 | For the Year Ended December 31, 2015 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 7,701,916 | $ | 3,193,669 | ||||||
Net realized gains/(losses) on investment transactions | 111,938,020 | 15,654,339 | ||||||||
Change in unrealized appreciation/depreciation on investments | (18,283,699 | ) | (27,728,731 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 101,356,237 | (8,880,723 | ) | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1* | — | |||||||||
Class 2 | (3,330,450 | ) | (3,236,163 | ) | ||||||
From net realized gains: | ||||||||||
Class 1* | — | |||||||||
Class 2 | (16,584,572 | ) | (13,764,583 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (19,915,022 | ) | (17,000,746 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Class 1* | ||||||||||
Proceeds from shares issued | 179,845,573 | |||||||||
Value of shares redeemed | (6,633,985 | ) | ||||||||
|
| |||||||||
Total Class 1 Shares | 173,211,588 | |||||||||
|
| |||||||||
Class 2 | ||||||||||
Proceeds from shares issued | 341,647,288 | 9,011,632 | ||||||||
Proceeds from shares issued in merger | 469,916,200 | — | ||||||||
Proceeds from dividends reinvested | 19,915,022 | 17,000,746 | ||||||||
Value of shares redeemed | (100,680,118 | ) | (26,195,567 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | 730,798,392 | (183,189 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 904,009,980 | (183,189 | ) | |||||||
|
|
|
| |||||||
Change in net assets | 985,451,195 | (26,064,658 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 193,093,717 | 219,158,375 | ||||||||
|
|
|
| |||||||
End of period | $ | 1,178,544,912 | $ | 193,093,717 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 7,988,610 | $ | 3,348,982 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Class 1* | ||||||||||
Shares issued | 17,984,628 | |||||||||
Shares redeemed | (638,326 | ) | ||||||||
|
| |||||||||
Total Class 1 Shares | 17,346,302 | |||||||||
|
| |||||||||
Class 2 | ||||||||||
Shares issued | 27,252,060 | 633,246 | ||||||||
Shares issued in merger | 37,981,927 | — | ||||||||
Dividends reinvested | 1,608,645 | 1,365,522 | ||||||||
Shares redeemed | (7,774,069 | ) | (1,827,959 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | 59,068,563 | 170,809 | ||||||||
|
|
|
| |||||||
Change in shares | 76,414,865 | 170,809 | ||||||||
|
|
|
|
* | For the period October 17, 2016 (commencement of operations) to December 31, 2016. |
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, | |||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||
Class 1* | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.00 | |||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.08 | ||||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.71 | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Total from Investment Activities | 0.79 | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Net Asset Value, End of Period | $ | 10.79 | |||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Total Return(a) | 7.90 | %(b) | |||||||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 187,248 | |||||||||||||||||||||||
Net Investment Income/(Loss)(c) | 2.11 | % | |||||||||||||||||||||||
Expenses Before Reductions(c)(d) | 0.51 | % | |||||||||||||||||||||||
Expenses Net of Reductions(c) | 0.46 | % | |||||||||||||||||||||||
Portfolio Turnover Rate(e) | 131 | %(f) | |||||||||||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 12.91 | $ | 14.82 | $ | 14.70 | $ | 11.84 | $ | 10.36 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.11 | 0.22 | 0.24 | 0.31 | 0.20 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.85 | (0.92 | ) | 1.55 | 3.35 | 1.52 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.96 | (0.70 | ) | 1.79 | 3.66 | 1.72 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.25 | ) | (0.23 | ) | (0.23 | ) | (0.29 | ) | (0.15 | ) | |||||||||||||||
Net Realized Gains | (1.23 | ) | (0.98 | ) | (1.44 | ) | (0.51 | ) | (0.09 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (1.48 | ) | (1.21 | ) | (1.67 | ) | (0.80 | ) | (0.24 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 13.39 | $ | 12.91 | $ | 14.82 | $ | 14.70 | $ | 11.84 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 16.15 | % | (4.42 | )% | 12.59 | % | 31.52 | % | 16.63 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 991,296 | $ | 193,094 | $ | 219,158 | $ | 205,807 | $ | 224,382 | |||||||||||||||
Net Investment Income/(Loss) | 2.05 | % | 1.54 | % | 1.60 | % | 1.54 | % | 1.85 | % | |||||||||||||||
Expenses Before Reductions(d) | 0.77 | % | 0.77 | % | 0.76 | % | 0.77 | % | 0.78 | % | |||||||||||||||
Expenses Net of Reductions | 0.72 | % | 0.77 | % | 0.76 | % | 0.77 | % | 0.78 | % | |||||||||||||||
Portfolio Turnover Rate(e) | 131 | %(f) | 16 | % | 16 | % | 11 | % | 18 | % |
* | For the period October 17, 2016 (commencement of operations) to December 31, 2016. |
(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) | Not annualized. |
(c) | Annualized for periods less than one year. |
(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. Not annualized for periods less than one year. |
(f) | Cost of purchases and proceeds from sales of portfolio securities incurred to realign the Fund’s portfolio after the fund merger are excluded from the portfolio turnover rate. If such amounts had not been excluded, the portfolio turnover rate would have been 131%. |
See accompanying notes to the financial statements.
15
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 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 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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.
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
16
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements
December 31, 2016
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) 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, 2016 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $45.7 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $14,970 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (“ASU No. 2014-11”), “Transfers & Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged, and the remaining contractual maturity of those transactions as of December 31, 2016.
Overnight and Continuous | Less than 30 Days | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions | |||||||||||||||||||||||||
Common Stocks | $ | 119,942,788 | $ | 6,799,520 | $ | 15,666 | $ | — | $ | 126,757,974 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Securities Lending Transactions | 119,942,788 | 6,799,520 | 15,666 | — | 126,757,974 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Borrowings | $ | 119,942,788 | $ | 6,799,520 | $ | 15,666 | $ | — | $ | 126,757,974 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Gross Amount of Recognized Liabilities for Securities Lending Transactions | $ | 126,757,974 | |||||||||||||||||||||||
|
|
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and sub-adviser. Any such purchase or sale transaction must be effected without a brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security’s last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. During the year, the Fund engaged in such affiliated transactions at the current market price.
The Fund is permitted to purchase and sell securities (“crosstrade”) from and to other Allianz Funds as well as other funds and client accounts for which the Adviser or an affiliate of the Adviser serves as investment adviser, pursuant to procedures approved by the Trustees in compliance with Rule 17a-7 under the Act (the “Rule”). Each cross-trade is executed at the current market price in compliance with provisions of the Rule. For the year ended December 31, 2016, the Fund participated in following cross-trade transactions:
Purchases | Sales | Realized (Gain/Loss) | |||||||||||||
AZL Russell 1000 Value Index Fund | $ | (15,486,872 | ) | $ | 17,876,129 | $ | 4,052,827 |
17
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements
December 31, 2016
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, 2016, 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 $19.8 million as of December 31, 2016. The monthly average notional amount for these contracts was $6.2 million for the year ended December 31, 2016. 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, 2016:
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 Risk Exposure | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 41,639 | 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 the current day’s variation margin is reported within the Statement of Assets and Liabilities as Variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended December 31, 2016:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives Recognized | Change in Net Unrealized Appreciation/Depreciation on Derivatives Recognized | |||||||
Equity Risk Exposure | ||||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/Change in unrealized appreciation/depreciation on investments | $ | 1,361,619 | $45,261 |
3. Fees and Transactions with Affiliates and Other Parties
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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, 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 Class 1 | 0.44 | % | 0.59 | % | ||||||
AZL Russell 1000 Value Index Fund Class 2 | 0.44 | % | 0.84 | % |
* | Effective October 14, 2016 the Manager voluntarily reduced the management fee to 0.39% on all assets. The manager reserves the right to increase the management fee to the amount shown in the table 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, 2016, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
18
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements
December 31, 2016
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.
The Manager or an affiliate of the Manager serves as the investment adviser of certain securities in which the Fund invests. At December 31, 2016, these investments are noted as Affiliated Securities in the Fund’s Schedule of Portfolio Investments. A summary of the Fund’s investments in affiliated securities for the year ended December 31, 2016 is as follows:
Fair Value 12/31/2015 | Purchases at Cost | Proceeds from Sales | Fair Value 12/31/2016 | Dividend Income | |||||||||||||||||||||
BlackRock, Inc., Class A | $ | 563,561 | $ | 2,254,231 | $ | (4,330,948 | ) | $ | 4,999,535 | $ | 42,818 | ||||||||||||||
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$ | 563,561 | $ | 2,254,231 | $ | (4,330,948 | ) | $ | 4,999,535 | $ | 42,818 | |||||||||||||||
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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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the average daily net assets attributable to Class 2 shares, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $3,875 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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 (the “Board” or “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.
19
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements
December 31, 2016
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, 2016, 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, 2016 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks+ | $ | 1,158,866,651 | $ | — | $ | 1,158,866,651 | |||||||||
Securities Held as Collateral for Securities on Loan | — | 126,757,974 | 126,757,974 | ||||||||||||
Unaffiliated Investment Company | 17,912,646 | — | 17,912,646 | ||||||||||||
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Total Investment Securities | 1,176,779,297 | 126,757,974 | 1,303,537,271 | ||||||||||||
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Other Financial Instruments:* | |||||||||||||||
Futures Contracts | 41,639 | — | 41,639 | ||||||||||||
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Total Investments | $ | 1,176,820,936 | $ | 126,757,974 | $ | 1,303,578,910 | |||||||||
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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, 2016, 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 | $ | 718,467,201 | $ | 534,930,699 |
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.
7. Federal Tax Information
It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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.
20
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements
December 31, 2016
Cost of securities for federal income tax purposes at December 31, 2016 is $1,156,535,361. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 167,972,038 | ||
Unrealized (depreciation) | (20,970,128 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 147,001,910 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Russell 1000 Value Index Fund | $ | 4,243,651 | $ | 15,671,371 | $ | 19,915,022 |
(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, 2015 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Russell 1000 Value Index Fund | $ | 5,583,262 | $ | 11,417,484 | $ | 17,000,746 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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 | $ | 9,110,751 | $ | 112,440,095 | $ | — | $ | 144,094,290 | $ | 265,645,136 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies — Form N-PORT and Form N-CEN — also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
9. Acquisition of Funds
Effective as of the close of business October 28, 2016, the Fund acquired all of the net assets of the AZL Invesco Growth and Income Fund (“Invesco Fund”) and AZL MFS Value Fund (“MFS Fund”), open-end management investment companies, pursuant to a plan of reorganization approved by the Board on June 14, 2016. The purpose of the transaction was to combine three funds managed by the Manager with comparable investment objectives and strategies. The acquisition was accomplished by a tax-free exchange of 37,981,927 shares of the Fund, valued at $469,916,200, for 27,324,759 shares of the Invesco Fund and 19,129,199 shares of the MFS Fund outstanding as of close of business October 28, 2016, respectively.
The investment portfolios of the Invesco Fund and the MFS Fund were the principal assets acquired by the Fund. At the close of business October 28, 2016, the Invesco Fund investment portfolio had a fair value of $201,290,681 and identified cost of $143,163,612. At the close of business October 28, 2016, the MFS Fund investment portfolio had a fair value of $267,927,310 and identified cost of $191,950,911. For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value; however, the cost basis of the investments received from the Invesco Fund and the MFS Fund were carried forward to align ongoing reporting of the Fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes. Immediately prior to the merger, the Fund’s net assets were $668,607,225. All fees and expenses incurred by the Invesco Fund and MFS Fund and the Fund directly in connection with the plan of reorganization were borne equally by the Manager and, collectively, the Invesco Fund and the MFS Fund, except that the expenses borne by the Invesco Fund and the MFS Fund did not exceed $64,000 and $60,500, respectively, as provided by the plan of reorganization.
Assuming the acquisition had been completed on January 1, 2016, the beginning of the annual reporting period of the Fund, the Fund’s pro forma results of operations for the year ended December 31, 2016, are as follows:
Net investment income/(loss) | $ | 18,885,763 | ||
Net realized/unrealized gains/(losses) | 132,451,967 | |||
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Change in net assets resulting from operations | $ | 151,337,730 | ||
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21
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements
December 31, 2016
Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Invesco Fund and the MFS Fund that have been included in the Fund’s statement of operations since October 29, 2016.
In the calculation of the portfolio turnover as presented in the Financial Highlights, the Fund excluded the cost of purchases and proceeds from sales of portfolio securities that occurred in the effort to realign a combined fund’s portfolio after the merger. The amounts of excluded purchases and sales are as follows:
Cost of purchases | $ | 254,868,083 | ||
Proceeds from sales | — |
22
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, 2016, 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 or 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, 2016, by correspondence with the custodian and brokers. 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 AZL Russell 1000 Value Index Fund as of December 31, 2016, 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 or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Columbus, Ohio
February 24, 2017
23
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2016, 88.88% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deductions available to corporate shareholders.
During the year ended December 31, 2016, the Fund declared net long-term capital gain distributions of $15,671,371.
During the year ended December 31, 2016, the Fund declared net short-term capital gain distributions of $913,201.
24
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.
25
Approval of Investment Advisory and Subadvisory Agreements — October 25, 2016 (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 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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
26
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 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 the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held October 25, 2016, the Manager reported that for the three year period ended June 30, 2016, seven Funds were in the top 40%, two were in the middle 20% and three were in the bottom 40%, and for the one year period ended June 30, 2016, twelve Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2016, six Funds were in the top 40%, one was in the middle 20%, and three were in the bottom 40%. At the Board of Trustees meeting held October 25, 2016, 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 twenty Funds reviewed by the Board of Trustees in the fall of 2016, seventeen 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 2016 for the twenty-one Funds was as follows; (1) eighteen of the Funds had total expense rankings below the 65th percentile (with eleven Funds at or below the 50th percentile); (2) the AZL Russell 1000 Growth Index Fund had a total expense ranking in the 66th percentile, but there was only a very limited peer group for such Fund, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; (3) the AZL International Index Fund had a total expense ranking in the 75th percentile, but there was only a limited peer group for such Fund, the actual management fee was in the 37th percentile, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; and (4) for the AZL Morgan Stanley Global Real Estate Fund, which had a total expense ranking in the 70th percentile, the Manager recommended a temporary management fee waiver of 5 basis points, effective November 1, 2016, which would move the management fee ranking from the 80th to the 60th percentile.
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 2013 through June 30, 2016. 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, all of which currently are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. Trustees recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. Based upon the information provided, the Trustees determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
27
(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, 2016 were approximately $6.4 billion, and that no single Fund had assets in excess of $1,289 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, 2017, and will at that time, or prior thereto, consider: (a) the extent to which economies of scale can be realized, and (b) whether the advisory fee should be modified to reflect such economies of scale, if any.
Having taken these factors into account, the Trustees concluded that the absence of breakpoints in certain of the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
28
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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 5701 Golden Hills Drive | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 5701 Golden Hills Drive | 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 5701 Golden Hills Drive | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
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Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® S&P 500 Index Fund
Annual Report
December 31, 2016
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, 2016?
For the year ended December 31, 2016, the AZL® S&P 500 Index Fund (Class 2 Shares) (the “Fund”) returned 11.45%. That compared to a 11.96% total return for its benchmark, the S&P 500® Index1.
The Fund takes positions in securities that, in combination, should have similar return characteristics as the return of the Index. The Index is designed to provide a comprehensive measure of large-cap stock performance.*
U.S. equities started the year on a down note. Stock prices fell on fears of a global economic slowdown; cratering oil prices; and terrorist attacks in Istanbul, Jakarta and Pakistan. Volatility also increased as investors prepared for a possible interest rate increase by the Federal Reserve.
A rebound in oil prices in February helped fuel a recovery in domestic equity markets that continued into the second quarter. The stock rally suffered a brief downturn in June as investors were shocked by the United Kingdom’s vote to leave the European Union. However, investor concerns quickly eased and the second quarter ended on a strong note.
That upward momentum in domestic equity markets carried through to the second half of the reporting period, driven by a dovish Federal Reserve decision to keep rates unchanged. Stock prices also benefited from earnings releases that surpassed many analyst expectations.
In the fourth quarter, the U.S. economy continued to strengthen as shown by strong macroeconomic data and a tightening labor market. Improving conditions meant the Fed’s decision in December to raise rates by 25 basis points (0.25%) did not come as a big surprise. While many
investors were shocked by Donald Trump’s election win, markets did not show the same type of volatility as seen following the Brexit vote in June; major U.S. indexes posted solid gains in November, with large-cap stocks trailing small-cap in the post-election bounce.
In general, large cap stocks underperformed their smaller-cap counterparts for the 12-month period under review. From a sector perspective, energy, telecommunication services, financials and industrials stocks drove positive returns in the Index. Health care was the only detractor from returns for the year as the sector came under pressure from lawmakers on drug pricing practices.
The Fund held derivatives in the form of futures contracts, which it used to hedge its cash position. The futures had a small positive impact on relative results.*
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, 2016. |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
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 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, 2016 | ||||||||||||||||||||
Inception Date | 1 Year | 3 Year | 5 Year | Since Inception | ||||||||||||||||
AZL® S&P 500 Index Fund (Class 1 Shares) | 5/14/07 | 11.79 | % | 8.65 | % | 14.39 | % | 6.13 | % | |||||||||||
AZL® S&P 500 Index Fund (Class 2 Shares) | 5/1/07 | 11.45 | % | 8.37 | % | 14.10 | % | 5.99 | % | |||||||||||
S&P 500® Index | 5/1/07 | 11.96 | % | 8.87 | % | 14.66 | % | 6.61 | % |
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 25, 2016, as supplemented October 14, 2016. 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, 2018. Additional information pertaining to the December 31, 2016 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid During Period 7/1/16 - 12/31/16* | Annualized Expense Ratio During Period 7/1/16 - 12/31/16 | |||||||||||||||||
AZL S&P 500 Index Fund, Class 1 | $ | 1,000.00 | $ | 1,077.20 | $ | 1.25 | 0.24 | % | ||||||||||||
AZL S&P 500 Index Fund, Class 2 | $ | 1,000.00 | $ | 1,075.90 | $ | 2.56 | 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid 7/1/16 - 12/31/16* | Annualized 7/1/16 - 12/31/16 | |||||||||||||||||
AZL S&P 500 Index Fund, Class 1 | $ | 1,000.00 | $ | 1,023.95 | $ | 1.22 | 0.24 | % | ||||||||||||
AZL S&P 500 Index Fund, Class 2 | $ | 1,000.00 | $ | 1,022.67 | $ | 2.49 | 0.49 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 20.3 | % | |||
Financials | 14.5 | ||||
Health Care | 13.3 | ||||
Consumer Discretionary | 11.8 | ||||
Industrials | 10.1 | ||||
Consumer Staples | 9.2 | ||||
Energy | 7.4 | ||||
Utilities | 3.1 | ||||
Real Estate | 2.8 | ||||
Materials | 2.8 | ||||
Telecommunication Services | 2.6 | ||||
|
| ||||
Total Common Stocks | 97.9 | ||||
Securities Held as Collateral for Securities on Loan | 9.5 | ||||
Money Market | 2.1 | ||||
|
| ||||
Total Investment Securities | 109.5 | ||||
Net other assets (liabilities) | (9.5 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
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3
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks (97.9%): |
| ||||||
| Aerospace & Defense (2.2%): |
| ||||||
58,334 | Arconic, Inc. | $ | 1,081,512 | |||||
77,457 | Boeing Co. (The) | 12,058,505 | ||||||
38,308 | General Dynamics Corp. | 6,614,259 | ||||||
10,317 | L-3 Communications Holdings, Inc. | 1,569,319 | ||||||
33,704 | Lockheed Martin Corp. | 8,423,978 | ||||||
23,873 | Northrop Grumman Corp. | 5,552,382 | ||||||
39,397 | Raytheon Co. | 5,594,374 | ||||||
17,351 | Rockwell Collins, Inc. | 1,609,479 | ||||||
36,010 | Textron, Inc. | 1,748,646 | ||||||
6,685 | TransDigm Group, Inc. | 1,664,298 | ||||||
102,598 | United Technologies Corp. | 11,246,793 | ||||||
|
| |||||||
57,163,545 | ||||||||
|
| |||||||
| Air Freight & Logistics (0.7%): |
| ||||||
19,076 | C.H. Robinson Worldwide, Inc.^ | 1,397,508 | ||||||
24,144 | Expeditors International of Washington, Inc.^ | 1,278,666 | ||||||
32,613 | FedEx Corp. | 6,072,541 | ||||||
92,288 | United Parcel Service, Inc., Class B | 10,579,896 | ||||||
|
| |||||||
19,328,611 | ||||||||
|
| |||||||
| Airlines (0.6%): |
| ||||||
16,448 | Alaska Air Group, Inc.^ | 1,459,431 | ||||||
70,700 | American Airlines Group, Inc.^ | 3,300,983 | ||||||
99,978 | Delta Air Lines, Inc.^ | 4,917,919 | ||||||
82,799 | Southwest Airlines Co. | 4,126,702 | ||||||
39,171 | United Continental Holdings, Inc.* | 2,854,782 | ||||||
|
| |||||||
16,659,817 | ||||||||
|
| |||||||
| Auto Components (0.2%): |
| ||||||
1,155 | Adient plc* | 67,683 | ||||||
26,891 | BorgWarner, Inc.^ | 1,060,581 | ||||||
36,500 | Delphi Automotive plc^ | 2,458,275 | ||||||
35,095 | Goodyear Tire & Rubber Co.^ | 1,083,383 | ||||||
|
| |||||||
4,669,922 | ||||||||
|
| |||||||
| Automobiles (0.5%): |
| ||||||
520,420 | Ford Motor Co.^ | 6,312,695 | ||||||
185,598 | General Motors Co. | 6,466,234 | ||||||
23,940 | Harley-Davidson, Inc.^ | 1,396,660 | ||||||
|
| |||||||
14,175,589 | ||||||||
|
| |||||||
| Banks (6.6%): |
| ||||||
1,353,882 | Bank of America Corp. | 29,920,792 | ||||||
108,818 | BB&T Corp. | 5,116,622 | ||||||
381,809 | Citigroup, Inc. | 22,690,909 | ||||||
69,376 | Citizens Financial Group, Inc. | 2,471,867 | ||||||
23,233 | Comerica, Inc. | 1,582,400 | ||||||
102,322 | Fifth Third Bancorp | 2,759,624 | ||||||
144,821 | Huntington Bancshares, Inc. | 1,914,534 | ||||||
479,419 | JPMorgan Chase & Co. | 41,369,066 | ||||||
144,396 | KeyCorp | 2,638,115 | ||||||
20,955 | M&T Bank Corp.^ | 3,277,991 | ||||||
41,326 | People’s United Financial, Inc.^ | 800,071 | ||||||
65,465 | PNC Financial Services Group, Inc. | 7,656,786 | ||||||
168,284 | Regions Financial Corp. | 2,416,558 | ||||||
66,860 | SunTrust Banks, Inc. | 3,667,271 | ||||||
214,800 | U.S. Bancorp | 11,034,276 | ||||||
604,776 | Wells Fargo & Co. | 33,329,205 | ||||||
27,250 | Zions Bancorp^ | 1,172,840 | ||||||
|
| |||||||
173,818,927 | ||||||||
|
|
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Beverages (2.0%): |
| ||||||
24,353 | Brown-Forman Corp., Class B^ | $ | 1,093,937 | |||||
518,523 | Coca-Cola Co. (The) | 21,497,963 | ||||||
23,652 | Constellation Brands, Inc., Class C | 3,626,088 | ||||||
24,780 | Dr Pepper Snapple Group, Inc. | 2,246,803 | ||||||
24,577 | Molson Coors Brewing Co., Class B | 2,391,588 | ||||||
54,132 | Monster Beverage Corp.* | 2,400,213 | ||||||
192,144 | PepsiCo, Inc. | 20,104,027 | ||||||
|
| |||||||
53,360,619 | ||||||||
|
| |||||||
| Biotechnology (2.7%): |
| ||||||
217,425 | AbbVie, Inc. | 13,615,153 | ||||||
29,946 | Alexion Pharmaceuticals, Inc.* | 3,663,893 | ||||||
99,890 | Amgen, Inc. | 14,604,916 | ||||||
29,256 | Biogen Idec, Inc.* | 8,296,416 | ||||||
103,490 | Celgene Corp.* | 11,978,968 | ||||||
176,173 | Gilead Sciences, Inc. | 12,615,749 | ||||||
10,076 | Regeneron Pharmaceuticals, Inc.* | 3,698,799 | ||||||
33,080 | Vertex Pharmaceuticals, Inc.* | 2,437,004 | ||||||
|
| |||||||
70,910,898 | ||||||||
|
| |||||||
| Building Products (0.3%): |
| ||||||
9,393 | Allegion plc | 601,152 | ||||||
3,372 | Allegion plc | 215,808 | ||||||
20,523 | Fortune Brands Home & Security, Inc.^ | 1,097,160 | ||||||
125,872 | Johnson Controls International plc | 5,184,667 | ||||||
44,127 | Masco Corp. | 1,395,296 | ||||||
|
| |||||||
8,494,083 | ||||||||
|
| |||||||
| Capital Markets (2.8%): |
| ||||||
7,184 | Affiliated Managers Group, Inc.* | 1,043,835 | ||||||
21,549 | Ameriprise Financial, Inc. | 2,390,646 | ||||||
142,576 | Bank of New York Mellon Corp. (The) | 6,755,251 | ||||||
16,255 | BlackRock, Inc., Class A+ | 6,185,678 | ||||||
160,574 | Charles Schwab Corp. (The) | 6,337,856 | ||||||
45,238 | CME Group, Inc. | 5,218,203 | ||||||
36,570 | E*TRADE Financial Corp.* | 1,267,151 | ||||||
46,918 | Franklin Resources, Inc. | 1,857,014 | ||||||
49,548 | Goldman Sachs Group, Inc. (The) | 11,864,268 | ||||||
79,480 | Intercontinental Exchange, Inc. | 4,484,262 | ||||||
54,696 | Invesco, Ltd.^ | 1,659,477 | ||||||
22,337 | Moody’s Corp. | 2,105,709 | ||||||
192,946 | Morgan Stanley | 8,151,969 | ||||||
15,275 | NASDAQ OMX Group, Inc. (The) | 1,025,258 | ||||||
28,476 | Northern Trust Corp. | 2,535,788 | ||||||
35,235 | S&P Global, Inc. | 3,789,172 | ||||||
48,942 | State Street Corp. | 3,803,772 | ||||||
33,171 | T. Rowe Price Group, Inc. | 2,496,449 | ||||||
|
| |||||||
72,971,758 | ||||||||
|
| |||||||
| Chemicals (2.0%): |
| ||||||
28,911 | Air Products & Chemicals, Inc. | 4,157,980 | ||||||
14,994 | Albemarle Corp. | 1,290,684 | ||||||
31,041 | CF Industries Holdings, Inc. | 977,171 | ||||||
150,447 | Dow Chemical Co. (The) | 8,608,576 | ||||||
116,719 | E.I. du Pont de Nemours & Co. | 8,567,174 | ||||||
19,675 | Eastman Chemical Co. | 1,479,757 | ||||||
35,039 | Ecolab, Inc.^ | 4,107,272 | ||||||
17,796 | FMC Corp. | 1,006,542 | ||||||
10,616 | International Flavor & Fragrances, Inc.^ | 1,250,883 |
Continued
4
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Chemicals, continued |
| ||||||
7,052 | Lyondellbasell Industries NV | $ | 604,921 | |||||
38,508 | LyondellBasell Industries NV, Class A | 3,303,216 | ||||||
58,438 | Monsanto Co. | 6,148,262 | ||||||
46,738 | Mosaic Co. (The)^ | 1,370,826 | ||||||
35,554 | PPG Industries, Inc. | 3,369,097 | ||||||
38,082 | Praxair, Inc. | 4,462,830 | ||||||
10,711 | Sherwin Williams Co. | 2,878,474 | ||||||
|
| |||||||
53,583,665 | ||||||||
|
| |||||||
| Commercial Services & Supplies (0.3%): |
| ||||||
11,454 | Cintas Corp. | 1,323,624 | ||||||
25,027 | Pitney Bowes, Inc.^ | 380,160 | ||||||
31,193 | Republic Services, Inc., Class A | 1,779,561 | ||||||
11,315 | Stericycle, Inc.*^ | 871,708 | ||||||
54,453 | Waste Management, Inc. | 3,861,262 | ||||||
|
| |||||||
8,216,315 | ||||||||
|
| |||||||
| Communications Equipment (1.0%): |
| ||||||
671,495 | Cisco Systems, Inc.# | 20,292,578 | ||||||
8,865 | F5 Networks, Inc.* | 1,282,943 | ||||||
16,609 | Harris Corp. | 1,701,924 | ||||||
51,125 | Juniper Networks, Inc. | 1,444,793 | ||||||
22,258 | Motorola Solutions, Inc.^ | 1,844,966 | ||||||
|
| |||||||
26,567,204 | ||||||||
|
| |||||||
| Construction & Engineering (0.1%): |
| ||||||
18,602 | Fluor Corp. | 976,977 | ||||||
16,216 | Jacobs Engineering Group, Inc.* | 924,312 | ||||||
20,308 | Quanta Services, Inc.* | 707,734 | ||||||
|
| |||||||
2,609,023 | ||||||||
|
| |||||||
| Construction Materials (0.2%): |
| ||||||
8,470 | Martin Marietta Materials, Inc. | 1,876,359 | ||||||
17,735 | Vulcan Materials Co. | 2,219,535 | ||||||
|
| |||||||
4,095,894 | ||||||||
|
| |||||||
| Consumer Finance (0.8%): |
| ||||||
103,605 | American Express Co. | 7,675,058 | ||||||
64,619 | Capital One Financial Corp. | 5,637,362 | ||||||
53,887 | Discover Financial Services | 3,884,714 | ||||||
42,327 | Navient Corp.^ | 695,433 | ||||||
105,772 | Synchrony Financial | 3,836,350 | ||||||
|
| |||||||
21,728,917 | ||||||||
|
| |||||||
| Containers & Packaging (0.3%): |
| ||||||
11,863 | Avery Dennison Corp. | 833,020 | ||||||
23,241 | Ball Corp. | 1,744,702 | ||||||
54,866 | International Paper Co. | 2,911,190 | ||||||
26,224 | Sealed Air Corp. | 1,188,996 | ||||||
33,666 | WestRock Co. | 1,709,223 | ||||||
|
| |||||||
8,387,131 | ||||||||
|
| |||||||
| Distributors (0.1%): |
| ||||||
19,895 | Genuine Parts Co.^ | 1,900,768 | ||||||
40,931 | LKQ Corp.* | 1,254,535 | ||||||
|
| |||||||
3,155,303 | ||||||||
|
| |||||||
| Diversified Consumer Services (0.0%): |
| ||||||
29,543 | H&R Block, Inc.^ | 679,194 | ||||||
|
| |||||||
| Diversified Financial Services (1.6%): |
| ||||||
253,467 | Berkshire Hathaway, Inc., Class B* | 41,310,051 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Diversified Financial Services, continued |
| ||||||
43,443 | Leucadia National Corp. | $ | 1,010,050 | |||||
|
| |||||||
42,320,101 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (2.6%): |
| ||||||
821,330 | AT&T, Inc. | 34,931,164 | ||||||
72,811 | CenturyLink, Inc.^ | 1,731,446 | ||||||
155,755 | Frontier Communications Corp.^ | 526,452 | ||||||
38,716 | Level 3 Communications, Inc.* | 2,182,034 | ||||||
544,202 | Verizon Communications, Inc. | 29,049,503 | ||||||
|
| |||||||
68,420,599 | ||||||||
|
| |||||||
| Electric Utilities (1.9%): |
| ||||||
30,327 | Alliant Energy Corp. | 1,149,090 | ||||||
65,650 | American Electric Power Co., Inc. | 4,133,324 | ||||||
91,877 | Duke Energy Corp. | 7,131,493 | ||||||
43,469 | Edison International^ | 3,129,333 | ||||||
23,849 | Entergy Corp. | 1,752,186 | ||||||
42,338 | Eversource Energy | 2,338,328 | ||||||
123,211 | Exelon Corp. | 4,372,758 | ||||||
56,721 | FirstEnergy Corp. | 1,756,649 | ||||||
62,354 | NextEra Energy, Inc. | 7,448,810 | ||||||
66,556 | PG&E Corp. | 4,044,608 | ||||||
14,782 | Pinnacle West Capital Corp. | 1,153,439 | ||||||
90,425 | PPL Corp. | 3,078,971 | ||||||
130,664 | Southern Co. (The) | 6,427,362 | ||||||
67,672 | Xcel Energy, Inc. | 2,754,250 | ||||||
|
| |||||||
50,670,601 | ||||||||
|
| |||||||
| Electrical Equipment (0.5%): |
| ||||||
5,849 | Acuity Brands, Inc. | 1,350,300 | ||||||
31,106 | AMETEK, Inc. | 1,511,752 | ||||||
60,783 | Eaton Corp. plc | 4,077,931 | ||||||
85,797 | Emerson Electric Co. | 4,783,183 | ||||||
17,295 | Rockwell Automation, Inc. | 2,324,448 | ||||||
|
| |||||||
14,047,614 | ||||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (0.4%): |
| ||||||
41,113 | Amphenol Corp., Class A | 2,762,794 | ||||||
126,993 | Corning, Inc.^ | 3,082,120 | ||||||
18,320 | FLIR Systems, Inc. | 663,001 | ||||||
31,566 | TE Connectivity, Ltd. | 2,186,892 | ||||||
15,922 | TE Connectivity, Ltd. | 1,103,076 | ||||||
|
| |||||||
9,797,883 | ||||||||
|
| |||||||
| Energy Equipment & Services (1.1%): |
| ||||||
57,182 | Baker Hughes, Inc. | 3,715,115 | ||||||
30,143 | FMC Technologies, Inc.* | 1,070,981 | ||||||
114,846 | Halliburton Co. | 6,212,020 | ||||||
14,372 | Helmerich & Payne, Inc. | 1,112,393 | ||||||
50,279 | National-Oilwell Varco, Inc.^ | 1,882,446 | ||||||
185,673 | Schlumberger, Ltd.^ | 15,587,247 | ||||||
45,647 | Transocean, Ltd.*^ | 672,837 | ||||||
|
| |||||||
30,253,039 | ||||||||
|
| |||||||
| Equity Real Estate Investment Trusts (2.8%): |
| ||||||
56,742 | American Tower Corp. | 5,996,494 | ||||||
20,835 | Apartment Investment & Management Co., Class A | 946,951 | ||||||
18,287 | AvalonBay Communities, Inc. | 3,239,542 | ||||||
20,478 | Boston Properties, Inc. | 2,575,723 |
Continued
5
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Equity Real Estate Investment Trusts, continued | ||||||||
48,134 | Crown Castle International Corp. | $ | 4,176,586 | |||||
21,275 | Digital Realty Trust, Inc.^ | 2,090,482 | ||||||
9,490 | Equinix, Inc. | 3,391,821 | ||||||
48,578 | Equity Residential Property Trust | 3,126,480 | ||||||
8,725 | Essex Property Trust, Inc.^ | 2,028,563 | ||||||
16,796 | Extra Space Storage, Inc.^ | 1,297,323 | ||||||
9,418 | Federal Realty Investment Trust | 1,338,392 | ||||||
77,762 | General Growth Properties, Inc.* | 1,942,495 | ||||||
62,257 | HCP, Inc. | 1,850,278 | ||||||
99,111 | Host Hotels & Resorts, Inc.^ | 1,867,251 | ||||||
32,569 | Iron Mountain, Inc.^ | 1,057,841 | ||||||
56,080 | Kimco Realty Corp. | 1,410,973 | ||||||
16,106 | Macerich Co. (The) | 1,140,949 | ||||||
15,143 | Mid-America Apartment Communities, Inc. | 1,482,803 | ||||||
70,324 | ProLogis, Inc. | 3,712,404 | ||||||
19,909 | Public Storage, Inc. | 4,449,661 | ||||||
34,483 | Realty Income Corp.^ | 1,982,083 | ||||||
41,953 | Simon Property Group, Inc. | 7,453,789 | ||||||
13,356 | SL Green Realty Corp.^ | 1,436,438 | ||||||
35,696 | UDR, Inc.^ | 1,302,190 | ||||||
46,907 | Ventas, Inc. | 2,932,626 | ||||||
22,989 | Vornado Realty Trust | 2,399,362 | ||||||
47,723 | Welltower, Inc.^ | 3,194,100 | ||||||
99,875 | Weyerhaeuser Co. | 3,005,239 | ||||||
|
| |||||||
72,828,839 | ||||||||
|
| |||||||
Food & Staples Retailing (2.0%): | ||||||||
58,451 | Costco Wholesale Corp. | 9,358,590 | ||||||
142,435 | CVS Health Corp. | 11,239,546 | ||||||
126,730 | Kroger Co. (The) | 4,373,452 | ||||||
68,343 | Sysco Corp. | 3,784,152 | ||||||
114,151 | Walgreens Boots Alliance, Inc. | 9,447,137 | ||||||
202,365 | Wal-Mart Stores, Inc. | 13,987,469 | ||||||
42,639 | Whole Foods Market, Inc.^ | 1,311,576 | ||||||
|
| |||||||
53,501,922 | ||||||||
|
| |||||||
Food Products (1.6%): | ||||||||
77,836 | Archer-Daniels-Midland Co. | 3,553,213 | ||||||
25,959 | Campbell Soup Co.^ | 1,569,741 | ||||||
55,642 | ConAgra Foods, Inc. | 2,200,641 | ||||||
79,709 | General Mills, Inc. | 4,923,625 | ||||||
18,771 | Hershey Co. (The) | 1,941,485 | ||||||
36,108 | Hormel Foods Corp.^ | 1,256,919 | ||||||
15,565 | JM Smucker Co. (The)^ | 1,993,254 | ||||||
33,667 | Kellogg Co. | 2,481,595 | ||||||
79,468 | Kraft Heinz Co. (The) | 6,939,146 | ||||||
15,333 | McCormick & Co. | 1,431,029 | ||||||
24,673 | Mead Johnson Nutrition Co. | 1,745,861 | ||||||
207,720 | Mondelez International, Inc., Class A | 9,208,227 | ||||||
39,600 | Tyson Foods, Inc., Class A | 2,442,528 | ||||||
|
| |||||||
41,687,264 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (2.4%): | ||||||||
196,106 | Abbott Laboratories^ | 7,532,431 | ||||||
65,216 | Baxter International, Inc. | 2,891,677 | ||||||
28,428 | Becton, Dickinson & Co. | 4,706,255 | ||||||
181,665 | Boston Scientific Corp.* | 3,929,414 | ||||||
9,792 | C.R. Bard, Inc. | 2,199,871 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Equipment & Supplies, continued | ||||||||
6,506 | Cooper Cos., Inc. (The) | $ | 1,138,095 | |||||
81,126 | Danaher Corp.^ | 6,314,848 | ||||||
31,203 | DENTSPLY SIRONA, Inc. | 1,801,349 | ||||||
28,386 | Edwards Lifesciences Corp.* | 2,659,768 | ||||||
37,039 | Hologic, Inc.* | 1,486,005 | ||||||
5,126 | Intuitive Surgical, Inc.* | 3,250,755 | ||||||
184,497 | Medtronic plc | 13,141,722 | ||||||
38,036 | St. Jude Medical, Inc. | 3,050,107 | ||||||
41,484 | Stryker Corp.^ | 4,970,198 | ||||||
12,516 | Varian Medical Systems, Inc.* | 1,123,686 | ||||||
26,669 | Zimmer Holdings, Inc. | 2,752,241 | ||||||
|
| |||||||
62,948,422 | ||||||||
|
| |||||||
Health Care Providers & Services (2.6%): | ||||||||
46,670 | Aetna, Inc. | 5,787,547 | ||||||
24,181 | AmerisourceBergen Corp. | 1,890,712 | ||||||
35,060 | Anthem, Inc. | 5,040,576 | ||||||
42,536 | Cardinal Health, Inc. | 3,061,316 | ||||||
22,701 | Centene Corp.* | 1,282,834 | ||||||
34,209 | Cigna Corp. | 4,563,139 | ||||||
22,080 | DaVita, Inc.* | 1,417,536 | ||||||
15,651 | Envision Healthcare Corp.*^ | 990,552 | ||||||
84,089 | Express Scripts Holding Co.*^ | 5,784,482 | ||||||
39,429 | HCA Holdings, Inc.*^ | 2,918,535 | ||||||
10,927 | Henry Schein, Inc.*^ | 1,657,735 | ||||||
19,902 | Humana, Inc. | 4,060,605 | ||||||
13,608 | Laboratory Corp. of America Holdings* | 1,746,995 | ||||||
30,104 | McKesson Corp. | 4,228,107 | ||||||
11,160 | Patterson Cos., Inc.^ | 457,895 | ||||||
18,608 | Quest Diagnostics, Inc. | 1,710,075 | ||||||
127,156 | UnitedHealth Group, Inc. | 20,350,046 | ||||||
12,009 | Universal Health Services, Inc., Class B | 1,277,517 | ||||||
|
| |||||||
68,226,204 | ||||||||
|
| |||||||
Health Care Technology (0.1%): | ||||||||
40,151 | Cerner Corp.*^ | 1,901,953 | ||||||
|
| |||||||
Hotels, Restaurants & Leisure (1.5%): | ||||||||
57,797 | Carnival Corp., Class A^ | 3,008,912 | ||||||
3,903 | Chipotle Mexican Grill, Inc.*^ | 1,472,680 | ||||||
16,850 | Darden Restaurants, Inc.^ | 1,225,332 | ||||||
42,805 | Marriott International, Inc., Class A^ | 3,539,117 | ||||||
111,264 | McDonald’s Corp. | 13,543,054 | ||||||
22,428 | Royal Caribbean Cruises, Ltd. | 1,839,993 | ||||||
195,790 | Starbucks Corp. | 10,870,261 | ||||||
14,672 | Wyndham Worldwide Corp. | 1,120,501 | ||||||
10,599 | Wynn Resorts, Ltd.^ | 916,919 | ||||||
45,047 | Yum! Brands, Inc. | 2,852,827 | ||||||
|
| |||||||
40,389,596 | ||||||||
|
| |||||||
Household Durables (0.5%): | ||||||||
44,954 | D.R. Horton, Inc. | 1,228,593 | ||||||
2,355 | Garmin, Ltd. | 114,194 | ||||||
13,093 | Garmin, Ltd.^ | 634,880 | ||||||
9,319 | Harman International Industries, Inc. | 1,035,900 | ||||||
17,883 | Leggett & Platt, Inc.^ | 874,121 | ||||||
25,078 | Lennar Corp., Class A | 1,076,599 | ||||||
8,405 | Mohawk Industries, Inc.* | 1,678,310 | ||||||
64,377 | Newell Rubbermaid, Inc.^ | 2,874,432 |
Continued
6
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Household Durables, continued |
| ||||||
41,425 | PulteGroup, Inc.^ | $ | 761,392 | |||||
10,095 | Whirlpool Corp.^ | 1,834,968 | ||||||
|
| |||||||
12,113,389 | ||||||||
|
| |||||||
| Household Products (1.8%): |
| ||||||
34,420 | Church & Dwight Co., Inc. | 1,521,020 | ||||||
17,278 | Clorox Co. (The)^ | 2,073,706 | ||||||
119,016 | Colgate-Palmolive Co. | 7,788,407 | ||||||
47,976 | Kimberly-Clark Corp. | 5,475,021 | ||||||
357,971 | Procter & Gamble Co. (The) | 30,098,201 | ||||||
|
| |||||||
46,956,355 | ||||||||
|
| |||||||
| Independent Power & Renewable Electricity Producers (0.1%): |
| ||||||
88,221 | AES Corp. (The) | 1,025,128 | ||||||
41,991 | NRG Energy, Inc. | 514,810 | ||||||
|
| |||||||
1,539,938 | ||||||||
|
| |||||||
| Industrial Conglomerates (2.5%): |
| ||||||
80,694 | 3M Co., Class C | 14,409,528 | ||||||
1,185,246 | General Electric Co. | 37,453,773 | ||||||
101,652 | Honeywell International, Inc. | 11,776,384 | ||||||
13,493 | Roper Industries, Inc.^ | 2,470,298 | ||||||
|
| |||||||
66,109,983 | ||||||||
|
| |||||||
| Insurance (2.7%): |
| ||||||
54,791 | Aflac, Inc. | 3,813,454 | ||||||
49,685 | Allstate Corp. (The) | 3,682,652 | ||||||
130,736 | American International Group, Inc. | 8,538,367 | ||||||
5,500 | Aon plc | 613,415 | ||||||
29,988 | Aon plc | 3,344,562 | ||||||
23,606 | Arthur J. Gallagher & Co. | 1,226,568 | ||||||
8,039 | Assurant, Inc. | 746,502 | ||||||
62,044 | Chubb, Ltd. | 8,197,252 | ||||||
19,888 | Cincinnati Financial Corp. | 1,506,516 | ||||||
51,706 | Hartford Financial Services Group, Inc. (The) | 2,463,791 | ||||||
31,176 | Lincoln National Corp. | 2,066,034 | ||||||
36,713 | Loews Corp. | 1,719,270 | ||||||
69,120 | Marsh & McLennan Cos., Inc. | 4,671,821 | ||||||
146,710 | MetLife, Inc. | 7,906,201 | ||||||
35,716 | Principal Financial Group, Inc.^ | 2,066,528 | ||||||
77,570 | Progressive Corp. (The) | 2,753,735 | ||||||
58,342 | Prudential Financial, Inc. | 6,071,069 | ||||||
14,933 | Torchmark Corp. | 1,101,458 | ||||||
38,409 | Travelers Cos., Inc. (The) | 4,702,030 | ||||||
31,446 | UnumProvident Corp. | 1,381,423 | ||||||
17,323 | Willis Towers Watson plc | 2,118,256 | ||||||
36,711 | XL Group, Ltd. | 1,367,852 | ||||||
|
| |||||||
72,058,756 | ||||||||
|
| |||||||
| Internet & Direct Marketing Retail (2.2%): |
| ||||||
52,758 | Amazon.com, Inc.* | 39,561,642 | ||||||
16,033 | Expedia, Inc. | 1,816,218 | ||||||
57,173 | Netflix, Inc.* | 7,078,017 | ||||||
6,628 | Priceline Group, Inc. (The)* | 9,717,046 | ||||||
15,197 | TripAdvisor, Inc.* | 704,685 | ||||||
|
| |||||||
58,877,608 | ||||||||
|
| |||||||
| Internet Software & Services (4.1%): |
| ||||||
23,334 | Akamai Technologies, Inc.* | 1,555,911 | ||||||
39,608 | Alphabet, Inc., Class A* | 31,387,360 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Internet Software & Services, continued |
| ||||||
39,700 | Alphabet, Inc., Class C* | $ | 30,641,254 | |||||
140,181 | eBay, Inc.* | 4,161,974 | ||||||
313,135 | Facebook, Inc., Class A* | 36,026,181 | ||||||
12,428 | VeriSign, Inc.*^ | 945,398 | ||||||
116,750 | Yahoo!, Inc.* | 4,514,723 | ||||||
|
| |||||||
109,232,801 | ||||||||
|
| |||||||
| IT Services (3.6%): |
| ||||||
83,116 | Accenture plc, Class C^ | 9,735,377 | ||||||
7,819 | Alliance Data Systems Corp.^ | 1,786,642 | ||||||
60,893 | Automatic Data Processing, Inc. | 6,258,583 | ||||||
81,018 | Cognizant Technology Solutions Corp., Class A* | 4,539,439 | ||||||
19,223 | CSRA, Inc. | 612,060 | ||||||
43,761 | Fidelity National Information Services, Inc. | 3,310,082 | ||||||
29,378 | Fiserv, Inc.* | 3,122,294 | ||||||
20,494 | Global Payments, Inc. | 1,422,489 | ||||||
116,126 | International Business Machines Corp.^ | 19,275,754 | ||||||
128,030 | MasterCard, Inc., Class A | 13,219,098 | ||||||
42,740 | Paychex, Inc. | 2,602,011 | ||||||
149,840 | PayPal Holdings, Inc.* | 5,914,185 | ||||||
17,428 | Teradata Corp.*^ | 473,519 | ||||||
22,106 | Total System Services, Inc. | 1,083,857 | ||||||
250,220 | Visa, Inc., Class A | 19,522,163 | ||||||
65,357 | Western Union Co.^ | 1,419,554 | ||||||
|
| |||||||
94,297,107 | ||||||||
|
| |||||||
| Leisure Products (0.1%): |
| ||||||
15,000 | Hasbro, Inc.^ | 1,166,850 | ||||||
45,504 | Mattel, Inc.^ | 1,253,635 | ||||||
|
| |||||||
2,420,485 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (0.6%): |
| ||||||
43,528 | Agilent Technologies, Inc. | 1,983,136 | ||||||
19,579 | Illumina, Inc.* | 2,506,895 | ||||||
3,539 | Mettler-Toledo International, Inc.* | 1,481,284 | ||||||
14,633 | PerkinElmer, Inc. | 763,111 | ||||||
52,631 | Thermo Fisher Scientific, Inc. | 7,426,234 | ||||||
10,773 | Waters Corp.* | 1,447,783 | ||||||
|
| |||||||
15,608,443 | ||||||||
|
| |||||||
| Machinery (1.4%): |
| ||||||
77,998 | Caterpillar, Inc.^ | 7,233,535 | ||||||
20,713 | Cummins, Inc. | 2,830,846 | ||||||
38,618 | Deere & Co. | 3,979,199 | ||||||
20,688 | Dover Corp. | 1,550,152 | ||||||
17,439 | Flowserve Corp.^ | 837,944 | ||||||
40,054 | Fortive Corp. | 2,148,096 | ||||||
42,650 | Illinois Tool Works, Inc. | 5,222,919 | ||||||
11,684 | Ingersoll-Rand plc | 876,767 | ||||||
22,694 | Ingersoll-Rand plc | 1,702,958 | ||||||
46,727 | PACCAR, Inc. | 2,985,855 | ||||||
17,884 | Parker Hannifin Corp. | 2,503,760 | ||||||
22,244 | Pentair plc^ | 1,247,221 | ||||||
7,730 | Snap-On, Inc. | 1,323,917 | ||||||
20,103 | Stanley Black & Decker, Inc. | 2,305,613 | ||||||
23,910 | Xylem, Inc. | 1,184,023 | ||||||
|
| |||||||
37,932,805 | ||||||||
|
| |||||||
| Media (3.0%): |
| ||||||
54,324 | CBS Corp., Class B^ | 3,456,093 |
Continued
7
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Media, continued |
| ||||||
28,907 | Charter Communications, Inc., Class A* | $ | 8,322,903 | |||||
318,892 | Comcast Corp., Class A | 22,019,492 | ||||||
20,031 | Discovery Communications, Inc., Class A*^ | 549,050 | ||||||
29,934 | Discovery Communications, Inc., Class C* | 801,633 | ||||||
53,580 | Interpublic Group of Cos., Inc. (The) | 1,254,308 | ||||||
50,669 | News Corp., Class A | 580,667 | ||||||
15,698 | News Corp., Class B | 185,236 | ||||||
31,616 | Omnicom Group, Inc.^ | 2,690,838 | ||||||
12,714 | Scripps Networks Interactive, Class C^ | 907,398 | ||||||
28,778 | Tegna, Inc. | 615,561 | ||||||
103,853 | Time Warner, Inc. | 10,024,930 | ||||||
142,052 | Twenty-First Century Fox, Inc. | 3,983,138 | ||||||
65,030 | Twenty-First Century Fox, Inc., Class B | 1,772,068 | ||||||
46,228 | Viacom, Inc., Class B | 1,622,603 | ||||||
196,167 | Walt Disney Co. (The) | 20,444,524 | ||||||
|
| |||||||
79,230,442 | ||||||||
|
| |||||||
| Metals & Mining (0.3%): |
| ||||||
163,534 | Freeport-McMoRan Copper & Gold, Inc.* | 2,157,013 | ||||||
70,874 | Newmont Mining Corp. | 2,414,677 | ||||||
42,378 | Nucor Corp. | 2,522,339 | ||||||
|
| |||||||
7,094,029 | ||||||||
|
| |||||||
| Multiline Retail (0.5%): |
| ||||||
34,606 | Dollar General Corp.^ | 2,563,266 | ||||||
31,459 | Dollar Tree, Inc.* | 2,428,006 | ||||||
24,140 | Kohl’s Corp.^ | 1,192,033 | ||||||
41,223 | Macy’s, Inc.^ | 1,476,196 | ||||||
15,515 | Nordstrom, Inc.^ | 743,634 | ||||||
76,750 | Target Corp. | 5,543,652 | ||||||
|
| |||||||
13,946,787 | ||||||||
|
| |||||||
| Multi-Utilities (1.1%): |
| ||||||
32,287 | Ameren Corp. | 1,693,776 | ||||||
57,293 | CenterPoint Energy, Inc. | 1,411,700 | ||||||
37,241 | CMS Energy Corp. | 1,549,970 | ||||||
40,615 | Consolidated Edison, Inc. | 2,992,513 | ||||||
83,545 | Dominion Resources, Inc.^ | 6,398,712 | ||||||
23,971 | DTE Energy Co. | 2,361,383 | ||||||
42,750 | NiSource, Inc. | 946,485 | ||||||
67,502 | Public Service Enterprise Group, Inc. | 2,961,988 | ||||||
19,019 | SCANA Corp. | 1,393,712 | ||||||
33,350 | Sempra Energy^ | 3,356,344 | ||||||
42,127 | WEC Energy Group, Inc.^ | 2,470,749 | ||||||
|
| |||||||
27,537,332 | ||||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (6.2%): |
| ||||||
74,765 | Anadarko Petroleum Corp. | 5,213,363 | ||||||
50,525 | Apache Corp.^ | 3,206,822 | ||||||
61,880 | Cabot Oil & Gas Corp. | 1,445,517 | ||||||
97,564 | Chesapeake Energy Corp.*^ | 684,899 | ||||||
251,873 | Chevron Corp. | 29,645,452 | ||||||
12,694 | Cimarex Energy Co. | 1,725,115 | ||||||
18,976 | Concho Resources, Inc.* | 2,516,218 | ||||||
165,344 | ConocoPhillips Co. | 8,290,348 | ||||||
69,876 | Devon Energy Corp. | 3,191,237 | ||||||
77,114 | EOG Resources, Inc. | 7,796,225 | ||||||
23,050 | EQT Corp.^ | 1,507,470 | ||||||
553,622 | Exxon Mobil Corp.^ | 49,969,923 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Oil, Gas & Consumable Fuels, continued |
| ||||||
35,825 | Hess Corp.^ | $ | 2,231,539 | |||||
256,300 | Kinder Morgan, Inc. | 5,307,973 | ||||||
113,021 | Marathon Oil Corp. | 1,956,394 | ||||||
70,562 | Marathon Petroleum Corp. | 3,552,797 | ||||||
21,642 | Murphy Oil Corp.^ | 673,715 | ||||||
26,494 | Newfield Exploration Co.* | 1,073,007 | ||||||
57,335 | Noble Energy, Inc.^ | 2,182,170 | ||||||
101,895 | Occidental Petroleum Corp. | 7,257,981 | ||||||
27,961 | ONEOK, Inc.^ | 1,605,241 | ||||||
59,334 | Phillips 66 | 5,127,051 | ||||||
22,644 | Pioneer Natural Resources Co. | 4,077,505 | ||||||
25,098 | Range Resources Corp. | 862,367 | ||||||
65,882 | Southwestern Energy Co.*^ | 712,843 | ||||||
93,601 | Spectra Energy Corp. | 3,846,065 | ||||||
15,860 | Tesoro Corp. | 1,386,957 | ||||||
61,729 | Valero Energy Corp. | 4,217,325 | ||||||
91,188 | Williams Cos., Inc. (The) | 2,839,594 | ||||||
|
| |||||||
164,103,113 | ||||||||
|
| |||||||
| Personal Products (0.1%): |
| ||||||
62,968 | Coty, Inc., Class A^ | 1,152,944 | ||||||
29,515 | Estee Lauder Co., Inc. (The), Class A | 2,257,602 | ||||||
|
| |||||||
3,410,546 | ||||||||
|
| |||||||
| Pharmaceuticals (5.0%): |
| ||||||
50,079 | Allergan plc*^ | 10,517,091 | ||||||
223,067 | Bristol-Myers Squibb Co. | 13,036,035 | ||||||
129,691 | Eli Lilly & Co. | 9,538,773 | ||||||
26,598 | Endo International plc*^ | 438,069 | ||||||
364,499 | Johnson & Johnson Co. | 41,993,931 | ||||||
4,832 | Mallinckrodt plc* | 240,730 | ||||||
9,548 | Mallinckrodt plc* | 475,681 | ||||||
369,192 | Merck & Co., Inc. | 21,734,333 | ||||||
61,412 | Mylan NV* | 2,342,868 | ||||||
19,191 | Perrigo Co. plc^ | 1,597,267 | ||||||
809,759 | Pfizer, Inc. | 26,300,972 | ||||||
66,088 | Zoetis, Inc. | 3,537,691 | ||||||
|
| |||||||
131,753,441 | ||||||||
|
| |||||||
| Professional Services (0.3%): |
| ||||||
4,827 | Dun & Bradstreet Corp. | 585,612 | ||||||
15,884 | Equifax, Inc. | 1,877,965 | ||||||
37,874 | Nielsen Holdings plc^ | 1,588,814 | ||||||
6,975 | Nielsen Holdings plc | 292,601 | ||||||
17,421 | Robert Half International, Inc.^ | 849,796 | ||||||
20,980 | Verisk Analytics, Inc.* | 1,702,947 | ||||||
|
| |||||||
6,897,735 | ||||||||
|
| |||||||
| Real Estate Management & Development (0.1%): |
| ||||||
39,585 | CBRE Group, Inc., Class A* | 1,246,532 | ||||||
|
| |||||||
| Road & Rail (0.9%): |
| ||||||
126,289 | CSX Corp. | 4,537,564 | ||||||
11,785 | J.B. Hunt Transport Services, Inc. | 1,143,970 | ||||||
14,420 | Kansas City Southern | 1,223,537 | ||||||
39,251 | Norfolk Southern Corp. | 4,241,856 | ||||||
7,107 | Ryder System, Inc.^ | 529,045 | ||||||
111,201 | Union Pacific Corp. | 11,529,319 | ||||||
|
| |||||||
23,205,291 | ||||||||
|
|
Continued
8
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Semiconductors & Semiconductor Equipment (3.3%): |
| ||||||
41,059 | Analog Devices, Inc.^ | $ | 2,981,705 | |||||
144,406 | Applied Materials, Inc. | 4,659,982 | ||||||
52,804 | Broadcom, Ltd. | 9,334,163 | ||||||
10,185 | First Solar, Inc.*^ | 326,837 | ||||||
631,569 | Intel Corp. | 22,907,007 | ||||||
20,803 | KLA-Tencor Corp. | 1,636,780 | ||||||
21,307 | Lam Research Corp. | 2,252,789 | ||||||
31,889 | Linear Technology Corp. | 1,988,279 | ||||||
28,718 | Microchip Technology, Inc.^ | 1,842,260 | ||||||
138,596 | Micron Technology, Inc.* | 3,038,024 | ||||||
71,426 | NVIDIA Corp.^ | 7,624,011 | ||||||
17,092 | Qorvo, Inc.*^ | 901,261 | ||||||
196,728 | QUALCOMM, Inc. | 12,826,665 | ||||||
25,119 | Skyworks Solutions, Inc.^ | 1,875,385 | ||||||
133,942 | Texas Instruments, Inc. | 9,773,748 | ||||||
33,895 | Xilinx, Inc. | 2,046,241 | ||||||
|
| |||||||
86,015,137 | ||||||||
|
| |||||||
| Software (4.3%): |
| ||||||
91,065 | Activision Blizzard, Inc. | 3,288,357 | ||||||
66,529 | Adobe Systems, Inc.* | 6,849,161 | ||||||
26,068 | Autodesk, Inc.* | 1,929,293 | ||||||
41,951 | CA, Inc.^ | 1,332,783 | ||||||
20,713 | Citrix Systems, Inc.* | 1,849,878 | ||||||
40,157 | Electronic Arts, Inc.* | 3,162,765 | ||||||
32,717 | Intuit, Inc. | 3,749,695 | ||||||
1,040,410 | Microsoft Corp. | 64,651,078 | ||||||
401,790 | Oracle Corp. | 15,448,826 | ||||||
24,148 | Red Hat, Inc.* | 1,683,116 | ||||||
85,965 | Salesforce.com, Inc.* | 5,885,164 | ||||||
82,074 | Symantec Corp. | 1,960,748 | ||||||
|
| |||||||
111,790,864 | ||||||||
|
| |||||||
| Specialty Retail (2.4%): |
| ||||||
9,793 | Advance Auto Parts, Inc.^ | 1,656,192 | ||||||
8,860 | AutoNation, Inc.*^ | 431,039 | ||||||
3,902 | AutoZone, Inc.* | 3,081,761 | ||||||
20,749 | Bed Bath & Beyond, Inc.^ | 843,239 | ||||||
36,949 | Best Buy Co., Inc.^ | 1,576,614 | ||||||
25,596 | CarMax, Inc.*^ | 1,648,126 | ||||||
18,083 | Foot Locker, Inc. | 1,281,904 | ||||||
29,407 | Gap, Inc. (The)^ | 659,893 | ||||||
163,210 | Home Depot, Inc. (The) | 21,883,197 | ||||||
32,068 | L Brands, Inc.^ | 2,111,357 | ||||||
116,772 | Lowe’s Cos., Inc. | 8,304,825 | ||||||
12,674 | O’Reilly Automotive, Inc.*^ | 3,528,568 | ||||||
53,016 | Ross Stores, Inc. | 3,477,850 | ||||||
10,155 | Signet Jewelers, Ltd.^ | 957,210 | ||||||
86,349 | Staples, Inc. | 781,458 | ||||||
14,398 | Tiffany & Co.^ | 1,114,837 | ||||||
87,714 | TJX Cos., Inc. (The) | 6,589,953 | ||||||
17,838 | Tractor Supply Co. | 1,352,299 | ||||||
7,828 | Ulta Salon, Cosmetics & Fragrance, Inc.* | 1,995,670 | ||||||
11,818 | Urban Outfitters, Inc.*^ | 336,577 | ||||||
|
| |||||||
63,612,569 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Common Stocks, continued | ||||||||
| Technology Hardware, Storage & Peripherals (3.7%): |
| ||||||
714,428 | Apple, Inc. | $ | 82,745,050 | |||||
221,734 | Hewlett Packard Enterprise Co. | 5,130,924 | ||||||
228,514 | HP, Inc. | 3,391,148 | ||||||
37,202 | NetApp, Inc. | 1,312,115 | ||||||
13,468 | Seagate Technology plc^ | 514,074 | ||||||
26,356 | Seagate Technology plc | 1,006,009 | ||||||
37,892 | Western Digital Corp. | 2,574,761 | ||||||
113,631 | Xerox Corp. | 991,999 | ||||||
|
| |||||||
97,666,080 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (0.7%): |
| ||||||
37,244 | Coach, Inc. | 1,304,285 | ||||||
50,746 | Hanesbrands, Inc.^ | 1,094,591 | ||||||
22,706 | Michael Kors Holdings, Ltd.*^ | 975,904 | ||||||
180,028 | Nike, Inc., Class C | 9,150,823 | ||||||
10,722 | PVH Corp. | 967,553 | ||||||
7,583 | Ralph Lauren Corp.^ | 684,897 | ||||||
24,437 | Under Armour, Inc., Class A*^ | 709,895 | ||||||
24,570 | Under Armour, Inc., Class C* | 618,427 | ||||||
44,367 | VF Corp.^ | 2,366,979 | ||||||
|
| |||||||
17,873,354 | ||||||||
|
| |||||||
| Tobacco (1.6%): |
| ||||||
260,863 | Altria Group, Inc. | 17,639,556 | ||||||
207,115 | Philip Morris International, Inc. | 18,948,951 | ||||||
110,419 | Reynolds American, Inc. | 6,187,881 | ||||||
|
| |||||||
42,776,388 | ||||||||
|
| |||||||
| Trading Companies & Distributors (0.2%): |
| ||||||
38,488 | Fastenal Co.^ | 1,808,166 | ||||||
11,503 | United Rentals, Inc.*^ | 1,214,487 | ||||||
7,451 | W.W. Grainger, Inc.^ | 1,730,495 | ||||||
|
| |||||||
4,753,148 | ||||||||
|
| |||||||
| Water Utilities (0.1%): |
| ||||||
23,736 | American Water Works Co., Inc. | 1,717,537 | ||||||
|
| |||||||
| Total Common Stocks (Cost $1,875,122,702) | 2,579,348,447 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (9.5%): |
| ||||||
$ | 251,216,153 | AZL S&P 500 Index Fund Securities Lending Collateral Account(a) | 251,216,153 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 251,216,153 | ||||||
|
| |||||||
| Unaffiliated Investment Company (2.1%): |
| ||||||
55,354,358 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(b) | 55,354,358 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $55,354,358) | 55,354,358 | ||||||
|
| |||||||
| Total Investment Securities (Cost $2,181,693,213)(c) — 109.5% | 2,885,918,958 | ||||||
| Net other assets (liabilities) — (9.5)% | (251,096,612 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 2,634,822,346 | |||||
|
|
Continued
9
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2016
Percentages | indicated are based on net assets as of December 31, 2016. |
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2016. The total value of securities on loan as of December 31, 2016, was $244,792,414. |
+ | Affiliated Securities |
# | All or a portion of the security has been pledged as collateral for open derivative positions. |
(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, 2016. |
(b) | The rate represents the effective yield at December 31, 2016. |
(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 | 3/17/17 | 502 | $ | 56,128,620 | $ | 118,095 |
See accompanying notes to the financial statements.
10
AZL S&P 500 Index Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investments in non-affiliates, at cost | $ | 2,177,971,260 | |||
Investments in affiliates, at cost | 3,721,953 | ||||
|
| ||||
Total Investment securities, at cost | $ | 2,181,693,213 | |||
|
| ||||
Investments in non-affiliates, at value | $ | 2,879,733,280 | |||
Investments in affiliates, at value | 6,185,678 | ||||
|
| ||||
Total Investment securities, at value* | $ | 2,885,918,958 | |||
|
| ||||
Cash | 573 | ||||
Interest and dividends receivable | 3,375,245 | ||||
Receivable for variation margin on futures contracts | 5,340 | ||||
Receivable for capital shares issued | 18,553 | ||||
Reclaims receivable | 772 | ||||
Prepaid expenses | 13,003 | ||||
|
| ||||
Total Assets | 2,889,332,444 | ||||
|
| ||||
Liabilities: | |||||
Foreign currency, at value (cost $2,833) | 2,826 | ||||
Payable for capital shares redeemed | 1,770,943 | ||||
Payable for collateral received on loaned securities | 251,216,153 | ||||
Payable for variation margin on futures contracts | 231,972 | ||||
Manager fees payable | 380,644 | ||||
Administration fees payable | 46,019 | ||||
Distribution fees payable | 544,240 | ||||
Custodian fees payable | 32,231 | ||||
Administrative and compliance services fees payable | 7,067 | ||||
Trustee fees payable | 5,367 | ||||
Other accrued liabilities | 272,636 | ||||
|
| ||||
Total Liabilities | 254,510,098 | ||||
|
| ||||
Net Assets | $ | 2,634,822,346 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 1,810,674,008 | |||
Accumulated net investment income/(loss) | 25,340,250 | ||||
Accumulated net realized gains/(losses) from investment transactions | 95,194,218 | ||||
Net unrealized appreciation/(depreciation) on investments | 703,613,870 | ||||
|
| ||||
Net Assets | $ | 2,634,822,346 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 72,603,945 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 5,131,389 | ||||
Net Asset Value (offering and redemption price per share) | $ | 14.15 | |||
|
| ||||
Class 2 | |||||
Net Assets | $ | 2,562,218,401 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 182,194,304 | ||||
Net Asset Value (offering and redemption price per share) | $ | 14.06 | |||
|
|
* | Includes securities on loan of $244,792,414. |
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Dividends | $ | 32,816,139 | |||
Dividends from affiliates | 95,406 | ||||
Interest | 12,707 | ||||
Income from securities lending | 380,003 | ||||
Foreign withholding tax | (6,169 | ) | |||
|
| ||||
Total Investment Income | 33,298,086 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,529,461 | ||||
Administration fees | 371,302 | ||||
Distribution fees — Class 2 | 3,641,080 | ||||
Custodian fees | 44,234 | ||||
Administrative and compliance services fees | 21,691 | ||||
Trustee fees | 67,651 | ||||
Professional fees | 98,898 | ||||
Shareholder reports | 51,519 | ||||
Other expenses | 356,060 | ||||
|
| ||||
Total expenses | 7,181,896 | ||||
|
| ||||
Net Investment Income/(Loss) | 26,116,190 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 111,875,129 | ||||
Net realized gains/(losses) from affiliated transactions | 1,035,246 | ||||
Net realized gains/(losses) on futures contracts | 6,074,755 | ||||
Change in net unrealized appreciation/depreciation on investments | 59,736,496 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 178,721,626 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 204,837,816 | |||
|
|
See accompanying notes to the financial statements.
11
Statements of Changes in Net Assets
AZL S&P 500 Index Fund | ||||||||||
For the Year Ended December 31, 2016 | For the Year Ended December 31, 2015 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 26,116,190 | $ | 22,448,524 | ||||||
Net realized gains/(losses) on investment transactions | 118,985,130 | 175,645,751 | ||||||||
Change in unrealized appreciation/depreciation on investments | 59,736,496 | (167,787,596 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 204,837,816 | 30,306,679 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1 | (437,996 | ) | (476,920 | ) | ||||||
Class 2 | (22,169,172 | ) | (24,593,044 | ) | ||||||
From net realized gains: | ||||||||||
Class 1 | (2,013,892 | ) | — | |||||||
Class 2 | (118,029,175 | ) | — | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (142,650,235 | ) | (25,069,964 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Class 1 | ||||||||||
Proceeds from shares issued | 52,913,478 | 1,303,176 | ||||||||
Proceeds from dividends reinvested | 2,451,888 | 476,921 | ||||||||
Value of shares redeemed | (5,383,908 | ) | (2,832,177 | ) | ||||||
|
|
|
| |||||||
Total Class 1 | 49,981,458 | (1,052,080 | ) | |||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Proceeds from shares issued | 869,201,268 | 176,236,762 | ||||||||
Proceeds from shares issued in merger | 448,802,807 | — | ||||||||
Proceeds from dividends reinvested | 140,198,347 | 24,593,044 | ||||||||
Value of shares redeemed | (179,136,993 | ) | (726,649,471 | ) | ||||||
|
|
|
| |||||||
Total Class 2 | 1,279,065,429 | (525,819,665 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 1,329,046,887 | (526,871,745 | ) | |||||||
|
|
|
| |||||||
Change in net assets | 1,391,234,468 | (521,635,030 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 1,243,587,878 | 1,765,222,908 | ||||||||
|
|
|
| |||||||
End of period | $ | 2,634,822,346 | $ | 1,243,587,878 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 25,340,250 | $ | 22,679,581 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Class 1 | ||||||||||
Shares issued | 3,930,237 | 90,376 | ||||||||
Dividends reinvested | 183,387 | 34,939 | ||||||||
Shares redeemed | (380,983 | ) | (195,601 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | 3,732,641 | (70,286 | ) | |||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Shares issued | 64,967,103 | 12,219,882 | ||||||||
Shares issued in merger | 33,492,747 | — | ||||||||
Dividends reinvested | 10,541,229 | 1,809,643 | ||||||||
Shares redeemed | (12,789,292 | ) | (49,122,787 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | 96,211,787 | (35,093,262 | ) | |||||||
|
|
|
| |||||||
Change in shares | 99,944,428 | (35,163,548 | ) | |||||||
|
|
|
|
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, | |||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||
Class 1 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 14.31 | $ | 14.50 | $ | 12.96 | $ | 9.95 | $ | 8.71 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.28 | (a) | 0.27 | (a) | 0.24 | (a) | 0.21 | (a) | 0.19 | (a) | |||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.30 | (0.12 | ) | 1.49 | 2.96 | 1.17 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.58 | 0.15 | 1.73 | 3.17 | 1.36 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.31 | ) | (0.34 | ) | (0.19 | ) | (0.16 | ) | (0.12 | ) | |||||||||||||||
Net Realized Gains | (1.43 | ) | — | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (1.74 | ) | (0.34 | ) | (0.19 | ) | (0.16 | ) | (0.12 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 14.15 | $ | 14.31 | $ | 14.50 | $ | 12.96 | $ | 9.95 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(b) | 11.79 | % | 1.16 | % | 13.41 | % | 32.02 | % | 15.66 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 72,604 | $ | 20,022 | $ | 21,304 | $ | 19,334 | $ | 14,828 | |||||||||||||||
Net Investment Income/(Loss) | 1.98 | % | 1.86 | % | 1.76 | % | 1.81 | % | 2.00 | % | |||||||||||||||
Expenses Before Reductions(c) | 0.24 | % | 0.24 | % | 0.24 | % | 0.24 | % | 0.26 | % | |||||||||||||||
Expenses Net of Reductions | 0.24 | % | 0.24 | % | 0.24 | % | 0.24 | % | 0.26 | % | |||||||||||||||
Portfolio Turnover Rate(d) | 23 | % | 8 | % | 3 | % | 4 | % | 3 | % | |||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 14.23 | $ | 14.40 | $ | 12.88 | $ | 9.90 | $ | 8.67 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.24 | (a) | 0.23 | (a) | 0.20 | (a) | 0.18 | (a) | 0.17 | (a) | |||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.29 | (0.11 | ) | 1.48 | 2.94 | 1.17 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.53 | 0.12 | 1.68 | 3.12 | 1.34 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.27 | ) | (0.29 | ) | (0.16 | ) | (0.14 | ) | (0.11 | ) | |||||||||||||||
Net Realized Gains | (1.43 | ) | — | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (1.70 | ) | (0.29 | ) | (0.16 | ) | (0.14 | ) | (0.11 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 14.06 | $ | 14.23 | $ | 14.40 | $ | 12.88 | $ | 9.90 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(b) | 11.45 | % | 0.95 | % | 13.12 | % | 31.66 | % | 15.42 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 2,562,218 | $ | 1,223,566 | $ | 1,743,919 | $ | 1,547,689 | $ | 1,019,853 | |||||||||||||||
Net Investment Income/(Loss) | 1.75 | % | 1.58 | % | 1.51 | % | 1.56 | % | 1.77 | % | |||||||||||||||
Expenses Before Reductions(c) | 0.49 | % | 0.49 | % | 0.49 | % | 0.49 | % | 0.51 | % | |||||||||||||||
Expenses Net of Reductions | 0.49 | % | 0.49 | % | 0.49 | % | 0.49 | % | 0.51 | % | |||||||||||||||
Portfolio Turnover Rate(d) | 23 | % | 8 | % | 3 | % | 4 | % | 3 | % |
(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 such fee reductions had not occurred, the ratios would have been as indicated. |
(d) | 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, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 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 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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.
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 sale) 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
14
AZL S&P 500 Index Fund
Notes to the Financial Statements
December 31, 2016
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, 2016 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $176 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $38,222 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (“ASU No. 2014-11”), “Transfers & Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged, and the remaining contractual maturity of those transactions as of December 31, 2016.
Overnight and Continuous | Less than 30 Days | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions | $ | 240,394,229 | $ | 10,821,924 | $ | — | $ | — | $ | 251,216,153 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Securities Lending Transactions | 240,394,229 | 10,821,924 | — | — | 251,216,153 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Borrowings | $ | 240,394,229 | $ | 10,821,924 | $ | — | $ | — | $ | 251,216,153 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Gross Amount of Recognized Liabilities for Securities Lending Transactions |
| $ | 251,216,153 | ||||||||||||||||||||||
|
|
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and sub-adviser. Any such purchase or sale transaction must be effected without a brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security’s last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. During the year, the Fund engaged in such affiliated transactions at the current market price.
The Fund is permitted to purchase and sell securities (“crosstrade”) from and to other Allianz Funds as well as other funds and client accounts for which the Adviser or an affiliate of the Adviser serves as investment adviser, pursuant to procedures approved by the Trustees in compliance with Rule 17a-7 under the Act (the “Rule”). Each cross-trade is executed at the current market price in compliance with provisions of the Rule. For the year ended December 31, 2016, the Fund participated in following cross-trade transactions:
Purchases | Sales | Realized (Gain/Loss) | |||||||||||||
AZL S&P 500 Index Fund | $ | (18,471,636 | ) | $ | 5,553,877 | $ | (525,689 | ) |
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.
15
AZL S&P 500 Index Fund
Notes to the Financial Statements
December 31, 2016
Futures Contracts
During the year ended December 31, 2016, 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 $56.1 million as of December 31, 2016. The monthly average notional amount for these contracts was $37.0 million for the year ended December 31, 2016. 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, 2016:
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 Risk Exposure | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 118,095 | 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 the current day’s variation margin is reported within the Statement of Assets and Liabilities as Variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended December 31, 2016:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives Recognized | Change in Net Unrealized Appreciation/Depreciation on Derivatives Recognized | |||||||
Equity Risk Exposure |
| |||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/ Change in unrealized appreciation/depreciation on investments | $ | 6,074,755 | $ | 413,053 |
3. Fees and Transactions with Affiliates and Other Parties
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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, 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, 2016, 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, 2016, there were no voluntary waivers.
16
AZL S&P 500 Index Fund
Notes to the Financial Statements
December 31, 2016
The Manager or an affiliate of the Manager serves as the investment adviser of certain securities in which the Fund invests. At December 31, 2016, these investments are noted as Affiliated Securities in the Fund’s Schedule of Portfolio Investments. A summary of the Fund’s investments in affiliated securities for the year ended December 31, 2016 is as follows:
Fair Value 12/31/2015 | Purchases at Cost | Proceeds from Sales | Net Realized | Fair Value 12/31/2016 | Dividend Income | |||||||||||||||||||||||||
BlackRock Inc., Class A | $ | 2,883,864 | $ | 1,363,943 | $ | (2,911,226 | ) | $ | 1,035,246 | $ | 6,185,678 | $ | 95,406 | |||||||||||||||||
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$ | 2,883,864 | $ | 1,363,943 | $ | (2,911,226 | ) | $ | 1,035,246 | $ | 6,185,678 | $ | 95,406 | ||||||||||||||||||
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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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the average daily net assets attributable to Class 2 shares, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $16,388 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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 (the “Board” or “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.
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
17
AZL S&P 500 Index Fund
Notes to the Financial Statements
December 31, 2016
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, 2016, 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, 2016 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Total | ||||||||||||
Common Stocks+ | $ | 2,579,348,447 | $ | — | $ | 2,579,348,447 | |||||||||
Securities Held as Collateral for Securities on Loan | — | 251,216,153 | 251,216,153 | ||||||||||||
Unaffiliated Investment Company | 55,354,358 | — | 55,354,358 | ||||||||||||
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Total Investment Securities | 2,634,702,805 | 251,216,153 | 2,885,918,958 | ||||||||||||
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Other Financial Instruments:* | |||||||||||||||
Futures Contracts | 118,095 | — | 118,095 | ||||||||||||
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Total Investments | $ | 2,634,820,900 | $ | 251,216,153 | $ | 2,886,037,053 | |||||||||
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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, 2016, 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 | $ | 918,823,064 | $ | 347,822,342 |
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 policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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 of securities for federal income tax purposes at December 31, 2016 is $2,210,922,800. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 721,101,145 | ||
Unrealized (depreciation) | (46,104,987 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 674,996,158 | ||
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AZL S&P 500 Index Fund
Notes to the Financial Statements
December 31, 2016
The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL S&P 500 Index Fund | $ | 22,607,168 | $ | 120,043,067 | $ | 142,650,235 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2015 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL S&P 500 Index Fund | $ | 25,069,964 | $ | – | $ | 25,069,964 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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 | $ | 31,177,960 | $ | 118,704,190 | $ | — | $ | 674,266,188 | $ | 824,148,338 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies — Form N-PORT and Form N-CEN — also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
9. Acquisition of Funds
Effective as of the close of business October 21, 2016, the Fund acquired all of the net assets of the AZL JPMorgan U.S. Equity Fund (“JPMorgan Fund”) and AZL MFS Investors Trust Fund (“MFS Fund”), open-end management investment companies, pursuant to a plan of reorganization approved by the Board on June 14, 2016. The purpose of the transaction was to combine three funds managed by the Manager with comparable investment objectives and strategies. The acquisition was accomplished by a tax-free exchange of 33,492,747 shares of the Fund, valued at $448,802,807, for 19,406,868 shares of the JPMorgan Fund and 14,585,938 shares of the MFS Fund outstanding as of close of business October 21, 2016, respectively.
The investment portfolios of the JPMorgan Fund and the MFS Fund were the principal assets acquired by the Fund. At the close of business October 21, 2016, the JPMorgan Fund investment portfolio had a fair value of $237,595,037 and identified cost of $140,584,445. At the close of business October 21, 2016, the MFS Fund investment portfolio had a fair value of $211,212,838 and identified cost of $142,044,397. For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value; however, the cost basis of the investments received from the JPMorgan Fund and the MFS Fund were carried forward to align ongoing reporting of the Fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes. Immediately prior to the merger, the Fund’s net assets were $1,315,038,961. All fees and expenses incurred by the JPMorgan Fund and MFS Fund and the Fund directly in connection with the plan of reorganization were borne equally by the Manager and, collectively, the JPMorgan Fund and the MFS Fund, except that the expenses borne by the JPMorgan Fund and the MFS Fund did not exceed $50,750 and $53,000, respectively, as provided by the plan of reorganization.
Assuming the acquisition had been completed on January 1, 2016, the beginning of the annual reporting period of the Fund, the Fund’s pro forma results of operations for the year ended December 31, 2016, are as follows:
Net investment income/(loss) | $ | 34,123,959 | ||
Net realized/unrealized gains/(losses) | 203,061,302 | |||
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Change in net assets resulting from operations | $ | 237,185,261 | ||
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Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the JPMorgan Fund and the MFS Fund that have been included in the Fund’s statement of operations since October 22, 2016.
In the calculation of the portfolio turnover as presented in the Financial Highlights, the Fund excluded the cost of purchases and proceeds from sales of portfolio securities that occurred in the effort to realign a combined fund’s portfolio after the merger. The amounts of excluded purchases and sales are as follows:
Cost of purchases | $ | 235,571,858 | ||
Proceeds from sales | — |
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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 S&P 500 Index Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2016, 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, 2016, by correspondence with the custodian and brokers. 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 AZL S&P 500 Index Fund as of December 31, 2016, 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 24, 2017
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2016, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deductions available to corporate shareholders.
During the year ended December 31, 2016, the Fund declared net long-term capital gain distributions of $120,043,067.
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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 — October 25, 2016 (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 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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 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 the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held October 25, 2016, the Manager reported that for the three year period ended June 30, 2016, seven Funds were in the top 40%, two were in the middle 20% and three were in the bottom 40%, and for the one year period ended June 30, 2016, twelve Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2016, six Funds were in the top 40%, one was in the middle 20%, and three were in the bottom 40%. At the Board of Trustees meeting held October 25, 2016, 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 twenty Funds reviewed by the Board of Trustees in the fall of 2016, seventeen 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 2016 for the twenty-one Funds was as follows; (1) eighteen of the Funds had total expense rankings below the 65th percentile (with eleven Funds at or below the 50th percentile); (2) the AZL Russell 1000 Growth Index Fund had a total expense ranking in the 66th percentile, but there was only a very limited peer group for such Fund, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; (3) the AZL International Index Fund had a total expense ranking in the 75th percentile, but there was only a limited peer group for such Fund, the actual management fee was in the 37th percentile, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; and (4) for the AZL Morgan Stanley Global Real Estate Fund, which had a total expense ranking in the 70th percentile, the Manager recommended a temporary management fee waiver of 5 basis points, effective November 1, 2016, which would move the management fee ranking from the 80th to the 60th percentile.
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 2013 through June 30, 2016. 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, all of which currently are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. 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, 2016 were approximately $6.4 billion, and that no single Fund had assets in excess of $1,289 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, 2017, 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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 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 | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/ Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 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 | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
26
Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
27
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® Small Cap Stock Index Fund
Annual Report
December 31, 2016
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 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® 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, 2016?
For the year ended December 31, 2016, the AZL® Small Cap Stock Index Fund (Class 2 Shares) (the “Fund”) returned 25.71%. That compared to a 26.56% total return for its benchmark, the S&P SmallCap 600 Index1.
The Fund takes positions in securities that, in combination, should have similar return characteristics as the return of the Index. The Index is designed to provide a comprehensive measure of small-cap stock performance.*
U.S. equities started the year on a down note. Stock prices fell on fears of a global economic slowdown; cratering oil prices; and terrorist attacks in Istanbul, Jakarta and Pakistan. Volatility also increased as investors prepared for a possible interest rate increase by the Federal Reserve.
A rebound in oil prices in February helped fuel a recovery in domestic equity markets that continued into the second quarter. The stock rally suffered a brief downturn in June as investors were shocked by the United Kingdom’s vote to leave the European Union. However, investor concerns quickly eased and the second quarter ended on a strong note.
That upward momentum in domestic equity markets carried through to the second half of the reporting period, driven by a dovish Federal Reserve decision to keep rates unchanged. Stock prices also benefited from earnings releases that surpassed many analyst expectations.
In the fourth quarter, the U.S. economy continued to strengthen as shown by strong macroeconomic data and a tightening labor market. Improving conditions meant the Fed’s decision in December to raise rates by 25 basis points (0.25%) did not come as a big surprise. While many investors were shocked by Donald Trump’s election win, markets did not show the same type of volatility as seen following the Brexit vote in June; most major U.S. indexes posted solid gains in November.
In general, small-cap stocks outperformed their large-cap counterparts for the period. From a sector perspective, materials, energy, and financials stocks generated some of the strongest returns in the Index.
The Fund held derivatives in the form of futures contracts, which it used to hedge its cash position. The futures had a small positive impact on relative results.*
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, 2016. |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
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. | ||
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, 2016 | ||||||||||||||||||||
Inception Date | 1 Year | 3 Year | 5 Year | Since Inception | ||||||||||||||||
AZL® Small Cap Stock Index Fund (Class 1 Shares) | 10/14/16 | — | — | — | 13.80 | %* | ||||||||||||||
AZL® Small Cap Stock Index Fund (Class 2 Shares) | 5/1/07 | 25.71 | % | 8.86 | % | 16.00 | % | 8.22 | % | |||||||||||
S&P SmallCap 600 Index | 5/1/07 | 26.56 | % | 9.47 | % | 16.62 | % | 8.70 | % |
* | Cumulative Return |
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® Small Cap Stock Index Fund (Class 1 Shares) | 0.34 | % | ||
AZL® Small Cap Stock Index Fund (Class 2 Shares) | 0.59 | % |
Expense Ratios are based on the current Fund prospectus dated August 31, 2016. 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, 2018. Additional information pertaining to the December 31, 2016 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 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid 7/1/16 - 12/31/16* | Annualized 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Small Cap Stock Index Fund, Class 1** | $ | 1,000.00 | $ | 1,138.00 | $ | 0.71 | 0.32 | % | ||||||||||||
AZL Small Cap Stock Index Fund, Class 2 | $ | 1,000.00 | $ | 1,185.90 | $ | 3.19 | 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid 7/1/16 - 12/31/16* | Annualized 7/1/16 - 12/31/16 | |||||||||||||||||
AZL Small Cap Stock Index Fund, Class 1 | $ | 1,000.00 | $ | 1,023.53 | $ | 1.63 | 0.32 | % | ||||||||||||
AZL Small Cap Stock Index Fund, Class 2 | $ | 1,000.00 | $ | 1,022.22 | $ | 2.95 | 0.58 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
** | Expenses are equal to the average account value multiplied by the Fund’s annualized expense ratio multiplied by 76/366 to reflect the stub period from commencement of operations 10/17/2016 through 12/31/2016. |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Industrials | 18.6 | % | |||
Financials | 17.7 | ||||
Information Technology | 15.4 | ||||
Consumer Discretionary | 14.2 | ||||
Health Care | 11.7 | ||||
Materials | 6.4 | ||||
Real Estate | 5.6 | ||||
Energy | 3.6 | ||||
Consumer Staples | 2.9 | ||||
Utilities | 2.6 | ||||
Telecommunication Services | 1.1 | ||||
|
| ||||
Total Common Stocks | 99.8 | ||||
Right | — | ^ | |||
Securities Held as Collateral for Securities on Loan | 27.6 | ||||
Money Market | 0.1 | ||||
|
| ||||
Total Investment Securities | 127.5 | ||||
Net other assets (liabilities) | (27.5 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks (99.8%): |
| ||||||
| Aerospace & Defense (1.4%): |
| ||||||
42,616 | AAR Corp. | $ | 1,408,459 | |||||
93,865 | Aerojet Rocketdyne Holdings, Inc.*^ | 1,684,877 | ||||||
26,167 | AeroVironment, Inc.*^ | 702,061 | ||||||
33,742 | Cubic Corp. | 1,617,929 | ||||||
22,395 | Engility Holdings, Inc.* | 754,712 | ||||||
54,787 | Mercury Computer Systems, Inc.*^ | 1,655,663 | ||||||
43,377 | Moog, Inc., Class A* | 2,849,000 | ||||||
6,863 | National Presto Industries, Inc.^ | 730,223 | ||||||
69,336 | TASER International, Inc.*^ | 1,680,705 | ||||||
|
| |||||||
13,083,629 | ||||||||
|
| |||||||
| Air Freight & Logistics (0.7%): | |||||||
33,466 | Atlas Air Worldwide Holdings, Inc.*^ | 1,745,252 | ||||||
36,665 | Echo Global Logistics, Inc.*^ | 918,458 | ||||||
40,654 | Forward Air Corp.^ | 1,926,186 | ||||||
43,870 | Hub Group, Inc.*^ | 1,919,313 | ||||||
|
| |||||||
6,509,209 | ||||||||
|
| |||||||
| Airlines (1.0%): | |||||||
17,450 | Allegiant Travel Co.^ | 2,903,680 | ||||||
71,108 | Hawaiian Holdings, Inc.*^ | 4,053,156 | ||||||
68,450 | SkyWest, Inc. | 2,495,003 | ||||||
|
| |||||||
9,451,839 | ||||||||
|
| |||||||
| Auto Components (1.7%): | |||||||
103,553 | American Axle & Manufacturing Holdings, Inc.* | 1,998,573 | ||||||
23,657 | Cooper-Standard Holding, Inc.*^ | 2,445,661 | ||||||
39,680 | Dorman Products, Inc.*^ | 2,899,021 | ||||||
33,044 | Drew Industries, Inc.*^ | 3,560,490 | ||||||
36,455 | Fox Factory Holding Corp.*^ | 1,011,626 | ||||||
47,658 | Gentherm, Inc.*^ | 1,613,223 | ||||||
23,506 | Motorcar Parts of America, Inc.*^ | 632,782 | ||||||
26,653 | Standard Motor Products, Inc.^ | 1,418,473 | ||||||
30,072 | Superior Industries International, Inc. | 792,397 | ||||||
|
| |||||||
16,372,246 | ||||||||
|
| |||||||
| Automobiles (0.1%): | |||||||
34,633 | Winnebago Industries, Inc.^ | 1,096,134 | ||||||
|
| |||||||
| Banks (11.0%): | |||||||
47,196 | Ameris Bancorp | 2,057,746 | ||||||
67,881 | Banc of California, Inc.^ | 1,177,735 | ||||||
36,080 | Banner Corp. | 2,013,625 | ||||||
113,734 | Boston Private Financial Holdings, Inc. | 1,882,298 | ||||||
96,919 | Brookline Bancorp, Inc. | 1,589,472 | ||||||
45,059 | Cardinal Financial Corp. | 1,477,485 | ||||||
42,788 | Central Pacific Financial Corp. | 1,344,399 | ||||||
20,861 | City Holding Co.^ | 1,410,204 | ||||||
78,396 | Columbia Banking System, Inc. | 3,502,733 | ||||||
59,895 | Community Bank System, Inc.^ | 3,700,912 | ||||||
38,910 | Customers Bancorp, Inc.* | 1,393,756 | ||||||
136,086 | CVB Financial Corp.^ | 3,120,452 | ||||||
30,252 | Fidelity Southern Corp. | 716,065 | ||||||
187,228 | First Bancorp* | 1,237,577 | ||||||
121,372 | First Commonwealth Financial Corp. | 1,721,055 | ||||||
84,138 | First Financial Bancorp | 2,393,726 | ||||||
89,050 | First Financial Bankshares, Inc.^ | 4,025,060 | ||||||
110,280 | First Midwest Bancorp, Inc.^ | 2,782,364 | ||||||
25,556 | First NBC Bank Holding Co.*^ | 186,559 |
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Banks, continued | |||||||
103,116 | Glacier Bancorp, Inc.^ | $ | 3,735,893 | |||||
79,339 | Great Western Bancorp, Inc. | 3,458,387 | ||||||
43,881 | Hanmi Financial Corp.^ | 1,531,447 | ||||||
166,298 | Home Bancshares, Inc.^ | 4,618,095 | ||||||
171,516 | Hope BanCorp, Inc.^ | 3,754,485 | ||||||
36,664 | Independent Bank Corp. | 2,582,979 | ||||||
56,533 | LegacyTexas Financial Group, Inc.^ | 2,434,311 | ||||||
36,143 | National Bank Holdings Corp. | 1,152,600 | ||||||
58,338 | NBT Bancorp, Inc.^ | 2,443,195 | ||||||
62,341 | OFG Bancorp | 816,667 | ||||||
182,453 | Old National Bancorp^ | 3,311,522 | ||||||
26,186 | Opus Bank | 786,889 | ||||||
58,514 | Pinnacle Financial Partners, Inc.^ | 4,055,020 | ||||||
47,849 | S & T Bancorp, Inc.^ | 1,868,025 | ||||||
60,284 | ServisFirst Bancshares, Inc.^ | 2,257,033 | ||||||
40,306 | Simmons First National Corp., Class A^ | 2,505,018 | ||||||
36,184 | Southside Bancshares, Inc. | 1,363,051 | ||||||
176,214 | Sterling Bancorp^ | 4,123,408 | ||||||
65,825 | Texas Capital Bancshares, Inc.*^ | 5,160,680 | ||||||
16,621 | Tompkins Financial Corp.^ | 1,571,349 | ||||||
107,581 | United Bankshares, Inc.^ | 4,975,621 | ||||||
95,585 | United Community Banks, Inc. | 2,831,228 | ||||||
34,766 | Westamerica Bancorp^ | 2,187,824 | ||||||
69,625 | Wintrust Financial Corp.^ | 5,052,686 | ||||||
|
| |||||||
106,310,636 | ||||||||
|
| |||||||
| Biotechnology (1.3%): | |||||||
62,930 | Acorda Therapeutics, Inc.*^ | 1,183,084 | ||||||
46,635 | AMAG Pharmaceuticals, Inc.*^ | 1,622,898 | ||||||
10,505 | Eagle Pharmaceuticals, Inc.*^ | 833,467 | ||||||
46,941 | Emergent Biosolutions, Inc.*^ | 1,541,542 | ||||||
19,091 | Enanta Pharmaceuticals, Inc.* | 639,549 | ||||||
25,661 | Ligand Pharmaceuticals, Inc., Class B*^ | 2,607,413 | ||||||
136,525 | Mimedx Group, Inc.*^ | 1,209,612 | ||||||
85,970 | Momenta Pharmaceuticals, Inc.*^ | 1,293,849 | ||||||
45,929 | Repligen Corp.*^ | 1,415,532 | ||||||
92,082 | Spectrum Pharmaceuticals, Inc.*^ | 407,923 | ||||||
|
| |||||||
12,754,869 | ||||||||
|
| |||||||
| Building Products (2.1%): | |||||||
51,165 | AAON, Inc.^ | 1,691,003 | ||||||
19,363 | American Woodmark Corp.*^ | 1,457,066 | ||||||
39,268 | Apogee Enterprises, Inc.^ | 2,103,194 | ||||||
41,161 | Gibraltar Industries, Inc.* | 1,714,356 | ||||||
41,506 | Griffon Corp.^ | 1,087,457 | ||||||
23,368 | Insteel Industries, Inc.^ | 832,836 | ||||||
19,720 | Patrick Industries, Inc.*^ | 1,504,636 | ||||||
69,818 | PGT, Inc.* | 799,416 | ||||||
47,122 | Quanex Building Products Corp.^ | 956,577 | ||||||
52,645 | Simpson Manufacturing Co., Inc. | 2,303,219 | ||||||
39,727 | Trex Co., Inc.*^ | 2,558,419 | ||||||
27,472 | Universal Forest Products, Inc. | 2,807,088 | ||||||
|
| |||||||
19,815,267 | ||||||||
|
| |||||||
| Capital Markets (1.2%): | |||||||
22,124 | Calamos Asset Management, Inc., Class A | 189,160 | ||||||
33,654 | Donnelley Financial Solutions, Inc.*^ | 773,369 | ||||||
72,210 | Financial Engines, Inc.^ | 2,653,718 |
Continued
4
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Capital Markets, continued | |||||||
37,943 | Greenhill & Co., Inc.^ | $ | 1,051,021 | |||||
91,743 | Interactive Brokers Group, Inc., Class A^ | 3,349,537 | ||||||
20,963 | INTL FCStone, Inc.* | 830,135 | ||||||
14,503 | Investment Technology Group, Inc. | 286,289 | ||||||
19,596 | Piper Jaffray Cos., Inc.*^ | 1,420,710 | ||||||
7,659 | Virtus Investment Partners, Inc.^ | 904,145 | ||||||
|
| |||||||
11,458,084 | ||||||||
|
| |||||||
| Chemicals (3.5%): | |||||||
39,551 | A. Schulman, Inc.^ | 1,322,981 | ||||||
40,085 | Advansix, Inc.* | 887,482 | ||||||
34,657 | American Vanguard Corp.^ | 663,682 | ||||||
42,668 | Balchem Corp.^ | 3,580,698 | ||||||
68,897 | Calgon Carbon Corp. | 1,171,249 | ||||||
243,519 | Chemours Co. (The)^ | 5,379,334 | ||||||
72,198 | Flotek Industries, Inc.*^ | 677,939 | ||||||
31,093 | Futurefuel Corp.^ | 432,193 | ||||||
67,945 | H.B. Fuller Co.^ | 3,282,423 | ||||||
13,150 | Hawkins, Inc.^ | 709,443 | ||||||
56,375 | Ingevity Corp.*^ | 3,092,733 | ||||||
26,448 | Innophos Holdings, Inc. | 1,382,172 | ||||||
32,496 | Innospec, Inc.^ | 2,225,976 | ||||||
28,257 | Koppers Holdings, Inc.* | 1,138,757 | ||||||
41,892 | Kraton Performance Polymers, Inc.*^ | 1,193,084 | ||||||
24,579 | LSB Industries, Inc.*^ | 206,955 | ||||||
17,950 | Quaker Chemical Corp.^ | 2,296,523 | ||||||
58,999 | Rayonier Advanced Materials, Inc.^ | 912,125 | ||||||
26,390 | Stepan Co. | 2,150,257 | ||||||
33,257 | Tredegar Corp. | 798,168 | ||||||
|
| |||||||
33,504,174 | ||||||||
|
| |||||||
| Commercial Services & Supplies (3.8%): | |||||||
75,371 | ABM Industries, Inc.^ | 3,078,152 | ||||||
64,195 | Brady Corp., Class A | 2,410,522 | ||||||
60,544 | Brink’s Co. (The) | 2,497,440 | ||||||
50,912 | Essendant, Inc. | 1,064,061 | ||||||
26,759 | G&K Services, Inc., Class A | 2,580,906 | ||||||
97,729 | Healthcare Services Group, Inc.^ | 3,828,044 | ||||||
87,100 | Interface, Inc. | 1,615,705 | ||||||
35,603 | LSC Communications, Inc. | 1,056,697 | ||||||
43,446 | Matthews International Corp., Class A | 3,338,824 | ||||||
60,555 | Mobile Mini, Inc.^ | 1,831,789 | ||||||
18,215 | Multi-Color Corp.^ | 1,413,484 | ||||||
95,842 | RR Donnelley & Sons Co.^ | 1,564,141 | ||||||
40,682 | Team, Inc.*^ | 1,596,769 | ||||||
77,092 | Tetra Tech, Inc. | 3,326,520 | ||||||
20,870 | UniFirst Corp. | 2,997,976 | ||||||
29,644 | US Ecology, Inc.^ | 1,457,003 | ||||||
26,709 | Viad Corp. | 1,177,867 | ||||||
|
| |||||||
36,835,900 | ||||||||
|
| |||||||
| Communications Equipment (1.4%): | |||||||
65,027 | ADTRAN, Inc.^ | 1,453,353 | ||||||
10,973 | Bel Fuse, Inc., Class B^ | 339,066 | ||||||
18,543 | Black Box Corp.^ | 282,781 | ||||||
48,080 | CalAmp Corp.*^ | 697,160 | ||||||
34,488 | Comtech Telecommunications Corp. | 408,683 | ||||||
32,546 | Digi International, Inc.* | 447,508 |
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Communications Equipment, continued | |||||||
97,804 | Harmonic, Inc.*^ | $ | 489,020 | |||||
85,811 | Ixia* | 1,381,557 | ||||||
73,559 | Lumentum Holdings, Inc.* | 2,843,054 | ||||||
44,713 | NETGEAR, Inc.* | 2,430,152 | ||||||
310,595 | Viavi Solutions, Inc.* | 2,540,667 | ||||||
|
| |||||||
13,313,001 | ||||||||
|
| |||||||
| Construction & Engineering (0.4%): | |||||||
47,149 | Aegion Corp.*^ | 1,117,431 | ||||||
50,555 | Comfort Systems USA, Inc.^ | 1,683,482 | ||||||
22,857 | MYR Group, Inc.* | 861,252 | ||||||
41,854 | Orion Marine Group, Inc.* | 416,447 | ||||||
|
| |||||||
4,078,612 | ||||||||
|
| |||||||
| Construction Materials (0.4%): | |||||||
100,799 | Headwaters, Inc.* | 2,370,792 | ||||||
19,469 | US Concrete, Inc.*^ | 1,275,220 | ||||||
|
| |||||||
3,646,012 | ||||||||
|
| |||||||
| Consumer Finance (1.0%): | |||||||
17,524 | Encore Capital Group, Inc.*^ | 502,063 | ||||||
35,606 | Enova International, Inc.* | 446,855 | ||||||
68,602 | EZCORP, Inc., Class A*^ | 730,611 | ||||||
65,632 | Firstcash, Inc.^ | 3,084,704 | ||||||
60,232 | Green Dot Corp., Class A*^ | 1,418,464 | ||||||
63,040 | PRA Group, Inc.*^ | 2,464,864 | ||||||
8,707 | World Acceptance Corp.*^ | 559,686 | ||||||
|
| |||||||
9,207,247 | ||||||||
|
| |||||||
| Containers & Packaging (0.0%): | |||||||
30,035 | Myers Industries, Inc. | 429,501 | ||||||
|
| |||||||
| Distributors (0.3%): | |||||||
62,687 | Core Markt Holdngs Co., Inc.^ | 2,699,929 | ||||||
|
| |||||||
| Diversified Consumer Services (0.5%): | |||||||
21,126 | American Public Education, Inc.* | 518,643 | ||||||
15,728 | Capella Education Co. | 1,380,919 | ||||||
84,759 | Career Education Corp.* | 855,218 | ||||||
48,518 | Regis Corp.* | 704,481 | ||||||
14,242 | Strayer Education, Inc.*^ | 1,148,333 | ||||||
|
| |||||||
4,607,594 | ||||||||
|
| |||||||
| Diversified Telecommunication Services (1.0%): | |||||||
14,304 | ATN International, Inc.^ | 1,146,180 | ||||||
57,551 | Cincinnati Bell, Inc.* | 1,286,265 | ||||||
55,696 | Cogent Communications Group, Inc.^ | 2,303,030 | ||||||
69,212 | Consolidated Communications Holdings, Inc.^ | 1,858,342 | ||||||
38,036 | General Communication, Inc., Class A*^ | 739,800 | ||||||
46,671 | Inteliquent, Inc. | 1,069,699 | ||||||
112,250 | Iridium Communications, Inc.*^ | 1,077,600 | ||||||
34,023 | Lumos Networks Corp.*^ | 531,439 | ||||||
|
| |||||||
10,012,355 | ||||||||
|
| |||||||
| Electric Utilities (0.7%): | |||||||
66,588 | ALLETE, Inc.^ | 4,274,284 | ||||||
54,974 | El Paso Electric Co. | 2,556,291 | ||||||
|
| |||||||
6,830,575 | ||||||||
|
| |||||||
| Electrical Equipment (0.6%): | |||||||
35,381 | AZZ, Inc.^ | 2,260,846 | ||||||
28,287 | Encore Wire Corp. | 1,226,241 |
Continued
5
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Electrical Equipment, continued | |||||||
67,510 | General Cable Corp.^ | $ | 1,286,066 | |||||
11,847 | Powell Industries, Inc.^ | 462,033 | ||||||
20,672 | Vicor Corp.* | 312,147 | ||||||
|
| |||||||
5,547,333 | ||||||||
|
| |||||||
| Electronic Equipment, Instruments & Components (4.2%): | |||||||
16,852 | Agilysys, Inc.*^ | 174,587 | ||||||
38,444 | Anixter International, Inc.* | 3,115,886 | ||||||
40,335 | Badger Meter, Inc.^ | 1,490,378 | ||||||
66,431 | Benchmark Electronics, Inc.* | 2,026,146 | ||||||
33,046 | Coherent, Inc.*^ | 4,540,024 | ||||||
44,554 | CTS Corp.^ | 998,010 | ||||||
53,852 | Daktronics, Inc.^ | 576,216 | ||||||
35,086 | Electro Scientific Industries, Inc.*^ | 207,709 | ||||||
9,015 | ePlus, Inc.* | 1,038,528 | ||||||
49,569 | Fabrinet* | 1,997,631 | ||||||
22,298 | FARO Technologies, Inc.*^ | 802,728 | ||||||
73,615 | II-VI, Inc.* | 2,182,685 | ||||||
47,545 | Insight Enterprises, Inc.* | 1,922,720 | ||||||
44,964 | Itron, Inc.*^ | 2,825,987 | ||||||
50,310 | Methode Electronics, Inc., Class A^ | 2,080,319 | ||||||
22,378 | MTS Systems Corp.^ | 1,268,833 | ||||||
24,402 | OSI Systems, Inc.*^ | 1,857,480 | ||||||
26,392 | Park Electrochemical Corp.^ | 492,211 | ||||||
45,299 | Plexus Corp.* | 2,447,958 | ||||||
24,304 | Rogers Corp.*^ | 1,866,790 | ||||||
99,132 | Sanmina Corp.*^ | 3,633,187 | ||||||
33,848 | ScanSource, Inc.* | 1,365,767 | ||||||
113,731 | TTM Technologies, Inc.*^ | 1,550,154 | ||||||
|
| |||||||
40,461,934 | ||||||||
|
| |||||||
| Energy Equipment & Services (2.0%): | |||||||
94,375 | Archrock, Inc. | 1,245,750 | ||||||
82,609 | Atwood Oceanics, Inc.^ | 1,084,656 | ||||||
43,295 | Bristow Group, Inc.^ | 886,682 | ||||||
25,814 | CARBO Ceramics, Inc.*^ | 270,014 | ||||||
24,660 | Era Group, Inc.* | 418,480 | ||||||
42,390 | Exterran Corp.* | 1,013,121 | ||||||
17,107 | Geospace Technologies Corp.*^ | 348,299 | ||||||
16,505 | Gulf Island Fabrication, Inc. | 196,410 | ||||||
149,924 | Helix Energy Solutions Group, Inc.* | 1,322,330 | ||||||
39,083 | Hornbeck Offshore Services, Inc.*^ | 282,179 | ||||||
37,730 | Matrix Service Co.* | 856,471 | ||||||
112,658 | Newpark Resources, Inc.*^ | 844,935 | ||||||
102,154 | Pioneer Energy Services Corp.* | 699,755 | ||||||
21,789 | SEACOR Holdings, Inc.*^ | 1,553,120 | ||||||
58,661 | Tesco Corp.* | 483,953 | ||||||
153,114 | TETRA Technologies, Inc.* | 768,632 | ||||||
63,411 | Tidewater, Inc.*^ | 216,232 | ||||||
95,536 | U.S. Silica Holdings, Inc.^ | 5,414,980 | ||||||
69,389 | Unit Corp.*^ | 1,864,482 | ||||||
|
| |||||||
19,770,481 | ||||||||
|
| |||||||
| Equity Real Estate Investment Trusts (5.3%): | |||||||
109,086 | Acadia Realty Trust^ | 3,564,930 | ||||||
35,879 | Agree Realty Corp.^ | 1,652,228 | ||||||
54,606 | American Assets Trust, Inc.^ | 2,352,426 | ||||||
88,967 | CareTrust REIT, Inc.^ | 1,362,974 |
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Equity Real Estate Investment Trusts, continued | |||||||
99,160 | Cedar Shopping Centers, Inc.^ | $ | 647,515 | |||||
81,859 | Chesapeake Lodging Trust^ | 2,116,874 | ||||||
45,755 | Coresite Realty Corp.^ | 3,631,574 | ||||||
271,028 | DiamondRock Hospitality, Co.^ | 3,124,953 | ||||||
17,762 | EastGroup Properties, Inc. | 1,311,546 | ||||||
23,952 | Four Corners Property Trust, Inc. | 491,495 | ||||||
146,606 | Franklin Street Properties Corp.^ | 1,900,014 | ||||||
101,254 | Geo Group, Inc. (The)^ | 3,638,055 | ||||||
37,177 | Getty Realty Corp.^ | 947,642 | ||||||
30,376 | Government Properties Income Trust^ | 579,118 | ||||||
113,220 | Kite Realty Group Trust^ | 2,658,406 | ||||||
288,634 | Lexington Realty Trust^ | 3,117,247 | ||||||
53,251 | LTC Properties, Inc.^ | 2,501,732 | ||||||
59,245 | Parkway, Inc.* | 1,318,201 | ||||||
95,064 | Pennsylvania Real Estate Investment Trust^ | 1,802,413 | ||||||
26,426 | PS Business Parks, Inc. | 3,079,158 | ||||||
147,829 | Retail Opportunity Investments Corp.^ | 3,123,627 | ||||||
88,923 | Sabra Health Care REIT, Inc.^ | 2,171,500 | ||||||
16,385 | Saul Centers, Inc.^ | 1,091,405 | ||||||
119,525 | Summit Hotel Properties, Inc. | 1,915,986 | ||||||
5,169 | Universal Health Realty Income Trust^ | 339,035 | ||||||
12,507 | Urstadt Biddle Properties, Inc., Class A | 301,544 | ||||||
|
| |||||||
50,741,598 | ||||||||
|
| |||||||
| Food & Staples Retailing (0.5%): | |||||||
50,957 | SpartanNash Co. | 2,014,840 | ||||||
361,000 | Supervalu, Inc.*^ | 1,685,870 | ||||||
35,579 | The Andersons, Inc.^ | 1,590,381 | ||||||
|
| |||||||
5,291,091 | ||||||||
|
| |||||||
| Food Products (1.6%): | |||||||
89,533 | B&G Foods, Inc.^ | 3,921,545 | ||||||
21,267 | Calavo Growers, Inc.^ | 1,305,794 | ||||||
40,544 | Cal-Maine Foods, Inc.^ | 1,791,031 | ||||||
222,394 | Darling International, Inc.*^ | 2,871,107 | ||||||
20,267 | J & J Snack Foods Corp. | 2,704,226 | ||||||
26,997 | Sanderson Farms, Inc.^ | 2,544,197 | ||||||
8,471 | Seneca Foods Corp., Class A*^ | 339,264 | ||||||
|
| |||||||
15,477,164 | ||||||||
|
| |||||||
| Gas Utilities (1.0%): | |||||||
38,834 | Northwest Natural Gas Co.^ | 2,322,273 | ||||||
106,948 | South Jersey Industries, Inc.^ | 3,603,078 | ||||||
61,551 | Spire, Inc. | 3,973,117 | ||||||
|
| |||||||
9,898,468 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (4.2%): | |||||||
30,890 | Abaxis, Inc.^ | 1,630,065 | ||||||
17,006 | Analogic Corp.^ | 1,410,648 | ||||||
44,714 | AngioDynamics, Inc.* | 754,325 | ||||||
20,228 | Anika Therapeutics, Inc.*^ | 990,363 | ||||||
48,902 | Cantel Medical Corp.^ | 3,851,033 | ||||||
33,966 | CONMED Corp.^ | 1,500,278 | ||||||
36,096 | CryoLife, Inc.* | 691,238 | ||||||
32,832 | Cynosure, Inc., Class A*^ | 1,497,139 | ||||||
69,887 | Haemonetics Corp.*^ | 2,809,457 | ||||||
19,810 | ICU Medical, Inc.*^ | 2,919,004 | ||||||
21,999 | Inogen, Inc.*^ | 1,477,673 | ||||||
37,689 | Integer Holdings Corp.*^ | 1,109,941 |
Continued
6
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Health Care Equipment & Supplies, continued | |||||||
40,414 | Integra LifeSciences Holdings Corp.*^ | $ | 3,467,117 | |||||
43,060 | Invacare Corp.^ | 561,933 | ||||||
59,615 | Masimo Corp.*^ | 4,018,051 | ||||||
58,267 | Meridian Bioscience, Inc.^ | 1,031,326 | ||||||
61,512 | Merit Medical Systems, Inc.*^ | 1,630,068 | ||||||
45,400 | Natus Medical, Inc.*^ | 1,579,920 | ||||||
50,784 | Neogen Corp.* | 3,351,744 | ||||||
17,145 | Surmodics, Inc.* | 435,483 | ||||||
24,290 | Vascular Solutions, Inc.* | 1,362,669 | ||||||
49,034 | Zeltiq Aesthetics, Inc.*^ | 2,133,960 | ||||||
|
| |||||||
40,213,435 | ||||||||
|
| |||||||
| Health Care Providers & Services (3.2%): | |||||||
40,247 | Aceto Corp.^ | 884,227 | ||||||
21,528 | Adeptus Health, Inc., Class A*^ | 164,474 | ||||||
44,599 | Air Methods Corp.*^ | 1,420,478 | ||||||
12,209 | Almost Family, Inc.*^ | 538,417 | ||||||
37,367 | Amedisys, Inc.*^ | 1,592,955 | ||||||
65,099 | AMN Healthcare Services, Inc.*^ | 2,503,056 | ||||||
37,987 | BioTelemetry, Inc.* | 849,009 | ||||||
21,915 | Chemed Corp.^ | 3,515,384 | ||||||
154,027 | Community Health Systems, Inc.*^ | 861,011 | ||||||
14,791 | CorVel Corp.* | 541,351 | ||||||
43,918 | Cross Country Healthcare, Inc.*^ | 685,560 | ||||||
56,153 | Diplomat Pharmacy, Inc.*^ | 707,528 | ||||||
62,424 | Ensign Group, Inc. (The)^ | 1,386,437 | ||||||
57,040 | HealthEquity, Inc.* | 2,311,261 | ||||||
44,026 | Healthways, Inc.*^ | 1,001,592 | ||||||
114,994 | Kindred Healthcare, Inc.^ | 902,703 | ||||||
13,505 | Landauer, Inc. | 649,591 | ||||||
20,032 | LHC Group, Inc.* | 915,462 | ||||||
31,250 | Magellan Health Services, Inc.* | 2,351,562 | ||||||
41,557 | PharMerica Corp.* | 1,045,159 | ||||||
16,564 | Providence Service Corp.*^ | 630,260 | ||||||
37,477 | Quorum Health Corp.*^ | 272,458 | ||||||
144,138 | Select Medical Holdings Corp.*^ | 1,909,829 | ||||||
37,669 | Surgical Care Affiliates, Inc.*^ | 1,742,945 | ||||||
16,441 | U.S. Physical Therapy, Inc.^ | 1,154,158 | ||||||
|
| |||||||
30,536,867 | ||||||||
|
| |||||||
| Health Care Technology (1.0%): | |||||||
14,984 | Computer Programs & Systems, Inc.^ | 353,622 | ||||||
34,094 | HealthStream, Inc.*^ | 854,055 | ||||||
115,626 | HMS Holdings Corp.* | 2,099,768 | ||||||
73,144 | Medidata Solutions, Inc.*^ | 3,633,063 | ||||||
48,650 | Omnicell, Inc.*^ | 1,649,235 | ||||||
60,312 | Quality Systems, Inc.*^ | 793,103 | ||||||
|
| |||||||
9,382,846 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (2.9%): | |||||||
115,291 | Belmond, Ltd., Class A* | 1,539,135 | ||||||
1,458 | Biglari Holdings, Inc.*^ | 689,926 | ||||||
26,560 | BJ’s Restaurants, Inc.* | 1,043,808 | ||||||
26,998 | Bob Evans Farms, Inc.^ | 1,436,564 | ||||||
111,646 | Boyd Gaming Corp.* | 2,251,900 | ||||||
22,549 | Chuy’s Holdings, Inc.*^ | 731,715 | ||||||
50,044 | Dave & Buster’s Entertainment, Inc.*^ | 2,817,476 | ||||||
23,227 | DineEquity, Inc.^ | 1,788,479 |
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Hotels, Restaurants & Leisure, continued | |||||||
29,661 | El Pollo Loco Holdings, Inc.*^ | $ | 364,830 | |||||
35,629 | Fiesta Restaurant Group, Inc.*^ | 1,063,526 | ||||||
143,329 | Ilg, Inc.^ | 2,604,288 | ||||||
26,724 | Marcus Corp. | 841,806 | ||||||
32,906 | Marriott Vacations Worldwide Corp.^ | 2,792,074 | ||||||
16,776 | Monarch Casino & Resort, Inc.* | 432,485 | ||||||
27,453 | Popeyes Louisiana Kitchen, Inc.*^ | 1,660,357 | ||||||
17,724 | Red Robin Gourmet Burgers*^ | 999,634 | ||||||
68,429 | Ruby Tuesday, Inc.*^ | 221,026 | ||||||
37,801 | Ruth’s Hospitality Group, Inc. | 691,758 | ||||||
66,917 | Scientific Games Corp., Class A*^ | 936,838 | ||||||
62,709 | Sonic Corp.^ | 1,662,416 | ||||||
39,802 | Wingstop, Inc.^ | 1,177,741 | ||||||
|
| |||||||
27,747,782 | ||||||||
|
| |||||||
| Household Durables (1.7%): | |||||||
11,802 | Cavco Industries, Inc.*^ | 1,178,430 | ||||||
33,445 | Ethan Allen Interiors, Inc.^ | 1,232,448 | ||||||
27,851 | Installed Building Products, Inc.*^ | 1,150,246 | ||||||
36,260 | iRobot Corp.*^ | 2,119,397 | ||||||
66,105 | La-Z-Boy, Inc.^ | 2,052,560 | ||||||
23,917 | LGI Homes, Inc.*^ | 687,135 | ||||||
56,665 | M.D.C. Holdings, Inc.^ | 1,454,014 | ||||||
34,382 | M/I Homes, Inc.*^ | 865,739 | ||||||
51,386 | Meritage Corp.*^ | 1,788,233 | ||||||
51,936 | TopBuild Corp.* | 1,848,922 | ||||||
19,410 | Universal Electronics, Inc.* | 1,252,916 | ||||||
31,074 | WCI Communities, Inc.*^ | 728,685 | ||||||
|
| |||||||
16,358,725 | ||||||||
|
| |||||||
| Household Products (0.4%): | |||||||
14,234 | Central Garden & Pet Co.*^ | 471,003 | ||||||
45,462 | Central Garden & Pet Co., Class A* | 1,404,776 | ||||||
19,133 | WD-40 Co.^ | 2,236,648 | ||||||
|
| |||||||
4,112,427 | ||||||||
|
| |||||||
| Industrial Conglomerates (0.1%): | |||||||
48,802 | Raven Industries, Inc.^ | 1,229,810 | ||||||
|
| |||||||
| Insurance (2.7%): | |||||||
38,672 | American Equity Investment Life Holding Co.^ | 871,667 | ||||||
26,385 | Amerisafe, Inc.^ | 1,645,105 | ||||||
25,578 | eHealth, Inc.*^ | 272,406 | ||||||
37,505 | Employers Holdings, Inc. | 1,485,198 | ||||||
11,079 | HCI Group, Inc.^ | 437,399 | ||||||
54,670 | Horace Mann Educators Corp.^ | 2,339,876 | ||||||
15,267 | Infinity Property & Casualty Corp. | 1,341,969 | ||||||
98,468 | Maiden Holdings, Ltd. | 1,718,266 | ||||||
15,156 | Navigators Group, Inc. | 1,784,619 | ||||||
71,701 | ProAssurance Corp. | 4,029,595 | ||||||
51,640 | RLI Corp.^ | 3,260,033 | ||||||
18,232 | Safety Insurance Group, Inc. | 1,343,698 | ||||||
25,351 | Selective Insurance Group, Inc.^ | 1,091,361 | ||||||
25,822 | Stewart Information Services Corp.^ | 1,189,878 | ||||||
28,674 | United Fire Group, Inc.^ | 1,409,901 | ||||||
22,754 | United Insurance Holdings Co.^ | 344,496 | ||||||
45,293 | Universal Insurance Holdings, Inc.^ | 1,286,321 | ||||||
|
| |||||||
25,851,788 | ||||||||
|
|
Continued
7
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Internet & Direct Marketing Retail (0.3%): | |||||||
15,440 | Blue Nile, Inc. | $ | 627,327 | |||||
22,170 | FTD Cos., Inc.*^ | 528,533 | ||||||
38,471 | Nutri/System, Inc.^ | 1,333,020 | ||||||
25,575 | PetMed Express, Inc.^ | 590,015 | ||||||
|
| |||||||
3,078,895 | ||||||||
|
| |||||||
| Internet Software & Services (1.4%): | |||||||
51,044 | Blucora, Inc.*^ | 752,899 | ||||||
65,972 | DHI Group, Inc.* | 412,325 | ||||||
30,859 | Liquidity Services, Inc.* | 300,875 | ||||||
66,899 | LivePerson, Inc.* | 505,087 | ||||||
34,180 | LogMeIn, Inc.^ | 3,300,078 | ||||||
85,014 | NIC, Inc. | 2,031,835 | ||||||
37,330 | QuinStreet, Inc.*^ | 140,361 | ||||||
26,011 | Shutterstock, Inc.*^ | 1,236,043 | ||||||
22,839 | Sps Commerce, Inc.*^ | 1,596,218 | ||||||
21,448 | Stamps.com, Inc.*^ | 2,459,013 | ||||||
33,486 | XO Group, Inc.* | 651,303 | ||||||
|
| |||||||
13,386,037 | ||||||||
|
| |||||||
| IT Services (1.8%): | |||||||
32,841 | CACI International, Inc., Class A* | 4,082,136 | ||||||
61,088 | Cardtronics plc*^ | 3,333,572 | ||||||
80,610 | CIBER, Inc.* | 50,929 | ||||||
43,924 | CSG Systems International, Inc.^ | 2,125,922 | ||||||
45,231 | Exlservice Holdings, Inc.* | 2,281,452 | ||||||
12,494 | Forrester Research, Inc.^ | 536,617 | ||||||
33,964 | ManTech International Corp., Class A^ | 1,434,979 | ||||||
47,888 | Perficient, Inc.* | 837,561 | ||||||
53,650 | Sykes Enterprises, Inc.* | 1,548,339 | ||||||
20,302 | TeleTech Holdings, Inc. | 619,211 | ||||||
36,089 | Virtusa Corp.*^ | 906,556 | ||||||
|
| |||||||
17,757,274 | ||||||||
|
| |||||||
| Leisure Products (0.4%): | |||||||
14,487 | Arctic Cat, Inc.*^ | 217,595 | ||||||
125,053 | Callaway Golf Co. | 1,370,581 | ||||||
42,134 | Nautilus Group, Inc.*^ | 779,479 | ||||||
26,056 | Sturm, Ruger & Co., Inc.^ | 1,373,151 | ||||||
|
| |||||||
3,740,806 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (0.4%): | |||||||
31,071 | Albany Molecular Research, Inc.*^ | 582,892 | ||||||
43,657 | Cambrex Corp.* | 2,355,295 | ||||||
55,401 | Luminex Corp.* | 1,120,762 | ||||||
|
| |||||||
4,058,949 | ||||||||
|
| |||||||
| Machinery (5.0%): | |||||||
78,811 | Actuant Corp., Class A^ | 2,045,145 | ||||||
12,742 | Alamo Group, Inc. | 969,666 | ||||||
39,257 | Albany International Corp., Class A^ | 1,817,599 | ||||||
24,738 | Astec Industries, Inc. | 1,668,825 | ||||||
65,944 | Barnes Group, Inc. | 3,127,064 | ||||||
58,201 | Briggs & Stratton Corp.^ | 1,295,554 | ||||||
40,808 | Chart Industries, Inc.*^ | 1,469,904 | ||||||
21,696 | CIRCOR International, Inc.^ | 1,407,636 | ||||||
28,848 | EnPro Industries, Inc.^ | 1,943,201 | ||||||
34,917 | ESCO Technologies, Inc.^ | 1,978,048 | ||||||
80,706 | Federal Signal Corp. | 1,259,821 |
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Machinery, continued | |||||||
52,332 | Franklin Electric Co., Inc.^ | $ | 2,035,715 | |||||
39,133 | Greenbrier Cos, Inc.^ | 1,625,976 | ||||||
106,665 | Harsco Corp. | 1,450,644 | ||||||
85,253 | Hillenbrand, Inc.^ | 3,269,454 | ||||||
38,614 | John Bean Technologies Corp.^ | 3,318,874 | ||||||
14,811 | Lindsay Corp.^ | 1,105,049 | ||||||
22,558 | Lydall, Inc.*^ | 1,395,212 | ||||||
75,212 | Mueller Industries, Inc. | 3,005,472 | ||||||
32,107 | Proto Labs, Inc.*^ | 1,648,694 | ||||||
54,847 | SPX Corp.* | 1,300,971 | ||||||
54,558 | SPX FLOW, Inc.*^ | 1,749,129 | ||||||
17,067 | Standex International Corp.^ | 1,499,336 | ||||||
23,504 | Tennant Co.^ | 1,673,485 | ||||||
57,876 | Titan International, Inc.^ | 648,790 | ||||||
83,593 | Wabash National Corp.*^ | 1,322,441 | ||||||
37,657 | Watts Water Technologies, Inc., Class A^ | 2,455,236 | ||||||
|
| |||||||
48,486,941 | ||||||||
|
| |||||||
| Marine (0.2%): | |||||||
57,931 | Matson, Inc.^ | 2,050,178 | ||||||
|
| |||||||
| Media (0.7%): | |||||||
78,179 | E.W. Scripps Co. (The), Class A*^ | 1,511,200 | ||||||
160,120 | Gannett Co., Inc.^ | 1,554,765 | ||||||
72,767 | New Media Investment Group, Inc. | 1,163,544 | ||||||
36,922 | Scholastic Corp.^ | 1,753,426 | ||||||
53,769 | World Wrestling Entertainment, Inc., Class A^ | 989,350 | ||||||
|
| |||||||
6,972,285 | ||||||||
|
| |||||||
| Metals & Mining (1.3%): | |||||||
415,454 | AK Steel Holding Corp.*^ | 4,241,785 | ||||||
62,336 | Century Aluminum Co.*^ | 533,596 | ||||||
15,541 | Haynes International, Inc.^ | 668,108 | ||||||
23,658 | Kaiser Aluminum Corp.^ | 1,837,990 | ||||||
25,336 | Materion Corp.^ | 1,003,306 | ||||||
10,271 | Olympic Steel, Inc. | 248,866 | ||||||
159,655 | Stillwater Mining Co.*^ | 2,572,042 | ||||||
89,996 | SunCoke Energy, Inc.*^ | 1,020,555 | ||||||
50,117 | TimkenSteel Corp.*^ | 775,811 | ||||||
|
| |||||||
12,902,059 | ||||||||
|
| |||||||
| Mortgage Real Estate Investment Trusts (0.1%): | |||||||
132,568 | Capstead Mortgage Corp.^ | 1,350,868 | ||||||
|
| |||||||
| Multiline Retail (0.3%): | |||||||
45,908 | Fred’s, Inc.^ | 852,052 | ||||||
63,429 | Ollie’s Bargain Outlet Holdings, Inc.*^ | 1,804,555 | ||||||
53,924 | Tuesday Morning Corp.*^ | 291,190 | ||||||
|
| |||||||
2,947,797 | ||||||||
|
| |||||||
| Multi-Utilities (0.4%): | |||||||
86,600 | Avista Corp.^ | 3,463,134 | ||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (1.5%): | |||||||
100,690 | Bill Barrett Corp.*^ | 703,823 | ||||||
82,446 | Carrizo Oil & Gas, Inc.*^ | 3,079,358 | ||||||
80,764 | Cloud Peak Energy, Inc.*^ | 453,086 | ||||||
27,879 | Contango Oil & Gas Co.* | 260,390 | ||||||
49,346 | Green Plains Renewable Energy, Inc.^ | 1,374,286 | ||||||
53,974 | Northern Oil & Gas, Inc.*^ | 148,429 | ||||||
74,797 | PDC Energy, Inc.*^ | 5,428,765 |
Continued
8
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Oil, Gas & Consumable Fuels, continued | |||||||
7,773 | REX American Resources Corp.*^ | $ | 767,584 | |||||
271,372 | Synergy Resources Corp.*^ | 2,417,925 | ||||||
|
| |||||||
14,633,646 | ||||||||
|
| |||||||
| Paper & Forest Products (1.2%): | |||||||
52,234 | Boise Cascade Co.*^ | 1,175,265 | ||||||
23,009 | Clearwater Paper Corp.*^ | 1,508,240 | ||||||
14,702 | Deltic Timber Corp.^ | 1,133,083 | ||||||
118,927 | KapStone Paper & Packaging Corp.^ | 2,622,341 | ||||||
22,857 | Neenah Paper, Inc.^ | 1,947,416 | ||||||
60,295 | P.H. Glatfelter Co.^ | 1,440,448 | ||||||
41,727 | Schweitzer-Mauduit International, Inc. | 1,899,830 | ||||||
|
| |||||||
11,726,623 | ||||||||
|
| |||||||
| Personal Products (0.2%): | |||||||
23,892 | Inter Parfums, Inc.^ | 782,463 | ||||||
16,014 | Medifast, Inc.^ | 666,663 | ||||||
|
| |||||||
1,449,126 | ||||||||
|
| |||||||
| Pharmaceuticals (1.6%): | |||||||
49,058 | Amphastar Pharmaceuticals, Inc.*^ | 903,648 | ||||||
10,769 | ANI Pharmaceuticals, Inc.*^ | 652,817 | ||||||
84,223 | DepoMed, Inc.*^ | 1,517,698 | ||||||
98,970 | Impax Laboratories, Inc.* | 1,311,353 | ||||||
105,937 | Innoviva, Inc.*^ | 1,133,526 | ||||||
40,088 | Lannett Co., Inc.*^ | 883,940 | ||||||
93,960 | Medicines Co. (The)*^ | 3,189,003 | ||||||
204,547 | Nektar Therapeutics*^ | 2,509,792 | ||||||
24,854 | Phibro Animal Health Corp., Class A | 728,222 | ||||||
63,116 | Sciclone Pharmaceuticals, Inc.* | 681,653 | ||||||
65,817 | Supernus Pharmaceuticals, Inc.* | 1,661,879 | ||||||
|
| |||||||
15,173,531 | ||||||||
|
| |||||||
| Professional Services (1.9%): | |||||||
16,435 | CDI Corp.*^ | 121,619 | ||||||
33,723 | Exponent, Inc.^ | 2,033,497 | ||||||
26,101 | Heidrick & Struggles International, Inc. | 630,339 | ||||||
25,750 | Insperity, Inc. | 1,826,963 | ||||||
41,453 | Kelly Services, Inc., Class A^ | 950,103 | ||||||
79,035 | Korn/Ferry International^ | 2,326,000 | ||||||
63,822 | Navigant Consulting, Inc.* | 1,670,860 | ||||||
65,933 | On Assignment, Inc.* | 2,911,601 | ||||||
40,411 | Resources Connection, Inc.^ | 777,912 | ||||||
57,748 | Trueblue, Inc.* | 1,423,488 | ||||||
49,459 | Wageworks, Inc.*^ | 3,585,777 | ||||||
|
| |||||||
18,258,159 | ||||||||
|
| |||||||
| Real Estate Management & Development (0.3%): | |||||||
39,019 | Forestar Group, Inc.* | 518,953 | ||||||
48,252 | HFF, Inc., Class A^ | 1,459,623 | ||||||
24,379 | RE/MAX Holdings, Inc., Class A | 1,365,224 | ||||||
|
| |||||||
3,343,800 | ||||||||
|
| |||||||
| Road & Rail (0.8%): | |||||||
31,639 | ArcBest Corp.^ | 874,818 | ||||||
35,920 | Celadon Group, Inc.^ | 256,828 | ||||||
57,166 | Heartland Express, Inc.^ | 1,163,900 | ||||||
89,752 | Knight Transportation, Inc.^ | 2,966,303 | ||||||
29,432 | Marten Transport, Ltd. | 685,766 | ||||||
39,463 | Roadrunner Transportation System, Inc.* | 410,021 |
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Road & Rail, continued | |||||||
33,180 | Saia, Inc.*^ | $ | 1,464,897 | |||||
|
| |||||||
7,822,533 | ||||||||
|
| |||||||
| Semiconductors & Semiconductor Equipment (3.2%): | |||||||
53,575 | Advanced Energy Industries, Inc.*^ | 2,933,230 | ||||||
93,254 | Brooks Automation, Inc.^ | 1,591,846 | ||||||
32,359 | Cabot Microelectronics Corp. | 2,044,118 | ||||||
28,261 | CEVA, Inc.*^ | 948,157 | ||||||
33,907 | Cohu, Inc. | 471,307 | ||||||
50,048 | Diodes, Inc.*^ | 1,284,732 | ||||||
25,700 | DSP Group, Inc.* | 335,385 | ||||||
51,823 | Exar Corp.* | 558,652 | ||||||
61,353 | Kopin Corp.*^ | 174,243 | ||||||
93,560 | Kulicke & Soffa Industries, Inc.* | 1,492,282 | ||||||
72,174 | MKS Instruments, Inc.^ | 4,287,135 | ||||||
33,340 | Nanometrics, Inc.* | 835,500 | ||||||
38,854 | Power Integrations, Inc. | 2,636,244 | ||||||
146,942 | Rambus, Inc.* | 2,023,391 | ||||||
42,316 | Rudolph Technologies, Inc.* | 988,079 | ||||||
87,712 | Semtech Corp.* | 2,767,314 | ||||||
65,688 | Tessera Holding Corp.^ | 2,903,410 | ||||||
29,907 | Ultratech, Inc.* | 717,170 | ||||||
53,885 | Veeco Instruments, Inc.*^ | 1,570,748 | ||||||
|
| |||||||
30,562,943 | ||||||||
|
| |||||||
| Software (2.9%): | |||||||
119,885 | 8x8, Inc.* | 1,714,356 | ||||||
64,092 | Blackbaud, Inc.^ | 4,101,888 | ||||||
48,125 | Bottomline Technologies, Inc.*^ | 1,204,088 | ||||||
29,355 | Ebix, Inc.^ | 1,674,703 | ||||||
12,697 | MicroStrategy, Inc., Class A*^ | 2,506,388 | ||||||
55,638 | Monotype Imaging Holdings, Inc.^ | 1,104,414 | ||||||
65,238 | Progress Software Corp.^ | 2,083,049 | ||||||
38,174 | Qualys, Inc.* | 1,208,207 | ||||||
55,834 | Synchronoss Technologies, Inc.*^ | 2,138,442 | ||||||
115,363 | Take-Two Interactive Software, Inc.*^ | 5,686,242 | ||||||
26,792 | Tangoe, Inc.*^ | 211,121 | ||||||
160,634 | TiVo Corp.*^ | 3,357,251 | ||||||
38,279 | VASCO Data Security International, Inc.*^ | 522,508 | ||||||
|
| |||||||
27,512,657 | ||||||||
|
| |||||||
| Specialty Retail (4.1%): | |||||||
93,628 | Abercrombie & Fitch Co., Class A^ | 1,123,536 | ||||||
26,435 | Asbury Automotive Group, Inc.*^ | 1,631,040 | ||||||
223,702 | Ascena Retail Group, Inc.*^ | 1,384,715 | ||||||
50,021 | Barnes & Noble Education, Inc.*^ | 573,741 | ||||||
75,086 | Barnes & Noble, Inc. | 837,209 | ||||||
23,893 | Big 5 Sporting Goods Corp.^ | 414,544 | ||||||
59,043 | Caleres, Inc.^ | 1,937,791 | ||||||
34,675 | Cato Corp., Class A^ | 1,043,024 | ||||||
24,468 | Children’s Place Retail Stores, Inc. (The)^ | 2,470,045 | ||||||
108,145 | Express, Inc.* | 1,163,640 | ||||||
55,737 | Finish Line, Inc. (The), Class A^ | 1,048,413 | ||||||
73,543 | Five Below, Inc.*^ | 2,938,777 | ||||||
50,907 | Francesca’s Holdings Corp.*^ | 917,853 | ||||||
27,880 | Genesco, Inc.*^ | 1,731,348 | ||||||
27,025 | Group 1 Automotive, Inc.^ | 2,106,329 | ||||||
85,592 | Guess?, Inc.^ | 1,035,663 |
Continued
9
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Specialty Retail, continued | |||||||
25,822 | Haverty Furniture Cos., Inc.^ | $ | 611,981 | |||||
30,243 | Hibbett Sports, Inc.*^ | 1,128,064 | ||||||
17,597 | Kirkland’s, Inc.* | 272,929 | ||||||
31,393 | Lithia Motors, Inc., Class A^ | 3,039,783 | ||||||
37,061 | Lumber Liquidators Holdings, Inc.*^ | 583,340 | ||||||
32,567 | MarineMax, Inc.*^ | 630,171 | ||||||
43,843 | Monro Muffler Brake, Inc.^ | 2,507,820 | ||||||
70,558 | Rent-A-Center, Inc.^ | 793,778 | ||||||
60,185 | Select Comfort Corp.*^ | 1,361,385 | ||||||
17,761 | Shoe Carnival, Inc.^ | 479,192 | ||||||
36,761 | Sonic Automotive, Inc., Class A^ | 841,827 | ||||||
38,218 | Stage Store, Inc.^ | 167,013 | ||||||
40,119 | Stein Mart, Inc.^ | 219,852 | ||||||
65,632 | Tailored Brands, Inc.^ | 1,676,898 | ||||||
39,427 | The Buckle, Inc.^ | 898,936 | ||||||
42,793 | The Tile Shop Holdings, Inc.*^ | 836,603 | ||||||
32,516 | Vitamin Shoppe, Inc.*^ | 772,255 | ||||||
23,441 | Zumiez, Inc.*^ | 512,186 | ||||||
|
| |||||||
39,691,681 | ||||||||
|
| |||||||
| Technology Hardware, Storage & Peripherals (0.5%): |
| ||||||
53,665 | Cray, Inc.*^ | 1,110,866 | ||||||
63,004 | Electronics for Imaging, Inc.*^ | 2,763,355 | ||||||
51,015 | Super Micro Computer, Inc.*^ | 1,430,971 | ||||||
|
| |||||||
5,305,192 | ||||||||
|
| |||||||
| Textiles, Apparel & Luxury Goods (1.2%): | |||||||
95,812 | Crocs, Inc.*^ | 657,270 | ||||||
58,375 | G-III Apparel Group, Ltd.*^ | 1,725,565 | ||||||
74,876 | Iconix Brand Group, Inc.*^ | 699,342 | ||||||
20,590 | Movado Group, Inc.^ | 591,963 | ||||||
19,905 | Oxford Industries, Inc.^ | 1,196,888 | ||||||
15,653 | Perry Ellis International, Inc.* | 389,916 | ||||||
73,899 | Steven Madden, Ltd.*^ | 2,641,889 | ||||||
20,582 | Unifi, Inc.* | 671,591 | ||||||
25,723 | Vera Bradley, Inc.*^ | 301,474 | ||||||
133,403 | Wolverine World Wide, Inc.^ | 2,928,195 | ||||||
|
| |||||||
11,804,093 | ||||||||
|
| |||||||
| Thrifts & Mortgage Finance (1.8%): | |||||||
124,179 | Astoria Financial Corp.^ | 2,315,938 | ||||||
60,272 | Bank Mutual Corp. | 569,570 | ||||||
78,433 | BofI Holding, Inc.*^ | 2,239,262 | ||||||
43,970 | Dime Community Bancshares | 883,797 | ||||||
32,550 | HomeStreet, Inc.* | 1,028,580 | ||||||
10,053 | LendingTree, Inc.*^ | 1,018,872 | ||||||
62,162 | Northfield Bancorp, Inc.^ | 1,241,375 | ||||||
137,511 | Northwest Bancshares, Inc.^ | 2,479,323 | ||||||
53,302 | Oritani Financial Corp. | 999,413 | ||||||
81,746 | Provident Financial Services, Inc. | 2,313,412 | ||||||
133,093 | TrustCo Bank Corp. | 1,164,564 | ||||||
38,426 | Wawlker & Dunlop, Inc.*^ | 1,198,891 | ||||||
|
| |||||||
17,452,997 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
| Common Stocks, continued | |||||||
| Tobacco (0.2%): | |||||||
30,993 | Universal Corp.^ | $ | 1,975,804 | |||||
|
| |||||||
| Trading Companies & Distributors (0.6%): | |||||||
52,723 | Applied Industrial Technologies, Inc. | 3,131,747 | ||||||
20,114 | Dxp Enterprises, Inc.* | 698,760 | ||||||
35,330 | Kaman Corp., Class A^ | 1,728,697 | ||||||
12,819 | Veritiv Corp.*^ | 689,021 | ||||||
|
| |||||||
6,248,225 | ||||||||
|
| |||||||
| Water Utilities (0.5%): | |||||||
49,754 | American States Water Co.^ | 2,266,792 | ||||||
65,269 | California Water Service Group^ | 2,212,619 | ||||||
|
| |||||||
4,479,411 | ||||||||
|
| |||||||
| Wireless Telecommunication Services (0.1%): | |||||||
29,191 | Spok Holdings, Inc.^ | 605,713 | ||||||
|
| |||||||
| Total Common Stocks (Cost $765,137,366) | 962,879,919 | ||||||
|
| |||||||
| Right (0.0%): | |||||||
| Biotechnology (0.0%): | |||||||
25,050 | Dyax Corp. CVR, Expires on 12/31/19*(a)(b) | $ | 27,806 | |||||
10,537 | Gerber Scientific, Inc.*(a)(b) | — | ||||||
|
| |||||||
| Total Right (Cost $—) | 27,806 | ||||||
|
| |||||||
| Securities Held as Collateral for Securities on Loan (27.6%): |
| ||||||
$ | 266,105,374 | AZL Small Cap Stock Index Fund Securities Lending Collateral Account(c) | 266,105,374 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 266,105,374 | ||||||
|
| |||||||
| Unaffiliated Investment Company (0.1%): |
| ||||||
601,042 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(d) | 601,042 | ||||||
|
| |||||||
| Total Unaffiliated Investment Company (Cost $601,042) | 601,042 | ||||||
|
| |||||||
| Total Investment Securities | 1,229,614,141 | ||||||
| Net other assets (liabilities) — (27.5)% | (264,963,207 | ) | |||||
|
| |||||||
| Net Assets — 100.0% | $ | 964,650,934 | |||||
|
|
Continued
10
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2016
Percentages indicated are based on net assets as of December 31, 2016.
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2016. The total value of securities on loan as of December 31, 2016, was $258,952,352. |
(a) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2016. The total of all such securities represent 0.00% of the net assets of the fund. |
(b) | The sub-adviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2016, 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, 2016. |
(d) | The rate represents the effective yield at December 31, 2016. |
(e) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Futures Contracts
Cash of $123,600 has been segregated to cover margin requirements for the following open contracts as of December 31, 2016:
Description | Type | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Russell 2000 Mini Index Futures | Long | 3/17/17 | 37 | $ | 2,510,265 | $ | (9,644 | ) |
See accompanying notes to the financial statements.
11
AZL Small Cap Stock Index Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investment securities, at cost | $ | 1,031,843,782 | |||
|
| ||||
Investment securities, at value* | $ | 1,229,614,141 | |||
Cash | 732 | ||||
Segregated cash for collateral | 123,600 | ||||
Interest and dividends receivable | 1,359,798 | ||||
Receivable for investments sold | 2,349,682 | ||||
Reclaims receivable | 5 | ||||
Prepaid expenses | 4,836 | ||||
|
| ||||
Total Assets | 1,233,452,794 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 785,181 | ||||
Payable for capital shares redeemed | 1,308,875 | ||||
Payable for collateral received on loaned securities | 266,105,374 | ||||
Payable for variation margin on futures contracts | 10,891 | ||||
Manager fees payable | 215,564 | ||||
Administration fees payable | 18,649 | ||||
Distribution fees payable | 195,607 | ||||
Custodian fees payable | 16,742 | ||||
Administrative and compliance services fees payable | 2,625 | ||||
Trustee fees payable | 1,994 | ||||
Other accrued liabilities | 140,358 | ||||
|
| ||||
Total Liabilities | 268,801,860 | ||||
|
| ||||
Net Assets | $ | 964,650,934 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 710,679,758 | |||
Accumulated net investment income/(loss) | 4,406,542 | ||||
Accumulated net realized gains/(losses) from investment transactions | 51,803,919 | ||||
Net unrealized appreciation/(depreciation) on investments | 197,760,715 | ||||
|
| ||||
Net Assets | $ | 964,650,934 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 54,671,940 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 4,804,459 | ||||
Net Asset Value (offering and redemption price per share) | $ | 11.38 | |||
|
| ||||
Class 2 | |||||
Net Assets | $ | 909,978,994 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 63,939,158 | ||||
Net Asset Value (offering and redemption price per share) | $ | 14.23 | |||
|
|
* | Includes securities on loan of $258,952,352. |
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Dividends | $ | 6,405,623 | |||
Income from securities lending | 652,659 | ||||
Foreign withholding tax | (464 | ) | |||
|
| ||||
Total Investment Income | 7,057,818 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 1,034,763 | ||||
Administration fees | 101,605 | ||||
Distribution fees — Class 2 | 967,709 | ||||
Custodian fees | 17,608 | ||||
Administrative and compliance services fees | 3,414 | ||||
Trustee fees | 10,325 | ||||
Professional fees | 25,456 | ||||
Shareholder reports | 29,662 | ||||
Other expenses | 96,352 | ||||
|
| ||||
Total expenses | 2,286,894 | ||||
|
| ||||
Net Investment Income/(Loss) | 4,770,924 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 58,239,224 | ||||
Net realized gains/(losses) on futures contracts | 1,502,464 | ||||
Change in net unrealized appreciation/depreciation on investments | 92,843,996 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 152,585,684 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 157,356,608 | |||
|
|
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, 2016 | For the Year Ended December 31, 2015 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 4,770,924 | $ | 3,072,296 | ||||||
Net realized gains/(losses) on investment transactions | 59,741,688 | 44,330,189 | ||||||||
Change in unrealized appreciation/depreciation on investments | 92,843,996 | (50,678,247 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 157,356,608 | (3,275,762 | ) | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1* | — | |||||||||
Class 2 | (3,054,147 | ) | (3,014,222 | ) | ||||||
From net realized gains: | �� | |||||||||
Class 1* | — | |||||||||
Class 2 | (42,610,276 | ) | (25,300,676 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (45,664,423 | ) | (28,314,898 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Class 1* | ||||||||||
Proceeds from shares issued | 49,908,811 | |||||||||
Value of shares redeemed | (1,979,738 | ) | ||||||||
|
| |||||||||
Total Class 1 Shares | 47,929,073 | |||||||||
|
| |||||||||
Class 2 | ||||||||||
Proceeds from shares issued | 214,993,554 | 29,155,997 | ||||||||
Proceeds from shares issued in merger | 334,705,111 | — | ||||||||
Proceeds from dividends reinvested | 45,664,423 | 28,314,898 | ||||||||
Value of shares redeemed | (66,339,645 | ) | (131,459,011 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | 529,023,443 | (73,988,116 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 576,952,516 | (73,988,116 | ) | |||||||
|
|
|
| |||||||
Change in net assets | 688,644,701 | (105,578,776 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 276,006,233 | 381,585,009 | ||||||||
|
|
|
| |||||||
End of period | $ | 964,650,934 | $ | 276,006,233 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 4,406,542 | $ | 3,065,946 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Class 1* | ||||||||||
Shares issued | 4,990,882 | |||||||||
Shares redeemed | (186,423 | ) | ||||||||
|
| |||||||||
Total Class 1 Shares | 4,804,459 | |||||||||
|
| |||||||||
Class 2 | ||||||||||
Shares issued | 17,244,601 | 1,932,032 | ||||||||
Shares issued in merger | 27,406,989 | — | ||||||||
Dividends reinvested | 3,661,942 | 2,109,903 | ||||||||
Shares redeemed | (4,841,918 | ) | (8,312,138 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | 43,471,614 | (4,270,203 | ) | |||||||
|
|
|
| |||||||
Change in shares | 48,276,073 | (4,270,203 | ) | |||||||
|
|
|
|
* | For the period October 17, 2016 (commencement of operations) to December 31, 2016. |
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, | |||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||
Class 1* | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.00 | |||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.06 | ||||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.32 | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Total from Investment Activities | 1.38 | ||||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Net Asset Value, End of Period | $ | 11.38 | |||||||||||||||||||||||
|
| ||||||||||||||||||||||||
Total Return(a) | 13.80 | %(b) | |||||||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 54,672 | |||||||||||||||||||||||
Net Investment Income/(Loss)(c) | 1.46 | % | |||||||||||||||||||||||
Expenses Before Reductions(c)(d) | 0.32 | % | |||||||||||||||||||||||
Expenses Net of Reductions(c) | 0.32 | % | |||||||||||||||||||||||
Portfolio Turnover Rate(e)(f) | 86 | %(g) | |||||||||||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 13.49 | $ | 15.43 | $ | 15.65 | $ | 11.39 | $ | 9.87 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.07 | 0.19 | 0.12 | 0.09 | 0.13 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 3.06 | (0.58 | ) | 0.65 | 4.50 | 1.43 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 3.13 | (0.39 | ) | 0.77 | 4.59 | 1.56 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.16 | ) | (0.17 | ) | (0.09 | ) | (0.14 | ) | (0.04 | ) | |||||||||||||||
Net Realized Gains | (2.23 | ) | (1.38 | ) | (0.90 | ) | (0.19 | ) | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (2.39 | ) | (1.55 | ) | (0.99 | ) | (0.33 | ) | (0.04 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 14.23 | $ | 13.49 | $ | 15.43 | $ | 15.65 | $ | 11.39 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 25.71 | % | (2.49 | )% | 5.23 | % | 40.62 | % | 15.82 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 909,979 | $ | 276,006 | $ | 381,585 | $ | 383,152 | $ | 267,053 | |||||||||||||||
Net Investment Income/(Loss) | 1.19 | % | 0.96 | % | 0.81 | % | 0.71 | % | 1.33 | % | |||||||||||||||
Expenses Before Reductions(d) | 0.58 | % | 0.59 | % | 0.59 | % | 0.59 | % | 0.61 | % | |||||||||||||||
Expenses Net of Reductions | 0.58 | % | 0.59 | % | 0.59 | % | 0.59 | % | 0.61 | % | |||||||||||||||
Portfolio Turnover Rate(e)(f) | 86 | %(g) | 16 | % | 14 | % | 17 | % | 10 | % |
* | For the period October 17, 2016 (commencement of operations) to December 31, 2016. |
(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) | Not annualized. |
(c) | Annualized for periods less than one year. |
(d) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
(e) | Portfolio turnover rate can be volatile due to the amount and timing of purchases and sales of fund shares during the period. |
(f) | Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. Not annualized for periods less than a year. |
(g) | 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 86%. |
See accompanying notes to the financial statements.
14
AZL Small Cap Stock Index Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 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 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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.
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) 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
15
AZL Small Cap Stock Index Fund
Notes to the Financial Statements
December 31, 2016
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, 2016 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $104.5 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $67,666 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (“ASU No. 2014-11”), “Transfers & Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged, and the remaining contractual maturity of those transactions as of December 31, 2016.
Overnight and Continuous | Less than 30 Days | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions |
| ||||||||||||||||||||||||
Common Stocks | $ | 263,633,731 | $ | 2,471,643 | $ | — | $ | — | $ | 266,105,374 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Securities Lending Transactions | 263,633,731 | 2,471,643 | — | — | 266,105,374 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Borrowings | $ | 263,633,731 | $ | 2,471,643 | $ | — | $ | — | $ | 266,105,374 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Gross Amount of Recognized Liabilities for Securities Lending Transactions |
| $ | 266,105,374 | ||||||||||||||||||||||
|
|
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and sub-adviser. Any such purchase or sale transaction must be effected without a brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security’s last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. During the year, the Fund engaged in such affiliated transactions at the current market price.
The Fund is permitted to purchase and sell securities (“crosstrade”) from and to other Allianz Funds as well as other funds and client accounts for which the Adviser or an affiliate of the Adviser serves as investment adviser, pursuant to procedures approved by the Trustees in compliance with Rule 17a-7 under the Act (the “Rule”). Each cross-trade is executed at the current market price in compliance with provisions of the Rule. For the year ended December 31, 2016, the Fund participated in following cross-trade transactions:
Purchases | Sales | Realized (Gain/Loss) | |||||||||||||
AZL Small Cap Stock Index Fund | $ | (6,382,548 | ) | $ | 48,823,527 | $ | 19,831,779 |
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.
16
AZL Small Cap Stock Index Fund
Notes to the Financial Statements
December 31, 2016
Futures Contracts
During the year ended December 31, 2016, 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 $2.5 million as of December 31, 2016. The monthly average notional amount for these contracts was $6.1 million for the year ended December 31, 2016. 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, 2016:
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 Risk Exposure |
| |||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | — | Payable for variation margin on futures contracts | $ | 9,644 |
* | For futures contracts, the amounts represent the cumulative appreciation/depreciation of these futures contracts as reported in the Schedule of Portfolio Investments. Only the current day’s variation margin is reported within the Statement of Assets and Liabilities as Variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the year ended December 31, 2016:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives Recognized | Change in Net Unrealized Appreciation/Depreciation on Derivatives Recognized | |||||||
Equity Risk Exposure |
| |||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/Change in unrealized appreciation/depreciation on investments | $ | 1,502,464 | $ | (28,102 | ) |
3. Fees and Transactions with Affiliates and Other Parties
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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, 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 Class 1 | 0.26 | % | 0.46 | % | ||||||
AZL Small Cap Stock Index Fund Class 2 | 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, 2016, 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, 2016, 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
17
AZL Small Cap Stock Index Fund
Notes to the Financial Statements
December 31, 2016
certain documents with the Securities and Exchange Commission (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the average daily net assets attributable to Class 2 shares, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $4,289 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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 (the “Board” or “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.
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.
18
AZL Small Cap Stock Index Fund
Notes to the Financial Statements
December 31, 2016
The following is a summary of the valuation inputs used as of December 31, 2016 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Common Stocks+ | $ | 962,879,919 | $ | — | $ | — | $ | 962,879,919 | ||||||||||||
Right | — | 27,806 | — | ^ | 27,806 | |||||||||||||||
Securities Held as Collateral for Securities on Loan | — | 266,105,374 | — | 266,105,374 | ||||||||||||||||
Unaffiliated Investment Company | 601,042 | — | — | 601,042 | ||||||||||||||||
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Total Investment Securities | 963,480,961 | 266,133,180 | — | 1,229,614,141 | ||||||||||||||||
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Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | (9,644 | ) | — | — | (9,644 | ) | ||||||||||||||
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Total Investments | $ | 963,471,317 | $ | 266,133,180 | $ | — | ^ | $ | 1,229,604,497 | |||||||||||
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^ | Represents the interest in securities that were determined to have a value of zero at December 31, 2016. |
+ | 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. |
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, 2016, 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 | $ | 609,210,940 | $ | 364,491,952 |
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 policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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 of securities for federal income tax purposes at December 31, 2016 is $1,040,189,787. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 210,355,410 | ||
Unrealized (depreciation) | (20,931,056 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 189,424,354 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Small Cap Stock Index Fund | $ | 3,054,147 | $ | 42,610,276 | $ | 45,664,423 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
19
AZL Small Cap Stock Index Fund
Notes to the Financial Statements
December 31, 2016
The tax character of dividends paid to shareholders during the year ended December 31, 2015 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Small Cap Stock Index Fund | $ | 4,087,005 | $ | 24,227,893 | $ | 28,314,898 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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 | $ | 16,806,149 | $ | 47,740,673 | $ | — | $ | 189,424,354 | $ | 253,971,176 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies — Form N-PORT and Form N-CEN — also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
9. Acquisition of Funds
Effective as of the close of business October 28, 2016, the Fund acquired all of the net assets of the AZL Federated Clover Small Value Fund (“Federated Fund”) and AZL Oppenheimer Discovery Fund (“Oppenheimer Fund”), open-end management investment companies, pursuant to a plan of reorganization approved by the Board on June, 14 2016. The purpose of the transaction was to combine three funds managed by the Manager with comparable investment objectives and strategies. The acquisition was accomplished by a tax-free exchange of 27,406,989 shares of the Fund, valued at $334,705,111, for 13,176,544 shares of the Federated Fund and 14,703,702 shares of the Oppenheimer Fund outstanding as of close of business October 28, 2016, respectively.
The investment portfolios of the Federated Fund and Oppenheimer Fund were the principal assets acquired by the Fund. As of the close of business October 28, 2016, the Federated Fund had a fair value of $214,554,749 and identified cost of $197,889,496. As of the close of business October 28, 2016, the Oppenheimer Fund had a fair value of $120,651,877 and identified cost of $107,827,796. For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value; however, the cost basis of the investments received from the Federated Fund and the Oppenheimer Fund were carried forward to align ongoing reporting of the Fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes. Immediately prior to the merger, the Fund’s net assets were $464,858,854. All fees and expenses incurred by the Federated Fund and Oppenheimer Fund and the Fund directly in connection with the plan of reorganization were borne equally by the Manager and, collectively, the Federated Fund and the Oppenheimer Fund, except that the expenses borne by the Federated Fund and the Oppenheimer Fund did not exceed $96,250 and $58,500, respectively, as provided by the plan of reorganization.
Assuming the acquisition had been completed on January 1, 2016, the beginning of the annual reporting period of the Fund, the Fund’s pro forma results of operations for the year ended December 31, 2016, are as follows:
Net investment income/(loss) | $ | 9,017,705 | ||
Net realized/unrealized gains/(losses) | 169,252,042 | |||
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Change in net assets resulting from operations | $ | 178,269,747 | ||
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Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Federated Fund and the Oppenheimer Fund that have been included in the Fund’s statement of operations since October 29, 2016.
In the calculation of the portfolio turnover as presented in the Financial Highlights, the Fund excluded the cost of purchases and proceeds from sales of portfolio securities that occurred in the effort to realign a combined fund’s portfolio after the merger. The amounts of excluded purchases and sales are as follows:
Cost of purchases | $ | 2,552,108 | ||
Proceeds from sales | — |
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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, 2016, 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 or 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, 2016, 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 AZL Small Cap Stock Index Fund as of December 31, 2016, 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 or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Columbus, Ohio
February 24, 2017
21
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2016, 68.73% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deductions available to corporate shareholders.
During the year ended December 31, 2016, the Fund declared net long-term capital gain distributions of $42,610,276.
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 — October 25, 2016 (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 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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 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 the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held October 25, 2016, the Manager reported that for the three year period ended June 30, 2016, seven Funds were in the top 40%, two were in the middle 20% and three were in the bottom 40%, and for the one year period ended June 30, 2016, twelve Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2016, six Funds were in the top 40%, one was in the middle 20%, and three were in the bottom 40%. At the Board of Trustees meeting held October 25, 2016, 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 twenty Funds reviewed by the Board of Trustees in the fall of 2016, seventeen 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 2016 for the twenty-one Funds was as follows; (1) eighteen of the Funds had total expense rankings below the 65th percentile (with eleven Funds at or below the 50th percentile); (2) the AZL Russell 1000 Growth Index Fund had a total expense ranking in the 66th percentile, but there was only a very limited peer group for such Fund, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; (3) the AZL International Index Fund had a total expense ranking in the 75th percentile, but there was only a limited peer group for such Fund, the actual management fee was in the 37th percentile, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; and (4) for the AZL Morgan Stanley Global Real Estate Fund, which had a total expense ranking in the 70th percentile, the Manager recommended a temporary management fee waiver of 5 basis points, effective November 1, 2016, which would move the management fee ranking from the 80th to the 60th percentile.
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 2013 through June 30, 2016. 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, all of which currently are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. 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, 2016 were approximately $6.4 billion, and that no single Fund had assets in excess of $1,289 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, 2017, 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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 5701 Golden Hills Drive | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 5701 Golden Hills Drive | 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 5701 Golden Hills Drive | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
27
Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
28
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
AZL® T. Rowe Price Capital Appreciation Fund
Annual Report
December 31, 2016
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 24
Other Federal Income Tax Information
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® 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, 2016?
For the year ended December 31, 2016, the AZL® T. Rowe Price Capital Appreciation Fund (the “Fund”) returned 7.84%. That compared to a 11.96%, 2.65% and 8.21% total return for its benchmarks, the S&P 500 Index1, the Bloomberg Barclays U.S. Aggregate Bond Index1, and the Balanced Composite Index1, respectively.
The 12 months ended December 31, 2016 included strong returns for equities and several political surprises that affected financial markets. The S&P 500 had a poor start to the year, driven by fears of a global economic slowdown, especially in China, and a collapse in oil prices. Stocks recovered in February and rose through late June as investor outlook improved. A brief but intense sell-off followed the U.K.’s unexpected vote in favor of leaving the European Union on June 23; however, stocks quickly resumed their upward trajectory on expectations that global central banks would provide additional monetary policy.
After trading mostly flat in the weeks leading up to the November 8 U.S. elections, stocks rallied strongly on a surprise presidential victory by Donald Trump. Investors drove share prices higher in anticipation of a more accommodating regulatory environment and fiscal stimulus such as tax cuts and increased infrastructure spending. Most sectors gained ground during the annual period, with energy, telecommunication services, and financials leading. Health care and consumer staples were the main laggards.
The equity portion of the Fund strongly outperformed through the first three quarters of the year, driven by holdings in high-quality names with durable growth and defensive characteristics. Weak performance in the final quarter, driven by the surprise election results, offset most of those gains. The postelection rally drove investors out of defensive areas of the market and into cyclical and lower-quality areas. The Fund maintained a cautious position in its portfolio holdings given relatively high valuations and a persistent uncertainty regarding the new administration’s policies. Throughout the year under review, we maintained an overweight exposure to health care companies and added to the Fund’s position in consumer staples.*
Stock selection decisions in the health care and consumer discretionary sectors contributed positively to the Fund’s performance relative to its equity benchmark, the S&P 500. Stock selection in the information technology sector and an overweight position to consumer staples detracted from relative performance, however.*
The Fund’s above-benchmark exposure to high-yield securities within its fixed income holdings added to performance relative to its fixed income benchmark. The portfolio’s short duration securities also helped relative results later in the year as interest rates moved higher.*
The Fund maintained significant exposure to covered call options—this derivative provided downside protection for the portfolio while offering the benefits of owning a stock as long as the stock remains below the option strike price. These benefits included dividends and capital appreciation. Throughout the year, the Fund’s covered call strategy generated a return of approximately 10.52%. The covered call strategy estimated contribution to the portfolio’s total return was 1.54%. The estimated return impact from employing options was 6 bps (0.60%) for the year. The Fund held equity options throughout the period while equity rights were held periodically. Both options and rights were held at the end of the annual 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, 2016. |
1 | For a complete description of the Fund’s performance benchmarks please refer to page 2 of this report. |
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.
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. | ||
Debt securities held by the Fund may decline in value due to rising interest rates. Interest rates in the U.S. are at, or near, historic lows, which may increase the Fund’s exposure to risks related to rising rates.
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.
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, 2016
1 Year | 3 Year | 5 Year | 10 Year | |||||||||||||
AZL® T. Rowe Price Capital Appreciation Fund | 7.84 | % | 8.19 | % | 13.07 | % | 4.95 | % | ||||||||
S&P 500 Index | 11.96 | % | 8.87 | % | 14.66 | % | 6.95 | % | ||||||||
Bloomberg Barclays U.S. Aggregate Bond Index | 2.65 | % | 3.03 | % | 2.23 | % | 4.34 | % | ||||||||
Balanced Composite Index | 8.21 | % | 6.58 | % | 9.68 | % | 6.30 | % |
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® T. Rowe Price Capital Appreciation Fund | 1.05 | % |
The above expense ratio is based on the current Fund prospectus dated April 25, 2016, as supplemented October 14, 2016. The Manager voluntarily reduced the management fee to 0.70% on all assets. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.20% through April 30, 2018. Additional information pertaining to the December 31, 2016 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 and Poor’s 500 Index (“S&P 500”), the Bloomberg Barclays U.S. Aggregate Bond Index and the Balanced Composite Index (“Composite”). 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 Bloomberg 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. The Composite is a blended index comprised of (60%) of the S&P 500 and (40%) of the Bloomberg Barclays U.S. Aggregate Bond Index. 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid 7/1/16 - 12/31/16* | Annualized 7/1/16 - 12/31/16 | |||||||||||||||||
AZL T. Rowe Price Capital Appreciation Fund | $ | 1,000.00 | $ | 1,027.20 | $ | 5.10 | 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 7/1/16 | Ending Account Value 12/31/16 | Expenses Paid 7/1/16 - 12/31/16* | Annualized 7/1/16 - 12/31/16 | |||||||||||||||||
AZL T. Rowe Price Capital Appreciation Fund | $ | 1,000.00 | $ | 1,020.11 | $ | 5.08 | 1.00 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/366 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Common Stocks | 64.4 | % | |||
Corporate Bonds | 19.2 | ||||
Money Markets | 6.7 | ||||
Securities Held as Collateral for Securities on Loan | 6.4 | ||||
Yankee Dollars | 3.0 | ||||
Bank Loans | 2.9 | ||||
Floating Rate Loans | 0.3 | ||||
Convertible Preferred Stocks | 1.4 | ||||
Preferred Stocks | 0.6 | ||||
Asset Backed Securities | 0.2 | ||||
Foreign Bonds | 0.2 | ||||
Rights | — | ^ | |||
Purchased Options | — | ^ | |||
|
| ||||
Total Investment Securities | 105.3 | ||||
Net other assets (liabilities) | (5.3 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
| Common Stocks (64.4%): |
| ||||||
| Aerospace & Defense (0.4%): |
| ||||||
27,200 | Boeing Co. (The)^ | $ | 4,234,496 | |||||
|
| |||||||
| Auto Components (0.5%): |
| ||||||
92,308 | Adient plc* | 5,409,249 | ||||||
|
| |||||||
| Banks (1.4%): |
| ||||||
30,600 | PNC Financial Services Group, Inc. | 3,578,976 | ||||||
180,800 | Wells Fargo & Co. | 9,963,888 | ||||||
|
| |||||||
13,542,864 | ||||||||
|
| |||||||
| Beverages (1.8%): |
| ||||||
84,714 | Dr Pepper Snapple Group, Inc. | 7,681,018 | ||||||
94,333 | PepsiCo, Inc. | 9,870,062 | ||||||
|
| |||||||
17,551,080 | ||||||||
|
| |||||||
| Biotechnology (0.5%): |
| ||||||
17,125 | Biogen Idec, Inc.* | 4,856,308 | ||||||
|
| |||||||
| Building Products (0.7%): |
| ||||||
162,187 | Johnson Controls International plc | 6,680,483 | ||||||
|
| |||||||
| Capital Markets (2.7%): |
| ||||||
421,034 | Bank of New York Mellon Corp. (The) | 19,948,591 | ||||||
35,805 | Julius Baer Group, Ltd. | 1,590,124 | ||||||
68,749 | State Street Corp. | 5,343,172 | ||||||
|
| |||||||
26,881,887 | ||||||||
|
| |||||||
| Chemicals (0.6%): |
| ||||||
70,100 | LyondellBasell Industries NV, Class A | 6,013,178 | ||||||
|
| |||||||
| Diversified Telecommunication Services (0.5%): |
| ||||||
43,882 | SBA Communications Corp., Class A* | 4,531,255 | ||||||
|
| |||||||
| Electric Utilities (2.2%): |
| ||||||
357,262 | PG&E Corp. | 21,710,812 | ||||||
|
| |||||||
| Electrical Equipment (0.1%): |
| ||||||
1,735 | Hubbell, Inc. | 202,475 | ||||||
29,519 | Sensata Technologies Holding NV* | 1,149,765 | ||||||
|
| |||||||
1,352,240 | ||||||||
|
| |||||||
| Equity Real Estate Investment Trusts (0.4%): |
| ||||||
42,449 | American Tower Corp. | 4,486,010 | ||||||
|
| |||||||
| Food & Staples Retailing (2.2%): |
| ||||||
83,300 | CVS Health Corp. | 6,573,203 | ||||||
184,423 | Walgreens Boots Alliance, Inc. | 15,262,847 | ||||||
|
| |||||||
21,836,050 | ||||||||
|
| |||||||
| Food Products (2.5%): |
| ||||||
101,921 | Kraft Heinz Co. (The) | 8,899,742 | ||||||
282,192 | Mondelez International, Inc., Class A | 12,509,571 | ||||||
62,371 | Tyson Foods, Inc., Class A | 3,847,043 | ||||||
|
| |||||||
25,256,356 | ||||||||
|
| |||||||
| Health Care Equipment & Supplies (5.3%): |
| ||||||
538,100 | Abbott Laboratories^ | 20,668,422 | ||||||
88,939 | Becton, Dickinson & Co. | 14,723,851 | ||||||
223,112 | Danaher Corp. | 17,367,038 | ||||||
|
| |||||||
52,759,311 | ||||||||
|
| |||||||
| Health Care Providers & Services (5.0%): |
| ||||||
103,254 | Aetna, Inc. | 12,804,529 | ||||||
43,654 | Anthem, Inc. | 6,276,136 |
Shares | Fair Value | |||||||
| Common Stocks, continued |
| ||||||
| Health Care Providers & Services, continued |
| ||||||
84,400 | Cigna Corp. | $ | 11,258,116 | |||||
14,553 | Humana, Inc. | 2,969,249 | ||||||
111,500 | UnitedHealth Group, Inc. | 17,844,459 | ||||||
|
| |||||||
51,152,489 | ||||||||
|
| |||||||
| Hotels, Restaurants & Leisure (1.4%): |
| ||||||
181,100 | Aramark Holdings Corp. | 6,468,892 | ||||||
110,607 | Yum Brands, Inc. | 7,004,741 | ||||||
|
| |||||||
13,473,633 | ||||||||
|
| |||||||
| Household Products (0.8%): |
| ||||||
96,371 | Reckitt Benckiser Group plc | 8,145,299 | ||||||
|
| |||||||
| Industrial Conglomerates (0.8%): |
| ||||||
42,654 | Roper Industries, Inc.^ | 7,809,094 | ||||||
|
| |||||||
| Insurance (3.6%): |
| ||||||
30,600 | Hartford Financial Services Group, Inc. (The) | 1,458,090 | ||||||
363,819 | Marsh & McLennan Cos., Inc. | 24,590,526 | ||||||
78,394 | Willis Towers Watson plc | 9,586,018 | ||||||
|
| |||||||
35,634,634 | ||||||||
|
| |||||||
| Internet & Direct Marketing Retail (1.6%): |
| ||||||
21,132 | Amazon.com, Inc.* | 15,846,253 | ||||||
|
| |||||||
| Internet Software & Services (2.7%): |
| ||||||
4,400 | Alphabet, Inc., Class A* | 3,486,780 | ||||||
30,400 | Alphabet, Inc., Class C* | 23,463,328 | ||||||
|
| |||||||
26,950,108 | ||||||||
|
| |||||||
| IT Services (4.8%): |
| ||||||
32,400 | Fidelity National Information Services, Inc. | 2,450,736 | ||||||
199,150 | Fiserv, Inc.*^ | 21,165,662 | ||||||
18,459 | FleetCor Technologies, Inc.* | 2,612,318 | ||||||
69,485 | MasterCard, Inc., Class A | 7,174,326 | ||||||
191,700 | Visa, Inc., Class A^ | 14,956,434 | ||||||
|
| |||||||
48,359,476 | ||||||||
|
| |||||||
| Life Sciences Tools & Services (2.8%): |
| ||||||
245,136 | PerkinElmer, Inc. | 12,783,842 | ||||||
103,851 | Thermo Fisher Scientific, Inc. | 14,653,377 | ||||||
|
| |||||||
27,437,219 | ||||||||
|
| |||||||
| Machinery (1.2%): |
| ||||||
108,617 | Fortive Corp. | 5,825,130 | ||||||
4,900 | IDEX Corp. | 441,294 | ||||||
108,666 | Pentair plc^ | 6,092,903 | ||||||
|
| |||||||
12,359,327 | ||||||||
|
| |||||||
| Media (0.9%): |
| ||||||
51,300 | Comcast Corp., Class A | 3,542,265 | ||||||
171,830 | Liberty Global plc, Series C* | 5,103,351 | ||||||
|
| |||||||
8,645,616 | ||||||||
|
| |||||||
| Multi-Utilities (0.5%): |
| ||||||
49,300 | DTE Energy Co.^ | 4,856,543 | ||||||
|
| |||||||
| Oil, Gas & Consumable Fuels (1.4%): |
| ||||||
234,300 | Canadian Natural Resources, Ltd. | 7,469,484 | ||||||
134,776 | Total SA | 6,879,017 | ||||||
|
| |||||||
14,348,501 | ||||||||
|
|
Continued
4
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2016
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Paper & Forest Products (0.0%): | ||||||||
488,000 | Sino-Forest Corp.#*(a)(b) | $ | — | |||||
|
| |||||||
Pharmaceuticals (1.8%): | ||||||||
62,980 | Bristol-Myers Squibb Co. | 3,680,551 | ||||||
273,038 | Zoetis, Inc. | 14,615,724 | ||||||
|
| |||||||
18,296,275 | ||||||||
|
| |||||||
Professional Services (0.5%): | ||||||||
100,063 | IHS Markit, Ltd.* | 3,543,231 | ||||||
71,921 | Reed Elsevier plc | 1,278,837 | ||||||
|
| |||||||
4,822,068 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (0.2%): | ||||||||
31,600 | Texas Instruments, Inc. | 2,305,852 | ||||||
|
| |||||||
Software (3.3%): | ||||||||
33,498 | Intuit, Inc. | 3,839,206 | ||||||
466,400 | Microsoft Corp. | 28,982,096 | ||||||
|
| |||||||
32,821,302 | ||||||||
|
| |||||||
Specialty Retail (3.8%): | ||||||||
12,451 | AutoZone, Inc.* | 9,833,675 | ||||||
40,794 | Home Depot, Inc. (The) | 5,469,660 | ||||||
105,800 | Lowe’s Cos., Inc. | 7,524,496 | ||||||
52,991 | O’Reilly Automotive, Inc.*^ | 14,753,224 | ||||||
|
| |||||||
37,581,055 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (1.5%): | ||||||||
126,200 | Apple, Inc. | 14,616,484 | ||||||
|
| |||||||
Tobacco (4.0%): | ||||||||
285,836 | Altria Group, Inc. | 19,328,230 | ||||||
223,000 | Philip Morris International, Inc. | 20,402,270 | ||||||
|
| |||||||
39,730,500 | ||||||||
|
| |||||||
Total Common Stocks (Cost $572,492,768) | 642,293,307 | |||||||
|
| |||||||
Preferred Stocks (0.6%): | ||||||||
Banks (0.1%): | ||||||||
17,950 | U.S. Bancorp, Series G, 6.00% | 452,519 | ||||||
7,099 | U.S. Bancorp, Series F, 6.50% | 200,831 | ||||||
|
| |||||||
653,350 | ||||||||
|
| |||||||
Capital Markets (0.2%): | ||||||||
55,900 | Charles Schwab Corp. (The), Series C, 6.00% | 1,412,593 | ||||||
3,600 | Charles Schwab Corp. (The), 5.95% | 89,964 | ||||||
14,400 | State Street Corp., 5.35%^ | 360,288 | ||||||
15,100 | State Street Corp., 6.00% | 382,030 | ||||||
|
| |||||||
2,244,875 | ||||||||
|
| |||||||
Electric Utilities (0.3%): | ||||||||
107,700 | SCE Trust IV, Series J, 5.37% | 2,658,036 | ||||||
18,000 | SCE Trust V, Series K, 5.45% | 454,680 | ||||||
|
| |||||||
3,112,716 | ||||||||
|
| |||||||
Total Preferred Stocks (Cost $6,045,395) | 6,010,941 | |||||||
|
| |||||||
Convertible Preferred Stocks (1.4%): | ||||||||
Banks (0.2%): | ||||||||
1,765 | Wells Fargo & Co., Series L, Class A, 7.50% | 2,100,350 | ||||||
|
| |||||||
Electric Utilities (0.3%): | ||||||||
54,871 | Nextra Energy, Inc., 6.12%^ | 2,687,582 | ||||||
|
|
Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Convertible Preferred Stocks, continued | ||||||||
Equity Real Estate Investment Trusts (0.5%): | ||||||||
48,171 | American Tower Corp., 5.50% | $ | 5,033,869 | |||||
|
| |||||||
Multi-Utilities (0.4%): | ||||||||
74,139 | DTE Energy Co., 6.50% | 3,899,711 | ||||||
|
| |||||||
Total Convertible Preferred Stocks (Cost $13,379,342) | 13,721,512 | |||||||
|
| |||||||
Right (0.0%): | ||||||||
Oil, Gas & Consumable Fuels (0.0%): | ||||||||
84,313 | Expires on 1/05/17*^(b) | 54,131 | ||||||
|
| |||||||
Total Right (Cost $53,519) | 54,131 | |||||||
|
| |||||||
Asset Backed Securities (0.2%): | ||||||||
$ | 273,135 | DB Master Finance LLC, Class A2I, Series 2015-1A, 3.26%, 2/20/45, Callable 2/20/19 @ 100(c) | 273,493 | |||||
|
| |||||||
952,613 | Taco Bell Funding LLC, Class A2I, Series 16-1A, 3.83%, 5/25/46, Callable 8/25/23 @ 100(c)(d) | 956,065 | ||||||
|
| |||||||
679,400 | Wendys Funding LLC, Class A2I, Series 2015-1A, 3.37%, 6/15/45, Callable 6/15/21 @ 100(c) | 678,365 | ||||||
|
| |||||||
Total Asset Backed Securities (Cost $1,905,148) | 1,907,923 | |||||||
|
| |||||||
Bank Loans (2.9%): | ||||||||
Diversified Telecommunication Services (0.9%): | ||||||||
$ | 4,525,000 | Intelsat Jackson Holding SA, 3.75%, 6/30/19(c) | 4,368,978 | |||||
4,750,000 | UPC Financing Partnership, 4.08%, 3/8/24, Callable 2/5/17 @ 101(c) | 4,795,520 | ||||||
|
| |||||||
9,164,498 | ||||||||
|
| |||||||
Food Products (0.5%): | ||||||||
2,100,000 | Chobani LLC, 5.25%, 10/7/21(c) | 2,097,375 | ||||||
66,285 | DE Master Blenders, 4.25%, 2/7/22 | 70,513 | ||||||
1,548,651 | DE Master Blenders, 2.50%, 7/2/22(c) | 1,557,169 | ||||||
851,860 | Pinnacle Foods Finance LLC, 3.00%, 4/29/20, Callable 2/5/17 @ 100(c) | 858,129 | ||||||
696,432 | Pinnacle Foods Finance LLC, 3.00%, 4/29/20, Callable 2/5/17 @ 100(c) | 702,094 | ||||||
|
| |||||||
5,285,280 | ||||||||
|
| |||||||
Health Care Providers & Services (0.2%): | ||||||||
1,872,120 | DaVita Healthcare Partners, Inc., 3.50%, 6/24/21, Callable 2/5/17 @ 100(c) | 1,888,033 | ||||||
|
| |||||||
Hotels, Restaurants & Leisure (0.3%): | ||||||||
99,676 | Hilton Worldwide Finance LLC, 3.50%, 10/26/20(c) | 100,492 | ||||||
1,355,207 | Hilton Worldwide Finance LLC, 3.25%, 10/25/23, Callable 2/5/17 @ 101(c) | 1,369,775 | ||||||
920,295 | New Red Finance, Inc., 2.75%, 12/10/21(c) | 927,777 | ||||||
|
| |||||||
2,398,044 | ||||||||
|
| |||||||
Insurance (0.5%): | ||||||||
5,305,515 | Hub International, Ltd., 4.25%, 10/2/20, Callable 2/5/17 @ 100(c) | 5,341,991 | ||||||
|
| |||||||
Machinery (0.2%): | ||||||||
1,798,077 | Manitowoc Foodservice, Inc., 4.75%, 3/3/23, Callable 2/5/17 @ 101(c) | 1,822,800 | ||||||
|
| |||||||
Media (0.2%): | ||||||||
491,094 | Charter Communications Operating LLC, 3.02%, 7/1/20, Callable 2/5/17 @ 100(c) | 492,673 |
Continued
5
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2016
Notional Amount or Principal Amount | Fair Value | |||||||
Bank Loans, continued | ||||||||
Media, continued | ||||||||
$ | 640,051 | Charter Communications Operating LLC, 3.02%, 1/3/21, Callable 2/5/17 @ 100(c) | $ | 642,050 | ||||
436,364 | Kasima LLC, 2.50%, 5/17/21, Callable 2/5/17 @ 100(c) | 439,820 | ||||||
|
| |||||||
1,574,543 | ||||||||
|
| |||||||
Multiline Retail (0.0%): | ||||||||
100,000 | Dollar Tree, Inc., 4.25%, 7/6/22(c) | 101,333 | ||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (0.1%): | ||||||||
398,000 | Avago Technologies, Ltd., 5.75%, 10/7/21(c) | 403,473 | ||||||
718,021 | NXP Funding BV/NXP Funding LLC, 3.27%, 12/7/20(c) | 721,252 | ||||||
|
| |||||||
1,124,725 | ||||||||
|
| |||||||
Total Bank Loans (Cost $28,429,672) | 28,701,247 | |||||||
|
| |||||||
Floating Rate Loans (0.3%): | ||||||||
Hotels, Restaurants & Leisure (0.3%): | ||||||||
3,164,313 | Yum! Brands, Inc., 2.75%, 12/31/49(d) | 3,205,860 | ||||||
|
| |||||||
3,205,860 | ||||||||
|
| |||||||
Total Floating Rate Loans (Cost $3,173,654) | 3,205,860 | |||||||
|
| |||||||
Corporate Bonds (19.2%): | ||||||||
Aerospace & Defense (0.0%): | ||||||||
145,000 | Moog, Inc., 5.25%, 12/1/22, Callable 12/1/17 @ 103.94(c) | 147,900 | ||||||
|
| |||||||
Airlines (0.0%): | ||||||||
345,680 | U.S. Airways 2010-1A PTT, Series A, 6.25%, 10/22/24 | 383,705 | ||||||
|
| |||||||
Banks (0.5%): | ||||||||
2,410,000 | JPMorgan Chase & Co., Series Z, 5.30%, 12/31/49, Callable 5/1/20 @ 100^(d) | 2,459,550 | ||||||
2,095,000 | PNC Financial Services, Series S, 5.00%, 12/31/49, Callable 11/1/26 @ 100^(d) | 2,021,675 | ||||||
|
| |||||||
4,481,225 | ||||||||
|
| |||||||
Beverages (0.3%): | ||||||||
720,000 | Anheuser-Busch InBev NV, 1.90%, 2/1/19 | 721,033 | ||||||
930,000 | Anheuser-Busch InBev NV, 2.15%, 2/1/21(d) | 946,356 | ||||||
440,000 | Anheuser-Busch InBev NV, 2.65%, 2/1/21, Callable 1/1/21 @ 100 | 442,528 | ||||||
465,000 | PepsiCo, Inc., 1.25%, 4/30/18 | 464,415 | ||||||
|
| |||||||
2,574,332 | ||||||||
|
| |||||||
Building Products (0.0%): | ||||||||
280,000 | Lennox International, Inc., 3.00%, 11/15/23, Callable 9/15/23 @ 100 | 271,851 | ||||||
|
| |||||||
Capital Markets (0.5%): | ||||||||
1,865,000 | Bank of New York Mellon Corp. (The), Series E, 4.95%, 12/29/49, Callable 6/20/20 @ 100(d) | 1,874,325 | ||||||
1,060,000 | Bank of New York Mellon Corp. (The), 4.62%, 12/29/49, Callable 9/20/26 @ 100(d) | 972,359 | ||||||
360,000 | MSCI, Inc., 5.25%, 11/15/24, Callable 11/15/19 @ 102.63(c) | 378,000 | ||||||
810,000 | MSCI, Inc., 5.75%, 8/15/25, Callable 8/15/20 @ 102.88(c) | 860,625 |
Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Capital Markets, continued | ||||||||
$ | 1,355,000 | State Street Corp., Series F, 5.25%, 12/31/49, Callable 9/15/20 @ 100(d) | $ | 1,385,488 | ||||
|
| |||||||
5,470,797 | ||||||||
|
| |||||||
Chemicals (0.1%): | ||||||||
650,000 | Cytec Industries, Inc., 3.95%, 5/1/25, Callable 2/1/25 @ 100 | 615,255 | ||||||
570,000 | Ecolab, Inc., 2.00%, 1/14/19^ | 570,438 | ||||||
|
| |||||||
1,185,693 | ||||||||
|
| |||||||
Communications Equipment (0.0%): | ||||||||
260,000 | Harris Corp., 2.00%, 4/27/18 | 260,158 | ||||||
|
| |||||||
Consumer Finance (1.4%): | ||||||||
610,000 | American Honda Finance Corp., 0.95%, 5/5/17 | 609,421 | ||||||
250,000 | Ford Motor Credit Co. LLC, 4.25%, 2/3/17 | 250,492 | ||||||
1,840,000 | Ford Motor Credit Co. LLC, 1.63%, 3/27/17(d) | 1,841,420 | ||||||
2,705,000 | Ford Motor Credit Co. LLC, 1.46%, 3/27/17 | 2,705,434 | ||||||
360,000 | Ford Motor Credit Co. LLC, 6.63%, 8/15/17 | 370,956 | ||||||
1,150,000 | Ford Motor Credit Co. LLC, 1.47%, 9/8/17(d) | 1,150,322 | ||||||
1,435,000 | Ford Motor Credit Co. LLC, 1.52%, 12/6/17(d) | 1,433,447 | ||||||
700,000 | Ford Motor Credit Co. LLC, 1.72%, 12/6/17 | 699,471 | ||||||
835,000 | Ford Motor Credit Co. LLC, 2.15%, 1/9/18 | 836,209 | ||||||
1,165,000 | Ford Motor Credit Co. LLC, 5.00%, 5/15/18 | 1,210,703 | ||||||
1,420,000 | Ford Motor Credit Co. LLC, 2.38%, 3/12/19 | 1,419,158 | ||||||
1,865,000 | Ford Motor Credit Co. LLC, 2.60%, 11/4/19 | 1,862,230 | ||||||
|
| |||||||
14,389,263 | ||||||||
|
| |||||||
Containers & Packaging (0.5%): | ||||||||
2,725,000 | Beverage Packaging Holdings Luxemberg, 5.75%, 10/15/20, Callable 2/7/17 @ 102.88 | 2,810,157 | ||||||
233,329 | Beverage Packaging Holdings Luxemberg, 6.88%, 2/15/21, Callable 2/6/17 @ 103.44(d) | 240,095 | ||||||
1,560,000 | Reynolds Group Issuer, Inc., 4.38%, 7/15/21, Callable 7/15/17 @ 102^(c)(d) | 1,595,100 | ||||||
|
| |||||||
4,645,352 | ||||||||
|
| |||||||
Diversified Consumer Services (0.0%): | ||||||||
162,000 | Service Corp. International, 5.38%, 5/15/24, Callable 5/15/19 @ 102.69 | 168,885 | ||||||
|
| |||||||
Diversified Financial Services (0.0%): | ||||||||
225,000 | National Rural Utilities Cooperative Finance Corp., 0.95%, 4/24/17 | 224,822 | ||||||
|
| |||||||
Diversified Telecommunication Services (0.8%): | ||||||||
970,000 | Level 3 Communications, Inc., 5.38%, 8/15/22, Callable 8/15/17 @ 102.69^ | 1,001,525 | ||||||
810,000 | Level 3 Financing, Inc., 5.63%, 2/1/23, Callable 2/1/18 @ 102.81 | 830,250 | ||||||
2,995,000 | SBA Communications Corp., 4.88%, 7/15/22, Callable 7/15/17 @ 103.66 | 3,039,925 | ||||||
3,575,000 | SBA Communications Corp., 4.88%, 9/1/24, Callable 9/1/19 @ 103.66(c) | 3,530,313 | ||||||
|
| |||||||
8,402,013 | ||||||||
|
| |||||||
Electric Utilities (0.3%): | ||||||||
15,575 | SCE Trust I, 0.96%, 12/31/49, Perpetual Bond | 363,209 | ||||||
2,130 | SCE Trust II, 0.92%, 12/31/49, Perpetual Bond | 47,201 |
Continued
6
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2016
Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Electric Utilities, continued | ||||||||
$ | 23,272 | SCE Trust III, Series H, 0.90%, 12/31/49, Perpetual Bond | $ | 592,738 | ||||
1,140,000 | Southern Co., 1.55%, 7/1/18 | 1,135,762 | ||||||
610,000 | Southern Co., 1.85%, 7/1/19 | 608,111 | ||||||
365,000 | Virginia Electric & Power Co., Series A, 3.15%, 1/15/26, Callable 10/15/25 @ 100 | 362,377 | ||||||
|
| |||||||
3,109,398 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (0.0%): | ||||||||
260,000 | Amphenol Corp., 1.55%, 9/15/17 | 260,262 | ||||||
|
| |||||||
Equity Real Estate Investment Trusts (1.1%): | ||||||||
1,420,000 | American Tower Corp., 3.30%, 2/15/21, Callable 1/15/21 @ 100^ | 1,436,174 | ||||||
1,830,000 | Crown Castle International Corp., 4.88%, 4/15/22 | 1,948,584 | ||||||
3,895,000 | Crown Castle International Corp., 5.25%, 1/15/23 | 4,191,993 | ||||||
1,575,000 | Iron Mountain, Inc., 6.00%, 10/1/20, Callable 10/1/17 @ 103(c) | 1,661,625 | ||||||
340,000 | Iron Mountain, Inc., 4.38%, 6/1/21, Callable 6/1/18 @ 102.19(c) | 347,650 | ||||||
75,000 | Iron Mountain, Inc., 6.00%, 8/15/23, Callable 8/15/18 @ 103 | 79,688 | ||||||
1,430,000 | Iron Mountain, Inc., 5.75%, 8/15/24, Callable 8/15/17 @ 102.88 | 1,469,325 | ||||||
|
| |||||||
11,135,039 | ||||||||
|
| |||||||
Food & Staples Retailing (0.6%): | ||||||||
340,000 | Kroger Co. (The), 2.00%, 1/15/19 | 340,776 | ||||||
3,015,000 | Rite Aid Corp., 9.25%, 3/15/20, Callable 2/6/17 @ 104.63 | 3,128,063 | ||||||
2,065,000 | Rite Aid Corp., 6.75%, 6/15/21, Callable 2/6/17 @ 105.06^ | 2,168,250 | ||||||
745,000 | Walgreends Boots Allaince, 1.75%, 5/30/18 | 745,744 | ||||||
|
| |||||||
6,382,833 | ||||||||
|
| |||||||
Food Products (0.1%): | ||||||||
645,000 | B&G Foods, Inc., 4.63%, 6/1/21, Callable 2/6/17 @ 103.47 | 657,900 | ||||||
145,000 | TreeHouse Foods, Inc., 6.00%, 2/15/24, Callable 2/15/19 @ 104.5(c) | 152,250 | ||||||
|
| |||||||
810,150 | ||||||||
|
| |||||||
Gas Utilities (0.2%): | ||||||||
1,103,000 | Amerigas Finance Corp. LLC, 7.00%, 5/20/22, Callable 5/20/17 @ 103.5 | 1,160,907 | ||||||
825,000 | Southern Calif Gas Co., 3.20%, 6/15/25, Callable 3/15/25 @ 100 | 839,480 | ||||||
430,000 | Suburban Propane Partners, 7.38%, 8/1/21, Callable 2/6/17 @ 103.69 | 445,050 | ||||||
|
| |||||||
2,445,437 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (0.6%): | ||||||||
1,473,000 | Becton, Dickinson & Co., 1.80%, 12/15/17 | 1,476,350 | ||||||
706,000 | Becton, Dickinson & Co., 2.68%, 12/15/19 | 716,315 | ||||||
1,495,000 | Hologic, Inc., 5.25%, 7/15/22, Callable 7/15/18 @ 102.63 | 1,573,487 |
Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Health Care Equipment & Supplies, continued | ||||||||
$ | 1,185,000 | Medtronic plc, 1.50%, 3/15/18 | $ | 1,185,018 | ||||
570,000 | Medtronic plc, 2.50%, 3/15/20 | 576,379 | ||||||
270,000 | Teleflex, Inc., 4.88%, 6/1/26, Callable 6/1/21 @ 102.44 | 267,300 | ||||||
|
| |||||||
5,794,849 | ||||||||
|
| |||||||
Health Care Providers & Services (2.9%): | ||||||||
2,295,000 | Centene Corp., 5.63%, 2/15/21, Callable 2/15/18 @ 102.81 | 2,412,963 | ||||||
825,000 | Centene Corp., 4.75%, 5/15/22, Callable 5/15/19 @ 102.38 | 833,250 | ||||||
1,780,000 | Centene Corp., 6.13%, 2/15/24, Callable 2/15/19 @ 104.59 | 1,875,675 | ||||||
1,050,000 | Centene Corp., 4.75%, 1/15/25, Callable 1/15/20 @ 103.56^ | 1,025,063 | ||||||
6,070,000 | DaVita, Inc., 5.75%, 8/15/22, Callable 8/15/17 @ 102.88^ | 6,343,149 | ||||||
2,623,000 | Fresenius Medical Care, 5.63%, 7/31/19(c) | 2,793,495 | ||||||
1,510,000 | Fresenius Medical Care, 5.88%, 1/31/22(c) | 1,653,450 | ||||||
305,000 | Fresenius Medical Care AG & Co. KGaA, 5.75%, 2/15/21(c) | 329,400 | ||||||
2,295,000 | HCA, Inc., 8.00%, 10/1/18^ | 2,501,550 | ||||||
900,000 | HCA, Inc., 3.75%, 3/15/19 | 924,750 | ||||||
720,000 | HCA, Inc., 4.25%, 10/15/19 | 748,800 | ||||||
4,590,000 | HCA, Inc., 6.50%, 2/15/20 | 5,021,459 | ||||||
340,000 | UnitedHealth Group, Inc., 1.40%, 12/15/17 | 340,063 | ||||||
720,000 | WellCare Health Plans, Inc., 5.75%, 11/15/20, Callable 2/6/17 @ 102.88^ | 739,800 | ||||||
|
| |||||||
27,542,867 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure (1.4%): | ||||||||
1,900,000 | Cedar Fair LP, 5.25%, 3/15/21, Callable 2/6/17 @ 103.94 | 1,961,749 | ||||||
360,000 | Hilton Domestic Operating Co., Inc., 4.25%, 9/1/24, Callable 9/1/19 @ 102.13(c) | 349,200 | ||||||
1,560,000 | Hilton Worldwide Finance LLC, 5.63%, 10/15/21, Callable 1/23/17 @ 102.81 | 1,611,480 | ||||||
135,000 | McDonald’s Corp., 2.10%, 12/7/18 | 135,802 | ||||||
4,545,000 | Six Flags Entertainment Corp., 5.25%, 1/15/21, Callable 2/6/17 @ 102.63(c) | 4,647,262 | ||||||
585,000 | Yum! Brands, Inc., 6.25%, 3/15/18 | 611,325 | ||||||
70,000 | Yum! Brands, Inc., 5.30%, 9/15/19 | 74,025 | ||||||
1,270,000 | Yum! Brands, Inc., 3.88%, 11/1/20, Callable 8/1/20 @ 100^ | 1,296,988 | ||||||
2,425,000 | Yum! Brands, Inc., 3.75%, 11/1/21, Callable 8/1/21 @ 100^ | 2,455,312 | ||||||
325,000 | Yum! Brands, Inc., 3.88%, 11/1/23, Callable 8/1/23 @ 100^ | 311,188 | ||||||
|
| |||||||
13,454,331 | ||||||||
|
| |||||||
Household Products (0.1%): | ||||||||
610,000 | Spectrum Brand, Inc., 6.63%, 11/15/22, Callable 11/15/17 @ 103.31 | 648,125 | ||||||
|
| |||||||
Insurance (0.4%): | ||||||||
595,000 | Hub International, Ltd., 9.25%, 2/15/21, Callable 2/15/17 @ 103(c) | 615,825 |
Continued
7
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2016
Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Insurance, continued | ||||||||
$ | 2,835,000 | Hub International, Ltd., 7.88%, 10/1/21, Callable 2/6/17 @ 105.91(c) | $ | 2,994,922 | ||||
530,000 | Marsh & McLennan Cos., Inc., 2.35%, 3/6/20, Callable 2/6/20 @ 100 | 530,466 | ||||||
200,000 | Marsh & McLennan Cos., Inc., 3.30%, 3/14/23, Callable 1/14/23 @ 100 | 203,255 | ||||||
|
| |||||||
4,344,468 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (0.2%): | ||||||||
1,800,000 | Amazon.com, Inc., 2.60%, 12/5/19, Callable 11/5/19 @ 100 | 1,835,462 | ||||||
475,000 | Netflix, Inc., 4.38%, 11/15/26(c) | 460,750 | ||||||
|
| |||||||
2,296,212 | ||||||||
|
| |||||||
IT Services (0.4%): | ||||||||
1,190,000 | Fiserv, Inc., 2.70%, 6/1/20, Callable 5/1/20 @ 100 | 1,195,747 | ||||||
3,125,000 | Visa, Inc., 1.20%, 12/14/17 | 3,124,556 | ||||||
|
| |||||||
4,320,303 | ||||||||
|
| |||||||
Machinery (0.5%): | ||||||||
595,000 | Caterpillar Financial Services Corp., Series G, 1.25%, 11/6/17^ | 593,582 | ||||||
695,000 | Caterpillar Financial Services Corp., 2.25%, 12/1/19, MTN | 697,838 | ||||||
1,240,000 | CNH Industrial Capital LLC, 3.25%, 2/1/17 | 1,239,999 | ||||||
1,060,000 | CNH Industrial Capital LLC, 3.63%, 4/15/18^ | 1,073,250 | ||||||
465,000 | CNH Industrial Capital LLC, 3.88%, 7/16/18 | 472,556 | ||||||
105,000 | Fortive Corp., 1.80%, 6/15/19(c) | 104,347 | ||||||
125,000 | Manitowoc Foodservice, Inc., 9.50%, 2/15/24, Callable 2/15/19 @ 107.13^ | 144,063 | ||||||
200,000 | Xylem, Inc., 3.25%, 11/1/26, Callable 8/1/26 @ 100 | 194,210 | ||||||
|
| |||||||
4,519,845 | ||||||||
|
| |||||||
Media (2.0%): | ||||||||
450,000 | Altice US Finance I Corp., 5.38%, 7/15/23, Callable 7/15/18 @ 104.03(c) | 466,875 | ||||||
275,000 | CCO Holdings LLC, 5.25%, 3/15/21, Callable 2/6/17 @ 103.94 | 283,250 | ||||||
2,530,000 | CCO Holdings LLC, 6.63%, 1/31/22, Callable 2/6/17 @ 103.31 | 2,621,712 | ||||||
2,035,000 | CCO Holdings LLC, 5.25%, 9/30/22, Callable 9/30/17 @ 102.63 | 2,106,225 | ||||||
1,525,000 | CCO Holdings LLC, 5.13%, 2/15/23, Callable 2/15/18 @ 102.56 | 1,566,938 | ||||||
350,000 | CCO Holdings LLC, 5.13%, 5/1/23, Callable 5/1/18 @ 103.84(c) | 360,500 | ||||||
970,000 | CCO Holdings LLC, 5.75%, 9/1/23, Callable 3/1/18 @ 102.88 | 1,013,650 | ||||||
875,000 | CCO Holdings LLC, 5.75%, 1/15/24, Callable 7/15/18 @ 102.88^ | 914,375 | ||||||
810,000 | CCO Holdings LLC, 5.88%, 4/1/24, Callable 4/1/19 @ 104.41(c) | 864,675 | ||||||
2,190,000 | Cequel Communications Holdings I LLC, 6.38%, 9/15/20, Callable 2/6/17 @ 103.19(c) | 2,255,699 |
Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Media, continued | ||||||||
$ | 720,000 | Charter Communications Operating LLC, 3.58%, 7/23/20, Callable 6/23/20 @ 100 | $ | 733,873 | ||||
55,000 | COX Communications, Inc., 6.25%, 6/1/18(c) | 58,032 | ||||||
1,450,000 | Dish DBS Corp., 4.63%, 7/15/17 | 1,466,313 | ||||||
160,000 | Dish DBS Corp., 4.25%, 4/1/18 | 164,059 | ||||||
395,000 | Lamar Media Corp., 5.88%, 2/1/22, Callable 2/6/17 @ 102.94 | 406,850 | ||||||
810,000 | Sirius XM Radio, Inc., 5.75%, 8/1/21, Callable 2/6/17 @ 104.31(c) | 843,413 | ||||||
1,595,000 | Sirius XM Radio, Inc., 6.00%, 7/15/24, Callable 7/15/19 @ 103^(c) | 1,666,775 | ||||||
1,385,000 | Time Warner Cable LLC, 6.75%, 7/1/18 | 1,478,654 | ||||||
465,000 | Time Warner Cable, Inc., 5.85%, 5/1/17 | 471,599 | ||||||
|
| |||||||
19,743,467 | ||||||||
|
| |||||||
Multiline Retail (0.2%): | ||||||||
1,800,000 | Dollar Tree, Inc., 5.75%, 3/1/23, Callable 3/1/18 @ 104.31^ | 1,905,876 | ||||||
|
| |||||||
1,905,876 | ||||||||
|
| |||||||
Multi-Utilities (0.2%): | ||||||||
1,020,000 | Berkshire Hathaway Energy Co., 2.40%, 2/1/20, Callable 1/1/20 @ 100 | 1,022,778 | ||||||
325,000 | CMS Energy Corp., 8.75%, 6/15/19 | 375,280 | ||||||
150,000 | Dominion Resources, Inc., 2.96%, 7/1/19(d) | 151,861 | ||||||
|
| |||||||
1,549,919 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (2.3%): | ||||||||
1,390,000 | Chevron Corp., 1.37%, 3/2/18 | 1,388,635 | ||||||
2,210,000 | Concho Resources, Inc., 6.50%, 1/15/22, Callable 1/16/17 @ 103.25 | 2,286,686 | ||||||
1,005,000 | Concho Resources, Inc., 5.50%, 10/1/22, Callable 10/1/17 @ 102.75^ | 1,041,431 | ||||||
2,965,000 | Concho Resources, Inc., 5.50%, 4/1/23, Callable 10/1/17 @ 102.75^ | 3,072,629 | ||||||
350,000 | Diamondback Energy, Inc., 4.75%, 11/1/24, Callable 11/1/19 @ 103.56(c) | 343,000 | ||||||
150,000 | EQT Corp., 6.50%, 4/1/18 | 157,929 | ||||||
305,000 | EQT Corp., 8.13%, 6/1/19 | 343,165 | ||||||
860,000 | Matador Resources Co., 6.88%, 4/15/23, Callable 4/15/18 @ 105.16 | 903,000 | ||||||
2,605,000 | MPLX LP, 5.50%, 2/15/23, Callable 8/15/17 @ 102.75 | 2,710,132 | ||||||
3,410,000 | MPLX LP, 4.50%, 7/15/23, Callable 4/15/23 @ 100 | 3,463,250 | ||||||
990,000 | MPLX LP, 4.88%, 12/1/24, Callable 9/1/24 @ 100 | 1,019,397 | ||||||
1,005,000 | Range Resources Corp., 5.75%, 6/1/21, Callable 3/1/21 @ 100(c) | 1,052,738 | ||||||
630,000 | Range Resources Corp., 5.00%, 8/15/22, Callable 5/15/22 @ 100^(c) | 626,063 | ||||||
1,255,000 | Range Resources Corp., 5.00%, 3/15/23, Callable 12/15/22 @ 100^(c) | 1,242,450 | ||||||
990,000 | Range Resources Corp., 4.88%, 5/15/25, Callable 2/15/25 @ 100^ | 959,063 |
Continued
8
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2016
Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
$ | 270,000 | Targa Resources Partners LP, 4.13%, 11/15/19, Callable 2/6/17 @ 102.06^ | $ | 273,375 | ||||
755,000 | Targa Resources Partners LP, 5.25%, 5/1/23, Callable 11/1/17 @ 102.63^ | 762,550 | ||||||
1,510,000 | Targa Resources Partners LP, 4.25%, 11/15/23, Callable 5/15/18 @ 102.13 | 1,443,937 | ||||||
|
| |||||||
23,089,430 | ||||||||
|
| |||||||
Pharmaceuticals (0.4%): | ||||||||
705,000 | Eli Lilly & Co., 1.25%, 3/1/18 | 705,166 | ||||||
505,000 | Johnson & Johnson, 1.13%, 11/21/17^ | 505,489 | ||||||
2,672,000 | Pfizer, Inc., 1.20%, 6/1/18 | 2,665,000 | ||||||
|
| |||||||
3,875,655 | ||||||||
|
| |||||||
Real Estate Management & Development (0.1%): | ||||||||
540,000 | CBRE Services, Inc., 5.00%, 3/15/23, Callable 3/15/18 @ 102.5 | 557,059 | ||||||
|
| |||||||
Specialty Retail (0.5%): | ||||||||
130,000 | AutoZone, Inc., 1.63%, 4/21/19 | 128,813 | ||||||
540,000 | AutoZone, Inc., 2.50%, 4/15/21, Callable 3/15/21 @ 100 | 533,933 | ||||||
1,075,000 | L Brands, Inc., 8.50%, 6/15/19^ | 1,236,250 | ||||||
395,000 | L Brands, Inc., 7.00%, 5/1/20 | 444,375 | ||||||
2,640,000 | L Brands, Inc., 6.63%, 4/1/21 | 2,963,400 | ||||||
|
| |||||||
5,306,771 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (0.1%): | ||||||||
1,185,000 | Levi Strauss & Co., 6.88%, 5/1/22, Callable 5/1/17 @ 103.44 | 1,241,288 | ||||||
|
| |||||||
Wireless Telecommunication Services (0.5%): | ||||||||
1,256,000 | Metropcs Wireless, Inc., 6.63%, 11/15/20, Callable 1/17/17 @ 102.21 | 1,284,260 | ||||||
200,000 | T-Mobile USA, Inc., 5.25%, 9/1/18, Callable 1/17/17 @ 101.31^ | 203,000 | ||||||
3,275,000 | T-Mobile USA, Inc., 6.54%, 4/28/20, Callable 1/17/17 @ 103.27 | 3,373,250 | ||||||
|
| |||||||
4,860,510 | ||||||||
|
| |||||||
Total Corporate Bonds (Cost $190,105,831) | 191,800,090 | |||||||
|
| |||||||
Foreign Bonds (0.2%): | ||||||||
Diversified Telecommunication Services (0.2%): | ||||||||
1,365,000 | UPC Holding BV, 6.38%, 9/15/22, Callable 9/15/17 @ 103.19+(c) | 1,526,452 | ||||||
|
| |||||||
Media (0.0%): | ||||||||
272,700 | Lynx I Corp., 6.00%, 4/15/21, Callable 4/15/17 @ 103+ | 349,460 | ||||||
|
| |||||||
Total Foreign Bonds (Cost $1,976,471) | 1,875,912 | |||||||
|
| |||||||
Yankee Dollars (3.0%): | ||||||||
Diversified Telecommunication Services (1.0%): | ||||||||
1,255,000 | Virgin Media Communications, Ltd., 6.00%, 10/15/24, Callable 10/15/19 @ 103(c) | 1,292,650 |
Notional Amount or Principal Amount | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Diversified Telecommunication Services, continued | ||||||||
$ | 5,709,600 | Virgin Media Secured Finance plc, 5.38%, 4/15/21(c) | $ | 5,909,436 | ||||
810,000 | Virgin Media Secured Finance plc, 5.25%, 1/15/26, Callable 1/15/20 @ 102.63(c) | 799,875 | ||||||
2,190,000 | Ziggo Secured Finance BV, 5.50%, 1/15/27, Callable 1/15/22 @ 102.75(c) | 2,134,812 | ||||||
|
| |||||||
10,136,773 | ||||||||
|
| |||||||
Insurance (0.1%): | ||||||||
735,000 | Trinity Acquistion plc, 4.40%, 3/15/26, Callable 12/15/25 @ 100 | 744,007 | ||||||
|
| |||||||
Media (0.6%): | ||||||||
4,095,000 | Unitymedia Hessen, 5.50%, 1/15/23, Callable 1/15/18 @ 102.75(c) | 4,263,919 | ||||||
1,690,000 | Unitymedia Kabelbw GMBH, 6.13%, 1/15/25, Callable 1/15/20 @ 103.06(c) | 1,736,475 | ||||||
|
| |||||||
6,000,394 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.2%): | ||||||||
260,000 | Canadian Natural Resources, Ltd., 1.75%, 1/15/18 | 259,372 | ||||||
1,650,000 | Shell International Finance BV, 1.35%, 5/11/20(d) | 1,651,064 | ||||||
|
| |||||||
1,910,436 | ||||||||
|
| |||||||
Pharmaceuticals (0.1%): | ||||||||
790,000 | Grifols Worldwide OP, Ltd., 5.25%, 4/1/22, Callable 4/1/17 @ 103.94 | 817,650 | ||||||
|
| |||||||
Professional Services (0.2%): | ||||||||
1,580,000 | IHS Markit, Ltd., 5.00%, 11/1/22, Callable 8/1/22 @ 100(c) | 1,639,250 | ||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (0.8%): | ||||||||
6,555,000 | NXP Funding BV/NXP Funding LLC, 3.75%, 6/1/18(c) | 6,653,325 | ||||||
200,000 | NXP Funding BV/NXP Funding LLC, 4.13%, 6/15/20(c) | 207,000 | ||||||
1,850,000 | NXP Funding BV/NXP Funding LLC, 5.75%, 2/15/21, Callable 2/15/17 @ 102.88(c) | 1,910,125 | ||||||
|
| |||||||
8,770,450 | ||||||||
|
| |||||||
Total Yankee Dollars (Cost $29,900,971) | 30,018,960 | |||||||
|
| |||||||
Purchased Option (0.0%): | ||||||||
Total Purchased Options (Cost $163,263) | 313,351 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (6.4%): | ||||||||
63,658,817 | AZL T. Rowe Price Capital Appreciation Fund Securities Lending Collateral Account(e) | 63,658,817 | ||||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 63,658,817 | ||||||
|
|
Continued
9
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2016
Shares, | Fair Value | |||||||
Unaffiliated Investment Company (6.7%): | ||||||||
$ | 66,971,085 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 0.31%(f) | $ | 66,971,085 | ||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $66,971,085) | 66,971,085 | |||||||
|
| |||||||
| Total Investment Securities | 1,050,533,136 | ||||||
Net other assets (liabilities) — (5.3)% | (53,187,300 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 997,345,836 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2016.
MTN—Medium Term Note
# | Security issued in connection with a pending litigation settlement. |
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2016. The total value of securities on loan as of December 31, 2016, was $61,754,726. |
+ | 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, 2016, these securities represent 0.00% of the net assets of the fund. |
(b) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2016. The total of all such securities represent 0.01% 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, 2016. 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, 2016. |
(f) | The rate represents the effective yield at December 31, 2016. |
(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.
Option Contracts
Over-the-counter options purchased as of December 31, 2016 were as follows:
Description | Counterparty | Put/ Call | Strike Price | Expiration Date | Contracts | Fair Value | ||||||||||||||||||
Bristol-Myers Squibb Co. | Citibank | Call | 60.00 | USD | 1/19/18 | 606 | $ | 313,351 | ||||||||||||||||
|
| |||||||||||||||||||||||
Total (Cost $163,263) |
| $ | 313,351 | |||||||||||||||||||||
|
|
Over-the-counter options written as of December 31, 2016 were as follows:
Description | Counterparty | Put/ Call | Strike Price | Expiration Date | Contracts | Fair Value | ||||||||||||||||||
Alphabet, Inc. | Citibank | Call | 840.00 | USD | 1/19/18 | 5 | $ | (23,297 | ) | |||||||||||||||
Alphabet, Inc. | Citibank | Call | 860.00 | USD | 1/19/18 | 5 | (19,684 | ) | ||||||||||||||||
Alphabet, Inc. | Citibank | Call | 880.00 | USD | 1/19/18 | 28 | (92,590 | ) | ||||||||||||||||
Alphabet, Inc. | Deutsche Bank/Citibank | Call | 900.00 | USD | 1/19/18 | 30/17 | (129,990 | ) | ||||||||||||||||
Alphabet, Inc. | Deutsche Bank/Citibank | Call | 920.00 | USD | 1/19/18 | 4/35 | (89,910 | ) | ||||||||||||||||
Alphabet, Inc. | Deutsche Bank/Citibank | Call | 940.00 | USD | 1/19/18 | 5/35 | (76,603 | ) | ||||||||||||||||
Alphabet, Inc. | Morgan Stanley | Call | 795.00 | USD | 1/20/17 | 43 | (15,258 | ) | ||||||||||||||||
Alphabet, Inc. | Deutsche Bank | Call | 800.00 | USD | 1/20/17 | 63 | (15,586 | ) |
Continued
10
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2016
Description | Counterparty | Put/ Call | Strike Price | Expiration Date | Contracts | Fair Value | ||||||||||||||||||
Alphabet, Inc. | Deutsche Bank | Call | 800.00 | USD | 1/20/17 | 12 | $ | (12,224 | ) | |||||||||||||||
Alphabet, Inc. | Deutsche Bank | Call | 820.00 | USD | 1/20/17 | 17 | (827 | ) | ||||||||||||||||
Alphabet, Inc. | Deutsche Bank | Call | 840.00 | USD | 1/20/17 | 17 | (167 | ) | ||||||||||||||||
Alphabet, Inc. | Deutsche Bank | Call | 900.00 | USD | 1/20/17 | 32 | (254 | ) | ||||||||||||||||
Altria Group, Inc. | Citibank | Call | 65.00 | USD | 1/20/17 | 502 | (151,122 | ) | ||||||||||||||||
Altria Group, Inc. | Citibank | Call | 67.50 | USD | 1/20/17 | 502 | (56,567 | ) | ||||||||||||||||
Amazon.Com, Inc. | Deutsche Bank/Citibank | Call | 1000.00 | USD | 1/19/18 | 15/14 | (64,488 | ) | ||||||||||||||||
American Tower Corp. | Citibank | Call | 105.00 | USD | 1/20/17 | 61 | (14,663 | ) | ||||||||||||||||
American Tower Corp. | Citibank | Call | 110.00 | USD | 1/20/17 | 120 | (7,036 | ) | ||||||||||||||||
American Tower Corp. | Citibank | Call | 115.00 | USD | 1/20/17 | 137 | (3,297 | ) | ||||||||||||||||
Apple, Inc. | Citibank | Call | 105.00 | USD | 1/20/17 | 264 | (290,534 | ) | ||||||||||||||||
Apple, Inc. | Citibank | Call | 110.00 | USD | 1/20/17 | 264 | (165,656 | ) | ||||||||||||||||
Apple, Inc. | Citibank | Call | 115.00 | USD | 1/20/17 | 734 | (170,153 | ) | ||||||||||||||||
AutoZone, Inc. | Deutsche Bank | Call | 840.00 | USD | 1/20/17 | 17 | (1,870 | ) | ||||||||||||||||
Bank of New York Mellon Corp. | Deutsche Bank | Call | 45.00 | USD | 1/20/17 | 951 | (267,704 | ) | ||||||||||||||||
Bank of New York Mellon Corp. | Deutsche Bank | Call | 47.00 | USD | 1/20/17 | 640 | (87,252 | ) | ||||||||||||||||
Bristol-Myers Squibb Co. | Citibank | Call | 50.00 | USD | 1/19/18 | 606 | (659,978 | ) | ||||||||||||||||
Comcast Corp. | Citibank | Call | 65.00 | USD | 1/20/17 | 326 | (144,711 | ) | ||||||||||||||||
Comcast Corp. | Royal Bank of Canada | Call | 70.00 | USD | 1/20/17 | 187 | (16,749 | ) | ||||||||||||||||
CVS Health Corp. | JPMorgan Chase | Call | 100.00 | USD | 1/20/17 | 134 | (1 | ) | ||||||||||||||||
CVS Health Corp. | Citibank | Call | 105.00 | USD | 1/20/17 | 200 | — | |||||||||||||||||
CVS Health Corp. | JPMorgan Chase/Citibank | Call | 110.00 | USD | 1/20/17 | 134/215 | — | |||||||||||||||||
CVS Health Corp. | JPMorgan Chase | Call | 115.00 | USD | 1/20/17 | 150 | — | |||||||||||||||||
Danaher Corp. | Deutsche Bank | Call | 90.00 | USD | 1/19/18 | 245 | (43,078 | ) | ||||||||||||||||
Danaher Corp. | Deutsche Bank | Call | 87.50 | USD | 1/20/17 | 320 | (1,600 | ) | ||||||||||||||||
Danaher Corp. | Deutsche Bank | Call | 100.00 | USD | 1/20/17 | 148 | (740 | ) | ||||||||||||||||
Danaher Corp. | JPMorgan Chase | Call | 105.00 | USD | 1/20/17 | 405 | (2,025 | ) | ||||||||||||||||
Danaher Corp. | Deutsche Bank | Call | 110.00 | USD | 1/20/17 | 256 | (2,560 | ) | ||||||||||||||||
Danaher Corp. | Deutsche Bank | Call | 115.00 | USD | 1/20/17 | 97 | (485 | ) | ||||||||||||||||
Lowe’s Cos., Inc. | JPMorgan Chase | Call | 80.00 | USD | 1/20/17 | 84 | (363 | ) | ||||||||||||||||
Lowe’s Cos., Inc. | JPMorgan Chase | Call | 82.50 | USD | 1/20/17 | 84 | (185 | ) | ||||||||||||||||
Lowe’s Cos., Inc. | JPMorgan Chase | Call | 85.00 | USD | 1/20/17 | 409 | (482 | ) | ||||||||||||||||
Lowe’s Cos., Inc. | Citibank | Call | 87.50 | USD | 1/20/17 | 159 | (101 | ) | ||||||||||||||||
Lowe’s Cos., Inc. | Citibank | Call | 90.00 | USD | 1/20/17 | 322 | (112 | ) | ||||||||||||||||
LyondellBasell Industries NV | Deutsche Bank/Citibank | Call | 87.50 | USD | 1/20/17 | 142/451 | (71,704 | ) | ||||||||||||||||
LyondellBasell Industries NV | Deutsche Bank/Citibank | Call | 90.00 | USD | 1/20/17 | 61/47 | (5,695 | ) | ||||||||||||||||
Microsoft Corp. | Deutsche Bank/Citibank | Call | 57.50 | USD | 1/20/17 | 608/467 | (517,101 | ) | ||||||||||||||||
Microsoft Corp. | Deutsche Bank | Call | 60.00 | USD | 1/20/17 | 198 | (50,385 | ) | ||||||||||||||||
Microsoft Corp. | Deutsche Bank | Call | 62.50 | USD | 1/20/17 | 1,050 | (87,406 | ) | ||||||||||||||||
Microsoft Corp. | Deutsche Bank | Call | 65.00 | USD | 1/20/17 | 1,597 | (23,078 | ) | ||||||||||||||||
PepsiCo, Inc. | Citibank | Call | 100.00 | USD | 1/20/17 | 135 | (66,957 | ) | ||||||||||||||||
PepsiCo, Inc. | Citibank | Call | 105.00 | USD | 1/20/17 | 304 | (34,964 | ) | ||||||||||||||||
PepsiCo, Inc. | Citibank | Call | 110.00 | USD | 1/20/17 | 504 | (4,169 | ) | ||||||||||||||||
Philip Morris International, Inc. | Deutsche Bank | Call | 92.50 | USD | 1/20/17 | 246 | (22,987 | ) | ||||||||||||||||
Philip Morris International, Inc. | Deutsche Bank/Citibank | Call | 95.00 | USD | 1/20/17 | 245/213 | (14,835 | ) | ||||||||||||||||
Philip Morris International, Inc. | Deutsche Bank/Citibank | Call | 97.50 | USD | 1/20/17 | 245/213 | (6,580 | ) | ||||||||||||||||
Philip Morris International, Inc. | Deutsche Bank | Call | 110.00 | USD | 1/20/17 | 102 | (816 | ) | ||||||||||||||||
Texas Instruments, Inc. | Citibank | Call | 60.00 | USD | 1/20/17 | 213 | (277,377 | ) |
Continued
11
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2016
Description | Counterparty | Put/ Call | Strike Price | Expiration Date | Contracts | Fair Value | ||||||||||||||||||
Texas Instruments, Inc. | Citibank | Call | 72.50 | USD | 1/20/17 | 103 | $ | (17,346 | ) | |||||||||||||||
The Boeing Co. | Deutsche Bank | Call | 160.00 | USD | 1/20/17 | 91 | (10,501 | ) | ||||||||||||||||
The Boeing Co. | Citibank | Call | 165.00 | USD | 1/20/17 | 90 | (3,207 | ) | ||||||||||||||||
The Boeing Co. | JPMorgan Chase | Call | 170.00 | USD | 1/20/17 | 91 | (1,140 | ) | ||||||||||||||||
Thermo Fisher Scientific, Inc. | Deutsche Bank | Call | 155.00 | USD | 1/20/17 | 42 | (396 | ) | ||||||||||||||||
Thermo Fisher Scientific, Inc. | JPMorgan Chase | Call | 160.00 | USD | 1/20/17 | 68 | (295 | ) | ||||||||||||||||
Thermo Fisher Scientific, Inc. | Deutsche Bank/Citibank | Call | 165.00 | USD | 1/20/17 | 110/85 | (427 | ) | ||||||||||||||||
Thermo Fisher Scientific, Inc. | Deutsche Bank/Citibank | Call | 170.00 | USD | 1/20/17 | 68/253 | (372 | ) | ||||||||||||||||
United Health Group, Inc. | Deutsche Bank | Call | 155.00 | USD | 1/20/17 | 32 | (22,434 | ) | ||||||||||||||||
UnitedHealth Group, Inc. | Deutsche Bank | Call | 140.00 | USD | 1/20/17 | 315 | (643,939 | ) | ||||||||||||||||
UnitedHealth Group, Inc. | Deutsche Bank/Morgan Stanley | Call | 145.00 | USD | 1/20/17 | 171/95 | (416,850 | ) | ||||||||||||||||
Visa, Inc. | Citibank | Call | 90.00 | USD | 1/19/18 | 453 | (138,595 | ) | ||||||||||||||||
Visa, Inc. | Citibank | Call | 95.00 | USD | 1/19/18 | 124 | (24,909 | ) | ||||||||||||||||
Visa, Inc. | Citibank | Call | 85.00 | USD | 1/20/17 | 599 | (2,281 | ) | ||||||||||||||||
Visa, Inc. | Citibank | Call | 87.50 | USD | 1/20/17 | 449 | (630 | ) | ||||||||||||||||
Visa, Inc. | Citibank | Call | 90.00 | USD | 1/20/17 | 48 | (28 | ) | ||||||||||||||||
Zoetis, Inc. | Morgan Stanley | Call | 55.00 | USD | 1/20/17 | 255 | (10,314 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Total (Premiums $5,477,360) |
| $ | (5,107,620 | ) | ||||||||||||||||||||
|
|
See accompanying notes to the financial statements.
12
AZL T. Rowe Price Capital Appreciation Fund
Statement of Assets and Liabilities
December 31, 2016
Assets: | |||||
Investment securities, at cost | $ | 978,255,936 | |||
|
| ||||
Investment securities, at value* | $ | 1,050,533,136 | |||
Cash | 35,643 | ||||
Interest and dividends receivable | 4,383,293 | ||||
Foreign currency, at value (cost $369,005) | 373,471 | ||||
Receivable for capital shares issued | 778,728 | ||||
Receivable for investments sold | 13,601,538 | ||||
Reclaims receivable | 25,722 | ||||
Prepaid expenses | 6,879 | ||||
|
| ||||
Total Assets | 1,069,738,410 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 1,961,447 | ||||
Payable for capital shares redeemed | 721,088 | ||||
Payable for collateral received on loaned securities | 63,658,817 | ||||
Written Options (Premiums received $5,477,360) | 5,107,620 | ||||
Manager fees payable | 588,975 | ||||
Administration fees payable | 22,474 | ||||
Distribution fees payable | 210,348 | ||||
Custodian fees payable | 29,190 | ||||
Administrative and compliance services fees payable | 2,864 | ||||
Trustee fees payable | 2,175 | ||||
Other accrued liabilities | 87,576 | ||||
|
| ||||
Total Liabilities | 72,392,574 | ||||
|
| ||||
Net Assets | $ | 997,345,836 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 875,084,268 | |||
Accumulated net investment income/(loss) | 14,880,613 | ||||
Accumulated net realized gains/(losses) from investment transactions | 34,734,886 | ||||
Net unrealized appreciation/(depreciation) on investments | 72,646,069 | ||||
|
| ||||
Net Assets | $ | 997,345,836 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 60,531,547 | ||||
Net Asset Value (offering and redemption price per share) | $ | 16.48 | |||
|
|
* | Includes securities on loan of $61,808,857. |
Statement of Operations
For the Year Ended December 31, 2016
Investment Income: | |||||
Dividends | $ | 13,018,185 | |||
Interest | 12,046,017 | ||||
Income from securities lending | 300,277 | ||||
Foreign withholding tax | (21,379 | ) | |||
|
| ||||
Total Investment Income | 25,343,100 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 9,051,258 | ||||
Administration fees | 335,529 | ||||
Distribution fees | 3,017,086 | ||||
Custodian fees | 53,413 | ||||
Administrative and compliance services fees | 20,389 | ||||
Trustee fees | 72,244 | ||||
Professional fees | 60,630 | ||||
Shareholder reports | 36,513 | ||||
Other expenses | 35,309 | ||||
|
| ||||
Total expenses before reductions | 12,682,371 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (603,409 | ) | |||
|
| ||||
Net expenses | 12,078,962 | ||||
|
| ||||
Net Investment Income/(Loss) | 13,264,138 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 35,711,504 | ||||
Net realized gains/(losses) on options contracts | 2,282,064 | ||||
Net realized gains/(losses) on forward currency contracts | 71,027 | ||||
Change in net unrealized appreciation/depreciation on investments | 37,441,240 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 75,505,835 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 88,769,973 | |||
|
|
See accompanying notes to the financial statements.
13
Statements of Changes in Net Assets
AZL T. Rowe Price Capital Appreciation Fund | ||||||||||
For the Year Ended December 31, 2016 | For the Year Ended December 31, 2015 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 13,264,138 | $ | 9,751,052 | ||||||
Net realized gains/(losses) on investment transactions | 38,064,595 | 52,656,027 | ||||||||
Change in unrealized appreciation/depreciation on investments | 37,441,240 | (18,203,398 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 88,769,973 | 44,203,681 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (9,617,172 | ) | (5,923,096 | ) | ||||||
From net realized gains | (53,194,286 | ) | (35,059,736 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (62,811,458 | ) | (40,982,832 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 198,754,078 | 380,908,716 | ||||||||
Proceeds from dividends reinvested | 62,811,458 | 40,982,832 | ||||||||
Value of shares redeemed | (441,083,789 | ) | (61,777,106 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (179,518,253 | ) | 360,114,442 | |||||||
|
|
|
| |||||||
Change in net assets | (153,559,738 | ) | 363,335,291 | |||||||
Net Assets: | ||||||||||
Beginning of period | 1,150,905,574 | 787,570,283 | ||||||||
|
|
|
| |||||||
End of period | $ | 997,345,836 | $ | 1,150,905,574 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 14,880,613 | $ | 9,621,103 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 12,142,622 | 23,390,083 | ||||||||
Dividends reinvested | 3,877,250 | 2,635,552 | ||||||||
Shares redeemed | (27,237,130 | ) | (3,797,329 | ) | ||||||
|
|
|
| |||||||
Change in shares | (11,217,258 | ) | 22,228,306 | |||||||
|
|
|
|
See accompanying notes to the financial statements.
14
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, | |||||||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 16.04 | $ | 15.90 | $ | 15.84 | $ | 12.29 | $ | 10.98 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.21 | 0.11 | 0.11 | 0.07 | 0.13 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.03 | 0.68 | 1.69 | 3.60 | 1.22 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.24 | 0.79 | 1.80 | 3.67 | 1.35 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.12 | ) | (0.10 | ) | (0.06 | ) | (0.12 | ) | (0.04 | ) | |||||||||||||||
Net Realized Gains | (0.68 | ) | (0.55 | ) | (1.68 | ) | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.80 | ) | (0.65 | ) | (1.74 | ) | (0.12 | ) | (0.04 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 16.48 | $ | 16.04 | $ | 15.90 | $ | 15.84 | $ | 12.29 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 7.84 | % | 5.07 | % | 11.77 | % | 29.94 | % | 12.32 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 997,346 | $ | 1,150,906 | $ | 787,570 | $ | 519,248 | $ | 420,994 | |||||||||||||||
Net Investment Income/(Loss) | 1.10 | % | 0.98 | % | 0.93 | % | 0.44 | % | 1.14 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.05 | % | 1.05 | % | 1.05 | % | 1.06 | % | 1.07 | % | |||||||||||||||
Expenses Net of Reductions | 1.00 | % | 1.00 | % | 1.00 | % | 1.01 | % | 1.02 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) | 1.00 | % | 1.00 | % | 1.00 | % | 1.01 | % | 1.03 | % | |||||||||||||||
Portfolio Turnover Rate | 89 | % | 73 | % | 72 | % | 122 | % | 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. |
(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.
15
AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2016
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, and follows the investment company accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services — Investment Companies.” The Trust consists of 23 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 22 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. Currently, the Fund only offers its shares to separate accounts of Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, affiliates of the Trust and the Manager, as defined below.
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. Income received by the Fund from sources within foreign countries may be subject to withholding 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.
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.
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) 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 T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2016
Bank Loans
The Fund may invest in bank loans, which generally have interest rates which are reset periodically by reference to a base lending rate plus a premium. These base rates are primarily the London-Interbank Offered Rate and, secondarily, the prime rate offered by one or more major U. S. banks and the certificate of deposit rate or other base lending rates used by commercial lenders. Bank loans often require prepayments from excess cash flows or allow the borrower to repay at its election. The rate at which the borrower repays cannot be predicted with accuracy. Therefore, the anticipated or actual maturity may be considerably earlier than the stated maturity shown in the Portfolio of Investments.
All or a portion of any bank loans may be unfunded. The Portfolio is obligated to fund any commitments at the borrower’s discretion. Therefore, the Portfolio must have funds sufficient to cover its contractual obligation.
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, 2016 are presented on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $96.2 million for the year ended December 31, 2016.
Cash collateral received in connection with securities lending is invested in a collateral account on behalf of the Fund managed by the Dreyfus Corporation, an affiliate of the Custodian and Securities Lending Agent. The collateral account invests in short-term investments that have a remaining maturity of 397 days or less, 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 $29,573 during the year ended December 31, 2016. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The Portfolio has adopted the disclosure provisions of FASB Accounting Standards Update No. 2014-11 (“ASU No. 2014-11”), “Transfers & Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. ASU No. 2014-11 is intended to provide increased transparency about the types of collateral pledged in securities lending transactions and other similar transactions that are accounted for as secured borrowing.
The following table displays a breakdown of transactions accounted for as secured borrowings, the gross obligations by class of collateral pledged, and the remaining contractual maturity of those transactions as of December 31, 2016.
Overnight and Continuous | Less than 30 Days | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions | |||||||||||||||||||||||||
Common Stocks | $ | 43,875,134 | $ | — | $ | — | $ | — | $ | 43,875,134 | |||||||||||||||
Corporate Debt Securities | 19,783,683 | — | — | — | 19,783,683 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Securities Lending Transactions | 63,658,817 | — | — | — | 63,658,817 | ||||||||||||||||||||
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|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Borrowings | $ | 63,658,817 | $ | — | $ | — | $ | — | $ | 63,658,817 | |||||||||||||||
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|
|
|
|
|
|
|
|
| ||||||||||||||||
Gross Amount of Recognized Liabilities for Securities Lending Transactions | $ | 63,658,817 | |||||||||||||||||||||||
|
|
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.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act, the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and sub-adviser. Any such purchase or sale transaction must be effected without a brokerage commission or other remuneration, except for customary transfer fees. The transaction must be effected at the current market price, which is either the security’s last sale price on an exchange or, if there are no transactions in the security that day, at the average of the highest bid and lowest asked price. During the year ended December 31, 2016, the Fund did not engage in any Rule 17a-7 transactions under the 1940 Act.
17
AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2016
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, 2016, the Fund entered into forward currency contracts in connections 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 Fund had no forward currency contracts outstanding as of December 31, 2016.
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, 2016, 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 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 period ended December 31, 2016:
Number of Contracts | Cost | |||||||||
Options outstanding at December 31, 2015 | — | $ | — | |||||||
Options purchased | 835 | 266,800 | ||||||||
Options exercised | — | — | ||||||||
Options expired | — | — | ||||||||
Options closed | (229 | ) | (103,537 | ) | ||||||
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|
|
| |||||||
Options outstanding at December 31, 2016 | 606 | $ | 163,263 | |||||||
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|
|
|
The Fund had the following transactions in written call and put options during the year ended December 31, 2016:
Number of Contracts | Premiums Received | |||||||||
Options outstanding at December 31, 2015 | (9,287 | ) | $ | (2,760,331 | ) | |||||
Options written | (22,123 | ) | (5,633,106 | ) | ||||||
Options exercised | 1,631 | 502,826 | ||||||||
Options expired | 2,163 | 442,308 | ||||||||
Options closed | 7,983 | 1,970,943 | ||||||||
|
|
|
| |||||||
Options outstanding at December 31, 2016 | (19,633 | ) | $ | (5,477,360 | ) | |||||
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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, 2016:
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 Risk Exposure | ||||||||||||
Equity Contracts | Investment Securities, at value (purchased options) | $ | 313,351 | Written Options | $ | 5,107,620 |
18
AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2016
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, 2016:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives Recognized | Change in Net Unrealized Derivatives Recognized | |||||||
Equity Risk Exposure | ||||||||||
Equity Contracts | Net Realized gains/(losses) on options contracts/Change in unrealized appreciation/depreciation on investments | $ | 2,282,064 | $ | 821,367 | |||||
Foreign Currency Risk Exposure | ||||||||||
Foreign Currency Contracts | Net Realized gains/(losses) on forward currency contracts/ Change in unrealized appreciation/depreciation on investments | 71,027 | — |
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 transact net amounts in accordance with the master netting agreements at December 31, 2016. 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, 2016.
As of December 31, 2016, the Fund’s derivative assets and liabilities by type are as follows:
Assets | Liabilities | |||||||||
Derivative Financial Instruments: | ||||||||||
Option contracts | $ | 313,351 | $ | 5,107,620 | ||||||
|
|
|
| |||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | 313,351 | 5,107,620 | ||||||||
Derivatives not subject to a master netting agreement or similar agreement (“MNA”) | — | — | ||||||||
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|
|
| |||||||
Total assets and liabilities subject to a MNA | $ | 313,351 | $ | 5,107,620 | ||||||
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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, 2016:
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 | ||||||||||||||||||||
Citibank | $ | 313,351 | $ | (313,351 | ) | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total | $ | 313,351 | $ | (313,351 | ) | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
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, 2016:
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 | $ | 2,887,918 | $ | (313,351 | ) | $ | — | $ | — | $ | 2,574,567 | ||||||||||||||
Deutsche Bank | 2,024,015 | — | — | — | 2,024,015 | ||||||||||||||||||||
JPMorgan Chase | 4,491 | — | — | — | 4,491 | ||||||||||||||||||||
Morgan Stanley | 174,447 | — | — | — | 174,447 | ||||||||||||||||||||
RBC | 16,749 | — | — | — | 16,749 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total | $ | 5,107,620 | $ | (313,351 | ) | $ | — | $ | — | $ | 4,794,269 | ||||||||||||||
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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. Fees and Transactions with Affiliates and Other Parties
The Manager provides investment advisory and management services for the Fund. The Manager has retained an independent money management organization (the “Subadviser”), to make investment decisions on behalf of the Fund. Pursuant to an amended and restated subadvisory agreement, effective November 15, 2013, 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. Prior to November 15, 2013, the Fund was subadvised by Davis Selected Advisors, L.P. 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
19
AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2016
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, acquired fund fees and expenses, 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, 2018.
For the year ended December 31, 2016, 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 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, 2016, 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 (“SEC” or the “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 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. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair value services, and a Trust-wide annual fee for providing infrastructure and support in implementing the written policies and procedures comprising the Fund’s compliance program. The Administrator is also reimbursed for certain expenses incurred. The total expenses incurred by the Fund for these services are reflected on the Statement of Operations as “Administration fees.”
Fidelity National Information Services, Inc. (“FIS”) (formerly, SunGard Investor Services LLC) serves as the Fund’s transfer agent. Under the Transfer Agent Agreement, the Trust pays FIS a fee for its services and reimburses FIS for all of their reasonable out-of-pocket expenses incurred in providing these services.
The Bank of New York Mellon (“BNY Mellon” or the “Custodian”) serves as the Trust’s custodian and securities lending agent. For these services as custodian, the Funds pay BNY Mellon a fee based on a percentage of assets held on behalf of the Funds, plus certain out-of-pocket charges.
Allianz Life Financial Services, LLC (“ALFS”), an affiliate of the Manager, serves as distributor of the Fund. ALFS receives an annual 12b-1 fee in the maximum amount of 0.25% of the Fund’s average daily net assets, 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.
In addition, certain legal fees and expenses are paid to a law firm, Dorsey & Whitney LLP, of which the Secretary of the Fund is Senior Counsel. During the year ended December 31, 2016, $13,715 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 $170,000 annual Board retainer; the Lead Director receives an additional $42,500 annually and the Chair of the Nominating and Corporate Governance Committee receives an additional $25,500 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, 2016, actual Trustee compensation was $1,258,000 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 (the “Board” or “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
20
AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2016
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.
The following is a summary of the valuation inputs used as of December 31, 2016 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Common Stocks | ||||||||||||||||||||
Capital Markets | $ | 25,291,763 | $ | 1,590,124 | $ | — | $ | 26,881,887 | ||||||||||||
Household Products | — | 8,145,299 | — | 8,145,299 | ||||||||||||||||
Oil, Gas & Consumable Fuels | 7,469,484 | 6,879,017 | — | 14,348,501 | ||||||||||||||||
Paper & Forest Products | — | — | — | ^ | — | ^ | ||||||||||||||
Professional Services | 3,543,231 | 1,278,837 | — | 4,822,068 | ||||||||||||||||
All Other Common Stocks+ | 588,095,552 | — | — | 588,095,552 | ||||||||||||||||
Preferred Stocks+ | 6,010,940 | — | — | 6,010,940 | ||||||||||||||||
Convertible Preferred Stocks | ||||||||||||||||||||
Banks | — | 2,100,350 | — | 2,100,350 | ||||||||||||||||
Multi-Utilities | — | 3,899,711 | — | 3,899,711 | ||||||||||||||||
All Other Covertible Preferred Stocks+ | 7,721,451 | — | — | 7,721,451 | ||||||||||||||||
Right | — | 54,131 | — | 54,131 | ||||||||||||||||
Asset Backed Securities | — | 1,907,923 | — | 1,907,923 | ||||||||||||||||
Bank Loans | — | 28,701,247 | — | 28,701,247 | ||||||||||||||||
Floating Rate Loans+ | — | 3,205,860 | — | 3,205,860 | ||||||||||||||||
Corporate Bonds | — | 191,800,091 | — | 191,800,091 | ||||||||||||||||
Foreign Bonds+ | — | 1,875,912 | — | 1,875,912 | ||||||||||||||||
Yankee Dollars+ | — | 30,018,960 | — | 30,018,960 | ||||||||||||||||
Purchased Call Option | — | 313,351 | — | 313,351 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | 63,658,817 | — | 63,658,817 | ||||||||||||||||
Unaffiliated Investment Company | 66,971,085 | — | — | 66,971,085 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investment Securities | 705,103,506 | 345,429,630 | — | ^ | 1,050,533,136 | |||||||||||||||
|
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|
|
|
|
|
| |||||||||||||
Other Financial Instruments:* | ||||||||||||||||||||
Written Options | — | (5,107,620 | ) | — | (5,107,620 | ) | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investments | $ | 705,103,506 | $ | 340,322,010 | $ | — | ^ | $ | 1,045,425,516 | |||||||||||
|
|
|
|
|
|
|
|
^ | Represents the interest in securities that were determined to have a value of zero at December 31, 2016. |
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other Financial Instruments would include any derivative instruments, such as written options contracts. 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.
21
AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2016
5. Security Purchases and Sales
For the year ended December 31, 2016, 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 | $ | 1,163,606,177 | $ | 921,289,653 |
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, 2016 are identified below.
Security | Acquisition Date(a) | Acquisition Cost | Shares or Principal Amount | Fair Value | Percentage of Net Assets | ||||||||||||||||||||
Sino-Forest Corp. | 1/31/13 | $ | — | 488,000 | $ | — | — | % |
(a) | Acquisition date represents the initial purchase date of the security. |
7. Investment Risks
Bank Loan Risk: There are a number of risks associated with an investment in bank loans including credit risk, interest rate risk, liquidity risk and prepayment risk. Lack of an active trading market, restrictions on resale, irregular trading activity, wide bid/ask spreads and extended trade settlement periods may impair the Fund’s ability to sell bank loans within its desired time frame or at an acceptable price and its ability to accurately value existing and prospective investments. Extended trade settlement periods may result in cash not being immediately available to the Fund. As a result, the Fund may have to sell other investments or engage in borrowing transactions to raise cash to meet its obligations. The risk of holding bank loans is also directly tied to the risk of insolvency or bankruptcy of the issuing banks. These risks could cause the Fund to lose income or principal on a particular investment, which in turn could affect the Fund’s returns. The value of bank loans can be affected by and sensitive to changes in government regulation and to economic downturns in the United States and abroad. Bank loans generally are floating rate loans, which are subject to interest rate risk as the interest paid on the floating rate loans adjusts periodically based on changes in widely accepted reference rates.
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.
8. Federal Tax Information
It is the policy of the Fund to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined under Subchapter M of the Internal Revenue Code, and to make distributions of net investment income and net realized gains sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provisions for federal income taxes are required in the financial statements.
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 of securities for federal income tax purposes at December 31, 2016 is $982,946,966. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 76,248,292 | ||
Unrealized (depreciation) | (8,662,122 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 67,586,170 | ||
|
|
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AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2016
The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL T. Rowe Price Capital Appreciation Fund | $ | 22,575,788 | $ | 40,235,670 | $ | 62,811,458 |
(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, 2015 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL T. Rowe Price Capital Appreciation Fund | $ | 25,025,860 | $ | 15,956,972 | $ | 40,982,832 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2016, 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 | $ | 14,880,613 | $ | 39,425,916 | $ | — | $ | 67,955,039 | $ | 122,261,568 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rules on Investment Company Reporting Modernization (the “Rules”). The Rules which introduce two new regulatory reporting forms for investment companies — Form N-PORT and Form N-CEN — also contain amendments to Regulation S-X which require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The amendments are effective for filings made with the SEC after August 1, 2017. Management is currently evaluating the impact of the amendments on the fund’s financial statements. The adoption will have no effect on the Funds’ net assets or results of operations.
10. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
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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 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, 2016, 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, 2016, 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 AZL T. Rowe Price Capital Appreciation Fund as of December 31, 2016, 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 24, 2017
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2016, 35.57% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deductions available to corporate shareholders.
During the year ended December 31, 2016, the Fund declared net short-term capital gain distributions of $12,969,935.
During the year ended December 31, 2016, the Fund declared net long-term capital gain distributions of $40,235,670.
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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 — October 25, 2016 (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 2016. Information relevant to the approval of such Agreements was considered at a telephonic Board of Trustees meeting on October 19, 2016, and at an “in person” Board of Trustees meeting held October 25, 2016. The Agreements were approved at the Board meeting of October 25, 2016. At such meeting the Board also approved an Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2018. 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 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 the appropriate benchmark(s), and performance versus peer groups. For example, in connection with the Board of Trustees meeting held October 25, 2016, the Manager reported that for the three year period ended June 30, 2016, seven Funds were in the top 40%, two were in the middle 20% and three were in the bottom 40%, and for the one year period ended June 30, 2016, twelve Funds were in the top 40%, three were in the middle 20%, and four were in the bottom 40%. The Manager also reported that for the five year period ended June 30, 2016, six Funds were in the top 40%, one was in the middle 20%, and three were in the bottom 40%. At the Board of Trustees meeting held October 25, 2016, 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 twenty Funds reviewed by the Board of Trustees in the fall of 2016, seventeen 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 2016 for the twenty-one Funds was as follows; (1) eighteen of the Funds had total expense rankings below the 65th percentile (with eleven Funds at or below the 50th percentile); (2) the AZL Russell 1000 Growth Index Fund had a total expense ranking in the 66th percentile, but there was only a very limited peer group for such Fund, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; (3) the AZL International Index Fund had a total expense ranking in the 75th percentile, but there was only a limited peer group for such Fund, the actual management fee was in the 37th percentile, and it was expected that after October 2016 there would be a large increase in Fund assets which would cause the expense ratio to decline; and (4) for the AZL Morgan Stanley Global Real Estate Fund, which had a total expense ranking in the 70th percentile, the Manager recommended a temporary management fee waiver of 5 basis points, effective November 1, 2016, which would move the management fee ranking from the 80th to the 60th percentile.
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 2013 through June 30, 2016. 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, all of which currently are not affiliated with it were negotiated on an “arm’s length” basis, so that arguably, such profitability information should be less relevant. 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, 2016 were approximately $6.4 billion, and that no single Fund had assets in excess of $1,289 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, 2017, 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 eight Trustees, two of whom are an “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 Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Peter R. Burnim, Age 69 5701 Golden Hills Drive | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, LDN Risk Management and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to present; Managing Director, iQ Venture Advisors, LLC. 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; and Expert Witness, Massachusetts Department of Revenue, 2011 to present. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings, NRIL, Sterling Centrecorp Inc.; Highland Financial Holdings; Bank of Bermuda NY; Sterling Trust (Cayman) Ltd.; and LDN Risk Management and Subsidiaries. | |||||
Peggy L. Ettestad, Age 59 5701 Golden Hills Drive | Lead Independent Trustee | Since 10/14 (Trustee since 2/07) | Managing Director, Red Canoe Management Consulting LLC, 2008 to present | 35 | Luther College | |||||
Roger A. Gelfenbien, Age 73 5701 Golden Hills Drive | Trustee | Since 10/99 | Retired; Partner of Accenture 1983 to 1999 | 35 | Virtus Funds (8 Funds) | |||||
Claire R. Leonardi, Age 61 5701 Golden Hills Drive | Trustee | Since 2/04 | Chief Executive Officer, Health eSense Inc., 2015 to Present; CEO, Connecticut Innovations, Inc., 2012 to 2015; General Partner, Fairview Capital, L.P., 1994 to 2012 | 35 | reSet Social Enterprise Investment Fund; Connecticut Technology Council; and Connecticut Bioscience Innovation Fund | |||||
Dickson W. Lewis, Age 68 5701 Golden Hills Drive | Trustee | Since 2/04 | Retired; 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 | 35 | None | |||||
Arthur C. Reeds III, Age 72 5701 Golden Hills Drive | 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 | 35 | Connecticut Water Service, Inc. |
Interested Trustees(3)
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | Number of Portfolios Overseen for Allianz VIP and VIP FOF Trust | Other Directorships Held Outside the AZL Fund Complex During Past 5 Years | |||||
Robert DeChellis, Age 49* 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 3/08 | President and CEO, Allianz Life Financial Services, LLC, 2007 to present | 35 | None | |||||
Brian Muench, Age 46 5701 Golden Hills Drive | Trustee | Since 6/11 | President, Allianz Investment Management LLC, November 2010 to present; Vice President, Allianz Life, April 2011 to present | 35 | None |
* | Mr. DeChellis resigned from the Board of Trustees effective December 31, 2016, as a result of taking another position within Allianz. |
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Officers
Name, Address, and Age | Positions Held with Allianz VIP and VIP FOF Trust | Term of Office(2)/Length of Time Served | Principal Occupation(s) During Past 5 Years | |||
Brian Muench, Age 46 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. | |||
Michael Radmer, Age 71 Dorsey & Whitney LLP, Suite 1500 50 South Sixth Street Minneapolis, MN 55402-1498 | Secretary | Since 02/02 | Senior Counsel (previously, Partner), Dorsey and Whitney LLP since 1976. | |||
Bashir C. Asad, Age 54 Citi Fund Services Ohio, Inc. 4400 Easton Commons, Suite 200 Columbus, OH 43219 | Treasurer, Principal Accounting Officer and Principal Financial Officer | Since 06/16 | Senior Vice President, Citi Fund Services Ohio, Inc. | |||
Chris R. Pheiffer, Age 48 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti- Money Laundering Compliance Officer | Since 02/14 | 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. |
The Fund’s Statement of Additional Information (“SAI”) contains additional information about the Fund’s Trustees and Officers. The SAI is available upon request, without charge, by calling toll free 1-800-624-0197.
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1216 2/17 |
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.
2016 | 2015 | |||||||||
(a) | Audit Fees | $ | 357,000 | $ | 476,000 | |||||
(b) | Audit-Related Fees | $ | 42,000 | $ | 5,500 |
The 2016 fees relate to the consent on Form N-1A for the annual registration statement and review of the Form N-14 filed with the Securities Exchange Commission paid to KPMG LLP. The 2015 fees relate to the review of post-effective registration statements paid to KPMG LLP.
2016 | 2015 | |||||||||
(c) | Tax Fees | $ | 168,300 | $ | 149,760 |
The 2016 fees relate to the preparation of the registrant’s federal income tax returns and review of the final tax calculation and tax opinions and preparation of Form 966 for merged or liquidated funds. The 2015 fees relate to the preparation of the registrant’s tax returns and tax reclaim and international tax consulting services.
2016 | 2015 | |||||||||
(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 |
2016 | 2015 | |||||||
4(g) | $ | 210,300 | $ | 155,260 |
4(g) | Aggregate non-audit fees billed by KPMG for services rendered to the Registrant and the investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provided ongoing services to the registrant: |
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, Principal Executive Officer |
Date | February 24, 2017 |
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, Principal Executive Officer |
Date | February 24, 2017 |
By (Signature and Title) | /s/ Bashir C. Asad | |
Bashir C. Asad, Principal Financial Officer & Principal Accounting Officer |
Date | February 24, 2017 |