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, 2017
Item 1. | Reports to Stockholders. |
AZL® BlackRock Global Allocation Fund
Annual Report
December 31, 2017
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 20
Consolidated Statement of Operations
Page 20
Consolidated Statements of Changes in Net Assets
Page 21
Consolidated Financial Highlights
Page 22
Notes to the Consolidated Financial Statements
Page 23
Report of Independent Registered Public Accounting Firm
Page 35
Other Federal Income Tax Information
Page 36
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® 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, 2017?
For the year ended December 31, 2017, the AZL® BlackRock Global Allocation Fund (the “Fund”) returned 13.00%. That compared to a 24.09%, 21.83%, 26.57%, 0.72%, 10.33% and 15.75% total return for its benchmarks, the FTSE World Index1, the S&P 500 Index1, the FTSE World ex U.S. Index1, the ICE 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 generated robust returns for the year, but generally underperformed international equities for the 12-month period. The S&P 500 Index gained 21.83%, while the FTSE World Ex US Index posted a stronger advance of 26.57% (in US dollar terms). Gains among European and Japanese stocks came amid positive corporate earnings reports and accommodative monetary policies from the Bank of Japan and European Central Bank. In the U.S., stocks were driven higher amid expectations of lower tax rates and higher growth rates—an environment that favored growth-oriented stocks.
Positive corporate earnings reports, healthy global economic growth and mild interest rates allowed investors to see past geopolitical tensions, most notably from a hostile North Korea.
In fixed income markets, investors began the year with an appetite for risk, which drove up prices on risk assets, particularly corporate and high-yield bonds. Demand was strong enough to absorb record levels of issuance, leading to narrowing credit spreads. Positive economic data and accommodative policy from most central banks—aside from the well-telegraphed interest rate increases from the Federal Reserve—made for modest but steady returns. Rising short-term rates and strong demand that pushed down yields on long-term bonds led to a dramatic flattening of the yield curve in the fourth quarter, following passage of the tax reform bill in the U.S.
The Fund underperformed its reference benchmark for the 12-month period. Within the Fund’s equities holdings, a higher-than-benchmark exposure to Japanese stocks dragged on relative performance as that country’s equities underperformed international markets. An underweight position to U.S. equities also detracted.
From a sector perspective, stock selection and a below-benchmark exposure to information technology stocks dragged on relative results, as that sector outperformed
for the period. Stock selection in the industrials, financials and health care sectors also detracted. The Fund’s exposure to commodity-related securities also weighed on relative returns. In addition, the Fund’s currency management strategy—particularly an above-benchmark exposure to the U.S. dollar and an underweight position in the euro—detracted from relative performance.
The Fund’s relative performance benefited from an above-benchmark exposure to India, which was one of the top-performing markets for the period. Stock selection within the consumer discretionary and utilities sectors also benefited relative results. Stock selection among energy and telecommunications stocks also added, although these benefits were partially offset by an overweight position to these underperforming sectors. Meanwhile, the Fund’s lower-than-benchmark exposure to consumer staples contributed to performance, but these gains were partially offset by stock selection in this sector, as it underperformed for the period.
The Fund’s underweight position in fixed income contributed to relative results during a period in which stocks strongly outperformed bonds. Exposure to credit, particularly investment grade corporate bonds, added to results as credit spreads tightened.*
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, 2017. |
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, 2017
Since | ||||||||||||||||
1 | 3 | 5 | Inception | |||||||||||||
Year | Year | Year | (1/10/12) | |||||||||||||
AZL® BlackRock Global Allocation Fund | 13.00 | % | 5.21 | % | 6.22 | % | 6.40 | % | ||||||||
FTSE World Index | 24.09 | % | 9.96 | % | 11.67 | % | 12.19 | % | ||||||||
S&P 500 Index | 21.83 | % | 11.41 | % | 15.79 | % | 15.36 | % | ||||||||
FTSE World ex U.S. Index | 26.57 | % | 8.34 | % | 7.52 | % | 8.88 | % | ||||||||
ICE BofA Merrill Lynch 5-Year U.S. Treasury Bond Index | 0.72 | % | 0.92 | % | 0.64 | % | 0.92 | % | ||||||||
Citigroup Non-U.S. Dollar World Government Bond Index | 10.33 | % | 1.99 | % | -0.29 | % | 0.15 | % | ||||||||
Reference Benchmark | 15.75 | % | 6.76 | % | 7.61 | % | 7.96 | % |
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 | 1.14 | % |
The above expense ratio is based on the current Fund prospectus dated May 1, 2017. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense and acquired fund fees and expenses), to 1.19% through April 30, 2019. Additional information pertaining to the December 31, 2017 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, as shown in the prospectus, 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 expense ratio would be 1.12%.
The Fund’s performance is measured against 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. 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. 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 ICE 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%) ICE 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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL BlackRock Global Allocation Fund | $ | 1,000.00 | $ | 1,052.70 | $ | 5.85 | 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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL BlackRock Global Allocation Fund | $ | 1,000.00 | $ | 1,019.51 | $ | 5.75 | 1.13 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Consolidated Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Common Stocks | 56.0 | % | |||
U.S. Treasury Obligations | 21.7 | ||||
Foreign Bonds | 8.2 | ||||
Securities Held as Collateral for Securities on Loan | 4.1 | ||||
Exchange Traded Funds | 3.7 | ||||
Yankee Dollars | 2.7 | ||||
Corporate Bonds | 2.5 | ||||
Money Markets | 2.1 | ||||
Convertible Preferred Stocks | 0.9 | ||||
Preferred Stocks | 0.8 | ||||
Bank Loans | 0.4 | ||||
Options | 0.4 | ||||
Convertible Bonds | 0.4 | ||||
Collateralized Mortgage Obligations | 0.1 | ||||
Private Placements | — | ^ | |||
Warrants | — | ^ | |||
|
| ||||
Total Investment Securities | 104.0 | ||||
Net other assets (liabilities) | (4.0 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
Investments | Percent of Net Assets | ||||
United States | 65.6 | % | |||
Japan | 9.4 | ||||
United Kingdom | 3.8 | ||||
France | 2.8 | ||||
Germany | 2.6 | ||||
Australia | 2.2 | ||||
Brazil | 1.8 | ||||
Netherlands | 1.7 | ||||
Switzerland | 1.5 | ||||
India | 1.4 | ||||
All other countries | 11.3 | ||||
|
| ||||
Total Investment Securities | 104.1 | ||||
Net other assets (liabilities) | (4.1 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks (56.0%): | ||||||||
Aerospace & Defense (0.7%): | ||||||||
73,962 | BAE Systems plc | $ | 568,752 | |||||
358 | Boeing Co. (The) | 105,577 | ||||||
452 | Dassault Aviation SA | 702,591 | ||||||
310 | General Dynamics Corp. | 63,070 | ||||||
72,578 | Meggitt plc | 469,854 | ||||||
264 | Northrop Grumman Corp. | 81,024 | ||||||
300 | Raytheon Co. | 56,355 | ||||||
9,619 | Safran SA | 988,995 | ||||||
19 | Thales SA | 2,044 | ||||||
15 | United Technologies Corp. | 1,914 | ||||||
|
| |||||||
3,040,176 | ||||||||
|
| |||||||
Air Freight & Logistics (0.0%): | ||||||||
243 | Deutsche Post AG | 11,542 | ||||||
|
| |||||||
Airlines (1.1%): | ||||||||
34,660 | Azul SA, ADR*^ | 825,947 | ||||||
705 | Delta Air Lines, Inc. | 39,480 | ||||||
41,000 | Japan Airlines Co., Ltd. | 1,604,541 | ||||||
27,856 | United Continental Holdings, Inc.* | 1,877,494 | ||||||
|
| |||||||
4,347,462 | ||||||||
|
| |||||||
Auto Components (1.6%): | ||||||||
9,300 | Aisin Sieki Co., Ltd. | 522,627 | ||||||
34,100 | Bridgestone Corp. | 1,586,066 | ||||||
51,683 | Cheng Shin Rubber Industry Co., Ltd. | 91,198 | ||||||
4,229 | Compagnie Generale des Establissements Michelin SCA, Class B | 605,706 | ||||||
22,200 | Denso Corp. | 1,333,023 | ||||||
2,400 | Exedy Corp. | 74,266 | ||||||
754 | Goodyear Tire & Rubber Co.^ | 24,362 | ||||||
5,000 | Koito Manufacturing Co., Ltd. | 351,632 | ||||||
315 | Lear Corp. | 55,648 | ||||||
191 | Magna International | 10,827 | ||||||
2,400 | Stanley Electric Co., Ltd. | 97,489 | ||||||
30,600 | Sumitomo Electric Industries, Ltd. | 516,421 | ||||||
25,200 | Toyota Industries Corp. | 1,620,031 | ||||||
|
| |||||||
6,889,296 | ||||||||
|
| |||||||
Automobiles (1.0%): | ||||||||
140,000 | Brilliance China Automotive Holdings, Ltd. | 371,968 | ||||||
2,000 | Dongfeng Motor Corp., Series H | 2,421 | ||||||
236 | Ford Motor Co. | 2,948 | ||||||
18,600 | Fuji Heavy Industries, Ltd. | 588,970 | ||||||
72 | General Motors Co. | 2,951 | ||||||
2,633 | Hero MotoCorp, Ltd. | 156,101 | ||||||
4,355 | Maruti Suzuki India, Ltd. | 662,876 | ||||||
600 | Mazda Motor Corp. | 8,052 | ||||||
37,100 | Suzuki Motor Corp. | 2,149,121 | ||||||
87 | Tata Motors, Ltd.* | 585 | ||||||
500 | Tata Motors, Ltd., Class A* | 1,898 | ||||||
|
| |||||||
3,947,891 | ||||||||
|
| |||||||
Banks (4.2%): | ||||||||
29,662 | ABN AMRO Group NV | 954,351 | ||||||
15,000 | Agricultural Bank of China, Ltd. | 6,981 | ||||||
576 | Banco do Brasil SA | 5,527 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
147,147 | Bank of America Corp. | $ | 4,343,780 | |||||
12,000 | Bank of China, Ltd. | 5,889 | ||||||
3,000 | Bank of Communications Co., Ltd., Class H | 2,224 | ||||||
4 | Bank of Montreal | 320 | ||||||
112 | Bank of Nova Scotia | 7,229 | ||||||
253 | Barclays Africa Group, Ltd. | 3,734 | ||||||
2,027 | Barclays plc | 5,526 | ||||||
90 | BNP Paribas SA | 6,711 | ||||||
12,000 | China Construction Bank | 11,038 | ||||||
32,208 | Citigroup, Inc. | 2,396,597 | ||||||
6 | Credicorp, Ltd. | 1,245 | ||||||
1,049 | Criteria Caixacorp SA | 4,879 | ||||||
197 | Danske Bank A/S | 7,660 | ||||||
201 | DnB NOR ASA | 3,718 | ||||||
1,502 | Fifth Third Bancorp^ | 45,571 | ||||||
144 | Grupo Financiero Banorte SAB de C.V. | 791 | ||||||
95 | Hana Financial Holdings Group, Inc. | 4,421 | ||||||
217,505 | HSBC Holdings plc | 2,242,711 | ||||||
8,000 | Industrial & Commercial Bank of China | 6,416 | ||||||
75,541 | ING Groep NV | 1,389,844 | ||||||
13,874 | JPMorgan Chase & Co. | 1,483,686 | ||||||
47,849 | Kotak Mahindra Bank, Ltd. | 756,786 | ||||||
14,698 | Lloyds Banking Group plc | 13,456 | ||||||
600 | Mitsubishi UFJ Financial Group, Inc. | 4,403 | ||||||
122 | National Australia Bank, Ltd. | 2,806 | ||||||
260 | Nordea Bank AB | 3,148 | ||||||
700 | Resona Holdings, Inc. | 4,184 | ||||||
128 | Royal Bank of Canada | 10,454 | ||||||
325 | Skandinaviska Enskilda Banken AB, Class A | 3,809 | ||||||
98 | Societe Generale | 5,052 | ||||||
96,283 | State Bank of India | 466,486 | ||||||
41,300 | Sumitomo Mitsui Financial Group, Inc. | 1,783,984 | ||||||
10,333 | SunTrust Banks, Inc. | 667,408 | ||||||
14 | Swedbank AB, Class A | 337 | ||||||
46 | Toronto-Dominion Bank (The) | 2,696 | ||||||
26 | Wells Fargo & Co. | 1,577 | ||||||
142 | Woori Bank | 2,088 | ||||||
48,846 | Yes Bank, Ltd. | 240,792 | ||||||
|
| |||||||
16,910,315 | ||||||||
|
| |||||||
Beverages (0.5%): | ||||||||
15,072 | Anheuser-Busch InBev NV | 1,680,968 | ||||||
10 | Brown-Forman Corp., Class B^ | 687 | ||||||
3 | Carlsberg A/S, Class B | 359 | ||||||
267 | Coca-Cola Co. (The) | 12,250 | ||||||
361 | Constellation Brands, Inc., Class C | 82,514 | ||||||
44 | Diageo plc | 1,610 | ||||||
100 | Kirin Holdings Co., Ltd. | 2,516 | ||||||
1,526 | PepsiCo, Inc. | 182,997 | ||||||
|
| |||||||
1,963,901 | ||||||||
|
| |||||||
Biotechnology (0.6%): | ||||||||
822 | AbbVie, Inc. | 79,496 | ||||||
551 | Amgen, Inc. | 95,819 | ||||||
597 | Biogen Idec, Inc.* | 190,186 |
Continued
4
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Biotechnology, continued | ||||||||
112 | Celgene Corp.* | $ | 11,688 | |||||
24,464 | Gilead Sciences, Inc. | 1,752,601 | ||||||
4,128 | Tesaro, Inc.*^ | 342,087 | ||||||
|
| |||||||
2,471,877 | ||||||||
|
| |||||||
Building Products (0.5%): | ||||||||
100 | Asahi Glass Co., Ltd. | 4,326 | ||||||
10,975 | Compagnie de Saint-Gobain SA | 603,943 | ||||||
4,700 | Daikin Industries, Ltd. | 556,518 | ||||||
10,737 | Fortune Brands Home & Security, Inc. | 734,840 | ||||||
1,923 | Masco Corp. | 84,497 | ||||||
5,000 | Nichias Corp. | 66,562 | ||||||
|
| |||||||
2,050,686 | ||||||||
|
| |||||||
Capital Markets (2.0%): | ||||||||
314 | Ameriprise Financial, Inc. | 53,214 | ||||||
852 | Bank of New York Mellon Corp. (The) | 45,889 | ||||||
28,770 | Charles Schwab Corp. (The) | 1,477,914 | ||||||
32 | Franklin Resources, Inc. | 1,387 | ||||||
5,497 | Goldman Sachs Group, Inc. (The) | 1,400,416 | ||||||
100 | Hong Kong Exchanges & Clearing, Ltd. | 3,055 | ||||||
38 | Moody’s Corp. | 5,609 | ||||||
53,674 | Morgan Stanley | 2,816,274 | ||||||
54 | Northern Trust Corp. | 5,394 | ||||||
337 | State Street Corp. | 32,895 | ||||||
244 | Thomson Reuters Corp. | 10,637 | ||||||
127,367 | UBS Group AG | 2,340,869 | ||||||
|
| |||||||
8,193,553 | ||||||||
|
| |||||||
Chemicals (3.2%): | ||||||||
32 | Agrium, Inc. | 3,681 | ||||||
15,239 | Air Products & Chemicals, Inc. | 2,500,415 | ||||||
52,500 | Asahi Kasei Corp. | 676,397 | ||||||
25,722 | Axalta Coating Systems, Ltd.* | 832,364 | ||||||
95 | BASF SE | 10,425 | ||||||
15,400 | Daicel Chemical Industries, Ltd. | 175,274 | ||||||
46,106 | DowDuPont, Inc. | 3,283,670 | ||||||
14,744 | Evonik Industries AG | 553,077 | ||||||
32,000 | Formosa Chemicals & Fibre Corp. | 110,715 | ||||||
34,000 | Formosa Plastics Corp. | 112,677 | ||||||
15,600 | Hitachi Chemical Co., Ltd. | 400,877 | ||||||
767 | Huntsman Corp. | 25,533 | ||||||
5,200 | Kuraray Co., Ltd. | 98,162 | ||||||
554 | LG Chem, Ltd. | 209,384 | ||||||
6 | Lotte Chemical Corp. | 2,058 | ||||||
79 | Lyondellbasell Industries NV | 8,715 | ||||||
123 | Monsanto Co. | 14,364 | ||||||
43,000 | Nan Ya Plastics Corp. | 112,539 | ||||||
8,100 | Nitto Denko Corp. | 720,061 | ||||||
22 | Praxair, Inc. | 3,403 | ||||||
70,800 | PTT Global Chemical Public Co., Ltd. | 184,517 | ||||||
18,400 | Shin-Etsu Chemical Co., Ltd. | 1,866,466 | ||||||
5,000 | Toagosei Co., Ltd. | 63,426 | ||||||
56,600 | Toray Industries, Inc. | 533,937 | ||||||
14,400 | Ube Industries, Ltd. | 423,877 | ||||||
|
| |||||||
12,926,014 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Commercial Services & Supplies (0.0%): | ||||||||
27 | Republic Services, Inc., Class A | $ | 1,825 | |||||
57 | Waste Management, Inc. | 4,920 | ||||||
|
| |||||||
6,745 | ||||||||
|
| |||||||
Communications Equipment (0.5%): | ||||||||
132 | Cisco Systems, Inc. | 5,056 | ||||||
33,036 | CommScope Holding Co., Inc.*^ | 1,249,752 | ||||||
18 | Motorola Solutions, Inc.^ | 1,626 | ||||||
214,598 | Nokia OYJ | 1,002,229 | ||||||
|
| |||||||
2,258,663 | ||||||||
|
| |||||||
Construction & Engineering (0.4%): | ||||||||
4,100 | ComSys Holdings Corp. | 118,703 | ||||||
12,500 | Kinden Corp. | 203,504 | ||||||
2,000 | Kyudenko Corp. | 96,419 | ||||||
5,000 | Maeda Road Construction Co., Ltd. | 114,647 | ||||||
5,000 | Nippo Corp. | 116,843 | ||||||
4,600 | Okumura Corp. | 189,292 | ||||||
22,000 | Toda Corp. | 176,361 | ||||||
6,430 | Vinci SA | 655,953 | ||||||
|
| |||||||
1,671,722 | ||||||||
|
| |||||||
Construction Materials (0.0%): | ||||||||
16,108 | Cemex SAB de C.V.* | 12,053 | ||||||
11,000 | Siam Cement PCL | 165,180 | ||||||
|
| |||||||
177,233 | ||||||||
|
| |||||||
Consumer Finance (0.0%): | ||||||||
1,079 | Ally Financial, Inc. | 31,464 | ||||||
89 | American Express Co. | 8,839 | ||||||
562 | Capital One Financial Corp. | 55,964 | ||||||
731 | Discover Financial Services | 56,228 | ||||||
|
| |||||||
152,495 | ||||||||
|
| |||||||
Containers & Packaging (0.2%): | ||||||||
94 | Amcor, Ltd. | 1,129 | ||||||
776 | Crown Holdings, Inc.* | 43,650 | ||||||
1,075 | International Paper Co. | 62,286 | ||||||
673 | Packaging Corp. of America | 81,130 | ||||||
11,291 | WestRock Co. | 713,704 | ||||||
|
| |||||||
901,899 | ||||||||
|
| |||||||
Distributors (0.0%): | ||||||||
3,400 | Canon Marketing Japan, Inc. | 91,785 | ||||||
|
| |||||||
Diversified Consumer Services (0.0%): | ||||||||
90 | New Oriental Education & Technology Group, Inc., ADR | 8,460 | ||||||
|
| |||||||
Diversified Financial Services (0.0%): | ||||||||
365 | AMP, Ltd. | 1,474 | ||||||
897 | Berkshire Hathaway, Inc., Class B* | 177,803 | ||||||
79,000 | Fubon Financial Holdings Co., Ltd. | 134,444 | ||||||
346 | Rmb Holdings, Ltd. | 2,210 | ||||||
|
| |||||||
315,931 | ||||||||
|
| |||||||
Diversified Telecommunication Services (1.4%): | ||||||||
189 | AT&T, Inc. | 7,348 | ||||||
51,559 | Cellnex Telecom SAU | 1,319,467 |
Continued
5
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Diversified Telecommunication Services, continued | ||||||||
4,000 | China Telecom Corp., Ltd., Class H | $ | 1,903 | |||||
200,000 | Chunghwa Telecom Co., Ltd. | 712,379 | ||||||
34,000 | Deutsche Telekom AG, Registered Shares | 602,903 | ||||||
12,293 | El Towers SpA | 788,422 | ||||||
80,000 | HKT Trust & HKT, Ltd. | 102,022 | ||||||
2,900 | Nippon Telegraph & Telephone Corp. | 136,479 | ||||||
66,100 | Singapore Telecommunications, Ltd. | 176,476 | ||||||
29,641 | Telecom Italia RSP | 21,169 | ||||||
1,156,044 | Telecom Italia SpA* | 997,849 | ||||||
506 | Telefonica SA | 4,926 | ||||||
104 | Telenor ASA | 2,228 | ||||||
408 | Telstra Corp., Ltd. | 1,155 | ||||||
22,669 | Verizon Communications, Inc. | 1,199,870 | ||||||
|
| |||||||
6,074,596 | ||||||||
|
| |||||||
Electric Utilities (0.9%): | ||||||||
7,397 | CEZ | 172,618 | ||||||
14,500 | CK Infrastructure Holdings, Ltd. | 124,481 | ||||||
15,000 | CLP Holdings, Ltd. | 153,504 | ||||||
170,709 | Enel SpA | 1,049,152 | ||||||
13 | FirstEnergy Corp. | 398 | ||||||
13,000 | Hongkong Electric Holdings, Ltd. | 109,714 | ||||||
13,251 | NextEra Energy, Inc. | 2,069,674 | ||||||
103 | PG&E Corp. | 4,617 | ||||||
1,755 | PGE SA* | 6,076 | ||||||
297 | Scottish & Southern Energy plc | 5,290 | ||||||
|
| |||||||
3,695,524 | ||||||||
|
| |||||||
Electrical Equipment (0.4%): | ||||||||
154 | ABB, Ltd. | 4,119 | ||||||
134 | Eaton Corp. plc | 10,587 | ||||||
24 | Emerson Electric Co. | 1,673 | ||||||
16,000 | GS Yuasa Corp. | 79,705 | ||||||
3,000 | Mabuchi Motor Co., Ltd. | 161,971 | ||||||
93,600 | Mitsubishi Electric Corp. | 1,555,442 | ||||||
274 | Rockwell Automation, Inc. | 53,799 | ||||||
|
| |||||||
1,867,296 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (0.3%): | ||||||||
120 | Corning, Inc. | 3,839 | ||||||
2,000 | Hitachi, Ltd. | 15,560 | ||||||
40,400 | Hon Hai Precision Industry Co., Ltd. | 128,729 | ||||||
7,000 | Innolux Corp. | 2,912 | ||||||
5,000 | Japan Aviation Electronics Industry, Ltd. | 84,666 | ||||||
300 | Keyence Corp. | 167,532 | ||||||
60 | LG Display Co., Ltd. | 1,676 | ||||||
6,500 | Murata Manufacturing Co., Ltd. | 868,870 | ||||||
|
| |||||||
1,273,784 | ||||||||
|
| |||||||
Energy Equipment & Services (0.1%): | ||||||||
84 | Halliburton Co. | 4,105 | ||||||
595 | Helmerich & Payne, Inc. | 38,461 | ||||||
9,259 | Schlumberger, Ltd. | 623,964 | ||||||
|
| |||||||
666,530 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (0.2%): | ||||||||
621 | American Tower Corp. | 88,598 | ||||||
142 | Equity Residential Property Trust | 9,055 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Equity Real Estate Investment Trusts, continued | ||||||||
195 | HCP, Inc. | $ | 5,086 | |||||
18,500 | Link REIT (The) | 171,437 | ||||||
834 | Stockland Trust Group | 2,917 | ||||||
2,585 | Unibail-Rodamco SE | 651,150 | ||||||
49 | Vornado Realty Trust | 3,831 | ||||||
148 | Weyerhaeuser Co. | 5,218 | ||||||
|
| |||||||
937,292 | ||||||||
|
| |||||||
Food & Staples Retailing (0.3%): | ||||||||
35 | Costco Wholesale Corp. | 6,514 | ||||||
18,136 | CVS Health Corp. | 1,314,861 | ||||||
2,850 | Jeronimo Martins SGPS SA | 55,341 | ||||||
12 | Koninklijke Ahold Delhaize NV | 263 | ||||||
1,400 | Seven & I Holdings Co., Ltd. | 58,156 | ||||||
7 | Sysco Corp. | 425 | ||||||
149 | Walgreens Boots Alliance, Inc. | 10,820 | ||||||
115 | Wal-Mart Stores, Inc. | 11,356 | ||||||
69 | Wesfarmers, Ltd. | 2,389 | ||||||
334 | Woolworths, Ltd. | 7,108 | ||||||
|
| |||||||
1,467,233 | ||||||||
|
| |||||||
Food Products (1.8%): | ||||||||
46,600 | Ajinomoto Co., Inc. | 878,272 | ||||||
94 | Associated British Foods plc | 3,573 | ||||||
350 | ConAgra Foods, Inc. | 13,185 | ||||||
38,863 | Danone SA | 3,257,781 | ||||||
1,173 | JBS SA | 3,470 | ||||||
3,023 | Mondelez International, Inc., Class A | 129,383 | ||||||
32,090 | Nestle SA, Registered Shares | 2,758,271 | ||||||
137 | Tiger Brands, Ltd. | 5,109 | ||||||
522 | Tyson Foods, Inc., Class A | 42,319 | ||||||
85,000 | Uni-President Enterprises Corp. | 188,458 | ||||||
125,000 | Want Want China Holdings, Ltd. | 104,587 | ||||||
6,500 | WH Group, Ltd. | 7,327 | ||||||
900 | Wilmar International, Ltd. | 2,075 | ||||||
|
| |||||||
7,393,810 | ||||||||
|
| |||||||
Gas Utilities (0.4%): | ||||||||
327 | GAIL India, Ltd. | 2,553 | ||||||
12,748 | Gas Natural SDG SA | 294,102 | ||||||
59,500 | Tokyo Gas Co., Ltd. | 1,358,957 | ||||||
|
| |||||||
1,655,612 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (0.7%): | ||||||||
3,159 | Baxter International, Inc. | 204,198 | ||||||
152 | Boston Scientific Corp.* | 3,768 | ||||||
18,000 | HOYA Corp. | 899,542 | ||||||
1,508 | Medtronic plc | 121,771 | ||||||
100 | Olympus Co., Ltd. | 3,829 | ||||||
826 | Stryker Corp. | 127,898 | ||||||
12,748 | Zimmer Holdings, Inc. | 1,538,301 | ||||||
|
| |||||||
2,899,307 | ||||||||
|
| |||||||
Health Care Providers & Services (1.8%): | ||||||||
18,144 | Acadia Healthcare Co., Inc.*^ | 592,039 | ||||||
521 | Aetna, Inc. | 93,983 | ||||||
4,100 | Alfresa Holdings Corp. | 96,242 |
Continued
6
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Providers & Services, continued | ||||||||
5,524 | Anthem, Inc. | $ | 1,242,955 | |||||
217 | Express Scripts Holding Co.* | 16,197 | ||||||
24,733 | HCA Holdings, Inc.* | 2,172,547 | ||||||
187 | McKesson Corp. | 29,163 | ||||||
4,700 | Medipal Holdings Corp. | 92,055 | ||||||
39,737 | NMC Health plc | 1,547,343 | ||||||
606,122 | PT Siloam International Hospital Tbk* | 427,596 | ||||||
2,100 | Suzuken Co., Ltd. | 86,421 | ||||||
31,311 | Tenet Healthcare Corp.*^ | 474,675 | ||||||
979 | UnitedHealth Group, Inc. | 215,830 | ||||||
|
| |||||||
7,087,046 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure (0.5%): | ||||||||
225 | Carnival Corp., Class A | 14,933 | ||||||
18 | Compass Group plc | 389 | ||||||
10,200 | Genting Singapore plc | 9,970 | ||||||
60 | Hilton Worldwide Holdings, Inc. | 4,792 | ||||||
215 | Las Vegas Sands Corp. | 14,940 | ||||||
589 | McDonald’s Corp. | 101,379 | ||||||
28,573 | MGM Resorts International | 954,052 | ||||||
322 | Royal Caribbean Cruises, Ltd. | 38,408 | ||||||
5,226 | Sodexo SA | 701,588 | ||||||
662 | Wyndham Worldwide Corp. | 76,706 | ||||||
400 | Wynn Resorts, Ltd. | 67,436 | ||||||
70 | Yum China Holdings, Inc. | 2,801 | ||||||
|
| |||||||
1,987,394 | ||||||||
|
| |||||||
Household Durables (0.5%): | ||||||||
2,800 | Alpine Electronics, Inc. | 58,007 | ||||||
11,076 | Berkeley Group Holdings plc (The) | 627,071 | ||||||
1,485 | Coway Co., Ltd. | 135,315 | ||||||
5,268 | Mohawk Industries, Inc.* | 1,453,441 | ||||||
400 | Panasonic Corp. | 5,859 | ||||||
200 | Sony Corp. | 8,985 | ||||||
|
| |||||||
2,288,678 | ||||||||
|
| |||||||
Household Products (0.0%): | ||||||||
1,498 | Colgate-Palmolive Co. | 113,024 | ||||||
227 | Hindustan Unilever, Ltd. | 4,856 | ||||||
38 | Kimberly-Clark Corp. | 4,585 | ||||||
256 | Procter & Gamble Co. (The) | 23,521 | ||||||
31 | Reckitt Benckiser Group plc | 2,895 | ||||||
200 | Unicharm Corp. | 5,200 | ||||||
|
| |||||||
154,081 | ||||||||
|
| |||||||
Independent Power & Renewable Electricity Producers (0.2%): | ||||||||
4,000 | China Resources Power Holdings Co. | 7,448 | ||||||
14,067 | NextEra Energy Partners LP^ | 606,429 | ||||||
10,679 | Vistra Energy Corp.*^ | 195,639 | ||||||
|
| |||||||
809,516 | ||||||||
|
| |||||||
Industrial Conglomerates (1.3%): | ||||||||
240 | 3M Co., Class C | 56,489 | ||||||
93,186 | General Electric Co. | 1,626,096 | ||||||
2,000 | Jardine Matheson Holdings, Ltd. | 121,429 | ||||||
75,244 | Koninklijke Philips Electronics NV | 2,846,238 | ||||||
3,708 | Siemens AG, Registered Shares | 514,418 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Industrial Conglomerates, continued | ||||||||
29,751 | Smiths Group plc | $ | 595,059 | |||||
4,000 | Toshiba Corp.*^ | 11,245 | ||||||
|
| |||||||
5,770,974 | ||||||||
|
| |||||||
Insurance (1.5%): | ||||||||
10,427 | Allstate Corp. (The) | 1,091,811 | ||||||
51 | American International Group, Inc. | 3,039 | ||||||
78 | Aon plc | 10,452 | ||||||
278 | Aviva plc | 1,900 | ||||||
33,007 | AXA SA | 978,156 | ||||||
75,000 | Cathay Financial Holding Co., Ltd. | 134,516 | ||||||
6,959 | Chubb, Ltd. | 1,016,919 | ||||||
2,275 | Hartford Financial Services Group, Inc. (The) | 128,037 | ||||||
1,727 | Legal & General Group plc | 6,356 | ||||||
10,324 | Marsh & McLennan Cos., Inc. | 840,270 | ||||||
24,886 | MetLife, Inc. | 1,258,236 | ||||||
2 | Muenchener Rueckversicherungs-Gesellschaft AG | 434 | ||||||
12 | Progressive Corp. (The) | 676 | ||||||
502 | Prudential Financial, Inc. | 57,720 | ||||||
53 | Prudential plc | 1,362 | ||||||
364 | Reinsurance Group of America, Inc. | 56,759 | ||||||
4,671 | SBI Life Insurance Co., Ltd.* | 50,955 | ||||||
15 | Swiss Re AG | 1,404 | ||||||
19,500 | Tokio Marine Holdings, Inc. | 890,126 | ||||||
1,202 | Travelers Cos., Inc. (The) | 163,039 | ||||||
35 | Zurich Insurance Group AG | 10,647 | ||||||
|
| |||||||
6,702,814 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (1.2%): | ||||||||
3,625 | Amazon.com, Inc.* | 4,239,328 | ||||||
149 | Expedia, Inc. | 17,846 | ||||||
7 | Priceline Group, Inc. (The)* | 12,164 | ||||||
200 | Rakuten, Inc. | 1,829 | ||||||
16,758 | TripAdvisor, Inc.*^ | 577,481 | ||||||
|
| |||||||
4,848,648 | ||||||||
|
| |||||||
Internet Software & Services (2.5%): | ||||||||
4,334 | Alibaba Group Holding, Ltd., ADR*^ | 747,311 | ||||||
24 | Alphabet, Inc., Class A* | 25,282 | ||||||
4,113 | Alphabet, Inc., Class C* | 4,303,844 | ||||||
55,564 | Cloudera, Inc.*^ | 917,917 | ||||||
95,700 | Dropbox, Inc.*(a)(b) | 1,358,940 | ||||||
295 | eBay, Inc.* | 11,133 | ||||||
15,296 | Facebook, Inc., Class A* | 2,699,132 | ||||||
5,547 | Lookout, Inc.*(a)(b) | 1,165 | ||||||
100 | Tencent Holdings, Ltd. | 5,170 | ||||||
660 | VeriSign, Inc.*^ | 75,530 | ||||||
|
| |||||||
10,145,424 | ||||||||
|
| |||||||
IT Services (1.6%): | ||||||||
514 | Accenture plc, Class C | 78,689 | ||||||
151 | Alliance Data Systems Corp. | 38,275 | ||||||
12 | Amadeus IT Holding SA | 864 | ||||||
1,070 | Amdocs, Ltd. | 70,064 | ||||||
17 | Automatic Data Processing, Inc. | 1,992 | ||||||
46 | Cognizant Technology Solutions Corp., Class A | 3,267 |
Continued
7
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
IT Services, continued | ||||||||
59 | DXC Technology Co. | $ | 5,599 | |||||
9,393 | FleetCor Technologies, Inc.* | 1,807,496 | ||||||
2,000 | Fujitsu, Ltd. | 14,178 | ||||||
6,615 | Global Payments, Inc. | 663,088 | ||||||
198 | HCL Technologies, Ltd. | 2,763 | ||||||
85,114 | Infosys, Ltd. | 1,387,963 | ||||||
7,635 | International Business Machines Corp. | 1,171,362 | ||||||
5,504 | MasterCard, Inc., Class A | 833,085 | ||||||
332 | Tech Mahindra, Ltd. | 2,619 | ||||||
7,110 | Visa, Inc., Class A | 810,682 | ||||||
|
| |||||||
6,891,986 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.0%): | ||||||||
54 | Agilent Technologies, Inc. | 3,616 | ||||||
14 | Illumina, Inc.* | 3,059 | ||||||
13 | IQVIA Holdings, Inc.* | 1,273 | ||||||
718 | Thermo Fisher Scientific, Inc. | 136,334 | ||||||
|
| |||||||
144,282 | ||||||||
|
| |||||||
Machinery (1.0%): | ||||||||
255 | Caterpillar, Inc. | 40,183 | ||||||
209 | Cummins, Inc. | 36,918 | ||||||
20,258 | Doosan Bobcat, Inc. | 677,651 | ||||||
10,308 | GEA Group AG | 494,199 | ||||||
7,200 | Hino Motors, Ltd. | 93,411 | ||||||
333 | Illinois Tool Works, Inc. | 55,561 | ||||||
85 | Ingersoll-Rand plc | 7,581 | ||||||
28,100 | Komatsu, Ltd. | 1,018,014 | ||||||
29,500 | Kubota Corp. | 577,737 | ||||||
125 | PACCAR, Inc. | 8,885 | ||||||
165 | Sandvik AB | 2,885 | ||||||
33,134 | SKF AB, Class B | 735,011 | ||||||
452 | Volvo AB, Class B | 8,413 | ||||||
334 | WABCO Holdings, Inc.* | 47,929 | ||||||
|
| |||||||
3,804,378 | ||||||||
|
| |||||||
Marine (0.0%): | ||||||||
1 | A.P. Moeller — Maersk A/S, Class A | 1,667 | ||||||
3 | A.P. Moeller — Maersk A/S, Class B | 5,229 | ||||||
|
| |||||||
6,896 | ||||||||
|
| |||||||
Media (2.2%): | ||||||||
4,341 | Charter Communications, Inc., Class A* | 1,458,402 | ||||||
97,369 | Comcast Corp., Class A | 3,899,628 | ||||||
8,573 | DISH Network Corp., Class A* | 409,361 | ||||||
15,329 | I-Cable Communications, Ltd.* | 451 | ||||||
2,623 | Liberty Broadband Corp., Class A* | 223,086 | ||||||
8,271 | Liberty Broadband Corp., Class C* | 704,358 | ||||||
11,226 | Liberty Global plc, Class A*^ | 402,340 | ||||||
64 | Liberty Global plc, Series C* | 2,166 | ||||||
9,407 | Liberty SiriusXM Group, Class A* | 373,082 | ||||||
15,764 | Liberty SiriusXM Group, Class C* | 625,200 | ||||||
9,400 | Nippon Television Holdings, Inc. | 161,064 | ||||||
84,407 | RAI Way SpA | 515,220 | ||||||
72 | Time Warner, Inc. | 6,586 | ||||||
3,100 | Toho Co., Ltd. | 107,390 | ||||||
6,800 | TV Asahi Holdings Corp. | 136,519 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Media, continued | ||||||||
48 | Vivendi Universal SA | $ | 1,291 | |||||
54,080 | Zon Multimedia Servicos de Telecommunicacoes e Multimedia SGPS SA | 355,537 | ||||||
|
| |||||||
9,381,681 | ||||||||
|
| |||||||
Metals & Mining (0.1%): | ||||||||
35 | Anglo American plc | 731 | ||||||
128 | Barrick Gold Corp. | 1,852 | ||||||
280 | BHP Billiton, Ltd. | 6,444 | ||||||
1,900 | DOWA Mining Co. | 77,607 | ||||||
569 | Eregli Demir ve Celik Fabrikalari T.A.S. | 1,503 | ||||||
72,391 | Platinum Group Metals, Ltd.* | 22,007 | ||||||
11,061 | Platinum Group Metals, Ltd.* | 3,344 | ||||||
533 | POSCO | 165,520 | ||||||
103 | Rio Tinto plc | 5,435 | ||||||
94 | Rio Tinto, Ltd. | 5,546 | ||||||
249 | Teck Cominco, Ltd., Class B | 6,512 | ||||||
14,200 | Tokyo Steel Manufacturing Co., Ltd. | 127,463 | ||||||
326 | Vale SA | 3,958 | ||||||
550 | Vedanta, Ltd. | 2,835 | ||||||
2,900 | Yamato Kogyo Co., Ltd. | 84,067 | ||||||
|
| |||||||
514,824 | ||||||||
|
| |||||||
Multiline Retail (0.2%): | ||||||||
437 | Kohl’s Corp.^ | 23,699 | ||||||
12,784 | Target Corp. | 834,156 | ||||||
|
| |||||||
857,855 | ||||||||
|
| |||||||
Multi-Utilities (0.8%): | ||||||||
73 | AGL Energy, Ltd. | 1,385 | ||||||
809 | CenterPoint Energy, Inc. | 22,943 | ||||||
1,789 | Centrica plc | 3,312 | ||||||
2,096 | Dominion Energy, Inc. | 169,902 | ||||||
803 | E.ON AG | 8,706 | ||||||
44 | Engie Group | 756 | ||||||
61,469 | Innogy Se | 2,395,177 | ||||||
3,630 | National Grid plc | 42,633 | ||||||
6,944 | Sempra Energy | 742,452 | ||||||
|
| |||||||
3,387,266 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (4.3%): | ||||||||
34,776 | Anadarko Petroleum Corp. | 1,865,385 | ||||||
33,191 | BP plc, ADR | 1,395,018 | ||||||
53,501 | BP plc | 377,244 | ||||||
337 | Chevron Corp. | 42,189 | ||||||
7,000 | CNOOC, Ltd. | 10,064 | ||||||
25,479 | Coal India, Ltd. | 104,979 | ||||||
107 | ConocoPhillips Co. | 5,873 | ||||||
134,367 | EnCana Corp. | 1,791,113 | ||||||
9,739 | EQT Corp. | 554,344 | ||||||
344 | Exxon Mobil Corp. | 28,772 | ||||||
23,000 | Formosa Petrochemical Corp. | 89,170 | ||||||
415 | Hindustan Petroleum Corp., Ltd. | 2,721 | ||||||
323 | Indian Oil Corp., Ltd. | 1,966 | ||||||
208 | Kinder Morgan, Inc. | 3,759 | ||||||
19,519 | Marathon Petroleum Corp. | 1,287,864 |
Continued
8
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
37,305 | Oil & Natural Gas Corp., Ltd. | $ | 114,059 | |||||
49 | ONEOK, Inc. | 2,619 | ||||||
354 | Petroleo Brasileiro SA* | 1,719 | ||||||
587 | Phillips 66 | 59,375 | ||||||
9,688 | Pioneer Natural Resources Co. | 1,674,571 | ||||||
43 | Polski Koncern Naftowy Orlen SA | 1,306 | ||||||
1,205 | Polskie Gornictwo Naftowe i Gazownictwo SA | 2,175 | ||||||
127,411 | Reliance Industries, Ltd. | 1,838,318 | ||||||
53 | Repsol SA | 937 | ||||||
70 | Royal Dutch Shell plc, Class A | 2,343 | ||||||
24,408 | Royal Dutch Shell plc, Class A, ADR | 1,628,258 | ||||||
38,168 | Royal Dutch Shell plc, Class A | 1,272,706 | ||||||
429 | Royal Dutch Shell plc, Class B | 14,466 | ||||||
31 | SK Energy Co., Ltd. | 5,904 | ||||||
14,967 | Snam SpA | 73,273 | ||||||
6 | Suncor Energy, Inc. | 220 | ||||||
32,300 | Thai Oil Public Co., Ltd. | 102,614 | ||||||
650 | Total SA, ADR | 35,932 | ||||||
17,028 | Total SA | 939,410 | ||||||
233 | Tupras-Turkiye Petrol Rafine | 7,472 | ||||||
1,337 | Valero Energy Corp. | 122,884 | ||||||
94,613 | Williams Cos., Inc. (The) | 2,884,749 | ||||||
|
| |||||||
18,345,771 | ||||||||
|
| |||||||
Personal Products (0.4%): | ||||||||
1,344 | Amorepacific Corp. | 381,775 | ||||||
19,407 | Edgewell Personal Care Co.*^ | 1,152,582 | ||||||
100 | Kao Corp. | 6,765 | ||||||
180 | LG Household & Health Care, Ltd. | 199,582 | ||||||
162 | Unilever NV | 9,101 | ||||||
|
| |||||||
1,749,805 | ||||||||
|
| |||||||
Pharmaceuticals (2.2%): | ||||||||
8 | Allergan plc | 1,309 | ||||||
71,200 | Astellas Pharma, Inc. | 904,439 | ||||||
20,048 | Bayer AG, Registered Shares | 2,493,165 | ||||||
23 | Bristol-Myers Squibb Co. | 1,409 | ||||||
64,215 | GlaxoSmithKline plc | 1,135,608 | ||||||
2,439 | Gw Pharmaceuticals, ADR* | 321,972 | ||||||
1,315 | Johnson & Johnson Co. | 183,732 | ||||||
89 | Merck & Co., Inc. | 5,008 | ||||||
100 | Mitsubishi Tanabe Pharma Corp. | 2,062 | ||||||
101 | Novartis AG, Registered Shares | 8,541 | ||||||
2,100 | Otsuka Holdings Co., Ltd. | 91,977 | ||||||
78,571 | Pfizer, Inc. | 2,845,842 | ||||||
69 | Roche Holding AG | 17,457 | ||||||
12,986 | Sanofi-Aventis SA | 1,118,004 | ||||||
200 | Shionogi & Co., Ltd. | 10,815 | ||||||
10 | UCB SA | 792 | ||||||
|
| |||||||
9,142,132 | ||||||||
|
| |||||||
Professional Services (0.1%): | ||||||||
29 | Experian plc | 637 | ||||||
290 | Manpower, Inc. | 36,572 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Professional Services, continued | ||||||||
8,345 | Randstad Holding NV | $ | 511,953 | |||||
3 | SGS SA, Registered Shares | 7,822 | ||||||
|
| |||||||
556,984 | ||||||||
|
| |||||||
Real Estate Management & Development (1.3%): | ||||||||
301,000 | CapitaLand, Ltd. | 793,226 | ||||||
30,000 | Hang Lung Properties, Ltd. | 73,213 | ||||||
600 | Hongkong Land Holdings, Ltd. | 4,219 | ||||||
1,000 | Longfor Properties Co., Ltd. | 2,506 | ||||||
56,000 | Sino Land Co., Ltd. | 99,149 | ||||||
112,666 | Sun Hung Kai Properties, Ltd. | 1,876,832 | ||||||
12,000 | Swire Pacific, Ltd., Class A | 111,073 | ||||||
600 | Swire Properties, Ltd. | 1,935 | ||||||
42,143 | The St. Joe Co.*^ | 760,681 | ||||||
14,611 | Vonovia SE | 723,158 | ||||||
19,000 | Wharf Holdings, Ltd. (The) | 65,703 | ||||||
20,000 | Wharf Real Estate Investment Co., Ltd.* | 133,118 | ||||||
|
| |||||||
4,644,813 | ||||||||
|
| |||||||
Road & Rail (1.0%): | ||||||||
78 | Canadian National Railway Co. | 6,433 | ||||||
66,400 | ComfortDelGro Corp., Ltd. | 98,217 | ||||||
32 | CSX Corp. | 1,760 | ||||||
20,600 | East Japan Railway Co. | 2,008,583 | ||||||
12,483 | Kansas City Southern | 1,313,461 | ||||||
100 | Kintetsu Corp. | 3,825 | ||||||
12,000 | Kyushu Railway Co. | 371,344 | ||||||
21 | Norfolk Southern Corp. | 3,043 | ||||||
5,300 | Seino Holdings Co., Ltd. | 83,945 | ||||||
28 | Union Pacific Corp. | 3,755 | ||||||
7,900 | West Japan Railway Co. | 576,407 | ||||||
|
| |||||||
4,470,773 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (1.3%): | ||||||||
259 | Applied Materials, Inc. | 13,240 | ||||||
2 | Broadcom, Ltd. | 514 | ||||||
1,690 | Intel Corp. | 78,010 | ||||||
554 | KLA-Tencor Corp. | 58,209 | ||||||
45 | Lam Research Corp. | 8,283 | ||||||
164 | Micron Technology, Inc.* | 6,744 | ||||||
7 | NVIDIA Corp. | 1,355 | ||||||
53,731 | QUALCOMM, Inc. | 3,439,858 | ||||||
28,800 | Renesas Electronics Corp.* | 333,410 | ||||||
11,600 | ROHM Co., Ltd. | 1,278,124 | ||||||
73 | SK Hynix, Inc. | 5,155 | ||||||
17,000 | Taiwan Semiconductor Manufacturing Co., Ltd. | 130,666 | ||||||
134 | Texas Instruments, Inc. | 13,995 | ||||||
|
| |||||||
5,367,563 | ||||||||
|
| |||||||
Software (3.1%): | ||||||||
10,014 | Activision Blizzard, Inc. | 634,086 | ||||||
547 | Adobe Systems, Inc.* | 95,856 | ||||||
8 | Autodesk, Inc.* | 839 | ||||||
335 | CA, Inc. | 11,149 | ||||||
107 | Check Point Software Technologies, Ltd.*^ | 11,087 | ||||||
101 | Dell Technologies, Inc., Class V* | 8,209 | ||||||
6,063 | Electronic Arts, Inc.* | 636,979 |
Continued
9
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Software, continued | ||||||||
584 | Intuit, Inc. | $ | 92,144 | |||||
86,582 | Microsoft Corp. | 7,406,224 | ||||||
308 | Oracle Corp. | 14,562 | ||||||
111 | SAP AG | 12,445 | ||||||
39,037 | Snap, Inc., Class A*^ | 570,331 | ||||||
33 | Symantec Corp.^ | 926 | ||||||
68,532 | Uber Technologies, Inc.*(a)(b) | 2,259,500 | ||||||
5,380 | VMware, Inc., Class A*^ | 674,222 | ||||||
|
| |||||||
12,428,559 | ||||||||
|
| |||||||
Specialty Retail (0.8%): | ||||||||
621 | Home Depot, Inc. (The) | 117,698 | ||||||
1,660 | Hotel Shilla Co., Ltd. | 131,425 | ||||||
2,231 | Lowe’s Cos., Inc. | 207,349 | ||||||
7,865 | O’Reilly Automotive, Inc.*^ | 1,891,847 | ||||||
323 | Ross Stores, Inc. | 25,921 | ||||||
700 | Shimamura Co., Ltd. | 77,004 | ||||||
8,454 | TJX Cos., Inc. (The) | 646,393 | ||||||
11,753 | Williams-Sonoma, Inc.^ | 607,630 | ||||||
|
| |||||||
3,705,267 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (1.5%): | ||||||||
32,737 | Apple, Inc. | 5,540,082 | ||||||
430 | Hewlett Packard Enterprise Co. | 6,175 | ||||||
659 | HP, Inc. | 13,846 | ||||||
4,000 | Pegatron Corp. | 9,670 | ||||||
45,476 | Pure Storage, Inc., Class A*^ | 721,249 | ||||||
9 | Samsung Electronics Co., Ltd. | 21,385 | ||||||
517 | Western Digital Corp. | 41,117 | ||||||
|
| |||||||
6,353,524 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (0.2%): | ||||||||
16 | Adidas AG | 3,194 | ||||||
12,670 | Luxottica Group SpA | 776,341 | ||||||
4 | LVMH Moet Hennessy Louis Vuitton SA | 1,175 | ||||||
239 | PVH Corp. | 32,793 | ||||||
78 | Swatch Group AG (The), Registered Shares | 5,963 | ||||||
|
| |||||||
819,466 | ||||||||
|
| |||||||
Thrifts & Mortgage Finance (0.1%): | ||||||||
7,983 | Housing Development Finance Corp., Ltd. | 213,678 | ||||||
|
| |||||||
Tobacco (0.1%): | ||||||||
174 | Imperial Tobacco Group plc, Class A | 7,434 | ||||||
100 | Japan Tobacco, Inc. | 3,221 | ||||||
5,110 | KT&G Corp. | 551,488 | ||||||
135 | Philip Morris International, Inc. | 14,263 | ||||||
|
| |||||||
576,406 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.0%): | ||||||||
700 | Marubeni Corp. | 5,084 | ||||||
433 | United Rentals, Inc.* | 74,437 | ||||||
|
| |||||||
79,521 | ||||||||
|
| |||||||
Transportation Infrastructure (0.0%): | ||||||||
65 | Aena SA | 13,157 | ||||||
46 | Atlantia SpA | 1,451 | ||||||
3,800 | Kamigumi Co., Ltd. | 83,999 | ||||||
|
| |||||||
98,607 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Wireless Telecommunication Services (1.2%): | ||||||||
33,500 | Advanced Information Service plc | $ | 196,365 | |||||
1,000 | China Mobile, Ltd. | 10,123 | ||||||
111,000 | Far EasTone Telecommunications Co., Ltd. | 274,200 | ||||||
85,100 | Intouch Holdings Public Co., Ltd. | 146,765 | ||||||
5,500 | KDDI Corp. | 136,954 | ||||||
26 | MTN Group, Ltd. | 288 | ||||||
646 | SK Telecom Co., Ltd. | 161,196 | ||||||
99,000 | Taiwan Mobile Co., Ltd. | 357,659 | ||||||
20,129 | Vodafone Group plc, ADR^ | 642,115 | ||||||
750,920 | Vodafone Group plc | 2,371,754 | ||||||
|
| |||||||
4,297,419 | ||||||||
|
| |||||||
Total Common Stocks (Cost $186,122,892) | 233,902,661 | |||||||
|
| |||||||
Preferred Stocks (0.8%): | ||||||||
Banks (0.1%): | ||||||||
240 | Banco Bradesco SA, 0.51% | 2,450 | ||||||
14,150 | Citigroup Capital XIII, Series A, 7.75%^ | 388,842 | ||||||
318 | Itau Unibanco Holding SA, Series S, 0.42% | 4,083 | ||||||
84,000 | USB Capital IX, 3.50%(US0003M+102bps) | 76,020 | ||||||
|
| |||||||
471,395 | ||||||||
|
| |||||||
Consumer Finance (0.1%): | ||||||||
16,151 | GMAC Capital Trust I, Series 2, 7.20%^ | 419,118 | ||||||
|
| |||||||
Health Care Providers & Services (0.3%): | ||||||||
16,042 | Anthem, Inc., 5.25%^ | 898,353 | ||||||
143,925 | Grand Rounds, Inc., Series C*(a)(b) | 410,186 | ||||||
|
| |||||||
1,308,539 | ||||||||
|
| |||||||
Internet Software & Services (0.1%): | ||||||||
63,925 | Lookout, Inc. Preferred Shares, Series F*(a)(b) | 596,420 | ||||||
|
| |||||||
Software (0.2%): | ||||||||
116,157 | Palantir Technologies, Inc., Series I*(a)(b) | 658,610 | ||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (0.0%): | ||||||||
4 | Samsung Electronics Co., Ltd., 1.34% | 7,799 | ||||||
|
| |||||||
Total Preferred Stocks (Cost $3,360,442) | 3,461,881 | |||||||
|
| |||||||
Warrant (0.0%): | ||||||||
Paper & Forest Products (0.0%): | ||||||||
157,250 | TFS Corp., Ltd. | 11 | ||||||
|
| |||||||
Total Warrant (Cost $—) | 11 | |||||||
|
| |||||||
Convertible Preferred Stocks (0.9%): | ||||||||
Banks (0.0%): | ||||||||
125 | Wells Fargo & Co., Series L, Class A, 7.5% | 163,749 | ||||||
|
| |||||||
Equity Real Estate Investment Trusts (0.2%): | ||||||||
526 | Crown Castle International Corp., Series A, 8.68%^ | 593,749 | ||||||
6,022 | Welltower, Inc., Series I, 6.50%^ | 360,537 | ||||||
|
| |||||||
954,286 | ||||||||
|
| |||||||
Internet Software & Services (0.2%): | ||||||||
144,482 | Domo, Inc., Series E*(a)(b) | 905,902 | ||||||
|
| |||||||
Multi-Utilities (0.2%): | ||||||||
12,830 | Dominion Resources, Inc., Series A, 6.75%^ | 662,798 | ||||||
|
| |||||||
Wireless Telecommunication Services (0.3%): | ||||||||
6,269 | Mandatory Exchange Trust, 5.75%(c) | 1,220,950 | ||||||
|
| |||||||
Total Convertible Preferred Stocks (Cost $3,430,141) | 3,907,685 | |||||||
|
|
Continued
10
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Private Placements (0.0%): | ||||||||
Household Durables (0.0%): | ||||||||
$ | 3,065,000 | AliphCom, Inc., 12.00%, 4/1/20(a)(b) | $ | 12,567 | ||||
23,389 | Jawbone, 0.00%*(a)(b) | 31,893 | ||||||
|
| |||||||
44,460 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.0%): | ||||||||
268,000 | Aliphcom, 12.00%, 4/1/20(a)(b) | 1,099 | ||||||
|
| |||||||
Total Private Placements (Cost $3,333,000) | 45,559 | |||||||
|
| |||||||
Convertible Bonds (0.4%): | ||||||||
Food Products (0.0%): | ||||||||
400,000 | REI Agro, Ltd., Registered Shares, 5.50%, 11/13/14(a)(b)(d) | — | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.1%): | ||||||||
631,620 | Dana Gas Sukuk, Ltd., 7.00%, 10/31/18(a) | 517,928 | ||||||
|
| |||||||
Pharmaceuticals (0.3%): | ||||||||
600,000 | Bayer Capital Corp. BV, 5.63%, 11/22/19+(c) | 808,943 | ||||||
|
| |||||||
Real Estate Management & Development (0.0%): | ||||||||
250,000 | CapitaLand, Ltd., 1.95%, 10/17/23+(c) | 188,374 | ||||||
|
| |||||||
Total Convertible Bonds (Cost $1,851,930) | 1,515,245 | |||||||
|
| |||||||
Bank Loans (0.4%): | ||||||||
Capital Markets (0.2%): | ||||||||
101,695 | Sheridan Production Partners, 4.98%, 12/2/20 | 87,796 | ||||||
37,937 | Sheridan Production Partners, 4.98%, 12/16/20(e) | 32,752 | ||||||
730,890 | Sheridan Production Partners, 4.98%, 12/16/20(e) | 631,000 | ||||||
|
| |||||||
751,548 | ||||||||
|
| |||||||
Energy Equipment & Services (0.1%): | ||||||||
371,737 | Seadrill, Ltd., 4.69%, 2/21/21 | 299,248 | ||||||
|
| |||||||
Hotels, Restaurants & Leisure (0.1%): | ||||||||
522,684 | Hilton Worldwide Finance LLC, 3.55%, 10/25/23 | 525,099 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.0%): | ||||||||
254,386 | Fieldwood Energy LLC, 8.69%, 9/30/20 | 81,614 | ||||||
111,961 | Fieldwood Holdings LLC, 8.82%, 8/31/20 | 100,765 | ||||||
|
| |||||||
182,379 | ||||||||
|
| |||||||
Total Bank Loans (Cost $2,021,409) | 1,758,274 | |||||||
|
| |||||||
Collateralized Mortgage Obligations (0.1%): | ||||||||
459,000 | Logistics UK, Class F, Series 2015-1A, 1.21%, 8/20/25(a)(f) | 617,841 | ||||||
|
| |||||||
Total Collateralized Mortgage Obligations (Cost $691,605) | 617,841 | |||||||
|
| |||||||
Corporate Bonds (2.5%): | ||||||||
Banks (0.5%): | ||||||||
348,000 | Bank of America Corp., 3.30%, 1/11/23, MTN | 356,003 | ||||||
162,000 | Bank of America Corp., 4.00%, 1/22/25, MTN | 168,539 | ||||||
312,000 | Citigroup, Inc., 2.70%, 3/30/21 | 312,948 | ||||||
149,000 | Citigroup, Inc., 2.90%, 12/8/21, Callable 11/8/21 @ 100 | 149,981 | ||||||
373,000 | Citigroup, Inc., Series O, 5.87% (US0003M + 406 bps), 12/29/49, Callable 3/27/20 @ 100 | 386,987 | ||||||
137,000 | JPMorgan Chase & Co., 4.35%, 8/15/21 | 145,304 | ||||||
351,000 | JPMorgan Chase & Co., 2.36% (US0003M + 100 bps), 1/15/23, Callable 1/15/22 @ 100 | 355,723 | ||||||
85,000 | Santander Holdings USA, 3.70%, 3/28/22, Callable 2/28/22 @ 100(c) | 86,023 | ||||||
|
| |||||||
1,961,508 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Capital Markets (0.1%): | ||||||||
$ | 323,000 | Goldman Sachs Group, Inc. (The), Series M, 5.38% (US0003M + 392 bps), 12/31/49, Callable 5/10/20 @ 100 | $ | 332,690 | ||||
228,000 | Morgan Stanley, Series H, 5.45% (US0003M + 361 bps), 7/29/49, Callable 7/15/19 @ 100 | 234,042 | ||||||
|
| |||||||
566,732 | ||||||||
|
| |||||||
Chemicals (0.0%): | ||||||||
115,000 | Sherwin-Williams, 2.75%, 6/1/22, Callable 5/1/22 @ 100 | 114,554 | ||||||
|
| |||||||
Communications Equipment (0.0%): | ||||||||
53,000 | Hughes Satellite Systems Corp., 7.63%, 6/15/21 | 58,565 | ||||||
|
| |||||||
Consumer Finance (0.1%): | ||||||||
191,000 | Ally Financial, Inc., 3.50%, 1/27/19 | 191,955 | ||||||
200,000 | American Express Co., Series C, 4.90% (US0003M + 329 bps), 12/29/49, Callable 3/15/20 @ 100^ | 204,000 | ||||||
125,000 | General Motors Financial Co., Inc., 3.45%, 4/10/22, Callable 2/10/22 @ 100 | 126,666 | ||||||
87,000 | Synchrony Financial, 3.75%, 8/15/21, Callable 6/15/21 @ 100 | 89,211 | ||||||
|
| |||||||
611,832 | ||||||||
|
| |||||||
Diversified Telecommunication Services (0.9%): | ||||||||
475,000 | AT&T, Inc., 3.00%, 6/30/22, Callable 4/30/22 @ 100 | 475,844 | ||||||
465,000 | AT&T, Inc., 2.85%, 2/14/23, Callable 1/14/23 @ 100 | 466,844 | ||||||
75,000 | AT&T, Inc., 4.45%, 4/1/24, Callable 1/1/24 @ 100 | 79,336 | ||||||
831,000 | AT&T, Inc., 3.40%, 8/14/24, Callable 6/14/24 @ 100^ | 835,267 | ||||||
1,506,000 | Verizon Communications, 3.13%, 3/16/22 | 1,526,941 | ||||||
149,000 | Verizon Communications, Inc., 2.63%, 8/15/26^ | 140,341 | ||||||
|
| |||||||
3,524,573 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (0.2%): | ||||||||
135,000 | Becton Dickinson & Co., 3.36%, 6/6/24, Callable 4/6/24 @ 100 | 135,377 | ||||||
306,000 | Becton, Dickinson & Co., 3.13%, 11/8/21 | 308,581 | ||||||
245,000 | Becton, Dickinson & Co., 2.89%, 6/6/22, Callable 5/6/22 @ 100 | 243,467 | ||||||
|
| |||||||
687,425 | ||||||||
|
| |||||||
Industrial Conglomerates (0.1%): | ||||||||
318,000 | General Electric Co., Series D, 5.00% (US0003M + 333 bps), 12/31/49, Callable 1/21/21 @ 100 | 327,731 | ||||||
|
| |||||||
Insurance (0.1%): | ||||||||
173,000 | Prudential Financial, Inc., 5.87% (US0003M + 418 bps), 9/15/42, Callable 9/15/22 @ 100 | 189,003 | ||||||
115,000 | Prudential Financial, Inc., 5.63% (US0003M + 392 bps), 6/15/43, Callable 6/15/23 @ 100^ | 124,545 | ||||||
|
| |||||||
313,548 | ||||||||
|
| |||||||
Internet Software & Services (0.0%): | ||||||||
159,000 | eBay, Inc., 2.75%, 1/30/23, Callable 12/30/22 @ 100 | 157,451 | ||||||
|
|
Continued
11
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Media (0.1%): | ||||||||
$ | 200,000 | NBCUniversal Enterprise, Inc., 5.25%, 12/31/99, Callable 3/19/21 @ 100(c) | $ | 212,500 | ||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.0%): | ||||||||
151,147 | Fieldwood Energy LLC, 8.82%, 9/30/20 | 103,788 | ||||||
|
| |||||||
Personal Products (0.1%): | ||||||||
171,000 | Edgewell Personal Care Co., 4.70%, 5/19/21 | 176,558 | ||||||
149,000 | Edgewell Personal Care Co., 4.70%, 5/24/22 | 152,725 | ||||||
|
| |||||||
329,283 | ||||||||
|
| |||||||
Pharmaceuticals (0.0%): | ||||||||
149,000 | Forest Laboratories, Inc., 5.00%, 12/15/21, Callable 9/16/21 @ 100(c) | 159,352 | ||||||
|
| |||||||
Software (0.0%): | ||||||||
80,000 | Activision Blizzard, Inc., 2.30%, 9/15/21, Callable 8/15/21 @ 100 | 78,950 | ||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (0.3%): | ||||||||
531,000 | Apple, Inc., 3.35%, 2/9/27, Callable 11/9/26 @ 100 | 543,942 | ||||||
510,000 | Apple, Inc., 3.20%, 5/11/27, Callable 2/11/27 @ 100 | 516,477 | ||||||
|
| |||||||
1,060,419 | ||||||||
|
| |||||||
Total Corporate Bonds (Cost $10,170,606) | 10,268,211 | |||||||
|
| |||||||
Foreign Bonds (8.2%): | ||||||||
Banks (0.2%): | ||||||||
330,000 | Lloyds TSB Bank plc, Series E, 13.00%(GUKG5+1,340bps), 1/29/49, Callable 1/21/29 @ 126+ | 834,577 | ||||||
|
| |||||||
Sovereign Bond (8.0%): | ||||||||
1,888,000 | Australian Government, Series 124, 5.75%, 5/15/21+(c) | 1,642,203 | ||||||
2,111,000 | Australian Government, Series 133, 5.50%, 4/21/23+(c) | 1,900,923 | ||||||
4,986,000 | Australian Government, Series 137, 2.75%, 4/21/24+(c) | 3,952,969 | ||||||
1,269,000 | Australian Government, 3.00%, 3/21/47+(c) | 923,680 | ||||||
1,145,000 | Brazil Nota do Tesouro Nacional, Series NTNB, 6.00%, 8/15/22+(g) | 1,127,464 | ||||||
6,911,000 | Brazil Nota do Tesouro Nacional, Series NTNF, 10.00%, 1/1/23+(g) | 2,109,357 | ||||||
4,930,000 | Brazil Nota do Tesouro Nacional, Series NTNF, 0.15%, 1/1/27+(g) | 1,466,084 | ||||||
1,778,707 | Bundesrepub. Deutshland, 0.29%, 8/15/26+(c) | 2,081,595 | ||||||
4,001,000 | Canadian Government, 0.50%, 8/1/18+ | 3,168,105 | ||||||
1,018,000 | Canadian Government, 0.75%, 3/1/21+ | 784,536 | ||||||
532,000 | Italy Buoni Poliennali Del Tesoro, 1.85%, 5/15/24+ | 660,358 | ||||||
218,500,000 | Japan Treasury Discount Bill, Series 362, 0.10%, 3/15/18+ | 1,940,395 | ||||||
273,450,000 | Japan Treasury Discount Bill, Series 369, 0.10%, 10/15/18+ | 2,431,899 | ||||||
29,209,300 | Mexican Bonos Desarr, 8.50%, 12/13/18+(h) | 1,496,333 | ||||||
3,672,000 | Poland Government Bond, Series 0725, 3.25%, 7/25/25+ | 1,064,128 | ||||||
3,695,000 | Poland Government Bond, Series 0726, 2.50%, 7/25/26+ | 1,004,320 | ||||||
12,214,000 | Poland Government Bond, 2.50%, 7/25/27+ | 3,283,897 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Foreign Bonds, continued | ||||||||
Sovereign Bond, continued | ||||||||
$ | 217,000 | Republic of Argentina, 3.88%, 1/15/22+(c) | $ | 274,011 | ||||
410,000 | Republic of Argentina, 3.38%, 1/15/23+ | 501,607 | ||||||
28,603,100 | United Mexican States, 6.50%, 6/9/22+(h) | 1,392,733 | ||||||
|
| |||||||
33,206,597 | ||||||||
|
| |||||||
Total Foreign Bonds (Cost $32,986,675) | 34,041,174 | |||||||
|
| |||||||
Yankee Dollars (2.7%): | ||||||||
Banks (0.3%): | ||||||||
273,000 | Export-Import Bank of Korea, 2.63%, 12/30/20 | 270,589 | ||||||
614,000 | HSBC Holdings plc, 6.38% (USISDA05 + 371 bps), 12/29/49, Callable 9/17/24 @ 100 | 653,910 | ||||||
|
| |||||||
924,499 | ||||||||
|
| |||||||
Capital Markets (0.1%): | ||||||||
207,000 | UBS Group AG, 4.13%, 9/24/25(c) | 217,237 | ||||||
|
| |||||||
Diversified Telecommunication Services (0.2%): | ||||||||
260,000 | Intelsat Jackson Holdings SA, 7.50%, 4/1/21, Callable 2/5/18 @ 102.5 | 236,600 | ||||||
89,000 | Intelsat Jackson Holdings SA, 8.00%, 2/15/24, Callable 2/15/19 @ 104^(c) | 93,673 | ||||||
289,000 | Telecom Italia SpA, 5.30%, 5/30/24^(c) | 308,508 | ||||||
|
| |||||||
638,781 | ||||||||
|
| |||||||
Food Products (0.1%): | ||||||||
408,000 | Danone SA, 2.59%, 11/2/23, Callable 9/2/23 @ 100(c) | 397,884 | ||||||
|
| |||||||
Industrial Conglomerates (0.0%): | ||||||||
200,000 | Odebrecht Finance, Ltd., 4.38%, 4/25/25(c) | 59,000 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.5%): | ||||||||
288,000 | Petrobras Global Finance, 6.13%, 1/17/22 | 305,640 | ||||||
340,000 | Petrobras Global Finance, 7.38%, 1/17/27^ | 374,340 | ||||||
339,000 | Petroleos Mexicanos, 5.19% (US0003M + 365 bps), 3/11/22^(c) | 372,220 | ||||||
754,000 | Petroleos Mexicanos, 4.63%, 9/21/23 | 775,677 | ||||||
|
| |||||||
1,827,877 | ||||||||
|
| |||||||
Paper & Forest Products (0.2%): | ||||||||
1,018,000 | TFS Corp., Ltd., 8.75%, 8/1/23, Callable 8/1/19 @ 106.56(a) | 712,600 | ||||||
|
| |||||||
Pharmaceuticals (0.1%): | ||||||||
300,000 | Actavis Funding SCS, 3.45%, 3/15/22, Callable 1/15/22 @ 100 | 304,816 | ||||||
|
| |||||||
Road & Rail (0.0%): | ||||||||
527,380 | Inversiones Alsacia SA, 8.00%, 12/31/18, Callable 1/22/18 @ 100(a)(d) | 13,185 | ||||||
|
| |||||||
Sovereign Bond (1.2%): | ||||||||
1,071,000 | Federal Republic of Brazil, 4.63%, 1/13/28, Callable 10/13/27 @ 100^ | 1,075,820 | ||||||
747,000 | Federal Republic of Brazil, 5.00%, 1/27/45 | 696,204 | ||||||
206,000 | Federal Republic of Brazil, 5.63%, 2/21/47^ | 210,429 | ||||||
429,000 | Republic of Argentina, 6.88%, 4/22/21 | 467,181 | ||||||
780,000 | Republic of Argentina, 5.63%, 1/26/22^ | 822,900 | ||||||
729,000 | Republic of Argentina, 7.50%, 4/22/26^ | 825,336 |
Continued
12
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Sovereign Bond, continued | ||||||||
$ | 527,000 | Republic of Argentina, 6.88%, 1/26/27^ | $ | 575,748 | ||||
874,000 | Republic of Hungary, 6.38%, 3/29/21 | 970,210 | ||||||
200,000 | Republic of Indonesia, 3.70%, 1/8/22(c) | 205,553 | ||||||
144,000 | Republic of Poland, 5.00%, 3/23/22 | 157,680 | ||||||
|
| |||||||
6,007,061 | ||||||||
|
| |||||||
Total Yankee Dollars (Cost $11,673,197) | 11,102,940 | |||||||
|
| |||||||
U.S. Treasury Obligations (21.7%): | ||||||||
U.S. Treasury Bills (6.8%) | ||||||||
9,000,000 | 1.06%, 1/2/18(i) | 9,000,000 | ||||||
14,000,000 | 0.57%, 1/4/18(i) | 13,999,117 | ||||||
1,000,000 | 0.96%, 1/11/18(i) | 999,706 | ||||||
3,000,000 | 1.10%, 1/18/18(i) | 2,998,348 | ||||||
1,000,000 | 1.19%, 2/1/18(i) | 998,945 | ||||||
|
| |||||||
27,996,116 | ||||||||
|
| |||||||
U.S. Treasury Notes (14.9%) | ||||||||
1,000,000 | 1.25%, 12/15/18(j) | 994,766 | ||||||
872,100 | 1.13%, 7/31/21 | 843,348 | ||||||
13,205,400 | 2.00%, 10/31/22 | 13,090,369 | ||||||
13,953,200 | 2.00%, 11/30/22 | 13,826,204 | ||||||
10,100,400 | 2.13%, 9/30/24 | 9,973,356 | ||||||
10,490,000 | 2.25%, 10/31/24 | 10,441,648 | ||||||
13,706,800 | 2.25%, 11/15/27 | 13,513,513 | ||||||
|
| |||||||
62,683,204 | ||||||||
|
| |||||||
Total U.S. Treasury Obligations (Cost $91,039,322) | 90,679,320 | |||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Purchased Options (0.3%): | ||||||||
Total Purchased Options (Cost $815,159) | $ | 1,171,821 | ||||||
|
| |||||||
Purchased Currency Options (0.1%): | ||||||||
Total Purchased Options (Cost $297,701) | 411,269 | |||||||
|
| |||||||
Purchased Swaptions (0.0%): | ||||||||
Total Purchased Swaptions (Cost $287,138) | 92,200 | |||||||
|
| |||||||
Exchange Traded Funds (3.7%): | ||||||||
2,334 | ETFS Platinum Trust(j) | 206,489 | ||||||
2,764 | ETFS Physical Palladium Shares(j) | 280,684 | ||||||
61,700 | iShares Gold Trust(j) | 771,867 | ||||||
116,243 | SPDR Gold Trust(j) | 14,373,447 | ||||||
|
| |||||||
Total Exchange Traded Fund (Cost $15,147,927) | 15,632,487 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (4.1%): | ||||||||
$ | 17,308,385 | AZL BlackRock Global Allocation Fund Securities Lending Collateral Account(k) | 17,308,385 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 17,308,385 | ||||||
|
| |||||||
Unaffiliated Investment Company (2.1%): | ||||||||
8,839,261 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 1.11%(i)(j) | 8,839,261 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $8,839,261) | 8,839,261 | |||||||
|
| |||||||
Total Investment Securities (Cost $389,376,790)(l) — 104.0% | 434,756,225 | |||||||
Net other assets (liabilities) — (4.0)% | (17,090,238 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 417,665,987 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
ADR—American Depositary Receipt
GUKG5—UK Govt Bonds 5 Year Note Generic Bid Yield
MTN—Medium Term Note
SPDR—Standard & Poor’s Depository Receipts
US0003M—3 Month US Dollar LIBOR
USISDA05—5 Year ICE Swap Rate
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2017. The total value of securities on loan as of December 31, 2017, was $16,727,800. |
+ | 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 subadviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2017, these securities represent 1.94% 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, 2017. The total of all such securities represent 1.49% 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 subadviser has deemed these securities to be liquid based on procedures approved by the Board of Trustees. |
(d) | Defaulted bond. |
(e) | The subadviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2017, these securities represent 0.16% of the net assets of the Fund. |
(f) | The rate for certain asset-backed and mortgage-backed securities may vary based on factors relating to the pool of assets underlying the security. The rate presented is the rate in effect at December 31, 2017. |
(g) | Principal amount is stated in 1,000 Brazilian Real Units. |
(h) | Principal amount is stated in 100 Mexican Peso Units. |
(i) | The rate represents the effective yield at December 31, 2017. |
(j) | All or a portion of these securities are held by the AZL Cayman Global Allocation Fund I, Ltd. (the “Subsidiary”). |
(k) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2017. |
(l) | See Federal Tax Information listed in the Notes to the Consolidated Financial Statements. |
Continued
13
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2017
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, 2017: (Unaudited)
Country | Percentage | |||
Argentina | 0.7 | % | ||
Australia | 2.0 | % | ||
Belgium | 0.4 | % | ||
Bermuda | — | %^ | ||
Brazil | 1.8 | % | ||
Canada | 1.3 | % | ||
Cayman Islands | — | %^ | ||
Chile | — | %^ | ||
China | 0.2 | % | ||
Czech Republic | — | %^ | ||
Denmark | — | %^ | ||
European Community | 0.2 | % | ||
Finland | 0.2 | % | ||
France | 2.7 | % | ||
Germany | 2.5 | % | ||
Guernsey | — | %^ | ||
Hong Kong | 0.8 | % | ||
Hungary | 0.2 | % | ||
India | 1.4 | % | ||
Indonesia | 0.1 | % | ||
Ireland (Republic of) | — | %^ | ||
Israel | — | %^ | ||
Italy | 1.3 | % |
Country | Percentage | |||
Japan | 9.0 | % | ||
Jersey | 0.2 | % | ||
Liberia | — | %^ | ||
Luxembourg | 0.1 | % | ||
Mexico | 1.0 | % | ||
Netherlands | 1.7 | % | ||
Norway | — | %^ | ||
Panama | — | %^ | ||
Poland | 1.2 | % | ||
Portugal | 0.1 | % | ||
Republic of Korea (South) | 0.7 | % | ||
Singapore | 0.2 | % | ||
South Africa | — | %^ | ||
Spain | 0.4 | % | ||
Sweden | 0.2 | % | ||
Switzerland | 1.4 | % | ||
Taiwan, Province Of China | 0.6 | % | ||
Thailand | 0.2 | % | ||
Turkey | — | %^ | ||
United Arab Emirates | 0.4 | % | ||
United Kingdom | 3.7 | % | ||
United States | 63.1 | % | ||
|
| |||
100.0 | % | |||
|
|
^ | Represents less than 0.05%. |
Futures Contracts
Cash of $579,570 has been segregated to cover margin requirements for the following open contracts as of December 31, 2017:
Short Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Unrealized Appreciation/ (Depreciation) | ||||||||||||
DJ EURO STOXX 50 March Futures (Euro) | 3/16/18 | 4 | (167,622 | ) | $ | 3,436 | ||||||||||
NASDAQ 100 E-Mini March Futures (U.S. Dollar) | 3/16/18 | 24 | (3,076,200 | ) | (10,184 | ) | ||||||||||
Nikkei 225 Index March Futures (Japanese Yen) | 3/8/18 | 4 | (402,982 | ) | (644 | ) | ||||||||||
S&P 500 Index E-Mini March Futures (U.S. Dollar) | 3/16/18 | 12 | (1,605,600 | ) | (16,821 | ) | ||||||||||
|
| |||||||||||||||
$ | (24,213 | ) | ||||||||||||||
|
|
Option Contracts
At December 31, 2017, the Fund’s over-the-counter options purchased were as follows:
Description | Counterparty | Put/ Call | Strike Price | Expiration Date | Contracts | Notional Amount(a) | Fair Value | |||||||||||||||||||
BP plc | UBS Warburg | Call | 40.00 USD | 1/18/19 | 33,891 | $ | 1,355,640 | $ | 121,622 | |||||||||||||||||
Chevron Corp. | UBS Warburg | Call | 125.00 USD | 1/18/19 | 10,746 | 1,343,250 | 90,411 | |||||||||||||||||||
Conocophilips | UBS Warburg | Call | 52.50 USD | 1/18/19 | 17,866 | 937,965 | 117,607 | |||||||||||||||||||
Euro Stoxx 50 Index | Deutsche Bank | Call | 3426.55 EUR | 9/21/18 | 106 | 363,214 | 21,106 | |||||||||||||||||||
Exxon Mobil Corp. | UBS Warburg | Call | 95.00 USD | 1/18/19 | 7,306 | 694,070 | 8,264 |
Continued
14
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2017
Description | Counterparty | Put/ Call | Strike Price | Expiration Date | Contracts | Notional Amount(a) | Fair Value | |||||||||||||||||||||||
Franklin Resources, Inc. | Goldman Sachs | Call | 45.00 | USD | 1/19/18 | 10,439 | 469,755 | $ | 2,339 | |||||||||||||||||||||
Occidental Petroleum Corp. | UBS Warburg | Call | 75.00 | USD | 1/18/19 | 15,702 | 1,177,650 | 79,436 | ||||||||||||||||||||||
Royal Dutch Shell plc | UBS Warburg | Call | 60.00 | USD | 1/18/19 | 19,345 | 1,160,700 | 147,293 | ||||||||||||||||||||||
S&P 500 Index | Deutsche Bank | Call | 2685.00 | USD | 1/19/18 | 1,326 | 3,560,310 | 19,467 | ||||||||||||||||||||||
S&P 500 Index | BNP Paribas | Call | 2690.00 | USD | 2/16/18 | 1,594 | 4,287,860 | 37,466 | ||||||||||||||||||||||
S&P 500 Index | UBS Warburg | Call | 2670.00 | USD | 3/16/18 | 903 | 2,411,010 | 43,573 | ||||||||||||||||||||||
S&P 500 Index | Bank of America | Call | 2675.00 | USD | 3/16/18 | 903 | 2,415,525 | 40,721 | ||||||||||||||||||||||
S&P 500 Index | Societe Generale | Call | 2675.00 | USD | 3/29/18 | 637 | 1,703,975 | 32,790 | ||||||||||||||||||||||
S&P 500 Index | Morgan Stanley | Call | 2695.00 | USD | 4/20/18 | 465 | 1,253,175 | 22,451 | ||||||||||||||||||||||
S&P 500 Index | Citigroup | Call | 2700.00 | USD | 4/20/18 | 531 | 1,433,700 | 24,074 | ||||||||||||||||||||||
Schlumberger, Ltd. | UBS Warburg | Call | 90.00 | USD | 1/18/19 | 10,576 | 951,840 | 7,654 | ||||||||||||||||||||||
SPDR Gold Shares(b) | Morgan Stanley | Call | 125.00 | USD | 1/19/18 | 5,374 | 671,750 | 3,353 | ||||||||||||||||||||||
SPDR Gold Shares(b) | Morgan Stanley | Call | 126.00 | USD | 1/19/18 | 5,375 | 677,250 | 2,134 | ||||||||||||||||||||||
SPDR Gold Shares(b) | Morgan Stanley | Call | 130.00 | USD | 2/16/18 | 13,501 | 1,755,130 | 4,657 | ||||||||||||||||||||||
SPDR Gold Shares(b) | Morgan Stanley | Call | 127.00 | USD | 3/16/18 | 13,457 | 1,709,039 | 16,171 | ||||||||||||||||||||||
Suncor Energy, Inc. | UBS Warburg | Call | 35.00 | USD | 1/18/19 | 22,818 | 798,630 | 94,438 | ||||||||||||||||||||||
Synchrony Financial | Goldman Sachs | Call | 35.00 | USD | 1/19/18 | 11,562 | 404,670 | 43,731 | ||||||||||||||||||||||
Tokyo Stock Exchange Price Index | Morgan Stanley | Call | 1785.00 | JPY | 1/12/18 | 132,185 | 235,950,225 | 46,124 | ||||||||||||||||||||||
Tokyo Stock Exchange Price Index | Citigroup | Call | 1785.00 | JPY | 2/09/18 | 95,294 | 170,099,790 | 45,849 | ||||||||||||||||||||||
Tokyo Stock Exchange Price Index | Morgan Stanley | Call | 1800.00 | JPY | 3/09/18 | 105,769 | 190,384,200 | 52,186 | ||||||||||||||||||||||
Total SA | UBS Warburg | Call | 60.00 | USD | 1/18/19 | 23,303 | 1,398,180 | 37,437 | ||||||||||||||||||||||
Travelers Companies, Inc. | Goldman Sachs | Call | 135.00 | USD | 1/19/18 | 4,163 | 562,005 | 8,855 | ||||||||||||||||||||||
SPDR Gold Shares(b) | Morgan Stanley | Put | 117.00 | USD | 1/19/18 | 10,749 | 1,257,633 | 612 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||
Total (Cost $815,159) |
| $ | 1,171,821 | |||||||||||||||||||||||||||
|
|
At December 31, 2017, the Funds’s over-the-counter options written were as follows:
Description | Counterparty | Put/ Call | Strike Price | Expiration Date | Contracts | Notional Amount(a) | Fair Value | ||||||||||||||||||||||||||||||||||
FleetCor Technologies, Inc. | Barclays Bank | Call | 180.00 | USD | 1/18/19 | 1,321 | 237,780 | $ | (39,108 | ) | |||||||||||||||||||||||||||||||
Pioneer Natural Resources Co. | UBS Warburg | Call | 165.00 | USD | 1/18/19 | 2,826 | 466,290 | (78,241 | ) | ||||||||||||||||||||||||||||||||
SPDR Gold Shares(b) | Morgan Stanley | Call | 140.00 | USD | 3/16/18 | 13,457 | 1,883,980 | (1,705 | ) | ||||||||||||||||||||||||||||||||
Synchrony Financial | Bank of America | Call | 35.00 | USD | 1/19/18 | 11,562 | 404,670 | (43,731 | ) | ||||||||||||||||||||||||||||||||
United Continental Holdings, Inc. | Deutsche Bank | Call | 75.00 | USD | 1/18/19 | 3,469 | 260,175 | (22,065 | ) | ||||||||||||||||||||||||||||||||
BP plc | UBS Warburg | Put | 25.00 | USD | 1/18/19 | 33,891 | 847,275 | (5,745 | ) | ||||||||||||||||||||||||||||||||
Chevron Corp. | UBS Warburg | Put | 80.00 | USD | 1/18/19 | 10,746 | 859,680 | (6,900 | ) | ||||||||||||||||||||||||||||||||
Conocophilips | UBS Warburg | Put | 35.00 | USD | 1/18/19 | 17,866 | 625,310 | (7,615 | ) | ||||||||||||||||||||||||||||||||
Euro Stoxx 50 Index | Deutsche Bank | Put | 2586.07 | EUR | 9/21/18 | 106 | 274,123 | (2,563 | ) | ||||||||||||||||||||||||||||||||
Exxon Mobil Corp. | UBS Warburg | Put | 60.00 | USD | 1/18/19 | 7,306 | 438,360 | (4,292 | ) | ||||||||||||||||||||||||||||||||
Occidental Petroleum Corp. | UBS Warburg | Put | 45.00 | USD | 1/18/19 | 15,702 | 706,590 | (7,450 | ) | ||||||||||||||||||||||||||||||||
Royal Dutch Shell plc | UBS Warburg | Put | 40.00 | USD | 1/18/19 | 19,345 | 773,800 | (3,160 | ) | ||||||||||||||||||||||||||||||||
S&P 500 Index | Deutsche Bank | Put | 2500.00 | USD | 1/19/18 | 663 | 1,657,500 | (1,921 | ) | ||||||||||||||||||||||||||||||||
S&P 500 Index | BNP Paribas | Put | 2450.00 | USD | 2/16/18 | 797 | 1,952,650 | (4,405 | ) | ||||||||||||||||||||||||||||||||
Schlumberger, Ltd. | UBS Warburg | Put | 60.00 | USD | 1/18/19 | 10,576 | 634,560 | (35,493 | ) | ||||||||||||||||||||||||||||||||
SPDR Gold Shares(b) | Morgan Stanley | Put | 120.00 | USD | 1/19/18 | 10,749 | 1,289,880 | (1,885 | ) | ||||||||||||||||||||||||||||||||
SPDR Gold Shares(b) | Morgan Stanley | Put | 115.00 | USD | 2/16/18 | 9,491 | 1,091,465 | (1,007 | ) | ||||||||||||||||||||||||||||||||
SPDR Gold Shares(b) | Morgan Stanley | Put | 115.00 | USD | 3/16/18 | 5,666 | 651,590 | (1,176 | ) | ||||||||||||||||||||||||||||||||
Suncor Energy, Inc. | UBS Warburg | Put | 25.00 | USD | 1/18/19 | 22,818 | 570,450 | (11,005 | ) | ||||||||||||||||||||||||||||||||
Tokyo Stock Exchange Price Index | Citigroup | Put | 1675.00 | JPY | 2/09/18 | 95,294 | 159,617,450 | (3,897 | ) | ||||||||||||||||||||||||||||||||
Tokyo Stock Exchange Price Index | Morgan Stanley | Put | 1650.00 | JPY | 3/09/18 | 105,769 | 174,518,850 | (7,475 | ) | ||||||||||||||||||||||||||||||||
Total SA | UBS Warburg | Put | 40.00 | USD | 1/18/19 | 23,303 | 932,120 | (11,335 | ) | ||||||||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||||||||||||||
Total (Premiums $554,141) | $ | (302,174 | ) | ||||||||||||||||||||||||||||||||||||||
|
|
Continued
15
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2017
At December 31, 2017, the Fund’s over-the-counter currency options purchased were as follows:
Description | Counterparty | Put/ Call | Strike Price | Expiration Date | Notional Value | Fair Value | ||||||||||||||||
European Dollar Call Currency Option (EUR/USD) | UBS Warburg | Call | 1.20 EUR | 3/27/18 | 10,512,802 | $ | 220,129 | |||||||||||||||
European Dollar Call Currency Option (EUR/USD) | Barclays Bank | Call | 1.19 EUR | 5/18/18 | 53,161 | 180,046 | ||||||||||||||||
Japanese Yen Put Currency Option (JPY/USD) | BNP Paribas | Put | 111.75 JPY | 1/12/18 | 53,448 | 11,094 | ||||||||||||||||
|
| |||||||||||||||||||||
Total (Cost $297,701) | $ | 411,269 | ||||||||||||||||||||
|
|
At December 31, 2017, the Fund’s over-the-counter currency options written were as follows:
Description | Counterparty | Put/ Call | Strike Price | Expiration Date | Notional Value | Fair Value | ||||||||||||||||
Japanese Yen Call Currency Option (USD/JPY) | BNP Paribas | Call | 115.00 USD | 1/12/18 | (53,448 | ) | $ | (1,582 | ) | |||||||||||||
South African Rand Call Currency Option (USD/ZAR) | BNP Paribas | Call | 15.25 USD | 1/26/18 | (13,299 | ) | (594 | ) | ||||||||||||||
Japanese Yen Put Currency Option (USD/JPY) | BNP Paribas | Put | 108.00 USD | 1/12/18 | (53,448 | ) | (768 | ) | ||||||||||||||
|
| |||||||||||||||||||||
Total (Premiums $95,352) | $ | (2,944 | ) | |||||||||||||||||||
|
|
At December 31, 2017, the Fund’s open over-the-counter interest rate swaptions purchased were as follows:
Description and terms of payments to be received from another party | Description and terms of payments to be paid to another party | Expiration Date | Counterparty | Notional Amount (Local) | Value | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||||||
Fixed 2.46% Semi-annually | 3-Month U.S. Dollar Libor BBA Quarterly | 1/4/18 | Goldman Sachs | 538 | USD | $ | 2,849 | $ | (17,684 | ) | ||||||||||||||||||||||
Fixed 1.07% Semi-annually | 6-Month Japanese Yen LIBOR Rate BBA Semi-annually | 4/4/18 | Deutsche Bank | 1,006,980 | JPY | 3 | (21,144 | ) | ||||||||||||||||||||||||
Fixed 2.15% Semi-annually | 3-Month U.S. Dollar Libor BBA Quarterly | 4/24/18 | Goldman Sachs | 2,680 | USD | 73,242 | (111,125 | ) | ||||||||||||||||||||||||
Fixed 2.75% Quarterly | 3-Month US Dollar LIBOR BBA Quarterly | 5/2/18 | Goldman Sachs | 126 | USD | 16,106 | (44,985 | ) | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total (Cost $287,138) | $ | 92,200 | $ | (194,938 | ) | |||||||||||||||||||||||||||
|
|
|
|
At December 31, 2017, the Fund’s open over-the-counter interest rate swaptions written were as follows:
Description and terms of payments to be received from another party | Description and terms of payments to be paid to another party | Expiration Date | Counterparty | Notional Amount (Local) | Value | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||||||
Fixed 2.61% Semi-annually | 3-Month U.S. Dollar Libor BBA Quarterly | 1/4/18 | Goldman Sachs | (538 | ) | USD | $ | (102 | ) | $ | 3,486 | |||||||||||||||||||||
Fixed 2.4% Semi-annually | 3-Month U.S. Dollar Libor BBA Quarterly | 4/24/18 | Goldman Sachs | (1,340 | ) | USD | (43,195 | ) | 22,191 | |||||||||||||||||||||||
Fixed 1.9% Semi-annually | 3-Month U.S. Dollar Libor BBA Quarterly | 4/28/18 | Goldman Sachs | (2,680 | ) | USD | (17,988 | ) | 60,797 | |||||||||||||||||||||||
Fixed 2.50% Quarterly | 3-Month US Dollar LIBOR BBA Quarterly | 5/2/18 | Goldman Sachs | (575 | ) | USD | (12,174 | ) | 30,603 | |||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total (Premiums $190,536) | $ | (73,459 | ) | $ | 117,077 | |||||||||||||||||||||||||||
|
|
|
|
Forward Currency Contracts
At December 31, 2017, the Fund’s open forward currency contracts were as follows:
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Short Contracts: |
| |||||||||||||||||||||||
U.S. Dollar | 1,033,000 | Mexican Peso | 19,196,961 | UBS Warburg | 1/11/18 | $ | 58,560 | |||||||||||||||||
U.S. Dollar | 826,000 | Mexican Peso | 15,771,644 | Deutsche Bank | 1/18/18 | 26,515 | ||||||||||||||||||
U.S. Dollar | 2,423,339 | Australian Dollar | 3,095,000 | Goldman Sachs | 1/25/18 | 8,903 | ||||||||||||||||||
U.S. Dollar | 947,653 | New Zealand Dollar | 1,325,000 | JPMorgan Chase | 2/22/18 | 9,576 | ||||||||||||||||||
U.S. Dollar | 875,157 | European Euro | 738,000 | UBS Warburg | 2/26/18 | (13,170 | ) | |||||||||||||||||
U.S. Dollar | 383,809 | British Pound | 290,000 | UBS Warburg | 2/26/18 | (8,368 | ) | |||||||||||||||||
U.S. Dollar | 427,691 | Australian Dollar | 550,000 | Citigroup | 4/6/18 | (1,266 | ) | |||||||||||||||||
U.S. Dollar | 1,060,911 | Australian Dollar | 1,395,000 | Deutsche Bank | 4/13/18 | (27,067 | ) | |||||||||||||||||
|
| |||||||||||||||||||||||
$ | 53,683 | |||||||||||||||||||||||
|
|
Continued
16
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2017
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Long Contracts: |
| |||||||||||||||||||||||
British Pound | 789,000 | U.S. Dollar | 1,037,653 | JPMorgan Chase | 2/8/18 | $ | 28,792 | |||||||||||||||||
British Pound | 789,000 | U.S. Dollar | 1,037,890 | JPMorgan Chase | 2/16/18 | 28,798 | ||||||||||||||||||
British Pound | 787,000 | U.S. Dollar | 1,035,476 | JPMorgan Chase | 2/23/18 | 28,720 | ||||||||||||||||||
European Euro | 1,628,000 | U.S. Dollar | 1,922,017 | UBS Warburg | 3/15/18 | 39,725 | ||||||||||||||||||
European Euro | 876,000 | Polish Zloty | 3,713,101 | Deutsche Bank | 3/16/18 | (11,793 | ) | |||||||||||||||||
European Euro | 1,255,000 | U.S. Dollar | 1,485,976 | UBS Warburg | 3/16/18 | 26,401 | ||||||||||||||||||
European Euro | 1,633,000 | U.S. Dollar | 1,931,676 | UBS Warburg | 4/12/18 | 39,723 | ||||||||||||||||||
Japanese Yen | 6,817,986 | U.S. Dollar | 60,424 | BNP Paribas SA | 1/4/18 | 107 | ||||||||||||||||||
Japanese Yen | 7,345,532 | U.S. Dollar | 65,276 | Barclays Bank | 1/5/18 | (57 | ) | |||||||||||||||||
Japanese Yen | 115,725,000 | U.S. Dollar | 1,031,027 | Barclays Bank | 3/8/18 | (361 | ) | |||||||||||||||||
Japanese Yen | 138,290,000 | U.S. Dollar | 1,224,805 | Goldman Sachs | 3/15/18 | 7,398 | ||||||||||||||||||
New Zealand Dollar | 1,325,000 | U.S. Dollar | 913,091 | JPMorgan Chase | 2/22/18 | 24,986 | ||||||||||||||||||
Norwegian Krone | 6,648,000 | U.S. Dollar | 833,041 | Morgan Stanley | 1/26/18 | (22,358 | ) | |||||||||||||||||
Swedish Krona | 8,719,893 | European Euro | 882,000 | Deutsche Bank | 3/22/18 | 5,445 | ||||||||||||||||||
Swedish Krona | 8,722,980 | European Euro | 882,000 | BNP Paribas SA | 3/29/18 | 5,803 | ||||||||||||||||||
|
| |||||||||||||||||||||||
$ | 201,329 | |||||||||||||||||||||||
|
|
Swap Agreements
At December 31, 2017, the Fund’s open over-the-counter credit default swap agreements (buy protection) were as follows:(c)
Description | Counterparty | Payment Frequency | Implied Credit Spread at December 31, 2017(d) | Expiration Date | Notional Amount(e) | Value | Upfront Premiums Paid/ (Received) | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Airbus SE | Barclays Bank | Quarterly | 0.28 | % | 6/20/22 | 269,838 EUR | $ | (10,491 | ) | $ | (9,250 | ) | $ | (1,241 | ) | |||||||||||||
Airbus SE | Barclays Bank | Quarterly | 0.28 | % | 6/20/22 | 134,950 EUR | (5,247 | ) | (4,979 | ) | (268 | ) | ||||||||||||||||
AKZO Nobel | Barclays Bank | Quarterly | 0.46 | % | 6/20/22 | 269,838 EUR | (7,870 | ) | (6,389 | ) | (1,481 | ) | ||||||||||||||||
BASF SE | Barclays Bank | Quarterly | 0.24 | % | 6/20/22 | 269,838 EUR | (11,041 | ) | (9,973 | ) | (1,068 | ) | ||||||||||||||||
Bayer AG | Barclays Bank | Quarterly | 0.33 | % | 6/20/22 | 269,838 EUR | (9,712 | ) | (8,962 | ) | (750 | ) | ||||||||||||||||
BP Capital Markets | Barclays Bank | Quarterly | 0.40 | % | 6/20/22 | 269,838 EUR | (8,769 | ) | (6,388 | ) | (2,381 | ) | ||||||||||||||||
Royal Dutch Shell plc | Barclays Bank | Quarterly | 0.28 | % | 6/20/22 | 134,950 EUR | (5,222 | ) | (4,465 | ) | (757 | ) | ||||||||||||||||
Royal Dutch Shell plc | Barclays Bank | Quarterly | 0.28 | % | 6/20/22 | 269,838 EUR | (10,442 | ) | (8,100 | ) | (2,342 | ) | ||||||||||||||||
Saint-Gobain | Barclays Bank | Quarterly | 0.36 | % | 6/20/22 | 269,838 EUR | (9,313 | ) | (7,814 | ) | (1,499 | ) | ||||||||||||||||
Statoil ASA | Barclays Bank | Quarterly | 0.15 | % | 6/20/22 | 269,838 EUR | (12,488 | ) | (10,118 | ) | (2,370 | ) | ||||||||||||||||
Volkswagen | Barclays Bank | Quarterly | 0.47 | % | 6/20/22 | 269,838 EUR | (7,737 | ) | (5,539 | ) | (2,198 | ) | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | (98,332 | ) | $ | (81,977 | ) | $ | (16,355 | ) | ||||||||||||||||||||
|
|
|
|
|
|
At December 31, 2017, the Fund’s open centrally cleared credit default swap agreements (buy protection) were as follows:
Description | Clearing Agent | Payment Frequency | Implied Credit Spread at December 31, 2017(d) | Expiration Date | Notional Amount(e) | Fixed Rate | Value | Premiums Paid/ (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||
CDX North America High Yield Index Swap Agreement with Series 29 | Bank of America | Quarterly | 3.07 | % | 12/20/22 | $ | 759,099 | 5.00 | % | $ | (62,870 | ) | $ | (56,292 | ) | $ | (6,578 | ) | ||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | (62,870 | ) | $ | (56,292 | ) | $ | (6,578 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
Continued
17
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2017
At December 31, 2017, the Fund’s open over-the-counter variance swap agreements were as follows:
Reference Entity | Counterparty | Strike Price | Expiration Date | Notional Amount (Local) | Upfront Premiums Paid/ (Received) | Amount at Value | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||
5yr-30yr Constant Maturity Swap Capital | Goldman Sachs | $ | 0.31 | 11/6/18 | $ | 8,330,000 | $ | 25,546 | $ | 4,920 | $ | (20,626 | ) | |||||||||||||
|
|
|
| |||||||||||||||||||||||
Total (Premiums $25,546) | $ | 4,920 | $ | (20,626 | ) | |||||||||||||||||||||
|
|
|
|
At December 31, 2017, the Fund’s open over-the-counter currency swap agreements were as follows:
Pay/Receive Floating Rate | Fixed Rate | Expiration Date | Counterparty | Notional Amount | Value | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Pay | 1.963 | % | 3/15/18 | Bank of America | 131,550,000 | JPY | $ | (8,454 | ) | $ | (8,454 | ) | ||||||||||||
Pay | 1.838 | % | 3/15/18 | Bank of America | 86,950,000 | JPY | (224 | ) | (224 | ) | ||||||||||||||
Pay | 2.012 | % | 10/15/18 | Bank of America | 273,450,000 | JPY | 209,101 | 209,101 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
$ | 200,423 | $ | 200,423 | |||||||||||||||||||||
|
|
|
|
At December 31, 2017, the Fund’s open centrally cleared interest rate swap agreements were as follows:
Description and terms of payments to be received from another party | Description and terms of payments to be paid to another party | Expiration Date | Clearing Agent | Notional Amount (Local) | Upfront Premiums Paid/ (Received) | Value | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||||||||||
6-Month Euro Interbank Offer Rate (EURIBOR) Semi-annually | Fixed 0.415% Annually | 3/7/23 | Bank of America | 4,684,846 | EUR | $ | 59 | $ | (16,878 | ) | $ | (16,937 | ) | ||||||||||||||||||||||||
Fixed 2.403% Semi-annually | 3-Month U.S. Dollar LIBOR BBA Quarterly | 3/7/23 | Bank of America | 5,293,612 | USD | 64 | 29,661 | 29,597 | |||||||||||||||||||||||||||||
Fixed 2.33% Semi-annually | 3-Month U.S. Dollar LIBOR BBA Quarterly | 6/14/23 | Bank of America | 5,698,956 | USD | 69 | 2,302 | 2,233 | |||||||||||||||||||||||||||||
6-Month Euro Interbank Offer Rate (EURIBOR) Semi-annually | Fixed 0.340% Annually | 6/14/23 | Bank of America | 4,569,918 | EUR | 65 | 23,835 | 23,770 | |||||||||||||||||||||||||||||
6-Month Euro Interbank Offer Rate (EURIBOR) Semi-annually | Fixed 0.373% Annually | 8/15/26 | Bank of America | 1,778,707 | EUR | 28 | 61,695 | 61,667 | |||||||||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||||||||||||||
$ | 100,615 | $ | 100,330 | ||||||||||||||||||||||||||||||||||
|
|
|
|
At December 31, 2017, the Fund’s open over-the-counter total return swap agreements were as follows:
Pay/Receive | Description | Expiration Date | Counterparty | Notional (Local) | Unrealized Appreciation/ (Depreciation) | |||||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/20/19 | BNP Paribas SA | 60,300 | EUR | $ | 19,651 | |||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/20/19 | BNP Paribas SA | 131,430 | EUR | 41,642 | ||||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/20/19 | BNP Paribas SA | 122,040 | EUR | 37,575 | ||||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/20/19 | BNP Paribas SA | 92,430 | EUR | 27,101 | ||||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/17/20 | BNP Paribas SA | 51,650 | EUR | 11,997 | ||||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/18/20 | BNP Paribas SA | 106,900 | EUR | 23,634 | ||||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/18/20 | BNP Paribas SA | 106,700 | EUR | 39,062 | ||||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/18/20 | BNP Paribas SA | 28,920 | EUR | 10,869 | ||||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/18/20 | BNP Paribas SA | 67,410 | EUR | 25,446 | ||||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/18/20 | BNP Paribas SA | 28,800 | EUR | 11,013 | ||||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/18/20 | BNP Paribas SA | 28,860 | EUR | 10,941 | ||||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/18/20 | BNP Paribas SA | 29,100 | EUR | 10,653 | ||||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/17/21 | BNP Paribas SA | 36,240 | EUR | 900 | ||||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/17/21 | BNP Paribas SA | 56,450 | EUR | 6,238 | ||||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/17/21 | BNP Paribas SA | 59,750 | EUR | 2,279 | ||||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/17/21 | BNP Paribas SA | 53,400 | EUR | 9,898 | ||||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/16/22 | BNP Paribas SA | 55,400 | EUR | 5,219 | ||||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/16/22 | BNP Paribas SA | 126,500 | EUR | 5,939 |
Continued
18
AZL BlackRock Global Allocation Fund
Consolidated Schedule of Portfolio Investments
December 31, 2017
Pay/Receive | Description | Expiration Date | Counterparty | Notional (Local) | Unrealized Appreciation/ (Depreciation) | |||||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/16/22 | BNP Paribas SA | 32,850 | EUR | $ | 3,599 | |||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/21/22 | BNP Paribas SA | 54,450 | EUR | 6,358 | ||||||||||||
Pay | EURO Stoxx 50 Index Dividends December Futures | 12/15/23 | BNP Paribas SA | 79,520 | EUR | 1,092 | ||||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini April Futures | 4/03/23 | JPMorgan Chase | 4,280,000 | JPY | 6,258 | ||||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 4/02/18 | BNP Paribas SA | 19,830,600 | JPY | 21,190 | ||||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 4/02/18 | BNP Paribas SA | 20,025,000 | JPY | 19,466 | ||||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/29/19 | BNP Paribas SA | 10,560,000 | JPY | 20,664 | ||||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/29/19 | BNP Paribas SA | 10,312,500 | JPY | 22,861 | ||||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/29/19 | BNP Paribas SA | 20,514,000 | JPY | 46,707 | ||||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/31/20 | BNP Paribas SA | 13,960,000 | JPY | 42,145 | ||||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/31/20 | BNP Paribas SA | 17,000,000 | JPY | 56,675 | ||||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 4/01/20 | BNP Paribas SA | 10,488,000 | JPY | 31,449 | ||||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/31/21 | BNP Paribas SA | 3,880,000 | JPY | 8,477 | ||||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/31/21 | BNP Paribas SA | 15,520,000 | JPY | 33,907 | ||||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/31/21 | BNP Paribas SA | 3,855,000 | JPY | 8,699 | ||||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/31/21 | BNP Paribas SA | 7,655,000 | JPY | 17,886 | ||||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/31/21 | BNP Paribas SA | 4,215,000 | JPY | 5,503 | ||||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/31/22 | BNP Paribas SA | 4,260,000 | JPY | 5,787 | ||||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/31/22 | BNP Paribas SA | 15,720,000 | JPY | 34,866 | ||||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/31/22 | BNP Paribas SA | 7,970,000 | JPY | 16,457 | ||||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/31/22 | BNP Paribas SA | 7,950,000 | JPY | 16,634 | ||||||||||||
Pay | NIKKEI 225 Dividend Index E-Mini March Futures | 3/31/23 | BNP Paribas SA | 4,230,000 | JPY | 6,702 | ||||||||||||
Pay | S&P 500 Index Dividends December Futures | 12/21/18 | BNP Paribas SA | 257,125 | USD | 30,525 | ||||||||||||
Pay | S&P 500 Index Dividends December Futures | 12/18/20 | Goldman Sachs | 107,944 | USD | 23,006 | ||||||||||||
Pay | S&P 500 Index Dividends December Futures | 12/17/21 | BNP Paribas SA | 133,513 | USD | 33,550 | ||||||||||||
|
| |||||||||||||||||
$ | 820,520 | |||||||||||||||||
|
|
(a) | Notional value is expressed as the number of contracts multiplied by the strike price of the underlying asset. |
(b) | All or a portion of these securities are held by the AZL Cayman Global Allocation Fund I, Ltd. (the “Subsidiary”). |
(c) | 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. |
(d) | 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. |
(e) | 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 consolidated financial statements.
19
AZL BlackRock Global Allocation Fund
Consolidated Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investment securities, at cost | $ | 389,376,790 | |||
|
| ||||
Investment securities, at value* | $ | 434,756,225 | |||
Cash | 15,839 | ||||
Segregated cash for collateral | 395,430 | ||||
Interest and dividends receivable | 1,157,826 | ||||
Foreign currency, at value (cost $263,136) | 264,413 | ||||
Unrealized appreciation on forward currency contracts | 339,452 | ||||
Unrealized appreciation on swap agreements | 1,029,621 | ||||
Premiums paid on swaps | 25,546 | ||||
Receivable for investments sold | 358,439 | ||||
Receivable for variation margin on swap agreements | 17,779 | ||||
Receivable for variation margin on futures contracts | 36,611 | ||||
Reclaims receivable | 234,362 | ||||
Prepaid expenses | 2,389 | ||||
|
| ||||
Total Assets | 438,633,932 | ||||
|
| ||||
Liabilities: | |||||
Cash received as collateral for derivatives | 2,100,042 | ||||
Written options contracts (Proceeds received $840,029) | 378,577 | ||||
Unrealized depreciation on swap agreements | 45,659 | ||||
Premiums received on swaps | 81,977 | ||||
Unrealized depreciation on forward currency contracts | 84,440 | ||||
Payable for investments purchased | 414,559 | ||||
Payable for capital shares redeemed | 98,174 | ||||
Payable for collateral received on loaned securities | 17,308,385 | ||||
Payable for variation margin on swap agreements | 696 | ||||
Interest payable on securities sold short | 1,145 | ||||
Accrued foreign taxes | 45,834 | ||||
Manager fees payable | 267,940 | ||||
Administration fees payable | 12,066 | ||||
Distribution fees payable | 88,633 | ||||
Custodian fees payable | 16,908 | ||||
Administrative and compliance services fees payable | 4,245 | ||||
Transfer agent fees payable | 282 | ||||
Trustee fees payable | 237 | ||||
Other accrued liabilities | 18,146 | ||||
|
| ||||
Total Liabilities | 20,967,945 | ||||
|
| ||||
Net Assets | $ | 417,665,987 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 357,329,301 | |||
Accumulated net investment income/(loss) | 280,789 | ||||
Accumulated net realized gains/(losses) from investment transactions | 12,987,962 | ||||
Net unrealized appreciation/(depreciation) on investments | 47,067,935 | ||||
|
| ||||
Net Assets | $ | 417,665,987 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 33,706,038 | ||||
Net Asset Value (offering and redemption price per share) | $ | 12.39 | |||
|
|
* | Includes securities on loan of $16,727,800. |
Consolidated Statement of Operations
For the Period Ended December 31, 2017
Investment Income: | |||||
Dividends | $ | 5,268,924 | |||
Interest | 3,465,021 | ||||
Income from securities lending | 160,809 | ||||
Other Income | 16,798 | ||||
Foreign withholding tax | (275,772 | ) | |||
|
| ||||
Total Investment Income | 8,635,780 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 3,129,783 | ||||
Administration fees | 177,808 | ||||
Distribution fees — Class 2 | 1,043,261 | ||||
Custodian fees | 339,191 | ||||
Administrative and compliance services fees | 6,274 | ||||
Trustee fees | 22,325 | ||||
Transfer agency fees | 6,657 | ||||
Professional fees | 27,006 | ||||
Shareholder reports | 7,470 | ||||
Dividends on securities sold short | 45,326 | ||||
Recoupment of prior expenses reimbursed by the manager | 3,050 | ||||
Other expenses | 87,408 | ||||
|
| ||||
Total expenses | 4,895,559 | ||||
|
| ||||
Net Investment Income/(Loss) | 3,740,221 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions and foreign currencies | 18,904,114 | ||||
Net realized gains/(losses) on futures contracts | (2,322,089 | ) | |||
Net realized gains/(losses) on written options contracts | 862,277 | ||||
Net realized gains/(losses) on securities transactions held short | (607,227 | ) | |||
Net realized gains/(losses) on swap agreements | (71,966 | ) | |||
Net realized gains/(losses) on forward currency contracts | 1,124,464 | ||||
Change in net unrealized appreciation/depreciation on investments and foreign currencies | 30,168,808 | ||||
Change in net unrealized appreciation/depreciation on futures contracts | (48,589 | ) | |||
Change in net unrealized appreciation/depreciation on written option contracts | 763,098 | ||||
Change in net unrealized appreciation/depreciation on securities transactions held short | 114,807 | ||||
Change in net unrealized appreciation/depreciation on swap agreements | 760,743 | ||||
Change in net unrealized appreciation/depreciation on forward currency contracts | (2,287,701 | ) | |||
Change in accrued foreign tax liability | (41,298 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 47,319,441 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 51,059,662 | |||
|
|
See accompanying notes to the consolidated financial statements.
20
AZL BlackRock Global Allocation Fund
Consolidated Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 3,740,221 | $ | 7,966,817 | ||||||
Net realized gains/(losses) on investment transactions | 17,889,573 | (4,530,073 | ) | |||||||
Change in unrealized appreciation/depreciation on investments | 29,429,868 | 23,084,572 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 51,059,662 | 26,521,316 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (7,349,577 | ) | (1,776,291 | ) | ||||||
From net realized gains | — | (19,597,851 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (7,349,577 | ) | (21,374,142 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 215,077 | 7,472,851 | ||||||||
Proceeds from dividends reinvested | 7,349,577 | 21,374,142 | ||||||||
Value of shares redeemed | (43,709,966 | ) | (413,213,063 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (36,145,312 | ) | (384,366,070 | ) | ||||||
|
|
|
| |||||||
Change in net assets | 7,564,773 | (379,218,896 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 410,101,214 | 789,320,110 | ||||||||
|
|
|
| |||||||
End of period | $ | 417,665,987 | $ | 410,101,214 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 280,789 | $ | 3,650,621 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 17,936 | 692,738 | ||||||||
Dividends reinvested | 608,409 | 1,944,872 | ||||||||
Shares redeemed | (3,675,557 | ) | (37,704,698 | ) | ||||||
|
|
|
| |||||||
Change in shares | (3,049,212 | ) | (35,067,088 | ) | ||||||
|
|
|
|
See accompanying notes to the consolidated financial statements.
21
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, | |||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 11.16 | $ | 10.99 | $ | 11.97 | $ | 12.05 | $ | 10.58 | |||||||||||||||
|
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|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.12 | 0.20 | 0.10 | 0.12 | 0.07 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.33 | 0.27 | (0.27 | ) | 0.12 | 1.42 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.45 | 0.47 | (0.17 | ) | 0.24 | 1.49 | |||||||||||||||||||
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|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.22 | ) | (0.02 | ) | (0.28 | ) | (0.08 | ) | — | (a) | |||||||||||||||
Net Realized Gains | — | (0.28 | ) | (0.53 | ) | (0.24 | ) | (0.02 | ) | ||||||||||||||||
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|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.22 | ) | (0.30 | ) | (0.81 | ) | (0.32 | ) | (0.02 | ) | |||||||||||||||
|
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|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 12.39 | $ | 11.16 | $ | 10.99 | $ | 11.97 | $ | 12.05 | |||||||||||||||
|
|
|
|
|
|
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|
|
| ||||||||||||||||
Total Return(b) | 13.00 | % | 4.35 | % | (1.41 | )% | 1.78 | % | 14.11 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: |
| ||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 417,666 | $ | 410,101 | $ | 789,320 | $ | 777,743 | $ | 646,689 | |||||||||||||||
Net Investment Income/(Loss) | 0.90 | % | 1.10 | % | 0.84 | % | 1.14 | % | 0.72 | % | |||||||||||||||
Expenses Before Reductions(c) | 1.17 | % | 1.12 | % | 1.11 | % | 1.11 | % | 1.14 | % | |||||||||||||||
Expenses Net of Reductions | 1.17 | % | 1.12 | % | 1.11 | % | 1.11 | % | 1.14 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly | 1.17 | % | 1.12 | % | 1.11 | % | 1.11 | %(d) | 1.14 | %(d) | |||||||||||||||
Portfolio Turnover Rate(e) | 115 | % | 140 | % | 82 | % | 74 | % | 50 | % |
(a) | Represents less than $0.005. |
(b) | 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. |
(c) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
(d) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remitted a portion of the brokerage commission which were used to pay certain Fund expenses. The Fund ceased participation in the program in June 2014. |
(e) | 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 consolidated financial statements.
22
AZL BlackRock Global Allocation Fund
Notes to the Consolidated Financial Statements
December 31, 2017
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.
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. The Fund is a wholly-owned and controlled subsidiary of AZL MVP BlackRock Global Strategy Plus Fund, which is affiliated with the Investment Adviser.
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 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 accrues 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, 2017, the Fund’s aggregate investment in the Subsidiary was $16,645,105, representing 3.99% of the Fund’s net assets. The Subsidiary’s financial statements, including its investments, and its operating results have been consolidated with those of the Fund. All intercompany transactions have been eliminated.
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 and Withholding Taxes
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, or from other assets and liabilities, from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
Floating Rate Loans
The Fund may invest in floating rate loans, which usually take the form of loan participations and assignments. These loans are made by banks and other large financial institutions to various companies and are typically senior in the borrowing companies’ capital structure. Coupon rates are 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.
23
AZL BlackRock Global Allocation Fund
Notes to the Consolidated Financial Statements
December 31, 2017
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 Consolidated Schedule of 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, 2017 are noted on the Fund’s Consolidated Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $24 million for the year ended December 31, 2017.
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 $15,163 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Consolidated Statement of Operations.
The Fund had securities lending transactions of $17,308,385 accounted for as secured borrowings with cash collateral of overnight and continuous maturities as of December 31, 2017.
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, 2017, no collateral had been posted by the Fund to counterparties for TBAs.
24
AZL BlackRock Global Allocation Fund
Notes to the Consolidated Financial Statements
December 31, 2017
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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. For the year ended December 31, 2017, the Fund participated in the following cross-trade transactions:
Purchases | Sales | Realized (Gain/Loss) | |||||||||||||
AZL BlackRock Global Allocation Fund | $ | 87,390 | $ | — | $ | — |
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, 2017, 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. For the year ended December 31, 2017, the monthly average notional amount for long contracts was $10.4 million and the monthly average notional amount for short contracts was $15.7 million. Realized gains and losses are reported as “Net realized gains/(losses) on forward currency contracts” on the Consolidated Statement of Operations.
Futures Contracts
During the year ended December 31, 2017, 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. For the year ended December 31, 2017, the monthly average notional amount for long contracts was $0.5 million and the monthly average notional amount for short contracts was $10.5 million. 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, 2017, 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 a put 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.
For the year ended December 31, 2017, the monthly average notional amount for written options contracts was $2.0 million. Realized gains and losses are reported as “Net realized gains/(losses) on options contracts” on the Consolidated Statement of Operations.
Swap Agreements
The Fund may invest in swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. 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
25
AZL BlackRock Global Allocation Fund
Notes to the Consolidated Financial Statements
December 31, 2017
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 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, 2017, 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 monthly average gross notional amount for interest rate swaps was $27 million for the year ended December 31, 2017.
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 monthly average gross notional amount for currency swaps was $4.4 million for the year ended December 31, 2017.
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 monthly average gross notional amount for total return swaps was $4.9 million for the year ended December 31, 2017.
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, 2017, 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 monthly average gross notional amount for credit default swaps was $3.4 million for the year ended December 31, 2017.
Variance swaps involve the agreement of two parties to exchange cash flows based on the measured variance (or square of the volatility) of a specified underlying asset. One party agrees to exchange a “fixed rate” or strike price payment for the “floating rate” or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price is generally chosen such that the fair value of the swaps is zero. At the maturity date, a net cash flow is exchanged, where the payoff amount is equivalent to the
26
AZL BlackRock Global Allocation Fund
Notes to the Consolidated Financial Statements
December 31, 2017
difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. As a receiver of the realized price variance, a Portfolio would receive the payoff amount when the realized price variance of the underlying asset is greater than the strike price and would owe the payoff amount when the variance is less than the strike price. As a payer of the realized price variance, a Portfolio would owe the payoff amount when the realized price variance of the underlying asset is greater than the strike price and would receive the payoff amount when the variance is less than the strike price. This type of swap is essentially a forward contract on the future realized price variance of the underlying asset. The monthly average gross notional amount for variance swaps was $1.4 million for the year ended December 31, 2017.
Summary of Derivative Instruments
The following is a summary of the fair values of derivative instruments on the Fund’s Consolidated Statement of Assets and Liabilities, categorized by risk exposure, as of December 31, 2017:
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 | ||||||||||||
Futures Contracts | Receivable for variation margin on futures contracts* | $ | 3,436 | Payable for variation margin on futures contracts* | $ | 27,649 | ||||||
Option Contracts | Written options contracts | 302,174 | ||||||||||
Total Return Swap Agreements | Unrealized appreciation on swap agreements | 820,520 | Unrealized depreciation on swap agreements | — | ||||||||
Credit Risk | ||||||||||||
Centrally Cleared Credit Default Swap Agreements | Unrealized appreciation on swap agreements* | — | Unrealized depreciation on swap agreements* | 6,578 | ||||||||
Over-The-Counter Credit Default Swap Agreements | — | 16,355 | ||||||||||
Interest Rate Risk | ||||||||||||
Interest Rate Swap Agreements | Unrealized appreciation on swap agreements* | 117,267 | Unrealized depreciation on swap agreements* | 16,937 | ||||||||
Swaption Contracts | Written options contracts | 73,459 | ||||||||||
Variance Swap Agreements | Unrealized appreciation on swap agreements | — | Unrealized depreciation on swap agreements* | 20,626 | ||||||||
Foreign Exchange Risk | ||||||||||||
Currency Swap Agreements | Unrealized appreciation on swap agreements | 209,101 | Unrealized depreciation on swap agreements | 8,678 | ||||||||
Forward Currency Contracts | Unrealized appreciation on forward currency contracts | 339,452 | Unrealized depreciation on forward currency contracts | 84,440 | ||||||||
Options Contracts | Written options contracts | 2,944 |
* | 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 centrally cleared 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, 2017:
Realized Gain/(Loss) 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 Written Option Contracts | Net Realized Gains/(Losses) on Forward Currency Contracts | |||||||||||||||||
Equity Risk | $ | (2,322,089 | ) | $ | 100,141 | $ | 377,827 | $ | — | |||||||||||
Credit Risk | — | 40,976 | — | — | ||||||||||||||||
Interest Rate Risk | — | (213,083 | ) | (142,167 | ) | — | ||||||||||||||
Foreign Exchange Rate Risk | — | — | 626,617 | 1,124,464 |
Change in Net Unrealized Appreciation/Depreciation on Derivatives Recognized as a Result from Operations | ||||||||||||||||||||
Change in Net Unrealized Appreciation/Depreciation on Futures Contracts | Change in Net Unrealized Appreciation/Depreciation on Swap Agreements | Change in Net Unrealized Appreciation/Depreciation on Written Option Contracts | Change in Net Unrealized Appreciation/Depreciation on Forward Currency Contracts | |||||||||||||||||
Equity Risk | $ | (48,589 | ) | $ | 544,522 | $ | 147,183 | $ | — | |||||||||||
Credit Risk | — | (76,555 | ) | — | — | |||||||||||||||
Interest Rate Risk | — | 414,504 | 471,228 | — | ||||||||||||||||
Foreign Exchange Rate Risk | — | (121,728 | ) | 144,687 | (2,287,701 | ) |
27
AZL BlackRock Global Allocation Fund
Notes to the Consolidated Financial Statements
December 31, 2017
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, 2017. 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, 2017.
As of December 31, 2017, the Fund’s derivative assets and liabilities by type were as follows:
Assets | Liabilities | |||||||||
Derivative Financial Instruments: | ||||||||||
Futures contracts | $ | 36,611 | $ | — | ||||||
Written Option contracts | — | 378,577 | ||||||||
Forward currency contracts | 339,452 | 84,440 | ||||||||
Swap agreements | 1,052,320 | 107,706 | ||||||||
|
|
|
| |||||||
Total derivative assets and liabilities in the Consolidated Statement of Assets and Liabilities | 1,428,383 | 570,723 | ||||||||
Derivatives not subject to a master netting agreement or similar agreement (“MNA”) | (54,390 | ) | (696 | ) | ||||||
|
|
|
| |||||||
Total assets and liabilities subject to a MNA | $ | 1,373,993 | $ | 570,027 | ||||||
|
|
|
|
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, 2017:
Counterparty | Derivative Assets Subject to a MNA by Counterparty | Derivatives for Offset | Non-cash Received* | Cash Received* | Net Amount of Derivative Assets | ||||||||||||||||||||
Bank of America | $ | 209,101 | $ | (52,409 | ) | $ | — | $ | (197,413 | ) | $ | — | |||||||||||||
BNP Paribas SA | 797,166 | (7,349 | ) | — | (830,000 | ) | — | ||||||||||||||||||
Citigroup | — | — | — | (64,760 | ) | — | |||||||||||||||||||
Deutsche Bank | 31,960 | (31,960 | ) | — | (7,127 | ) | — | ||||||||||||||||||
Goldman Sachs | 44,227 | (44,227 | ) | — | (110,042 | ) | — | ||||||||||||||||||
JPMorgan Chase | 127,130 | — | — | (10,000 | ) | 117,130 | |||||||||||||||||||
Societe Generale | — | — | — | (30,000 | ) | — | |||||||||||||||||||
UBS Warburg | 164,409 | (164,409 | ) | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total | $ | 1,373,993 | $ | (300,354 | ) | $ | — | $ | (1,249,342 | ) | $ | 117,130 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
The following table presents the Fund’s derivative liabilities by counterparty net of amounts available for offset under MNA and net of the related collateral received by the Fund as of December 31, 2017:
Counterparty | Derivative Liabilities by Counterparty | Derivatives Available for Offset | Non-cash Pledged* | Cash Pledged* | Net Amount of Derivative Liabilities | ||||||||||||||||||||
Bank of America | $ | 52,409 | $ | (52,409 | ) | $ | — | $ | — | $ | — | ||||||||||||||
Barclays Bank | 137,858 | — | — | — | 137,858 | ||||||||||||||||||||
BNP Paribas SA | 7,349 | (7,349 | ) | — | — | — | |||||||||||||||||||
Citigroup | 5,163 | — | — | — | 5,163 | ||||||||||||||||||||
Deutsche Bank | 65,409 | (31,960 | ) | — | — | 33,449 | |||||||||||||||||||
Goldman Sachs | 73,459 | (44,227 | ) | — | — | 29,232 | |||||||||||||||||||
Morgan Stanley | 35,606 | — | — | — | 35,606 | ||||||||||||||||||||
Societe Generale | — | — | — | — | — | ||||||||||||||||||||
UBS Warburg | 192,774 | (164,409 | ) | — | — | 28,365 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total | $ | 570,027 | $ | (300,354 | ) | $ | — | $ | — | $ | 269,673 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
* | 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. |
28
AZL BlackRock Global Allocation Fund
Notes to the Consolidated Financial Statements
December 31, 2017
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 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, 2019.
For the year ended December 31, 2017, the annual rate paid 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, 2017, 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 Consolidated Statement of Operations. During the year ended December 31, 2017, 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 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.”
FIS Investor Services LLC (“FIS”) 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, 2017, $4,446 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, 2017, actual Trustee compensation was $1,116,333 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.
29
AZL BlackRock Global Allocation Fund
Notes to the Consolidated Financial Statements
December 31, 2017
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.
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.
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.
There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016. The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Other^ | Total | ||||||||||||||||||||
Bank Loans | $ | — | $ | 1,758,274 | $ | — | $ | — | $ | 1,758,274 | |||||||||||||||
Collateralized Mortgage Obligations | — | 617,841 | — | — | 617,841 | ||||||||||||||||||||
Common Stocks | |||||||||||||||||||||||||
Aerospace & Defense | 307,940 | 2,732,236 | — | — | 3,040,176 | ||||||||||||||||||||
Air Freight & Logistics | — | 11,542 | — | — | 11,542 | ||||||||||||||||||||
Airlines | 2,742,921 | 1,604,541 | — | — | 4,347,462 | ||||||||||||||||||||
Auto Components | 90,837 | 6,798,459 | — | — | 6,889,296 | ||||||||||||||||||||
Automobiles | 5,899 | 3,941,992 | — | — | 3,947,891 | ||||||||||||||||||||
Banks | 8,966,881 | 7,943,434 | — | — | 16,910,315 | ||||||||||||||||||||
Beverages | 278,448 | 1,685,453 | — | — | 1,963,901 | ||||||||||||||||||||
Building Products | 819,337 | 1,231,349 | — | — | 2,050,686 | ||||||||||||||||||||
Capital Markets | 5,849,629 | 2,343,924 | — | — | 8,193,553 | ||||||||||||||||||||
Chemicals | 6,672,145 | 6,253,869 | — | — | 12,926,014 | ||||||||||||||||||||
Communications Equipment | 1,256,434 | 1,002,229 | — | — | 2,258,663 | ||||||||||||||||||||
Construction & Engineering | — | 1,671,722 | — | — | 1,671,722 | ||||||||||||||||||||
Construction Materials | 12,053 | 165,180 | — | — | 177,233 | ||||||||||||||||||||
Containers & Packaging | 900,770 | 1,129 | — | — | 901,899 | ||||||||||||||||||||
Distributors | — | 91,785 | — | — | 91,785 | ||||||||||||||||||||
Diversified Financial Services | 177,803 | 138,128 | — | — | 315,931 | ||||||||||||||||||||
Diversified Telecommunication Services | 1,207,218 | 4,867,378 | — | — | 6,074,596 | ||||||||||||||||||||
Electric Utilities | 2,074,689 | 1,620,835 | — | — | 3,695,524 | ||||||||||||||||||||
Electrical Equipment | 66,059 | 1,801,237 | — | — | 1,867,296 |
30
AZL BlackRock Global Allocation Fund
Notes to the Consolidated Financial Statements
December 31, 2017
Investment Securities: | Level 1 | Level 2 | Level 3 | Other^ | Total | ||||||||||||||||||||
Electronic Equipment, Instruments & Components | $ | 3,839 | $ | 1,269,945 | $ | — | $ | — | $ | 1,273,784 | |||||||||||||||
Equity Real Estate Investment Trusts | 111,788 | 825,504 | — | — | 937,292 | ||||||||||||||||||||
Food & Staples Retailing | 1,343,976 | 123,257 | — | — | 1,467,233 | ||||||||||||||||||||
Food Products | 188,357 | 7,205,453 | — | — | 7,393,810 | ||||||||||||||||||||
Gas Utilities | — | 1,655,612 | — | — | 1,655,612 | ||||||||||||||||||||
Health Care Equipment & Supplies | 1,995,936 | 903,371 | — | — | 2,899,307 | ||||||||||||||||||||
Health Care Providers & Services | 4,837,389 | 2,249,657 | — | — | 7,087,046 | ||||||||||||||||||||
Hotels, Restaurants & Leisure | 1,275,447 | 711,947 | — | — | 1,987,394 | ||||||||||||||||||||
Household Durables | 1,453,441 | 835,237 | — | — | 2,288,678 | ||||||||||||||||||||
Household Products | 141,130 | 12,951 | — | — | 154,081 | ||||||||||||||||||||
Independent Power & Renewable Electricity Producers | 802,068 | 7,448 | — | — | 809,516 | ||||||||||||||||||||
Industrial Conglomerates | 1,682,585 | 4,088,389 | — | — | 5,770,974 | ||||||||||||||||||||
Insurance | 4,626,958 | 2,075,856 | — | — | 6,702,814 | ||||||||||||||||||||
Internet & Direct Marketing Retail | 4,846,819 | 1,829 | — | — | 4,848,648 | ||||||||||||||||||||
Internet Software & Services | 8,780,149 | 5,170 | 1,360,105 | — | 10,145,424 | ||||||||||||||||||||
IT Services | 5,483,599 | 1,408,387 | — | — | 6,891,986 | ||||||||||||||||||||
Machinery | 197,057 | 3,607,321 | — | — | 3,804,378 | ||||||||||||||||||||
Marine | — | 6,896 | — | — | 6,896 | ||||||||||||||||||||
Media | 8,104,209 | 1,277,472 | — | — | 9,381,681 | ||||||||||||||||||||
Metals & Mining | 37,673 | 477,151 | — | — | 514,824 | ||||||||||||||||||||
Multi-Utilities | 935,297 | 2,451,969 | — | — | 3,387,266 | ||||||||||||||||||||
Oil, Gas & Consumable Fuels | 13,384,644 | 4,961,127 | — | — | 18,345,771 | ||||||||||||||||||||
Personal Products | 1,152,582 | 597,223 | — | — | 1,749,805 | ||||||||||||||||||||
Pharmaceuticals | 3,359,272 | 5,782,860 | — | — | 9,142,132 | ||||||||||||||||||||
Professional Services | 36,572 | 520,412 | — | — | 556,984 | ||||||||||||||||||||
Real Estate Management & Development | 893,799 | 3,751,014 | — | — | 4,644,813 | ||||||||||||||||||||
Road & Rail | 1,328,452 | 3,142,321 | — | — | 4,470,773 | ||||||||||||||||||||
Semiconductors & Semiconductor Equipment | 3,620,208 | 1,747,355 | — | — | 5,367,563 | ||||||||||||||||||||
Software | 10,156,614 | 12,445 | 2,259,500 | — | 12,428,559 | ||||||||||||||||||||
Specialty Retail | 3,496,838 | 208,429 | — | — | 3,705,267 | ||||||||||||||||||||
Technology Hardware, Storage & Peripherals | 6,322,469 | 31,055 | — | — | 6,353,524 | ||||||||||||||||||||
Textiles, Apparel & Luxury Goods | 32,793 | 786,673 | — | — | 819,466 | ||||||||||||||||||||
Thrifts & Mortgage Finance | — | 213,678 | — | — | 213,678 | ||||||||||||||||||||
Tobacco | 14,263 | 562,143 | — | — | 576,406 | ||||||||||||||||||||
Trading Companies & Distributors | 74,437 | 5,084 | — | — | 79,521 | ||||||||||||||||||||
Transportation Infrastructure | — | 98,607 | — | — | 98,607 | ||||||||||||||||||||
Wireless Telecommunication Services | 642,115 | 3,655,305 | — | — | 4,297,420 | ||||||||||||||||||||
Other Common Stocks+ | 4,308,243 | — | — | — | 4,308,243 | ||||||||||||||||||||
Convertible Bonds | — | 1,515,245 | — | — | 1,515,245 | ||||||||||||||||||||
Convertible Preferred Stocks | |||||||||||||||||||||||||
Equity Real Estate Investment Trusts | 360,537 | 593,749 | — | — | 954,286 | ||||||||||||||||||||
Internet Software & Services | — | — | 905,902 | — | 905,902 | ||||||||||||||||||||
Other Convertible Preferred Stocks+ | — | 2,047,497 | — | — | 2,047,497 | ||||||||||||||||||||
Corporate Bonds+ | — | 10,268,211 | — | — | 10,268,211 | ||||||||||||||||||||
Foreign Bonds+ | — | 34,041,174 | — | — | 34,041,174 | ||||||||||||||||||||
Preferred Stocks | |||||||||||||||||||||||||
Banks | 395,375 | 76,020 | — | — | 471,395 | ||||||||||||||||||||
Consumer Finance | 419,118 | — | — | — | 419,118 | ||||||||||||||||||||
Health Care Providers & Services | — | 898,353 | 410,186 | — | 1,308,539 | ||||||||||||||||||||
Internet Software & Services | — | — | 596,420 | — | 596,420 | ||||||||||||||||||||
Software | — | — | 658,610 | — | 658,610 | ||||||||||||||||||||
Technology Hardware, Storage & Peripherals | — | 7,799 | — | — | 7,799 | ||||||||||||||||||||
Private Placements | — | — | 45,559 | — | 45,559 | ||||||||||||||||||||
U.S. Treasury Obligations | — | 90,679,320 | — | — | 90,679,320 |
31
AZL BlackRock Global Allocation Fund
Notes to the Consolidated Financial Statements
December 31, 2017
Investment Securities: | Level 1 | Level 2 | Level 3 | Other^ | Total | ||||||||||||||||||||
Warrant | $ | — | $ | 11 | $ | — | $ | — | $ | 11 | |||||||||||||||
Yankee Dollars+ | — | 11,102,940 | — | — | 11,102,940 | ||||||||||||||||||||
Exchange Traded Fund | 15,632,487 | — | — | — | 15,632,487 | ||||||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | — | 17,308,385 | 17,308,385 | ||||||||||||||||||||
Unaffiliated Investment Company | 8,839,261 | — | — | — | 8,839,261 | ||||||||||||||||||||
Purchased Options | — | 1,583,090 | — | — | 1,583,090 | ||||||||||||||||||||
Purchased Swaptions | — | 92,200 | — | — | 92,200 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Investment Securities | 152,746,859 | 258,464,699 | 6,236,282 | 17,308,385 | 434,756,225 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Other Financial Instruments:* | |||||||||||||||||||||||||
Futures Contracts | (24,213 | ) | — | — | — | (24,213 | ) | ||||||||||||||||||
Written Options | — | (305,118 | ) | — | — | (305,118 | ) | ||||||||||||||||||
Written Swaptions | — | (73,459 | ) | — | — | (73,459 | ) | ||||||||||||||||||
Forward Currency Contracts | — | 255,012 | — | — | 255,012 | ||||||||||||||||||||
Over-the-Counter Credit Default Swaps | — | (16,355 | ) | — | — | (16,355 | ) | ||||||||||||||||||
Centrally Cleared Credit Default Swaps | — | (6,578 | ) | — | — | (6,578 | ) | ||||||||||||||||||
Over-the-Counter Variance Swaps | — | (20,626 | ) | — | — | (20,626 | ) | ||||||||||||||||||
Over-the-Counter Currency Swaps | — | 200,423 | — | — | 200,423 | ||||||||||||||||||||
Centrally Cleared Interest Rate Swaps | — | 100,330 | — | — | 100,330 | ||||||||||||||||||||
Total Return Swaps | — | 820,520 | — | — | 820,520 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Investments | $ | 152,722,646 | $ | 259,418,848 | $ | 6,236,282 | $ | 17,308,385 | $ | 435,686,161 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
+ | For detailed industry descriptions, see the accompanying Consolidated 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 except futures contracts and centrally cleared interest rate swaps which are presented at variation margin. |
^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Consolidated Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
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, 2017, 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 | $ | 448,037,420 | $ | 456,806,689 |
For the year ended December 31, 2017, purchases and sales of long-term U.S. government securities were as follows:
Purchases | Sales | |||||||||
AZL BlackRock Global Allocation Fund | $ | 287,373,196 | $ | 253,077,097 |
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, 2017 are identified below.
Security | Acquisition Date(a) | Acquisition Cost | Shares or Principal Amount | Fair Value | Percentage of Net Assets | ||||||||||||||||||||
AliphCom, Inc., 12.00%, 4/1/20 | 4/27/15 | $ | 735,000 | $ | 3,065,000 | $ | 12,567 | 0.00 | % | ||||||||||||||||
Aliphcom, 12.00%, 4/1/20 | 11/11/15 | 268,000 | 268,000 | 1,099 | 0.00 | % | |||||||||||||||||||
Dana Gas Sukuk, Ltd., 7.00%, 10/31/18 | 5/8/13 | 650,390 | 631,620 | 517,928 | 0.12 | % | |||||||||||||||||||
Domo, Inc., Series E | 4/1/15 | 998,866 | 144,482 | 905,902 | 0.22 | % | |||||||||||||||||||
Dropbox, Inc. | 1/28/14 | 1,827,985 | 95,700 | 1,358,940 | 0.33 | % | |||||||||||||||||||
Grand Rounds, Inc., Series C | 3/31/15 | 399,608 | 143,925 | 410,186 | 0.10 | % |
32
AZL BlackRock Global Allocation Fund
Notes to the Consolidated Financial Statements
December 31, 2017
Security | Acquisition Date(a) | Acquisition Cost | Shares or Principal Amount | Fair Value | Percentage of Net Assets | ||||||||||||||||||||
Inversiones Alsacia SA, 8.00%, 12/31/18, Callable 1/22/18 @ 100.00 | 12/22/14 | $ | 312,032 | $ | 527,380 | $ | 13,185 | 0.00 | % | ||||||||||||||||
Jawbone | 1/24/17 | — | 23,389 | 31,893 | 0.01 | % | |||||||||||||||||||
Logistics UK, Series 2015-1A, Class F, 1.21%, 8/20/25 | 8/3/15 | 440,732 | 459,000 | 617,841 | 0.15 | % | |||||||||||||||||||
Lookout, Inc. | 3/4/15 | 63,364 | 5,547 | 1,165 | 0.00 | % | |||||||||||||||||||
Lookout, Inc. Preferred Shares, Series F | 9/19/14 | 389,996 | 63,925 | 596,420 | 0.14 | % | |||||||||||||||||||
Palantir Technologies, Inc., Series I | 3/27/14 | 712,042 | 116,157 | 658,610 | 0.16 | % | |||||||||||||||||||
REI Agro, Ltd., Registered Shares, 5.50%, 11/13/14 | 2/7/12 | 300,000 | 400,000 | — | — | % | |||||||||||||||||||
TFS Corp., Ltd., 8.75%, 8/1/23, Callable 8/1/19 @ 106.56 | 7/20/16 | 2,106,000 | 1,018,000 | 712,600 | 0.17 | % | |||||||||||||||||||
Uber Technologies, Inc. | 3/21/14 | 1,063,120 | 68,532 | 2,259,500 | 0.54 | % |
(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.
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.
33
AZL BlackRock Global Allocation Fund
Notes to the Consolidated Financial Statements
December 31, 2017
Cost of securities, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $ 393,110,291. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 52,971,259 | ||
Unrealized (depreciation) | (10,738,626 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 42,232,633 | ||
|
|
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, 2017, the Fund utilized $296,869 in CLCFs to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL BlackRock Global Allocation Fund | $ | 7,349,577 | $ | — | $ | 7,349,577 |
(a) | Total distributions paid may differ from the Consolidated Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 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 the Consolidated Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
At December 31, 2017, 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 Earnings/ | |||||||||||||||||||||
AZL BlackRock Global Allocation Fund | $ | 6,241,608 | $ | 12,201,058 | $ | — | $ | 42,174,100 | $ | 60,616,766 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales and straddles. |
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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.
34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Consolidated Financial Statements
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, 2017, 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 related notes (collectively, the “consolidated financial statements”) and the consolidated financial highlights for each of the years in the five-year period then ended. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, 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 consolidated financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements and consolidated financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements and consolidated financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian, investees, and brokers or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and consolidated financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
35
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2017, 48.03% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deductions available to corporate shareholders.
36
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Fund of Funds Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
37
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
38
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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
39
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in 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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
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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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
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The Allianz VIP Fund of Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® DFA Emerging Markets Core Equity Fund
Annual Report
December 31, 2017
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
Page 22
Statements of Changes in Net Assets
Page 23
Page 24
Notes to the Financial Statements
Page 25
Report of Independent Registered Public Accounting Firm
Page 31
Other Federal Income Tax Information
Page 32
Page 33
Approval of Investment Advisory and Subadvisory Agreements
Page 34
Information about the Board of Trustees and Officers
Page 37
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.
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What factors affected the Fund’s performance during the year ended December 31, 2017?
For the year ended December 31, 2017, the AZL® DFA Emerging Markets Core Equity Fund (the “Fund”) returned 34.86%†. That compared to a 37.75% total return for its benchmark, the MSCI Emerging Markets Index1 (gross of withholding taxes).
Emerging markets posted positive performance for the one-year period, outperforming both the U.S. market and the developed ex-U.S. market. Most emerging-market currencies appreciated against the U.S. dollar, particularly the Polish zloty, and the Czech koruna. These currency movements had a positive impact on the U.S. dollar-denominated returns of emerging markets shares.
Among emerging-market equities, small-cap stocks underperformed large-caps. Value stocks outperformed growth stocks in emerging small-caps, though the dynamic was reversed in emerging large-caps. Meanwhile, high-profitability stocks outperformed lower-profitability names across all market cap sizes.
The Fund underperformed the benchmark for the 12-month period, due in large part to its underweight position in China, which was one of the top-performing countries for the period. The Fund’s emphasis on small-cap stocks detracted from relative performance, as small-caps underperformed large-caps. A greater emphasis on value stocks also negatively affected relative performance, as value stocks underperformed growth stocks among large-caps for the period.*
Losses were partially offset by the Fund’s lesser allocation to Russia and exclusion of Pakistan, Qatar, and the United Arab Emirates, as those countries underperformed the benchmark index during the period.*
Past performance does not guarantee future results.
† | The recent appreciation in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. |
* | 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, 2017. |
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, 2017
1 Year | Since Inception (4/27/15) | |||||||
AZL® DFA Emerging Markets Core Equity Fund | 34.86 | %† | 5.12 | % | ||||
MSCI Emerging Markets Index (gross of withholding taxes) | 37.75 | % | 6.10 | % | ||||
MSCI Emerging Markets Index (net of withholding taxes) | 37.28 | % | 5.69 | % |
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 | 2.03 | % |
The above expense ratio is based on the current Fund prospectus dated May 1, 2017. 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), to 1.50% through April 30, 2019. Additional information pertaining to the December 31, 2017 expense ratios can be found in the financial highlights.
† | The recent appreciation in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. |
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 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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL DFA Emerging Markets Core Equity Fund | $ | 1,000.00 | $ | 1,137.60 | $ | 7.97 | 1.48 | % |
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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL DFA Emerging Markets Core Equity Fund | $ | 1,000.00 | $ | 1,017.75 | $ | 7.53 | 1.48 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 23.3 | % | |||
Financials | 18.2 | ||||
Materials | 10.7 | ||||
Consumer Discretionary | 10.6 | ||||
Industrials | 8.0 | ||||
Consumer Staples | 8.4 | ||||
Energy | 5.8 | ||||
Telecommunication Services | 4.6 | ||||
Utilities | 4.0 | ||||
Real Estate | 3.3 | ||||
Health Care | 3.0 | ||||
|
| ||||
Total Common Stocks and Preferred Stocks | 99.9 | ||||
Right | — | ^ | |||
Securities Held as Collateral for Securities on Loan | 2.2 | ||||
|
| ||||
Total Investment Securities | 102.1 | ||||
Net other assets (liabilities) | (2.1 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks (99.7%): | ||||||||
Aerospace & Defense (0.2%): | ||||||||
10,000 | Aerospace Industrial Development Corp. | $ | 12,454 | |||||
1,236 | Aselsan Elektronik Sanayi Ve Ticaret AS | 10,383 | ||||||
20,000 | AviChina Industry & Technology Co., Ltd. | 10,640 | ||||||
10,593 | Bharat Electronics, Ltd. | 30,164 | ||||||
2,973 | Embraer SA, ADR^ | 71,144 | ||||||
650 | Korea Aerospace Industries, Ltd. | 28,775 | ||||||
174 | S&T Dynamics Co., Ltd.* | 1,214 | ||||||
538 | Samsung Techwin Co., Ltd.* | 17,861 | ||||||
|
| |||||||
182,635 | ||||||||
|
| |||||||
Air Freight & Logistics (0.1%): | ||||||||
39 | Blue Dart Express, Ltd. | 2,778 | ||||||
513 | Hanjin Transportation Co., Ltd. | 12,464 | ||||||
247 | Hyundai Glovis Co., Ltd. | 31,378 | ||||||
26,000 | Sinotrans, Ltd. | 12,728 | ||||||
|
| |||||||
59,348 | ||||||||
|
| |||||||
Airlines (0.8%): | ||||||||
20,000 | Air China, Ltd. | 24,220 | ||||||
60,200 | AirAsia Berhad | 49,912 | ||||||
3,987 | Asiana Airlines, Inc.* | 16,857 | ||||||
39,400 | Bangkok Airways Public Co., Ltd. | 20,671 | ||||||
15,130 | Cebu Air, Inc. | 30,314 | ||||||
70,000 | China Airlines, Ltd.* | 27,392 | ||||||
26,000 | China Eastern Airlines Corp., Ltd., Class H | 18,821 | ||||||
443 | China Southern Airlines Co., Ltd., ADR | 22,956 | ||||||
18,000 | China Southern Airlines Co., Ltd., Class H | 18,587 | ||||||
14,200 | Controladora Vuela Compania de Aviacion SAB de C.V., Class A* | 11,398 | ||||||
49,749 | Eva Airways Corp. | 26,483 | ||||||
16,124 | Grupo Aeromexico SAB de C.V.* | 23,507 | ||||||
472 | Hanjin Kal Corp.* | 8,068 | ||||||
1,305 | Korean Air Lines Co., Ltd.* | 41,189 | ||||||
3,833 | Latam Airlines Group SA, ADR^ | 53,279 | ||||||
37,400 | Thai Airways International Public Co., Ltd.* | 19,857 | ||||||
16,783 | Turk Hava Yollari Anonim Ortakligi* | 69,493 | ||||||
|
| |||||||
483,004 | ||||||||
|
| |||||||
Auto Components (1.4%): | ||||||||
6,000 | Actron Technology Corp. | 23,279 | ||||||
6,717 | Apollo Tyres, Ltd. | 28,147 | ||||||
2,736 | Balkrishna Industries, Ltd.(a) | 51,146 | ||||||
5,178 | Bharat Forge, Ltd. | 59,295 | ||||||
50 | Bosch, Ltd. | 15,748 | ||||||
1,215 | Ceat, Ltd. | 37,092 | ||||||
22,000 | Chaowei Power Holdings, Ltd. | 13,373 | ||||||
28,000 | Cheng Shin Rubber Industry Co., Ltd. | 49,409 | ||||||
1,100 | Cub Elecparts, Inc. | 10,117 | ||||||
5,000 | Depo Auto Parts Industries Co., Ltd. | 15,125 | ||||||
6,474 | Exide Industries, Ltd. | 22,600 | ||||||
49 | Global & Yuasa Battery Co., Ltd. | 1,637 | ||||||
1,065 | Hankook Tire Co., Ltd. | 54,283 | ||||||
5,319 | Hota Industrial Manufacturing Co., Ltd. | 26,195 | ||||||
3,000 | Hu Lane Associate, Inc. | 15,348 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Auto Components, continued | ||||||||
403 | Hyundai Mobis Co., Ltd. | $ | 99,079 | |||||
434 | Hyundai Wia Corp. | 26,365 | ||||||
13,923 | Kenda Rubber Industrial Co., Ltd. | 17,556 | ||||||
3,107 | Kumho Tire Co., Inc.* | 12,810 | ||||||
126 | Mando Corp. | 36,224 | ||||||
133 | Mando Corp. | 7,789 | ||||||
10,537 | Metair Investments, Ltd. | 18,382 | ||||||
2,000 | Minth Group, Ltd. | 12,036 | ||||||
9,355 | Motherson Sumi Systems, Ltd. | 55,608 | ||||||
33 | Mrf, Ltd. | 37,371 | ||||||
13,000 | Nan Kang Rubber Tire Co., Ltd. | 11,666 | ||||||
446 | Nexen Tire Corp. | 4,918 | ||||||
15,000 | Nexteer Automotive Group, Ltd. | 35,676 | ||||||
5,900 | Rassini, S.A.B. de C.V., Class A | 10,429 | ||||||
549 | S&T Motiv Co., Ltd. | 24,017 | ||||||
737 | SL Corp. | 16,862 | ||||||
21,840 | Sri Trang Agro-Industry Public Co., Ltd. | 9,452 | ||||||
115 | Sundaram-Clayton, Ltd.* | 9,747 | ||||||
1,653 | Sungwoo Hitech Co., Ltd.* | 10,071 | ||||||
1,581 | TI Financial Holdings, Ltd.* | 17,018 | ||||||
24,000 | Tianneng Power International, Ltd. | 24,901 | ||||||
10,000 | Tong Yang Industry Co., Ltd. | 19,334 | ||||||
1,581 | Tube Investments of India Ltd. | 6,678 | ||||||
2,000 | Tung Thih Electronic Co., Ltd. | 11,538 | ||||||
11,000 | TYC Brother Industrial Co., Ltd. | 12,309 | ||||||
26 | WABCO India, Ltd. | 2,979 | ||||||
|
| |||||||
973,609 | ||||||||
|
| |||||||
Automobiles (2.0%): | ||||||||
19,500 | Baic Motor Corp. Ltd.(b) | 25,402 | ||||||
829 | Bajaj Auto, Ltd. | 43,224 | ||||||
2,000 | Brilliance China Automotive Holdings, Ltd. | 5,314 | ||||||
4,000 | BYD Co., Ltd., Class H^ | 34,718 | ||||||
14,000 | China Motor Corp. | 12,223 | ||||||
32,000 | Dongfeng Motor Corp., Series H | 38,736 | ||||||
10,700 | DRB-HICOM Berhad | 4,831 | ||||||
1,334 | Ford Otomotiv Sanayi AS | 21,223 | ||||||
60,000 | Geely Automobile Holdings, Ltd. | 205,881 | ||||||
28,500 | Great Wall Motor Co. | 32,630 | ||||||
530 | Hero MotoCorp, Ltd. | 31,422 | ||||||
954 | Hyundai Motor Co. | 139,003 | ||||||
2,964 | Kia Motors Corp. | 92,722 | ||||||
3,781 | Mahindra & Mahindra, Ltd., GDR | 88,067 | ||||||
1,029 | Maruti Suzuki India, Ltd. | 156,623 | ||||||
214,000 | PT Astra International Tbk | 130,837 | ||||||
10,000 | Sanyang Industry Co., Ltd. | 7,188 | ||||||
29,039 | Tata Motors, Ltd.* | 195,330 | ||||||
3,775 | Tvs Motor Co., Ltd. | 45,528 | ||||||
14,900 | UMW Holdings Berhad* | 19,157 | ||||||
18,000 | Yulon Motor Co., Ltd. | 14,625 | ||||||
|
| |||||||
1,344,684 | ||||||||
|
|
Continued
4
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks (11.2%): | ||||||||
173,000 | Agricultural Bank of China, Ltd. | $ | 80,511 | |||||
5,046 | Akbank T.A.S. | 13,117 | ||||||
1,674 | Alior Bank SA* | 38,137 | ||||||
28,700 | Alliance Financial Group Berhad | 28,970 | ||||||
21,400 | AMMB Holdings Berhad | 23,338 | ||||||
1,660 | Axis Bank, Ltd. | 72,506 | ||||||
3,900 | Banco ABC Brasil SA | 20,123 | ||||||
6,055 | Banco Bradesco SA | 58,536 | ||||||
23,569 | Banco Bradesco SA, ADR | 241,347 | ||||||
440 | Banco Davivienda SA | 4,418 | ||||||
444 | Banco de Chile, ADR | 42,859 | ||||||
570 | Banco de Credito e Inversiones | 39,653 | ||||||
6,100 | Banco do Brasil SA | 58,530 | ||||||
5,800 | Banco do Esrado do Rio Grande do Sul SA, Class B | 26,059 | ||||||
1,391 | Banco Santander Brasil SA | 13,372 | ||||||
1,433 | Banco Santander Chile, ADR | 44,810 | ||||||
790 | Bancolombia SA, ADR | 31,331 | ||||||
11,490 | Bank Millennium SA* | 29,517 | ||||||
8,715 | Bank of Baroda | 21,928 | ||||||
315,000 | Bank of China, Ltd. | 154,578 | ||||||
20,000 | Bank of Chongqing Co., Ltd., Class H | 15,922 | ||||||
32,000 | Bank of Communications Co., Ltd., Class H | 23,722 | ||||||
3,440 | Bank of the Philippine Islands | 7,443 | ||||||
502 | Bank Pekao SA | 18,658 | ||||||
341 | Bank Zachodni WBK SA | 38,742 | ||||||
11,009 | Banregio Grupo Financiero SAB de C.V. | 60,319 | ||||||
9,139 | Barclays Africa Group, Ltd. | 134,887 | ||||||
15,328 | BDO Unibank, Inc. | 50,346 | ||||||
5,251 | BNK Financial Group, Inc. | 46,203 | ||||||
2,317 | Canara Bank, Ltd. | 13,079 | ||||||
955 | Capitec Bank Holdings, Ltd. | 84,847 | ||||||
54,781 | Chang Hwa Commercial Bank | 30,469 | ||||||
16,100 | China Banking Corp. | 10,740 | ||||||
61,000 | China Citic Bank Co., Ltd. | 38,200 | ||||||
535,000 | China Construction Bank | 492,121 | ||||||
159,000 | China Development Financial Holding Corp. | 54,129 | ||||||
31,000 | China Everbright Bank Co., Series H | 14,458 | ||||||
21,500 | China Merchants Bank Co., Ltd. | 85,560 | ||||||
30,500 | China Minsheng Banking Corp., Ltd. | 30,504 | ||||||
159,944 | Chinatrust Financial Holding Co., Ltd. | 110,051 | ||||||
32,000 | Chongqing Rural Commercial Bank Co., Ltd. | 22,606 | ||||||
18,465 | CIMB Group Holdings Berhad | 29,862 | ||||||
4,293 | City Union Bank, Ltd. | 12,080 | ||||||
12,534 | Commercial International Bank Egypt SAE, GDR | 54,459 | ||||||
1,120 | Credicorp, Ltd. | 232,322 | ||||||
8,352 | Dcb Bank, Ltd. | 25,648 | ||||||
2,129 | DGB Financial Group, Inc. | 20,943 | ||||||
67,782 | E.Sun Financial Holding Co., Ltd. | 43,034 | ||||||
9,000 | EnTie Commercial Bank | 4,022 | ||||||
80,262 | Far Eastern International Bank | 25,733 | ||||||
25,419 | Federal Bank, Ltd. | 43,208 | ||||||
99,346 | First Financial Holdings Co., Ltd. | 65,280 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
2,676 | Grupo Aval Acciones y Valores SA, ADR | $ | 22,746 | |||||
1,028 | Grupo Elektra, SAB de C.V. | 36,798 | ||||||
13,980 | Grupo Financiero Banorte SAB de C.V. | 76,753 | ||||||
27,019 | Grupo Financiero Inbursa SAB de C.V., Class O | 44,242 | ||||||
5,152 | Grupo Financiero Interacciones SAB de C.V. | 22,882 | ||||||
2,961 | Grupo Financiero Santander Mexico SAB de C.V., Class B, ADR | 21,645 | ||||||
44,282 | Grupo Security SA | 20,168 | ||||||
2,580 | Hana Financial Holdings Group, Inc. | 120,064 | ||||||
7,684 | Hong Leong Bank Berhad | 32,373 | ||||||
6,680 | Hong Leong Financial Group Berhad | 29,531 | ||||||
81,396 | Hua Nan Financial Holdings Co., Ltd. | 45,809 | ||||||
15,600 | ICICI Bank, Ltd. | 76,502 | ||||||
11,552 | Idbi Bank, Ltd.* | 10,850 | ||||||
2,401 | Indian Bank | 14,169 | ||||||
1,203 | IndusInd Bank, Ltd. | 31,077 | ||||||
462,000 | Industrial & Commercial Bank of China | 370,498 | ||||||
3,544 | Industrial Bank of Korea (IBK) | 54,354 | ||||||
412 | ING Bank Slaski SA* | 24,341 | ||||||
2,289 | Itau Corpbanca, ADR^ | 30,764 | ||||||
39,597 | Itau Unibanco Banco Multiplo SA, ADR | 514,761 | ||||||
3,960 | Itau Unibanco Holding SA | 45,006 | ||||||
4,150 | JB Financial Group Co., Ltd. | 23,519 | ||||||
9,906 | Karnataka Bank, Ltd. | 23,510 | ||||||
7,639 | Karur Vysya Bank, Ltd. | 14,985 | ||||||
8,400 | Kasikornbank Public Co., Ltd. | 59,705 | ||||||
1,280 | KB Financial Group, Inc., ADR | 74,893 | ||||||
704 | KB Financial Group, Inc. | 41,630 | ||||||
9,300 | Kiatnakin Bank Public Co., Ltd. | 22,617 | ||||||
25,000 | King’s Town Bank | 31,295 | ||||||
620 | Komercni Banka AS | 26,634 | ||||||
3,158 | Kotak Mahindra Bank, Ltd. | 49,947 | ||||||
54,800 | Krung Thai Bank Public Co., Ltd. | 32,256 | ||||||
124,300 | LH Financial Group Public Co., Ltd. | 6,451 | ||||||
34,161 | Malayan Banking Berhad | 82,709 | ||||||
234 | mBank SA* | 31,268 | ||||||
64,871 | Mega Financial Holdings Co., Ltd. | 52,452 | ||||||
10,930 | Metropolitan Bank & Trust | 22,192 | ||||||
2,496 | Nedcor, Ltd. | 51,839 | ||||||
1,810 | OTP Bank Nyrt | 74,843 | ||||||
9,580 | Philippine National Bank* | 10,880 | ||||||
4,627 | Powszechna Kasa Oszczednosci Bank Polski SA* | 58,801 | ||||||
54,100 | PT Bank Central Asia Tbk | 87,221 | ||||||
58,900 | PT Bank Danamon Indonesia Tbk | 30,122 | ||||||
108,000 | PT Bank Mandiri Tbk | 63,619 | ||||||
66,500 | PT Bank Negara Indonesia Tbk | 48,474 | ||||||
80,800 | PT Bank Pan Indonesia Tbk* | 6,790 | ||||||
76,400 | PT Bank Pembangunan Daerah Jawa Barat Dan Banten Tbk | 13,518 | ||||||
690,000 | PT Bank Rakyat Indonesia Tbk | 184,764 | ||||||
123,400 | PT Bank Tabungan Negara Tbk | 32,474 | ||||||
35,100 | Public Bank Berhad | 180,266 |
Continued
5
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
1,589 | RBL Bank, Ltd.(b) | $ | 12,699 | |||||
19 | RHB Capital Berhad(a) | 23 | ||||||
11,873 | Sberbank of Russia, ADR | 202,197 | ||||||
3,341 | Shinhan Finnancial Group Co., Ltd., ADR* | 155,022 | ||||||
7,800 | Siam Commercial Bank Public Co., Ltd. | 35,867 | ||||||
68,722 | SinoPac Financial Holdings Co., Ltd. | 22,329 | ||||||
53,375 | South Indian Bank, Ltd. | 25,918 | ||||||
13,292 | Standard Bank Group, Ltd. | 210,657 | ||||||
1,013 | State Bank of India, GDR | 48,371 | ||||||
81,435 | Taichung Commercial Bank Co., Ltd. | 27,113 | ||||||
92,830 | Taishin Financial Holding Co., Ltd. | 43,180 | ||||||
116,044 | Taiwan Business Bank | 32,708 | ||||||
70,534 | Taiwan Cooperative Financial Holding Co., Ltd. | 39,354 | ||||||
20,600 | Thanachart Capital Public Co., Ltd. | 35,590 | ||||||
3,859 | The Jammu & Kashmir Bank, Ltd.* | 4,749 | ||||||
304,300 | TMB Bank Public Co., Ltd. | 28,138 | ||||||
20,734 | Turkiye Garanti Bankasi AS | 58,755 | ||||||
4,117 | Turkiye Halk Bankasi AS | 11,728 | ||||||
19,903 | Turkiye Is Bankasi AS, Class C | 36,637 | ||||||
36,629 | Turkiye Sinai Kalkinma Bankasi AS | 13,943 | ||||||
17,464 | Turkiye Vakiflar Bankasi T.A.O., Class D | 31,230 | ||||||
4,181 | UCO Bank* | 1,918 | ||||||
10,503 | Union Bank of India* | 23,744 | ||||||
27,560 | Union Bank of Taiwan | 8,575 | ||||||
18,129 | VTB Bank OJSC, GDR | 33,108 | ||||||
5,313 | Woori Bank | 78,137 | ||||||
11,245 | Yapi ve Kredi Bankasi AS* | 12,887 | ||||||
15,610 | Yes Bank, Ltd. | 76,952 | ||||||
|
| |||||||
7,379,773 | ||||||||
|
| |||||||
Beverages (1.4%): | ||||||||
58,427 | Ambev SA, ADR | 377,438 | ||||||
2,470 | Anadolu Efes Biracilik ve Malt Sanayii AS | 15,790 | ||||||
5,326 | Arca Continental SAB de C.V. | 36,886 | ||||||
8,100 | Carlsberg Brewery Malaysia Berhad | 30,659 | ||||||
11,333 | China Resources Enterprises, Ltd. | 40,677 | ||||||
482 | Coca-Cola Femsa SAB de C.V., ADR | 33,557 | ||||||
2,108 | Coca-Cola Icecek AS | 19,025 | ||||||
1,728 | Compania Cervecerias Unidas SA, ADR | 51,114 | ||||||
763 | Distell Group, Ltd. | 8,777 | ||||||
1,016 | Embotelladora Andina SA, Class B, ADR | 29,392 | ||||||
706 | Fomento Economico Mexicano SAB de C.V., ADR | 66,294 | ||||||
7,400 | Guinness Anchor Berhad | 34,558 | ||||||
13,000 | Hey Song Corp. | 13,740 | ||||||
106 | Muhak Co., Ltd. | 1,946 | ||||||
9,720 | Organizacion Cultiba SAB de C.V. | 7,738 | ||||||
2,000 | Tsingtao Brewery Co., Ltd., Class H | 10,308 | ||||||
1,491 | United Breweries, Ltd. | 25,205 | ||||||
925 | United Spirits, Ltd.* | 53,240 | ||||||
730 | Vina Concha y Toro SA, ADR^ | 26,609 | ||||||
|
| |||||||
882,953 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Biotechnology (0.4%): | ||||||||
9,500 | 3SBio, Inc.*(b) | $ | 18,623 | |||||
6,375 | Biocon, Ltd. | 53,768 | ||||||
37 | Cell Biotech Co., Ltd. | 1,382 | ||||||
447 | Celltrion, Inc.* | 91,825 | ||||||
519 | Green Cross Holdings Corp.* | 19,009 | ||||||
130 | Medy-Tox, Inc. | 58,818 | ||||||
|
| |||||||
243,425 | ||||||||
|
| |||||||
Building Products (0.1%): | ||||||||
31,000 | China Lesso Group Holdings, Ltd. | 20,075 | ||||||
714 | IS Dongseo Co., Ltd. | 23,226 | ||||||
1,328 | Kajaria Ceramics, Ltd. | 15,156 | ||||||
55 | KCC Corp. | 19,574 | ||||||
241 | LG Hausys, Ltd. | 21,850 | ||||||
30,444 | Taiwan Glass Industry Corp.* | 22,832 | ||||||
9,577 | Trakya Cam Sanayii AS | 11,684 | ||||||
|
| |||||||
134,397 | ||||||||
|
| |||||||
Capital Markets (1.4%): | ||||||||
163 | 5Paisa Capital, Ltd.* | 960 | ||||||
9,897 | BM&F Bovespa SA | 67,983 | ||||||
18,116 | Bolsa Mexicana de Valores SA | 31,157 | ||||||
15,800 | Bursa Malaysia Berhad | 39,535 | ||||||
79,000 | Capital Securities Corp. | 30,774 | ||||||
38,000 | China Bills Finance Corp. | 19,677 | ||||||
94,000 | China Cinda Asset Management Co., Ltd., Class H | 34,406 | ||||||
18,000 | China Everbright, Ltd. | 40,156 | ||||||
6,000 | Citic Securities Co., Ltd. | 12,339 | ||||||
7,439 | Coronation Fund Managers, Ltd. | 44,510 | ||||||
883 | Credit Analysis & Research, Ltd. | 18,442 | ||||||
264 | Crisil, Ltd. | 7,754 | ||||||
4,413 | Daewoo Securities Co., Ltd. | 37,821 | ||||||
1,533 | Daishin Securities Co., Ltd. | 20,602 | ||||||
10,902 | Edelweiss Financial Services, Ltd. | 50,725 | ||||||
16,800 | Haitong Securities Co., Ltd. | 24,342 | ||||||
2,603 | Hanwha Investment & Securities Co., Ltd.* | 6,570 | ||||||
4,000 | Huatai Securities Co., Ltd., Class H(b) | 7,943 | ||||||
4,088 | IIFL Holdings, Ltd. | 42,680 | ||||||
2,072 | Indiabulls Ventured, Ltd. | 8,617 | ||||||
4,272 | Investec, Ltd. | 31,074 | ||||||
37,459 | Jih Sun Financial Holdings Co., Ltd. | 10,542 | ||||||
7,125 | JM Financial, Ltd. | 17,547 | ||||||
2,838 | JSE, Ltd. | 35,415 | ||||||
877 | Korea Investment Holdings Co., Ltd. | 56,531 | ||||||
5,845 | Macquarie Korea Infrastructure Fund | 45,044 | ||||||
38,295 | MasterLink Securities Corp. | 11,187 | ||||||
6,404 | Meritz Securities Co., Ltd. | 27,317 | ||||||
388 | Motilal Oswal Financial Services, Ltd. | 9,092 | ||||||
2,377 | NH Investment & Securities Co., Ltd. | 30,822 | ||||||
11,682 | Peregrine Holdings, Ltd. | 24,185 | ||||||
5,367 | President Securities Corp.* | 2,582 | ||||||
852 | Samsung Securities Co., Ltd. | 29,078 | ||||||
22 | Shinyoung Securities Co., Ltd. | 1,165 |
Continued
6
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Capital Markets, continued | ||||||||
20,200 | SK Securities Co., Ltd.* | $ | 21,676 | |||||
22,916 | Waterland Financial Holdings Co., Ltd. | 7,310 | ||||||
47,965 | Yuanta Financial Holding Co., Ltd. | 22,226 | ||||||
1,321 | Yuanta Securities Korea Co., Ltd.* | 4,759 | ||||||
|
| |||||||
934,545 | ||||||||
|
| |||||||
Chemicals (3.7%): | ||||||||
1,032 | Aarti Industries Ltd. | 18,331 | ||||||
2,422 | AECI, Ltd. | 19,637 | ||||||
210 | AK Holdings, Inc. | 13,430 | ||||||
230 | Akzo Nobel India, Ltd. | 6,591 | ||||||
22,113 | Alpek SAB de C.V. | 26,400 | ||||||
20,000 | Asia Polymer Corp. | 12,965 | ||||||
3,044 | Asian Paints, Ltd. | 55,251 | ||||||
641 | Atul, Ltd. | 27,470 | ||||||
2,900 | Batu Kawan Berhad | 14,055 | ||||||
2,536 | Berger Paints India, Ltd. | 10,876 | ||||||
4,552 | Castrol (India), Ltd. | 13,746 | ||||||
4,712 | Chambal Fertilizers and Chemicals, Ltd. | 11,252 | ||||||
50,000 | China BlueChemical, Ltd., Class H | 15,752 | ||||||
64,000 | China Man-Made Fiber Corp.* | 21,734 | ||||||
53,000 | China Petrochemical Development Corp.* | 27,443 | ||||||
3,000 | China Steel Chemical Corp. | 12,853 | ||||||
14,757 | China Synthetic Rubber Corp. | 21,692 | ||||||
1,811 | Coromandel International, Ltd. | 16,433 | ||||||
87,100 | D&L Industries, Inc. | 19,280 | ||||||
1,084 | Dongjin Semichem Co., Ltd.* | 22,349 | ||||||
23,000 | Dongyue Group, Ltd. | 16,071 | ||||||
1,860 | EID Parry India, Ltd. | 10,801 | ||||||
24,948 | Eternal Materials Co., Ltd. | 25,824 | ||||||
543 | Finolex Industries, Ltd. | 5,613 | ||||||
2,397 | Foosung Co., Ltd.* | 22,663 | ||||||
23,000 | Formosa Chemicals & Fibre Corp. | 79,576 | ||||||
15,000 | Formosa Plastics Corp. | 49,711 | ||||||
7,290 | Formosan Rubber Group, Inc. | 3,979 | ||||||
27,000 | Fufeng Group, Ltd. | 17,623 | ||||||
22,000 | Grand Pacific Petrochemical Corp. | 23,198 | ||||||
1,098 | Grupa Azoty SA, ADR | 21,959 | ||||||
697 | Gujarat Fluorochemicals, Ltd. | 9,953 | ||||||
1,377 | Gujarat Narmada Valley Fertilizers & Chemicals, Ltd. | 10,655 | ||||||
1,843 | H.S. Industries Co., Ltd.* | 17,638 | ||||||
140 | Hansol Chemical Co., Ltd. | 9,467 | ||||||
1,957 | Hanwha Chemical Corp. | 57,669 | ||||||
71,000 | Ho Tung Chemical Corp.* | 24,262 | ||||||
191 | Huchems Fine Chemical Corp. | 4,377 | ||||||
486 | Hyosung Corp. | 63,386 | ||||||
23,600 | Indorama Ventures Public Co., Ltd. | 38,582 | ||||||
1,072 | Kansai Nerolac Paints, Ltd. | 9,663 | ||||||
478 | Kolon Industries, Inc. | 39,675 | ||||||
74 | Korea Petrochemical Industry Co., Ltd. | 18,236 | ||||||
179 | Kumho Petrochemical Co., Ltd. | 16,670 | ||||||
11,000 | LCY Chemical Corp. | 17,946 | ||||||
457 | LG Chem, Ltd. | 172,723 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Chemicals, continued | ||||||||
252 | Lotte Chemical Corp. | $ | 86,444 | |||||
23,536 | Mexichem SAB de C.V. | 58,270 | ||||||
30,000 | Nan Ya Plastics Corp. | 78,514 | ||||||
343 | OCI Co., Ltd. | 43,622 | ||||||
200 | OCI Materials Co., Ltd. | 33,618 | ||||||
2,670 | Omnia Holdings, Ltd. | 31,903 | ||||||
9,000 | Oriental Union Chemical Corp. | 9,552 | ||||||
18,756 | Petkim Petrokimya Holding AS | 38,462 | ||||||
24,700 | Petronas Chemicals Group Berhad | 46,973 | ||||||
1,007 | PI Industries, Ltd. | 15,141 | ||||||
2,178 | Pidilite Industries, Ltd. | 30,763 | ||||||
148,100 | PT Barito Pacific Tbk* | 24,669 | ||||||
18,400 | PTT Global Chemical Public Co., Ltd. | 47,954 | ||||||
614 | Samsung Fine Chemicals Co., Ltd. | 37,206 | ||||||
5,355 | Sasol, Ltd., ADR | 183,195 | ||||||
368 | Sasol, Ltd. | 12,739 | ||||||
11,600 | Scientex Berhad | 24,840 | ||||||
24,000 | Shinkong Synthetic Fibers Corp. | 8,101 | ||||||
418 | Sinopec Shanghai Petrochemical Co., Ltd., ADR^ | 23,825 | ||||||
20,964 | Sintex Plastics Technology, Ltd.* | 27,489 | ||||||
78 | SK Chemicals Co., Ltd.(a) | 6,136 | ||||||
379 | SKCKOLONPI, Inc. | 16,681 | ||||||
846 | Sociedad Quimica y Minera de Chile SA, ADR | 50,227 | ||||||
268 | Soulbrain Co., Ltd. | 16,871 | ||||||
1,005 | Supreme Industries, Ltd. | 20,401 | ||||||
1,000 | Swancor Holdings Co., Ltd. | 2,796 | ||||||
22 | Taekwang Industrial Co., Ltd. | 27,108 | ||||||
14,000 | Taiwan Fertilizer Co., Ltd. | 18,047 | ||||||
22,000 | TSRC Corp. | 27,525 | ||||||
437 | Unid Co., Ltd.* | 19,010 | ||||||
46,125 | Upc Technology Corp. | 29,132 | ||||||
7,103 | UPL, Ltd. | 84,827 | ||||||
33,660 | USI Corp. | 18,547 | ||||||
|
| |||||||
2,376,048 | ||||||||
|
| |||||||
Commercial Services & Supplies (0.2%): | ||||||||
63 | 3M India, Ltd.* | 18,862 | ||||||
32,000 | China Everbright International, Ltd. | 45,706 | ||||||
5,000 | Cleanaway Co., Ltd. | 29,382 | ||||||
343 | Novus Holdings, Ltd. | 164 | ||||||
155 | S1 Corp. | 15,502 | ||||||
9,000 | Taiwan Secom Co., Ltd. | 27,698 | ||||||
8,000 | Taiwan-Sogo ShinKong Security Corp. | 10,400 | ||||||
1,980 | Valid Solucoes e Servicos de Seguranca em Meios de Pagamento e Identificacao SA | 11,069 | ||||||
|
| |||||||
158,783 | ||||||||
|
| |||||||
Communications Equipment (0.2%): | ||||||||
9,000 | Accton Technology Corp. | 32,038 | ||||||
1,000 | Advanced Ceramic X Corp. | 13,371 | ||||||
10,500 | BYD Electronic International Co., Ltd. | 22,868 | ||||||
69,600 | China Fiber Optic Network System Group, Ltd.*(a) | 1,170 | ||||||
13,000 | Sercomm Corp. | 36,981 | ||||||
1,467 | Sterlite Technologies, Ltd. | 6,701 |
Continued
7
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Communications Equipment, continued | ||||||||
1,416 | Texcell-NetCom Co., Ltd.* | $ | 16,213 | |||||
7,572 | Wistron NeWeb Corp. | 21,752 | ||||||
2,000 | Zinwell Corp. | 2,124 | ||||||
|
| |||||||
153,218 | ||||||||
|
| |||||||
Construction & Engineering (1.3%): | ||||||||
4,000 | Acter Co., Ltd. | 27,683 | ||||||
971 | Ashoka Buildcon, Ltd. | 3,715 | ||||||
28,000 | BES Engineering Corp. | 7,726 | ||||||
515 | Budimex SA | 31,373 | ||||||
21,000 | China Communications Construction Co., Ltd. | 23,848 | ||||||
21,000 | China Machinery Engineering Corp. | 13,568 | ||||||
16,500 | China Railway Contstruction Corp., Ltd. | 19,117 | ||||||
15,000 | China Railway Group, Ltd. | 11,096 | ||||||
15,600 | China Singyes Solar Technologies Holdings, Ltd. | 6,760 | ||||||
24,750 | China State Construction International Holdings, Ltd. | 34,529 | ||||||
16,000 | CTCI Corp. | 24,274 | ||||||
363 | Daelim Industrial Co., Ltd. | 27,943 | ||||||
808 | Dilip Buildcon, Ltd.(b) | 12,526 | ||||||
102 | e Tec E&C Ltd.* | 12,160 | ||||||
37,002 | Empresas ICA SAB de C.V.* | 463 | ||||||
3,512 | Gayatri Projects, Ltd.* | 12,421 | ||||||
38,334 | GMR Infrastructure, Ltd.* | 13,477 | ||||||
1,205 | GS Engineering & Construction Corp.* | 31,871 | ||||||
963 | Hyandai Development Co. | 34,670 | ||||||
1,142 | Hyundai Engineering & Construction Co., Ltd. | 38,799 | ||||||
51,500 | IJM Corporation Berhad | 38,823 | ||||||
28,675 | Impulsora del Desarrollo y el Empleo en America Latina SAB de C.V.* | 48,135 | ||||||
3,941 | IRB Infrastructure Developers, Ltd. | 14,696 | ||||||
1,545 | Kalpataru Power Transmission, Ltd. | 11,405 | ||||||
6,030 | Larsen & Tourbo, Ltd., Class S, GDR | 118,872 | ||||||
2,000 | Metallurgical Corporation of China, Ltd., Series H | 588 | ||||||
20,858 | Murray & Roberts Holdings, Ltd. | 20,486 | ||||||
10,799 | NCC, Ltd. | 22,617 | ||||||
117,918 | PT Pembangunan Perumahan Persero Tbk | 22,894 | ||||||
211,300 | PT Surya Semesta Internusa Tbk | 8,022 | ||||||
105,000 | PT Wijaya Karya Persero Tbk | 11,979 | ||||||
4,248 | Sadbhav Engineering, Ltd. | 28,342 | ||||||
9,994 | Salfacorp SA | 18,452 | ||||||
25,000 | Sinopec Engineering Group Co., Ltd. | 23,711 | ||||||
2,990 | Sunway Construction Group Berhad | 1,854 | ||||||
1,031 | Taeyoung Engineering & Construction* | 9,922 | ||||||
24,900 | Unique Engineering & Construction Public Co., Ltd. | 12,458 | ||||||
4,000 | United Integrated Services Co., Ltd. | 7,884 | ||||||
27,762 | WCT Holdings Berhad* | 11,119 | ||||||
2,230 | Wilson Bayly Holmes-Ovcon, Ltd. | 28,100 | ||||||
|
| |||||||
848,378 | ||||||||
|
| |||||||
Construction Materials (1.3%): | ||||||||
669 | ACC, Ltd. | 18,450 | ||||||
2,920 | Ambuja Cements, Ltd. | 12,444 | ||||||
5,000 | Anhui Conch Cement Co., Ltd. | 23,515 | ||||||
35,000 | Asia Cement Corp. | 33,155 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Construction Materials, continued | ||||||||
37,000 | BBMG Corp. | $ | 16,754 | |||||
1,772 | Birla Corp., Ltd. | 31,943 | ||||||
19,500 | Cahya Mata Sarawak Berhad | 18,819 | ||||||
6,902 | Cemex Latam Holdings SA* | 25,462 | ||||||
14,291 | Cemex SAB de C.V., ADR* | 107,183 | ||||||
70,000 | China National Buildings Material Co., Ltd. | 62,318 | ||||||
50,000 | China Resources Cement Holdings, Ltd. | 32,773 | ||||||
2,324 | Cimsa Cimento Sanayi ve Ticaret AS | 8,396 | ||||||
568 | Dalmia Bharat, Ltd. | 28,549 | ||||||
63,000 | Goldsun Building Materials Co., Ltd.* | 20,684 | ||||||
1,359 | Grasim Industries, Ltd. | 24,758 | ||||||
1,641 | Grupo Argos SA | 10,556 | ||||||
30 | Hanil Cement Co., Ltd. | 4,010 | ||||||
27,300 | Holcim Philippines, Inc. | 5,886 | ||||||
22 | Hyundai Cement Co.* | 313 | ||||||
4,060 | India Cements, Ltd. | 11,667 | ||||||
673 | JK Cement, Ltd. | 11,715 | ||||||
9,900 | Lafarge Malaysia Berhad* | 15,258 | ||||||
73,801 | PPC, Ltd.* | 41,703 | ||||||
20,300 | PT Indocement Tunggal Prakarsa Tbk | 32,893 | ||||||
36,400 | PT Semen Indonesia (Persero) Tbk | 26,568 | ||||||
34 | Shree Cement, Ltd. | 9,644 | ||||||
19 | Siam City Cement Public Co., Ltd. | 153 | ||||||
36,000 | Taiwan Cement Corp. | 44,096 | ||||||
1,782 | The Ramco Cements, Ltd. | 21,927 | ||||||
4,300 | The Siam Cement Public Co., Ltd. | 63,819 | ||||||
7,780 | Tongyang, Inc. | 14,423 | ||||||
142,600 | TPI Polene Public Co., Ltd. | 8,935 | ||||||
345 | Ultra Tech Cement, Ltd. | 23,317 | ||||||
11,443 | Universal Cement Corp. | 8,824 | ||||||
|
| |||||||
820,910 | ||||||||
|
| |||||||
Consumer Finance (0.5%): | ||||||||
720 | Bajaj Finance, Ltd. | 19,812 | ||||||
165 | Bharat Financial Inclusion, Ltd.* | 2,585 | ||||||
1,439 | Cholamandalam Investment And Finance Co., Ltd. | 29,293 | ||||||
13,000 | Gentera SAB de C.V. | 10,805 | ||||||
523 | Kruk SA | 39,300 | ||||||
5,400 | Krungthai Card Public Co., Ltd. | 30,808 | ||||||
6,036 | Magma Fincorp, Ltd. | 15,114 | ||||||
3,968 | Mahindra & Mahindra Financial Services | 29,412 | ||||||
9,321 | Manappuram Finance, Ltd. | 17,948 | ||||||
18,800 | Muangthai Lesing Public Co., Ltd. | 22,348 | ||||||
2,075 | Muthoot Finance, Ltd. | 15,427 | ||||||
3,693 | Reliance Home Finance, Ltd.* | 5,246 | ||||||
130 | Repco Home Finance, Ltd. | 1,395 | ||||||
209 | Samsung Card Co., Ltd. | 7,733 | ||||||
680 | Shriram City Union Finance, Ltd. | 22,418 | ||||||
1,293 | Shriram Transport Finance | 29,928 | ||||||
9,200 | Srisawad Corp. Public Co., Ltd., Class F | 18,428 | ||||||
188 | Sundaram Finance, Ltd. | 5,532 | ||||||
5,000 | Taiwan Acceptance Corp. | 18,474 | ||||||
9,089 | Transaction Capital, Ltd. | 12,317 | ||||||
|
| |||||||
354,323 | ||||||||
|
|
Continued
8
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Containers & Packaging (0.1%): | ||||||||
7,000 | Cheng Loong Corp. | $ | 3,834 | |||||
37,000 | Greatview Aspetic Packaging Co., Ltd. | 26,959 | ||||||
5,100 | Klabin SA | 27,066 | ||||||
5,174 | Mpact, Ltd. | 10,240 | ||||||
22,427 | Nampak, Ltd.* | 29,493 | ||||||
15,000 | Taiwan Hon Chuan Enterprise Co., Ltd. | 28,962 | ||||||
3,160 | Time Technoplast, Ltd. | 10,245 | ||||||
|
| |||||||
136,799 | ||||||||
|
| |||||||
Distributors (0.2%): | ||||||||
5,943 | Imperial Holdings, Ltd. | 126,213 | ||||||
133 | Inter Cars SA | 11,848 | ||||||
|
| |||||||
138,061 | ||||||||
|
| |||||||
Diversified Consumer Services (0.3%): | ||||||||
7,283 | Advtech, Ltd. | 9,950 | ||||||
6,218 | Estacio Participacoes SA | 61,537 | ||||||
18,000 | Fu Shou Yuan International Group, Ltd. | 15,367 | ||||||
14,587 | Kroton Educacional SA | 80,934 | ||||||
297 | New Oriental Education & Technology Group, Inc., ADR | 27,918 | ||||||
1,200 | TAL Education Group, ADR | 35,652 | ||||||
|
| |||||||
231,358 | ||||||||
|
| |||||||
Diversified Financial Services (1.2%): | ||||||||
1,902 | Aditya Birla Capital, Ltd.* | 5,466 | ||||||
1,970 | Ayala Corp. | 40,066 | ||||||
533 | Bajaj Holdings And Investment, Ltd. | 23,931 | ||||||
18,680 | Chailease Holding Co., Ltd. | 54,315 | ||||||
30,000 | Far East Horizon, Ltd. | 25,605 | ||||||
60,039 | FirstRand, Ltd. | 327,432 | ||||||
47,000 | Fubon Financial Holdings Co., Ltd. | 79,986 | ||||||
945 | GT Capital Holdings, Inc. | 24,465 | ||||||
8,059 | IDFC, Ltd. | 7,942 | ||||||
7,641 | IFCI, Ltd.* | 3,677 | ||||||
1,006 | Inversiones La Construccion SA | 19,034 | ||||||
9,907 | L&t Finance Holdings, Ltd. | 26,954 | ||||||
348 | Meritz Financial Group, Inc. | 4,891 | ||||||
232,500 | Metro Pacific Investments Corp. | 31,955 | ||||||
422 | NICE Holdings Co., Ltd. | 5,773 | ||||||
1,950 | Nice Information Service Co., Ltd. | 15,817 | ||||||
17,218 | Power Finance Corp., Ltd. | 32,843 | ||||||
2,007 | PSG Group, Ltd. | 43,947 | ||||||
3,693 | Reliance Capital, Ltd. | 33,531 | ||||||
13,298 | Rural Electrification Corp., Ltd. | 32,445 | ||||||
2,402 | SREI Infrastucture Finance, Ltd. | 3,739 | ||||||
|
| |||||||
843,814 | ||||||||
|
| |||||||
Diversified Telecommunication Services (1.5%): | ||||||||
63,000 | Asia Pacific Telecom Co., Ltd.* | 21,146 | ||||||
33,142 | Axtel SAB de C.V.* | 6,305 | ||||||
5,126 | Bharti Infratel, Ltd. | 30,447 | ||||||
34,000 | China Communications Services Corp., Ltd. | 22,742 | ||||||
637 | China Telecom Corp., Ltd., ADR | 30,238 | ||||||
18,000 | China Telecom Corp., Ltd., Class H | 8,565 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Diversified Telecommunication Services, continued | ||||||||
4,785 | China Unicom (Hong Kong), Ltd., ADR*^ | $ | 64,741 | |||||
80,000 | China Unicom (Hong Kong), Ltd.* | 108,273 | ||||||
4,007 | Chunghwa Telecom Co., Ltd., ADR | 142,008 | ||||||
70,754 | Jasmine International Public Co., Ltd. | 15,449 | ||||||
4,168 | LG Uplus Corp. | 54,508 | ||||||
36,100 | Link Net TBK PT | 14,637 | ||||||
3,992 | Magyar Telekom Telecommunications plc | 7,065 | ||||||
11,536 | Netia SA | 17,831 | ||||||
1,985 | O2 Czech Republic AS | 25,784 | ||||||
8,635 | Orange Polska SA* | 14,367 | ||||||
5,120 | PT Telekomunik Indonesia Persero Tbk, ADR | 164,966 | ||||||
78,300 | PT Tower Bersama Infrastructure Tbk | 37,059 | ||||||
2,225 | Rostelecom, ADR | 14,818 | ||||||
5,200 | Samart Telcoms Public Co., Ltd. | 2,027 | ||||||
939 | Tata Communications, Ltd. | 10,026 | ||||||
3,362 | Telefonica Brasil SA, ADR^ | 49,858 | ||||||
21,900 | Telekom Malaysia Berhad | 34,086 | ||||||
27,916 | Telesites SAB* | 21,187 | ||||||
9,952 | Telkom SA SOC, Ltd. | 38,822 | ||||||
1,800 | TIME dotCom Berhad | 4,050 | ||||||
166,924 | True Corp. Public Co., Ltd.* | 31,781 | ||||||
|
| |||||||
992,786 | ||||||||
|
| |||||||
Electric Utilities (2.0%): | ||||||||
3,233 | Adani Transmission, Ltd.* | 11,351 | ||||||
2,000 | Alupar Investimento SA | 11,127 | ||||||
6,634 | Celsia SA ESP | 10,568 | ||||||
3,489 | Centrais Electricas Brasileiras SA, ADR* | 19,887 | ||||||
3,266 | Centrais Electricas Brasileiras SA, ADR^ | 22,176 | ||||||
1,597 | CESC, Ltd. | 26,210 | ||||||
1,970 | CEZ | 45,972 | ||||||
14,978 | Companhia Energetica de Minas Gerais, ADR | 30,855 | ||||||
4,205 | Companhia Paranaense de Energia, ADR | 32,084 | ||||||
17,871 | E.CL SA | 38,421 | ||||||
10,066 | EDP — Energias do Brasil SA | 42,494 | ||||||
9,559 | Enea SA | 31,481 | ||||||
4,132 | Energa SA | 15,082 | ||||||
9,918 | Enersis Chile SA, ADR | 56,334 | ||||||
10,156 | Enersis SA, ADR | 113,443 | ||||||
4,700 | Equatorial Energia SA | 93,042 | ||||||
20,840 | First Philippine Holdings Corp. | 25,904 | ||||||
8,067 | Interconexion Electrica SA ESP | 38,417 | ||||||
5,734 | Korea Electric Power Corp., ADR | 101,549 | ||||||
2,200 | Light SA* | 11,072 | ||||||
3,800 | Manila Electric Co. | 25,011 | ||||||
14,679 | PGE SA* | 50,823 | ||||||
16,884 | Power Grid Corp. of India, Ltd. | 52,905 | ||||||
3,165 | Reliance Infrastructure, Ltd. | 27,356 | ||||||
24,460 | Tata Power Co., Ltd. | 35,804 | ||||||
39,533 | Tauron Polska Energia SA* | 34,592 | ||||||
32,400 | Tenega Nasional Berhad | 122,066 | ||||||
2,361 | Torrent Power, Ltd. | 10,449 | ||||||
7,240 | Transmissora Alianca de Energia Eletrica SA | 46,589 | ||||||
|
| |||||||
1,183,064 | ||||||||
|
|
Continued
9
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electrical Equipment (0.7%): | ||||||||
14,000 | AcBel Polytech, Inc. | $ | 10,452 | |||||
947 | Amara Raja Batteries, Ltd. | 12,465 | ||||||
15,397 | Bharat Heavy Electricals, Ltd. | 22,221 | ||||||
4,000 | Bizlink Holdings, Inc. | 37,401 | ||||||
29,000 | Chung-Hsin Electric & Machinery Manufacturing Corp. | 21,687 | ||||||
10,196 | Crompton Greaves, Ltd.* | 14,793 | ||||||
1,407 | Doosan Heavy Industries & Construction Co., Ltd. | 20,170 | ||||||
1,360 | Finolex Cables, Ltd. | 15,069 | ||||||
2,971 | Havells India, Ltd. | 26,098 | ||||||
38 | Hyundai Electric & Energy Systems Co., Ltd.* | 4,036 | ||||||
6,000 | Jiangnan Group, Ltd. | 407 | ||||||
203 | Korea Electric Terminal Co., Ltd. | 12,706 | ||||||
451 | LG Industrial Systems Co., Ltd. | 27,370 | ||||||
412 | LS Corp. | 27,890 | ||||||
1,000 | Shihlin Electric & Engineering Corp. | 1,388 | ||||||
88,553 | Suzlon Energy, Ltd.* | 21,520 | ||||||
34,000 | Teco Electric & Machinery Co., Ltd. | 32,548 | ||||||
5,262 | Unison Co., Ltd.* | 19,668 | ||||||
2,000 | Voltronic Power Technology Corp. | 34,621 | ||||||
68,000 | Walsin Lihwa Corp. | 40,167 | ||||||
7,500 | Zhuzhou CSR Times Electric Co., Ltd. | 48,720 | ||||||
|
| |||||||
451,397 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (4.5%): | ||||||||
6,500 | AAC Technologies Holdings, Inc. | 115,603 | ||||||
468 | Amotech Co., Ltd.* | 21,473 | ||||||
23,085 | AU Optronics Corp., ADR^ | 96,034 | ||||||
3,000 | Career Technology(MFG.) Co., Ltd. | 4,035 | ||||||
4,000 | Chaun-Choung Technology Corp. | 13,201 | ||||||
13,000 | Cheng Uei Precision Industry Co., Ltd. | 21,812 | ||||||
48,000 | Chimei Materials Technology Corp.* | 19,633 | ||||||
13,000 | Chin-Poon Industrial Co., Ltd. | 25,351 | ||||||
1,000 | Chunghwa Precision Test Tech Co., Ltd. | 38,438 | ||||||
40,000 | Compeq Manufacturing Co., Ltd. | 51,549 | ||||||
24,800 | Coretronic Corp. | 28,392 | ||||||
296 | Daeduck Electronics Co., Ltd. | 2,727 | ||||||
932 | Daeduck GDS Co., Ltd.* | 23,770 | ||||||
10,712 | Datatec, Ltd.* | 49,626 | ||||||
10,600 | Delta Electronics (Thailand) Public Co., Ltd. | 23,804 | ||||||
13,682 | Delta Electronics, Inc. | 65,905 | ||||||
6,000 | Elite Material Co., Ltd. | 20,458 | ||||||
14,597 | Flexium Interconnect, Inc. | 52,167 | ||||||
2,000 | Flytech Technology Co., Ltd. | 5,507 | ||||||
14,200 | Hana Microelectronics Public Co., Ltd. | 19,364 | ||||||
119,000 | HannStar Display Corp. | 40,060 | ||||||
163,800 | Hon Hai Precision Industry Co., Ltd. | 521,927 | ||||||
8,518 | Hon Hai Precision Industry Co., Ltd., GDR | 52,812 | ||||||
55,750 | Inari Amertron Berhad | 46,867 | ||||||
150,000 | Innolux Corp. | 62,391 | ||||||
32,000 | JU Teng International Holdings, Ltd. | 10,435 | ||||||
9,500 | KCE Electronics Public Co., Ltd. | 24,124 | ||||||
18,000 | Kingboard Chemical Holdings, Ltd. | 97,132 | ||||||
25,000 | Kingboard Laminates Holdings, Ltd. | 38,966 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electronic Equipment, Instruments & Components, continued | ||||||||
467 | L&F Co., Ltd.* | $ | 18,633 | |||||
1,000 | Largan Precision Co., Ltd. | 134,710 | ||||||
16,250 | LG Display Co., Ltd., ADR | 223,599 | ||||||
266 | LG Innotek Co., Ltd. | 35,636 | ||||||
2,000 | Merry Electronics Co., Ltd. | 13,033 | ||||||
2,467 | Partron Co., Ltd. | 21,734 | ||||||
27,000 | PAX Global Technology, Ltd. | 12,115 | ||||||
1,019 | Posiflex Technology, Inc. | 4,664 | ||||||
4,974 | Redington India, Ltd. | 13,649 | ||||||
672 | Samsung Electro-Mechanics Co., Ltd., Series L | 62,490 | ||||||
460 | Samsung SDI Co., Ltd. | 87,355 | ||||||
520 | Sfa Engineering Corp. | 18,763 | ||||||
5,400 | Simplo Technology Co., Ltd. | 30,201 | ||||||
10,299 | Sinbon Electronics Co., Ltd. | 29,832 | ||||||
6,000 | Sunny Optical Technology Group Co., Ltd. | 76,007 | ||||||
22,000 | Supreme Electronics Co., Ltd. | 22,075 | ||||||
23,100 | Synnex Technology International Corp. | 31,460 | ||||||
5,456 | Synopex, Inc.* | 25,389 | ||||||
13,000 | Taiwan PCB Techvest Co., Ltd. | 13,870 | ||||||
6,000 | Taiwan Union Technology Corp. | 16,884 | ||||||
2,000 | Test Research, Inc. | 3,007 | ||||||
4,000 | Tong Hsing Electronic Industries, Ltd. | 18,103 | ||||||
100,000 | Tongda Group Holdings, Ltd. | 25,567 | ||||||
12,000 | TPK Holding Co., Ltd.* | 33,667 | ||||||
8,000 | Tripod Technology Corp. | 24,945 | ||||||
42,000 | Truly International Holdings, Ltd., Series L | 18,057 | ||||||
4,000 | TXC Corp. | 5,343 | ||||||
35,000 | Unimicron Technology Corp. | 19,153 | ||||||
30,000 | Unitech Printed Circuit Board Corp.* | 23,178 | ||||||
26,100 | V.S. Industry Berhad | 19,426 | ||||||
13,000 | Wah Lee Industrial Corp. | 24,331 | ||||||
2,000 | Waison Group Holdings, Ltd. | 978 | ||||||
1,405 | Wisol Co., Ltd. | 18,530 | ||||||
27,000 | WPG Holdings, Ltd. | 35,765 | ||||||
24,531 | WT Microelectronics Co., Ltd. | 37,220 | ||||||
4,627 | Yageo Corp. | 54,771 | ||||||
9,000 | Zhen Ding Technology Holding, Ltd. | 19,792 | ||||||
|
| |||||||
2,867,495 | ||||||||
|
| |||||||
Energy Equipment & Services (0.1%): | ||||||||
91,600 | Bumi Armada Berhad* | 17,322 | ||||||
96,600 | Sapurakencana Petroleum Berhad | 16,914 | ||||||
6,400 | Yinson Holdings BHD | 6,408 | ||||||
|
| |||||||
40,644 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (0.0%): | ||||||||
1,734 | Korea Asset In Trust Co., Ltd. | 11,962 | ||||||
|
| |||||||
Food & Staples Retailing (2.1%): | ||||||||
17 | Bgf Retail Co., Ltd. | 242 | ||||||
9 | BGF Retail Co., Ltd.* | 1,766 | ||||||
4,656 | Bid Corp., Ltd. | 113,647 | ||||||
2,846 | BIM Birlesik Magazalar AS | 58,658 | ||||||
8,262 | Cencosud SA | 24,410 |
Continued
10
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Food & Staples Retailing, continued | ||||||||
91 | CJ Freshway Corp. | $ | 3,383 | |||||
7,217 | Clicks Group, Ltd. | 106,005 | ||||||
2,733 | Companhia Brasileira de Distribuicao Grupo Pao de Acucar, ADR | 64,417 | ||||||
157,900 | Cosco Capital, Inc. | 24,353 | ||||||
30,500 | CP ALL Public Co., Ltd. | 72,027 | ||||||
183 | E-Mart Co., Ltd. | 46,276 | ||||||
2,923 | Eurocash SA | 22,170 | ||||||
12,811 | Grupo Comercial Chedraui SAB de C.V. | 23,467 | ||||||
245 | GS Retail Co., Ltd. | 9,228 | ||||||
1,487 | Hyundai Greenfood Co., Ltd. | 20,769 | ||||||
25,927 | La comer,SAB de C.V.* | 26,641 | ||||||
4,664 | Massmart Holdings, Ltd. | 52,768 | ||||||
9,708 | Organizacion Soriana SAB de C.V.* | 19,600 | ||||||
13,353 | Pickn Pay Stores, Ltd. | 75,007 | ||||||
8,000 | President Chain Store Corp. | 76,259 | ||||||
16,000 | Puregold Price Club, Inc. | 16,006 | ||||||
2,563 | Raia Drogasil SA | 70,947 | ||||||
5,540 | Robinsons Retail Holdings, Inc. | 10,688 | ||||||
10,598 | Shoprite Holdings, Ltd. | 190,119 | ||||||
39,000 | Sun Art Retail Group, Ltd. | 41,181 | ||||||
16,000 | Taiwan Tea Corp. | 8,301 | ||||||
6,066 | The Spar Group, Ltd. | 100,001 | ||||||
47,369 | Wal-Mart de Mexico SAB de C.V. | 116,190 | ||||||
1,349 | X5 Retail Group NV, GDR* | 50,913 | ||||||
|
| |||||||
1,445,439 | ||||||||
|
| |||||||
Food Products (2.9%): | ||||||||
1,544 | Astral Foods, Ltd. | 33,540 | ||||||
9,292 | AVI, Ltd. | 83,149 | ||||||
11,208 | Balrampur Chini Mills, Ltd. | 23,243 | ||||||
1,891 | BRF SA, ADR* | 21,293 | ||||||
518 | Britannia Industries, Ltd. | 38,194 | ||||||
190,000 | C.P. Pokphand Co., Ltd. | 15,060 | ||||||
2,240 | CCL Products India, Ltd. | 10,505 | ||||||
48,200 | Charoen Pokphand Foods Public Co., Ltd. | 35,510 | ||||||
55,000 | China Agri-Industries Holdings, Ltd. | 24,074 | ||||||
44,000 | China Foods, Ltd. | 25,721 | ||||||
16,000 | China Mengniu Dairy Co., Ltd. | 47,571 | ||||||
198 | CJ CheilJedang Corp. | 67,714 | ||||||
603 | Daesang Corp. | 15,510 | ||||||
38 | Dongwon Industries Co., Ltd. | 11,922 | ||||||
3,401 | Easy Bio, Inc.* | 20,387 | ||||||
1,333 | Farmsco* | 14,455 | ||||||
53,000 | Felda Global Ventures Holdings | 22,147 | ||||||
65 | Glaxo SmithKline Consumer Healthcare, Ltd. | 6,660 | ||||||
26,000 | Great Wall Enterprise Co., Ltd. | 29,298 | ||||||
6,338 | Gruma, SAB de C.V., Class B | 80,391 | ||||||
17,799 | Grupo Bimbo SAB de C.V., Series A | 39,449 | ||||||
12,529 | Grupo Herdez SAB de C.V. | 29,126 | ||||||
1,920 | Grupo Nutresa SA | 17,914 | ||||||
3,000 | Health And Happiness H&H International Holdings, Ltd.* | 19,911 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Food Products, continued | ||||||||
6,838 | Industrias Bachoco, SAB de C.V. | $ | 32,620 | |||||
40,200 | IOI Corp. Berhad | 45,126 | ||||||
12,000 | JBS SA | 35,497 | ||||||
2,092 | Kernel Holding SA | 28,567 | ||||||
2,569 | KRBL, Ltd. | 24,129 | ||||||
4,800 | Kuala Lumpur Kepong Berhad | 29,668 | ||||||
20,147 | Lien Hwa Industrial Corp. | 24,768 | ||||||
1,800 | M Dias Branco SA | 28,279 | ||||||
10,900 | Marfrig Global Foods SA* | 24,059 | ||||||
51,844 | Multiexport Foods SA | 20,013 | ||||||
3,000 | Namchow Chemical Industrial Co., Ltd. | 6,423 | ||||||
20 | Namyang Dairy Products Co., Ltd.* | 13,027 | ||||||
240 | Nestle India, Ltd. | 29,595 | ||||||
50 | NongShim Co., Ltd. | 16,534 | ||||||
1,981 | Oceana Group, Ltd. | 13,657 | ||||||
1,275 | Orion Corp. | 31,747 | ||||||
89 | Orion Corp.* | 8,695 | ||||||
3,462 | Pioneer Foods, Ltd. | 38,495 | ||||||
6,500 | PPB Group Berhad | 27,713 | ||||||
24,688 | PT Astra Agro Lestari Tbk | 23,943 | ||||||
96,300 | PT Charoen Pokphand Indonesia Tbk | 21,298 | ||||||
2,000 | PT Indofood CBP Sukses Makmur Tbk | 1,311 | ||||||
147,200 | PT Indofood Sukses Makmur Tbk | 82,649 | ||||||
163,300 | PT Japfa Comfeed Indonesia Tbk | 15,650 | ||||||
600 | PT Sawit Sumbermas Sarana Tbk | 66 | ||||||
33,700 | PT Tiga Pilar Sejahtera Food Tbk* | 1,180 | ||||||
140,300 | PT Tunas Baru Lampung Tbk | 12,682 | ||||||
1,800 | Qinqin Foodstuffs Group* | 484 | ||||||
27,820 | QL Resources Berhad | 29,916 | ||||||
118 | Samyang Holdings Corp. | 13,443 | ||||||
3,900 | Sao Martinho SA | 22,697 | ||||||
48,000 | Shenguan Holdings Group, Ltd. | 2,276 | ||||||
21,995 | Sime Darby Plantation Berhad* | 32,633 | ||||||
1,600 | SLC Agricola SA | 12,867 | ||||||
7,619 | Standard Foods Corp. | 18,948 | ||||||
29,800 | Taokaenoi Food & Marketing Public Co., Ltd., Class F | 19,166 | ||||||
10,893 | Tata Global Beverages, Ltd. | 53,909 | ||||||
48,000 | Thai Union Group Public Co., Ltd. | 29,308 | ||||||
3,028 | Tiger Brands, Ltd. | 112,908 | ||||||
34,000 | Tingyi (Caymen Is) Holding Corp. | 66,088 | ||||||
1,918 | Tongaat Hulett, Ltd. | 17,827 | ||||||
5,919 | Ulker Biskuvi Sanayi AS | 30,699 | ||||||
128,100 | Ultrajaya Milk Industry & Trading Co. Tbk PT | 12,222 | ||||||
28,000 | Uni-President China Holdings, Ltd. | 23,410 | ||||||
67,600 | Uni-President Enterprises Corp. | 149,880 | ||||||
12,130 | Universal Robina Corp. | 36,701 | ||||||
51,000 | Want Want China Holdings, Ltd. | 42,672 | ||||||
|
| |||||||
2,098,189 | ||||||||
|
| |||||||
Gas Utilities (0.6%): | ||||||||
24,000 | China Gas Holdings, Ltd. | 66,208 | ||||||
36,000 | China Oil & Gas Group, Ltd. | 3,917 | ||||||
20,000 | China Resources Gas Group, Ltd. | 72,259 |
Continued
11
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Gas Utilities, continued | ||||||||
410 | Cia de Gas de Sao Paulo | $ | 7,418 | |||||
10,000 | ENN Energy Holdings, Ltd. | 70,951 | ||||||
1,209 | GAIL India, Ltd., GDR | 57,163 | ||||||
1,851 | Gujarat State Petronet, Ltd. | 6,596 | ||||||
7,465 | Infraestructura Energetica Nova, SAB de C.V. | 36,530 | ||||||
501 | Korea Gas Corp.* | 19,910 | ||||||
10,000 | Petronas Gas Berhad | 43,216 | ||||||
130,200 | PT Perusahaan Gas Negara Tbk | 16,765 | ||||||
118 | Samchully Co., Ltd.* | 12,452 | ||||||
20,000 | Towngas China Co., Ltd. | 16,076 | ||||||
|
| |||||||
429,461 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (0.3%): | ||||||||
44 | Dio Corp.* | 1,454 | ||||||
19,200 | Hartalega Holdings Berhad | 50,657 | ||||||
194 | Huons Co., Ltd. | 10,067 | ||||||
9,500 | Kossan Rubber Industries Berhad | 19,084 | ||||||
26,000 | Lifetech Scientific Corp.* | 6,219 | ||||||
348 | Osstem Implant Co., Ltd.* | 19,199 | ||||||
12,000 | Shandong Weigao Group Medical Polymer Co., Ltd., Class H | 8,717 | ||||||
1,000 | St.Shine Optical Co., Ltd. | 32,917 | ||||||
21,600 | Top Glove Corp. Berhad | 42,853 | ||||||
357 | Vieworks Co., Ltd. | 13,635 | ||||||
|
| |||||||
204,802 | ||||||||
|
| |||||||
Health Care Providers & Services (0.8%): | ||||||||
1,802 | Apollo Hospitals Enterprise, Ltd. | 34,011 | ||||||
5,800 | Bumrungrad Hospital Public Co., Ltd. | 33,639 | ||||||
93,300 | Chularat Hospital Public Co., Ltd. | 6,013 | ||||||
295 | Dr Lal PathLabs, Ltd.(b) | 4,074 | ||||||
2,700 | Fleury SA | 24,107 | ||||||
12,400 | IHH Healthcare Berhad | 17,968 | ||||||
88,800 | KPJ Healthcare Berhad | 21,284 | ||||||
36,395 | Life Healthcare Group Holdings Pte, Ltd. | 81,862 | ||||||
31,983 | Netcare, Ltd. | 65,215 | ||||||
6,700 | OdontoPrev SA | 32,143 | ||||||
5,066 | Qualicorp SA | 47,356 | ||||||
6,700 | Shanghai Pharmaceuticals Holding Co., Ltd. | 18,094 | ||||||
13,600 | Sinopharm Group Co., Series H | 58,579 | ||||||
|
| |||||||
444,345 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure (1.0%): | ||||||||
17,254 | Alsea SAB de C.V. | 56,470 | ||||||
34,444 | Berjaya Sports Toto Berhard | 19,081 | ||||||
13,000 | Central Plaza Hotel Public Co., Ltd. | 23,240 | ||||||
56,000 | China Travel International Investment Hong Kong, Ltd. | 20,779 | ||||||
2,525 | City Lodge Hotels, Ltd. | 29,552 | ||||||
4,276 | Cox & Kings, Ltd. | 18,167 | ||||||
3,400 | Cvc Brasil Operadora E Agenc | 49,724 | ||||||
3,511 | Famous Brands, Ltd.*^ | 29,338 | ||||||
38,300 | Genting Berhard | 87,040 | ||||||
15,400 | Genting Malaysia Berhad | 21,434 | ||||||
1,300 | Gourmet Master Co., Ltd. | 18,978 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Hotels, Restaurants & Leisure, continued | ||||||||
694 | Grand Korea Leisure Co., Ltd. | $ | 18,952 | |||||
179 | Hana Tour Service, Inc. | 17,192 | ||||||
8,400 | Hoteles City Express SAB de CV* | 10,405 | ||||||
6,770 | Jollibee Foods Corp. | 34,309 | ||||||
1,170 | Jubilant Foodworks, Ltd. | 32,272 | ||||||
884 | Kangwon Land, Inc. | 28,737 | ||||||
31,800 | Magnum Berhad | 13,687 | ||||||
73,800 | Melco Resorts And Entertainment Philippines Corp.* | 10,986 | ||||||
11,100 | MINI International Public Co., Ltd. | 14,884 | ||||||
301 | Modetour Network, Inc. | 8,572 | ||||||
14,674 | Net Holding AS* | 8,558 | ||||||
353 | Paradise Co., Ltd.* | 7,343 | ||||||
275,000 | Rexlot Holdings, Ltd.* | 1,857 | ||||||
7,724 | Sun International, Ltd.* | 37,874 | ||||||
15,271 | Tsogo Sun Holdings, Ltd. | 30,387 | ||||||
2,000 | Wowprime Corp. | 9,021 | ||||||
|
| |||||||
658,839 | ||||||||
|
| |||||||
Household Durables (1.1%): | ||||||||
11,000 | Amtran Technology Co., Ltd. | 6,042 | ||||||
6,055 | Arcelik AS | 34,370 | ||||||
5,000 | Basso Industry Corp. | 11,194 | ||||||
29,815 | Consorcio ARA SAB de CV | 11,633 | ||||||
1,335 | Construtora Tenda SA* | 8,051 | ||||||
589 | Coway Co., Ltd. | 53,670 | ||||||
10,196 | Crompton Greaves Consumer Electricals, Ltd. | 43,849 | ||||||
12,000 | Cyrela Brazil Realty SA Empreendimentos e Participacoes | 47,837 | ||||||
2,300 | Even Construtora e Incorporadora SA* | 3,981 | ||||||
3,500 | Ez Tec Empreendimentos e Participacoes SA | 22,849 | ||||||
544 | Fabryki Mebli “Forte” SA | 7,805 | ||||||
1,335 | Gafisa SA* | 8,236 | ||||||
11,000 | Haier Electronics Group Co., Ltd. | 30,125 | ||||||
121 | Hanssem Co., Ltd. | 20,348 | ||||||
49 | Hyundai Livart Furniture Co., Ltd. | 1,464 | ||||||
27,000 | Kinpo Electronics, Inc. | 9,571 | ||||||
1,783 | LG Electronics, Inc. | 176,446 | ||||||
19,600 | Megawide Construction Corp. | 7,066 | ||||||
8,200 | MRV Engenharia e Participacoes SA | 37,189 | ||||||
3,000 | Nien Made Enterprise Co., Ltd. | �� | 32,064 | |||||
44,771 | Skyworth Digital Holdings, Ltd. | 19,224 | ||||||
23,334 | Steinhoff International Holdings NV | 8,794 | ||||||
55,000 | Tatung Co., Ltd.* | 35,300 | ||||||
363 | Whirlpool of India, Ltd. | 9,057 | ||||||
3,000 | Zeng Hsing Industrial Co., Ltd. | 13,053 | ||||||
|
| |||||||
659,218 | ||||||||
|
| |||||||
Household Products (0.5%): | ||||||||
1,549 | Eveready Industries India, Ltd.* | 10,629 | ||||||
9,507 | Hindustan Unilever, Ltd. | 203,362 | ||||||
41,435 | Kimberl- Clark de Mexico SAB de C.V. | 72,970 | ||||||
14,900 | PT Unilever Indonesia Tbk | 61,403 | ||||||
|
| |||||||
348,364 | ||||||||
|
|
Continued
12
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Independent Power & Renewable Electricity Producers (0.9%): | ||||||||
40,100 | Aboitiz Power Corp. | $ | 33,432 | |||||
10,952 | Adani Power, Ltd.* | 7,154 | ||||||
25,005 | AES Gener SA | 8,283 | ||||||
7,121 | AES Tiete Energia SA | 27,378 | ||||||
46,000 | Beijing Jingneng Clean Energy Co., Ltd., Series H | 12,363 | ||||||
37,000 | China Longyuan Power Group Corp. | 26,302 | ||||||
78,666 | China Power International Develpoment, Ltd. | 20,675 | ||||||
14,000 | China Resources Power Holdings Co. | 26,067 | ||||||
118,755 | Colbun SA | 27,316 | ||||||
34,000 | Datang International Power Generation Co., Ltd.* | 10,039 | ||||||
3,700 | Electricity Generating Public Co., Ltd. | 24,532 | ||||||
1,528 | Empresa Nacional de Electricidad SA, ADR | 41,118 | ||||||
54,218 | Energy Development Corp. | 6,234 | ||||||
2,800 | Engie Brasil Energia SA | 29,981 | ||||||
68,600 | First Gen Corp. | 23,372 | ||||||
9,900 | Glow Energy Public Co., Ltd. | 24,678 | ||||||
38,000 | Huadian Fuxin Energy Corp., Class H | 11,145 | ||||||
20,000 | Huadian Power International Corp., Ltd. | 7,284 | ||||||
708 | Huaneng Power International, Inc., ADR | 17,700 | ||||||
132,000 | Huaneng Renewables Corp., Ltd. | 44,621 | ||||||
10,150 | JSW Energy, Ltd. | 14,630 | ||||||
109,100 | Lopez Holdings Corp. | 12,253 | ||||||
25,620 | NHPC, Ltd. | 13,097 | ||||||
11,558 | NTPC, Ltd. | 32,057 | ||||||
9,799 | PTC India, Ltd. | 18,190 | ||||||
13,800 | Ratchaburi Electricity Generating Holding Public Co., Ltd. | 22,975 | ||||||
11,263 | Reliance Power, Ltd.* | 8,866 | ||||||
18,300 | SPCG Public Co., Ltd. | 12,300 | ||||||
565,900 | Superblock Public Co., Ltd., Class F* | 20,313 | ||||||
6,000 | Taiwan Cogeneration Corp. | 5,394 | ||||||
|
| |||||||
589,749 | ||||||||
|
| |||||||
Industrial Conglomerates (1.9%): | ||||||||
20,580 | Aboitiz Equity Ventures, Inc. | 30,461 | ||||||
87,537 | Alfa SAB de C.V., Class A | 96,404 | ||||||
119,100 | Alliance Global Group, Inc.* | 38,130 | ||||||
6,000 | Beijing Enterprises Holdings, Ltd. | 35,485 | ||||||
8,548 | Bera Holding AS* | 13,986 | ||||||
10,650 | Berli Jucker Public Co., Ltd. | 21,539 | ||||||
9,781 | Bidvest Group, Ltd. | 172,551 | ||||||
21,000 | Citic, Ltd. | 30,288 | ||||||
239 | CJ Corp. | 40,549 | ||||||
167,000 | DMCI Holdings, Inc. | 48,159 | ||||||
234 | Doosan Corp. | 24,713 | ||||||
4,967 | Enka Insaat ve Sanayi AS | 7,905 | ||||||
31,620 | Far Eastern New Century Corp. | 28,454 | ||||||
15,000 | Fosun International, Ltd. | 33,125 | ||||||
10,759 | Grupo Carso SAB de C.V. | 35,459 | ||||||
21,847 | GRUPO KUO SAB de C.V., Series B | 47,009 | ||||||
699 | Hanwha Corp. | 27,068 | ||||||
15,100 | Hap Seng Consolidated Berhad | 35,658 | ||||||
73,498 | Jaiprakash Associates, Ltd.* | 29,796 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Industrial Conglomerates, continued | ||||||||
33,660 | JG Summit Holdings, Inc. | $ | 48,573 | |||||
72,431 | KAP Industrial Holdings, Ltd. | 46,677 | ||||||
2,446 | KOC Holdings AS | 11,932 | ||||||
770 | LG Corp. | 65,423 | ||||||
7,416 | Reunert, Ltd. | 43,375 | ||||||
395 | Samsung C&T Corp. | 46,462 | ||||||
21,330 | San Miguel Corp. | 47,695 | ||||||
13,000 | Shanghai Industrial Holdings, Ltd. | 37,268 | ||||||
21,995 | Sime Darby Berhad | 11,990 | ||||||
408 | SK C&C Co., Ltd. | 107,923 | ||||||
1,290 | SM Investments Corp. | 25,554 | ||||||
28,447 | Turkiye Sise ve Cam Fabrikalari AS | 35,285 | ||||||
|
| |||||||
1,324,896 | ||||||||
|
| |||||||
Insurance (3.3%): | ||||||||
595 | Bajaj Finserv, Ltd. | 48,757 | ||||||
7,200 | Bangkok Life Assurance Public Co., Ltd. | 7,779 | ||||||
6,175 | BB Seguridade Participacoes SA | 53,049 | ||||||
41,000 | Cathay Financial Holding Co., Ltd. | 73,536 | ||||||
19,061 | China Life Insurance Co., Ltd. | 19,165 | ||||||
11,000 | China Life Insurance Co., Ltd. | 34,340 | ||||||
1,973 | China Life Insurance Co., Ltd., ADR | 30,799 | ||||||
7,200 | China Pacific Insurance Group Co., Ltd., Class H | 34,437 | ||||||
13,600 | China Taiping Insurance Holdings Co., Ltd. | 50,687 | ||||||
6,419 | Discovery, Ltd. | 96,827 | ||||||
1,507 | Dongbu Insurance Co., Ltd. | 100,208 | ||||||
2,696 | Hanwha General Insurance Co., Ltd. | 20,490 | ||||||
6,393 | Hanwha Life Insurance Co., Ltd. | 41,224 | ||||||
2,150 | Hyundai Marine & Fire Insurance Co., Ltd. | 94,296 | ||||||
2,724 | Korean Reinsurance Co. | 27,990 | ||||||
4,752 | Liberty Holding, Ltd. | 47,808 | ||||||
5,300 | LPI Capital Berhad | 23,799 | ||||||
1,228 | Max Financial Services, Ltd.* | 11,395 | ||||||
31,190 | Mercuries Life Insurance Co., Ltd.* | 16,963 | ||||||
1,882 | Meritz Fire & Marine Insurance Co., Ltd. | 41,341 | ||||||
526 | Mirae Asset Life Insurance Co., Ltd. | 2,580 | ||||||
28,993 | MMI Holdings, Ltd. | 49,386 | ||||||
68,000 | People’s Insurance Co. Group of China, Ltd. | 33,374 | ||||||
24,000 | Picc Property & Casuality Co., Ltd., Class H | 46,040 | ||||||
47,500 | Ping An Insurance Group Co. of China, Ltd. | 494,405 | ||||||
2,500 | Porto Seguro SA | 27,387 | ||||||
4,240 | Powszechny Zaklad Ubezpieczen SA | 51,272 | ||||||
518,000 | PT Panin Financial Tbk* | 9,440 | ||||||
250 | Samsung Fire & Marine Insurance Co., Ltd. | 62,320 | ||||||
520 | Samsung Life Insurance Co., Ltd. | 60,528 | ||||||
20,545 | Sanlam, Ltd. | 144,860 | ||||||
2,021 | Santam, Ltd. | 43,603 | ||||||
170,105 | Shin Kong Financial Holdings Co., Ltd. | 59,965 | ||||||
6,763 | Sul America SA | 38,054 | ||||||
675 | Tongyang Life Insurance | 4,794 | ||||||
|
| |||||||
2,002,898 | ||||||||
|
|
Continued
13
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Internet & Direct Marketing Retail (0.2%): | ||||||||
3,830 | B2w Cia Digital* | $ | 23,675 | |||||
108 | CJ O Shopping Co., Ltd. | 23,292 | ||||||
239 | Ctrip.com International, ADR* | 10,540 | ||||||
91 | GS Home Shopping, Inc. | 18,441 | ||||||
959 | JD.com, Inc., ADR* | 39,722 | ||||||
4,208 | Vipshop Holdings, Ltd., ADR* | 49,318 | ||||||
|
| |||||||
164,988 | ||||||||
|
| |||||||
Internet Software & Services (4.0%): | ||||||||
398 | 58.com, Inc., ADR* | 28,485 | ||||||
1,817 | Alibaba Group Holding, Ltd., ADR*^ | 313,305 | ||||||
436 | Baidu, Inc., ADR* | 102,115 | ||||||
422 | Bitauto Holdings, Ltd., ADR*^ | 13,420 | ||||||
1,139 | Daou Technology, Inc. | 20,457 | ||||||
194 | Daum Kakao Corp. | 24,808 | ||||||
2,344 | Just Dial, Ltd.* | 19,197 | ||||||
308 | NetEase, Inc., ADR | 106,282 | ||||||
234 | NHN Corp. | 190,018 | ||||||
33,000 | Tencent Holdings, Ltd. | 1,705,988 | ||||||
399 | YY, Inc., ADR* | 45,111 | ||||||
|
| |||||||
2,569,186 | ||||||||
|
| |||||||
IT Services (2.4%): | ||||||||
10,000 | Chinasoft International, Ltd. | 6,628 | ||||||
7,536 | Cielo SA | 53,447 | ||||||
639 | eClerx Services, Ltd. | 15,676 | ||||||
3,739 | EOH Holdings, Ltd. | 20,420 | ||||||
10,228 | HCL Technologies, Ltd. | 142,727 | ||||||
2,673 | Hexaware Technologies, Ltd. | 14,267 | ||||||
37,860 | Infosys, Ltd., ADR^ | 614,088 | ||||||
3,373 | Mindtree, Ltd. | 32,363 | ||||||
2,374 | Mphasis, Ltd. | 26,958 | ||||||
65,500 | MyEG Services Berhad | 36,120 | ||||||
954 | Persistent Systems, Ltd. | 10,731 | ||||||
231 | Samsung SDS Co., Ltd. | 43,082 | ||||||
12,199 | Sonda SA | 24,281 | ||||||
5,897 | Tata Consultancy Services, Ltd. | 249,565 | ||||||
5,583 | Tech Mahindra, Ltd. | 44,043 | ||||||
14,000 | Travelsky Technology, Ltd., Series H | 41,956 | ||||||
10,846 | Vakrangee, Ltd. | 71,331 | ||||||
11,629 | Wipro, Ltd. | 57,232 | ||||||
|
| |||||||
1,504,915 | ||||||||
|
| |||||||
Leisure Products (0.1%): | ||||||||
6,000 | Giant Manufacturing Co., Ltd. | 32,901 | ||||||
3,000 | Merida Industry Co., Ltd. | 12,577 | ||||||
|
| |||||||
45,478 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.0%): | ||||||||
1,081 | Divi’s Laboratories, Ltd. | 18,621 | ||||||
|
| |||||||
Machinery (0.9%): | ||||||||
816 | AIA Engineering, Ltd. | 19,814 | ||||||
3,134 | AirTac International Group | 56,215 | ||||||
15,517 | Ashok Leyland, Ltd. | 28,890 | ||||||
1,004 | BEML, Ltd. | 25,423 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Machinery, continued | ||||||||
28,600 | Changsha Zoomlion Heavy Industry Science & Technology | $ | 12,263 | |||||
10,500 | China Conch Venture Holdings, Ltd. | 24,288 | ||||||
7,600 | China International Marine Containers Group Co., Ltd. | 14,667 | ||||||
18,000 | CRRC Corp., Ltd., Class H | 19,240 | ||||||
26,000 | CSBC Corp. Taiwan* | 9,865 | ||||||
1,465 | Cummins India, Ltd. | 20,701 | ||||||
352 | Daewoo Shipbuilding & Marine Engineering Co., Ltd.* | 4,571 | ||||||
4,412 | Doosan Infracore Co., Ltd.* | 35,756 | ||||||
176 | Eicher Motors, Ltd. | 83,547 | ||||||
3,744 | Escorts Ltd. | 46,110 | ||||||
25,700 | George Kent Malaysia Berhad | 22,266 | ||||||
8,000 | Haitian International Holdings, Ltd. | 24,060 | ||||||
2,286 | Hiwin Technologies Corp. | 24,632 | ||||||
36 | Hyundai Construction Equipment Co., Ltd.* | 5,680 | ||||||
459 | Hyundai Elevator Co., Ltd. | 23,305 | ||||||
399 | Hyundai Heavy Industries Co.* | 37,418 | ||||||
337 | Hyundai Mipo Dockyard Co., Ltd.* | 24,747 | ||||||
50 | Hyundai Rotem Co., Ltd.* | 875 | ||||||
3,800 | Iochpe-Maxion SA | 26,355 | ||||||
9,940 | Jain Irrigation Systems, Ltd. | 19,577 | ||||||
1,000 | King Slide Works Co., Ltd. | 13,465 | ||||||
1,000 | Kinik Co. | 2,917 | ||||||
136 | Otokar Otomotiv Ve Savunma Sanayi AS | 4,439 | ||||||
7,000 | Rechi Precision Co., Ltd. | 6,737 | ||||||
4,062 | Samsung Heavy Industries Co., Ltd.* | 27,771 | ||||||
2,000 | Shin Zu Shing Co., Ltd. | 5,032 | ||||||
304 | Timken India, Ltd. | 4,198 | ||||||
837 | Turk Traktor ve Ziraat Makineleri AS | 16,777 | ||||||
20,000 | Weichai Power Co., Ltd., Class H | 21,909 | ||||||
1,479 | Y G-1 Co., Ltd.* | 20,889 | ||||||
11,000 | Yungtay Engineering Co., Ltd. | 17,757 | ||||||
|
| |||||||
752,156 | ||||||||
|
| |||||||
Marine (0.2%): | ||||||||
24,000 | China Shipping Development Co., Ltd., Class H | 13,096 | ||||||
392,151 | Cia Sud Americana de Vapores SA* | 21,165 | ||||||
39,000 | COSCO SHIPPING Development Co., Ltd.* | 7,972 | ||||||
42,750 | Evergreen Marine Corp. (Taiwan), Ltd.* | 23,460 | ||||||
33,207 | Grindrod, Ltd.* | 36,760 | ||||||
16,500 | MISC Berhad | 30,274 | ||||||
4,000 | U-Ming Marine Transport Corp. | 4,913 | ||||||
5,000 | Wan HAI Lines, Ltd. | 3,229 | ||||||
24,444 | Wisdom Marine Lines Co., Ltd. | 23,740 | ||||||
21,707 | Yang Ming Marine Transport* | 8,377 | ||||||
|
| |||||||
172,986 | ||||||||
|
| |||||||
Media (1.5%): | ||||||||
160,000 | Alibaba Pictures Group, Ltd.* | 21,498 | ||||||
52,700 | Astro Malaysia Holdings Berhad | 34,588 | ||||||
47,000 | BEC World Public Co., Ltd. | 18,878 | ||||||
748 | Cheil Worldwide, Inc. | 14,809 | ||||||
408 | CJ CGV Co., Ltd. | 28,222 | ||||||
301 | CJ E&M Corp. | 27,429 |
Continued
14
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Media, continued | ||||||||
546 | CJ Hellovision Co., Ltd. | $ | 3,617 | |||||
4,478 | Cyfrowy Polsat SA | 31,890 | ||||||
13,912 | Dish Tv India, Ltd.* | 17,877 | ||||||
7,145 | Grupo Televisa SA, ADR | 133,397 | ||||||
6,900 | IMAX China Holding, Inc.*(b) | 20,661 | ||||||
2,348 | Jagran Prakashan, Ltd. | 6,539 | ||||||
193 | Loen Entertainment, Inc. | 20,284 | ||||||
24,000 | Major Cineplex Group Public Co., Ltd. | 21,354 | ||||||
8,806 | Megacable Holdings SAB de C.V. | 35,836 | ||||||
800 | Multiplus SA | 8,443 | ||||||
992 | Naspers, Ltd. | 277,367 | ||||||
327,000 | PT Global MediaCom Tbk | 14,223 | ||||||
177,400 | PT Media Nusantara Citra Tbk | 16,804 | ||||||
190,700 | PT Surya Citra Media Tbk | 34,790 | ||||||
750 | PVR, Ltd. | 16,537 | ||||||
1,500 | Smiles Fidelidade SA | 34,331 | ||||||
2,026 | Sun Tv Network, Ltd. | 31,431 | ||||||
7,747 | Tv18 Broadcast, Ltd.* | 7,450 | ||||||
81,100 | Vgi Global Media plc | 16,307 | ||||||
3,354 | ZEE Entertainment Enterprises, Ltd. | 30,573 | ||||||
|
| |||||||
925,135 | ||||||||
|
| |||||||
Metals & Mining (4.7%): | ||||||||
4,055 | African Rainbow Minerals, Ltd. | 43,964 | ||||||
26,000 | Angang Steel Co., Ltd. | 23,798 | ||||||
16,621 | AngloGold Ashanti, Ltd., ADR | 169,369 | ||||||
203 | APL Apollo Tubes, Ltd. | 6,293 | ||||||
2,033 | ArcelorMittal South Africa, Ltd.* | 636 | ||||||
974 | Assore, Ltd. | 28,417 | ||||||
4,059 | Boryszew SA* | 10,755 | ||||||
3,325 | Capital SA | 42,498 | ||||||
29,500 | China Hongqiao Group, Ltd.* | 33,039 | ||||||
3,000 | China Metal Products Co., Ltd. | 2,863 | ||||||
69,000 | China Steel Corp. | 57,396 | ||||||
44,400 | China Zhongwang Holdings, Ltd. | 24,297 | ||||||
56,000 | Chung Hung Steel Corp.* | 23,334 | ||||||
24,250 | Companhia Siderurgica Nacional SA, ADR*^ | 59,413 | ||||||
1,666 | Dongkuk Steel Mill Co., Ltd. | 17,115 | ||||||
14,863 | Eregli Demir ve Celik Fabrikalari T.A.S. | 39,268 | ||||||
21,000 | Feng Hsin Steel Co., Ltd. | 39,314 | ||||||
20,918 | Gerdau SA, ADR | 77,815 | ||||||
28,000 | Gloria Material Technology Corp. | 18,675 | ||||||
41,553 | Gold Field, Ltd., ADR | 178,679 | ||||||
294 | Grupa Kety SA | 34,548 | ||||||
76,364 | Grupo Mexico SAB de C.V., Series B | 252,221 | ||||||
4,210 | Grupo Simec SA de C.V., Series B* | 13,143 | ||||||
13,059 | Hindalco Industries, Ltd. | 55,957 | ||||||
1,195 | Hyundai Steel Co. | 65,384 | ||||||
18,316 | Impala Platinum Holdings, Ltd.* | 48,030 | ||||||
7,412 | Industrias CH, SAB de C.V., Series B* | 31,671 | ||||||
2,595 | Industrias Penoles SAB de C.V. | 54,240 | ||||||
408 | Jastrzebska Spolka Weglowa SA* | 11,245 | ||||||
15,000 | Jiangxi Copper Co., Ltd. | 23,766 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Metals & Mining, continued | ||||||||
13,059 | Jindal Steel & Power, Ltd.* | $ | 41,945 | |||||
25,310 | JSW Steel, Ltd. | 106,944 | ||||||
43,143 | Kardemir Karabuk Demir Celik Sanayi VE Ticaret AS, Class D* | 36,549 | ||||||
1,235 | KGHM Polska Miedz SA | 39,296 | ||||||
44 | KISWIRE, Ltd. | 1,348 | ||||||
115 | Korea Zinc Co. | 52,914 | ||||||
1,878 | Koza Altin Isletmeleri AS* | 18,932 | ||||||
1,922 | Kumba Iron Ore, Ltd. | 59,093 | ||||||
166 | Kumkang Kind Co., Ltd. | 4,450 | ||||||
23,056 | Minera Frisco SAB de C.V.* | 13,394 | ||||||
3,766 | MMC Norilsk Nickel PJSC, ADR | 71,215 | ||||||
78,000 | MMG, Ltd.* | 38,519 | ||||||
2,840 | Moil, Ltd. | 10,740 | ||||||
10,596 | National Aluminum Co., Ltd. | 14,247 | ||||||
7,353 | Northam Platinum, Ltd.* | 31,199 | ||||||
864 | Novolipetsk Steel PJSC, GDR | 22,035 | ||||||
364 | Poongsan Corp. | 16,145 | ||||||
1,832 | POSCO, ADR | 143,135 | ||||||
85 | POSCO | 26,396 | ||||||
29,640 | Press Metal Aluminium Holdings Berhad | 39,437 | ||||||
449,100 | PT Aneka Tambang Persero Tbk* | 20,689 | ||||||
71,800 | PT Vale Indonesia Tbk* | 15,315 | ||||||
3,505 | Royal Bafokeng Platinum, Ltd.* | 7,957 | ||||||
697 | Seah Besteel Corp. | 18,923 | ||||||
2,792 | Severstal PAO, GDR | 42,803 | ||||||
88,000 | Shougang Fushan Resources Group, Ltd. | 18,861 | ||||||
69,006 | Sibanye Gold, Ltd. | 87,802 | ||||||
11,722 | Steel Authority of India, Ltd.* | 16,885 | ||||||
32,220 | TA Chen Stainless Pipe | 23,153 | ||||||
9,813 | Tata Steel, Ltd., GDR | 111,179 | ||||||
7,000 | Ton Yi Industrial Corp. | 3,282 | ||||||
22,000 | Tung Ho Steel Enterprise Corp. | 19,076 | ||||||
7,300 | Vale SA | 88,622 | ||||||
22,223 | Vale SA, ADR | 271,788 | ||||||
5,402 | Vedanta, Ltd. | 27,848 | ||||||
7,373 | Vedanta, Ltd., ADR | 153,579 | ||||||
26,000 | YC INOX Co., Ltd. | 23,408 | ||||||
3,000 | Yeong Guan Energy Technology Group Co., Ltd. | 6,448 | ||||||
38,213 | Yieh Phui Enterprise Co., Ltd. | 15,642 | ||||||
3,500 | Zhaojin Mining Industry Co., Ltd. | 2,711 | ||||||
72,000 | Zijin Mining Group Co., Ltd. | 27,159 | ||||||
|
| |||||||
3,278,206 | ||||||||
|
| |||||||
Multiline Retail (0.6%): | ||||||||
59,000 | Far Eastern Department Stores, Ltd. | 29,720 | ||||||
15,000 | Golden Eagle Retail Group, Ltd. | 18,160 | ||||||
295 | Hyundai Department Store Co., Ltd. | 28,788 | ||||||
12,854 | Lojas Renner SA | 137,559 | ||||||
1,090 | Poya International Co., Ltd. | 13,643 | ||||||
8,500 | PT Matahari Department Store Tbk | 6,249 | ||||||
48,500 | PT Mitra Adiperkasa Tbk | 22,194 | ||||||
39,838 | Ripley Corp SA | 43,292 |
Continued
15
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Multiline Retail, continued | ||||||||
3,596 | S.A.C.I. Falabella | $ | 35,871 | |||||
130 | Shinsegae Department Store Co. | 36,374 | ||||||
15,164 | Woolworths Holdings, Ltd. | 80,327 | ||||||
|
| |||||||
452,177 | ||||||||
|
| |||||||
Multi-Utilities (0.1%): | ||||||||
154,020 | YTL Corporation Berhad | 52,170 | ||||||
67,116 | YTL Power International Berhad | 21,423 | ||||||
|
| |||||||
73,593 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (5.7%): | ||||||||
30,900 | Bangchak Corp. Public Co., Ltd. | 38,621 | ||||||
38,500 | Banpu Public Co., Ltd. | 23,012 | ||||||
4,863 | Bharat Pertoleum Corp., Ltd. | 39,398 | ||||||
1,639 | Chennai Petroleum Corp., Ltd. | 10,967 | ||||||
42,000 | China Coal Energy Co., Ltd., Class H | 18,935 | ||||||
186,000 | China Petroleum & Chemical Corp., Class H | 136,288 | ||||||
21,000 | China Shenhua Energy Co., Ltd. | 54,326 | ||||||
326 | CNOOC, Ltd., ADR | 46,801 | ||||||
70,000 | CNOOC, Ltd. | 100,638 | ||||||
2,482 | Coal India, Ltd. | 10,226 | ||||||
1,750 | Cosan sa industria e Comercio | 21,899 | ||||||
4,782 | Ecopetrol SA, ADR^ | 69,960 | ||||||
1,700 | Empresas Copec SA | 26,858 | ||||||
24,300 | Energy Absolute Public Co., Ltd. | 39,143 | ||||||
6,797 | Exxaro Resources, Ltd. | 89,560 | ||||||
7,000 | Formosa Petrochemical Corp. | 27,139 | ||||||
15,137 | Gazprom OAO, ADR | 66,745 | ||||||
4,041 | Grupa Lotos SA | 66,994 | ||||||
1,737 | GS Holdings | 100,814 | ||||||
48 | Hankook Shell Oil Co., Ltd. | 17,215 | ||||||
8,845 | Hindustan Petroleum Corp., Ltd. | 57,986 | ||||||
8,119 | Indian Oil Corp., Ltd. | 49,421 | ||||||
168,900 | IRPC Public Co., Ltd. | 36,525 | ||||||
64,000 | Kunlun Energy Co., Ltd. | 66,699 | ||||||
340 | Lubelski Wegiel Bogdanka SA | 6,547 | ||||||
1,985 | LUKOIL PJSC, ADR | 114,434 | ||||||
10,280 | Mangalore Refinery & Petrochemicals Ltd. | 20,748 | ||||||
7,265 | MOL Hungarian Oil & Gas plc | 84,397 | ||||||
288 | NovaTek OAO, Registered Shares, GDR | 34,607 | ||||||
7,632 | Oil & Natural Gas Corp., Ltd. | 23,335 | ||||||
3,702 | Oil India, Ltd. | 21,534 | ||||||
407 | PetroChina Co., Ltd., ADR | 28,466 | ||||||
82,000 | PetroChina Co., Ltd., Class H | 57,226 | ||||||
24,607 | Petroleo Brasileiro SA, ADR* | 241,887 | ||||||
10,434 | Petroleo Brasileiro SA, ADR* | 107,366 | ||||||
144,200 | Petron Corp. | 26,492 | ||||||
3,800 | Petronas Dagangan Berhad | 22,792 | ||||||
10,744 | Petronet LNG, Ltd. | 42,831 | ||||||
5,025 | Polski Koncern Naftowy Orlen SA | 152,667 | ||||||
12,311 | Polskie Gornictwo Naftowe i Gazownictwo SA | 22,214 | ||||||
490,000 | PT Adaro Energy Tbk | 66,976 | ||||||
336,100 | PT Delta Dunia Makmur Tbk* | 17,706 | ||||||
19,800 | PT Indo Tambangraya Megah Tbk | 30,153 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
475,000 | PT Sugih Energy Tbk* | $ | 1,751 | |||||
126,500 | PT Tambang Batubara Bukit Asam Tbk | 22,878 | ||||||
31,700 | PT United Tractors Tbk | 82,627 | ||||||
19,000 | PTT Exploration & Production Public Co., Ltd. | 58,246 | ||||||
26,400 | PTT Public Co., Ltd. | 356,346 | ||||||
3,900 | QGEP Participacoes SA | 12,642 | ||||||
777 | Reliance Industries, Ltd. | 11,211 | ||||||
8,252 | Reliance Industries, Ltd., GDR(b) | 235,405 | ||||||
6,618 | Rosneft Oil Co., Registered Shares, GDR | 33,019 | ||||||
49,080 | Semirara Mining and Power Corp. | 35,988 | ||||||
607 | SK Energy Co., Ltd. | 115,602 | ||||||
356 | SK Gas, Ltd. | 31,278 | ||||||
341 | S-Oil Corp. | 37,206 | ||||||
867 | Tatneft Pjsc, ADR | 43,593 | ||||||
22,600 | Thai Oil Public Co., Ltd. | 71,798 | ||||||
2,493 | The Great Eastern Shipping Co., Ltd. | 15,607 | ||||||
2,064 | Tupras-Turkiye Petrol Rafine | 66,185 | ||||||
5,926 | Ultrapar Participacoes SA, ADR | 134,699 | ||||||
252,000 | United Energy Group, Ltd. | 18,455 | ||||||
2,362 | Yanzhou Coal Mining Co., Ltd., ADR | 27,635 | ||||||
|
| |||||||
3,750,719 | ||||||||
|
| |||||||
Paper & Forest Products (0.8%): | ||||||||
2,001 | Century Plyboards India, Ltd. | 10,587 | ||||||
7,803 | Duratex SA | 21,647 | ||||||
5,996 | Empresas CMPC SA | 20,390 | ||||||
2,879 | Fibria Celulose SA, ADR | 42,321 | ||||||
2,331 | Hansol Holdings Co., Ltd.* | 9,936 | ||||||
146 | Hansol Paper Co., Ltd. | 1,909 | ||||||
19,000 | Lee & Man Paper Manufacturing, Ltd. | 22,466 | ||||||
23,397 | Long Chen Paper Co., Ltd. | 32,762 | ||||||
3,420 | Mondi, Ltd. | 88,420 | ||||||
29,000 | Nine Dragons Paper Holdings, Ltd. | 46,461 | ||||||
79,700 | PT Indah Kiat Pulp & Paper Corp Tbk | 31,674 | ||||||
22,473 | Sappi, Ltd. | 163,110 | ||||||
6,600 | Suzano Papel e Celulose SA | 37,196 | ||||||
12,900 | Ta Ann Holdings Berhad | 11,655 | ||||||
47,000 | YFY, Inc.* | 22,019 | ||||||
|
| |||||||
562,553 | ||||||||
|
| |||||||
Personal Products (1.1%): | ||||||||
181 | Amorepacific Corp. | 51,415 | ||||||
384 | Amorepacific Group | 50,594 | ||||||
926 | Bajaj Corp., Ltd. | 6,933 | ||||||
3,000 | Chlitina Holding, Ltd. | 15,190 | ||||||
945 | Colgate-Palmolive India, Ltd. | 16,273 | ||||||
173 | Cosmax, Inc. | 18,868 | ||||||
8,409 | Dabur India, Ltd. | 45,985 | ||||||
1,393 | Emami, Ltd. | 29,008 | ||||||
101 | Gillette India, Ltd. | 10,697 | ||||||
2,030 | Godrej Consumer Products, Ltd. | 31,744 | ||||||
3,000 | Grape King BIO, Ltd. | 21,003 | ||||||
9,000 | Hengan International Group Co., Ltd. | 99,898 | ||||||
499 | Korea Kolmar Co., Ltd. | 38,184 |
Continued
16
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Personal Products, continued | ||||||||
113 | LG Household & Health Care, Ltd. | $ | 125,292 | |||||
8,551 | Marico, Ltd. | 43,203 | ||||||
25,000 | Microbio Co., Ltd.* | 18,631 | ||||||
4,000 | Natura Cosmeticos SA | 39,876 | ||||||
174 | Procter & Gamble Hygiene & Healthcare, Ltd. | 25,614 | ||||||
|
| |||||||
688,408 | ||||||||
|
| |||||||
Pharmaceuticals (1.5%): | ||||||||
154 | Abbott India Ltd. | 13,309 | ||||||
510 | Ajanta Pharma, Ltd. | 11,916 | ||||||
840 | Alembic Pharmaceuticals, Ltd. | 6,997 | ||||||
3,453 | Aspen Pharmacare Holdings, Ltd. | 77,689 | ||||||
7,287 | Aurobindo Pharma, Ltd. | 78,527 | ||||||
3,311 | Cadila Healthcare, Ltd. | 22,490 | ||||||
21,000 | China Medical System Holdings, Ltd. | 48,944 | ||||||
22,000 | China Pharmaceutical Enterprise & Investment Corp. | 44,419 | ||||||
3,000 | China Shineway Pharmaceutical Group, Ltd. | 2,799 | ||||||
12,000 | China Traditional Chinese Medicine Co., Ltd. | 6,386 | ||||||
181 | Chong Kun Dang Pharmaceutical Corp. | 23,395 | ||||||
3,827 | Cipla, Ltd. | 36,392 | ||||||
12,000 | Dawnrays Pharmaceutical Holdings, Ltd. | 6,558 | ||||||
2,231 | Dr. Reddy’s Laboratories, Ltd., ADR^ | 83,795 | ||||||
8 | Glaxo smithkline Pharmaceuticals, Ltd. | 312 | ||||||
3,004 | Glenmark Pharmaceuticals, Ltd. | 27,931 | ||||||
204,000 | Hua Han Bio-Pharmaceutical Holdings, Ltd.*(a) | 13,839 | ||||||
2,700 | Hypermarcas SA | 29,310 | ||||||
2,351 | Ipca Laboratories, Ltd. | 22,033 | ||||||
2,206 | Jubilant Life Sciences, Ltd. | 27,135 | ||||||
754 | Kwang Dong Pharmmaceutical Co.* | 6,160 | ||||||
3,131 | Lupin, Ltd. | 43,360 | ||||||
701 | Natco Pharma, Ltd. | 10,561 | ||||||
469 | Pfizer Ltd. | 15,155 | ||||||
898 | Piramal Enterprises, Ltd. | 40,274 | ||||||
287,900 | PT Kalbe Farma Tbk | 35,883 | ||||||
697 | Richter Gedeon Nyrt | 18,267 | ||||||
656 | Samjin Pharmaceutical Co., Ltd. | 21,954 | ||||||
57 | Sanofi India, Ltd. | 4,228 | ||||||
91,000 | Sihuan Pharmaceutical Holdings Group, Ltd. | 32,729 | ||||||
60,000 | Sino Biopharmaceutical, Ltd. | 106,182 | ||||||
40,172 | SSY Group, Ltd. | 24,702 | ||||||
803 | Strides Shasun, Ltd. | 10,339 | ||||||
6,420 | Sun Pharmaceutical Industries, Ltd. | 57,263 | ||||||
11,000 | Tong Ren Tang Technologies Co., Ltd. | 15,876 | ||||||
695 | Torrent Pharmaceuticals, Ltd. | 15,397 | ||||||
5,000 | TTY Biopharm Co., Ltd. | 17,214 | ||||||
1,348 | Wockhardt, Ltd.* | 19,666 | ||||||
95 | Yuhan Corp. | 19,430 | ||||||
|
| |||||||
1,098,816 | ||||||||
|
| |||||||
Real Estate Management & Development (3.3%): | ||||||||
42,000 | Agile Property Holdings, Ltd. | 63,737 | ||||||
3,615 | Aliansce Shopping Centers SA* | 19,665 | ||||||
38,800 | Ayala Land, Inc. | 34,592 | ||||||
438,000 | Bangkok Land Public Co., Ltd. | 24,071 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Real Estate Management & Development, continued | ||||||||
30,000 | Beijing Capital Land, Ltd. | $ | 15,590 | |||||
19,423 | BR Malls Participacoes SA | 74,557 | ||||||
14,000 | C C Land Holdings, Ltd.* | 3,095 | ||||||
15,400 | Cathay Real Estate Development Co., Ltd. | 8,512 | ||||||
20,700 | Central Pattana Public Co., Ltd. | 54,086 | ||||||
36,000 | China Evergrande Group* | 123,300 | ||||||
62,000 | China Merchants Land, Ltd. | 11,425 | ||||||
30,000 | China Overseas Land & Investment, Ltd. | 96,559 | ||||||
12,000 | China Overseas Property Holdings, Ltd. | 3,246 | ||||||
30,000 | China Resources Land, Ltd. | 88,110 | ||||||
15,000 | China Sce Property Holdings, Ltd. | 6,455 | ||||||
50,000 | China South City Holdings, Ltd. | 13,117 | ||||||
16,300 | China Vanke Co., Ltd., Class H | 64,910 | ||||||
70,000 | CIFI Holdings Group Co., Ltd. | 42,065 | ||||||
22,208 | Corporacion Inmobiliaria Vesta SAB de C.V. | 27,609 | ||||||
80,000 | Country Garden Holdings Co., Ltd. | 152,011 | ||||||
6,951 | DLF, Ltd. | 28,243 | ||||||
852 | Dongwon Development Co., Ltd.* | 3,966 | ||||||
44,500 | Eco World Development Group Berhad* | 15,185 | ||||||
2,544 | Etalon Group, Ltd. | 7,633 | ||||||
16,000 | Farglory Land Development Co., Ltd. | 17,264 | ||||||
474,000 | Filinvest Land, Inc. | 17,860 | ||||||
96,000 | Franshion Properties China, Ltd. | 42,117 | ||||||
65,000 | Fullshare Holdings, Ltd. | 29,939 | ||||||
16,000 | Greenland Hong Kong Holdings, Ltd. | 6,368 | ||||||
12,500 | Greentown China Holdings, Ltd. | 16,030 | ||||||
26,800 | Guangzhou R&F Properties Co., Ltd., Class H | 60,423 | ||||||
15,600 | Highwealth Construction Corp. | 22,203 | ||||||
20,000 | Hopson Development Holdings, Ltd. | 19,607 | ||||||
4,000 | Huaku Development Co., Ltd. | 9,328 | ||||||
19,000 | Hung Sheng Construction, Ltd. | 16,319 | ||||||
1,800 | Iguatemi Empresa de Shopping Centers SA | 21,380 | ||||||
5,190 | Indiabulls Real Estate, Ltd.* | 18,086 | ||||||
21,700 | IOI Properties Group Berhad | 9,924 | ||||||
31,500 | KWG Property Holding, Ltd. | 36,648 | ||||||
6,200 | L.P.N. Development Public Co., Ltd. | 2,512 | ||||||
14,182 | LC Corp. SA | 11,197 | ||||||
18,500 | Longfor Properties Co., Ltd. | 46,356 | ||||||
52,975 | Mah Sing Group Berhad | 18,977 | ||||||
190,500 | Megaworld Corp. | 19,698 | ||||||
59,000 | Mingfa Group International Co., Ltd.*(a) | 850 | ||||||
1,265 | Multiplan Empreendimentos Imobiliarios SA | 27,045 | ||||||
1,588 | NEPI Rockcastle plc | 27,508 | ||||||
938 | Oberoi Realty, Ltd. | 7,060 | ||||||
15,342 | Parque Arauco SA | 47,572 | ||||||
944 | Phoenix Mills, Ltd. (The) | 9,293 | ||||||
53,000 | Poly Property Group Co., Ltd.* | 27,465 | ||||||
1,252 | Prestige Estates Projects, Ltd. | 6,240 | ||||||
33,000 | Prince Housing & Development Corp. | 13,363 | ||||||
21,400 | Pruksa Holding Public Co., Ltd. | 15,427 | ||||||
417,700 | PT Alam Sutera Realty Tbk | 10,962 | ||||||
271,500 | PT Bumi Serpong Damai Tbk | 34,022 | ||||||
434,245 | PT Ciputra Development Tbk | 37,929 | �� |
Continued
17
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Real Estate Management & Development, continued | ||||||||
2,256,500 | PT Hanson International Tbk* | $ | 18,301 | |||||
23,200 | PT Lippo Cikarang Tbk* | 5,378 | ||||||
577,600 | PT Lippo Karawaci Tbk | 20,779 | ||||||
177,300 | PT Modernland Realty Tbk | 3,843 | ||||||
327,500 | PT Pakuwon Jati Tbk | 16,537 | ||||||
251,500 | PT Summarecon Agung Tbk | 17,540 | ||||||
20,000 | Redco Properties Group, Ltd.(b) | 9,098 | ||||||
464,000 | Renhe Commercial Holdings Co., Ltd.* | 13,204 | ||||||
38,900 | Robinsons Land Corp. | 16,569 | ||||||
15,600 | Ruentex Development Co., Ltd.* | 16,739 | ||||||
14,000 | Shanghai Industrial Urban development Group, Ltd. | 3,340 | ||||||
75,023 | Shenzhen Investment, Ltd. | 31,046 | ||||||
29,000 | Shimao Property Holdings, Ltd. | 63,087 | ||||||
95,500 | Shui On Land, Ltd. | 26,322 | ||||||
21,995 | Sime Darby Property Berhad* | 9,681 | ||||||
48,500 | Sino-Ocean Land Holdings, Ltd. | 33,349 | ||||||
65,700 | SM Prime Holdings, Inc. | 49,360 | ||||||
707 | Sobha, Ltd. | 6,855 | ||||||
36,500 | Soho China, Ltd. | 21,348 | ||||||
70,464 | Sunway Berhad | 28,383 | ||||||
28,400 | Supalai Public Co., Ltd. | 20,660 | ||||||
64,000 | Taiwan Land Development Corp.* | 22,044 | ||||||
83,000 | UEM Sunrise Berhad* | 21,322 | ||||||
31,500 | UOA Development Berhad | 18,615 | ||||||
245,700 | Vista Land & Lifescapes, Inc. | 29,486 | ||||||
236,000 | Yuexiu Property Co., Ltd. | 43,971 | ||||||
24,000 | Yuzhou Properties Co., Ltd. | 12,777 | ||||||
|
| |||||||
2,268,345 | ||||||||
|
| |||||||
Road & Rail (0.1%): | ||||||||
23,000 | CAR, Inc.* | 20,155 | ||||||
102 | CJ Korea Express Co., Ltd.* | 13,335 | ||||||
1,287 | Container Corporation of India, Ltd. | 27,772 | ||||||
11,970 | Localiza Rent a Car SA | 79,624 | ||||||
821 | PKP Cargo SA* | 12,988 | ||||||
|
| |||||||
153,874 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (7.0%): | ||||||||
9,000 | A-DATA Technology Co., Ltd. | 21,330 | ||||||
30,191 | Advanced Semiconductor Engineering, Inc., ADR | 195,638 | ||||||
5,000 | Advanced Wireless Semiconductor Co. | 11,449 | ||||||
5,100 | Ardentec Corp. | 6,424 | ||||||
13,000 | Chipbond Technology Corp. | 24,606 | ||||||
2,091 | Dongbu Hitek Co., Ltd.* | 23,425 | ||||||
5,080 | Elite Advanced Laser Corp. | 22,082 | ||||||
2,000 | eMemory Technology, Inc. | 28,692 | ||||||
251 | EO Technics Co., Ltd.* | 25,489 | ||||||
23,000 | Epistar Corp.* | 34,770 | ||||||
20,000 | Everlight Electronics Co., Ltd. | 30,178 | ||||||
21,000 | FocalTech Systems Co., Ltd. | 21,988 | ||||||
369,000 | GCL-Poly Energy Holdings, Ltd.* | 65,738 | ||||||
9,000 | Gigastorage Corp.* | 4,924 | ||||||
15,634 | Gintech Energy Corp.* | 9,348 | ||||||
13,200 | Globetronics Technology Berhad | 21,542 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Semiconductors & Semiconductor Equipment, continued | ||||||||
12,000 | Greatek Electronics, Inc. | $ | 21,006 | |||||
11,000 | Holtek Semiconductor, Inc. | 25,396 | ||||||
50 | Hyundai Robotics Co., Ltd.* | 17,772 | ||||||
1,838 | Jusung Engineering Co., Ltd.* | 23,308 | ||||||
31,000 | King Yuan Electronics Co., Ltd. | 31,472 | ||||||
13,000 | Kinsus Interconnect Technology Corp. | 23,691 | ||||||
410 | Koh Young Technology, Inc.* | 31,526 | ||||||
2,000 | Land Mark Optoelectronics Corp. | 25,783 | ||||||
121 | LEENO Industrial, Inc. | 6,496 | ||||||
34,435 | Macronix International Co., Ltd.* | 50,933 | ||||||
3,600 | Malaysian Pacific Industries Berhad | 11,234 | ||||||
7,000 | MediaTek, Inc. | 69,025 | ||||||
10,816 | Motech Industries, Inc.* | 8,157 | ||||||
11,424 | Nanya Technology Corp. | 29,089 | ||||||
26,430 | Neo Solar Power Corp.* | 12,201 | ||||||
2,360 | NEPES Corp.* | 20,808 | ||||||
9,000 | Novatek Microelectronics Corp. | 34,288 | ||||||
23,000 | Pan Jit International, Inc. | 23,120 | ||||||
1,000 | Parade Technologies, Ltd. | 19,699 | ||||||
3,000 | Phison Electronics Corp. | 29,370 | ||||||
15,000 | Powertech Technology, Inc. | 44,332 | ||||||
9,000 | Radiant Opto-Electronics Corp. | 21,345 | ||||||
6,000 | Realtek Semiconductor Corp. | 21,940 | ||||||
10,057 | Semiconductor Manufacturing International Corp., ADR*^ | 86,088 | ||||||
1,476 | Seoul Semiconductor Co., Ltd. | 38,277 | ||||||
5,300 | SFA Semicon Co., Ltd.* | 11,613 | ||||||
4,000 | Sigurd Microelectronics Corp. | 4,423 | ||||||
10,138 | Siliconware Precision Industries Co., ADR | 85,261 | ||||||
14,000 | Sino-American Silicon Products, Inc. | 35,678 | ||||||
5,000 | Sitronix Technology Corp. | 14,084 | ||||||
6,595 | SK Hynix, Inc. | 465,731 | ||||||
37,000 | Sunplus Technology Co., Ltd. | 20,352 | ||||||
9,000 | Taiwan Semiconductor Co., Ltd. | 20,847 | ||||||
55,951 | Taiwan Semiconductor Manufacturing Co., Ltd., ADR | 2,218,458 | ||||||
14,000 | Taiwan Surface Mounting Technology Corp. | 16,524 | ||||||
862 | Tes Co., Ltd. | 30,584 | ||||||
3,228 | Topco Scientific Co., Ltd. | 8,770 | ||||||
759 | Toptec Co., Ltd.* | 20,125 | ||||||
35,700 | Unisem (M) Berhad | 32,200 | ||||||
96,403 | United Microelectronics Corp., ADR | 230,403 | ||||||
20,000 | Vanguard International Semiconductor Corp. | 44,260 | ||||||
5,250 | Visual Photonics Epitaxy Co., Ltd. | 16,366 | ||||||
6,153 | WIN Semiconductors Corp. | 58,171 | ||||||
56,648 | Winbond Electronics Corp. | 44,548 | ||||||
750 | Wonik Ips Co., Ltd.* | 23,300 | ||||||
74,000 | Xinyi Solar Holdings, Ltd. | 28,580 | ||||||
|
| |||||||
4,704,257 | ||||||||
|
| |||||||
Software (0.3%): | ||||||||
368 | Asseco Poland SA | 4,648 | ||||||
1,339 | CD Projekt SA | 37,312 | ||||||
244 | Com2uS Corp. | 30,977 |
Continued
18
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Software, continued | ||||||||
1,953 | Cyient, Ltd. | $ | 17,760 | |||||
333 | DuzonBIzon Co., Ltd. | 10,343 | ||||||
4,000 | International Games System Co., Ltd. | 20,987 | ||||||
40,000 | Kingdee International Software Group Co., Ltd.* | 22,440 | ||||||
4,341 | Kpit Technologies, Ltd. | 12,291 | ||||||
54 | Ncsoft Corp. | 22,562 | ||||||
271 | NHN Entertainment Corp.* | 17,287 | ||||||
548 | NIIT Technologies, Ltd. | 5,538 | ||||||
424 | Oracle Financial Services Software, Ltd. | 27,221 | ||||||
1,758 | Tata Elxsi, Ltd. | 26,906 | ||||||
2,500 | Totvs SA | 22,533 | ||||||
|
| |||||||
278,805 | ||||||||
|
| |||||||
Specialty Retail (1.0%): | ||||||||
39,000 | Beauty Community Public Co., Ltd., Class F | 24,996 | ||||||
19,800 | Bermaz Motor Berhad | 10,787 | ||||||
676 | Cashbuild, Ltd. | 24,405 | ||||||
11,000 | China Harmony New Energy Auto Holding, Ltd.* | 8,023 | ||||||
2,900 | Cia. Hering | 22,404 | ||||||
255,000 | GOME Electrical Appliances Holdings, Ltd. | 30,677 | ||||||
101,400 | Home Product Center Public Co., Ltd. | 39,771 | ||||||
3,000 | Hotai Motor Co., Ltd. | 35,684 | ||||||
6,696 | Lewis Group, Ltd. | 14,368 | ||||||
291 | Lotte Himart Co., Ltd. | 18,725 | ||||||
5,320 | Mr.Price Group, Ltd. | 105,585 | ||||||
16,800 | Padini Holdings Berhad | 21,895 | ||||||
347,300 | PT ACE Hardware Indonesia Tbk | 29,545 | ||||||
16,195 | Super Group, Ltd.* | 54,304 | ||||||
4,203 | The Foschini Group, Ltd. | 67,009 | ||||||
16,325 | Truworths International, Ltd. | 124,819 | ||||||
4,908 | Via Varejo SA | 36,215 | ||||||
17,500 | Zhongsheng Group Holdings, Ltd. | 39,773 | ||||||
|
| |||||||
708,985 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (4.9%): | ||||||||
57,000 | Acer, Inc. | 46,130 | ||||||
4,399 | Advantech Co., Ltd. | 31,097 | ||||||
13,000 | Asia Vital Components Co., Ltd. | 14,133 | ||||||
5,000 | Asustek Computer, Inc. | 46,976 | ||||||
3,000 | Casetek Holdings, Ltd. | 10,281 | ||||||
13,000 | Catcher Technology Co., Ltd. | 142,710 | ||||||
8,085 | Chicony Electronics Co., Ltd. | 20,377 | ||||||
14,000 | Clevo Co. | 13,624 | ||||||
99,967 | CMC Magnetics Corp.* | 14,269 | ||||||
87,000 | Compal Electronics, Inc. | 62,175 | ||||||
92,000 | Coolpad Group, Ltd.*(a) | 202 | ||||||
2,000 | Ennoconn Corp. | 30,190 | ||||||
8,220 | Foxconn Technology Co., Ltd. | 23,482 | ||||||
15,000 | Getac Technology Corp. | 22,277 | ||||||
11,000 | Gigabyte Technology Co., Ltd. | 19,952 | ||||||
9,000 | High Tech Computer Corp.* | 22,046 | ||||||
20,000 | Inventec Corp. | 15,952 | ||||||
4,000 | Legend Holdings Corp., Class H(b) | 18,379 | ||||||
122,000 | Lenovo Group, Ltd. | 68,860 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Technology Hardware, Storage & Peripherals, continued | ||||||||
46,460 | Lite-On Technology Corp. | $ | 63,464 | |||||
11,000 | Micro-Star International Co., Ltd. | 28,310 | ||||||
26,119 | Mitac Holding Corp. | 31,346 | ||||||
37,000 | Pegatron Corp. | 89,450 | ||||||
7,000 | Primax Electronics, Ltd. | 18,541 | ||||||
53,000 | Qisda Corp. | 37,637 | ||||||
22,000 | Quanta Computer, Inc. | 45,695 | ||||||
49,360 | Ritek Corp.* | 7,726 | ||||||
1,913 | Samsung Electronics Co., Ltd., GDR | 2,289,308 | ||||||
208 | Sindoh Co., Ltd.* | 12,328 | ||||||
8,000 | Transcend Infromation, Inc. | 22,216 | ||||||
69,332 | Wistron Corp. | 55,735 | ||||||
|
| |||||||
3,324,868 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (1.1%): | ||||||||
4,500 | Alpargatas SA | 23,678 | ||||||
16,000 | Anta Sports Products, Ltd. | 72,581 | ||||||
1,300 | Arezzo Industria E Comercio SA | 21,443 | ||||||
3,289 | Arvind, Ltd. | 23,189 | ||||||
587 | CCC SA | 47,928 | ||||||
76,000 | China Dongxiang Group Co., Ltd. | 14,083 | ||||||
10,000 | Cosmo Lady China Holdings Co., Ltd.(b) | 3,622 | ||||||
2,059 | De Licacy Industrial Co., Ltd. | 1,743 | ||||||
2,085 | Eclat Textile Co., Ltd. | 20,870 | ||||||
22,880 | Everest Textile Co., Ltd. | 10,880 | ||||||
8,075 | Feng Tay Enterprise Co., Ltd. | 36,748 | ||||||
177 | Fila Korea, Ltd.* | 13,501 | ||||||
14,000 | Formosta Taffeta Co., Ltd. | 14,714 | ||||||
535 | Handsome Co., Ltd. | 15,715 | ||||||
585 | Hansae Co., Ltd. | 14,727 | ||||||
1,315 | Indo Count Industies, Ltd. | 2,553 | ||||||
459 | LF Corp. | 13,409 | ||||||
4 | LPP SA | 10,211 | ||||||
3,212 | Makalot Industrial Co., Ltd. | 13,472 | ||||||
68 | Page Industries, Ltd. | 27,149 | ||||||
30,000 | Pou Chen Corp. | 38,842 | ||||||
2,940 | Rajesh Exports, Ltd. | 36,917 | ||||||
1,269 | Raymond, Ltd. | 20,971 | ||||||
35,000 | Roo Hsing Co., Ltd.* | 20,752 | ||||||
7,000 | Ruentex Industries, Ltd. | 11,894 | ||||||
7,000 | Shenzhou International Group | 66,489 | ||||||
388 | SRF, Ltd. | 12,042 | ||||||
34,140 | Tainan Spinning Co., Ltd. | 15,594 | ||||||
7,000 | Taiwan Paiho, Ltd. | 28,466 | ||||||
4,591 | Titan Co., Ltd. | 61,592 | ||||||
627 | Vardhman Textiles Ltd. | 13,578 | ||||||
5,586 | Welspun India, Ltd. | 6,223 | ||||||
337 | Youngone Corp. | 9,921 | ||||||
239 | Youngone Holdings Co., Ltd. | 12,377 | ||||||
|
| |||||||
757,874 | ||||||||
|
| |||||||
Thrifts & Mortgage Finance (0.6%): | ||||||||
1,135 | Can Fin Homes, Ltd. | 8,406 | ||||||
5,015 | Dewan Housing Finance Corp., Ltd. | 45,648 |
Continued
19
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Thrifts & Mortgage Finance, continued | ||||||||
786 | Gruh Finance, Ltd. | $ | 6,198 | |||||
6,407 | Housing Development Finance Corp., Ltd. | 171,494 | ||||||
5,052 | Indiabulls Housing Finance, Ltd. | 94,617 | ||||||
7,284 | LIC Housing Finance, Ltd. | 64,187 | ||||||
|
| |||||||
390,550 | ||||||||
|
| |||||||
Tobacco (0.4%): | ||||||||
3,300 | British American Tobacco Malaysia Berhad | 32,642 | ||||||
36,991 | ITC, Ltd. | 152,351 | ||||||
599 | KT&G Corp. | 64,646 | ||||||
7,000 | PT Gudang Garam Tbk | 43,244 | ||||||
214 | VST Industries, Ltd. | 10,743 | ||||||
|
| |||||||
303,626 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.3%): | ||||||||
11,062 | Adani Enterprises, Ltd. | 28,825 | ||||||
9,275 | Barloworld, Ltd. | 119,816 | ||||||
1,537 | Daewoo International Corp. | 26,024 | ||||||
1,664 | Hudaco Industries, Ltd. | 19,529 | ||||||
590 | LG International Corp. | 14,954 | ||||||
270,000 | New Provenance Everlasting Holdings, Ltd.* | 5,393 | ||||||
2,473 | SK Network Co., Ltd. | 15,369 | ||||||
88 | Trencor, Ltd. | 343 | ||||||
|
| |||||||
230,253 | ||||||||
|
| |||||||
Transportation Infrastructure (1.2%): | ||||||||
9,195 | Adani Ports & Special Economic Zone, Ltd. | 58,323 | ||||||
50,600 | Airports of Thailand Public Co., Ltd. | 105,393 | ||||||
13,600 | Bangkok Aviation Fuel Services Public Co., Ltd. | 19,516 | ||||||
140,782 | Bangkok Exressway & Metro Public Co., Ltd. | 33,291 | ||||||
20,000 | Beijing Capital International Airport Co., Ltd. | 30,085 | ||||||
13,964 | China Merchants Holdings International Co., Ltd. | 36,548 | ||||||
11,900 | Companhia de Concessoes Rodoviarias | 57,952 | ||||||
38,000 | Cosco Pacific, Ltd. | 39,540 | ||||||
3,700 | Ecorodovias Infraestrutura e Logistica SA | 13,723 | ||||||
1,854 | Gateway Distriparks, Ltd. | 6,844 | ||||||
8,915 | Grupo Aeroportuario del Centro Norte, SAb de C.V. | 46,215 | ||||||
260 | Grupo Aeroportuario del Sureste SAB de C.V., ADR | 47,453 | ||||||
4,648 | Grupo Aeroporturaio del Pacifico SAB de C.V. | 47,760 | ||||||
19,750 | International Container Terminal Services, Inc. | 41,711 | ||||||
16,000 | Jiangsu Expressway Co., Ltd., Series H | 24,366 | ||||||
12,000 | Malaysia Airports Holdings Berhad | 26,155 | ||||||
1,675 | Promotora y Operadora de Infraestructura SAB de C.V. | 16,553 | ||||||
57,956 | PT Jasa Marga Persero Tbk | 27,313 | ||||||
22,789 | Shenzhen International Holdings, Ltd. | 43,401 | ||||||
58,253 | Sociedad Matriz SAAM SA | 6,257 | ||||||
18,000 | Taiwan High Speed Rail Corp. | 14,208 | ||||||
6,974 | TAV Havalimanlari Holding AS | 41,340 | ||||||
70,000 | Tianjin Port Development Holdings, Ltd. | 10,304 | ||||||
29,300 | Westports Holding Berhad | 26,857 | ||||||
20,000 | Zhejiang Expressway Co., Ltd. | 21,989 | ||||||
|
| |||||||
843,097 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Water Utilities (0.4%): | ||||||||
36,941 | �� | Aguas Andinas SA, Class A | $ | 24,473 | ||||
38,000 | Beijing Enterprises Water Group, Ltd. | 29,403 | ||||||
6,610 | Companhia de Saneamento Basico do Estado de Sao Paulo, ADR | 69,074 | ||||||
1,200 | Companhia de Saneamento de Minas Gerais- Copasa MG | 15,701 | ||||||
64,000 | CT Environmental Group, Ltd. | 11,843 | ||||||
22,000 | Guangdong Investment, Ltd. | 29,450 | ||||||
16,068 | Inversiones Aguas Metropolitanas SA | 30,516 | ||||||
67,400 | Manila Water Co. | 37,790 | ||||||
37,300 | TTW Public Co., Ltd. | 14,425 | ||||||
|
| |||||||
262,675 | ||||||||
|
| |||||||
Wireless Telecommunication Services (3.1%): | ||||||||
11,500 | Advanced Information Service plc | 67,409 | ||||||
22,316 | America Movil SAB de C.V., Series L, ADR | 382,718 | ||||||
38,090 | Axiata Group Berhad | 51,596 | ||||||
13,131 | Bharti Airtel, Ltd. | 108,677 | ||||||
19,500 | China Mobile, Ltd. | 197,390 | ||||||
7,027 | China Mobile, Ltd., ADR | 355,144 | ||||||
17,300 | DIGI.com Berhad | 21,818 | ||||||
2,969 | Empresa Nacional de Telecomunicaciones SA | 33,378 | ||||||
18,000 | Far EasTone Telecommunications Co., Ltd. | 44,465 | ||||||
520 | Globe Telecom, Inc. | 19,795 | ||||||
29,245 | Idea Cellular, Ltd.* | 49,379 | ||||||
16,200 | Maxis Berhad | 24,079 | ||||||
2,220 | MegaFon PJSC, Registered Shares, GDR | 20,535 | ||||||
31,162 | MTN Group, Ltd. | 345,657 | ||||||
1,112 | PLDT, Inc., ADR | 33,449 | ||||||
30,600 | PT Indosat Tbk | 10,824 | ||||||
112,500 | PT XL Axiata Tbk* | 24,550 | ||||||
25,752 | Reliance Communications, Ltd.* | 14,586 | ||||||
1,682 | SK Telecom Co., Ltd., ADR | 46,945 | ||||||
14,000 | Taiwan Mobile Co., Ltd. | 50,578 | ||||||
2,816 | Tim Participacoes SA, ADR | 54,377 | ||||||
15,400 | Total Access Communication Public Co., Ltd.* | 23,096 | ||||||
5,607 | Turkcell Iletisim Hizmetleri AS, ADR | 57,191 | ||||||
11,621 | Veon, Ltd., ADR | 44,625 | ||||||
4,438 | Vodacom Group, Ltd. | 52,328 | ||||||
|
| |||||||
2,134,589 | ||||||||
|
| |||||||
Total Common Stocks (Cost $56,761,794) | 66,853,348 | |||||||
|
| |||||||
Preferred Stocks (0.2%): | ||||||||
Chemicals (0.1%): | ||||||||
2,900 | Braskem SA, Class A, 2.93% | 37,489 | ||||||
|
| |||||||
Electric Utilities (0.0%): | ||||||||
723 | Companhia de Transmissao de Energia Eletrica Paulista, 4.54% | 14,585 | ||||||
|
| |||||||
Independent Power & Renewable Electricity Producers (0.0%): | ||||||||
4,100 | Companhia Energetica de Sao Paulo, Class B, 3.67% | 16,319 | ||||||
|
| |||||||
Machinery (0.0%): | ||||||||
17,000 | Marcopolo SA, 0.83% | 20,454 | ||||||
|
|
Continued
20
AZL DFA Emerging Markets Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Preferred Stocks, continued | ||||||||
Metals & Mining (0.0%): | ||||||||
7,000 | Usinas Siderurgicas de Minas Gerais SA, Class A, 0.35%* | $ | 19,208 | |||||
�� |
|
| ||||||
Multiline Retail (0.1%): | ||||||||
6,618 | Lojas Americanas SA, 0.09% | 34,025 | ||||||
|
| |||||||
Total Preferred Stocks (Cost $85,590) | 142,080 | |||||||
|
| |||||||
Rights (0.0%): | ||||||||
Electrical Equipment (0.0%): | ||||||||
83 | Bizlink Holdings, Expires on 1/10/18*(a) | 191 | ||||||
|
| |||||||
Household Durables (0.0%): | ||||||||
985 | Gafisa SA, Expires on 1/15/18* | 980 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Rights, continued | ||||||||
Technology Hardware, Storage & Peripherals (0.0%): | ||||||||
562 | Casetek Holdings, Ltd., Expires on 2/08/18*(a) | $ | 189 | |||||
|
| |||||||
Total Rights (Cost $—) | 1,360 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (2.2%): | ||||||||
$ | 1,483,253 | AZL DFA Emerging Markets Core Equity Fund Securities Lending Collateral Account(c) | 1,483,253 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 1,483,253 | ||||||
|
| |||||||
Total Investment Securities (Cost $58,330,637)(d) — 102.1% | 68,480,041 | |||||||
Net other assets (liabilities) — (2.1)% | (1,432,558 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 67,047,483 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
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, 2017. The total value of securities on loan as of December 31, 2017, was $1,450,071. |
(a) | The subadviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2017, these securities represent 0.11% 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 subadviser has deemed these securities to be liquid based on procedures approved by the Board of Trustees. |
(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, 2017. |
(d) | See Federal Tax Information listed in the Notes to the Financial Statements. |
The following represents the concentrations by country of risk (based on the domicile of the security issuer) relative to the total fair value of investments as of December 31, 2017: (Unaudited)
Country | Percentage | |||
Bermuda | 0.3 | % | ||
Brazil | 7.0 | % | ||
Cayman Islands | 0.5 | % | ||
Chile | 1.5 | % | ||
China | 10.8 | % | ||
Colombia | 0.3 | % | ||
Czech Republic | 0.1 | % | ||
Egypt | 0.1 | % | ||
Guernsey | — | %^ | ||
Hong Kong | 5.4 | % | ||
Hungary | 0.3 | % | ||
India | 13.0 | % | ||
Indonesia | 2.8 | % | ||
Korea, Republic Of | 0.4 | % | ||
Malaysia | 3.3 | % | ||
Mexico | 3.8 | % |
Country | Percentage | |||
Netherlands | 0.1 | % | ||
Philippines | 1.6 | % | ||
Poland | 1.6 | % | ||
Republic of Korea (South) | 14.6 | % | ||
Romania | — | %^ | ||
Russian Federation | 1.1 | % | ||
South Africa | 8.6 | % | ||
Spain | — | %^ | ||
Switzerland | 0.1 | % | ||
Taiwan, Province Of China | 15.6 | % | ||
Thailand | 3.1 | % | ||
Turkey | 1.2 | % | ||
Ukraine | — | %^ | ||
United States | 2.8 | % | ||
|
| |||
100.0 | % | |||
|
|
^ | Represents less than 0.05%. |
See accompanying notes to the financial statements.
21
AZL DFA Emerging Markets Core Equity Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investment securities, at cost | $ | 58,330,637 | |||
|
| ||||
Investment securities, at value* | $ | 68,480,041 | |||
Interest and dividends receivable | 109,751 | ||||
Foreign currency, at value (cost $222,298) | 225,164 | ||||
Reclaims receivable | 15,293 | ||||
Prepaid expenses | 383 | ||||
|
| ||||
Total Assets | 68,830,632 | ||||
|
| ||||
Liabilities: | |||||
Cash overdraft | 33,768 | ||||
Payable for investments purchased | 85,897 | ||||
Payable for capital shares redeemed | 19,344 | ||||
Payable for collateral received on loaned securities | 1,483,253 | ||||
Accrued foreign taxes | 72,657 | ||||
Manager fees payable | 48,680 | ||||
Administration fees payable | 9,332 | ||||
Distribution fees payable | 13,788 | ||||
Custodian fees payable | 14,231 | ||||
Administrative and compliance services fees payable | 111 | ||||
Transfer agent fees payable | 500 | ||||
Trustee fees payable | 72 | ||||
Other accrued liabilities | 1,516 | ||||
|
| ||||
Total Liabilities | 1,783,149 | ||||
|
| ||||
Net Assets | $ | 67,047,483 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 60,111,998 | |||
Accumulated net investment income/(loss) | 585,061 | ||||
Accumulated net realized gains/(losses) from investment transactions | (3,729,645 | ) | |||
Net unrealized appreciation/(depreciation) on investments | 10,080,069 | ||||
|
| ||||
Net Assets | $ | 67,047,483 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 5,976,378 | ||||
Net Asset Value (offering and redemption price per share) | $ | 11.22 | |||
|
|
* | Includes securities on loan of $1,450,071. |
For the Year Ended December 31, 2017
Investment Income: | |||||
Dividends | $ | 1,710,001 | |||
Income from securities lending | 11,374 | ||||
Other income | 2,519 | ||||
Foreign withholding tax | (173,120 | ) | |||
|
| ||||
Total Investment Income | 1,550,774 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 803,672 | ||||
Administration fees | 199,937 | ||||
Distribution fees | 160,734 | ||||
Custodian fees | 150,492 | ||||
Administrative and compliance services fees | 939 | ||||
Transfer agent fees | 5,822 | ||||
Trustee fees | 3,271 | ||||
Professional fees | 4,034 | ||||
Shareholder reports | 1,125 | ||||
Other expenses | 1,868 | ||||
|
| ||||
Total expenses before reductions | 1,331,894 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (192,882 | ) | |||
Less expense contractually waived/reimbursed by the Manager | (180,802 | ) | |||
|
| ||||
Net expenses | 958,210 | ||||
|
| ||||
Net Investment Income/(Loss) | 592,564 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions and foreign currencies | 1,352,279 | ||||
Change in net unrealized appreciation/depreciation on investments and foreign currencies | 17,158,454 | ||||
Change in accrued foreign tax liability | (16,123 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 18,494,610 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 19,087,174 | |||
|
|
See accompanying notes to the financial statements.
22
AZL DFA Emerging Markets Core Equity Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 592,564 | $ | 640,043 | ||||||
Net realized gains/(losses) on investment transactions | 1,352,279 | (2,939,678 | ) | |||||||
Change in unrealized appreciation/depreciation on investments | 17,142,331 | 10,242,974 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 19,087,174 | 7,943,339 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (668,124 | ) | (518,993 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (668,124 | ) | (518,993 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 926,887 | 1,543,548 | ||||||||
Proceeds from dividends reinvested | 668,124 | 518,993 | ||||||||
Value of shares redeemed | (10,968,166 | ) | (13,176,648 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (9,373,155 | ) | (11,114,107 | ) | ||||||
|
|
|
| |||||||
Change in net assets | 9,045,895 | (3,689,761 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 58,001,588 | 61,691,349 | ||||||||
|
|
|
| |||||||
End of period | $ | 67,047,483 | $ | 58,001,588 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 585,061 | $ | 646,397 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 91,727 | 189,276 | ||||||||
Dividends reinvested | 63,997 | 60,069 | ||||||||
Shares redeemed | (1,077,621 | ) | (1,548,664 | ) | ||||||
|
|
|
| |||||||
Change in shares | (921,897 | ) | (1,299,319 | ) | ||||||
|
|
|
|
See accompanying notes to the financial statements.
23
AZL DFA Emerging Markets Core Equity Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, 2017 | Year Ended December 31, 2016 | April 27, 2015 to December 31, 2015(a) | |||||||||||||
Net Asset Value, Beginning of Period | $ | 8.41 | �� | $ | 7.53 | $ | 10.00 | ||||||||
|
|
|
|
|
| ||||||||||
Investment Activities: | |||||||||||||||
Net Investment Income/(Loss) | 0.12 | 0.10 | 0.06 | ||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 2.80 | 0.85 | (2.53 | ) | |||||||||||
|
|
|
|
|
| ||||||||||
Total from Investment Activities | 2.92 | 0.95 | (2.47 | ) | |||||||||||
|
|
|
|
|
| ||||||||||
Dividends to Shareholders From: | |||||||||||||||
Net Investment Income | (0.11 | ) | (0.07 | ) | — | ||||||||||
|
|
|
|
|
| ||||||||||
Total Dividends | (0.11 | ) | (0.07 | ) | — | ||||||||||
|
|
|
|
|
| ||||||||||
Net Asset Value, End of Period | $ | 11.22 | $ | 8.41 | $ | 7.53 | |||||||||
|
|
|
|
|
| ||||||||||
Total Return(b) | 34.86 | % | 12.63 | % | (24.70 | )%(c) | |||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||
Net Assets, End of Period (000’s) | $ | 67,047 | $ | 58,002 | $ | 61,691 | |||||||||
Net Investment Income/(Loss)(d) | 0.92 | % | 1.03 | % | 1.02 | % | |||||||||
Expenses Before Reductions(d)(e) | 2.07 | % | 2.03 | % | 2.00 | % | |||||||||
Expenses Net of Reductions(d) | 1.49 | % | 1.50 | % | 1.60 | % | |||||||||
Portfolio Turnover Rate | 9 | % | 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 for periods less than one year. |
(d) | Annualized for periods less than one year. |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
See accompanying notes to the financial statements.
24
AZL DFA Emerging Markets Core Equity Fund
Notes to the Financial Statements
December 31, 2017
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 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 accrues 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 and Withholding Taxes
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, or from other assets and liabilities, from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains is determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., reclassification of certain market discounts and gain/loss, miscellaneous adjustment on return of capital, and other permanent adjustments), 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).
25
AZL DFA Emerging Markets Core Equity Fund
Notes to the Financial Statements
December 31, 2017
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, 2017 are noted on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $2 million for the year ended December 31, 2017.
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 $988 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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, 2017.
Overnight and Continuous | Less than 30 Days | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions | $ | 1,467,393 | $ | — | $ | — | $ | 15,860 | $ | 1,483,253 |
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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, 2017, the Fund did not engage in any such transactions under the Rule.
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, 2019.
For the year ended December 31, 2017, the annual rate paid 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. |
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, 2017, the contractual reimbursements subject to repayment by the Fund in subsequent years were as follows:
Expires 12/31/2018 | Expires 12/31/2019 | Expires 12/31/2020 | Total | |||||||||||||||||
AZL DFA Emerging Markets Core Equity Fund | $ | 44,947 | $ | 144,438 | $ | 180,802 | $ | 370,187 |
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.
26
AZL DFA Emerging Markets Core Equity Fund
Notes to the Financial Statements
December 31, 2017
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.”
FIS Investor Services LLC (“FIS”) 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, 2017, $673 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $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, 2017, actual Trustee compensation was $1,116,333 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.
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, 2017, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value. There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
27
AZL DFA Emerging Markets Core Equity Fund
Notes to the Financial Statements
December 31, 2017
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Other^ | Total | ||||||||||||||||
Common Stocks | ||||||||||||||||||||
Aerospace & Defense | $ | 71,144 | $ | 111,491 | $ | — | $ | 182,635 | ||||||||||||
Airlines | 111,140 | 371,864 | — | 483,004 | ||||||||||||||||
Auto Components | 17,107 | 956,502 | — | 973,609 | ||||||||||||||||
Banks | 2,169,804 | 5,209,969 | — | 7,379,773 | ||||||||||||||||
Beverages | 629,028 | 253,925 | — | 882,953 | ||||||||||||||||
Capital Markets | 100,100 | 834,445 | — | 934,545 | ||||||||||||||||
Chemicals | 341,917 | 2,034,131 | — | 2,376,048 | ||||||||||||||||
Commercial Services & Supplies | 11,069 | 147,714 | — | 158,783 | ||||||||||||||||
Communications Equipment | 1,170 | 152,048 | — | 153,218 | ||||||||||||||||
Construction & Engineering | 185,922 | 662,456 | — | 848,378 | ||||||||||||||||
Construction Materials | 143,201 | 677,709 | — | 820,910 | ||||||||||||||||
Consumer Finance | 10,805 | 343,518 | — | 354,323 | ||||||||||||||||
Containers & Packaging | 27,066 | 109,733 | — | 136,799 | ||||||||||||||||
Diversified Consumer Services | 206,041 | 25,317 | — | 231,358 | ||||||||||||||||
Diversified Financial Services | 19,034 | 824,780 | — | 843,814 | ||||||||||||||||
Diversified Telecommunication Services | 494,121 | 498,665 | — | 992,786 | ||||||||||||||||
Electric Utilities | 657,490 | 525,574 | — | 1,183,064 | ||||||||||||||||
Electronic Equipment, Instruments & Components | 372,445 | 2,495,050 | — | 2,867,495 | ||||||||||||||||
Food & Staples Retailing | 347,438 | 1,098,001 | — | 1,445,439 | ||||||||||||||||
Food Products | 396,838 | 1,701,351 | — | 2,098,189 | ||||||||||||||||
Gas Utilities | 43,948 | 385,513 | — | 429,461 | ||||||||||||||||
Health Care Providers & Services | 103,606 | 340,739 | — | 444,345 | ||||||||||||||||
Hotels, Restaurants & Leisure | 116,599 | 542,240 | — | 658,839 | ||||||||||||||||
Household Durables | 139,776 | 519,442 | — | 659,218 | ||||||||||||||||
Household Products | 72,970 | 275,394 | — | 348,364 | ||||||||||||||||
Independent Power & Renewable Electricity Producers | 151,776 | 437,973 | — | 589,749 | ||||||||||||||||
Industrial Conglomerates | 178,872 | 1,146,024 | — | 1,324,896 | ||||||||||||||||
Insurance | 149,289 | 1,853,609 | — | 2,002,898 | ||||||||||||||||
Internet & Direct Marketing Retail | 123,255 | 41,733 | — | 164,988 | ||||||||||||||||
Internet Software & Services | 608,718 | 1,960,468 | — | 2,569,186 | ||||||||||||||||
IT Services | 691,816 | 813,099 | — | 1,504,915 | ||||||||||||||||
Machinery | 26,355 | 725,801 | — | 752,156 | ||||||||||||||||
Marine | 21,165 | 151,821 | — | 172,986 | ||||||||||||||||
Media | 212,007 | 713,128 | — | 925,135 | ||||||||||||||||
Metals & Mining | 1,653,821 | 1,624,385 | — | 3,278,206 | ||||||||||||||||
Multiline Retail | 216,722 | 235,455 | — | 452,177 | ||||||||||||||||
Oil, Gas & Consumable Fuels | 876,240 | 2,874,479 | — | 3,750,719 | ||||||||||||||||
Paper & Forest Products | 121,554 | 440,999 | — | 562,553 | ||||||||||||||||
Personal Products | 39,876 | 648,532 | — | 688,408 | ||||||||||||||||
Pharmaceuticals | 113,105 | 985,711 | — | 1,098,816 | ||||||||||||||||
Real Estate Management & Development | 227,509 | 2,040,836 | — | 2,268,345 | ||||||||||||||||
Road & Rail | 79,624 | 74,250 | — | 153,874 | ||||||||||||||||
Semiconductors & Semiconductor Equipment | 2,815,848 | 1,888,409 | — | 4,704,257 | ||||||||||||||||
Software | 22,533 | 256,272 | — | 278,805 | ||||||||||||||||
Specialty Retail | 58,619 | 650,366 | — | 708,985 | ||||||||||||||||
Technology Hardware, Storage & Peripherals | 202 | 3,324,666 | — | 3,324,868 | ||||||||||||||||
Textiles, Apparel & Luxury Goods | 45,121 | 712,753 | — | 757,874 | ||||||||||||||||
Transportation Infrastructure | 235,913 | 607,184 | — | 843,097 | ||||||||||||||||
Water Utilities | 154,189 | 108,486 | — | 262,675 | ||||||||||||||||
Wireless Telecommunication Services | 1,007,827 | 1,126,762 | — | 2,134,589 | ||||||||||||||||
All Other Common Stocks+ | — | 3,690,841 | — | 3,690,841 | ||||||||||||||||
Preferred Stocks+ | 142,080 | — | — | 142,080 | ||||||||||||||||
Rights | 980 | 380 | — | 1,360 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | 1,483,253 | 1,483,253 | ||||||||||||||||
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| |||||||||||||
Total Investments | $ | 16,764,795 | $ | 50,231,993 | $ | 1,483,253 | $ | 68,480,041 | ||||||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
28
AZL DFA Emerging Markets Core Equity Fund
Notes to the Financial Statements
December 31, 2017
5. Security Purchases and Sales
For the year ended December 31, 2017, 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 | $ | 5,971,632 | $ | 15,334,035 |
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, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $58,497,091. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 15,358,023 | ||
Unrealized (depreciation) | (5,375,073 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 9,982,950 | ||
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As of the end of its tax year ended December 31, 2017, 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 Emerging Markets Core Equity Fund | $ | 3,162,905 | $ | 555,308 | $ | 3,718,213 |
During the year ended December 31, 2017, the Fund utilized $1,338,246 in CLCFs to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL DFA Emerging Markets Core Equity Fund | $ | 668,124 | $ | — | $ | 668,124 |
(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, 2016 were as follows:
Ordinary Income | Net Long-Term Capital Gains | 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. |
29
AZL DFA Emerging Markets Core Equity Fund
Notes to the Financial Statements
December 31, 2017
At December 31, 2017, 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 Emerging Markets Core Equity Fund | $ | 740,083 | $ | — | $ | (3,718,213 | ) | $ | 9,913,615 | $ | 6,935,485 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2017, 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 Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
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, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the two-year period then ended and the period from April 27, 2015 (commencement of operations) to December 31, 2015. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, 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 two-year period then ended and the period from April 27, 2015 to December 31, 2015, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
31
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2017, 0.28% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deductions available to corporate shareholders.
32
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Fund of Funds Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
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Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
34
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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
35
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
36
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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
37
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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
38
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® DFA Five-Year Global Fixed Income Fund
Annual Report
December 31, 2017
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
Page 9
Statements of Changes in Net Assets
Page 10
Page 11
Notes to the Financial Statements
Page 12
Report of Independent Registered Public Accounting Firm
Page 18
Page 19
Approval of Investment Advisory and Subadvisory Agreements
Page 20
Information about the Board of Trustees and Officers
Page 23
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, 2017?
For the year ended December 31, 2017, the AZL® DFA Five-Year Global Fixed Income Fund (Class 2 Shares) (the “Fund”) returned 1.57%. That compared to a 1.13% total return for its benchmark, the Citi World Government Bond Index, 1-5 Years, Currency-Hedged in USD Terms1.
Yield curves were upwardly sloped in many developed markets for the year, indicating positive expected term premiums. U.S. dollar-denominated bonds offered some of the highest expected returns during the period, in part due to the shape of the U.S. yield curve. Realized term premiums were indeed positive both globally and in the U.S., as longer-term maturities outperformed shorter-term maturities.
The Fund outperformed its benchmark for the period. 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 their shorter-dated counterparts. The Fund’s greater exposure to U.S. dollar-denominated bonds than its global benchmark boosted relative performance during the period.*
The Fund’s performance was hurt by its focus on higher-quality securities. In particular, the Fund’s lack of exposure to the lower-rated Italian and Spanish government bond markets dragged on relative performance.*
The Fund hedged exposure to bonds not denominated in U.S. dollars with currency forward contracts. Given the benchmark index is also currency hedged, these derivatives did not affect 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, 2017. |
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, 2017
1 Year | Since Inception (4/27/15) | |||||||
AZL® DFA Five-Year Global Fixed Income Fund (Class 2 Shares) | 1.57 | % | 0.72 | % | ||||
Citi World Government Bond Index, 1-5 Years, Currency-Hedged in USD Terms | 1.13 | % | 1.08 | % |
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratios | Gross | |||
AZL® DFA Five-Year Global Fixed Income Fund (Class 2 Shares) | 0.90 | % |
The above expense ratios are based on the current Fund prospectus dated May 1, 2017. 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% for Class 2 Shares through April 30, 2019. Additional information pertaining to the December 31, 2017 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 Index, 1-5 Years, Currency-Hedged in USD Terms, 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 Citigroup Non-U.S. Dollar World Government Bond Index, which is a market capitalization-weighted index that tracks 10 government bond indices, excluding the U.S. (“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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL DFA Five-Year Global Fixed Income Fund | $ | 1,000.00 | $ | 1,001.60 | $ | 4.04 | 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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL DFA Five-Year Global Fixed Income Fund | $ | 1,000.00 | $ | 1,021.17 | $ | 4.08 | 0.80 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Foreign Bonds | 39.1 | % | |||
Yankee Dollars | 34.2 | ||||
Corporate Bonds | 25.5 | ||||
Securities Held as Collateral for Securities on Loan | 2.8 | ||||
Money Markets | 0.9 | ||||
|
| ||||
Total Investment Securities | 102.5 | ||||
Net other assets (liabilities) | (2.5 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL DFA Five-Year Global Fixed Income Fund
Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds (25.5%): | ||||||||
Beverages (0.8%): | ||||||||
$ | 3,171,000 | Coca-Cola Co. (The), 1.88%, 10/27/20 | $ | 3,154,609 | ||||
728,000 | Coca-Cola Co. (The), 1.55%, 9/1/21 | 710,314 | ||||||
210,000 | Coca-Cola Co. (The), 2.20%, 5/25/22 | 208,461 | ||||||
|
| |||||||
4,073,384 | ||||||||
|
| |||||||
Communications Equipment (2.8%): | ||||||||
12,000,000 | Cisco Systems, Inc., 2.20%, 2/28/21 | 11,961,931 | ||||||
2,000,000 | Cisco Systems, Inc., 1.85%, 9/20/21, Callable 8/20/21 @ 100 | 1,962,826 | ||||||
|
| |||||||
13,924,757 | ||||||||
|
| |||||||
Consumer Finance (2.5%): | ||||||||
12,435,000 | Toyota Motor Credit Corp., 2.60%, 1/11/22 | 12,501,804 | ||||||
200,000 | Toyota Motor Credit Corp., 0.75%, 7/21/22 | 244,767 | ||||||
|
| |||||||
12,746,571 | ||||||||
|
| |||||||
Diversified Financial Services (0.9%): | ||||||||
4,810,000 | Berkshire Hathaway, Inc., 2.20%, 3/15/21, Callable 2/15/21 @ 100 | 4,794,912 | ||||||
|
| |||||||
Food Products (0.6%): | ||||||||
3,250,000 | Nestle Holdings, Inc., Series E, 1.88%, 3/9/21 | 3,201,663 | ||||||
|
| |||||||
Household Products (1.9%): | ||||||||
2,000,000 | Colgate-Palmolive Co., 2.30%, 5/3/22 | 1,986,825 | ||||||
3,015,000 | Procter & Gamble Co. (The), 1.85%, 2/2/21 | 2,982,424 | ||||||
2,000,000 | Procter & Gamble Co. (The), 1.70%, 11/3/21 | 1,951,503 | ||||||
1,000,000 | Procter & Gamble Co. (The), 2.30%, 2/6/22 | 997,110 | ||||||
1,474,000 | Procter & Gamble Co. (The), 2.15%, 8/11/22 | 1,457,625 | ||||||
200,000 | Procter & Gamble Co. (The), 2.00%, 8/16/22 | 258,635 | ||||||
|
| |||||||
9,634,122 | ||||||||
|
| |||||||
Industrial Conglomerates (2.7%): | ||||||||
1,650,000 | 3M Co., 0.38%, 2/15/22, Callable 11/15/21 @ 100 | 1,992,851 | ||||||
10,706,000 | GE Capital International Funding, 2.34%, 11/15/20 | 10,656,639 | ||||||
900,000 | General Electric Co., 0.38%, 5/17/22, Callable 4/17/22 @ 100 | 1,078,222 | ||||||
|
| |||||||
13,727,712 | ||||||||
|
| |||||||
IT Services (1.8%): | ||||||||
1,000,000 | IBM Corp., 2.25%, 2/19/21 | 997,088 | ||||||
8,000,000 | IBM Corp., 2.50%, 1/27/22 | 8,026,526 | ||||||
|
| |||||||
9,023,614 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (1.6%): | ||||||||
1,000,000 | Chevron Corp., 2.10%, 5/16/21, Callable 4/15/21 @ 100^ | 991,814 | ||||||
7,000,000 | Chevron Corp., 2.50%, 3/3/22, Callable 2/3/22 @ 100 | 7,009,152 | ||||||
|
| |||||||
8,000,966 | ||||||||
|
| |||||||
Pharmaceuticals (3.1%): | ||||||||
1,800,000 | Johnson & Johnson, 2.25%, 3/3/22, Callable 2/3/22 @ 100 | 1,797,754 | ||||||
2,000,000 | Merck & Co., Inc., 2.35%, 2/10/22 | 1,997,314 | ||||||
958,000 | Novartis Capital Corp., 2.40%, 5/17/22, Callable 4/17/22 @ 100 | 955,568 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Pharmaceuticals, continued | ||||||||
$ | 7,000,000 | Pfizer, Inc., 1.95%, 6/3/21^ | $ | 6,913,365 | ||||
3,521,000 | Pfizer, Inc., 0.25%, 3/6/22, Callable 2/6/22 @ 100 | 4,224,237 | ||||||
|
| |||||||
15,888,238 | ||||||||
|
| |||||||
Software (4.9%): | ||||||||
1,111,000 | Microsoft Corp., 1.55%, 8/8/21, Callable 7/8/21 @ 100 | 1,081,750 | ||||||
6,551,000 | Microsoft Corp., 2.40%, 2/6/22, Callable 1/6/22 @ 100 | 6,553,323 | ||||||
2,500,000 | Microsoft Corp., 2.38%, 2/12/22, Callable 1/12/22 @ 100 | 2,495,944 | ||||||
2,500,000 | Oracle Corp., 2.80%, 7/8/21 | 2,536,761 | ||||||
10,307,000 | Oracle Corp., 1.90%, 9/15/21, Callable 8/15/21 @ 100 | 10,144,339 | ||||||
1,500,000 | Oracle Corp., 2.50%, 5/15/22, Callable 3/15/22 @ 100 | 1,502,364 | ||||||
|
| |||||||
24,314,481 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (1.7%): | ||||||||
6,605,000 | Apple, Inc., 2.25%, 2/23/21, Callable 1/23/21 @ 100 | 6,597,270 | ||||||
2,000,000 | Apple, Inc., 2.85%, 5/6/21 | 2,032,086 | ||||||
|
| |||||||
8,629,356 | ||||||||
|
| |||||||
Thrifts & Mortgage Finance (0.2%): | ||||||||
1,000,000 | USAA Capital Corp., 2.00%, 6/1/21(a) | 980,962 | ||||||
|
| |||||||
Total Corporate Bonds (Cost $129,457,980) | 128,940,738 | |||||||
|
| |||||||
Foreign Bonds (39.1%): | ||||||||
Banks (12.6%): | ||||||||
2,226,000 | ANZ New Zealand Int’l Ltd., Series E, 0.40%, 3/1/22+ | 2,671,590 | ||||||
550,000 | Bank Nederlandse Gemeenten NV, Series E, 1.00%, 3/15/22+ | 742,120 | ||||||
1,800,000 | Bank Nederlandse Gemeenten NV, 2.25%, 8/30/22+ | 2,385,325 | ||||||
2,000,000 | Commonwealth Bank of Australia, 3.25%, 1/17/22+ | 1,575,968 | ||||||
2,220,000 | Commonwealth Bank of Australia, 3.25%, 3/31/22+ | 1,748,674 | ||||||
1,000,000 | Commonwealth Bank of Australia, Series E, 0.50%, 7/11/22+ | 1,206,015 | ||||||
550,000 | Cooperatieve Rabobank UA, 0.13%, 10/11/21+ | 659,964 | ||||||
500,000 | Cooperatieve Rabobank UA, Series G, 4.00%, 1/11/22+ | 691,234 | ||||||
2,289,000 | Cooperatieve Rabobank UA, Series E, 4.75%, 6/6/22+ | 3,289,812 | ||||||
1,150,000 | Dexia Credit Local SA, 0.63%, 1/21/22+ | 1,412,091 | ||||||
3,450,000 | Dexia Credit Local SA, 0.25%, 6/2/22+ | 4,164,640 | ||||||
1,500,000 | Dexia Credit Local SA, Series E, 1.13%, 6/15/22+ | 2,020,719 | ||||||
5,530,000 | Kreditanstalt fuer Wiederaufbau, Series E, 0.88%, 3/15/22+ | 7,451,347 | ||||||
1,794,000 | Kreditanstalt fuer Wiederaufbau, 2.90%, 6/6/22, MTN+ | 1,412,357 | ||||||
500,000 | Kreditanstalt fuer Wiederaufbau, 0.63%, 7/4/22+ | 619,737 |
Continued
4
AZL DFA Five-Year Global Fixed Income Fund
Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Foreign Bonds, continued | ||||||||
Banks, continued | ||||||||
$ | 2,500,000 | Kreditanstalt fuer Wiederaufbau, 0.00%, 12/15/22+ | $ | 3,004,310 | ||||
200,000 | Landeskreditbank Baden-Wuerttemberg Foerderbank, Series E, 0.88%, 3/7/22+ | 268,576 | ||||||
3,000,000 | National Australia Bank Ltd., Series G, 0.88%, 1/20/22+ | 3,678,141 | ||||||
500,000 | National Australia Bank Ltd., 0.35%, 9/7/22+ | 597,839 | ||||||
250,000 | Nordea Bank AB, Series E, 2.00%, 2/17/21+ | 317,759 | ||||||
1,250,000 | Nordea Bank AB, Series E, 3.25%, 7/5/22+ | 1,698,657 | ||||||
1,000,000 | NRW Bank, 0.00%, 11/11/22+ | 1,194,691 | ||||||
1,164,000 | Oesterreichische Kontrollbank AG, Series E, 0.75%, 3/7/22+ | 1,554,916 | ||||||
7,700,000 | Royal Bank of Canada, Series DPNT, 1.97%, 3/2/22+ | 6,002,299 | ||||||
600,000 | Skandinaviska Enskilda Banken AB, Series G, 0.30%, 2/17/22+ | 721,993 | ||||||
1,190,000 | Skandinaviska Enskilda Banken AB, 1.25%, 8/5/22+ | 1,597,736 | ||||||
3,450,000 | Svenska Handelsbanken AB, Series E, 0.25%, 2/28/22+ | 4,137,219 | ||||||
5,000,000 | Toronto-Dominion Bank (The), Series DPNT, 2.62%, 12/22/21+ | 4,003,939 | ||||||
3,000,000 | Toronto-Dominion Bank (The), Series DPNT, 1.99%, 3/23/22+ | 2,344,168 | ||||||
300,000 | Westpac Banking Corp., Series E, 0.25%, 1/17/22+ | 359,070 | ||||||
|
| |||||||
63,532,906 | ||||||||
|
| |||||||
Capital Markets (0.6%): | ||||||||
900,000 | FMS Wertmanagement AoeR, 0.88%, 2/14/22+ | 1,212,727 | ||||||
2,500,000 | International Finance Corp., 2.80%, 8/15/22+ | 1,963,193 | ||||||
|
| |||||||
3,175,920 | ||||||||
|
| |||||||
Consumer Finance (0.2%): | ||||||||
1,500,000 | Toyota Credit Canada, Inc., 2.02%, 2/28/22+ | 1,172,132 | ||||||
|
| |||||||
Diversified Financial Services (12.0%): | ||||||||
1,000,000 | Agence Francaise de Developpement, 0.13%, 4/30/22+ | 1,202,331 | ||||||
1,500,000 | Agence Francaise de Developpement, 0.50%, 10/25/22+ | 1,827,456 | ||||||
5,700,000 | ASB Finance Ltd., Series E, 0.50%, 6/10/22+ | 6,848,616 | ||||||
500,000 | European Financial Stability Facility, Series E, 2.25%, 9/5/22+ | 665,402 | ||||||
11,868,000 | European Financial Stability Facility, 0.00%, 11/17/22+ | 14,271,955 | ||||||
9,131,000 | European Stability Mechanism, 0.00%, 10/18/22+ | 10,984,859 | ||||||
1,250,000 | Inter-American Development Bank, 3.75%, 7/25/22+ | 1,021,965 | ||||||
5,000,000 | International Bank for Reconstruction & Development, 2.60%, 9/20/22+ | 3,893,158 | ||||||
12,000,000 | Kommuninvest I Sverige AB, Series 2109, 1.00%, 9/15/21+ | 1,504,774 | ||||||
106,000,000 | Kommuninvest I Sverige AB, 0.25%, 6/1/22+ | 12,839,173 | ||||||
3,000,000 | Landwirtschaftliche Rentenbank, 2.70%, 9/5/22+ | 2,341,645 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Foreign Bonds, continued | ||||||||
Diversified Financial Services, continued | ||||||||
$ | 500,000 | OP Corporate Bank plc, Series E, 0.75%, 3/3/22+ | $ | 611,682 | ||||
150,000 | OP Corporate Bank plc, 0.38%, 10/11/22+ | 180,019 | ||||||
500,000 | Temasek Financial I Ltd., Series E, 0.50%, 3/1/22+ | 607,279 | ||||||
800,000 | Temasek Financial I Ltd., Series G, 4.63%, 7/26/22+ | 1,242,433 | ||||||
|
| |||||||
60,042,747 | ||||||||
|
| |||||||
Food Products (0.1%): | ||||||||
500,000 | Nestle Finance International, Ltd., 1.75%, 9/12/22+ | 643,747 | ||||||
|
| |||||||
Insurance (0.6%): | ||||||||
2,600,000 | UNEDIC ASSEO, 0.88%, 10/25/22+ | 3,248,615 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.4%): | ||||||||
1,000,000 | Shell International Finance BV, Series E, 1.25%, 3/15/22+ | 1,254,776 | ||||||
400,000 | Shell International Finance BV, Series E, 1.00%, 4/6/22+ | 496,951 | ||||||
500,000 | Total Capital Canada Ltd., Series E, 1.13%, 3/18/22+ | 622,046 | ||||||
|
| |||||||
2,373,773 | ||||||||
|
| |||||||
Pharmaceuticals (0.4%): | ||||||||
1,700,000 | Sanofi, 1.13%, 3/10/22, Callable 12/10/21 @ 100+ | 2,112,808 | ||||||
|
| |||||||
Sovereign Bond (12.2%): | ||||||||
3,300,000 | Caisse d’Amortissement de la Dette Sociale, 0.13%, 11/25/22+ | 3,983,133 | ||||||
3,000,000 | Canada Housing Trust No 1, 1.75%, 6/15/22+(a) | 2,351,209 | ||||||
2,700,000 | Finland Government Bond, 1.63%, 9/15/22+(a) | 3,509,786 | ||||||
1,350,000 | French Republic Government Bond OAT, 3.00%, 4/25/22+ | 1,843,524 | ||||||
5,600,000 | French Republic Government Bond OAT, -0.13%, 5/25/22+ | 6,758,240 | ||||||
8,000,000 | Province of Alberta, 1.35%, 9/1/21+ | 6,198,535 | ||||||
4,000,000 | Province of British Columbia, 3.25%, 12/18/21+ | 3,321,770 | ||||||
1,200,000 | Province of Manitoba, 1.55%, 9/5/21+ | 936,617 | ||||||
1,200,000 | Province of Ontario, 3.15%, 6/2/22+ | 993,475 | ||||||
6,000,000 | Province of Quebec, 4.25%, 12/1/21+ | 5,150,557 | ||||||
950,000 | Province of Quebec, 0.88%, 5/24/22+ | 1,268,945 | ||||||
7,600,000 | Republic of Austria, 0.00%, 9/20/22+(a)(b) | 9,176,037 | ||||||
1,000,000 | Singapore Government, 1.75%, 4/1/22+ | 750,019 | ||||||
99,000,000 | Swedish Government, 3.50%, 6/1/22+ | 14,001,642 | ||||||
2,000,000 | Western Australian Treasury Corp., 2.75%, 10/20/22+ | 1,568,846 | ||||||
|
| |||||||
61,812,335 | ||||||||
|
| |||||||
Total Foreign Bonds (Cost $195,412,170) | 198,114,983 | |||||||
|
| |||||||
Yankee Dollars (34.2%): | ||||||||
Banks (18.3%): | ||||||||
370,000 | Australia & New Zealand Banking Group, Ltd., 2.55%, 11/23/21 | 368,142 | ||||||
1,667,000 | Australia & New Zealand Banking Group, Ltd., 2.63%, 11/9/22 | 1,656,113 | ||||||
7,500,000 | Bank Nederlandse Gemeenten, 2.38%, 2/1/22(a) | 7,497,202 |
Continued
5
AZL DFA Five-Year Global Fixed Income Fund
Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Banks, continued | ||||||||
$ | 13,195,000 | Bank of Montreal, 1.90%, 8/27/21 | $ | 12,917,032 | ||||
1,000,000 | Bank of Nova Scotia, 2.70%, 3/7/22^ | 999,994 | ||||||
4,000,000 | BK Nederlandse Gemeenten, Registered Shares, 1.63%, 4/19/21 | 3,913,779 | ||||||
700,000 | Commonwealth Bank of Australia, 2.00%, 9/6/21(a) | 685,733 | ||||||
2,625,000 | Commonwealth Bank of Australia, 2.75%, 3/10/22(a) | 2,632,542 | ||||||
1,000,000 | Cooperatieve Rabobank UA, 4.50%, 1/11/21 | 1,059,949 | ||||||
1,000,000 | Cooperatieve Rabobank UA, 3.88%, 2/8/22 | 1,050,385 | ||||||
2,000,000 | Kreditanstalt fuer Wiederaufbau, 2.13%, 3/7/22 | 1,986,727 | ||||||
1,000,000 | L-Bank BW Foerderbank, Series E, 1.38%, 7/21/21 | 967,774 | ||||||
2,000,000 | National Australia Bank, Ltd., 1.88%, 7/12/21^ | 1,957,369 | ||||||
5,500,000 | National Australia Bank, Ltd., 2.80%, 1/10/22 | 5,525,723 | ||||||
2,587,000 | National Australia Bank, Ltd., Series G, 2.50%, 5/22/22 | 2,566,865 | ||||||
600,000 | National Australian Bank of New York, Series G, 2.63%, 1/14/21 | 602,546 | ||||||
1,500,000 | Nederlandse Waterschapsbank NV, 1.88%, 4/14/22 | 1,466,862 | ||||||
2,000,000 | Nordea Bank AB, Registered Shares, 2.50%, 9/17/20(a) | 2,002,262 | ||||||
9,000,000 | Nordic Investment Bank, 2.13%, 2/1/22 | 8,946,516 | ||||||
5,000,000 | Oesterreichische Kontrollbank, 2.38%, 10/1/21 | 5,005,889 | ||||||
3,000,000 | Rabobank Nederland NY, Series G, 2.50%, 1/19/21 | 3,013,732 | ||||||
2,500,000 | Rabobank Nederland NY, 2.75%, 1/10/22 | 2,520,133 | ||||||
8,031,000 | Royal Bank of Canada, Series G, 2.75%, 2/1/22^ | 8,131,342 | ||||||
448,000 | Svenska Handelsbanken AB, 1.88%, 9/7/21 | 437,703 | ||||||
2,500,000 | Toronto-Dominion Bank (The), 2.13%, 4/7/21 | 2,476,189 | ||||||
3,000,000 | Toronto-Dominion Bank (The), 1.80%, 7/13/21^ | 2,937,801 | ||||||
2,099,000 | Westpac Banking Corp., 2.60%, 11/23/20^ | 2,107,523 | ||||||
1,000,000 | Westpac Banking Corp., 2.00%, 8/19/21^ | 981,508 | ||||||
4,000,000 | Westpac Banking Corp., 2.80%, 1/11/22^ | 4,028,297 | ||||||
1,976,000 | Westpac Banking Corp., 2.50%, 6/28/22^ | 1,963,658 | ||||||
|
| |||||||
92,407,290 | ||||||||
|
| |||||||
Diversified Financial Services (6.3%): | ||||||||
9,500,000 | Council of Europe Development Bank, 1.63%, 3/16/21 | 9,327,612 | ||||||
11,000,000 | European Investment Bank, Series DIP, 1.38%, 9/15/21 | 10,632,394 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Diversified Financial Services, continued | ||||||||
$ | 7,000,000 | Kommunalbanken AS, Registered Shares, 2.25%, 1/25/22 | $ | 6,959,876 | ||||
1,000,000 | Municipality Finance plc, Registered Shares, 1.38%, 9/21/21 | 965,352 | ||||||
4,000,000 | Swedish Export Credit Corp., Series G, 1.75%, 3/10/21 | 3,936,220 | ||||||
|
| |||||||
31,821,454 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (2.1%): | ||||||||
10,000,000 | Shell International Finance BV, 1.75%, 9/12/21 | 9,758,374 | ||||||
1,000,000 | Total Capital International SA, 2.88%, 2/17/22 | 1,013,737 | ||||||
|
| |||||||
10,772,111 | ||||||||
|
| |||||||
Sovereign Bond (7.5%): | ||||||||
6,000,000 | Caisse D’amort Dette SOC, Registered Shares, 1.88%, 2/12/22 | 5,868,677 | ||||||
2,600,000 | Caisse D’amortissement de La Dette Sociale, 2.00%, 3/22/21 | 2,570,246 | ||||||
5,000,000 | CPPIB Capital, Inc., 2.25%, 1/25/22(a) | 4,954,682 | ||||||
8,000,000 | CPPIB Capital, Inc., Registered Shares, 2.25%, 1/25/22 | 7,927,491 | ||||||
800,000 | Province of Manitoba, 2.05%, 11/30/20 | 792,922 | ||||||
1,500,000 | Province of Manitoba, 2.13%, 5/4/22 | 1,475,645 | ||||||
8,500,000 | Province of Ontario, 2.40%, 2/8/22 | 8,472,612 | ||||||
6,000,000 | Province of Quebec, 2.38%, 1/31/22 | 5,976,364 | ||||||
|
| |||||||
38,038,639 | ||||||||
|
| |||||||
Total Yankee Dollars (Cost $174,077,574) | 173,039,494 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (2.8%): | ||||||||
14,217,090 | AZL DFA Five-Year Global Fixed Income Fund Securities Lending Collateral Account(c) | 14,217,090 | ||||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 14,217,090 | ||||||
|
| |||||||
Unaffiliated Investment Company (0.9%): | ||||||||
4,647,953 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 1.11%(b) | 4,647,953 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $4,647,953) | 4,647,953 | |||||||
|
| |||||||
Total Investment Securities (Cost $517,812,767)(d) — 102.5% | 518,960,258 | |||||||
Net other assets (liabilities) — (2.5)% | (12,872,304 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 506,087,954 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
MTN—Medium Term Note
^ | This security or a partial position of this security was on loan as of December 31, 2017. The total value of securities on loan as of December 31, 2017, was $13,830,697. |
+ | 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 subadviser has deemed these securities to be liquid based on procedures approved by the Board of Trustees. |
(b) | The rate represents the effective yield at December 31, 2017. |
(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, 2017. |
(d) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Continued
6
AZL DFA Five-Year Global Fixed Income Fund
Schedule of Portfolio Investments
December 31, 2017
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, 2017: (Unaudited)
Country | Percentage | |||
Australia | 6.9 | % | ||
Austria | 3.1 | % | ||
Canada | 17.7 | % | ||
Denmark | 0.4 | % | ||
Finland | 1.0 | % | ||
France | 7.3 | % | ||
Germany | 4.0 | % | ||
Luxembourg | 3.0 | % | ||
Netherlands | 7.6 | % | ||
New Zealand | 1.8 | % | ||
Norway | 1.3 | % | ||
Singapore | 0.5 | % | ||
SNAT | 9.0 | % | ||
Sweden | 8.0 | % | ||
United States | 28.4 | % | ||
|
| |||
100.0 | % | |||
|
|
Forward Currency Contracts
At December 31, 2017, the Fund’s open forward currency contracts were as follows:
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||||
Short Contracts: |
| |||||||||||||||||||
U.S. Dollar | 29,053,240 | Swedish Krona | $ | 234,493,948 | State Street | 1/4/18 | $ | 448,771 | ||||||||||||
U.S. Dollar | 1,808,454 | European Euro | 1,519,086 | Bank of America | 1/5/18 | (14,563 | ) | |||||||||||||
U.S. Dollar | 2,122,776 | European Euro | 1,794,581 | Barclays Capital | 1/5/18 | (30,856 | ) | |||||||||||||
U.S. Dollar | 3,580,002 | European Euro | 3,028,307 | Barclays Capital | 1/5/18 | (54,193 | ) | |||||||||||||
U.S. Dollar | 2,151,880 | European Euro | 1,849,991 | Barclays Capital | 1/5/18 | (68,248 | ) | |||||||||||||
U.S. Dollar | 2,370,697 | European Euro | 2,008,631 | Barclays Capital | 1/5/18 | (39,811 | ) | |||||||||||||
U.S. Dollar | 2,915,406 | European Euro | 2,467,904 | Barclays Capital | 1/5/18 | (46,264 | ) | |||||||||||||
U.S. Dollar | 2,275,162 | European Euro | 1,907,651 | Barclays Capital | 1/5/18 | (14,162 | ) | |||||||||||||
U.S. Dollar | 1,790,471 | European Euro | 1,510,725 | Barclays Capital | 1/5/18 | (22,512 | ) | |||||||||||||
U.S. Dollar | 1,146,105 | European Euro | 969,082 | Barclays Capital | 1/5/18 | (16,866 | ) | |||||||||||||
U.S. Dollar | 2,060,543 | European Euro | 1,734,916 | Barclays Capital | 1/5/18 | (21,486 | ) | |||||||||||||
U.S. Dollar | 2,673,639 | European Euro | 2,266,580 | Barclays Capital | 1/5/18 | (46,427 | ) | |||||||||||||
U.S. Dollar | 1,901,509 | European Euro | 1,608,350 | Barclays Capital | 1/5/18 | (28,632 | ) | |||||||||||||
U.S. Dollar | 1,233,042 | European Euro | 1,039,946 | Citibank | 1/5/18 | (14,971 | ) | |||||||||||||
U.S. Dollar | 4,985,835 | European Euro | 4,208,688 | Citibank | 1/5/18 | (64,906 | ) | |||||||||||||
U.S. Dollar | 3,053,795 | European Euro | 2,589,861 | Citibank | 1/5/18 | (54,232 | ) | |||||||||||||
U.S. Dollar | 552,875 | European Euro | 465,146 | Citibank | 1/5/18 | (5,335 | ) | |||||||||||||
U.S. Dollar | 1,501,210 | European Euro | 1,266,076 | Citibank | 1/5/18 | (18,176 | ) | |||||||||||||
U.S. Dollar | 1,286,856 | European Euro | 1,082,543 | Citibank | 1/5/18 | (12,276 | ) | |||||||||||||
U.S. Dollar | 4,101,017 | European Euro | 3,471,883 | State Street | 1/5/18 | (65,503 | ) | |||||||||||||
U.S. Dollar | 6,695,716 | European Euro | 5,616,595 | State Street | 1/5/18 | (44,619 | ) | |||||||||||||
U.S. Dollar | 5,950,275 | European Euro | 5,010,776 | State Street | 1/5/18 | (63,032 | ) | |||||||||||||
U.S. Dollar | 39,172,240 | European Euro | 33,340,971 | State Street | 1/5/18 | (839,425 | ) | |||||||||||||
U.S. Dollar | 1,807,544 | European Euro | 1,525,163 | State Street | 1/5/18 | (22,766 | ) | |||||||||||||
U.S. Dollar | 2,299,305 | European Euro | 1,970,764 | State Street | 1/5/18 | (65,759 | ) | |||||||||||||
U.S. Dollar | 3,291,171 | European Euro | 2,788,474 | State Street | 1/5/18 | (55,207 | ) | |||||||||||||
U.S. Dollar | 865,372 | European Euro | 739,656 | State Street | 1/5/18 | (22,271 | ) | |||||||||||||
U.S. Dollar | 5,017,688 | European Euro | 4,233,459 | State Street | 1/5/18 | (62,780 | ) | |||||||||||||
U.S. Dollar | 1,704,361 | European Euro | 1,459,124 | State Street | 1/5/18 | (46,697 | ) | |||||||||||||
U.S. Dollar | 16,889,508 | British Pound | 12,776,761 | Barclays Capital | 1/19/18 | (369,105 | ) | |||||||||||||
U.S. Dollar | 202,056 | British Pound | 152,019 | State Street | 1/19/18 | (3,288 | ) |
Continued
7
AZL DFA Five-Year Global Fixed Income Fund
Schedule of Portfolio Investments
December 31, 2017
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
U.S. Dollar | 2,432,471 | Canadian Dollar | $ | 3,085,013 | Bank of America | 1/29/18 | $ | (23,433 | ) | |||||||||||||||
U.S. Dollar | 1,039,368 | Canadian Dollar | 1,336,787 | Bank of America | 1/29/18 | (24,816 | ) | |||||||||||||||||
U.S. Dollar | 28,956,247 | Canadian Dollar | 36,879,808 | State Street | 1/29/18 | (402,871 | ) | |||||||||||||||||
U.S. Dollar | 765,279 | Australian Dollar | 992,061 | Bank of America | 1/30/18 | (8,638 | ) | |||||||||||||||||
U.S. Dollar | 13,160,083 | Australian Dollar | 17,172,898 | Citibank | 1/30/18 | (236,672 | ) | |||||||||||||||||
U.S. Dollar | 1,501,606 | Australian Dollar | 1,958,904 | State Street | 1/30/18 | (26,556 | ) | |||||||||||||||||
U.S. Dollar | 750,390 | Singapore Dollar | 1,009,519 | Bank of America | 2/22/18 | (5,269 | ) | |||||||||||||||||
U.S. Dollar | 1,499,588 | European Euro | 1,257,180 | Citibank | 1/5/18 | (9,123 | ) | |||||||||||||||||
|
| |||||||||||||||||||||||
$ | (2,522,975 | ) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Long Contracts: |
| |||||||||||||||||||||||
European Euro | 557,313 | U.S. Dollar | $ | 666,672 | Citibank | 1/5/18 | $ | 2,146 | ||||||||||||||||
|
| |||||||||||||||||||||||
$ | 2,146 | |||||||||||||||||||||||
|
|
See accompanying notes to the financial statements.
8
AZL DFA Five-Year Global Fixed Income Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investment securities, at cost | $ | 517,812,767 | |||
|
| ||||
Investment securities, at value* | $ | 518,960,258 | |||
Interest and dividends receivable | 3,296,004 | ||||
Foreign currency, at value (cost $886,956) | 889,905 | ||||
Unrealized appreciation on forward currency contracts | 450,917 | ||||
Receivable for capital shares issued | 34,020 | ||||
Prepaid expenses | 2,979 | ||||
|
| ||||
Total Assets | 523,634,083 | ||||
|
| ||||
Liabilities: | |||||
Unrealized depreciation on forward currency contracts | 2,971,746 | ||||
Payable for capital shares redeemed | 8 | ||||
Payable for collateral received on loaned securities | 14,217,090 | ||||
Manager fees payable | 214,750 | ||||
Administration fees payable | 12,319 | ||||
Distribution fees payable | 107,374 | ||||
Custodian fees payable | 6,921 | ||||
Administrative and compliance services fees payable | 1,022 | ||||
Transfer agent fees payable | 675 | ||||
Trustee fees payable | 659 | ||||
Other accrued liabilities | 13,565 | ||||
|
| ||||
Total Liabilities | 17,546,129 | ||||
|
| ||||
Net Assets | $ | 506,087,954 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 506,267,865 | |||
Accumulated net investment income/(loss) | 5,257,459 | ||||
Accumulated net realized gains/(losses) from investment transactions | (4,081,304 | ) | |||
Net unrealized appreciation/(depreciation) on investments | (1,356,066 | ) | |||
|
| ||||
Net Assets | $ | 506,087,954 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 50,604,211 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.00 | |||
|
|
* | Includes securities on loan of $13,830,697. |
For the Year Ended December 31, 2017
Investment Income: | |||||
Interest | $ | 9,375,411 | |||
Dividends | 30,489 | ||||
Income from securities lending | 99,738 | ||||
Other income | 19,091 | ||||
|
| ||||
Total Investment Income | 9,524,729 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,984,498 | ||||
Administration fees | 138,198 | ||||
Distribution fees | 1,243,535 | ||||
Custodian fees | 40,939 | ||||
Administrative and compliance services fees | 6,280 | ||||
Transfer agent fees | 5,826 | ||||
Trustee fees | 22,234 | ||||
Professional fees | 27,130 | ||||
Shareholder reports | 7,536 | ||||
Other expenses | 12,188 | ||||
|
| ||||
Total expenses before reductions | 4,488,364 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (497,410 | ) | |||
|
| ||||
Net expenses | 3,990,954 | ||||
|
| ||||
Net Investment Income/(Loss) | 5,533,775 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions and foreign currencies | (1,249,887 | ) | |||
Net realized gains/(losses) on forward currency contracts | (250,928 | ) | |||
Change in net unrealized appreciation/depreciation on investments and foreign currencies | 6,155,620 | ||||
Change in net unrealized appreciation/depreciation on forward currency contracts | (2,608,001 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 2,046,804 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 7,580,579 | |||
|
|
See accompanying notes to the financial statements.
9
AZL DFA Five-Year Global Fixed Income Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 5,533,775 | $ | 4,905,505 | ||||||
Net realized gains/(losses) on investment transactions | (1,500,815 | ) | 1,647,990 | |||||||
Change in unrealized appreciation/depreciation on investments | 3,547,619 | 44,979 | ||||||||
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|
|
| |||||||
Change in net assets resulting from operations | 7,580,579 | 6,598,474 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (5,705,989 | ) | (3,717,956 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (5,705,989 | ) | (3,717,956 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 25,078,366 | 19,877,421 | ||||||||
Proceeds from dividends reinvested | 5,705,989 | 3,717,956 | ||||||||
Value of shares redeemed | (9,400,860 | ) | (60,694,755 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 21,383,495 | (37,099,378 | ) | |||||||
|
|
|
| |||||||
Change in net assets | 23,258,085 | (34,218,860 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 482,829,869 | 517,048,729 | ||||||||
|
|
|
| |||||||
End of period | $ | 506,087,954 | $ | 482,829,869 | ||||||
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|
|
| |||||||
Accumulated net investment income/(loss) | $ | 5,257,459 | $ | 5,705,970 | ||||||
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|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 2,500,042 | 1,974,006 | ||||||||
Dividends reinvested | 568,326 | 367,750 | ||||||||
Shares redeemed | (926,898 | ) | (6,041,451 | ) | ||||||
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|
|
| |||||||
Change in shares | 2,141,470 | (3,699,695 | ) | |||||||
|
|
|
|
See accompanying notes to the financial statements.
10
AZL DFA Five-Year Global Fixed Income Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, 2017 | Year Ended December 31, 2016 | April 27, 2015 to December 31, | |||||||||||||
Net Asset Value, Beginning of Period | $ | 9.96 | $ | 9.91 | $ | 10.00 | |||||||||
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| ||||||||||
Investment Activities: | |||||||||||||||
Net Investment Income/(Loss) | 0.11 | 0.11 | 0.06 | ||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.05 | 0.02 | (0.15 | ) | |||||||||||
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|
|
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| ||||||||||
Total from Investment Activities | 0.16 | 0.13 | (0.09 | ) | |||||||||||
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|
|
| ||||||||||
Dividends to Shareholders From: | |||||||||||||||
Net Investment Income | (0.12 | ) | (0.08 | ) | — | ||||||||||
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|
|
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| ||||||||||
Total Dividends | (0.12 | ) | (0.08 | ) | — | ||||||||||
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| ||||||||||
Net Asset Value, End of Period | $ | 10.00 | $ | 9.96 | $ | 9.91 | |||||||||
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| ||||||||||
Total Return(b) | 1.57 | % | 1.28 | % | (0.90 | )%(c) | |||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||
Net Assets, End of Period (000’s) | $ | 506,088 | $ | 482,830 | $ | 517,049 | |||||||||
Net Investment Income/(Loss)(d) | 1.11 | % | 1.01 | % | 0.90 | % | |||||||||
Expenses Before Reductions(d)(e) | 0.90 | % | 0.90 | % | 0.91 | % | |||||||||
Expenses Net of Reductions(d) | 0.80 | % | 0.80 | % | 0.81 | % | |||||||||
Portfolio Turnover Rate | 83 | % | 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 for periods less than one year. |
(d) | Annualized for periods less than one year. |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
See accompanying notes to the financial statements.
11
AZL DFA Five-Year Global Fixed Income Fund
Notes to the Financial Statements
December 31, 2017
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 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 accrues 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, or from other assets and liabilities, 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., reclassification of gain/loss), such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences (e.g., 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.
12
AZL DFA Five-Year Global Fixed Income Fund
Notes to the Financial Statements
December 31, 2017
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, 2017 are noted on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $33 million for the year ended December 31, 2017.
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 $9,333 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The fund had securities lending transactions of $14,217,090 accounted for as secured borrowings with cash collateral of overnight and continuous maturities as of December 31, 2017.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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, 2017, the Fund did not engage in any such transactions under the Rule.
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, 2017, 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. For the year ended December 31, 2017, the monthly average notional amount for long contracts was $0.8 million and the monthly average notional amount for short contracts was $70.6 million. Realized gains and losses are reported as “Net realized gains/(losses) on forward currency 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, 2017:
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 Rate Risk | ||||||||||||
Forward Currency Contracts | Unrealized appreciation on forward currency contracts | $ | 450,917 | Unrealized depreciation on forward currency contracts | $ | 2,971,746 |
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, 2017:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives Recognized | Change in Net Unrealized Derivatives Recognized | |||||||
Foreign Exchange Risk | ||||||||||
Forward Currency Contracts | Net realized gains/(losses) on forward currency contracts/ Change in net unrealized appreciation/depreciation on forward currency contracts | $ | (250,928 | ) | $ | (2,608,001 | ) |
13
AZL DFA Five-Year Global Fixed Income Fund
Notes to the Financial Statements
December 31, 2017
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, 2017. 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, 2017.
As of December 31, 2017, the Fund’s derivative assets and liabilities by type were as follows:
Assets | Liabilities | |||||||||
Derivative Financial Instruments: | ||||||||||
Forward currency contracts | $ | 450,917 | $ | 2,971,746 | ||||||
|
|
|
| |||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | 450,917 | 2,971,746 | ||||||||
Derivatives not subject to a master netting agreement or similar agreement (“MNA”) | — | — | ||||||||
|
|
|
| |||||||
Total assets and liabilities subject to a MNA | $ | 450,917 | $ | 2,971,746 | ||||||
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|
|
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, 2017:
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 | $ | 2,146 | $ | (2,146 | ) | $ | — | $ | — | $ | — | ||||||||||||||
State Street | 448,771 | (448,771 | ) | — | — | — | |||||||||||||||||||
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| ||||||||||||||||
Total | $ | 450,917 | $ | (450,917 | ) | $ | — | $ | — | $ | — | ||||||||||||||
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| ||||||||||||||||
Counterparty | Derivative Liabilities Subject to a MNA by Counterparty | Derivatives Available for Offset | Non-cash Collateral Received* | Cash Collateral Received* | Net Amount of Derivative Liabilities | ||||||||||||||||||||
Bank of America | $ | 76,719 | $ | — | $ | — | $ | — | $ | 76,719 | |||||||||||||||
Barclays Capital | 758,562 | — | — | — | 758,562 | ||||||||||||||||||||
Citibank | 415,691 | (2,146 | ) | — | — | 413,545 | |||||||||||||||||||
State Street | 1,720,774 | (448,771 | ) | — | — | 1,272,003 | |||||||||||||||||||
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|
|
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|
|
| ||||||||||||||||
Total | $ | 2,971,746 | $ | (450,917 | ) | $ | — | $ | — | $ | 2,520,829 | ||||||||||||||
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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 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, 2019.
For the year ended December 31, 2017, the annual rate paid 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, 2017, there were no contractual reimbursements subject to repayment by the Fund in subsequent years.
14
AZL DFA Five-Year Global Fixed Income Fund
Notes to the Financial Statements
December 31, 2017
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.”
FIS Investor Services LLC (“FIS”) 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, 2017, $5,267 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, 2017, actual Trustee compensation was $1,116,333 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.
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
15
AZL DFA Five-Year Global Fixed Income Fund
Notes to the Financial Statements
December 31, 2017
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, 2017, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value. There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Other^ | Total | ||||||||||||||||
Corporate Bonds+ | $ | — | $ | 128,940,738 | $ | — | $ | 128,940,738 | ||||||||||||
Foreign Bonds+ | — | 198,114,983 | — | 198,114,983 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | 14,217,090 | 14,217,090 | ||||||||||||||||
Yankee Dollars+ | — | 173,039,494 | — | 173,039,494 | ||||||||||||||||
Unaffiliated Investment Company | 4,647,953 | — | — | 4,647,953 | ||||||||||||||||
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Total Investment Securities | 4,647,953 | 500,095,215 | 14,217,090 | 518,960,258 | ||||||||||||||||
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Other Financial Instruments:* | ||||||||||||||||||||
Forward Currency Contracts | — | (2,520,829 | ) | — | (2,520,829 | ) | ||||||||||||||
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Total Investments | $ | 4,647,953 | $ | 497,574,386 | $ | 14,217,090 | $ | 516,439,429 | ||||||||||||
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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. |
^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
5. Security Purchases and Sales
For the year ended December 31, 2017, 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 | $ | 426,527,991 | $ | 406,263,871 |
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 DFA Five-Year Global Fixed Income Fund
Notes to the Financial Statements
December 31, 2017
Cost of securities, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $517,812,767. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 3,426,575 | ||
Unrealized (depreciation) | (2,279,084 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 1,147,491 | ||
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As of the end of its tax year ended December 31, 2017, 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 | $ | 3,019,515 | $ | 1,061,789 | $ | 4,081,304 |
The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL DFA Five-Year Global Fixed Income Fund | $ | 5,705,989 | $ | — | $ | 5,705,989 |
(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, 2016 were as follows:
Ordinary Income | Net Long-Term Capital Gains | 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, 2017, 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 Five-Year Global Fixed Income Fund | $ | 2,736,630 | $ | — | $ | (4,081,304 | ) | $ | 1,164,763 | $ | (179,911 | ) |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2017, 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 Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
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, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the two-year period then ended and the period from April 27, 2015 (commencement of operations) to December 31, 2015. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, 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 two-year period then ended and the period from April 27, 2015 to December 31, 2015, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Product investment companies since 1999.
Columbus, Ohio
February 23, 2018
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A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
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Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
20
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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
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The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
22
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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
23
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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
24
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® DFA International Core Equity Fund
Annual Report
December 31, 2017
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 31
Page 31
Statements of Changes in Net Assets
Page 32
Page 33
Notes to the Financial Statements
Page 34
Report of Independent Registered Public Accounting Firm
Page 40
Other Federal Income Tax Information
Page 41
Page 42
Approval of Investment Advisory and Subadvisory Agreements
Page 43
Information about the Board of Trustees and Officers
Page 46
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, 2017?
For the year ended December 31, 2017, the AZL® DFA International Core Equity Fund (the “Fund”) returned 26.09%†. That compared to a 25.62% and 24.81% total return for its benchmarks, the MSCI EAFE Index1 and the MSCI World Ex-USA Index1 respectively, each gross of withholding taxes.
Developed market equities posted strong positive returns for the 12-month period, outperforming the U.S. market but trailing emerging markets. The U.S. dollar depreciated against most developed market currencies during the period, positively affecting returns in dollar-denominated terms.
Within the developed ex-U.S. equity universe, small-cap stocks outperformed large-caps, while value stocks underperformed growth stocks. Meanwhile, high-profitability stocks outperformed lower-profitability names across all market cap sizes.
The Fund outperformed both of its reference benchmarks for the period. A bias toward small-cap stocks was a main driver of this relative outperformance, as small-cap stocks outperformed their large-cap counterparts during the year.*
At the country level, the Fund’s greater emphasis on small-cap stocks had a particularly positive impact in Japan and the U.K., as that segment outperformed within the two countries for the period.*
At the sector level, the Fund’s below-benchmark allocation to the health care sector and higher-than-benchmark
allocations to materials and industrials stocks added to relative performance. Healthcare underperformed overall benchmark returns while materials and industrials outperformed during a period that saw rising commodity prices.*
The Fund’s emphasis on low relative price stocks, or value stocks, detracted from relative performance, as value-oriented companies generally underperformed growth-oriented stocks for the year. The Fund’s off-benchmark exposure to Canada detracted from its performance relative to its MSCI EAFE benchmark, as Canada underperformed most developed countries for the period.*
Past performance does not guarantee future results.
† | The recent appreciation in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. |
* | 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, 2017. |
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, 2017
Since | ||||||||
1 | Inception | |||||||
Year | (4/27/15) | |||||||
AZL® DFA International Core Equity Fund | 26.09 | %† | 6.17 | % | ||||
MSCI EAFE Index (gross of withholding taxes) | 25.62 | % | 5.17 | % | ||||
MSCI EAFE Index (net of withholding taxes) | 25.03 | % | 4.69 | % | ||||
MSCI World Ex-USA Index (gross of withholding taxes) | 24.81 | % | 5.03 | % | ||||
MSCI World Ex-USA Index (net of withholding taxes) | 24.21 | % | 4.53 | % |
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 International Core Equity Fund | 1.39 | % |
The above expense ratio is based on the current Fund prospectus dated May 1, 2017. 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, 2019. Additional information pertaining to the December 31, 2017 expense ratios can be found in the financial highlights.
† | The recent appreciation in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. |
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 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 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 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.
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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL DFA International Core Equity Fund | $ | 1,000.00 | $ | 1,106.00 | $ | 6.48 | 1.22 | % |
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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL DFA International Core Equity Fund | $ | 1,000.00 | $ | 1,019.07 | $ | 6.21 | 1.22 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Industrials | 19.1 | % | |||
Consumer Discretionary | 17.9 | ||||
Financials | 17.5 | ||||
Materials | 14.4 | ||||
Consumer Staples | 8.0 | ||||
Information Technology | 5.5 | ||||
Health Care | 4.8 | ||||
Energy | 4.8 | ||||
Telecommunication Services | 3.3 | ||||
Utilities | 2.4 | ||||
Real Estate | 2.3 | ||||
|
| ||||
Total Common Stocks and Preferred Stocks | 100.0 | ||||
Right | — | ^ | |||
Securities Held as Collateral for Securities on Loan | 0.6 | ||||
|
| ||||
Total Investment Securities | 100.6 | ||||
Net other assets (liabilities) | (0.6 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks (99.5%): | ||||||||
Aerospace & Defense (1.2%): | ||||||||
15,989 | Austal, Ltd. | $ | 22,602 | |||||
44,779 | BAE Systems plc | 344,340 | ||||||
5,900 | Bombardier, Inc., Class B* | 14,224 | ||||||
11,887 | CAE, Inc. | 220,848 | ||||||
3,081 | Chemring Group plc | 7,615 | ||||||
119,811 | Cobham plc* | 203,519 | ||||||
504 | Elbit Systems, Ltd. | 67,412 | ||||||
3,429 | European Aeronautic Defence & Space Co. NV | 340,477 | ||||||
14,340 | Finmeccanica SpA | 170,482 | ||||||
2,535 | Heroux-Devtek, Inc.* | 30,719 | ||||||
1,132 | LiSi | 54,455 | ||||||
539 | Maxar Technologies, Ltd. | 34,704 | ||||||
41,242 | Meggitt plc | 266,992 | ||||||
3,010 | MTU Aero Engines AG | 538,292 | ||||||
37,946 | QinetiQ Group plc | 118,025 | ||||||
25,323 | Rolls-Royce Holdings plc | 288,144 | ||||||
1,136 | Saab AB | 55,275 | ||||||
1,661 | Safran SA | 170,779 | ||||||
31,537 | Senior plc | 110,584 | ||||||
17,700 | Singapore Technologies Engineering, Ltd. | 43,085 | ||||||
3,432 | Ste Industrielle d’Aviation Latecoere SA* | 23,494 | ||||||
1,426 | Thales SA | 153,434 | ||||||
4,635 | Ultra Electronics Holdings plc | 84,417 | ||||||
3,131 | Zodiac Aerospace | 93,644 | ||||||
|
| |||||||
3,457,562 | ||||||||
|
| |||||||
Air Freight & Logistics (0.4%): | ||||||||
6,697 | Bollore, Inc. | 36,375 | ||||||
7,355 | BPOST SA | 223,779 | ||||||
1,468 | Compania de Distribucion Integral Logista Holdings SA | 33,753 | ||||||
7,375 | Deutsche Post AG | 350,306 | ||||||
5,804 | Freightways, Ltd. | 31,545 | ||||||
37,500 | Kerry Network, Ltd. | 53,153 | ||||||
2,300 | Kintetsu World Express, Inc. | 47,540 | ||||||
1,800 | Konoike Transport Co., Ltd. | 31,831 | ||||||
5,936 | Mainfreight, Ltd. | 106,778 | ||||||
4,000 | Mitsui-Soko Holdings Co., Ltd. | 13,700 | ||||||
1,146 | Oesterreichische Post AG | 51,427 | ||||||
282 | Panalpina Welttransport Holdings | 43,732 | ||||||
22,252 | PostNL NV | 108,596 | ||||||
23,649 | Royal Mail plc | 144,484 | ||||||
58,500 | Singapore Post, Ltd. | 54,251 | ||||||
|
| |||||||
1,331,250 | ||||||||
|
| |||||||
Airlines (0.2%): | ||||||||
2,930 | Air Canada* | 60,335 | ||||||
4,229 | Air France-KLM* | 68,745 | ||||||
26,921 | Air New Zealand, Ltd. | 60,618 | ||||||
1,200 | All Nippon Airways Co., Ltd. | 50,088 | ||||||
46 | Cathay Pacific Airways, Ltd.* | 71 | ||||||
7,741 | Deutsche Lufthansa AG, Registered Shares | 284,526 | ||||||
2,130 | easyJet plc | 42,095 | ||||||
28,658 | El Al Israel Airlines | 11,917 | ||||||
2,128 | Exchange Income Corp. | 60,345 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Airlines, continued | ||||||||
13,156 | International Consolidated Airlines Group SA | $ | 115,366 | |||||
24,091 | Qantas Airways, Ltd. | 94,554 | ||||||
21,400 | Singapore Airlines, Ltd. | 170,502 | ||||||
|
| |||||||
1,019,162 | ||||||||
|
| |||||||
Auto Components (3.2%): | ||||||||
1,000 | Aisan Industry Co., Ltd. | 11,717 | ||||||
6,300 | Aisin Sieki Co., Ltd. | 354,038 | ||||||
7,300 | Akebono Brake Industry Co., Ltd.* | 19,933 | ||||||
2,288 | Arb Corp., Ltd. | 33,379 | ||||||
266 | Autoneum Holding AG | 76,569 | ||||||
6,935 | Brembo SpA | 105,412 | ||||||
12,900 | Bridgestone Corp. | 600,007 | ||||||
3,874 | CIE Automotive SA | 112,485 | ||||||
7,997 | Compagnie Generale des Establissements Michelin SCA, Class B | 1,145,384 | ||||||
887 | Continental AG | 239,438 | ||||||
2,800 | Daido Metal Co., Ltd. | 27,716 | ||||||
2,400 | Daikyonishikawa Corp. | 38,868 | ||||||
4,700 | Denso Corp. | 282,217 | ||||||
1,800 | Eagle Industry Co., Ltd. | 33,561 | ||||||
1,724 | ElringKlinger AG | 38,550 | ||||||
1,700 | Exedy Corp. | 52,605 | ||||||
5,121 | Faurecia | 399,295 | ||||||
2,300 | FCC Co., Ltd. | 60,087 | ||||||
500 | Futaba Industrial Co., Ltd. | 4,648 | ||||||
70,607 | GKN plc | 303,121 | ||||||
874 | Grammer AG | 54,231 | ||||||
1,400 | G-Tekt Corp. | 28,799 | ||||||
2,186 | Hella KGAA Hueck & Co. | 135,244 | ||||||
1,600 | Hi-Lex Corp. | 39,891 | ||||||
700 | H-One Co., Ltd. | 10,941 | ||||||
1,200 | Imasen Electric Industrial | 14,208 | ||||||
200 | Kasai Kogyo Co., Ltd. | 3,294 | ||||||
2,500 | Keihin Corp. | 50,816 | ||||||
1,600 | Koito Manufacturing Co., Ltd. | 112,522 | ||||||
31,203 | Kongsberg Automotive ASA* | 44,612 | ||||||
500 | KYB Co., Ltd. | 29,123 | ||||||
2,493 | Leoni AG | 185,930 | ||||||
3,233 | Linamar Corp. | 188,326 | ||||||
8,141 | Magna International, Inc., ADR | 461,350 | ||||||
6,366 | Martinrea International, Inc. | 81,247 | ||||||
1,027 | Mgi Coutier | 41,474 | ||||||
2,000 | Mitsuba Corp. | 30,042 | ||||||
1,600 | Musashi Seimitsu Industry Co. L | 51,054 | ||||||
6,000 | NGK Spark Plug Co., Ltd. | 145,923 | ||||||
12,000 | NHK SPRING Co., Ltd. | 131,922 | ||||||
1,800 | Nifco, Inc. | 122,900 | ||||||
4,000 | Nippon Seiki Co., Ltd. | 85,841 | ||||||
700 | Nissin Kogyo Co., Ltd. | 13,858 | ||||||
2,700 | NOK Corp. | 62,896 | ||||||
6,062 | Nokian Renkaat OYJ | 274,542 | ||||||
2,600 | Pacific Industrial Co., Ltd. | 40,363 |
Continued
4
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Auto Components, continued | ||||||||
1,800 | Piolax, Inc. | $ | 53,538 | |||||
2,839 | Plastic Omnium SA | 129,045 | ||||||
6,300 | Press Kogyo Co., Ltd. | 38,205 | ||||||
400 | Riken Corp. | 22,564 | ||||||
1,600 | Sanden Holdings Corp.* | 32,085 | ||||||
1,000 | Showa Corp. | 12,421 | ||||||
2,500 | Stanley Electric Co., Ltd. | 101,551 | ||||||
17,200 | Sumitomo Electric Industries, Ltd. | 290,276 | ||||||
2,900 | Sumitomo Riko Co., Ltd. | 30,930 | ||||||
7,600 | Sumitomo Rubber Industries, Ltd. | 141,223 | ||||||
300 | T RAD Co., Ltd. | 10,653 | ||||||
2,000 | Tachi-S Co., Ltd. | 36,634 | ||||||
800 | Taiho Kogyo Co., Ltd. | 11,911 | ||||||
3,900 | Tokai Rika Co., Ltd. | 82,140 | ||||||
2,500 | Topre Corp. | 70,592 | ||||||
7,500 | Toyo Tire & Rubber Co., Ltd. | 155,052 | ||||||
4,500 | Toyoda Gosei Co., Ltd. | 114,120 | ||||||
3,500 | Toyota Boshoku Corp. | 73,018 | ||||||
700 | Toyota Industries Corp. | 45,001 | ||||||
1,500 | TPR Co., Ltd. | 49,606 | ||||||
3,600 | TS Tech Co., Ltd. | 147,898 | ||||||
2,000 | Unipres Corp. | 53,663 | ||||||
2,847 | Valeo SA | 212,138 | ||||||
82,000 | Xinyi Glass Holdings, Ltd. | 106,830 | ||||||
6,500 | Yokohama Rubber Co., Ltd. (The) | 159,482 | ||||||
600 | Yorozu Corp. | 12,901 | ||||||
|
| |||||||
8,573,856 | ||||||||
|
| |||||||
Automobiles (3.9%): | ||||||||
9,641 | Bayerische Motoren Werke AG (BMW) | 1,001,313 | ||||||
17,431 | Daimler AG, Registered Shares | 1,479,929 | ||||||
958 | Ferrari NV | 100,436 | ||||||
31,464 | Fiat Chrysler Automobiles NV | 560,953 | ||||||
4,300 | Fuji Heavy Industries, Ltd. | 136,160 | ||||||
23,400 | Honda Motor Co., Ltd. | 802,388 | ||||||
12,200 | Isuzu Motors, Ltd. | 204,047 | ||||||
23,400 | Mazda Motor Corp. | 314,025 | ||||||
48,200 | Nissan Motor Co., Ltd. | 480,757 | ||||||
2,100 | Nissan Shatai Co., Ltd. | 21,448 | ||||||
14,678 | Piaggio & C SpA | 40,453 | ||||||
27,636 | PSA Peugeot Citroen SA | 561,317 | ||||||
3,686 | Renault SA | 370,426 | ||||||
5,000 | Suzuki Motor Corp. | 289,639 | ||||||
45,438 | Toyota Motor Corp. | 2,910,044 | ||||||
794 | Volkswagen AG | 160,735 | ||||||
4,800 | Yamaha Motor Co., Ltd. | 157,195 | ||||||
|
| |||||||
9,591,265 | ||||||||
|
| |||||||
Banks (10.2%): | ||||||||
3,000 | 77th Bank | 75,398 | ||||||
3,702 | ABN AMRO Group NV(a) | 119,109 | ||||||
500 | Aichi Bank, Ltd. (The) | 23,722 | ||||||
400 | Akita Bank, Ltd. (The) | 11,030 | ||||||
1,197 | Aktia Bank OYJ | 13,081 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
1,200 | Aomori Bank, Ltd. (The) | $ | 38,141 | |||||
18,426 | Australia & New Zealand Banking Group, Ltd. | 411,491 | ||||||
6,000 | Awa Bank, Ltd. (The) | 38,220 | ||||||
23,992 | Banca Popolare dell’Emilia Romarna | 120,743 | ||||||
23,223 | Banca Popolare di Sondrio SCARL | 84,793 | ||||||
41,143 | Banco Bilbao Vizcaya Argentaria SA | 350,183 | ||||||
61,025 | Banco Bpm SpA* | 191,126 | ||||||
106,975 | Banco Comercial Portugues SA, Class R* | 34,829 | ||||||
100,929 | Banco de Sabadell SA | 199,726 | ||||||
109,750 | Banco Santander SA | 719,582 | ||||||
244 | Bank Cler AG | 10,660 | ||||||
6,708 | Bank Hapoalim BM | 49,376 | ||||||
28,290 | Bank Leumi Le-Israel Corp. | 170,634 | ||||||
5,200 | Bank of East Asia, Ltd. (The) | 22,501 | ||||||
2,674 | Bank of Georgia Holdings | 128,122 | ||||||
17,531 | Bank of Ireland Group plc* | 149,114 | ||||||
900 | Bank of Iwate, Ltd. (The) | 35,813 | ||||||
1,400 | Bank of Kyoto, Ltd. (The) | 72,840 | ||||||
15,317 | Bank of Montreal | 1,225,666 | ||||||
500 | Bank of Nagoya, Ltd. (The) | 19,490 | ||||||
13,051 | Bank of Nova Scotia | 842,181 | ||||||
820 | Bank of Okinawa, Ltd. (The) | 33,372 | ||||||
9,431 | Bank of Queensland, Ltd. | 93,393 | ||||||
1,100 | Bank of Saga, Ltd. (The) | 25,139 | ||||||
10,431 | Bankia SA | 49,782 | ||||||
69 | Banque Cantonale Vaudoise,Registered Shares | 52,016 | ||||||
28,093 | Barclays plc, ADR | 306,214 | ||||||
13,522 | Bendigo & Adelaide Bank, Ltd. | 122,846 | ||||||
206 | Berner Kantonalbank AG | 37,296 | ||||||
8,360 | BNP Paribas SA | 623,361 | ||||||
66,542 | BOC Hong Kong Holdings, Ltd. | 336,576 | ||||||
6,760 | Canadian Imperial Bank of Commerce | 658,492 | ||||||
4,927 | Canadian Western Bank | 153,871 | ||||||
9,000 | Chiba Bank, Ltd. (The) | 74,965 | ||||||
4,000 | Chiba Kogyo Bank, Ltd. (The) | 19,893 | ||||||
3,800 | Chugoku Bank, Ltd. (The) | 50,652 | ||||||
700 | Chukyo Bank, Ltd. (The) | 14,478 | ||||||
2,000 | Chuo Mitsui Trust Holdings, Inc. | 79,437 | ||||||
9,830 | Commerzbank AG* | 147,425 | ||||||
10,689 | Commonwealth Bank of Australia | 667,930 | ||||||
15,000 | Concordia Financial Group, Ltd. | 90,578 | ||||||
9,828 | Credit Agricole SA | 162,336 | ||||||
4,185 | Credito Emiliano SpA | 35,523 | ||||||
5,520 | Credito Valtellinese SpA* | 8,041 | ||||||
25,740 | Criteria Caixacorp SA | 119,710 | ||||||
12,800 | Dah Sing Banking Group, Ltd. | 27,784 | ||||||
5,600 | Dah Sing Financial Holdings, Ltd. | 35,845 | ||||||
700 | Daisan Bank, Ltd. (The) | 11,214 | ||||||
1,300 | Daishi Bank, Ltd. (The) | 59,132 | ||||||
5,008 | Danske Bank A/S | 194,730 | ||||||
4,338 | DBS Group Holdings, Ltd. | 80,342 | ||||||
4,975 | DnB NOR ASA | 92,017 | ||||||
900 | Ehime Bank, Ltd. (The) | 10,752 |
Continued
5
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
4,502 | Erste Group Bank AG | $ | 194,125 | |||||
6,500 | Fidea Holdings Co., Ltd. | 11,855 | ||||||
1,816 | First International Bank of Israel | 37,698 | ||||||
1,500 | Fukui Bank, Ltd. (The) | 36,008 | ||||||
8,000 | Fukuoka Financial Group, Inc. | 44,968 | ||||||
2,000 | Fukushima Bank, Ltd. (The) | 16,503 | ||||||
8,100 | Gunma Bank, Ltd. (The) | 49,056 | ||||||
10,800 | Hachijuni Bank, Ltd. (The) | 61,700 | ||||||
2,805 | Hang Seng Bank, Ltd. | 69,550 | ||||||
25,589 | Heartland Bank, Ltd. | 37,765 | ||||||
5,300 | Hiroshima Bank, Ltd. (The) | 45,956 | ||||||
1,000 | Hokkoku Bank, Ltd. (The) | 39,736 | ||||||
1,400 | Hokuetsu Bank, Ltd. (The) | 32,292 | ||||||
3,500 | Hokuhoku Financial Group, Inc. | 54,552 | ||||||
29,345 | HSBC Holdings plc, ADR^ | 1,515,375 | ||||||
11,000 | Hyakugo Bank, Ltd. (The) | 52,380 | ||||||
10,000 | Hyakujushi Bank, Ltd. (The) | 33,089 | ||||||
19,880 | ING Groep NV | 365,763 | ||||||
85,550 | Intesa Sanpaolo SpA | 283,695 | ||||||
24,232 | Isreal Discount Bank* | 70,485 | ||||||
5,500 | Iyo Bank, Ltd. (The) | 44,022 | ||||||
6,200 | Jimoto Holdings, Inc. | 10,611 | ||||||
1,200 | Juroku Bank, Ltd. (The) | 35,324 | ||||||
2,046 | Jyske Bank A/S | 116,136 | ||||||
200 | Kansai Urban Banking Corp. | 2,605 | ||||||
2,633 | KBC Groep NV | 224,301 | ||||||
8,000 | Keiyo Bank, Ltd. (The) | 36,593 | ||||||
400 | Kita-Nippon Bank, Ltd. (The) | 10,928 | ||||||
2,400 | Kiyo Bank, Ltd. (The) | 39,901 | ||||||
8,690 | Kyushu Financial Group, Inc. | 52,530 | ||||||
1,601 | Laurentian Bank of Canada | 72,012 | ||||||
28,027 | Liberbank SA* | 14,841 | ||||||
696 | Liechtenstein Landesbank AG | 35,455 | ||||||
129,980 | Lloyds TSB Group plc, ADR | 487,425 | ||||||
117 | Luzerner Kantonalbank AG | 55,861 | ||||||
12,870 | Mebuki Financial Group, Inc. | 54,512 | ||||||
9,054 | Mediobanca SpA | 102,529 | ||||||
700 | Michinoku Bank, Ltd. (The) | 11,139 | ||||||
700 | Mie Bank, Ltd. (The) | 15,739 | ||||||
69,000 | Mitsubishi UFJ Financial Group, Inc. | 506,347 | ||||||
800 | Miyazaki Bank, Ltd. (The) | 27,246 | ||||||
5,533 | Mizrahi Tefahot Bank, Ltd. | 102,094 | ||||||
141,900 | Mizuho Financial Group, Inc. | 257,783 | ||||||
1,300 | Musashino Bank, Ltd. (The) | 43,394 | ||||||
1,300 | Nanto Bank, Ltd. (The) | 34,906 | ||||||
28,207 | National Australia Bank, Ltd. | 648,749 | ||||||
8,756 | National Bank of Canada | 436,964 | ||||||
12,824 | Natixis | 101,436 | ||||||
5,000 | Nishi-Nippon Holdings, Inc. | 59,940 | ||||||
20,907 | Nordea Bank AB | 253,123 | ||||||
14,600 | North Pacific Bank, Ltd. | 48,792 | ||||||
900 | Ogaki Kyoritsu Bank, Ltd. (The) | 22,709 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
18,152 | Oversea-Chinese Banking Corp., Ltd. | $ | 167,751 | |||||
5,242 | Raiffeisen International Bank-Holding AG* | 189,794 | ||||||
13,700 | Resona Holdings, Inc. | 81,884 | ||||||
599 | Ringkjoebing Landbobank A/S | 31,002 | ||||||
10,304 | Royal Bank of Canada | 841,322 | ||||||
12,603 | Royal Bank of Scotland, ADR* | 96,287 | ||||||
3,000 | San-In Godo Bank, Ltd. (The) | 28,935 | ||||||
11,600 | Senshu Ikeda Holdings, Inc. | 42,706 | ||||||
24,500 | Seven Bank, Ltd. | 83,966 | ||||||
7,000 | Shiga Bank, Ltd. (The) | 35,715 | ||||||
1,000 | Shikoku Bank, Ltd. (The) | 14,086 | ||||||
400 | Shimizu Bank, Ltd. (The) | 11,475 | ||||||
4,400 | Shinsei Bank, Ltd. | 75,786 | ||||||
5,000 | Shizuoka Bank, Ltd. (The) | 51,679 | ||||||
9,534 | Skandinaviska Enskilda Banken AB, Class A | 111,732 | ||||||
5,713 | Societe Generale | 294,513 | ||||||
4,232 | Spar Nord Bank A/S | 49,106 | ||||||
8,827 | Sparebank 1 Sr-Bank ASA | 93,549 | ||||||
121 | St. Galler Kantonalbank AG | 60,112 | ||||||
29,198 | Standard Chartered plc* | 307,203 | ||||||
7,200 | Sumitomo Mitsui Financial Group, Inc. | 311,008 | ||||||
1,500 | Suruga Bank, Ltd. | 32,087 | ||||||
6,888 | Svenska Handelsbanken AB, Class A | 94,060 | ||||||
6,195 | Swedbank AB, Class A | 149,199 | ||||||
2,894 | Sydbank A/S | 116,424 | ||||||
6,500 | Toho Bank, Ltd. (The) | 22,819 | ||||||
1,100 | Tokyo Ty Financial Group, Inc. | 31,820 | ||||||
7,500 | Tomony Holdings, Inc. | 38,505 | ||||||
19,576 | Toronto-Dominion Bank (The) | 1,146,762 | ||||||
2,100 | Towa Bank, Ltd. (The) | 28,411 | ||||||
6,200 | Tsukuba Bank, Ltd. | 21,187 | ||||||
36,343 | UBI Banca — Unione di Banche Italiane SCPA | 158,494 | ||||||
12,043 | Unicredit SpA* | 224,325 | ||||||
8,427 | United Overseas Bank, Ltd. | 166,286 | ||||||
682 | Valiant Holding AG | 73,726 | ||||||
9,737 | Virgin Money Holdings UK | 37,225 | ||||||
582 | Walliser Kantonalbank, Registered Shares | 57,469 | ||||||
51,785 | Westpac Banking Corp. | 1,263,715 | ||||||
1,600 | Yamagata Bank, Ltd. (The) | 34,915 | ||||||
3,000 | Yamaguchi Financial Group, Inc. | 35,665 | ||||||
9,000 | Yamanashi Chuo Bank, Ltd. (The) | 39,229 | ||||||
8 | Zuger Kantonalbank AG | 43,236 | ||||||
|
| |||||||
23,446,381 | ||||||||
|
| |||||||
Beverages (1.2%): | ||||||||
10,537 | A.G. Barr plc | 94,812 | ||||||
3,070 | Anheuser-Busch InBev NV | 342,394 | ||||||
2,300 | Asahi Breweries, Ltd. | 114,047 | ||||||
8,796 | Britvic plc | 96,445 | ||||||
12,528 | C&C Group plc | 43,004 | ||||||
991 | Carlsberg A/S, Class B | 118,721 | ||||||
5,367 | Coca-Cola Amatil, Ltd. | 35,590 | ||||||
650 | Coca-Cola Bottlers Japan Holdings, Inc. | 23,743 |
Continued
6
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Beverages, continued | ||||||||
2,981 | Coca-Cola European Partners plc | $ | 118,726 | |||||
3,906 | Coca-Cola HBC AG | 127,027 | ||||||
9,750 | Cott Corp. | 162,759 | ||||||
8,506 | Davide Campari — Milano SpA | 65,750 | ||||||
4,154 | Diageo plc, ADR | 606,608 | ||||||
1,867 | Heineken NV | 194,582 | ||||||
2,200 | ITO EN, Ltd. | 86,556 | ||||||
10,600 | Kirin Holdings Co., Ltd. | 266,731 | ||||||
109 | Laurent-Perrier | 10,893 | ||||||
938 | Olvi OYJ | 33,579 | ||||||
1,800 | Refresco Group NV(a) | 42,746 | ||||||
2,807 | Royal Unibrew A/S | 167,913 | ||||||
4,000 | Sapporo Breweries, Ltd. | 122,077 | ||||||
1,000 | Suntory Beverage & Food, Ltd. | 44,476 | ||||||
9,563 | Treasury Wine Estates, Ltd. | 118,923 | ||||||
|
| |||||||
3,038,102 | ||||||||
|
| |||||||
Biotechnology (0.1%): | ||||||||
986 | Bavarian Nordic A/S* | 35,639 | ||||||
1,137 | Biotest AG | 27,558 | ||||||
2,219 | CSL, Ltd. | 244,179 | ||||||
1,685 | Genus plc | 57,543 | ||||||
2,522 | Grifols SA | 73,736 | ||||||
999 | Idorsia, Ltd. | 26,086 | ||||||
5,747 | Knight Therapeutics, Inc.* | 37,999 | ||||||
1,222 | Shire plc | 63,371 | ||||||
3,118 | Sirtex Medical, Ltd. | 40,089 | ||||||
|
| |||||||
606,200 | ||||||||
|
| |||||||
Building Products (1.1%): | ||||||||
1,800 | AICA Kogyo Co., Ltd. | 66,882 | ||||||
2,028 | Arbonia AG* | 33,824 | ||||||
5,600 | Asahi Glass Co., Ltd. | 242,249 | ||||||
3,788 | Assa Abloy AB, Class B | 78,632 | ||||||
15 | Belimo Holding AG, Registered Shares | 65,505 | ||||||
1,100 | Central Glass Co., Ltd. | 23,325 | ||||||
2,051 | Compagnie de Saint-Gobain SA | 112,864 | ||||||
1,500 | Daikin Industries, Ltd. | 177,612 | ||||||
119 | dorma kaba Holding AG | 110,642 | ||||||
434 | Geberit AG, Registered Shares | 191,014 | ||||||
12,489 | Gwa Group, Ltd. | 27,703 | ||||||
2,938 | Inwido AB | 30,027 | ||||||
10,573 | Kingspan Group plc | 462,261 | ||||||
3,279 | Lindab International AB | 27,270 | ||||||
5,800 | Lixil Group Corp. | 156,831 | ||||||
5,337 | Nibe Industrier AB, Class B | 51,145 | ||||||
8,000 | Nichias Corp. | 106,499 | ||||||
1,500 | Nichiha Corp. | 62,811 | ||||||
1,500 | Nippon Sheet Glass Co., Ltd.* | 13,614 | ||||||
2,000 | Nitto Boseki Co., Ltd. | 57,722 | ||||||
1,500 | Noritz Corp. | 29,396 | ||||||
1,400 | Okabe Co., Ltd. | 13,346 | ||||||
12,336 | Polypipe Group plc | 65,424 | ||||||
22 | Rockwool International A/S | 5,740 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Building Products, continued | ||||||||
353 | Rockwool International A/S | $ | 100,071 | |||||
1,900 | Sankyo Tateyama, Inc. | 28,695 | ||||||
11,100 | Sanwa Holdings Corp. | 152,863 | ||||||
35 | Schweiter Technologies AG | 45,348 | ||||||
1,800 | Takara Standard Co., Ltd. | 29,024 | ||||||
1,348 | Tarkett SA | 56,491 | ||||||
2,500 | TOTO, Ltd. | 147,406 | ||||||
2,051 | Uponor OYJ | 41,278 | ||||||
638 | Zehnder Group AG | 26,158 | ||||||
|
| |||||||
2,839,672 | ||||||||
|
| |||||||
Capital Markets (2.6%): | ||||||||
15,384 | 3i Group plc | 189,593 | ||||||
3,200 | AGF Management, Ltd. | 20,828 | ||||||
1,600 | Aizawa Securities Co., Ltd. | 11,053 | ||||||
1,200 | Alaris Royalty Corp. | 19,736 | ||||||
2,199 | Altamir | 40,210 | ||||||
2,137 | Anima Holding SpA(a) | 15,261 | ||||||
17,351 | Ashmore Group plc | 94,862 | ||||||
851 | Avanza Bank Holding AB | 35,704 | ||||||
3,389 | Azimut Holding SpA | 64,820 | ||||||
1,975 | Banca Generali SpA | 65,606 | ||||||
1,725 | Binckbank NV | 9,171 | ||||||
3,505 | Bolsas y Mercados Espanoles | 111,531 | ||||||
25,002 | Brewin Dolphin Holdings plc | 131,358 | ||||||
1,119 | Brookfield Asset Management, Inc., Class A | 48,721 | ||||||
4,759 | BT Investment Management, Ltd. | 41,766 | ||||||
2,895 | Bure Equity AB | 34,588 | ||||||
8,265 | Canaccord Genuity Group, Inc. | 38,142 | ||||||
2,455 | CI Financial Corp. | 58,152 | ||||||
10,072 | Close Brothers Group plc | 196,821 | ||||||
12,826 | Credit Suisse Group AG | 228,365 | ||||||
14,000 | Daiwa Securities Group, Inc. | 87,872 | ||||||
3,097 | Deutsche Bank AG, Registered Shares | 58,765 | ||||||
10,467 | Deutsche Bank AG, Registered Shares | 199,187 | ||||||
206 | Deutsche Beteiligungs AG | 11,631 | ||||||
1,423 | Deutsche Boerse AG | 164,926 | ||||||
2,513 | EFG International AG | 26,579 | ||||||
258,000 | Emperor Capital Group, Ltd. | 18,748 | ||||||
2,185 | Euronext NV(a) | 135,562 | ||||||
1,100 | Fiera Capital Corp. | 11,378 | ||||||
7,427 | GAM Holding AG | 119,718 | ||||||
1,012 | Gimv NV | 61,291 | ||||||
1,675 | Guardian Capital Group, Ltd., Class A | 35,464 | ||||||
142,000 | Guotai Junan International Hol | 44,369 | ||||||
67,243 | Haitong International Securities | 38,251 | ||||||
5,422 | Hargreaves Lansdown plc | 131,866 | ||||||
6,198 | Hong Kong Exchanges & Clearing, Ltd. | 189,319 | ||||||
22,233 | IG Group Holdings plc | 214,684 | ||||||
2,132 | IGM Financial, Inc. | 74,895 | ||||||
13,922 | Intermediate Capital Group plc | 214,629 | ||||||
12,118 | Investec plc | 87,186 | ||||||
4,603 | IOOF Holdings, Ltd. | 38,407 | ||||||
20,157 | Ip Group plc* | 38,697 |
Continued
7
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Capital Markets, continued | ||||||||
5,177 | IRESS, Ltd. | $ | 46,697 | |||||
1,700 | IwaiCosmo Holdings, Inc. | 21,682 | ||||||
900 | Jafco Co., Ltd. | 51,891 | ||||||
7,200 | Japan Exchange Group, Inc. | 124,748 | ||||||
2,786 | Julius Baer Group, Ltd. | 170,371 | ||||||
25,444 | Jupiter Fund Management plc | 215,741 | ||||||
3,928 | London Stock Exchange Group plc | 201,082 | ||||||
3,369 | Macquarie Group, Ltd. | 261,147 | ||||||
4,411 | Magellan Financial Group, Ltd. | 92,660 | ||||||
20,569 | Man Group plc | 57,240 | ||||||
3,600 | Matsui Securities Co., Ltd. | 30,399 | ||||||
2,900 | Mito Securities Co., Ltd. | 10,584 | ||||||
7,700 | Monex Group, Inc. | 21,839 | ||||||
4,265 | Navigator Global Investments, Ltd. | 11,039 | ||||||
10,500 | Nex Group plc | 85,945 | ||||||
19,100 | Nomura Holdings, Inc. | 112,800 | ||||||
8,000 | Okasan Securities Group, Inc. | 49,490 | ||||||
226 | Partners Group Holding AG | 154,903 | ||||||
1,867 | Perpetual, Ltd. | 70,239 | ||||||
5,913 | Platinum Asset Management, Ltd. | 35,475 | ||||||
3,209 | Rathbone Brothers plc | 110,321 | ||||||
9,785 | Ratos AB, Class B | 42,764 | ||||||
1,124 | Rothschild & Co. | 41,134 | ||||||
5,700 | SBI Holdings, Inc. | 119,001 | ||||||
559 | Schroders plc | 18,863 | ||||||
1,610 | Schroders plc | 76,141 | ||||||
9,000 | Singapore Exchange, Ltd. | 49,975 | ||||||
371 | Swissquote Group Holding SA | 14,529 | ||||||
2,878 | Thomson Reuters Corp. | 125,452 | ||||||
1,131 | TMX Group, Ltd. | 63,389 | ||||||
4,000 | Toyo Securities Co., Ltd. | 11,268 | ||||||
6,294 | Tullett Prebon plc | 45,071 | ||||||
16,616 | UBS Group AG | 305,385 | ||||||
3,019 | UBS Group AG | 55,519 | ||||||
1,793 | Vontobel Holding AG | 113,183 | ||||||
122 | Vp Bank AG, Registered Shares | 16,655 | ||||||
96 | VZ Holding AG | 32,570 | ||||||
|
| |||||||
6,526,904 | ||||||||
|
| |||||||
Chemicals (6.3%): | ||||||||
900 | Achilles Corp. | 19,052 | ||||||
5,100 | Adeka Corp. | 89,744 | ||||||
705 | Agrium, Inc. | 81,075 | ||||||
3,219 | Air Liquide SA | 404,808 | ||||||
6,000 | Air Water, Inc. | 126,160 | ||||||
9,273 | AkzoNobel NV | 811,006 | ||||||
700 | Arakawa Chemical Industries, Ltd. | 14,361 | ||||||
4,212 | Arkema SA | 511,778 | ||||||
24,000 | Asahi Kasei Corp. | 309,210 | ||||||
1,500 | ASAHI YUKIZAI Corp. | 27,889 | ||||||
15,764 | BASF SE | 1,729,810 | ||||||
7,920 | Borregaard ASA | 78,642 | ||||||
2,300 | Carlit Holdings Co., Ltd. | 25,063 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Chemicals, continued | ||||||||
1,529 | Christian Hansen Holding A/S | $ | 143,426 | |||||
4,200 | Chugoku Marine Paints, Ltd. | 35,024 | ||||||
16,684 | Clariant AG | 465,992 | ||||||
4,087 | Corbion NV | 132,307 | ||||||
2,800 | Croda International plc | 167,163 | ||||||
9,800 | Daicel Chemical Industries, Ltd. | 111,538 | ||||||
400 | Dainichiseika Color & Chemical | 19,924 | ||||||
5,100 | Dainippon Ink & Chemicals, Inc. | 192,909 | ||||||
5,600 | Denka Co., Ltd. | 224,106 | ||||||
17,121 | DuluxGroup, Ltd. | 102,053 | ||||||
26,867 | Elementis plc | 104,484 | ||||||
88 | EMS-Chemie Holding AG | 58,745 | ||||||
1,599 | Evonik Industries AG | 59,982 | ||||||
905 | Frutarom Industries, Ltd. | 85,062 | ||||||
1,815 | Fuchs Petrolub AG | 95,976 | ||||||
679 | FUCHS Petrolub SE | 32,775 | ||||||
1,100 | Fujimori Kogyo Co., Ltd. | 39,112 | ||||||
1,400 | Fuso Chemical Co., Ltd. | 37,997 | ||||||
100 | Givaudan SA, Registered Shares | 230,720 | ||||||
29 | Gurit Holding AG | 31,306 | ||||||
4,570 | Hexpol AB | 46,338 | ||||||
3,500 | Hitachi Chemical Co., Ltd. | 89,940 | ||||||
40,252 | Incitec Pivot, Ltd. | 122,365 | ||||||
1,500 | Ishihara Sangyo Kaisha, Ltd.* | 28,270 | ||||||
10,087 | Israel Chemicals, Ltd. | 40,914 | ||||||
200 | JCU Corp. | 9,687 | ||||||
2,998 | Johnson Matthey plc | 123,932 | ||||||
1,100 | JSR Corp. | 21,665 | ||||||
8,082 | K+S AG, Registered Shares | 201,267 | ||||||
16,000 | Kaneka Corp. | 146,195 | ||||||
1,100 | Kansai Paint Co., Ltd. | 28,567 | ||||||
5,000 | Kanto Denka Kogyo Co., Ltd. | 60,777 | ||||||
7,358 | Kemira OYJ | 101,363 | ||||||
1,162 | Koninklijke DSM NV | 110,754 | ||||||
300 | Konishi Co., Ltd. | 5,601 | ||||||
3,200 | Kumiai Chemical Industry Co., Ltd. | 21,545 | ||||||
11,300 | Kuraray Co., Ltd. | 213,314 | ||||||
400 | Kureha Corp. | 29,051 | ||||||
5,438 | Lanxess AG | 432,334 | ||||||
294 | Lenzing AG | 37,106 | ||||||
1,230 | Linde AG* | 287,707 | ||||||
1,300 | Lintec Corp. | 36,305 | ||||||
2,350 | Methanex Corp. | 142,293 | ||||||
53,900 | Mitsubishi Chemical Holdings Corp. | 591,812 | ||||||
8,400 | Mitsubishi Gas Chemical Co., Inc. | 241,689 | ||||||
8,000 | Mitsui Chemicals, Inc. | 257,511 | ||||||
800 | Nihon Kagaku Sangyo Co., Ltd. | 11,977 | ||||||
2,300 | Nihon Nohyaku Co., Ltd. | 13,608 | ||||||
3,600 | Nihon Parkerizing Co., Ltd. | 60,762 | ||||||
600 | Nippon Chemical Industrial Co., Ltd. | 13,488 | ||||||
8,000 | Nippon Kayaku Co., Ltd. | 118,606 | ||||||
1,400 | Nippon Pillar Packing Co., Ltd. | 21,444 | ||||||
400 | Nippon Shokubai Co., Ltd. | 27,029 |
Continued
8
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Chemicals, continued | ||||||||
4,000 | Nippon Soda Co., Ltd. | $ | 26,594 | |||||
2,300 | Nissan Chemical Industries, Ltd. | 91,669 | ||||||
900 | Nitto Denko Corp. | 80,007 | ||||||
2,200 | NOF Corp. | 59,089 | ||||||
3,646 | Novozymes A/S, Class B | 208,330 | ||||||
5,861 | Nufarm, Ltd./Australia | 39,852 | ||||||
3,000 | Okura Industrial Co., Ltd. | 18,430 | ||||||
11,701 | Orica, Ltd. | 165,089 | ||||||
1,000 | Osaka Organic Chemical Industry, Ltd. | 12,071 | ||||||
1,343 | Recticel SA | 12,438 | ||||||
2,800 | Riken Technos Corp. | 15,487 | ||||||
500 | Sakai Chemical Industry Co., Ltd. | 13,354 | ||||||
2,400 | Sakata Inx Corp. | 38,379 | ||||||
700 | Sanyo Chemical Industries, Ltd. | 36,627 | ||||||
900 | Sekisui Plastics Co., Ltd. | 11,850 | ||||||
1,900 | Shin-Etsu Chemical Co., Ltd. | 192,733 | ||||||
8,800 | Showa Denko K.K. | 375,472 | ||||||
29 | Sika AG, Class B | 229,936 | ||||||
1,754 | SOL SPA | 22,368 | ||||||
1,611 | Solvay SA | 223,691 | ||||||
11,000 | Sumitomo Bakelite Co., Ltd. | 92,599 | ||||||
68,000 | Sumitomo Chemical Co., Ltd. | 489,097 | ||||||
300 | Sumitomo Seika Chemicals Co. Ltd. | 16,592 | ||||||
2,206 | Symrise AG | 189,112 | ||||||
22,357 | Synthomer plc | 147,396 | ||||||
500 | T Hasegawa Co., Ltd. | 10,432 | ||||||
1,200 | Taiyo Holdings Co., Ltd. | 53,304 | ||||||
5,700 | Taiyo Nippon Sanso Corp. | 79,684 | ||||||
600 | Takasago International Corp. | 19,505 | ||||||
9,600 | Teijin, Ltd. | 213,960 | ||||||
500 | Tenma Corp. | 9,821 | ||||||
1,223 | Tessenderlo Chemie NV* | 57,006 | ||||||
1,434 | Tikkurila OYJ | 30,593 | ||||||
3,700 | Toagosei Co., Ltd. | 46,935 | ||||||
2,200 | Tokuyama Corp. | 71,553 | ||||||
11,000 | Toray Industries, Inc. | 103,769 | ||||||
13,500 | Tosoh Corp. | 306,197 | ||||||
4,000 | Toyo Ink SC Holdings Co., Ltd. | 23,657 | ||||||
6,300 | Toyobo Co., Ltd. | 114,359 | ||||||
7,200 | Ube Industries, Ltd. | 211,939 | ||||||
8,838 | Umicore SA | 417,583 | ||||||
6,476 | Victrex plc | 230,614 | ||||||
1,157 | Wacker Chemie AG | 225,042 | ||||||
602 | Yara International ASA | 27,564 | ||||||
10,000 | Zeon Corp. | 144,824 | ||||||
|
| |||||||
15,501,018 | ||||||||
|
| |||||||
Commercial Services & Supplies (1.4%): | ||||||||
1,200 | AEON Delight Co., Ltd. | 44,854 | ||||||
17,026 | Aggreko plc | 183,057 | ||||||
25,551 | Babcock International Group plc | 242,143 | ||||||
1,163 | Bilfinger SE | 55,063 | ||||||
1,670 | Black Diamond Group, Ltd. | 3,176 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Commercial Services & Supplies, continued | ||||||||
14,490 | Brambles, Ltd. | $ | 113,570 | |||||
282 | Cewe Stiftung & Co. KGAA | 29,793 | ||||||
90,651 | Cleanaway Waste Management, Ltd. | 105,573 | ||||||
2,500 | Dai Nippon Printing Co., Ltd. | 55,785 | ||||||
1,500 | Daiseki Co., Ltd. | 41,754 | ||||||
4,203 | De La Rue plc | 36,409 | ||||||
21,107 | Downer EDI, Ltd. | 113,768 | ||||||
1,000 | Duskin Co., Ltd. | 26,367 | ||||||
8,275 | Edenred | 239,702 | ||||||
1,912 | Elis SA | 52,777 | ||||||
90,603 | G4S plc | 325,644 | ||||||
348 | GL Events | 10,226 | ||||||
18,123 | HomeServe plc | 197,460 | ||||||
9,361 | Interserve plc* | 11,978 | ||||||
7,191 | ISS A/S | 277,446 | ||||||
1,800 | Itoki Corp. | 13,307 | ||||||
34,804 | IWG plc | 120,909 | ||||||
1,500 | Kokuyo Co., Ltd. | 27,874 | ||||||
400 | Kyodo Printing Co., Ltd. | 12,834 | ||||||
3,638 | Lassila & Tikanoja OYJ | 78,566 | ||||||
5,185 | Loomis AB | 217,197 | ||||||
700 | Matsuda Sangyo Co., Ltd. | 11,515 | ||||||
5,449 | Mears Group plc | 30,161 | ||||||
27,717 | Mitie Group plc | 72,059 | ||||||
1,100 | Oyo Corp. | 14,109 | ||||||
2,100 | Park24 Co., Ltd. | 50,248 | ||||||
2,696 | PayPoint plc | 33,218 | ||||||
1,400 | Pilot Corp. | 67,549 | ||||||
11,442 | Prosegur Compania de Seguridad SA | 89,865 | ||||||
58,477 | Rentokil Initial plc | 250,135 | ||||||
6,716 | RPS Group plc | 24,818 | ||||||
1,600 | Sato Holdings Corp. | 48,663 | ||||||
1,000 | SECOM Co., Ltd. | 75,532 | ||||||
9,943 | Securitas AB, Class B | 173,306 | ||||||
20,809 | Shanks Group plc | 29,020 | ||||||
659 | Societe BIC SA | 72,456 | ||||||
700 | Sohgo Security Services Co., Ltd. | 38,061 | ||||||
2,300 | Takeei Corp. | 27,159 | ||||||
3,224 | Tomra Systems ASA | 51,654 | ||||||
2,900 | Toppan Forms Co., Ltd. | 32,855 | ||||||
8,000 | Toppan Printing Co., Ltd. | 72,298 | ||||||
1,100 | Tosho Printing Co., Ltd. | 9,953 | ||||||
4,920 | Tox Free Solutions, Ltd. | 13,252 | ||||||
4,470 | Transcontinental, Inc. | 88,347 | ||||||
|
| |||||||
4,013,465 | ||||||||
|
| |||||||
Communications Equipment (0.0%): | ||||||||
2,792 | Adva Optical Networking Se* | 20,220 | ||||||
700 | Aiphone Co., Ltd. | 12,159 | ||||||
2,052 | Ascom Holding AG | 52,997 | ||||||
700 | Denki Kogyo Co., Ltd. | 19,794 | ||||||
991 | Evs Broadcast Equipment SA | 34,741 | ||||||
500 | Icom, Inc. | 11,692 |
Continued
9
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Communications Equipment, continued | ||||||||
6,772 | Mitel Networks Corp.* | $ | 55,930 | |||||
16,733 | Nokia OYJ | 78,148 | ||||||
1,022 | Parrot SA* | 10,812 | ||||||
731 | Sierra Wireless, Inc.* | 14,948 | ||||||
26,263 | Spirent Communications plc | 36,170 | ||||||
17,805 | Telefonaktiebolaget LM Ericsson, Class B | 116,761 | ||||||
6,200 | VTech Holdings, Ltd. | 81,254 | ||||||
|
| |||||||
545,626 | ||||||||
|
| |||||||
Construction & Engineering (2.1%): | ||||||||
6,720 | ACS Actividades de Construccion y Servicios SA | 262,894 | ||||||
3,353 | Aecon Group, Inc. | 53,197 | ||||||
1,861 | Arcadis NV | 42,509 | ||||||
3,000 | Asanuma Corp. | 10,868 | ||||||
4,202 | Astaldi SpA | 10,678 | ||||||
2,110 | Badger Daylighting, Ltd. | 45,632 | ||||||
375 | Bauer AG | 13,452 | ||||||
7,647 | Bouygues SA | 397,201 | ||||||
209 | Burkhalter Holding AG | 27,223 | ||||||
14,759 | Cardno, Ltd.* | 17,105 | ||||||
25,120 | Carillion plc | 5,834 | ||||||
31,800 | Chip Eng Seng Corp., Ltd. | 23,180 | ||||||
1,000 | Chiyoda Corp. | 7,360 | ||||||
1,100 | Chudenko Corp. | 32,045 | ||||||
589 | CIE d’Entreprises CFE SA | 85,994 | ||||||
2,966 | Cimic Group, Ltd. | 118,915 | ||||||
6,098 | Costain Group plc | 38,498 | ||||||
500 | Dai-Dan Co., Ltd. | 13,381 | ||||||
6,000 | Daiho Corp. | 29,859 | ||||||
2,773 | Eiffage SA | 303,801 | ||||||
2,783 | Elecnor SA | 44,357 | ||||||
7,737 | Eltel AB*(a) | 27,324 | ||||||
4,365 | Ferrovial SA | 98,921 | ||||||
435 | FLSmidth & Co. A/S | 25,275 | ||||||
4,400 | Fudo TETRA Corp. | 7,141 | ||||||
200 | Fukuda Corp. | 12,039 | ||||||
5,231 | Galliford Try plc | 90,790 | ||||||
14,200 | Hazama Ando Corp. | 111,196 | ||||||
600 | Hibiya Engineering, Ltd. | 12,806 | ||||||
708 | Hochtief AG | 124,767 | ||||||
1,093 | Implenia AG | 73,864 | ||||||
17,467 | John Laing Group plc(a) | 69,229 | ||||||
15,000 | Kajima Corp. | 144,182 | ||||||
3,000 | Kandenko Co., Ltd. | 31,674 | ||||||
5,690 | Keller Group plc | 74,325 | ||||||
2,043 | Kier Group plc | 30,000 | ||||||
2,800 | Kinden Corp. | 45,585 | ||||||
7,169 | Koninklijke BAM Groep NV | 32,937 | ||||||
1,466 | Koninklijke Boskalis Westminster NV | 55,251 | ||||||
2,700 | Kumagai Gumi Co., Ltd. | 75,667 | ||||||
3,300 | Kyowa Exeo Corp. | 85,453 | ||||||
1,300 | Kyudenko Corp. | 62,672 | ||||||
7,400 | Lian Beng Group, Ltd. | 4,094 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Construction & Engineering, continued | ||||||||
9,000 | Maeda Corp. | $ | 123,781 | |||||
3,000 | Maeda Road Construction Co., Ltd. | 68,788 | ||||||
2,900 | Meisei Industrial Co., Ltd. | 21,370 | ||||||
3,300 | Mirait Holdings Corp. | 49,133 | ||||||
8,858 | Monadelphous Group, Ltd. | 119,710 | ||||||
3,820 | NCC AB | 73,198 | ||||||
1,000 | Nichireki Co., Ltd. | 12,865 | ||||||
3,000 | Nippo Corp. | 70,106 | ||||||
1,600 | Nippon Densetsu Kogyo Co., Ltd. | 34,586 | ||||||
700 | Nippon Koei Co., Ltd. | 21,717 | ||||||
200 | Nippon Road Co., Ltd. (The) | 11,675 | ||||||
2,400 | Nishimatsu Construction Co., Ltd. | 67,335 | ||||||
20,800 | Obayashi Corp. | 251,559 | ||||||
4,863 | Obrascon Huarte Lain SA* | 29,046 | ||||||
600 | Okumura Corp. | 24,690 | ||||||
12,582 | Peab AB | 108,248 | ||||||
18,100 | Penta-Ocean Construction Co., Ltd. | 134,989 | ||||||
703 | Per Aarsleff Holding A/S | 22,142 | ||||||
2,500 | Raito Kogyo Co., Ltd. | 28,551 | ||||||
19,199 | Sacyr SA* | 54,240 | ||||||
12,041 | Salini Impregilo SpA | 46,461 | ||||||
1,400 | Sanki Engineering Co., Ltd. | 17,001 | ||||||
5,399 | Shikun & Binui, Ltd. | 12,028 | ||||||
19,000 | Shimizu Corp. | 196,084 | ||||||
1,700 | Skanska AB, Class B | 35,176 | ||||||
2,700 | Spie SA | 70,295 | ||||||
881 | Strabag Se | 35,943 | ||||||
12,380 | Sumitomo Mitsui Construction | 69,111 | ||||||
2,479 | Sweco AB-B Shs | 54,926 | ||||||
700 | Taihei Dengyo Kaisha, Ltd. | 18,091 | ||||||
2,800 | TAISEI Corp. | 139,291 | ||||||
1,000 | Toa Corp.* | 27,003 | ||||||
16,300 | Tobishima Corp. | 27,474 | ||||||
3,000 | Toda Corp. | 24,049 | ||||||
400 | Toenec Corp. | 12,184 | ||||||
1,000 | Tokyo Energy & Systems, Inc. | 11,616 | ||||||
5,100 | Tokyu Construction Co., Ltd. | 49,720 | ||||||
1,100 | Totetsu Kogyo Co., Ltd. | 36,524 | ||||||
22,100 | United Engineers, Ltd. | 43,634 | ||||||
3,109 | Veidekke ASA | 35,135 | ||||||
3,693 | Vinci SA | 376,740 | ||||||
1,400 | Wakachiku Construction Co., Ltd. | 22,310 | ||||||
2,771 | YIT OYJ | 21,155 | ||||||
1,200 | Yurtec Corp. | 10,249 | ||||||
|
| |||||||
5,599,104 | ||||||||
|
| |||||||
Construction Materials (0.7%): | ||||||||
20,647 | Adelaide Brighton, Ltd. | 104,755 | ||||||
16,631 | Boral, Ltd. | 100,775 | ||||||
3,157 | Brickworks, Ltd. | 36,569 | ||||||
3,957 | Buzzi Unicem SpA | 106,778 | ||||||
8,480 | CRH plc, ADR | 306,043 | ||||||
22,791 | CSR, Ltd. | 84,447 |
Continued
10
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Construction Materials, continued | ||||||||
10,710 | Fletcher Building, Ltd. | $ | 57,636 | |||||
2,028 | HeidelbergCement AG | 219,508 | ||||||
175 | Imerys SA | 16,484 | ||||||
7,436 | James Hardie Industries SE | 130,876 | ||||||
400 | Krosaki Harima Corp. | 16,815 | ||||||
2,680 | LafargeHolcim, Ltd., Registered Shares | 151,035 | ||||||
2,500 | Nippon Concrete Industries Co., Ltd. | 11,054 | ||||||
20,000 | Sumitomo Osaka Cement Co., Ltd. | 95,999 | ||||||
7,200 | Taiheiyo Cement Corp. | 310,977 | ||||||
1,196 | Vicat | 94,386 | ||||||
|
| |||||||
1,844,137 | ||||||||
|
| |||||||
Consumer Finance (0.1%): | ||||||||
3,600 | Aeon Credit Service Co., Ltd. | 83,615 | ||||||
96,000 | Allied Properties HK, Ltd. | 19,414 | ||||||
9,830 | Arrow Global Group plc | 52,582 | ||||||
1,360 | Cembra Money Bank AG | 126,536 | ||||||
1,847 | Credit Corp. Group, Ltd. | 32,116 | ||||||
3,900 | Credit Saison Co., Ltd. | 70,992 | ||||||
18,226 | Eclipx Group, Ltd. | 57,326 | ||||||
106,800 | Enerchina Holdings, Ltd.* | 7,756 | ||||||
18,254 | Flexigroup, Ltd. | 24,470 | ||||||
4,100 | Hitachi Capital Corp. | 103,198 | ||||||
2,988 | Hoist Finance AB^(a) | 33,580 | ||||||
17,800 | Hong Leong Finance, Ltd. | 36,362 | ||||||
14,415 | International Personal Finance | 38,427 | ||||||
4,300 | J Trust Co., Ltd. | 27,985 | ||||||
1,800 | Jaccs Co., Ltd. | 42,125 | ||||||
15,200 | Orient Corp. | 24,261 | ||||||
2,776 | Provident Financial plc | 33,631 | ||||||
38,000 | Sun Hung Kai Properties, Ltd. | 24,252 | ||||||
|
| |||||||
838,628 | ||||||||
|
| |||||||
Containers & Packaging (0.7%): | ||||||||
11,159 | Amcor, Ltd. | 134,055 | ||||||
10,464 | BillerudKorsnas AB | 178,921 | ||||||
4,231 | Cascades, Inc. | 45,852 | ||||||
1,780 | CCL Industries, Inc. | 82,258 | ||||||
46,684 | DS Smith plc | 324,622 | ||||||
1,400 | FP Corp. | 75,189 | ||||||
2,200 | Fuji Seal International, Inc. | 71,611 | ||||||
3,226 | Huhtamaki OYJ | 135,042 | ||||||
2,589 | Intertape Polymer Group, Inc. | 44,269 | ||||||
314 | Mayr Melnhof Karton AG | 46,146 | ||||||
69,097 | Orora, Ltd. | 182,568 | ||||||
6,607 | Pact Group Holdings, Ltd. | 29,218 | ||||||
11,000 | Rengo Co., Ltd. | 80,077 | ||||||
4,984 | RPC Group plc | 58,946 | ||||||
16,255 | Smurfit Kappa Group plc | 549,473 | ||||||
600 | Tomoku Co., Ltd. | 12,158 | ||||||
2,000 | Toyo Seikan Kaisha, Ltd. | 32,091 | ||||||
5 | Vetropack Holding AG | 9,625 | ||||||
1,101 | Vidrala SA | 111,779 | ||||||
|
| |||||||
2,203,900 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Distributors (0.2%): | ||||||||
3,600 | Canon Marketing Japan, Inc. | $ | 97,185 | |||||
500 | Chori Co., Ltd. | 9,266 | ||||||
5,572 | Connect Group plc | 8,417 | ||||||
874 | D’ieteren SA/NV | 39,292 | ||||||
4,313 | Headlam Group plc | 34,076 | ||||||
25,837 | Inchcape plc | 272,348 | ||||||
1,000 | Jardine Cycle & Carriage, Ltd. | 30,401 | ||||||
7,157 | John Menzies plc | 65,353 | ||||||
1,400 | Paltac Corp. | 63,818 | ||||||
3,025 | Uni-Select, Inc. | 68,380 | ||||||
|
| |||||||
688,536 | ||||||||
|
| |||||||
Diversified Consumer Services (0.1%): | ||||||||
23,128 | Aa plc | 53,040 | ||||||
1,100 | Benesse Holdings, Inc. | 38,629 | ||||||
3,000 | Cross-Harbour Holdings, Ltd. (The) | 4,965 | ||||||
2,634 | Dignity plc | 64,581 | ||||||
5,045 | EnerCare, Inc. | 82,330 | ||||||
12,438 | G8 Education, Ltd. | 32,876 | ||||||
6,026 | InvoCare, Ltd. | 75,549 | ||||||
8,365 | Navitas, Ltd. | 35,439 | ||||||
|
| |||||||
387,409 | ||||||||
|
| |||||||
Diversified Financial Services (0.6%): | ||||||||
1,573 | Ackermans & Van Haaren NV | 273,884 | ||||||
1,091 | AKER ASA | 53,562 | ||||||
52,095 | AMP, Ltd. | 210,447 | ||||||
2,300 | Century Tokyo Leasing Corp. | 111,112 | ||||||
6,399 | Cerved Information Solutions S | 81,255 | ||||||
5,700 | Ecn Capital Corp. | 17,824 | ||||||
11,037 | Element Fleet Management Corp. | 83,428 | ||||||
3,300 | Financial Products Group Co., Ltd. | 40,040 | ||||||
158,669 | First Pacific Co., Ltd. | 107,812 | ||||||
1,200 | Fuyo General Lease Co., Ltd. | 79,481 | ||||||
1,236,000 | G-Resources Group, Ltd.* | 15,363 | ||||||
1,800 | Ibj Leasing Co., Ltd. | 45,890 | ||||||
6,500 | Japan Securities Finance Co., Ltd. | 36,884 | ||||||
23,000 | Mitsubishi UFJ Lease & Finance Co., Ltd. | 137,035 | ||||||
772 | Onex Corp. | 56,628 | ||||||
17,600 | ORIX Corp. | 297,626 | ||||||
1,100 | Ricoh Leasing Co., Ltd. | 38,048 | ||||||
1,000 | Zenkoku Hosho Co., Ltd. | 43,081 | ||||||
|
| |||||||
1,729,400 | ||||||||
|
| |||||||
Diversified Telecommunication Services (2.2%): | ||||||||
26,000 | APT Satellite Holdings, Ltd. | 11,351 | ||||||
974 | BCE, Inc. | 46,762 | ||||||
644 | BCE, Inc. | 30,939 | ||||||
5,067 | Belgacom SA | 166,291 | ||||||
20,307 | Bezeq Israeli Telecommunication Corp., Ltd. (The) | 30,740 | ||||||
29,763 | BT Group plc | 108,955 | ||||||
5,828 | Cellnex Telecom SAU(a) | 149,147 | ||||||
18,127 | Chorus, Ltd. | 53,905 | ||||||
94,000 | CITIC Telecom International Holdings, Ltd. | 24,846 |
Continued
11
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Diversified Telecommunication Services, continued | ||||||||
7,863 | Com Hem Holding AB | $ | 120,224 | |||||
67,539 | Deutsche Telekom AG, Registered Shares | 1,197,632 | ||||||
643 | El Towers SpA | 41,239 | ||||||
4,973 | Elisa OYJ | 194,933 | ||||||
40,490 | France Telecom SA | 702,532 | ||||||
34,000 | Hkbn, Ltd. | 42,996 | ||||||
61,295 | HKT Trust & HKT, Ltd. | 78,168 | ||||||
88,000 | Hutchison Telecommunications Holdings, Ltd. | 35,311 | ||||||
271 | Iliad SA | 64,933 | ||||||
16,506 | Inmarsat plc | 109,351 | ||||||
62,383 | KCOM Group plc | 76,462 | ||||||
53,529 | Koninklijke (Royal) KPN NV | 186,725 | ||||||
3,000 | Nippon Telegraph & Telephone Corp. | 141,186 | ||||||
275,553 | PCCW, Ltd. | 160,018 | ||||||
37,800 | Singapore Telecommunications, Ltd. | 100,920 | ||||||
2,262 | Sunrise Communications Group(a) | 206,615 | ||||||
6,021 | Superloop, Ltd. | 11,378 | ||||||
230 | Swisscom AG, Registered Shares | 122,289 | ||||||
29,050 | Talktalk Telecom Group plc | 59,923 | ||||||
50,356 | TDC A/S | 309,485 | ||||||
34,736 | Telecom Corp. of New Zealand, Ltd. | 89,313 | ||||||
337,063 | Telecom Italia SpA* | 290,939 | ||||||
38,812 | Telefonica SA | 377,852 | ||||||
4,768 | Telekom Austria AG | 44,194 | ||||||
5,872 | Telenor ASA | 125,824 | ||||||
43,030 | Telia Co AB | 191,606 | ||||||
24,040 | Telstra Corp., Ltd. | 68,039 | ||||||
6,023 | TPG Telecom, Ltd. | 30,857 | ||||||
8,402 | Vocus Communications, Ltd. | 19,831 | ||||||
|
| |||||||
5,823,711 | ||||||||
|
| |||||||
Electric Utilities (1.1%): | ||||||||
2,033 | Acciona SA | 165,900 | ||||||
53,654 | AusNet Services | 75,643 | ||||||
4,700 | Chubu Electric Power Co., Inc. | 58,380 | ||||||
2,800 | Chugoku Electric Power Co., Inc. (The) | 30,061 | ||||||
8,064 | CLP Holdings, Ltd. | 82,524 | ||||||
5,549 | Contact Energy, Ltd. | 21,843 | ||||||
18,599 | Electricite de France | 231,991 | ||||||
4,746 | Endesa SA^ | 101,516 | ||||||
40,556 | Enel SpA | 249,252 | ||||||
956 | EVN AG | 19,148 | ||||||
7,466 | Fortum OYJ | 147,774 | ||||||
18,530 | Genesis Energy, Ltd. | 33,077 | ||||||
53,000 | HK Electric Investments, Ltd.(a) | 48,503 | ||||||
7,700 | Hokkaido Electric Power Co., Inc. | 50,743 | ||||||
5,600 | Hokuriku Electric Power Co. | 45,119 | ||||||
48,329 | Iberdrola SA | 373,955 | ||||||
8,200 | Kansai Electric Power Co., Inc. (The) | 100,370 | ||||||
3,800 | Kyushu Electric Power Co., Inc. | 39,810 | ||||||
1,655 | Oesterreichische Elektrizitaetswirtschafts AG, Class A | 39,823 | ||||||
1,540 | Okinawa Electric Power Co., Inc. | 40,046 | ||||||
4,360 | Red Electrica Corporacion SA | 97,753 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electric Utilities, continued | ||||||||
5 | Romande Energie Holding SA, Registered Shares | $ | 6,056 | |||||
15,431 | Scottish & Southern Energy plc | 274,846 | ||||||
3,300 | Shikoku Electric Power Co., Inc. | 35,931 | ||||||
13,794 | Terna SpA | 80,090 | ||||||
5,600 | Tohoku Electric Power Co., Inc. | 71,641 | ||||||
17,100 | Tokyo Electric Power Co., Inc. (The)* | 67,711 | ||||||
|
| |||||||
2,589,506 | ||||||||
|
| |||||||
Electrical Equipment (1.3%): | ||||||||
25,335 | ABB, Ltd. | 677,693 | ||||||
600 | Chiyoda Integre Co., Ltd. | 14,575 | ||||||
6,000 | Daihen Corp. | 56,900 | ||||||
500 | Denyo Co., Ltd. | 8,909 | ||||||
18,000 | Fuji Electric Holdings Co., Ltd. | 135,416 | ||||||
4,000 | Furukawa Electric Co., Ltd. (The) | 197,147 | ||||||
1,200 | Futaba Corp. | 25,117 | ||||||
26,000 | GS Yuasa Corp. | 129,521 | ||||||
474 | Huber & Suhner AG | 24,736 | ||||||
29,500 | Johnson Electric Holdings, Ltd. | 123,649 | ||||||
2,829 | Legrand SA | 217,472 | ||||||
29,696 | Melrose Industries plc | 84,636 | ||||||
394 | Mersen | 17,606 | ||||||
13,000 | Mitsubishi Electric Corp. | 216,034 | ||||||
1,976 | Nexans SA | 120,931 | ||||||
1,000 | Nidec Corp. | 140,392 | ||||||
2,700 | Nissin Electric Co., Ltd. | 31,425 | ||||||
2,100 | Nitto Kogyo Corp. | 33,697 | ||||||
1,460 | Nordex Se* | 15,538 | ||||||
2,625 | OSRAM Licht AG | 234,996 | ||||||
6,311 | PNE Wind AG | 21,716 | ||||||
7,024 | Prysmian SpA | 229,085 | ||||||
734 | Schneider Electric SA | 62,244 | ||||||
190 | Somfy SA | 18,755 | ||||||
1,100 | Takaoka Toko Co., Ltd. | 17,970 | ||||||
2,958 | TKH Group NV | 187,690 | ||||||
4,400 | Ushio, Inc. | 62,936 | ||||||
3,491 | Vestas Wind Systems A/S | 239,342 | ||||||
170 | XP Power, Ltd. | 7,868 | ||||||
|
| |||||||
3,353,996 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (1.8%): | ||||||||
1,300 | Ai Holdings Corp. | 31,441 | ||||||
3,100 | ALPS Electric Co., Ltd. | 88,232 | ||||||
306 | Also Holding AG, Registered Shares | 42,078 | ||||||
2,700 | Amano Corp. | 70,637 | ||||||
1,200 | Arisawa Manufacturing Co., Ltd. | 13,102 | ||||||
200 | Avigilon Corp.* | 3,356 | ||||||
1,800 | Azbil Corp. | 77,736 | ||||||
225 | Barco NV | 24,072 | ||||||
900 | Canon Electronics, Inc. | 19,682 | ||||||
6,205 | Celestica, Inc.* | 65,072 | ||||||
9,400 | Citizen Holdings Co., Ltd. | 68,605 | ||||||
46,000 | Cowell e Holdings, Inc. | 15,495 | ||||||
400 | Daiwabo Holdings Co., Ltd. | 16,462 |
Continued
12
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electronic Equipment, Instruments & Components, continued | ||||||||
3,500 | Dexerials Corp. | $ | 45,069 | |||||
28,281 | Electrocomponents plc | 238,832 | ||||||
148,000 | FIH Mobile, Ltd. | 45,083 | ||||||
7,452 | Fingerprint Cards AB | 14,373 | ||||||
1,900 | Furuno Electric Co., Ltd. | 14,121 | ||||||
466,000 | Gcl New Energy Holdings, Ltd.* | 32,791 | ||||||
500 | Hagiwara Electric Co., Ltd. | 16,006 | ||||||
500 | Hakuto Co., Ltd. | 8,609 | ||||||
19,182 | Halma plc | 325,470 | ||||||
1,000 | Hamamatsu Photonics K.K. | 33,505 | ||||||
2,143 | Hexagon AB, Class B | 107,216 | ||||||
800 | Hitachi High-Technologies Corp. | 33,743 | ||||||
99,000 | Hitachi, Ltd. | 770,232 | ||||||
1,200 | Horiba, Ltd. | 72,148 | ||||||
4,900 | IBIDEN Co., Ltd. | 73,404 | ||||||
91 | Inficon Holding AG | 56,810 | ||||||
960 | Ingenico Group | 102,427 | ||||||
1,400 | Iriso Electronics Co., Ltd. | 83,539 | ||||||
4,000 | Japan Aviation Electronics Industry, Ltd. | 67,733 | ||||||
21,200 | Japan Display, Inc.*^ | 42,915 | ||||||
200 | Keyence Corp. | 111,688 | ||||||
2,388 | Kudelski SA | 29,462 | ||||||
4,000 | Kyosan Electric Manufacturing Co., Ltd. | 25,878 | ||||||
684 | Lagercrantz Group AB, Class B^ | 6,755 | ||||||
16,021 | Laird plc | 29,690 | ||||||
26 | Lem Holding SA, Registered Shares | 44,086 | ||||||
2,366 | Micronic Mydata AB | 24,488 | ||||||
900 | Murata Manufacturing Co., Ltd. | 120,305 | ||||||
600 | Nippon Chemi-Con Corp. | 18,601 | ||||||
2,000 | Nippon Electric Glass Co., Ltd. | 76,361 | ||||||
3,400 | Nippon Signal Co., Ltd. | 36,035 | ||||||
2,600 | Omron Corp. | 154,882 | ||||||
13,505 | Opus Group AB | 10,699 | ||||||
3,000 | Osaki Electric Co., Ltd. | 21,666 | ||||||
2,587 | Oxford Instruments plc | 29,698 | ||||||
2,859 | Renishaw plc | 200,733 | ||||||
1,200 | Ryoden Corp. | 19,399 | ||||||
600 | Ryoyo Electro Corp. | 10,994 | ||||||
900 | Sanshin Electronics Co., Ltd. | 15,346 | ||||||
1,800 | Shimadzu Corp. | 40,877 | ||||||
600 | Shinko Shoji Co., Ltd. | 11,286 | ||||||
1,000 | Siix Corp. | 42,924 | ||||||
6,443 | Spectris plc | 215,350 | ||||||
700 | Tachibana Eletech Co., Ltd. | 12,608 | ||||||
8,200 | Taiyo Yuden Co., Ltd. | 127,866 | ||||||
4,100 | TDK Corp. | 327,309 | ||||||
3,900 | Topcon Corp. | 84,264 | ||||||
1,300 | Toyo Corp. | 11,414 | ||||||
1,400 | UKC Holdings Corp. | 30,863 | ||||||
200 | V Technology Co., Ltd. | 32,264 | ||||||
156 | Vaisala OYJ, Class A | 8,305 | ||||||
8,400 | Venture Corp., Ltd. | 128,394 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electronic Equipment, Instruments & Components, continued | ||||||||
28,000 | Vstecs Holdings, Ltd. | $ | 17,272 | |||||
4,000 | Yaskawa Electric Corp. | 174,807 | ||||||
2,200 | Yokogawa Electric Corp. | 42,062 | ||||||
|
| |||||||
5,014,627 | ||||||||
|
| |||||||
Energy Equipment & Services (0.6%): | ||||||||
7,314 | Aker Solutions ASA* | 14,605 | ||||||
5,393 | Aker Solutions ASA* | 30,293 | ||||||
61 | Bonheur ASA | 667 | ||||||
2,991 | BW Offshore, Ltd.* | 13,016 | ||||||
5,101 | Calfrac Well Services, Ltd.* | 24,271 | ||||||
4,426 | Enerflex, Ltd. | 54,022 | ||||||
8,606 | Ensign Energy Services, Inc. | 44,304 | ||||||
106,730 | Ezion Holdings, Ltd.*(b)(c) | 235 | ||||||
2,172 | Fugro NV* | 33,812 | ||||||
4,984 | Hunting plc* | 40,627 | ||||||
23,981 | John Wood Group plc | 209,564 | ||||||
12,946 | Kvaerner ASA* | 24,860 | ||||||
4,296 | Mullen Group, Ltd. | 53,803 | ||||||
3,324 | Ocean Yield ASA^ | 28,085 | ||||||
3,553 | Odfjell Drilling, Ltd.* | 15,795 | ||||||
4,450 | Petrofac, Ltd. | 30,622 | ||||||
18,993 | Petroleum Geo-Services ASA* | 38,674 | ||||||
16,362 | Precision Drilling Corp.* | 49,602 | ||||||
398 | ProSafe SE* | 579 | ||||||
26,123 | Saipem SpA* | 119,241 | ||||||
8,047 | SBM Offshore NV | 141,583 | ||||||
6,177 | Secure Energy Services, Inc. | 43,054 | ||||||
2,400 | Shinko Plantech Co., Ltd. | 25,448 | ||||||
11,430 | Subsea 7 SA | 171,308 | ||||||
1,492 | Tecnicas Reunidas SA | 47,301 | ||||||
5,547 | TGS NOPEC Geophysical Co. ASA | 131,256 | ||||||
900 | Total Energy Services, Inc. | 10,641 | ||||||
13,311 | Trican Well Service, Inc.* | 43,212 | ||||||
18,254 | Trinidad Drilling, Ltd.* | 24,691 | ||||||
16,455 | Vallourec SA* | 99,360 | ||||||
4,085 | WorleyParsons, Ltd.* | 45,632 | ||||||
|
| |||||||
1,610,163 | ||||||||
|
| |||||||
Food & Staples Retailing (2.5%): | ||||||||
24,500 | Aeon Co., Ltd. | 413,813 | ||||||
500 | Ain Holdings, Inc. | 29,863 | ||||||
2,144 | Alimentation Couche-Tard, Inc. | 111,891 | ||||||
1,309 | Amsterdam Commodities NV | 37,852 | ||||||
2,800 | Arcs Co., Ltd. | 65,157 | ||||||
1,200 | Axial Retailing, Inc. | 45,041 | ||||||
900 | Belc Co., Ltd. | 54,035 | ||||||
97,527 | Booker Group plc | 300,206 | ||||||
20,827 | Carrefour SA | 450,668 | ||||||
1,795 | Casino Guichard-Perrachon SA | 108,697 | ||||||
1,100 | Cawachi, Ltd. | 27,141 | ||||||
1,000 | Cocokara Fine, Inc. | 64,401 | ||||||
4,130 | Colruyt SA | 214,807 | ||||||
300 | Cosmos Pharmaceutical Corp. | 62,663 |
Continued
13
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Food & Staples Retailing, continued | ||||||||
1,300 | Create SD Holdings Co., Ltd. | $ | 34,916 | |||||
24,356 | Distribuidora Internacional de Alimentacion SA | 125,555 | ||||||
2,480 | Empire Co., Ltd., Class A | 48,325 | ||||||
1,100 | FamilyMart Co., Ltd. | 77,044 | ||||||
8,283 | Greggs plc | 155,685 | ||||||
1,600 | Heiwado Co., Ltd. | 33,214 | ||||||
1,831 | ICA Gruppen AB | 66,465 | ||||||
200 | Itochu-Shokuhin Co., Ltd. | 11,009 | ||||||
44,069 | J Sainsbury plc | 143,441 | ||||||
819 | Jean Coutu Group, Inc., Class A | 15,913 | ||||||
1,366 | Kesko OYJ, Class A | 72,277 | ||||||
3,117 | Kesko OYJ, Class B | 169,202 | ||||||
28,566 | Koninklijke Ahold Delhaize NV | 626,885 | ||||||
400 | LAWSON, Inc. | 26,571 | ||||||
1,111 | Loblaw Cos., Ltd. | 60,306 | ||||||
1,430 | Marr SpA | 36,887 | ||||||
1,000 | Matsumotokiyoshi Holdings Co., Ltd. | 41,042 | ||||||
54,594 | Metcash, Ltd. | 132,557 | ||||||
5,170 | METRO AG* | 103,250 | ||||||
1,658 | Metro, Inc. | 53,099 | ||||||
700 | Ministop Co., Ltd. | 15,125 | ||||||
600 | Nihon Chouzai Co., Ltd. | 18,277 | ||||||
201 | North West Co., Inc. | 4,809 | ||||||
1,002 | Rallye SA | 17,812 | ||||||
600 | San-A Co., Ltd. | 29,009 | ||||||
4,300 | Seven & I Holdings Co., Ltd. | 178,622 | ||||||
1,668 | Sligro Food Group NV | 79,738 | ||||||
900 | Sogo Medical Co., Ltd. | 47,404 | ||||||
29,590 | Sonae SGPS SA | 39,890 | ||||||
500 | Sugi Holdings Co., Ltd. | 25,503 | ||||||
1,800 | Sundrug Co., Ltd. | 83,736 | ||||||
276,116 | Tesco plc | 779,581 | ||||||
800 | Tsuruha Holdings, Inc. | 108,486 | ||||||
3,100 | United Supermarkets Holdings | 31,441 | ||||||
2,200 | Valor Co., Ltd. | 51,319 | ||||||
1,000 | Welcia Holdings Co., Ltd. | 43,238 | ||||||
5,821 | Wesfarmers, Ltd. | 201,551 | ||||||
1,644 | Weston (George), Ltd. | 142,791 | ||||||
89,674 | William Morrison Supermarkets plc | 266,087 | ||||||
11,834 | Woolworths, Ltd. | 251,837 | ||||||
1,200 | Yaoko Co., Ltd. | 58,454 | ||||||
2,800 | Yokohama Reito Co., Ltd. | 28,980 | ||||||
|
| |||||||
6,523,568 | ||||||||
|
| |||||||
Food Products (3.0%): | ||||||||
823 | AAK AB | 70,502 | ||||||
725 | Agt Food and Ingredients, Inc. | 11,601 | ||||||
4,400 | Ajinomoto Co., Inc. | 82,927 | ||||||
4,397 | Aryzta AG | 174,439 | ||||||
1,675 | Associated British Foods plc | 63,665 | ||||||
5,111 | Austevoll Seafood ASA | 42,496 | ||||||
23,247 | Australian Agricultural Co., Ltd.* | 23,586 | ||||||
1,362 | Bakkafrost P/F | 57,497 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Food Products, continued | ||||||||
77 | Barry Callebaut AG, Registered Shares | $ | 160,459 | |||||
81 | Bell AG | 35,783 | ||||||
3,394 | Bellamy’s Australia, Ltd.* | 27,670 | ||||||
567 | Bonduelle S.C.A. | 29,978 | ||||||
1,100 | Calbee, Inc. | 35,792 | ||||||
4,349 | Cloetta AB | 15,748 | ||||||
3,432 | Cranswick plc | 154,532 | ||||||
7,971 | Dairy Crest Group plc | 62,072 | ||||||
3,542 | Danone SA | 296,915 | ||||||
10,087 | Devro plc | 31,164 | ||||||
500 | Dydo Drinco, Inc. | 26,391 | ||||||
111 | Emmi AG | 79,871 | ||||||
500 | Ezaki Glico Co., Ltd. | 24,932 | ||||||
16,300 | First Resources, Ltd. | 22,752 | ||||||
2,300 | Fuji Oil Co., Ltd. | 67,141 | ||||||
7,007 | Glanbia plc | 125,500 | ||||||
260,400 | Golden Agri-Resources, Ltd. | 72,007 | ||||||
8,318 | GrainCorp, Ltd. | 52,968 | ||||||
3,373 | Grieg Seafood ASA | 29,577 | ||||||
1,119 | Hilton Food Group plc | 12,999 | ||||||
1,600 | Hokuto Corp. | 29,118 | ||||||
1,000 | House Foods Group, Inc. | 33,171 | ||||||
1,200 | Kagome Co., Ltd. | 44,587 | ||||||
1,567 | Kerry Group plc, Class A | 175,715 | ||||||
1,100 | Kewpie Corp. | 29,345 | ||||||
1,000 | Kikkoman Corp. | 40,437 | ||||||
6,130 | Leroy Seafood Group ASA | 32,845 | ||||||
3,564 | Maple Leaf Foods, Inc. | 101,577 | ||||||
5,482 | Marine Harvest | 92,832 | ||||||
6,000 | Marudai Food Co., Ltd. | 26,933 | ||||||
2,600 | Maruha Nichiro Corp. | 78,225 | ||||||
900 | Megmilk Snow Brand Co., Ltd. | 26,608 | ||||||
1,600 | Meiji Holdings Co., Ltd. | 135,986 | ||||||
700 | Morinaga & Co., Ltd. | 35,483 | ||||||
3,000 | Morinaga Milk Industry Co., Ltd. | 135,824 | ||||||
30,347 | Nestle SA, Registered Shares | 2,608,453 | ||||||
5,400 | Nichirei Corp. | 149,141 | ||||||
800 | Nippon Beet Sugar Manufacturing Co., Ltd. | 19,361 | ||||||
1,500 | Nippon Flour Mills Co., Ltd. | 22,993 | ||||||
3,000 | Nippon Meat Packers, Inc. | 72,912 | ||||||
20,100 | Nippon Suisan Kaisha, Ltd. | 105,105 | ||||||
800 | Nisshin Oillio Group, Ltd. (The) | 24,251 | ||||||
326 | Orior AG | 25,818 | ||||||
2,710 | Orkla ASA, Class A | 28,738 | ||||||
11,559 | Parmalat SpA | 42,988 | ||||||
1,700 | Petra Foods, Ltd. | 1,805 | ||||||
51,099 | Premier Foods plc* | 29,606 | ||||||
988 | Premium Brands Holdings Corp. | 81,097 | ||||||
10,000 | Prima Meat Packers, Ltd. | 73,273 | ||||||
1,029 | Salmar ASA | 30,757 | ||||||
2,923 | Saputo, Inc. | 105,077 | ||||||
127 | Savencia SA | 12,301 |
Continued
14
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Food Products, continued | ||||||||
3,496 | Scales Corp., Ltd. | $ | 11,823 | |||||
3,767 | Scandi Standard AB | 29,146 | ||||||
608 | Schouw & Co. | 56,986 | ||||||
5,410 | Select Harvests, Ltd. | 19,889 | ||||||
1,200 | Showa Sangyo Co., Ltd. | 31,224 | ||||||
147 | Sipef SA | 11,076 | ||||||
300 | Starzen Co., Ltd. | 14,541 | ||||||
2,737 | Suedzucker AG | 59,215 | ||||||
4,061 | SunOpta, Inc.* | 31,278 | ||||||
9,961 | Tassal Group, Ltd. | 29,148 | ||||||
19,288 | Tate & Lyle plc | 182,936 | ||||||
800 | Toyo Suisan Kaisha, Ltd. | 34,120 | ||||||
432 | Vilmorin & CIE SA | 45,683 | ||||||
3,689 | Viscofan SA | 243,259 | ||||||
42,000 | Vitasoy International Holdings, Ltd. | 107,514 | ||||||
400 | Warabeya Nichiyo Holdings Co., Ltd. | 11,320 | ||||||
3,198 | Wessanen | 65,907 | ||||||
94,112 | WH Group, Ltd.(a) | 106,086 | ||||||
15,800 | Wilmar International, Ltd. | 36,436 | ||||||
200 | Yakult Honsha Co., Ltd. | 15,081 | ||||||
2,000 | Yamazaki Baking Co., Ltd. | 38,930 | ||||||
|
| |||||||
7,524,924 | ||||||||
|
| |||||||
Gas Utilities (0.3%): | ||||||||
11,879 | APA Group | 77,078 | ||||||
12,238 | Gas Natural SDG SA | 282,336 | ||||||
24,338 | Hong Kong & China Gas Co., Ltd. | 47,709 | ||||||
4,557 | Italgas SpA | 27,800 | ||||||
4,200 | Osaka Gas Co., Ltd. | 80,844 | ||||||
3,368 | Rubis SCA | 238,078 | ||||||
1,300 | Saibu Gas Co., Ltd. | 32,453 | ||||||
3,700 | Shizuoka Gas Co. Ltd. | 31,493 | ||||||
10,212 | Superior Plus Corp. | 96,448 | ||||||
2,000 | Toho Gas Co., Ltd. | 54,818 | ||||||
2,200 | Tokyo Gas Co., Ltd. | 50,247 | ||||||
898 | Valener, Inc. | 16,227 | ||||||
|
| |||||||
1,035,531 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (1.2%): | ||||||||
750 | Ambu A/S | 67,207 | ||||||
5,613 | Arjo AB, Class B* | 16,024 | ||||||
2,800 | Asahi Intecc Co., Ltd. | 96,083 | ||||||
1,072 | Cochlear, Ltd. | 143,086 | ||||||
1,014 | Coloplast A/S, Class B | 80,422 | ||||||
1,992 | Consort Medical plc | 31,374 | ||||||
1,218 | DiaSorin SpA | 108,066 | ||||||
509 | Draegerwerk AG & Co. KGaA | 44,131 | ||||||
1,745 | Essilor International SA Compagnie Generale d’Optique | 240,598 | ||||||
11,567 | Fisher & Paykel Healthcare Corp., Ltd. | 117,264 | ||||||
5,613 | Getinge AB, Class B | 81,132 | ||||||
7,376 | GN Store Nord A/S | 238,348 | ||||||
405 | Guerbet | 38,517 | ||||||
2,000 | HOYA Corp. | 99,949 | ||||||
900 | Nakanishi, Inc. | 46,946 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Equipment & Supplies, continued | ||||||||
1,500 | Nihon Kohden Corp. | $ | 34,823 | |||||
1,600 | Nikkiso Co., Ltd. | 17,490 | ||||||
8,900 | Nipro Corp. | 131,709 | ||||||
1,300 | Olympus Co., Ltd. | 49,781 | ||||||
900 | Paramount Bed Holdings Co., Ltd. | 44,541 | ||||||
1,192 | Sartorius AG | 113,739 | ||||||
876 | Sartorius Stedim Biotech | 63,360 | ||||||
10,538 | Smith & Nephew plc | 182,308 | ||||||
1,344 | Sonova Holding AG, Registered Shares | 209,894 | ||||||
268 | Straumann Holding AG, Registered Shares | 189,213 | ||||||
1,700 | Sysmex Corp. | 133,880 | ||||||
2,400 | Terumo Corp. | 113,417 | ||||||
5,988 | William Demant Holding A/S* | 166,725 | ||||||
|
| |||||||
2,900,027 | ||||||||
|
| |||||||
Health Care Providers & Services (0.6%): | ||||||||
4,943 | Al Noor Hospitals Group plc | 43,147 | ||||||
3,417 | Amplifon SpA | 52,567 | ||||||
18,377 | Australian Pharmaceutical Industries, Ltd. | 24,097 | ||||||
1,100 | Bml, Inc. | 27,389 | ||||||
3,973 | Cambian Group plc | 10,518 | ||||||
4,556 | Ebos Group, Ltd. | 59,858 | ||||||
4,012 | Extendicare, Inc. | 29,209 | ||||||
699 | Fresenius Medical Care AG & Co., KGaA | 73,612 | ||||||
2,812 | Fresenius SE & Co. KGaA | 218,916 | ||||||
23,959 | Healthscope, Ltd. | 39,198 | ||||||
2,000 | Japan Lifeline Co., Ltd. | 41,795 | ||||||
16,930 | Japara Healthcare, Ltd. | 25,869 | ||||||
2,680 | Korian-Medica | 94,657 | ||||||
1,284 | Lifco AB-B Shs | 44,512 | ||||||
1,404 | Medical Facilities Corp. | 15,897 | ||||||
7,584 | Metlifecare, Ltd. | 32,761 | ||||||
1,900 | Miraca Holdings, Inc. | 81,391 | ||||||
1,323 | Orpea | 156,001 | ||||||
21,796 | Primary Health Care, Ltd. | 61,385 | ||||||
24,900 | Raffles Medical Group, Ltd. | 20,854 | ||||||
1,233 | Ramsay Health Care, Ltd. | 67,335 | ||||||
1,095 | Ryman Healthcare, Ltd. | 8,210 | ||||||
2,200 | Ship Healthcare Holdings, Inc. | 72,960 | ||||||
2,371 | Sienna Senior Living, Inc. | 34,372 | ||||||
1,446 | Sigma Healthcare, Ltd. | 1,116 | ||||||
3,860 | Sonic Healthcare, Ltd. | 68,718 | ||||||
8,887 | Spire Healthcare Group plc(a) | 30,096 | ||||||
10,895 | Summerset Group Holdings, Ltd. | 42,470 | ||||||
900 | Suzuken Co., Ltd. | 37,037 | ||||||
1,800 | Toho Holdings Co., Ltd. | 40,720 | ||||||
4,628 | UDG Healthcare plc | 52,655 | ||||||
3,435 | Virtus Health, Ltd. | 14,073 | ||||||
2,800 | Vital Ksk Holdings, Inc. | 25,590 | ||||||
|
| |||||||
1,648,985 | ||||||||
|
| |||||||
Health Care Technology (0.0%): | ||||||||
14,160 | AGFA-Gevaert NV* | 66,026 | ||||||
857 | Compugroup Medical Se | 56,107 |
Continued
15
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Technology, continued | ||||||||
2,100 | M3, Inc. | $ | 73,528 | |||||
1,213 | Raysearch Laboratories AB*^ | 25,292 | ||||||
|
| |||||||
220,953 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure (2.0%): | ||||||||
8,373 | Ardent Leisure Group | 13,080 | ||||||
8,600 | Aristocrat Leisure, Ltd. | 158,446 | ||||||
4,300 | Atom Corp. | 35,718 | ||||||
7,557 | Autogrill SpA | 104,141 | ||||||
1,448 | Betsson AB* | 10,684 | ||||||
14,000 | Cafe de Coral Holdings, Ltd. | 38,439 | ||||||
1,226 | Carnival plc, ADR | 81,259 | ||||||
485 | Cie des Alpes | 18,979 | ||||||
9,479 | Collins Foods, Ltd. | 40,254 | ||||||
2,000 | Colowide Co., Ltd. | 40,419 | ||||||
8,814 | Compass Group plc | 190,548 | ||||||
2,118 | Corporate Travel Management, Ltd. | 34,405 | ||||||
1,951 | Domino’s Pizza Enterprises, Ltd. | 71,055 | ||||||
23,341 | Domino’s Pizza Group plc | 108,859 | ||||||
1,600 | Doutor Nichires Holdings Co., Ltd. | 39,498 | ||||||
6,151 | Elior Group(a) | 126,876 | ||||||
20,405 | Enterprise Inns plc* | 38,910 | ||||||
1,133 | Flight Centre, Ltd. | 39,066 | ||||||
557 | Fuller Smith & Turner plc, Class A | 6,896 | ||||||
25,010 | Galaxy Entertainment Group, Ltd. | 199,996 | ||||||
2,773 | Great Canadian Gaming Corp.* | 74,554 | ||||||
8,500 | Greene King plc | 63,656 | ||||||
2,400 | HIS Co., Ltd. | 86,924 | ||||||
18,000 | Hongkong & Shanghai Hotels (The) | 26,677 | ||||||
11,300 | Hotel Grand Central, Ltd. | 12,095 | ||||||
1,726 | Intercontinental Hotels Group plc, ADR | 109,618 | ||||||
9,004 | JD Wetherspoon plc | 152,907 | ||||||
2,000 | Kyoritsu Maintenance Co., Ltd. | 80,808 | ||||||
23,554 | Ladbrokes plc | 57,600 | ||||||
11,110 | Mantra Group, Ltd. | 33,805 | ||||||
31,973 | Marston’s plc | 48,559 | ||||||
200 | Matsuya Foods Co., Ltd. | 7,410 | ||||||
22,000 | Melco International Development Ltd. | 64,532 | ||||||
2,209 | Melia Hotels International SA | 30,437 | ||||||
25,795 | Merlin Entertainments plc(a) | 126,072 | ||||||
15,327 | MGM China Holdings, Ltd. | 46,364 | ||||||
6,833 | Millennium & Copthorne Hotels | 53,853 | ||||||
14,000 | Miramar Hotel & Investment | 27,938 | ||||||
10,745 | Mitchells & Butlers plc | 40,859 | ||||||
902 | Mty Food Group, Inc. | 40,263 | ||||||
122,000 | NagaCorp, Ltd. | 94,220 | ||||||
10,509 | NH Hotel Group SA | 75,546 | ||||||
900 | Oriental Land Co., Ltd. | 82,060 | ||||||
17,900 | Oue, Ltd. | 25,034 | ||||||
1,016 | Paddy Power Betfair plc | 120,991 | ||||||
1,718 | Paddy Power plc | 203,789 | ||||||
2,047 | Pandox AB | 39,558 | ||||||
900 | Pizza Pizza Royalty Corp. | 11,601 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Hotels, Restaurants & Leisure, continued | ||||||||
12,439 | Rank Group plc | $ | 40,386 | |||||
28,000 | Regal Hotels International Holdings, Ltd. | 22,041 | ||||||
3,000 | Resorttrust, Inc. | 68,215 | ||||||
1,092 | Restaurant Brands International, Inc. | 67,138 | ||||||
4,600 | Round One Corp. | 77,120 | ||||||
1,300 | Royal Holdings Co., Ltd. | 35,811 | ||||||
1,200 | Saint Marc Holdings Co., Ltd. | 33,113 | ||||||
1,300 | Saizeriya Co., Ltd. | 43,512 | ||||||
16,988 | Sands China, Ltd. | 87,438 | ||||||
16,000 | Shangri-La Asia, Ltd. | 36,170 | ||||||
115,868 | SJM Holdings, Ltd. | 103,510 | ||||||
705 | Skistar AB | 13,566 | ||||||
28,970 | Sky City Entertainment Group, Ltd. | 85,036 | ||||||
2,200 | Skylark Co., Ltd. | 31,270 | ||||||
1,092 | Sodexo SA | 146,601 | ||||||
36,825 | Ssp Group plc | 338,309 | ||||||
21,115 | Star Entertainment Group, Ltd. (The) | 99,812 | ||||||
1,200 | Stars Group, Inc. (The)* | 27,928 | ||||||
50,634 | Thomas Cook Group plc | 84,003 | ||||||
4,500 | Tokyo Dome Corp. | 45,462 | ||||||
1,100 | Toridoll Holding Corp. | 40,992 | ||||||
8,666 | TUI AG | 179,399 | ||||||
6,856 | Unibet Group plc | 98,105 | ||||||
2,777 | Whitbread plc | 149,945 | ||||||
24,720 | William Hill plc | 107,282 | ||||||
16,830 | Wynn Macau, Ltd. | 53,027 | ||||||
5,600 | Zensho Holdings Co., Ltd. | 96,308 | ||||||
|
| |||||||
5,446,757 | ||||||||
|
| |||||||
Household Durables (2.3%): | ||||||||
2,000 | Alpine Electronics, Inc. | 41,434 | ||||||
15,013 | Barratt Developments plc | 131,174 | ||||||
6,709 | Bellway plc | 322,567 | ||||||
5,073 | Berkeley Group Holdings plc (The) | 287,209 | ||||||
5,170 | Bonava AB | 72,178 | ||||||
7,067 | Bovis Homes Group plc | 111,237 | ||||||
3,865 | Breville Group, Ltd. | 37,968 | ||||||
3,700 | Casio Computer Co., Ltd. | 53,251 | ||||||
600 | Chofu Seisakusho Co., Ltd. | 13,843 | ||||||
9,906 | Crest Nicholson Holdings plc | 72,524 | ||||||
2,921 | De’Longhi | 88,619 | ||||||
1,000 | Dorel Industries, Inc. | 24,745 | ||||||
2,152 | Duni AB | 31,822 | ||||||
266 | Ekornes ASA | 3,840 | ||||||
3,583 | Electrolux AB, Series B | 115,279 | ||||||
2,053 | Fiskars OYJ Abp | 59,003 | ||||||
63 | Forbo Holding AG | 97,096 | ||||||
1,600 | Foster Electric Co., Ltd. | 39,646 | ||||||
1,600 | Fuji Corp., Ltd. | 12,433 | ||||||
1,000 | Fujitsu General, Ltd. | 21,903 | ||||||
15,500 | Haseko Corp. | 239,937 | ||||||
187 | Hunter Douglas NV | 16,182 | ||||||
15,466 | Husqvarna AB, Class B | 147,113 |
Continued
16
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Household Durables, continued | ||||||||
4,300 | Iida Group Holdings Co., Ltd. | $ | 81,033 | |||||
5,228 | JM AB | 118,983 | ||||||
62,400 | Man Wah Holdings, Ltd. | 59,092 | ||||||
4,714 | McCarthy & Stone plc(a) | 10,044 | ||||||
10 | Metall Zug AG | 37,935 | ||||||
1,200 | Misawa Homes Co., Ltd. | 10,562 | ||||||
1,500 | Nikon Corp. | 30,185 | ||||||
2,500 | Nissei Build Kogyo Co., Ltd. | 32,723 | ||||||
9,589 | Nobia AB | 81,038 | ||||||
17,300 | Panasonic Corp. | 253,383 | ||||||
14,040 | Persimmon plc | 518,379 | ||||||
31,200 | Pioneer Corp.* | 63,203 | ||||||
1,400 | Pressance Corp. | 18,682 | ||||||
15,445 | Redrow plc | 136,792 | ||||||
500 | Rinnai Corp. | 45,276 | ||||||
1,000 | Sangetsu Corp. | 18,439 | ||||||
1,136 | SEB SA | 210,451 | ||||||
13,000 | Sekisui Chemical Co., Ltd. | 260,711 | ||||||
9,100 | Sekisui House, Ltd. | 164,233 | ||||||
9,500 | Sony Corp. | 426,786 | ||||||
2,200 | Starts Corp., Inc. | 57,543 | ||||||
6,900 | Sumitomo Forestry Co., Ltd. | 123,516 | ||||||
328 | Surteco SE | 10,577 | ||||||
137,884 | Taylor Wimpey plc | 384,029 | ||||||
20,687 | Techtronic Industries Co., Ltd. | 134,839 | ||||||
400 | Token Corp. | 47,269 | ||||||
3,563 | Tomtom NV* | 35,264 | ||||||
2,000 | Zojirushi Corp. | 20,373 | ||||||
|
| |||||||
5,432,343 | ||||||||
|
| |||||||
Household Products (0.3%): | ||||||||
4,047 | Essity AB, Class B* | 114,650 | ||||||
4,000 | Lion Corp. | 75,523 | ||||||
14,255 | Mcbride plc* | 44,370 | ||||||
2,100 | Pigeon Corp. | 79,936 | ||||||
2,504 | Reckitt Benckiser Group plc | 233,852 | ||||||
7,429 | Svenska Cellulosa AB, Class B | 76,426 | ||||||
1,800 | Unicharm Corp. | 46,797 | ||||||
|
| |||||||
671,554 | ||||||||
|
| |||||||
Independent Power & Renewable Electricity Producers (0.1%): | ||||||||
1,967 | Albioma SA | 49,649 | ||||||
1,396 | Capital Power Corp. | 27,202 | ||||||
16,979 | Drax Group plc | 61,773 | ||||||
1,951 | Edp Renovaveis SA | 16,308 | ||||||
1,300 | Electric Power Development Co., Ltd. | 35,036 | ||||||
5,373 | ERG SpA | 99,257 | ||||||
54,874 | Infigen Energy* | 29,473 | ||||||
3,741 | Innergex Renewable Energy, Inc. | 42,863 | ||||||
4,661 | Northland Power, Inc. | 86,597 | ||||||
1,917 | Scatec Solar ASA(a) | 11,659 | ||||||
12,748 | Transalta Corp. | 75,567 | ||||||
2,170 | Uniper SE | 67,680 | ||||||
|
| |||||||
603,064 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Industrial Conglomerates (1.0%): | ||||||||
8,000 | Chevalier International Holdings Ltd. | $ | 13,280 | |||||
26,645 | Cir-Compagnie Industriali Riun | 37,211 | ||||||
34,430 | CK Hutchison Holdings, Ltd. | 432,283 | ||||||
1,493 | DCC plc | 150,409 | ||||||
2,000 | Guoco Group, Ltd. | 25,652 | ||||||
17,500 | Hopewell Holdings, Ltd. | 64,541 | ||||||
980 | Indus Holding AG | 69,694 | ||||||
1,500 | Katakura Industries Co., Ltd. | 20,481 | ||||||
2,200 | Keihan Electric Railway Co., Ltd. | 64,697 | ||||||
12,200 | Keppel Corp., Ltd. | 66,837 | ||||||
6,565 | Koninklijke Philips Electronics NV | 248,332 | ||||||
3,787 | Koninklijke Philips Electronics NV, NY Shares, NYS | 143,149 | ||||||
6,500 | Nisshinbo Holdings, Inc. | 87,998 | ||||||
1,487 | Nolato AB | 97,624 | ||||||
2,675 | Rheinmetall AG | 339,631 | ||||||
2,400 | Seibu Holdings, Inc. | 45,345 | ||||||
57,400 | SembCorp Industries, Ltd. | 129,822 | ||||||
70,000 | Shun Tak Holdings, Ltd. | 27,282 | ||||||
582 | Siemens AG, Registered Shares | 80,742 | ||||||
5,436 | Smiths Group plc | 108,727 | ||||||
5,400 | Tokai Holdings Corp. | 45,822 | ||||||
|
| |||||||
2,299,559 | ||||||||
|
| |||||||
Insurance (3.9%): | ||||||||
5,489 | Admiral Group plc | 147,994 | ||||||
17,504 | AEGON NV | 111,544 | ||||||
4,403 | Ageas NV | 214,911 | ||||||
67,040 | AIA Group, Ltd. | 571,757 | ||||||
4,109 | Alm Brand A/S | 53,618 | ||||||
25,977 | Assicurazioni Generali SpA | 472,890 | ||||||
30,356 | Aviva plc | 207,414 | ||||||
12,359 | AXA SA | 366,257 | ||||||
1,439 | Baloise Holding AG, Registered Shares | 224,014 | ||||||
28,048 | Beazley plc | 201,054 | ||||||
7,384 | Chesnara plc | 38,802 | ||||||
597 | Clal Insurance Enterprises Holdings, Ltd.* | 10,755 | ||||||
2,500 | CNP Assurances SA | 57,679 | ||||||
3,800 | Coface SA | 40,636 | ||||||
6,500 | Dai-ichi Life Insurance Co., Ltd. | 134,131 | ||||||
33,526 | Direct Line Insurance Group plc | 172,742 | ||||||
82 | E-L Financial Corp., Ltd. | 53,162 | ||||||
20,019 | Esure Group plc | 67,103 | ||||||
359 | Euler Hermes Group | 52,461 | ||||||
274 | Fairfax Financial Holdings, Ltd. | 145,925 | ||||||
268 | FBD Holdings plc* | 3,249 | ||||||
1,983 | Gjensidige Forsikring ASA | 37,411 | ||||||
614 | Grupo Catalana Occidente SA | 27,164 | ||||||
371 | Hannover Rueck SE | 46,546 | ||||||
5,987 | Harel Insurance Investments & | 43,907 | ||||||
197 | Helvetia Patria Holding AG | 110,769 | ||||||
8,998 | Hiscox, Ltd. | 177,319 | ||||||
4,321 | Industrial Alliance Insurance & Financial Services, Inc. | 205,667 | ||||||
6,623 | Jardine Lloyd Thompson Group plc | 124,291 |
Continued
17
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Insurance, continued | ||||||||
22,877 | JRP Group plc | $ | 52,141 | |||||
2,806 | Lancashire Holdings, Ltd. | 25,818 | ||||||
110,390 | Legal & General Group plc | 406,267 | ||||||
13,895 | Manulife Financial Corp. | 289,850 | ||||||
4,265 | Manulife Financial Corp. | 88,979 | ||||||
44,734 | MAPFRE SA | 143,399 | ||||||
26,388 | Medibank Private, Ltd. | 67,658 | ||||||
1,055 | Menora Mivtachim Holdings, Ltd. | 13,352 | ||||||
16,641 | Migdal Insurance & Financial Holding, Ltd. | 18,669 | ||||||
4,200 | MS&AD Insurance Group Holdings, Inc. | 142,231 | ||||||
1,095 | Muenchener Rueckversicherungs-Gesellschaft AG | 237,356 | ||||||
20,116 | NIB Holdings, Ltd. | 105,758 | ||||||
5,000 | NKSJ Holdings, Inc. | 192,795 | ||||||
4,684 | NN Group NV | 202,507 | ||||||
105,053 | Old Mutual plc | 328,482 | ||||||
14,781 | Phoenix Group Holdings | 155,395 | ||||||
4,472 | Phoenix Holdings, Ltd. (The)* | 24,505 | ||||||
2,827 | Protector Forsikring ASA | 30,998 | ||||||
14,958 | QBE Insurance Group, Ltd. | 124,456 | ||||||
11,287 | RSA Insurance Group plc | 96,161 | ||||||
56,602 | Saga plc | 96,337 | ||||||
4,869 | SCOR SA | 195,880 | ||||||
2,261 | Societa Cattolica di Assicuraz | 24,540 | ||||||
1,400 | Sony Financial Holdings, Inc. | 24,812 | ||||||
14,023 | St. James Place plc | 231,751 | ||||||
32,206 | Standard Life plc | 189,699 | ||||||
4,736 | Storebrand ASA | 38,510 | ||||||
8,920 | Sun Life Financial, Inc. | 368,040 | ||||||
12,362 | Suncorp-Metway, Ltd. | 133,302 | ||||||
461 | Swiss Life Holding AG, Registered Shares | 163,205 | ||||||
1,449 | Swiss Re AG | 135,671 | ||||||
4,600 | T&D Holdings, Inc. | 78,708 | ||||||
1,114 | Talanx AG | 45,435 | ||||||
6,400 | Tokio Marine Holdings, Inc. | 292,144 | ||||||
3,403 | Topdanmark A/S* | 146,793 | ||||||
23 | Trisura Group, Ltd.* | 471 | ||||||
5,039 | Tryg A/S | 125,643 | ||||||
16,849 | Unipol Gruppo Finanziario SpA | 78,904 | ||||||
34,458 | UnipolSai SpA | 80,345 | ||||||
5,815 | Uniqa Insurance Group AG | 61,510 | ||||||
1,816 | Vienna Insurance Group Weiner Staeditische Versicherung AG | 56,077 | ||||||
1,065 | Vittoria Assicurazioni SpA | 15,230 | ||||||
271 | Wuestenrot & Wuerttembergische AG | 7,592 | ||||||
1,274 | Zurich Insurance Group AG | 387,559 | ||||||
|
| |||||||
9,846,107 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (0.1%): | ||||||||
7,431 | N Brown Group plc | 27,147 | ||||||
13,793 | Ocado Group plc* | 73,707 | ||||||
3,500 | Rakuten, Inc. | 32,012 | ||||||
4,800 | Start Today Co., Ltd. | 145,993 | ||||||
3,151 | Takkt AG | 71,158 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Internet & Direct Marketing Retail, continued | ||||||||
19,250 | Trade Me Group, Ltd. | $ | 66,142 | |||||
3,525 | Webjet, Ltd. | 28,686 | ||||||
|
| |||||||
444,845 | ||||||||
|
| |||||||
Internet Software & Services (0.4%): | ||||||||
22,069 | Auto Trader Group plc(a) | 104,740 | ||||||
9,425 | Carsales.com, Ltd. | 106,239 | ||||||
2,900 | Cookpad, Inc. | 15,606 | ||||||
1,300 | DeNA Co., Ltd. | 26,812 | ||||||
1,200 | Dip Corp. | 31,028 | ||||||
4,572 | Domain Holdings Australia, Ltd.* | 12,233 | ||||||
3,000 | GMO Internet, Inc. | 50,804 | ||||||
1,200 | Gurunavi, Inc. | 14,234 | ||||||
4,400 | Infomart Corp. | 26,191 | ||||||
2,100 | Internet Initiative Japan, Inc. | 38,323 | ||||||
9,063 | Isentia Group, Ltd. | 9,749 | ||||||
3,100 | Kakaku.com, Inc. | 52,434 | ||||||
22,749 | Moneysupermarket.com Group plc | 109,256 | ||||||
8,615 | Netent AB* | 59,354 | ||||||
3,213 | Rightmove plc | 195,105 | ||||||
1,200 | Sms Co., Ltd. | 37,824 | ||||||
2,596 | United Internet AG, Registered Shares | 178,538 | ||||||
135 | Xing AG | 43,335 | ||||||
8,400 | Yahoo! Japan Corp. | 38,526 | ||||||
6,786 | Zoopla Property Group plc(a) | 30,266 | ||||||
|
| |||||||
1,180,597 | ||||||||
|
| |||||||
IT Services (1.2%): | ||||||||
3,129 | Acando AB | 10,629 | ||||||
1,594 | Alten SA | 132,998 | ||||||
6,137 | Altran Technologies SA | 102,026 | ||||||
5,280 | Amadeus IT Holding SA | 379,991 | ||||||
6,183 | Atea ASA | 86,998 | ||||||
3,113 | Atos Origin SA | 453,075 | ||||||
544 | Cancom Se | 45,204 | ||||||
1,519 | Capgemini SA | 179,740 | ||||||
1,045 | CGI Group, Inc., Class A* | 56,775 | ||||||
3,428 | Computacenter plc | 53,129 | ||||||
10,943 | Computershare, Ltd. | 139,055 | ||||||
1,400 | DTS Corp. | 45,377 | ||||||
8,624 | Econocom Group SA/NV | 61,549 | ||||||
3,891 | Fdm Group Holdings plc | 49,048 | ||||||
457 | Formula Systems 1985, Ltd. | 18,908 | ||||||
32,000 | Fujitsu, Ltd. | 226,848 | ||||||
600 | Gmo Payment Gateway, Inc. | 49,495 | ||||||
2,064 | Indra Sistemas SA* | 28,191 | ||||||
4,300 | IT Holdings Corp. | 150,256 | ||||||
1,900 | Itochu Techno-Solutions Corp. | 82,364 | ||||||
697 | Knowit AB | 13,196 | ||||||
3,900 | Nihon Unisys, Ltd. | 80,696 | ||||||
352 | Nomura Research Institute, Ltd. | 16,353 | ||||||
1,700 | NS Solutions Corp. | 46,346 | ||||||
5,500 | NTT Data Corp. | 65,283 | ||||||
600 | OBIC Co., Ltd. | 44,112 |
Continued
18
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
IT Services, continued | ||||||||
11,226 | Ordina NV | $ | 20,958 | |||||
700 | Otsuka Corp. | 53,629 | ||||||
832 | Reply SpA | 46,086 | ||||||
1,500 | SCSK Corp. | 69,009 | ||||||
900 | Sopra Steria Group | 168,026 | ||||||
4,001 | Tieto OYJ | 124,575 | ||||||
1,237 | Worldline SA*(a) | 60,013 | ||||||
|
| |||||||
3,159,938 | ||||||||
|
| |||||||
Leisure Products (0.2%): | ||||||||
1,126 | Accell Group | 31,660 | ||||||
7,303 | Amer Sports OYJ | 202,273 | ||||||
1,506 | Brp, Inc. | 55,732 | ||||||
2,400 | Heiwa Corp. | 45,054 | ||||||
600 | Mizuno Corp. | 17,658 | ||||||
3,300 | Namco Bandai Holdings, Inc. | 107,966 | ||||||
26,132 | Photo-Me International plc | 64,932 | ||||||
5,700 | Sega Sammy Holdings, Inc. | 70,635 | ||||||
200 | Shimano, Inc. | 28,144 | ||||||
3,689 | Thule Group AB (The)(a) | 82,957 | ||||||
2,800 | Tomy Co., Ltd. | 38,024 | ||||||
385 | Trigano SA | 68,020 | ||||||
|
| |||||||
813,055 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.2%): | ||||||||
823 | AddLife AB | 17,108 | ||||||
2,200 | Eps Holdings, Inc. | 49,688 | ||||||
188 | Eurofins Scientific SE | 114,455 | ||||||
1,884 | Gerresheimer AG | 155,715 | ||||||
832 | Lonza Group AG, Registered Shares | 224,809 | ||||||
132 | Siegfried Holding AG | 43,896 | ||||||
|
| |||||||
605,671 | ||||||||
|
| |||||||
Machinery (4.4%): | ||||||||
6,065 | Aalberts Industries NV | 307,910 | ||||||
2,600 | Aichi Corp. | 19,253 | ||||||
4,185 | Alfa Laval AB | 98,714 | ||||||
2,630 | Alstom SA | 109,143 | ||||||
2,790 | Andritz AG | 157,527 | ||||||
3,946 | Atlas Copco AB, Class A | 170,017 | ||||||
2,774 | Atlas Copco AB, Class B | 106,138 | ||||||
2,049 | Ats Automation Tooling Systems, Inc.* | 25,352 | ||||||
1,300 | Bando Chemical Industries, Ltd. | 15,242 | ||||||
1,558 | Beijer Alma AB | 49,735 | ||||||
506 | Bobst Group SA | 67,199 | ||||||
12,886 | Bodycote plc | 158,720 | ||||||
433 | Bucher Industries AG | 175,623 | ||||||
87 | Burckhardt Compression Holding | 28,222 | ||||||
1,989 | Cargotec OYJ | 112,518 | ||||||
2,600 | CKD Corp. | 58,443 | ||||||
17,805 | CNH Industrial NV | 238,004 | ||||||
2,050 | Concentric AB | 37,743 | ||||||
1,110 | Construcc y Aux de Ferrocarr SA | 45,512 | ||||||
42 | Conzzeta AG | 43,801 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Machinery, continued | ||||||||
900 | Daifuku Co., Ltd. | $ | 48,969 | |||||
1,000 | Daiwa Industries, Ltd. | 11,465 | ||||||
1,487 | Deutz AG | 13,488 | ||||||
6,900 | DMG Mori Co., Ltd. | 142,484 | ||||||
1,230 | Duerr AG | 156,653 | ||||||
4,500 | Ebara Corp. | 171,627 | ||||||
1,500 | Fuji Machine MFG. Co., Ltd. | 28,784 | ||||||
3,400 | Fujitec Co., Ltd. | 49,065 | ||||||
1,000 | Fukushima Industries Corp. | 44,088 | ||||||
800 | Furukawa Co., Ltd. | 16,394 | ||||||
303 | Georg Fischer AG | 399,745 | ||||||
2,900 | Glory, Ltd. | 109,397 | ||||||
2,253 | Haldex AB* | 23,953 | ||||||
26,103 | Heidelberger Druckmaschinen AG* | 89,882 | ||||||
9,700 | Hino Motors, Ltd. | 125,845 | ||||||
1,200 | Hisaka Works, Ltd. | 12,732 | ||||||
12,300 | Hitachi Zosen Corp. | 64,759 | ||||||
500 | Hoshizaki Electric Co., Ltd. | 44,150 | ||||||
4,800 | IHI Corp. | 159,803 | ||||||
16,053 | IMI plc | 287,305 | ||||||
614 | Industria Macchine Automatiche | 49,908 | ||||||
3,766 | Interpump Group SpA | 118,370 | ||||||
40 | Interroll Holding AG, Registered Shares | 59,234 | ||||||
1,300 | Iseki & Co., Ltd. | 32,778 | ||||||
2,600 | Japan Steel Works, Ltd. (The) | 83,485 | ||||||
8,700 | JTEKT Corp. | 149,565 | ||||||
2,600 | Juki Corp. | 42,995 | ||||||
3,751 | Jungheinrich AG | 176,995 | ||||||
419 | Kardex AG | 51,458 | ||||||
800 | Kato Works Co., Ltd. | 24,290 | ||||||
5,400 | Kawasaki Heavy Industries, Ltd. | 189,296 | ||||||
2,997 | Kion Group AG | 258,540 | ||||||
400 | Kitagawa Iron Works Co., Ltd. | 10,900 | ||||||
5,100 | Kitz Corp. | 39,367 | ||||||
572 | Koenig & Bauer AG | 42,968 | ||||||
5,200 | Komatsu, Ltd. | 188,387 | ||||||
153 | Komax Holding AG | 50,122 | ||||||
2,900 | Komori Corp. | 40,654 | ||||||
3,618 | Kone OYJ, Class B | 194,124 | ||||||
1,652 | Konecranes OYJ | 75,467 | ||||||
438 | Krones AG^ | 60,155 | ||||||
5,500 | Kubota Corp. | 107,714 | ||||||
4,000 | Kurita Water Industries, Ltd. | 129,967 | ||||||
1,000 | Kyokuto Kaihatsu Kogyo Co., Ltd. | 17,634 | ||||||
4,000 | Makino Milling Machine Co., Ltd. | 40,532 | ||||||
800 | Max Co., Ltd. | 11,455 | ||||||
13,000 | Meidensha Corp. | 53,789 | ||||||
4,077 | Metso Corp. OYJ | 139,064 | ||||||
10,632 | Minebea Co., Ltd. | 223,111 | ||||||
5,500 | Mitsubishi Heavy Industries, Ltd. | 205,365 | ||||||
2,900 | Mitsui Engineering & Shipbuilding Co., Ltd. | 43,398 | ||||||
12,802 | Morgan Advanced Materials plc | 58,063 |
Continued
19
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Machinery, continued | ||||||||
2,100 | Morita Holdings Corp. | $ | 39,436 | |||||
2,100 | Nabtesco Corp. | 80,559 | ||||||
11,000 | Nachi-Fujikoshi Corp. | 73,692 | ||||||
2,000 | Namura Shipbuilding Co., Ltd. | 12,322 | ||||||
1,637 | New Flyer Industries, Inc. | 70,335 | ||||||
4,300 | NGK Insulators, Ltd. | 81,092 | ||||||
578 | Nilfisk Holding A/S* | 33,860 | ||||||
3,900 | Nippon Thompson Co., Ltd. | 30,996 | ||||||
821 | NKT Holding A/S | 37,485 | ||||||
300 | Noritake Co., Ltd. | 15,200 | ||||||
2,186 | Norma Group SE | 145,946 | ||||||
14,000 | NSK, Ltd. | 220,537 | ||||||
34,000 | NTN Corp. | 168,409 | ||||||
700 | Obara Group, Inc. | 47,810 | ||||||
10,003 | OC Oerlikon Corp. AG | 168,493 | ||||||
1,800 | Okuma Corp. | 119,720 | ||||||
400 | Organo Corp. | 11,678 | ||||||
5,200 | OSG Corp. | 112,503 | ||||||
290 | Pfeiffer Vacuum Technology AG | 54,191 | ||||||
118 | Rational AG | 75,773 | ||||||
70 | Rieter Holding AG | 17,085 | ||||||
51,599 | Rotork plc | 185,319 | ||||||
1,800 | Ryobi, Ltd. | 51,158 | ||||||
16,351 | Sandvik AB | 285,919 | ||||||
214 | Schindler Holding AG, Registered Shares | 48,427 | ||||||
856 | Sfs Group AG | 99,383 | ||||||
4,000 | Shinmaywa Industries, Ltd. | 38,093 | ||||||
20,000 | Singamas Container Holdings, Ltd. | 4,093 | ||||||
2,200 | Sintokogio, Ltd. | 28,128 | ||||||
5,919 | SKF AB, Class B | 131,301 | ||||||
2,300 | Sodick Co., Ltd. | 29,882 | ||||||
2,119 | Spirax-Sarco Engineering plc | 160,342 | ||||||
891 | Stabilus SA | 80,139 | ||||||
527 | Sulzer AG, Registered Shares | 63,832 | ||||||
5,200 | Sumitomo Heavy Industries, Ltd. | 220,291 | ||||||
14,200 | Sunningdale Tech, Ltd. | 20,495 | ||||||
3,600 | Takeuchi Manufacturing Co., Ltd. | 85,580 | ||||||
3,400 | Takuma Co., Ltd. | 47,487 | ||||||
5,654 | Talgo SA(a) | 28,878 | ||||||
1,200 | THK Co., Ltd. | 44,955 | ||||||
1,884 | Trelleborg AB | 43,589 | ||||||
9,000 | Tsubakimoto Chain Co. | 72,610 | ||||||
1,200 | Tsukishima Kikai Co., Ltd. | 16,159 | ||||||
1,100 | Tsurumi Manufacturing Co., Ltd. | 20,236 | ||||||
7,579 | Valmet Corp. | 149,329 | ||||||
4,233 | Vesuvius plc | 33,212 | ||||||
6,338 | Volvo AB, Class A | 118,286 | ||||||
27,562 | Volvo AB, Class B | 513,026 | ||||||
285 | Vossloh AG* | 15,993 | ||||||
1,044 | Wacker Neuson SE | 37,636 | ||||||
2,713 | Wartsila Corp. OYJ, Class B | 170,945 | ||||||
560 | Washtec AG | 52,867 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Machinery, continued | ||||||||
3,000 | Yamabiko Corp. | $ | 47,320 | |||||
3,876 | Zardoya Otis SA | 42,383 | ||||||
|
| |||||||
11,598,969 | ||||||||
|
| |||||||
Marine (0.3%): | ||||||||
29 | A.P. Moeller — Maersk A/S, Class A | 48,339 | ||||||
42 | A.P. Moeller — Maersk A/S, Class B | 73,205 | ||||||
1,333 | D/S Norden A/S* | 24,898 | ||||||
1,685 | DFDS A/S | 89,895 | ||||||
393 | Hapag-Lloyd AG*(a) | 15,790 | ||||||
3,300 | Iino Kaiun Kaisha, Ltd. | 18,571 | ||||||
7,971 | Irish Continental Group | 55,189 | ||||||
1,000 | Kawasaki Kisen Kaisha, Ltd.* | 25,443 | ||||||
727 | Kuehne & Nagel International AG, Registered Shares | 128,511 | ||||||
2,700 | Mitsui O.S.K. Lines, Ltd. | 90,153 | ||||||
3,900 | Nippon Yusen Kabushiki Kaisha* | 95,057 | ||||||
600 | NS United Kaiun Kaisha, Ltd. | 14,595 | ||||||
7,500 | Orient Overseas International, Ltd. | 72,380 | ||||||
4,000 | Pacific Basin Shipping, Ltd.* | 865 | ||||||
89,000 | Sitc International Holdings Co., Ltd. | 87,951 | ||||||
1,962 | Stolt-Nielsen, Ltd. | 26,090 | ||||||
|
| |||||||
866,932 | ||||||||
|
| |||||||
Media (1.9%): | ||||||||
1,267 | 4imprint Group plc | 32,443 | ||||||
5,715 | Aimia, Inc. | 17,007 | ||||||
3,249 | Altice NV, Class A* | 33,984 | ||||||
1,460 | Altice NV, Class B* | 15,422 | ||||||
65 | Apg Sga SA | 30,365 | ||||||
4,886 | Atresmedia Corp. de Medios de Comuicacion SA | 50,928 | ||||||
2,500 | Avex Group Holdings, Inc. | 35,628 | ||||||
1,681 | Axel Springer AG | 130,964 | ||||||
2,465 | Cineplex, Inc. | 73,216 | ||||||
12,985 | Cineworld Group plc | 105,288 | ||||||
546 | Cogeco Communications, Inc. | 37,570 | ||||||
400 | Cogeco, Inc. | 28,806 | ||||||
5,394 | Corus Entertainment, Inc. | 50,215 | ||||||
2,160 | CTS Eventim AG & Co. KGaA | 100,526 | ||||||
2,400 | Cyberagent, Inc. | 93,752 | ||||||
1,600 | Daiichikosho Co., Ltd. | 79,828 | ||||||
1,800 | Dentsu, Inc. | 75,956 | ||||||
2,163 | Euromoney Institutional Investor plc | 37,971 | ||||||
6,151 | Eutelsat Communications SA | 142,002 | ||||||
6,450 | Event Hospitality And Entertainment, Ltd. | 66,606 | ||||||
800 | Fuji Media Holdings, Inc. | 12,584 | ||||||
2,500 | Hakuhodo DY Holdings, Inc. | 32,526 | ||||||
8,376 | HT&E, Ltd. | 12,274 | ||||||
14,980 | I-Cable Communications, Ltd.* | 441 | ||||||
3,200 | Intage Holdings, Inc. | 41,568 | ||||||
1,711 | Ipsos | 62,924 | ||||||
33,776 | ITE Group plc | 82,806 | ||||||
40,885 | ITV plc | 91,009 | ||||||
1,949 | JCDecaux SA | 78,526 |
Continued
20
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Media, continued | ||||||||
45,728 | John Fairfax Holdings, Ltd. | $ | 27,715 | |||||
2,300 | Kadokawa Dwango Corp. | 28,401 | ||||||
594 | Kinepolis Group NV | 39,658 | ||||||
8,410 | Lagardere SCA | 269,398 | ||||||
3,548 | Liberty Global plc, Series C* | 120,065 | ||||||
1,449 | Liberty Global plc, Class A* | 51,932 | ||||||
180 | Liberty Global plc, Class A* | 3,627 | ||||||
442 | Liberty Global plc, Class C* | 8,791 | ||||||
2,546 | M6 Metropole Television SA | 65,767 | ||||||
11,389 | Mediaset Espana Comunicacion SA | 127,675 | ||||||
15,032 | Mediaset SpA* | 58,204 | ||||||
1,809 | Modern Times Group, Class B | 76,057 | ||||||
38,830 | Nine Entertainment Co. Holdings, Ltd. | 46,467 | ||||||
7,599 | Pearson plc, ADR | 74,622 | ||||||
2,127 | Pearson plc | 21,079 | ||||||
2,969 | Publicis Groupe SA | 201,679 | ||||||
4,026 | Quebecor, Inc., Class B | 75,920 | ||||||
1,012 | REA Group, Ltd. | 60,408 | ||||||
414 | RTL Group | 33,244 | ||||||
1,923 | Sanoma OYJ | 24,954 | ||||||
1,013 | Schibsted ASA, Class A | 28,931 | ||||||
5,562 | SES Global, Class A | 86,661 | ||||||
33,424 | Seven West Media, Ltd. | 15,997 | ||||||
7,456 | Shaw Communications, Inc. | 170,220 | ||||||
20,500 | Singapore Press Holdings, Ltd. | 40,576 | ||||||
18,618 | Sky Network Television, Ltd. | 37,053 | ||||||
13,400 | SKY Perfect JSAT Holdings, Inc. | 61,318 | ||||||
19,081 | Sky plc* | 260,139 | ||||||
4,175 | Societe Television Francaise 1 | 61,376 | ||||||
44,663 | Southern Cross Media Group, Ltd. | 41,210 | ||||||
983 | Stroeer Media SE | 72,218 | ||||||
41 | Tamedia AG, Registered Shares | 5,806 | ||||||
13,788 | Technicolor SA | 47,286 | ||||||
1,586 | Telenet Group Holding NV* | 110,404 | ||||||
1,000 | Toho Co., Ltd. | 34,642 | ||||||
800 | Tokyo Broadcasting System Hold | 19,955 | ||||||
13,261 | Trinity Mirror plc | 14,265 | ||||||
200 | TV Asahi Holdings Corp. | 4,015 | ||||||
500 | TV Tokyo Holdings Corp. | 10,821 | ||||||
6,948 | Village Roadshow, Ltd.* | 21,038 | ||||||
1,367 | Vivendi Universal SA | 36,754 | ||||||
8,417 | WPP plc | 152,509 | ||||||
1,895 | Yellow Pages, Ltd.* | 12,681 | ||||||
719 | Zon Multimedia Servicos de Telecommunicacoes e Multimedia SGPS SA | 4,727 | ||||||
|
| |||||||
4,419,400 | ||||||||
|
| |||||||
Metals & Mining (5.8%): | ||||||||
8,736 | Acacia Mining plc | 23,275 | ||||||
1,753 | Agnico Eagle Mines, Ltd. | 80,954 | ||||||
2,800 | Agnico Eagle Mines, Ltd. | 129,306 | ||||||
400 | Aichi Steel Corp. | 16,030 | ||||||
16,681 | Alacer Gold Corp.* | 29,599 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Metals & Mining, continued | ||||||||
15,461 | Alamos Gold, Inc., Class A | $ | 100,752 | |||||
15,624 | Alumina, Ltd. | 29,578 | ||||||
1,580 | Amg Advanced Metallurgical Group N.V. | 79,363 | ||||||
29,597 | Anglo American plc | 618,462 | ||||||
4,254 | Antofagasta plc | 57,664 | ||||||
3,276 | Aperam SA | 168,611 | ||||||
8,826 | ArcelorMittal* | 285,798 | ||||||
12,400 | Argonaut Gold, Inc.* | 23,679 | ||||||
8,215 | Asanko Gold, Inc.* | 5,817 | ||||||
1,158 | AuRico Metals, Inc.* | 1,649 | ||||||
1,317 | Aurubis AG | 121,873 | ||||||
12,440 | Ausdrill, Ltd. | 25,521 | ||||||
15,542 | B2Gold Corp.* | 47,981 | ||||||
2,200 | Barrick Gold Corp. | 31,824 | ||||||
2,708 | Bekaert NV | 118,367 | ||||||
62,786 | BHP Billiton, Ltd. | 1,444,944 | ||||||
17,844 | Billiton plc, ADR | 719,113 | ||||||
25,458 | BlueScope Steel, Ltd. | 305,022 | ||||||
9,186 | Boliden AB | 313,028 | ||||||
17,700 | Capstone Mining Corp.* | 20,280 | ||||||
73,572 | Centamin plc | 156,956 | ||||||
13,877 | Centerra Gold, Inc.* | 71,107 | ||||||
16,254 | China Gold International Resources Corp., Ltd.* | 30,392 | ||||||
2,100 | Daido Steel Co., Ltd. | 128,754 | ||||||
2,700 | Daiki Aluminium Industry Co., Ltd. | 21,032 | ||||||
7,325 | Detour Gold Corp.* | 86,142 | ||||||
3,000 | DOWA Mining Co. | 122,538 | ||||||
4,600 | Dundee Precious Metals, Inc.* | 10,980 | ||||||
38,811 | Eldorado Gold Corp. | 56,203 | ||||||
164 | Eramet* | 19,474 | ||||||
40,854 | Evolution Mining, Ltd. | 84,229 | ||||||
20,239 | EVRAZ plc | 92,822 | ||||||
11,702 | First Quantum Minerals, Ltd. | 163,966 | ||||||
83,540 | Fortescue Metals Group, Ltd. | 317,386 | ||||||
3,312 | Fresnillo plc | 63,932 | ||||||
33,424 | Glencore International plc | 175,819 | ||||||
5,148 | Goldcorp, Inc. | 65,661 | ||||||
6,771 | Goldcorp, Inc. | 86,466 | ||||||
4,758 | Granges AB | 48,875 | ||||||
5,096 | Guyana Goldfields, Inc.* | 20,598 | ||||||
7,250 | Hill & Smith Holdings plc | 130,626 | ||||||
6,200 | Hitachi Metals, Ltd. | 88,650 | ||||||
9,182 | Hochschild Mining plc | 32,721 | ||||||
18,195 | Hudbay Minerals, Inc. | 161,132 | ||||||
24,142 | IAMGOLD Corp.* | 140,803 | ||||||
22,741 | Independence Group NL | 84,235 | ||||||
4,200 | JFE Holdings, Inc. | 100,924 | ||||||
18,872 | Kazakhmys plc* | 226,160 | ||||||
84,792 | Kinross Gold Corp.* | 365,670 | ||||||
4,744 | Kirkland Lake Gold, Ltd. | 72,738 | ||||||
5,800 | Kobe Steel, Ltd. | 53,815 | ||||||
1,100 | Kurimoto, Ltd. | 22,248 | ||||||
500 | Kyoei Steel, Ltd. | 9,578 |
Continued
21
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Metals & Mining, continued | ||||||||
17,782 | Lonmin plc* | $ | 20,121 | |||||
14,207 | Lucara Diamond Corp. | 31,765 | ||||||
42,535 | Lundin Mining Corp. | 282,936 | ||||||
11,288 | MACA, Ltd. | 14,800 | ||||||
4,545 | Major Drilling Group International, Inc.* | 25,531 | ||||||
7,616 | Mineral Resources, Ltd. | 125,329 | ||||||
6,000 | Mitsubishi Materials Corp. | 213,639 | ||||||
500 | Mitsubishi Steel Manufacturing Co., Ltd. | 12,417 | ||||||
4,200 | Mitsui Mining & Smelting Co., Ltd. | 244,555 | ||||||
593,500 | Mongolian Mining Corp.* | 15,817 | ||||||
2,200 | Neturen Co., Ltd. | 24,239 | ||||||
17,856 | Nevsun Resources, Ltd. | 43,475 | ||||||
27,410 | New Gold, Inc.* | 90,073 | ||||||
6,200 | Nippon Denko Co., Ltd. | 25,930 | ||||||
37,000 | Nippon Light Metal Holdings Co. | 105,454 | ||||||
6,600 | Nippon Steel Corp. | 169,428 | ||||||
1,120 | Nisshin Steel Co., Ltd. | 18,386 | ||||||
200 | Nittetsu Mining Co., Ltd. | 14,638 | ||||||
5,998 | Norsk Hydro ASA | 45,363 | ||||||
28,837 | Northern Star Resources, Ltd. | 136,548 | ||||||
4,300 | Nyrstar NV* | 34,594 | ||||||
39,028 | OceanaGold Corp. | 100,303 | ||||||
500 | Osaka Steel Co., Ltd. | 10,466 | ||||||
5,268 | Osisko Gold Royalties, Ltd. | 60,862 | ||||||
18,826 | Outokumpu OYJ | 174,703 | ||||||
17,375 | OZ Minerals, Ltd. | 123,916 | ||||||
500 | Pacific Metals Co., Ltd.* | 13,870 | ||||||
1,857 | Pan American Silver Corp. | 28,931 | ||||||
73,744 | Perseus Mining, Ltd.* | 21,495 | ||||||
35,638 | Petra Diamonds, Ltd.* | 37,615 | ||||||
176,214 | Petropavlovsk plc* | 18,441 | ||||||
869 | Randgold Resources, Ltd. | 86,194 | ||||||
15,628 | Regis Resources, Ltd. | 52,321 | ||||||
21,763 | Resolute Mining, Ltd. | 19,286 | ||||||
550 | Rio Tinto plc | 29,022 | ||||||
12,983 | Rio Tinto plc, Registered Shares, ADR | 687,190 | ||||||
1,547 | Rio Tinto, Ltd. | 91,280 | ||||||
6,000 | Sabina Gold & Silver Corp.* | 10,837 | ||||||
2,148 | Salzgitter AG | 122,083 | ||||||
7,017 | Sandfire Resources Nl | 37,693 | ||||||
9,442 | Sandstorm Gold, Ltd.* | 47,180 | ||||||
1,600 | Sanyo Special Steel Co., Ltd. | 40,948 | ||||||
29,450 | Saracen Mineral Holdings, Ltd.* | 38,733 | ||||||
21,718 | Schmolz + Bickenbach AG* | 18,717 | ||||||
16,210 | Semafo, Inc.* | 46,045 | ||||||
21,200 | Sherritt International Corp.* | 29,013 | ||||||
6,133 | Sims Metal Management, Ltd. | 75,217 | ||||||
83,964 | South32, Ltd. | 228,243 | ||||||
10,605 | SSAB AB, Class B* | 47,331 | ||||||
4,935 | SSR Mining, Inc.* | 43,468 | ||||||
17,694 | St Barbara, Ltd. | 52,588 | ||||||
26,500 | Stornoway Diamond Corp.* | 13,916 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Metals & Mining, continued | ||||||||
600 | Sumitomo Metal & Mining Co., Ltd. | $ | 27,530 | |||||
5,574 | Tahoe Resources, Inc. | 26,743 | ||||||
9,084 | Tahoe Resources, Inc. | 43,512 | ||||||
7,087 | Teck Cominco, Ltd., Class B | 185,352 | ||||||
3,720 | Teck Resources, Ltd., Class B | 97,352 | ||||||
3,912 | ThyssenKrupp AG | 113,583 | ||||||
700 | Toho Zinc Co., Ltd. | 38,046 | ||||||
1,300 | Topy Industries, Ltd. | 39,948 | ||||||
1,885 | Torex Gold Resources, Inc.* | 17,893 | ||||||
5,300 | Toyo Kohan Co., Ltd. | 22,934 | ||||||
9,694 | Trevali Mining Corp.* | 11,724 | ||||||
17,801 | Turquoise Hill Resources, Ltd.* | 60,762 | ||||||
1,500 | UACJ Corp. | 39,037 | ||||||
2,041 | Vedanta Resources plc | 21,953 | ||||||
6,764 | Voestalpine AG | 404,240 | ||||||
14,139 | Western Areas, Ltd. | 35,819 | ||||||
2,702 | Wheaton Precious Metals Corp. | 59,795 | ||||||
30,268 | Yamana Gold, Inc. | 94,407 | ||||||
1,600 | Yamato Kogyo Co., Ltd. | 46,382 | ||||||
800 | Yodogawa Steel Works, Ltd. | 24,790 | ||||||
|
| |||||||
13,625,869 | ||||||||
|
| |||||||
Multiline Retail (0.6%): | ||||||||
24,445 | B&m European Value Retail SA | 139,370 | ||||||
947 | Canadian Tire Corp., Class A | 123,499 | ||||||
53,885 | Debenhams plc^ | 25,604 | ||||||
1,503 | Dollarama, Inc. | 187,815 | ||||||
1,400 | Don Quijote Co., Ltd. | 73,198 | ||||||
2,400 | H2O Retailing Corp. | 50,199 | ||||||
20,441 | Harvey Norman Holdings, Ltd. | 66,365 | ||||||
3,882 | Hudson’s Bay Co. | 34,842 | ||||||
4,700 | Isetan Mitsukoshi Holdings, Ltd. | 58,099 | ||||||
1,900 | Izumi Co., Ltd. | 117,956 | ||||||
10,600 | J. Front Retailing Co., Ltd. | 199,437 | ||||||
24,500 | Lifestyle International Holdings, Ltd. | 32,548 | ||||||
29,029 | Marks & Spencer Group plc | 123,092 | ||||||
2,900 | MARUI GROUP Co., Ltd. | 52,995 | ||||||
11,200 | Metro Holdings, Ltd. | 9,465 | ||||||
47,139 | Myer Holdings, Ltd. | 24,161 | ||||||
1,643 | Next plc | 100,579 | ||||||
300 | Ryohin Keikaku Co., Ltd. | 93,419 | ||||||
600 | Sanyo Electric Railway Co., Ltd. | 15,179 | ||||||
800 | Seria Co., Ltd. | 48,163 | ||||||
8,000 | Takashimaya Co., Ltd. | 84,141 | ||||||
4,000 | Wing On Company International, Ltd. | 14,134 | ||||||
|
| |||||||
1,674,260 | ||||||||
|
| |||||||
Multi-Utilities (0.7%): | ||||||||
2,276 | Acea SpA | 41,992 | ||||||
1,705 | Atco, Ltd. | 61,048 | ||||||
1,466 | Canadian Utilities, Ltd., Class A | 43,637 | ||||||
93,709 | Centrica plc | 173,474 | ||||||
21,702 | E.ON AG | 235,279 |
Continued
22
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Multi-Utilities, continued | ||||||||
21,960 | Engie Group | $ | 377,257 | |||||
30,113 | Hera SpA | 105,024 | ||||||
23,167 | Iren SpA | 69,479 | ||||||
65,748 | ITL AEM SpA | 121,533 | ||||||
98,500 | Keppel Infrastructure Trust | 42,304 | ||||||
338 | National Grid plc, ADR | 19,878 | ||||||
4,897 | Ren — Redes Energeticas Nacion | 14,546 | ||||||
26,786 | RWE AG | 546,148 | ||||||
6,003 | Suez Environnement Co. | 105,517 | ||||||
3,746 | Telecom Plus plc | 60,729 | ||||||
3,162 | Veolia Environnement SA | 80,665 | ||||||
|
| |||||||
2,098,510 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (4.2%): | ||||||||
9,181 | Advantage Oil & Gas, Ltd.* | 39,447 | ||||||
24,155 | Africa Oil Corp.* | 27,292 | ||||||
2,191 | AKER BP ASA | 53,884 | ||||||
6,305 | ARC Resources, Ltd. | 73,996 | ||||||
18,809 | Athabasca Oil Corp.* | 16,013 | ||||||
2,064 | Baytex Energy Corp.* | 6,192 | ||||||
11,743 | Baytex Energy Corp.* | 35,225 | ||||||
108,970 | Beach Energy, Ltd. | 105,913 | ||||||
1,167 | Bellatrix Exploration, Ltd.* | 1,996 | ||||||
9,541 | Birchcliff Energy, Ltd. | 33,403 | ||||||
15,440 | Bonavista Energy Corp. | 27,642 | ||||||
1,208 | Bonterra Energy Corp. | 14,706 | ||||||
21,112 | BP plc, ADR | 887,337 | ||||||
173,000 | Brightoil Petroleum Holdings, Ltd.*(b)(c) | 33,216 | ||||||
2,656 | BW LPG, Ltd.*(a) | 12,502 | ||||||
28,569 | Cairn Energy plc* | 81,772 | ||||||
2,676 | Caltex Australia, Ltd. | 70,961 | ||||||
5,227 | Cameco Corp. | 48,245 | ||||||
6,558 | Cameco Corp. | 60,581 | ||||||
6,000 | Canacol Energy, Ltd.* | 21,435 | ||||||
1,623 | Canadian Natural Resources, Ltd. | 57,974 | ||||||
3,012 | Cardinal Energy, Ltd. | 12,199 | ||||||
3,134 | Cenovus Energy, Inc. | 28,627 | ||||||
11,375 | Cenovus Energy, Inc. | 103,854 | ||||||
900 | Cosmo Energy Holdings Co., Ltd. | 33,916 | ||||||
8,781 | Crescent Point Energy | 66,911 | ||||||
6,461 | Crescent Point Energy Corp. | 49,249 | ||||||
8,223 | Crew Energy, Inc.* | 20,610 | ||||||
854 | CropEnergies AG | 7,964 | ||||||
54 | Delek Group, Ltd. | 8,736 | ||||||
26,109 | Dno ASA* | 30,219 | ||||||
8,774 | Enagas SA | 250,956 | ||||||
2,926 | Enbridge Income Fund Holding | 69,402 | ||||||
2,055 | Enbridge, Inc. | 80,382 | ||||||
1,055 | EnCana Corp. | 14,063 | ||||||
10,537 | EnCana Corp. | 140,600 | ||||||
6,400 | Enerplus Corp. | 62,686 | ||||||
21,419 | ENI SpA | 354,159 | ||||||
33,078 | EnQuest plc* | 12,615 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
5,510 | Euronav NV | $ | 50,786 | |||||
1,579 | Exmar NV* | 12,220 | ||||||
3,784 | Frontline, Ltd. | 17,565 | ||||||
3,100 | Fuji Oil Co., Ltd. | 17,193 | ||||||
1,464 | Galp Energia SGPS SA | 26,892 | ||||||
591 | Gaztransport et Technigaz SA | 35,520 | ||||||
19,607 | Gran Tierra Energy, Inc.* | 53,199 | ||||||
78 | Granite Oil Corp. | 194 | ||||||
5,867 | Husky Energy, Inc.* | 82,861 | ||||||
4,500 | Idemitsu Kosan Co., Ltd. | 180,101 | ||||||
1,000 | Imperial Oil, Ltd. | 31,214 | ||||||
7,900 | INPEX Corp. | 98,872 | ||||||
4,194 | Inter Pipeline, Ltd. | 86,863 | ||||||
3,600 | ITOCHU Enex Co., Ltd. | 34,603 | ||||||
4,263 | James Fisher & Sons plc | 89,678 | ||||||
547 | Jerusalem Oil Exploration* | 33,457 | ||||||
46,100 | JX Holdings, Inc. | 297,903 | ||||||
7,300 | Kelt Exploration, Ltd.* | 41,762 | ||||||
4,200 | Keyera Corp. | 118,367 | ||||||
3,106 | Koninklijke Vopak NV | 136,226 | ||||||
10,707 | MEG Energy Corp.* | 43,789 | ||||||
5,186 | Neste Oil OYJ | 331,837 | ||||||
14,065 | New Hope Corp., Ltd. | 27,408 | ||||||
7,392 | New Zealand Refining Co., Ltd. (The) | 13,873 | ||||||
64,000 | NewOcean Energy Holdings, Ltd.* | 16,748 | ||||||
1,300 | Nippon Gas Co., Ltd. | 47,200 | ||||||
7,654 | Nuvista Energy, Ltd.* | 48,842 | ||||||
32,810 | Obsidian Energy, Ltd.* | 40,725 | ||||||
54,541 | Oil Refineries, Ltd. | 26,118 | ||||||
14,920 | Oil Search, Ltd. | 90,745 | ||||||
44,010 | Ophir Energy plc* | 40,106 | ||||||
24,917 | Origin Energy, Ltd.* | 183,215 | ||||||
7,550 | Painted Pony Energy, Ltd.*^ | 16,040 | ||||||
601 | Paramount Resouces, Ltd., Class A* | 9,287 | ||||||
260 | Paz Oil Co., Ltd.* | 45,028 | ||||||
1,584 | Pembina Pipeline Corp. | 57,309 | ||||||
40,966 | Pengrowth Energy Corp.* | 32,595 | ||||||
3,828 | Peyto Exploration & Development Corp. | 45,779 | ||||||
43,203 | Premier Oil plc* | 44,160 | ||||||
3,769 | Raging River Exploration, Inc.* | 23,991 | ||||||
18,721 | Repsol SA | 330,828 | ||||||
8,812 | Royal Dutch Shell plc, Class A, ADR | 587,849 | ||||||
7,285 | Royal Dutch Shell plc, Class B, ADR | 497,493 | ||||||
1,600 | Sala Corp. | 10,226 | ||||||
4,000 | San-Ai Oil Co., Ltd. | 58,267 | ||||||
26,879 | Santos, Ltd.* | 113,964 | ||||||
27,521 | Saras SpA | 66,071 | ||||||
59,700 | Senex Energy, Ltd.* | 17,858 | ||||||
22,787 | Snam SpA | 111,557 | ||||||
12,892 | Soco International plc | 19,375 | ||||||
7,438 | Spartan Energy Corp.* | 42,552 | ||||||
20,954 | Statoil ASA | 448,396 | ||||||
9,385 | Stobart Group, Ltd. | 35,668 |
Continued
23
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
5,784 | Suncor Energy, Inc. | $ | 212,390 | |||||
8,674 | Suncor Energy, Inc. | 318,509 | ||||||
11,456 | Surge Energy, Inc. | 19,051 | ||||||
8,990 | Torc Oil & Gas, Ltd. | 53,934 | ||||||
13,848 | Total SA | 763,974 | ||||||
2,400 | Tourmaline Oil Corp.* | 43,501 | ||||||
5,452 | Transcanada Corp. | 265,185 | ||||||
22,046 | Tullow Oil plc* | 61,418 | ||||||
19,728 | Whitecap Resources, Inc. | 140,488 | ||||||
24,229 | Whitehaven Coal, Ltd. | 84,773 | ||||||
6,678 | Woodside Petroleum, Ltd. | 172,564 | ||||||
8,000 | Yangarra Resources, Ltd.* | 31,636 | ||||||
5,501 | Z Energy, Ltd. | 29,781 | ||||||
|
| |||||||
10,224,459 | ||||||||
|
| |||||||
Paper & Forest Products (0.9%): | ||||||||
1,344 | Ahlstrom-Munksjo OYJ | 29,296 | ||||||
5,029 | Canfor Corp.* | 99,155 | ||||||
1,251 | Canfor Pulp Products, Inc. | 13,288 | ||||||
6,000 | Daio Paper Corp. | 79,204 | ||||||
6,700 | Hokuetsu Kishu Paper Co., Ltd. | 40,035 | ||||||
1,022 | Holmen ABN AB, Class B | 54,242 | ||||||
4,627 | Interfor Corp.* | 77,755 | ||||||
7,061 | Metsa Board OYJ | 60,374 | ||||||
6,301 | Mondi plc | 164,244 | ||||||
5,457 | Navigator Co. SA (The) | 27,805 | ||||||
5,800 | Nippon Paper Industries Co., Ltd. | 110,190 | ||||||
1,614 | Norbord, Inc. | 54,643 | ||||||
37,000 | OYI Paper Co., Ltd. | 245,993 | ||||||
23,088 | Quintis, Ltd.*(b)(c) | 6,003 | ||||||
26,535 | Stora Enso OYJ, Registered Shares | 420,036 | ||||||
600 | Tokushu Tokai Paper Co., Ltd. | 22,705 | ||||||
24,703 | UPM-Kymmene OYJ | 766,400 | ||||||
4,046 | West Fraser Timber Co., Ltd. | 249,721 | ||||||
24,618 | Western Forest Products, Inc. | 47,990 | ||||||
|
| |||||||
2,569,079 | ||||||||
|
| |||||||
Personal Products (0.6%): | ||||||||
18,108 | Asaleo Care, Ltd. | 21,146 | ||||||
1,100 | Ci:z Holdings Co., Ltd. | 56,018 | ||||||
2,300 | Kao Corp. | 155,587 | ||||||
400 | KOSE Corp. | 62,469 | ||||||
724 | L’Oreal SA | 160,368 | ||||||
4,476 | Ontex Group NV | 147,854 | ||||||
1,486 | Oriflame Holding AG | 61,243 | ||||||
1,400 | Shiseido Co., Ltd. | 67,491 | ||||||
8,564 | Unilever NV, NYS | 482,324 | ||||||
4,976 | Unilever plc, ADR | 275,372 | ||||||
|
| |||||||
1,489,872 | ||||||||
|
| |||||||
Pharmaceuticals (2.7%): | ||||||||
194 | Alk-Abello A/S | 23,112 | ||||||
6,600 | Astellas Pharma, Inc. | 83,838 | ||||||
16,897 | AstraZeneca plc, ADR | 586,326 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Pharmaceuticals, continued | ||||||||
3,059 | Bayer AG, Registered Shares | $ | 380,417 | |||||
314 | Boiron SA | 28,194 | ||||||
1,600 | Dainippon Sumitomo Pharma Co., Ltd. | 23,781 | ||||||
7,475 | Faes Farma SA | 26,327 | ||||||
9,143 | GlaxoSmithKline plc, ADR | 324,302 | ||||||
1,067 | GlaxoSmithKline plc | 18,869 | ||||||
1,253 | H. Lundbeck A/S | 63,733 | ||||||
6,000 | Haw Par Corp., Ltd. | 50,915 | ||||||
4,811 | Hikma Pharmaceuticals plc | 73,606 | ||||||
26,202 | Indivior plc* | 142,607 | ||||||
1,661 | Ipsen SA | 198,375 | ||||||
1,000 | Kaken Pharmaceutical Co., Ltd. | 51,619 | ||||||
1,000 | Kissei Pharmaceutical Co., Ltd. | 28,352 | ||||||
30,175 | Mayne Pharma Group, Ltd.* | 16,309 | ||||||
501 | Merck KGaA | 53,946 | ||||||
200 | Mochida Pharmaceutical Co., Ltd. | 15,272 | ||||||
3,200 | Nichi-Iko Pharmaceutical Co., Ltd. | 49,358 | ||||||
200 | Nippon Shinyaku Co., Ltd. | 14,863 | ||||||
22,726 | Novartis AG, Registered Shares | 1,921,789 | ||||||
8,066 | Novo Nordisk A/S, Class B | 433,593 | ||||||
1,037 | Orion OYJ | 39,958 | ||||||
3,799 | Orion OYJ, Class B | 141,463 | ||||||
1,695 | Recipharm AB^ | 20,363 | ||||||
3,141 | Recordati SpA | 139,511 | ||||||
3,082 | Roche Holding AG | 779,771 | ||||||
127 | Roche Holding AG | 32,083 | ||||||
1,900 | Rohto Pharmaceutical Co., Ltd. | 50,580 | ||||||
327 | Sanofi-Aventis SA | 28,152 | ||||||
2,800 | Santen Pharmaceutical Co., Ltd. | 43,965 | ||||||
1,200 | Sawai Pharmaceutical Co., Ltd. | 53,610 | ||||||
600 | Shionogi & Co., Ltd. | 32,444 | ||||||
3,900 | Takeda Pharmacuetical Co., Ltd. | 220,835 | ||||||
1,540 | Teva Pharmaceutical Industries, Ltd. | 29,275 | ||||||
800 | Torii Pharmaceutical Co., Ltd. | 21,485 | ||||||
600 | Towa Pharmaceutical Co., Ltd. | 32,731 | ||||||
1,152 | UCB SA | 91,279 | ||||||
46,000 | United Laboratories International Holdings, Ltd.* | 37,387 | ||||||
900 | Valeant Pharmaceuticals International, Inc.* | 18,762 | ||||||
1,145 | Valeant Pharmaceuticals International, Inc.* | 23,793 | ||||||
16,134 | Vectura Group plc* | 25,636 | ||||||
1,138 | Vifor Pharma AG | 145,870 | ||||||
178 | Virbac SA* | 26,374 | ||||||
|
| |||||||
6,644,830 | ||||||||
|
| |||||||
Professional Services (1.6%): | ||||||||
4,530 | Adecco SA, Registered Shares | 346,315 | ||||||
2,780 | AF AB | 61,311 | ||||||
734 | Akka Technologies SA | 40,763 | ||||||
9,096 | Applus Services SA | 123,065 | ||||||
1,800 | Benefit One, Inc. | 37,611 | ||||||
372 | Bertrandt AG^ | 45,357 | ||||||
5,622 | Bureau Veritas SA | 153,689 | ||||||
2,111 | Capita Group plc | 11,411 |
Continued
24
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Professional Services, continued | ||||||||
1,480 | DKSH Holding, Ltd. | $ | 129,488 | |||||
1,400 | EN-Japan, Inc. | 65,898 | ||||||
11,350 | Experian plc | 249,394 | ||||||
89,376 | Hays plc | 218,784 | ||||||
6,806 | Intertek Group plc | 476,659 | ||||||
2,947 | McMillan Shakespeare, Ltd. | 39,742 | ||||||
1,100 | Meitec Corp. | 57,919 | ||||||
10,129 | Michael Page International plc | 63,503 | ||||||
3,497 | Morneau Shepell, Inc. | 62,049 | ||||||
2,600 | Nihon M&A Center, Inc. | 123,945 | ||||||
1,800 | Nomura Co., Ltd. | 41,009 | ||||||
3,000 | Outsourcing, Inc. | 54,640 | ||||||
1,700 | Persol Holdings Co., Ltd. | 42,627 | ||||||
3,772 | Randstad Holding NV | 231,406 | ||||||
11,910 | RELX NV | 273,764 | ||||||
5,236 | RELX plc, ADR | 124,093 | ||||||
3,973 | Ricardo plc | 47,557 | ||||||
6,390 | Robert Walters plc | 50,935 | ||||||
7,390 | Seek, Ltd. | 109,365 | ||||||
58 | SGS SA, Registered Shares | 151,223 | ||||||
2,421 | Stantec, Inc. | 67,667 | ||||||
1,200 | Technopro Holdings, Inc. | 65,197 | ||||||
2,255 | Teleperformance | 322,730 | ||||||
10,595 | Wolters Kluwer NV | 551,655 | ||||||
|
| |||||||
4,440,771 | ||||||||
|
| |||||||
Real Estate Management & Development (2.3%): | ||||||||
216 | ADO Properties SA(a) | 10,957 | ||||||
2,400 | AEON Mall Co., Ltd. | 46,964 | ||||||
1,046 | Airport City, Ltd.* | 13,117 | ||||||
561 | Allreal Holding AG | 94,878 | ||||||
2,393 | Amot Investments, Ltd. | 14,350 | ||||||
46,000 | Asia Standard International Group, Ltd. | 11,166 | ||||||
1,733 | Atrium Ljungberg AB, Class B | 27,529 | ||||||
6,142 | BUWOG-Bauen Und Wohnen Gesellschaft mbH | 211,397 | ||||||
8,076 | Capital & Counties Properties plc | 34,835 | ||||||
17,700 | CapitaLand, Ltd. | 46,644 | ||||||
2,740 | Cedar Woods Properties, Ltd. | 13,046 | ||||||
7,500 | Chinese Estates Holdings, Ltd. | 12,062 | ||||||
3,700 | City Developments, Ltd. | 34,418 | ||||||
3,941 | Citycon OYJ | 10,201 | ||||||
4,430 | CK Asset Holdings Ltd. | 38,723 | ||||||
1,625 | Colliers International Group | 98,069 | ||||||
5,265 | Countrywide plc* | 8,551 | ||||||
340,000 | CSI Properties, Ltd. | 17,607 | ||||||
138 | Daejan Holdings plc | 11,292 | ||||||
3,400 | Daibiru Corp. | 42,736 | ||||||
800 | Daikyo, Inc. | 15,512 | ||||||
900 | Daito Trust Construction Co., Ltd. | 183,355 | ||||||
9,500 | Daiwa House Industry Co., Ltd. | 365,010 | ||||||
930 | Deutsche Euroshop AG | 37,854 | ||||||
6,254 | Deutsche Wohnen AG | 272,647 | ||||||
34,000 | Emperor International Holdings | 11,382 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Real Estate Management & Development, continued | ||||||||
68,000 | Far East Consortium Internatio | $ | 40,891 | |||||
1,175 | Fastighets AB Balder* | 31,422 | ||||||
1,529 | FirstService Corp. | 106,907 | ||||||
6,100 | Frasers Centrepoint, Ltd. | 9,483 | ||||||
15,974 | Gateway Lifestyle | 27,119 | ||||||
9,400 | Global Logistic Properties, Ltd. | 23,674 | ||||||
1,100 | Goldcrest Co., Ltd. | 22,173 | ||||||
10,831 | Grainger Trust plc | 42,172 | ||||||
7,000 | Great Eagle Holdings, Ltd. | 36,688 | ||||||
6,000 | GuocoLand, Ltd. | 10,042 | ||||||
46,000 | Hang Lung Group, Ltd. | 169,232 | ||||||
25,984 | Hang Lung Properties, Ltd. | 63,412 | ||||||
2,300 | Heiwa Real Estate Co., Ltd. | 41,325 | ||||||
3,426 | Helical Bar plc | 15,691 | ||||||
3,482 | Hemfosa Fastigheter AB | 46,635 | ||||||
6,865 | Henderson Land Development Co., Ltd. | 45,247 | ||||||
34,400 | HKR International, Ltd. | 21,527 | ||||||
18,500 | Hong Fok Corp., Ltd. | 11,907 | ||||||
2,450 | Hufvudstaden AB | 39,213 | ||||||
3,000 | Hulic Co., Ltd. | 33,587 | ||||||
2,025 | Hysan Development Co., Ltd. | 10,749 | ||||||
6,500 | Ichigo, Inc. | 24,612 | ||||||
10,210 | Immofinanz Immobilien Anlagen AG^ | 26,184 | ||||||
44 | Intershop Holdings AG | 21,994 | ||||||
1,400 | Keihanshin Building Co., Ltd. | 11,016 | ||||||
24,725 | Kerry Properties, Ltd. | 111,229 | ||||||
10,062 | Klovern AB | 13,144 | ||||||
26,000 | Kowloon Development Co., Ltd. | 27,524 | ||||||
11,400 | Lai Sun Development Co., Ltd. | 19,405 | ||||||
757 | LEG Immobilien AG | 86,394 | ||||||
4,597 | Lend Lease Group | 58,531 | ||||||
14,300 | Leopalace21 Corp. | 111,210 | ||||||
8,000 | Liu Chong Hing Investment, Ltd. | 13,823 | ||||||
4,644 | LSL Property Services plc | 17,331 | ||||||
578 | Melisron, Ltd. | 27,389 | ||||||
6,000 | Mitsubishi Estate Co., Ltd. | 104,266 | ||||||
286 | Mobimo Holding AG, Registered Shares | 76,739 | ||||||
84,722 | New World Development Co., Ltd. | 127,296 | ||||||
857 | Nexity SA | 51,003 | ||||||
1,700 | Nisshin Fudosan Co. | 13,975 | ||||||
6,600 | Nomura Real Estate Holdings, Inc. | 148,023 | ||||||
3,300 | NTT Urban Development Corp. | 38,209 | ||||||
2,200 | Open House Co., Ltd. | 118,158 | ||||||
1,584 | Patrizia Immobilien AG* | 36,604 | ||||||
52 | Plazza AG | 12,171 | ||||||
31,000 | Prospect Co., Ltd. | 17,614 | ||||||
457 | PSP Swiss Property AG | 43,318 | ||||||
4,000 | Relo Holdings, Inc. | 108,963 | ||||||
2,615 | S Immo AG | 50,719 | ||||||
9,229 | Savills plc | 123,553 | ||||||
22,000 | SEA Holdings, Ltd. | 33,816 | ||||||
1,300 | Shinoken Group Co., Ltd. | 28,602 | ||||||
100,800 | Sinarmas Land, Ltd. | 30,150 |
Continued
25
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Real Estate Management & Development, continued | ||||||||
37,356 | Sino Land Co., Ltd. | $ | 66,139 | |||||
5,000 | Soundwill Holdings, Ltd. | 10,470 | ||||||
10,372 | St. Modwen Properties plc | 56,735 | ||||||
5,000 | Sumitomo Realty & Development Co., Ltd. | 164,135 | ||||||
8,921 | Sun Hung Kai Properties, Ltd. | 148,609 | ||||||
8,646 | Swire Pacific, Ltd., Class A | 80,028 | ||||||
17,500 | Swire Pacific, Ltd., Class B | 27,236 | ||||||
4,200 | Takara Leben Co., Ltd. | 18,549 | ||||||
7,842 | Technopolis OYJ | 39,337 | ||||||
1,637 | Tlg Immobilien AG | 43,462 | ||||||
4,800 | Tokyo Tatemono Co., Ltd. | 64,775 | ||||||
26,300 | Tokyu Fudosan Holdings Corp. | 190,062 | ||||||
4,176 | U & I Group plc | 10,903 | ||||||
1,200 | Unizo Holdings Co., Ltd. | 32,605 | ||||||
9,200 | UOL Group, Ltd. | 61,014 | ||||||
6,654 | Villa World, Ltd. | 14,832 | ||||||
2,129 | Vonovia SE | 105,373 | ||||||
3,324 | Wharf Holdings, Ltd. (The) | 11,495 | ||||||
12,829 | Wheelock & Co., Ltd. | 91,665 | ||||||
8,400 | Wheelock Properties Singapore | 11,916 | ||||||
20,700 | Wing Tai Holdings, Ltd. | 35,266 | ||||||
17 | Zug Estates Holding AG | 31,881 | ||||||
|
| |||||||
5,582,850 | ||||||||
|
| |||||||
Road & Rail (1.6%): | ||||||||
13,493 | Aurizon Holdings, Ltd. | 52,154 | ||||||
5,353 | Canadian National Railway Co. | 441,623 | ||||||
883 | Canadian Pacific Railway, Ltd. | 161,377 | ||||||
800 | Central Japan Railway Co. | 143,190 | ||||||
44,100 | ComfortDelGro Corp., Ltd. | 65,231 | ||||||
1,888 | DSV A/S | 148,675 | ||||||
1,400 | East Japan Railway Co. | 136,506 | ||||||
79,447 | FirstGroup plc* | 118,402 | ||||||
1,600 | Fukuyama Transporting Co., Ltd. | 60,651 | ||||||
2,158 | Go-Ahead Group plc | 43,368 | ||||||
5,000 | Hankyu Hanshin Holdings, Inc. | 200,898 | ||||||
3,700 | Hitachi Transport System, Ltd. | 96,484 | ||||||
102 | Jungfraubahn Holding AG, Registered Shares | 13,317 | ||||||
2,500 | Keihin Electric Express Railway Co., Ltd. | 47,992 | ||||||
1,200 | Keio Corp. | 52,776 | ||||||
1,500 | Keisei Electric Railway Co., Ltd. | 48,159 | ||||||
1,500 | Kintetsu Corp. | 57,370 | ||||||
15,830 | MTR Corp., Ltd. | 92,762 | ||||||
3,600 | Nagoya Railroad Co., Ltd. | 90,611 | ||||||
2,400 | Nankai Electric Railway Co., Ltd. | 59,435 | ||||||
29,502 | National Express Group plc | 151,322 | ||||||
2,000 | Nippon Express Co., Ltd. | 132,832 | ||||||
4,200 | Nippon Konpo Unyu Soko Co., Ltd. | 118,039 | ||||||
2,600 | Nishi-Nippon Railroad Co., Ltd. | 70,103 | ||||||
8,429 | Northgate plc | 43,271 | ||||||
2,800 | Odakyu Electric Railway Co., Ltd. | 59,848 | ||||||
4,000 | Sankyu, Inc. | 172,506 | ||||||
3,800 | Seino Holdings Co., Ltd. | 60,187 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Road & Rail, continued | ||||||||
11,100 | Senko Co., Ltd. | $ | 80,126 | |||||
823 | Sixt Leasing Se | 18,759 | ||||||
1,659 | Sixt SE | 105,313 | ||||||
1,209 | Sixt SE^ | 107,773 | ||||||
2,000 | Sotetsu Holdings, Inc. | 52,528 | ||||||
6,338 | Stagecoach Group plc | 14,030 | ||||||
80 | Stef S.A. | 9,061 | ||||||
4,596 | Student Transportation, Inc., Class BR | 28,304 | ||||||
6,961 | Tfi International, Inc. | 182,001 | ||||||
2,000 | Tobu Railway Co., Ltd. | 64,568 | ||||||
5,000 | Tokyu Corp. | 79,661 | ||||||
300 | Tonami Holdings Co., Ltd. | 15,152 | ||||||
400 | Trancom Co., Ltd. | 28,127 | ||||||
20,000 | Transport International Holdings, Ltd. | 64,388 | ||||||
824 | VTG AG | 47,069 | ||||||
1,400 | West Japan Railway Co. | 102,148 | ||||||
|
| |||||||
3,938,097 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (0.8%): | ||||||||
2,176 | Aixtron SE* | 29,945 | ||||||
435 | AMS AG | 39,428 | ||||||
797 | ASM International NV | 53,850 | ||||||
5,119 | ASM Pacific Technology, Ltd. | 71,203 | ||||||
1,629 | ASML Holding NV, NYS | 283,152 | ||||||
1,837 | BE Semiconductor Industries NV | 153,466 | ||||||
200 | Disco Corp. | 44,041 | ||||||
439 | Elmos Semiconductor AG | 12,083 | ||||||
2,300 | Ferrotec Corp. | 46,703 | ||||||
6,856 | Infineon Technologies AG | 187,230 | ||||||
200 | Lasertec Corp. | 5,045 | ||||||
1,090 | Melexis NV | 110,152 | ||||||
4,926 | Meyer Burger Technology AG* | 8,440 | ||||||
167,251 | Rec Silicon ASA* | 28,116 | ||||||
8,000 | Sanken Electric Co., Ltd. | 57,595 | ||||||
1,600 | Screen Holdings Co., Ltd. | 130,040 | ||||||
4,800 | Shinko Electric Industries Co., Ltd. | 38,959 | ||||||
992 | Siltronic AG* | 143,965 | ||||||
285 | SMA Solar Technology AG^ | 12,302 | ||||||
8,416 | STMicroelectronics NV | 182,749 | ||||||
763 | SUESS MicroTec SE* | 15,164 | ||||||
2,000 | SUMCO Corp. | 50,868 | ||||||
700 | Tokyo Electron, Ltd. | 125,406 | ||||||
2,000 | Tokyo Seimitsu Co., Ltd. | 78,640 | ||||||
2,312 | Tower Semiconductor, Ltd.* | 78,793 | ||||||
372 | U-Blox AG | 73,231 | ||||||
2,800 | ULVAC, Inc. | 175,135 | ||||||
|
| |||||||
2,235,701 | ||||||||
|
| |||||||
Software (0.8%): | ||||||||
1,917 | Aveva Group plc | 71,258 | ||||||
1,300 | Capcom Co., Ltd. | 41,006 | ||||||
2,000 | Colopl, Inc. | 21,704 | ||||||
2,326 | Computer Modelling Group, Ltd. | 17,767 | ||||||
301 | Constellation Software, Inc. | 182,501 |
Continued
26
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Software, continued | ||||||||
1,252 | Dassault Systemes SA | $ | 132,954 | |||||
1,064 | Descartes Systems Group, Inc.* | 30,218 | ||||||
2,942 | Fidessa Group plc | 100,479 | ||||||
1,403 | Gemalto NV | 83,011 | ||||||
15,900 | Gungho Online Enetertainment, Inc. | 43,699 | ||||||
8,390 | Hansen Technology, Ltd. | 25,819 | ||||||
38,000 | Igg, Inc. | 40,890 | ||||||
2,500 | Konami Corp. | 137,397 | ||||||
6,857 | Micro Focus International plc | 232,669 | ||||||
1,541 | Myob Group, Ltd. | 4,347 | ||||||
518 | Nemetschek Se | 46,431 | ||||||
339 | NICE Systems, Ltd. | 30,987 | ||||||
2,818 | Open Text Corp. | 100,518 | ||||||
700 | Oracle Corp. | 58,049 | ||||||
8,199 | PlayTech plc | 94,960 | ||||||
19,513 | Sage Group plc | 209,644 | ||||||
2,404 | SAP AG | 269,528 | ||||||
2,151 | SimCorp A/S | 122,484 | ||||||
343 | Software AG | 19,288 | ||||||
8,525 | Technology One, Ltd. | 32,892 | ||||||
2,386 | Temenos Group AG | 305,423 | ||||||
1,300 | Trend Micro, Inc. | 73,638 | ||||||
5,915 | UbiSoft Entertainment SA* | 455,067 | ||||||
|
| |||||||
2,984,628 | ||||||||
|
| |||||||
Specialty Retail (1.4%): | ||||||||
16,866 | Accent Group, Ltd. | 10,782 | ||||||
2,400 | Adastria Co., Ltd. | 48,557 | ||||||
900 | Alpen Co., Ltd. | 19,407 | ||||||
2,600 | Aoki Holdings, Inc. | 38,168 | ||||||
1,600 | Aoyama Trading Co., Ltd. | 59,813 | ||||||
1,900 | Arcland Sakamoto Co., Ltd. | 30,689 | ||||||
1,813 | Autocanada, Inc. | 32,659 | ||||||
11,649 | Automotive Holdings Group, Ltd. | 33,063 | ||||||
7,300 | BIC Camera, Inc. | 105,197 | ||||||
4,928 | Bilia AB, Class A | 48,069 | ||||||
3,245 | Byggmax Group AB | 21,749 | ||||||
18,000 | Chow Sang Sang Holdings International, Ltd. | 43,439 | ||||||
18,800 | Chow Tai Fook Jewellery Group, Ltd. | 19,704 | ||||||
2,205 | Clas Ohlson AB | 30,235 | ||||||
4,700 | DCM Holdings Co., Ltd. | 43,812 | ||||||
32,869 | Dixons Carphone plc | 88,269 | ||||||
2,047 | Dufry AG, Registered Shares* | 304,422 | ||||||
5,850 | Dunelm Group plc | 54,455 | ||||||
4,900 | Edion Corp. | 57,227 | ||||||
230,000 | Emperor Watch & Jewellery, Ltd. | 10,451 | ||||||
77,300 | Esprit Holdings, Ltd.* | 41,320 | ||||||
400 | Fast Retailing Co., Ltd. | 159,517 | ||||||
534 | Fielmann AG | 46,991 | ||||||
2,300 | Geo Holdings Corp. | 44,435 | ||||||
130,000 | Giordano International, Ltd. | 69,090 | ||||||
1,436 | Grandvision BV(a) | 36,645 | ||||||
3,133 | Greencross, Ltd. | 15,354 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Specialty Retail, continued | ||||||||
505 | Groupe FNAC SA* | $ | 60,979 | |||||
13,359 | Halfords Group plc | 62,992 | ||||||
4,280 | Hennes & Mauritz AB, Class B | 88,226 | ||||||
300 | Hikari Tsushin, Inc. | 43,110 | ||||||
483 | Hornbach Baumarkt AG | 17,870 | ||||||
5,100 | Idom, Inc. | 36,141 | ||||||
4,686 | Industria de Diseno Textil SA | 162,966 | ||||||
4,647 | JB Hi-Fi, Ltd. | 90,277 | ||||||
20,850 | JD Sports Fashion plc | 94,514 | ||||||
700 | Jin Co., Ltd. | 36,755 | ||||||
1,500 | Joshin Denki Co., Ltd. | 53,240 | ||||||
3,370 | Kappahl AB | 18,597 | ||||||
8,824 | Kathmandu Holdings, Ltd. | 15,165 | ||||||
1,700 | Keiyo Co., Ltd. | 10,301 | ||||||
26,520 | Kingfisher plc | 120,875 | ||||||
1,600 | Komeri Co., Ltd. | 46,143 | ||||||
4,200 | K’s Holding Corp. | 107,611 | ||||||
2,366 | Leon’s Furniture, Ltd. | 34,734 | ||||||
25,750 | L’occitane International SA | 47,179 | ||||||
19,046 | Lookers plc | 26,455 | ||||||
31,000 | Luk Fook Holdings International, Ltd. | 132,880 | ||||||
2,347 | Matas A/S | 29,684 | ||||||
600 | Mekonomen AB | 10,912 | ||||||
900 | Nitori Co., Ltd. | 128,345 | ||||||
2,300 | Nojima Corp. | 54,912 | ||||||
76,677 | Pendragon plc | 29,527 | ||||||
19,618 | Pets At Home Group plc | 46,718 | ||||||
917 | Premier Investments, Ltd. | 10,612 | ||||||
800 | Sanrio Co., Ltd. | 13,385 | ||||||
1,300 | Shimachu Co., Ltd. | 37,452 | ||||||
300 | Shimamura Co., Ltd. | 33,002 | ||||||
9,000 | Sports Direct International* | 45,694 | ||||||
4,622 | Super Retail Group, Ltd. | 29,744 | ||||||
3,968 | Supergroup plc | 105,553 | ||||||
1,900 | United Arrows, Ltd. | 77,171 | ||||||
2,400 | USS Co., Ltd. | 50,779 | ||||||
186 | Valora Holding AG | 61,998 | ||||||
8,200 | VT Holdings Co., Ltd. | 40,875 | ||||||
4,080 | WHSmith plc | 129,140 | ||||||
700 | Xebio Holdings Co., Ltd. | 13,316 | ||||||
1,990 | XXL ASA(a) | 20,614 | ||||||
9,000 | Yamada Denki Co., Ltd. | 49,534 | ||||||
|
| |||||||
3,839,496 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (0.5%): | ||||||||
6,400 | Brother Industries, Ltd. | 157,993 | ||||||
5,600 | Canon, Inc. | 208,579 | ||||||
2,800 | Fujifilm Holdings Corp. | 114,327 | ||||||
1,300 | Fujitsu Frontech, Ltd. | 23,038 | ||||||
13,700 | Konica Minolta Holdings, Inc. | 131,878 | ||||||
6,508 | Logitech International SA^ | 218,929 | ||||||
3,100 | Mcj Co., Ltd. | 32,500 | ||||||
4,300 | NEC Corp. | 116,048 |
Continued
27
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Technology Hardware, Storage & Peripherals, continued | ||||||||
2,343 | Neopost | $ | 67,257 | |||||
1,700 | Noritsu Koki Co., Ltd. | 37,312 | ||||||
8,500 | Ricoh Co., Ltd. | 79,016 | ||||||
100 | Roland Dg Corp. | 2,686 | ||||||
8,300 | Seiko Epson Corp. | 195,478 | ||||||
9,000 | Toshiba Tec Corp. | 56,616 | ||||||
|
| |||||||
1,441,657 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (1.5%): | ||||||||
689 | Adidas AG | 137,524 | ||||||
1,500 | ASICS Corp. | 23,922 | ||||||
1,383 | Brunello Cucinelli SpA | 44,808 | ||||||
6,313 | Burberry Group plc | 152,593 | ||||||
499 | Christian Dior SA | 182,092 | ||||||
854 | Compagnie Financiere Richemont SA | 77,343 | ||||||
485 | Delta-Galil Industries, Ltd. | 16,801 | ||||||
2,100 | Descente, Ltd. | 36,169 | ||||||
900 | Fujibo Holdings, Inc. | 29,683 | ||||||
1,311 | Gildan Activewear, Inc. | 42,345 | ||||||
280,000 | Global Brands Group Holdings, Ltd.* | 22,897 | ||||||
400 | Gunze, Ltd. | 22,905 | ||||||
189 | Hermes International SA | 101,158 | ||||||
2,445 | Hugo Boss AG | 207,372 | ||||||
4,000 | Japan Wool Textile Co., Ltd. (The) | 38,564 | ||||||
1,400 | Komatsu Seiren Co., Ltd. | 11,504 | ||||||
7,000 | Kurabo Industries, Ltd. | 22,731 | ||||||
399,238 | Li & Fung, Ltd. | 218,902 | ||||||
1,682 | Luxottica Group SpA | 103,063 | ||||||
2,321 | LVMH Moet Hennessy Louis Vuitton SA | 681,710 | ||||||
5,170 | Moncler SpA | 161,505 | ||||||
1,495 | New Wave Group AB | 9,928 | ||||||
5,000 | Onward Holdings Co., Ltd. | 43,286 | ||||||
9,893 | Ovs SpA(a) | 65,854 | ||||||
27,000 | Pacific Textiles Holdings, Ltd. | 28,508 | ||||||
2,465 | Pandora A/S | 268,317 | ||||||
6,400 | Prada SpA | 23,186 | ||||||
2,618 | Safilo Group SpA* | 14,958 | ||||||
2,218 | Salvatore Ferragamo Italia SpA | 58,801 | ||||||
36,000 | Samsonite International SA | 165,370 | ||||||
1,800 | Seiko Holdings Corp. | 52,343 | ||||||
2,500 | Seiren Co., Ltd. | 48,891 | ||||||
28,000 | Stella International Holdings, Ltd. | 42,160 | ||||||
218 | Swatch Group AG (The), Class B | 88,891 | ||||||
512 | Swatch Group AG (The), Registered Shares | 39,144 | ||||||
1,909 | Ted Baker plc | 69,579 | ||||||
36,000 | Texwinca Holdings, Ltd. | 19,814 | ||||||
404 | Tod’s SpA | 29,519 | ||||||
3,200 | Tsi Holdings Co., Ltd. | 23,503 | ||||||
2,700 | Unitika, Ltd.* | 19,797 | ||||||
2,000 | Wacoal Holdings Corp. | 63,135 | ||||||
45,514 | Yue Yuen Industrial Holdings, Ltd. | 178,600 | ||||||
|
| |||||||
3,689,175 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Thrifts & Mortgage Finance (0.1%): | ||||||||
2,324 | Aareal Bank AG | $ | 105,164 | |||||
676 | Deutsche Pfandbriefbank AG(a) | 10,809 | ||||||
615 | Equitable Group, Inc. | 34,988 | ||||||
2,026 | Genworth MI Canada, Inc. | 70,123 | ||||||
16,190 | Genworth Mortgage Insurance AU | 37,812 | ||||||
1,812 | Home Capital Group, Inc. | 24,957 | ||||||
7,866 | Onesavings Bank plc | 43,768 | ||||||
10,905 | Paragon Group of Cos. plc (The) | 72,004 | ||||||
|
| |||||||
399,625 | ||||||||
|
| |||||||
Tobacco (0.4%): | ||||||||
9,312 | British American Tobacco plc, ADR | 623,810 | ||||||
4,936 | Imperial Tobacco Group plc, Class A | 210,900 | ||||||
4,800 | Japan Tobacco, Inc. | 154,620 | ||||||
652 | Scandinavian Tobacco Group A/S(a) | 12,612 | ||||||
2,105 | Swedish Match AB, Class B | 82,886 | ||||||
|
| |||||||
1,084,828 | ||||||||
|
| |||||||
Trading Companies & Distributors (1.9%): | ||||||||
2,637 | AddTech AB, Class B | 57,626 | ||||||
21,185 | Ashtead Group plc | 565,275 | ||||||
1,271 | B&b Tools AB | 13,316 | ||||||
284 | BayWa AG | 10,909 | ||||||
537 | Beijer Ref AB | 20,675 | ||||||
2,100 | BOC Aviation, Ltd.(a) | 11,183 | ||||||
583 | Bossard Holding AG | 137,275 | ||||||
3,484 | Brenntag AG | 219,748 | ||||||
4,067 | Bunzl plc | 113,699 | ||||||
3,143 | Cramo OYJ | 74,413 | ||||||
400 | Daiichi Jitsugyo Co., Ltd. | 12,050 | ||||||
10,848 | Diploma plc | 182,142 | ||||||
3,579 | Grafton Group plc | 38,715 | ||||||
800 | Hanwa Co., Ltd. | 36,935 | ||||||
36,721 | Howden Joinery Group plc | 231,237 | ||||||
1,788 | Imcd Group NV | 112,449 | ||||||
2,800 | Inabata & Co., Ltd. | 42,346 | ||||||
4,621 | Indutrade AB | 125,680 | ||||||
2,800 | ITOCHU Corp. | 52,285 | ||||||
2,600 | Iwatani Corp. | 83,800 | ||||||
616 | Jacquet Metal Service | 20,301 | ||||||
200 | Japan Pulp & Paper Co., Ltd. | 7,662 | ||||||
700 | Kamei Corp. | 12,138 | ||||||
900 | Kanaden Corp. | 11,321 | ||||||
1,700 | Kanamoto Co., Ltd. | 52,745 | ||||||
4,800 | Kanematsu Corp. | 66,398 | ||||||
3,917 | Kloeckner & Co. SE | 48,147 | ||||||
14,000 | Marubeni Corp. | 101,670 | ||||||
5,100 | Misumi Group, Inc. | 147,786 | ||||||
1,100 | Mitani Corp. | 58,582 | ||||||
8,100 | Mitsubishi Corp. | 223,886 | ||||||
10,700 | Mitsui & Co., Ltd. | 173,800 | ||||||
1,271 | Momentum Group AB, Class B* | 18,051 | ||||||
1,400 | Monotaro Co., Ltd. | 44,674 |
Continued
28
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Trading Companies & Distributors, continued | ||||||||
2,600 | Nagase & Co., Ltd. | $ | 46,680 | |||||
900 | NEC Capital Solutions, Ltd. | 18,557 | ||||||
20,000 | New Provenance Everlasting Holdings, Ltd.* | 399 | ||||||
600 | Nichiden Corp. | 12,311 | ||||||
1,100 | Nippon Steel & Sumikin Bussan | 66,720 | ||||||
1,200 | Nishio Rent All Co., Ltd. | 38,904 | ||||||
52,580 | Noble Group Ltd.* | 7,869 | ||||||
700 | Onoken Co., Ltd. | 12,657 | ||||||
7,777 | Ramirent OYJ | 72,789 | ||||||
4,015 | Reece, Ltd. | 30,147 | ||||||
12,561 | Rexel SA | 227,784 | ||||||
2,192 | Richelieu Hardware, Ltd. | 59,806 | ||||||
1,304 | Russel Metals, Inc. | 30,266 | ||||||
800 | Senshu Electric Co., Ltd. | 24,424 | ||||||
21,640 | SIG plc | 51,432 | ||||||
28,100 | Sojitz Corp. | 86,333 | ||||||
164 | Solar A/S | 10,771 | ||||||
7,900 | Sumitomo Corp. | 133,925 | ||||||
3,072 | Toromont Industries, Ltd. | 134,681 | ||||||
4,200 | Toyota Tsushu Corp. | 168,820 | ||||||
3,019 | Travis Perkins plc | 63,822 | ||||||
1,000 | Trusco Nakayama Corp. | 29,137 | ||||||
800 | Wajax Corp. | 15,703 | ||||||
2,700 | Wakita & Co., Ltd. | 33,017 | ||||||
3,709 | Wolseley plc | 265,338 | ||||||
3,800 | Yamazen Corp. | 44,777 | ||||||
800 | Yuasa Trading Co., Ltd. | 29,026 | ||||||
|
| |||||||
4,845,014 | ||||||||
|
| |||||||
Transportation Infrastructure (0.6%): | ||||||||
10,833 | Abertis Infraestructuras SA | 241,013 | ||||||
493 | Aena SA(a) | 99,792 | ||||||
384 | Aeroports de Paris | 72,945 | ||||||
3,529 | Ansaldo Sts SpA* | 50,788 | ||||||
7,311 | Atlantia SpA | 230,590 | ||||||
2,790 | Auckland International Airport, Ltd. | 12,803 | ||||||
17,433 | BBA Aviation plc | 82,267 | ||||||
960 | Flughafen Zuerich AG | 219,578 | ||||||
1,696 | Fraport AG | 186,553 | ||||||
3,270 | Groupe Eurotunnel SA | 42,051 | ||||||
1,679 | Hamburger Hafen und Logistik AG | 47,513 | ||||||
129,000 | Hutchison Port Holdings Trust | 53,525 | ||||||
700 | Japan Airport Terminal Co., Ltd. | 25,978 | ||||||
1,500 | Kamigumi Co., Ltd. | 33,158 | ||||||
1,000 | Mitsubishi Logistics Corp. | 25,934 | ||||||
26,396 | Qube Holdings, Ltd. | 53,275 | ||||||
15,500 | SATS, Ltd. | 60,174 | ||||||
6,407 | SIAS SpA | 119,170 | ||||||
4,000 | Sumitomo Warehouse Co., Ltd. (The) | 28,851 | ||||||
14,036 | Sydney Airport | 76,971 | ||||||
9,088 | Transurban Group | 87,947 | ||||||
2,729 | Westshore Terminals Investment Corp. | 57,086 | ||||||
|
| |||||||
1,907,962 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Water Utilities (0.2%): | ||||||||
15,034 | Pennon Group plc | $ | 158,206 | |||||
5,341 | Severn Trent plc | 155,808 | ||||||
7,737 | United Utilities Group plc | 86,579 | ||||||
|
| |||||||
400,593 | ||||||||
|
| |||||||
Wireless Telecommunication Services (1.1%): | ||||||||
2,035 | Cellcom Israel, Ltd.* | 21,012 | ||||||
1,335 | Drillisch AG | �� | 110,183 | |||||
4,802 | Freenet AG | 177,100 | ||||||
13,800 | KDDI Corp. | 343,629 | ||||||
13,000 | M1, Ltd. | 17,302 | ||||||
3,522 | Millicom International Cellular SA, SDR | 237,864 | ||||||
2,104 | Mobistar SA | 44,134 | ||||||
23,100 | NTT DoCoMo, Inc. | 545,737 | ||||||
1,000 | Okinawa Cellular Telephone Co. | 36,417 | ||||||
1,708 | Rogers Communications, Inc., Class B | 86,988 | ||||||
17,000 | Smartone Telecommunications Ho | 20,484 | ||||||
4,700 | SoftBank Group Corp. | 371,364 | ||||||
21,800 | StarHub, Ltd. | 46,463 | ||||||
3,836 | Tele2 AB | 47,122 | ||||||
349,145 | Vodafone Group plc | 1,102,763 | ||||||
|
| |||||||
3,208,562 | ||||||||
|
| |||||||
Total Common Stocks (Cost $219,168,819) | 257,742,197 | |||||||
|
| |||||||
Preferred Stocks (0.5%): | ||||||||
Automobiles (0.5%): | ||||||||
1,600 | Bayerische Motoren Werke AG (BMW), 4.73% | 142,853 | ||||||
2,174 | Porsche Automobil Holding SE, 1.45% | 181,937 | ||||||
4,515 | Volkswagen AG, 1.24% | 899,684 | ||||||
|
| |||||||
1,224,474 | ||||||||
|
| |||||||
Total Preferred Stocks (Cost $1,244,412) | 1,224,474 | |||||||
|
| |||||||
Rights (0.0%): | ||||||||
Aerospace & Defense (0.0%): | ||||||||
1,164,858 | Rolls-Royce Holdings plc, Expires on 1/08/18*(b)(c) | 1,572 | ||||||
|
| |||||||
Commercial Services & Supplies (0.0%): | ||||||||
19,494 | Cleanaway Waste Management, Expires on 1/22/18*(b) | — | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.0%): | ||||||||
9,848 | Maurel Et Prom — CVR, Expires on 1/02/18*(b)(c) | — | ||||||
18,721 | Repsol SA, Expires on 1/08/18* | 8,512 | ||||||
|
| |||||||
8,512 | ||||||||
|
| |||||||
Pharmaceuticals (0.0%): | ||||||||
7,475 | Faes Farma SA, Expires on 1/02/18* | 924 | ||||||
|
| |||||||
Transportation Infrastructure (0.0%): | ||||||||
681 | Transurban Group, Expires on 1/25/18*(b) | — | ||||||
|
| |||||||
Total Rights (Cost $—) | 11,008 | |||||||
|
|
Continued
29
AZL DFA International Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Securities Held as Collateral for Securities on Loan (0.6%): | ||||||||
$ | 1,457,243 | AZL DFA International Core Equity Fund Securities Lending Collateral Account(d) | $ | 1,457,243 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 1,457,243 | ||||||
|
| |||||||
Total Investment Securities (Cost $221,870,474)(e) — 100.6% | 260,434,922 | |||||||
Net other assets (liabilities) — (0.6)% | (1,476,071 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 258,958,851 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
ADR—American Depositary Receipt
CVR—Contingency Valued Rights
GO—General Obligation
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, 2017. The total value of securities on loan as of December 31, 2017, was $1,410,780. |
(a) | Rule 144A, Section 4(2) or other security which is restricted to resale to institutional investors. The subadviser has deemed these securities to be liquid based on procedures approved by the Board of Trustees. |
(b) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2017. The total of all such securities represent 0.02% of the net assets of the fund. |
(c) | The subadviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2017, these securities represent 0.02% 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, 2017. |
(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, 2017: (Unaudited)
Country | Percentage | |||
Australia | 5.8 | % | ||
Austria | 0.6 | % | ||
Belgium | 1.3 | % | ||
Bermuda | — | %^ | ||
Cambodia | — | %^ | ||
Canada | 8.2 | % | ||
Cayman Islands | — | %^ | ||
China | 0.1 | % | ||
Denmark | 1.7 | % | ||
Egypt | 0.1 | % | ||
European Community | — | %^ | ||
Faroe Islands | — | %^ | ||
Finland | 1.8 | % | ||
France | 7.3 | % | ||
Georgia | — | %^ | ||
Germany | 7.6 | % | ||
Hong Kong | 2.5 | % | ||
Ireland (Republic of) | 1.1 | % | ||
Isle of Man | — | %^ | ||
Israel | 0.4 | % |
Country | Percentage | |||
Italy | 2.7 | % | ||
Japan | 25.1 | % | ||
Liechtenstein | — | %^ | ||
Luxembourg | 0.5 | % | ||
Malta | — | %^ | ||
Mongolia | — | %^ | ||
Netherlands | 3.0 | % | ||
New Zealand | 0.4 | % | ||
Norway | 0.8 | % | ||
Peru | — | %^ | ||
Portugal | 0.1 | % | ||
Singapore | 0.9 | % | ||
Spain | 2.6 | % | ||
Sweden | 2.7 | % | ||
Switzerland | 6.7 | % | ||
United Arab Emirates | — | %^ | ||
United Kingdom | 15.2 | % | ||
United States | 0.8 | % | ||
|
| |||
100.0 | % | |||
|
|
^ | Represents less than 0.05%. |
See accompanying notes to the financial statements.
30
AZL DFA International Core Equity Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investment securities, at cost | $ | 221,870,474 | |||
|
| ||||
Investment securities, at value* | $ | 260,434,922 | |||
Interest and dividends receivable | 225,603 | ||||
Foreign currency, at value (cost $44,352) | 46,172 | ||||
Receivable for investments sold | 1,232,844 | ||||
Reclaims receivable | 600,952 | ||||
Prepaid expenses | 1,491 | ||||
|
| ||||
Total Assets | 262,541,984 | ||||
|
| ||||
Liabilities: | |||||
Cash overdraft | 812,886 | ||||
Payable for investments purchased | 618,577 | ||||
Payable for capital shares redeemed | 433,398 | ||||
Payable for collateral received on loaned securities | 1,457,243 | ||||
Manager fees payable | 163,544 | ||||
Administration fees payable | 19,693 | ||||
Distribution fees payable | 54,515 | ||||
Custodian fees payable | 15,060 | ||||
Administrative and compliance services fees payable | 502 | ||||
Transfer agent fees payable | 613 | ||||
Trustee fees payable | 324 | ||||
Other accrued liabilities | 6,778 | ||||
|
| ||||
Total Liabilities | 3,583,133 | ||||
|
| ||||
Net Assets | $ | 258,958,851 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 215,624,731 | |||
Accumulated net investment income/(loss) | 3,621,522 | ||||
Accumulated net realized gains/(losses) from investment transactions | 1,119,136 | ||||
Net unrealized appreciation/(depreciation) on investments | 38,593,462 | ||||
|
| ||||
Net Assets | $ | 258,958,851 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 22,589,110 | ||||
Net Asset Value (offering and redemption price per share) | $ | 11.46 | |||
|
|
* | Includes securities on loan of $1,410,780. |
For the Year Ended December 31, 2017
Investment Income: | |||||
Dividends | $ | 7,782,451 | |||
Income from securities lending | 40,697 | ||||
Other income | 12,043 | ||||
Foreign withholding tax | (924,298 | ) | |||
|
| ||||
Total Investment Income | 6,910,893 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,443,508 | ||||
Administration fees | 345,363 | ||||
Distribution fees | 643,027 | ||||
Custodian fees | 140,329 | ||||
Administrative and compliance services fees | 3,575 | ||||
Transfer agent fees | 5,960 | ||||
Trustee fees | 12,687 | ||||
Professional fees | 15,262 | ||||
Shareholder reports | 4,237 | ||||
Other expenses | 6,193 | ||||
|
| ||||
Total expenses before reductions | 3,620,141 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (514,427 | ) | |||
|
| ||||
Net expenses | 3,105,714 | ||||
|
| ||||
Net Investment Income/(Loss) | 3,805,179 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions and foreign currencies | 2,741,170 | ||||
Change in net unrealized appreciation/depreciation on investments and foreign currencies | 53,201,724 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 55,942,894 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 59,748,073 | |||
|
|
See accompanying notes to the financial statements.
31
AZL DFA International Core Equity Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 3,805,179 | $ | 2,946,454 | ||||||
Net realized gains/(losses) on investment transactions | 2,741,170 | (1,152,512 | ) | |||||||
Change in unrealized appreciation/depreciation on investments | 53,201,724 | 5,280,582 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 59,748,073 | 7,074,524 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (3,321,065 | ) | (1,859,695 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (3,321,065 | ) | (1,859,695 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 1,518,775 | 110,343,978 | ||||||||
Proceeds from dividends reinvested | 3,321,065 | 1,859,695 | ||||||||
Value of shares redeemed | (55,005,008 | ) | (34,994,294 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (50,165,168 | ) | 77,209,379 | |||||||
|
|
|
| |||||||
Change in net assets | 6,261,840 | 82,424,208 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 252,697,011 | 170,272,803 | ||||||||
|
|
|
| |||||||
End of period | $ | 258,958,851 | $ | 252,697,011 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 3,621,522 | $ | 2,847,637 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 145,766 | 12,178,801 | ||||||||
Dividends reinvested | 304,685 | 205,038 | ||||||||
Shares redeemed | (5,286,375 | ) | (3,817,364 | ) | ||||||
|
|
|
| |||||||
Change in shares | (4,835,924 | ) | 8,566,475 | |||||||
|
|
|
|
See accompanying notes to the financial statements.
32
AZL DFA International Core Equity Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, 2017 | Year Ended December 31, 2016 | April 27, 2015 to December 31, | |||||||||||||
Net Asset Value, Beginning of Period | $ | 9.21 | $ | 9.03 | $ | 10.00 | |||||||||
|
|
|
|
|
| ||||||||||
Investment Activities: | |||||||||||||||
Net Investment Income/(Loss) | 0.19 | 0.11 | 0.08 | ||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 2.21 | 0.17 | (1.05 | ) | |||||||||||
|
|
|
|
|
| ||||||||||
Total from Investment Activities | 2.40 | 0.28 | (0.97 | ) | |||||||||||
|
|
|
|
|
| ||||||||||
Dividends to Shareholders From: | |||||||||||||||
Net Investment Income | (0.15 | ) | (0.10 | ) | — | ||||||||||
|
|
|
|
|
| ||||||||||
Total Dividends | (0.15 | ) | (0.10 | ) | — | ||||||||||
|
|
|
|
|
| ||||||||||
Net Asset Value, End of Period | $ | 11.46 | $ | 9.21 | $ | 9.03 | |||||||||
|
|
|
|
|
| ||||||||||
Total Return(b) | 26.09 | % | 3.17 | % | (9.70 | )%(c) | |||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||
Net Assets, End of Period (000’s) | $ | 258,959 | $ | 252,697 | $ | 170,273 | |||||||||
Net Investment Income/(Loss)(d) | 1.48 | % | 1.62 | % | 1.19 | % | |||||||||
Expenses Before Reductions(d)(e) | 1.41 | % | 1.39 | % | 1.39 | % | |||||||||
Expenses Net of Reductions(d) | 1.21 | % | 1.19 | % | 1.19 | % | |||||||||
Portfolio Turnover Rate | 4 | % | 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 for periods less than one year. |
(d) | Annualized for periods less than one year. |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
See accompanying notes to the financial statements.
33
AZL DFA International Core Equity Fund
Notes to the Financial Statements
December 31, 2017
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 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 accrues 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 and Withholding Taxes
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, or from other assets and liabilities, from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains is determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., reclassification of certain market discounts and gain/loss, and other permanent adjustments), 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.
34
AZL DFA International Core Equity Fund
Notes to the Financial Statements
December 31, 2017
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, 2017 are noted on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $2 million for the year ended December 31, 2017.
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 $3,733 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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, 2017.
Overnight and Continuous | Less than 30 Days | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions | $ | 1,352,828 | $ | 104,415 | $ | — | $ | — | $ | 1,457,243 |
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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, 2017, the Fund did not engage in any such transactions under the Rule.
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, 2019.
For the year ended December 31, 2017, the annual rate paid 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, 2017, there were no contractual reimbursements 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
35
AZL DFA International Core Equity Fund
Notes to the Financial Statements
December 31, 2017
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.”
FIS Investor Services LLC (“FIS”) 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, 2017, $2,738 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, 2017, actual Trustee compensation was $1,116,333 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.
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.
36
AZL DFA International Core Equity Fund
Notes to the Financial Statements
December 31, 2017
There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Other^ | Total | ||||||||||||||||||||
Common Stocks | |||||||||||||||||||||||||
Aerospace & Defense | $ | 300,495 | $ | 3,157,067 | $ | — | $ | — | $ | 3,457,562 | |||||||||||||||
Airlines | 120,680 | 898,482 | — | — | 1,019,162 | ||||||||||||||||||||
Auto Components | 730,923 | 7,842,933 | — | — | 8,573,856 | ||||||||||||||||||||
Automobiles | 100,436 | 9,490,829 | — | — | 9,591,265 | ||||||||||||||||||||
Banks | 7,782,571 | 15,663,810 | — | — | 23,446,381 | ||||||||||||||||||||
Beverages | 769,367 | 2,268,735 | — | — | 3,038,102 | ||||||||||||||||||||
Biotechnology | 37,999 | 568,201 | — | — | 606,200 | ||||||||||||||||||||
Capital Markets | 750,863 | 5,776,041 | — | — | 6,526,904 | ||||||||||||||||||||
Chemicals | 223,368 | 15,277,650 | — | — | 15,501,018 | ||||||||||||||||||||
Commercial Services & Supplies | 91,523 | 3,921,942 | — | — | 4,013,465 | ||||||||||||||||||||
Communications Equipment | 70,878 | 474,748 | — | — | 545,626 | ||||||||||||||||||||
Construction & Engineering | 98,829 | 5,500,275 | — | — | 5,599,104 | ||||||||||||||||||||
Construction Materials | 306,043 | 1,538,094 | — | — | 1,844,137 | ||||||||||||||||||||
Containers & Packaging | 172,379 | 2,031,521 | — | — | 2,203,900 | ||||||||||||||||||||
Distributors | 68,380 | 620,156 | — | — | 688,536 | ||||||||||||||||||||
Diversified Consumer Services | 82,330 | 305,079 | — | — | 387,409 | ||||||||||||||||||||
Diversified Financial Services | 157,880 | 1,571,520 | — | — | 1,729,400 | ||||||||||||||||||||
Diversified Telecommunication Services | 77,701 | 5,746,010 | — | — | 5,823,711 | ||||||||||||||||||||
Electronic Equipment, Instruments & Components | 68,428 | 4,946,199 | — | — | 5,014,627 | ||||||||||||||||||||
Energy Equipment & Services | 347,835 | 1,262,328 | — | — | 1,610,163 | ||||||||||||||||||||
Food & Staples Retailing | 437,134 | 6,086,434 | — | — | 6,523,568 | ||||||||||||||||||||
Food Products | 330,630 | 7,194,294 | — | — | 7,524,924 | ||||||||||||||||||||
Gas Utilities | 112,675 | 922,856 | — | — | 1,035,531 | ||||||||||||||||||||
Health Care Equipment & Supplies | 16,024 | 2,884,003 | — | — | 2,900,027 | ||||||||||||||||||||
Health Care Providers & Services | 79,478 | 1,569,507 | — | — | 1,648,985 | ||||||||||||||||||||
Hotels, Restaurants & Leisure | 412,361 | 5,034,396 | — | — | 5,446,757 | ||||||||||||||||||||
Household Durables | 24,745 | 5,407,598 | — | — | 5,432,343 | ||||||||||||||||||||
Independent Power & Renewable Electricity Producers | 232,229 | 370,835 | — | — | 603,064 | ||||||||||||||||||||
Industrial Conglomerates | 143,149 | 2,156,410 | — | — | 2,299,559 | ||||||||||||||||||||
Insurance | 1,152,094 | 8,694,013 | — | — | 9,846,107 | ||||||||||||||||||||
Internet Software & Services | 12,233 | 1,168,364 | — | — | 1,180,597 | ||||||||||||||||||||
IT Services | 56,775 | 3,103,163 | — | — | 3,159,938 | ||||||||||||||||||||
Leisure Products | 55,732 | 757,323 | — | — | 813,055 | ||||||||||||||||||||
Machinery | 95,687 | 11,503,282 | — | — | 11,598,969 | ||||||||||||||||||||
Media | 724,672 | 3,694,728 | — | — | 4,419,400 | ||||||||||||||||||||
Metals & Mining | 4,661,877 | 8,963,992 | — | — | 13,625,869 | ||||||||||||||||||||
Multiline Retail | 346,156 | 1,328,104 | — | — | 1,674,260 | ||||||||||||||||||||
Multi-Utilities | 124,563 | 1,973,947 | — | — | 2,098,510 | ||||||||||||||||||||
Oil, Gas & Consumable Fuels | 4,996,253 | 5,228,206 | — | — | 10,224,459 | ||||||||||||||||||||
Paper & Forest Products | 712,799 | 1,856,280 | — | — | 2,569,079 | ||||||||||||||||||||
Personal Products | 757,696 | 732,176 | — | — | 1,489,872 | ||||||||||||||||||||
Pharmaceuticals | 953,183 | 5,691,647 | — | — | 6,644,830 | ||||||||||||||||||||
Professional Services | 253,809 | 4,186,962 | — | — | 4,440,771 | ||||||||||||||||||||
Real Estate Management & Development | 204,976 | 5,377,874 | — | — | 5,582,850 | ||||||||||||||||||||
Road & Rail | 813,305 | 3,124,792 | — | — | 3,938,097 | ||||||||||||||||||||
Semiconductors & Semiconductor Equipment | 361,945 | 1,873,756 | — | — | 2,235,701 | ||||||||||||||||||||
Software | 331,004 | 2,653,624 | — | — | 2,984,628 | ||||||||||||||||||||
Specialty Retail | 67,393 | 3,772,103 | — | — | 3,839,496 | ||||||||||||||||||||
Technology Hardware, Storage & Peripherals | 218,929 | 1,222,728 | — | — | 1,441,657 | ||||||||||||||||||||
Textiles, Apparel & Luxury Goods | 42,345 | 3,646,830 | — | — | 3,689,175 | ||||||||||||||||||||
Thrifts & Mortgage Finance | 130,068 | 269,557 | — | — | 399,625 | ||||||||||||||||||||
Tobacco | 623,810 | 461,018 | — | — | 1,084,828 | ||||||||||||||||||||
Trading Companies & Distributors | 240,456 | 4,604,558 | — | — | 4,845,014 | ||||||||||||||||||||
Transportation Infrastructure | 57,086 | 1,850,876 | — | — | 1,907,962 |
37
AZL DFA International Core Equity Fund
Notes to the Financial Statements
December 31, 2017
Investment Securities: | Level 1 | Level 2 | Level 3 | Other^ | Total | ||||||||||||||||||||
Wireless Telecommunication Services | $ | 86,988 | $ | 3,121,574 | $ | — | $ | — | $ | 3,208,562 | |||||||||||||||
All Other Common Stocks+ | — | 14,163,600 | — | — | 14,163,600 | ||||||||||||||||||||
Preferred Stocks | — | 1,224,474 | — | — | 1,224,474 | ||||||||||||||||||||
Rights | 9,436 | — | 1,572 | — | 11,008 | ||||||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | — | 1,457,243 | 1,457,243 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Investments | $ | 32,238,603 | $ | 226,737,504 | $ | 1,572 | $ | 1,457,243 | $ | 260,434,922 | |||||||||||||||
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|
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
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, 2017, 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 | $ | 11,364,720 | $ | 59,568,261 |
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, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $222,709,612. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 50,132,835 | ||
Unrealized (depreciation) | (12,407,525 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 37,725,310 | ||
|
|
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, 2017, the Fund utilized $1,178,101 in CLCFs to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL DFA International Core Equity Fund | $ | 3,321,065 | $ | — | $ | 3,321,065 |
(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 DFA International Core Equity Fund
Notes to the Financial Statements
December 31, 2017
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 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, 2017, 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 | $ | 5,579,796 | $ | — | $ | — | $ | 37,754,324 | $ | 43,334,120 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2017, the Fund had multiple shareholder accounts which are affiliated with the Investment Adviser representing ownership of 80% of the Fund.
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
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, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the two-year period then ended and the period from April 27, 2015 (commencement of operations) to December 31, 2015. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, 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 two-year period then ended and the period from April 27, 2015 to December 31, 2015, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2017, 0.02% 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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A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Fund of Funds Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
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Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
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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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
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The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in 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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
46
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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
47
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® DFA U.S. Core Equity Fund
Annual Report
December 31, 2017
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 28
Page 28
Statements of Changes in Net Assets
Page 29
Page 30
Notes to the Financial Statements
Page 31
Report of Independent Registered Public Accounting Firm
Page 36
Other Federal Income Tax Information
Page 37
Page 38
Approval of Investment Advisory and Subadvisory Agreements
Page 39
Information about the Board of Trustees and Officers
Page 42
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, 2017?
For the year ended December 31, 2017, the AZL® DFA U.S. Core Equity Fund (the “Fund”) returned 20.45%†. That compared to a 21.13% total return for its benchmark, the Russell 3000® Index1.
U.S. equities rallied to record highs as a strengthening economy powered high profit growth during the 12-month period. Gains were consistent despite increased political instability in the U.S. and other countries. As confidence in the global recovery grew, investors favored growth-oriented stocks over shares that are more defensive.
Improved U.S. economic and employment data was tempered somewhat by weak housing indicators in the second and third quarters. Robust consumer demand helped information technology far outpace the other sectors, with the materials and industrials sectors also posting healthy returns. As forecast in late 2016, the U.S. Federal Reserve raised interest rates three times (a total of 0.75%) in 2017 in response to improving economic conditions.
In general, small-cap stocks underperformed their large-cap counterparts, and value stocks underperformed growth stocks during the period.
Profitability premiums were mixed in the U.S. market during the calendar year. In the small-cap growth segment, stocks with the lowest profitability and highest relative price outperformed higher-profitability stocks. However, higher-profitability stocks generally outperformed throughout the rest of the small-cap universe, and among large-caps.
The Fund underperformed its benchmark for the 12-month period. The Fund’s emphasis on small-cap stocks detracted from relative performance, as small-caps underperformed substantially during the year. The Fund’s emphasis on value stocks also detracted, as value stocks underperformed growth during the period.*
However, the Fund’s general exclusion of real estate investment trusts2 (REITs) benefited relative performance, as REITs underperformed the overall benchmark.*
Past performance does not guarantee future results.
† | The recent appreciation in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. |
* | 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, 2017. |
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, 2017
1 Year | Since Inception (4/27/15) | |||||||
AZL® DFA U.S. Core Equity Fund | 20.45 | %† | 10.44 | % | ||||
Russell 3000® Index | 21.13 | % | 11.06 | % |
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 | 1.10 | % |
The above expense ratio is based on the current Fund prospectus dated May 1, 2017. 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, 2019. Additional information pertaining to the December 31, 2017 expense ratios can be found in the financial highlights.
† | The recent appreciation in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. |
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
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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period | |||||||||||||||||
AZL DFA U.S. Core Equity Fund | $ | 1,000.00 | $ | 1,118.10 | $ | 4.43 | 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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period | |||||||||||||||||
AZL DFA U.S. Core Equity Fund | $ | 1,000.00 | $ | 1,021.01 | $ | 4.23 | 0.83 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 21.6 | % | |||
Consumer Discretionary | 16.5 | ||||
Financials | 14.4 | ||||
Industrials | 14.2 | ||||
Health Care | 10.9 | ||||
Consumer Staples | 7.5 | ||||
Materials | 4.9 | ||||
Energy | 3.8 | ||||
Utilities | 2.9 | ||||
Telecommunication Services | 2.5 | ||||
Real Estate | 0.3 | ||||
|
| ||||
Total Common Stocks | 99.5 | ||||
Right | — | ^ | |||
Securities Held as Collateral for Securities on Loan | 9.7 | ||||
Money Market | 0.2 | ||||
|
| ||||
Total Investment Securities | 109.4 | ||||
Net other assets (liabilities) | (9.4 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks (99.5%): | ||||||||
Aerospace & Defense (2.9%): | ||||||||
1,674 | AAR Corp. | $ | 65,771 | |||||
4,560 | Aerojet Rocketdyne Holdings, Inc.* | 142,272 | ||||||
1,321 | AeroVironment, Inc.* | 74,187 | ||||||
7,585 | Arconic, Inc. | 206,691 | ||||||
1,124 | Astronics Corp.* | 46,612 | ||||||
361 | Astronics Corp., Class B* | 15,036 | ||||||
1,481 | Axon Enterprise, Inc.*^ | 39,247 | ||||||
13,534 | Boeing Co. (The) | 3,991,313 | ||||||
4,229 | BWX Technologies, Inc. | 255,812 | ||||||
685 | CPI Aerostructures, Inc.* | 6,131 | ||||||
1,202 | Cubic Corp. | 70,858 | ||||||
3,138 | Curtiss-Wright Corp. | 382,365 | ||||||
625 | Ducommun, Inc.* | 17,781 | ||||||
2,101 | Engility Holdings, Inc.* | 59,605 | ||||||
1,504 | Esterline Technologies Corp.* | 112,349 | ||||||
5,341 | General Dynamics Corp. | 1,086,626 | ||||||
824 | HEICO Corp.^ | 77,744 | ||||||
2,178 | HEICO Corp., Class A | 172,171 | ||||||
5,084 | Hexcel Corp. | 314,445 | ||||||
1,576 | Huntington Ingalls Industries, Inc. | 371,463 | ||||||
2,230 | KLX, Inc.*^ | 152,198 | ||||||
4,471 | Kratos Defense & Security Solutions, Inc.* | 47,348 | ||||||
1,421 | L3 Technologies, Inc. | 281,145 | ||||||
5,976 | Lockheed Martin Corp. | 1,918,595 | ||||||
1,779 | Maxar Technologies, Ltd. | 114,425 | ||||||
2,233 | Mercury Computer Systems, Inc.* | 114,665 | ||||||
1,868 | Moog, Inc., Class A* | 162,236 | ||||||
140 | Moog, Inc., Class B* | 11,686 | ||||||
343 | National Presto Industries, Inc. | 34,111 | ||||||
4,013 | Northrop Grumman Corp. | 1,231,630 | ||||||
2,436 | Orbital ATK, Inc. | 320,334 | ||||||
4,840 | Raytheon Co. | 909,194 | ||||||
5,807 | Rockwell Collins, Inc. | 787,545 | ||||||
6,089 | Spirit AeroSystems Holdings, Inc., Class A | 531,265 | ||||||
2,012 | Teledyne Technologies, Inc.* | 364,474 | ||||||
8,541 | Textron, Inc. | 483,335 | ||||||
2,316 | The KEYW Holding Corp.* | 13,595 | ||||||
1,212 | TransDigm Group, Inc.^ | 332,839 | ||||||
2,979 | Triumph Group, Inc.^ | 81,029 | ||||||
13,094 | United Technologies Corp. | 1,670,402 | ||||||
741 | Vectrus, Inc.* | 22,860 | ||||||
6,897 | WESCO Aircraft Holdings, Inc.*^ | 51,038 | ||||||
|
| |||||||
17,144,428 | ||||||||
|
| |||||||
Air Freight & Logistics (0.9%): | ||||||||
4,941 | Air Transport Services Group, Inc.* | 114,335 | ||||||
1,400 | Atlas Air Worldwide Holdings, Inc.*^ | 82,110 | ||||||
5,021 | C.H. Robinson Worldwide, Inc.^ | 447,321 | ||||||
1,026 | Echo Global Logistics, Inc.* | 28,728 | ||||||
5,128 | Expeditors International of Washington, Inc. | 331,730 | ||||||
5,448 | FedEx Corp. | 1,359,494 | ||||||
1,779 | Forward Air Corp. | 102,186 | ||||||
2,393 | Hub Group, Inc.* | 114,625 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Air Freight & Logistics, continued | ||||||||
1,058 | Park-Ohio Holdings Corp. | $ | 48,615 | |||||
3,266 | Radiant Logistics, Inc.* | 15,024 | ||||||
15,806 | United Parcel Service, Inc., Class B | 1,883,284 | ||||||
5,560 | XPO Logistics, Inc.*^ | 509,240 | ||||||
|
| |||||||
5,036,692 | ||||||||
|
| |||||||
Airlines (0.9%): | ||||||||
5,917 | Alaska Air Group, Inc. | 434,959 | ||||||
998 | Allegiant Travel Co.^ | 154,441 | ||||||
10,667 | American Airlines Group, Inc. | 555,004 | ||||||
1,537 | Copa Holdings SA, Class A | 206,050 | ||||||
19,429 | Delta Air Lines, Inc. | 1,088,023 | ||||||
5,008 | Hawaiian Holdings, Inc. | 199,569 | ||||||
20,928 | JetBlue Airways Corp.* | 467,532 | ||||||
2,917 | SkyWest, Inc. | 154,893 | ||||||
15,407 | Southwest Airlines Co. | 1,008,388 | ||||||
5,511 | Spirit Airlines, Inc.*^ | 247,168 | ||||||
12,361 | United Continental Holdings, Inc.* | 833,131 | ||||||
|
| |||||||
5,349,158 | ||||||||
|
| |||||||
Auto Components (1.0%): | ||||||||
1,777 | Adient plc | 139,850 | ||||||
5,496 | American Axle & Manufacturing Holdings, Inc.* | 93,597 | ||||||
6,370 | Aptiv plc* | 540,366 | ||||||
3,449 | Autoliv, Inc.^ | 438,299 | ||||||
6,472 | BorgWarner, Inc. | 330,654 | ||||||
4,411 | Cooper Tire & Rubber Co.^ | 155,929 | ||||||
1,615 | Cooper-Standard Holding, Inc.* | 197,838 | ||||||
13,476 | Dana Holding Corp. | 431,367 | ||||||
2,123 | Delphi Technologies plc* | 111,394 | ||||||
1,595 | Dorman Products, Inc.*^ | 97,518 | ||||||
2,274 | Fox Factory Holding Corp.*^ | 88,345 | ||||||
16,274 | Gentex Corp.^ | 340,940 | ||||||
2,720 | Gentherm, Inc.* | 86,360 | ||||||
14,231 | Goodyear Tire & Rubber Co.^ | 459,804 | ||||||
1,365 | Horizon Global Corp.*^ | 19,137 | ||||||
1,483 | LCI Industries^ | 192,790 | ||||||
3,870 | Lear Corp. | 683,673 | ||||||
3,637 | Modine Manufacturing Co.* | 73,467 | ||||||
1,190 | Motorcar Parts of America, Inc.*^ | 29,738 | ||||||
2,574 | Spartan Motors, Inc.^ | 40,541 | ||||||
1,736 | Standard Motor Products, Inc.^ | 77,964 | ||||||
1,582 | Stoneridge, Inc.* | 36,165 | ||||||
275 | Strattec Security Corp. | 11,976 | ||||||
3,917 | Tenneco, Inc. | 229,301 | ||||||
1,187 | Tower International, Inc. | 36,263 | ||||||
2,847 | Visteon Corp.* | 356,274 | ||||||
1,621 | VOXX International Corp.*^ | 9,078 | ||||||
|
| |||||||
5,308,628 | ||||||||
|
| |||||||
Automobiles (0.7%): | ||||||||
93,680 | Ford Motor Co. | 1,170,063 | ||||||
36,273 | General Motors Co. | 1,486,831 | ||||||
7,220 | Harley-Davidson, Inc.^ | 367,354 |
Continued
4
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Automobiles, continued | ||||||||
629 | Tesla Motors, Inc.*^ | $ | 195,839 | |||||
3,270 | Thor Industries, Inc. | 492,854 | ||||||
1,652 | Winnebago Industries, Inc.^ | 91,851 | ||||||
|
| |||||||
3,804,792 | ||||||||
|
| |||||||
Banks (6.4%): | ||||||||
958 | 1st Constitution Bancorp | 17,675 | ||||||
2,060 | 1st Source Corp. | 101,867 | ||||||
1,429 | Access National Corp. | 39,783 | ||||||
504 | ACNB Corp. | 14,893 | ||||||
1,010 | Allegiance Bancshares, Inc.*^ | 38,027 | ||||||
661 | American National Bankshares, Inc. | 25,316 | ||||||
587 | American River Bankshares | 8,952 | ||||||
1,026 | Ameris Bancorp | 49,453 | ||||||
704 | Ames National Corp. | 19,606 | ||||||
905 | Arrow Financial Corp.^ | 30,725 | ||||||
5,413 | Associated Banc-Corp. | 137,490 | ||||||
2,876 | Banc of California, Inc.^ | 59,389 | ||||||
1,939 | BancFirst Corp. | 99,180 | ||||||
2,831 | Bancorp, Inc. (The)* | 27,970 | ||||||
3,966 | BancorpSouth Bank | 124,731 | ||||||
116,137 | Bank of America Corp. | 3,428,363 | ||||||
899 | Bank of Commerce Holdings | 10,339 | ||||||
2,471 | Bank of Hawaii Corp.^ | 211,765 | ||||||
451 | Bank of Marin Bancorp^ | 30,668 | ||||||
2,324 | Bank of Nt Butterfield & Son, Ltd. (The) | 84,338 | ||||||
4,810 | Bank of the Ozarks, Inc.^ | 233,045 | ||||||
4,087 | BankUnited, Inc. | 166,423 | ||||||
1,941 | Banner Corp. | 106,988 | ||||||
1,189 | Bar Harbor Bankshares | 32,115 | ||||||
8,291 | BB&T Corp. | 412,229 | ||||||
842 | BCB Bancorp, Inc. | 12,209 | ||||||
2,053 | Berkshire Hills Bancorp, Inc. | 75,140 | ||||||
1,112 | Blue Hills BanCorp, Inc. | 22,351 | ||||||
1,324 | BOK Financial Corp.^ | 122,232 | ||||||
6,645 | Boston Private Financial Holdings, Inc.^ | 102,665 | ||||||
668 | Bridge Bancorp, Inc. | 23,380 | ||||||
5,707 | Brookline Bancorp, Inc. | 89,600 | ||||||
1,162 | Bryn Mawr Bank Corp. | 51,360 | ||||||
74 | C&F Financial Corp. | 4,292 | ||||||
843 | Camden National Corp. | 35,516 | ||||||
1,309 | Capital City Bank Group, Inc. | 30,028 | ||||||
649 | Carolina Financial Corp. | 24,110 | ||||||
2,683 | Cathay General Bancorp | 113,142 | ||||||
3,426 | Centerstate Banks, Inc. | 88,151 | ||||||
2,402 | Central Pacific Financial Corp. | 71,652 | ||||||
933 | Central Valley Community Bancorp | 18,828 | ||||||
273 | Century Bancorp, Inc. | 21,362 | ||||||
2,593 | Chemical Financial Corp. | 138,648 | ||||||
377 | Chemung Financial Corp. | 18,134 | ||||||
2,299 | CIT Group, Inc. | 113,180 | ||||||
31,491 | Citigroup, Inc. | 2,343,244 | ||||||
943 | Citizens & Northern Corp.^ | 22,632 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
5,861 | Citizens Financial Group, Inc. | $ | 246,045 | |||||
552 | Citizens Holding Co. | 12,779 | ||||||
1,304 | City Holding Co.^ | 87,981 | ||||||
938 | Civista Bancshares, Inc. | 20,636 | ||||||
1,096 | CNB Financial Corp. | 28,759 | ||||||
3,178 | CoBiz Financial, Inc. | 63,528 | ||||||
78 | Codorus Valley Bancorp, Inc. | 2,147 | ||||||
56 | Colony Bankcorp, Inc. | 815 | ||||||
3,907 | Columbia Banking System, Inc. | 169,720 | ||||||
2,543 | Comerica, Inc. | 220,758 | ||||||
4,676 | Commerce Bancshares, Inc. | 261,108 | ||||||
2,995 | Community Bank System, Inc.^ | 160,981 | ||||||
2,277 | Community Bankers Trust Corp.* | 18,558 | ||||||
1,325 | Community Trust Bancorp, Inc. | 62,408 | ||||||
2,266 | ConnectOne Bancorp, Inc. | 58,350 | ||||||
1,285 | Cullen/Frost Bankers, Inc.^ | 121,625 | ||||||
2,643 | Customers Bancorp, Inc.* | 68,692 | ||||||
6,990 | CVB Financial Corp.^ | 164,684 | ||||||
408 | DNB Financial Corp. | 13,750 | ||||||
1,882 | Eagle Bancorp, Inc.* | 108,968 | ||||||
5,117 | East West Bancorp, Inc. | 311,267 | ||||||
1,529 | Enterprise Financial Services Corp. | 69,034 | ||||||
312 | Evans Bancorp, Inc. | 13,073 | ||||||
11,692 | F.N.B. Corp. | 161,583 | ||||||
569 | Farmers Capital Bank Corp. | 21,907 | ||||||
1,329 | Farmers National Banc Corp. | 19,603 | ||||||
523 | FB Financial Corp.*^ | 21,961 | ||||||
2,176 | FCB Financial Holdings, Inc.* | 110,541 | ||||||
1,636 | Fidelity Southern Corp. | 35,665 | ||||||
12,247 | Fifth Third Bancorp | 371,574 | ||||||
1,053 | Financial Institutions, Inc. | 32,748 | ||||||
16,004 | First Bancorp* | 81,620 | ||||||
2,206 | First Bancorp | 77,894 | ||||||
814 | First Bancorp, Inc. | 22,165 | ||||||
611 | First Bancshares, Inc. (The) | 20,896 | ||||||
2,931 | First Busey Corp. | 87,754 | ||||||
664 | First Business Financial Services, Inc. | 14,688 | ||||||
592 | First Citizens BancShares, Inc., Class A | 238,576 | ||||||
4,012 | First Commonwealth Financial Corp. | 57,452 | ||||||
1,419 | First Community Bankshares | 40,768 | ||||||
1,217 | First Connecticut Bancorp, Inc. | 31,825 | ||||||
3,634 | First Financial Bancorp | 95,756 | ||||||
3,082 | First Financial Bankshares, Inc.^ | 138,844 | ||||||
967 | First Financial Corp. | 43,853 | ||||||
733 | First Financial Northwest, Inc. | 11,369 | ||||||
1,996 | First Foundation, Inc.*^ | 37,006 | ||||||
18,071 | First Horizon National Corp. | 361,239 | ||||||
2,466 | First Interstate BancSystem, Class A | 98,763 | ||||||
2,451 | First Merchants Corp. | 103,089 | ||||||
660 | First Mid-Illinois Bancshares, Inc. | 25,436 | ||||||
5,902 | First Midwest Bancorp, Inc. | 141,707 | ||||||
1,573 | First of Long Island Corp. (The) | 44,831 | ||||||
2,517 | First Republic Bank | 218,073 |
Continued
5
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
2,253 | Flushing Financial Corp. | $ | 61,958 | |||||
322 | Franklin Financial Network, Inc.* | 10,980 | ||||||
6,070 | Fulton Financial Corp. | 108,653 | ||||||
1,315 | German American Bancorp, Inc.^ | 46,459 | ||||||
3,017 | Glacier Bancorp, Inc.^ | 118,840 | ||||||
1,035 | Great Southern Bancorp, Inc. | 53,458 | ||||||
3,353 | Great Western Bancorp, Inc. | 133,449 | ||||||
3,020 | Green BanCorp, Inc.*^ | 61,306 | ||||||
1,174 | Guaranty Bancorp | 32,461 | ||||||
3,064 | Hancock Holding Co. | 151,668 | ||||||
2,408 | Hanmi Financial Corp. | 73,083 | ||||||
39 | Hawthorn Bancshares, Inc. | 809 | ||||||
1,375 | Heartland Financial USA, Inc. | 73,769 | ||||||
2,292 | Heritage Financial Corp. | 70,594 | ||||||
2,010 | Hertiage Commerce Corp. | 30,793 | ||||||
5,680 | Hilltop Holdings, Inc. | 143,874 | ||||||
10,115 | Home Bancshares, Inc.^ | 235,174 | ||||||
1,540 | Hometrust Bancshares, Inc.* | 39,655 | ||||||
6,189 | Hope BanCorp, Inc. | 112,949 | ||||||
1,408 | Horizon Bancorp | 39,142 | ||||||
17,399 | Huntington Bancshares, Inc. | 253,329 | ||||||
2,202 | IBERIABANK Corp. | 170,655 | ||||||
1,283 | Independent Bank Corp.^ | 89,618 | ||||||
855 | Independent Bank Corp. | 19,109 | ||||||
1,288 | Independent Bank Group, Inc. | 87,069 | ||||||
3,359 | International Bancshares Corp. | 133,352 | ||||||
12,187 | Investors Bancorp, Inc. | 169,156 | ||||||
62,748 | JPMorgan Chase & Co. | 6,710,270 | ||||||
11,909 | KeyCorp | 240,205 | ||||||
2,859 | Lakeland Bancorp, Inc. | 55,036 | ||||||
1,656 | Lakeland Financial Corp.^ | 80,299 | ||||||
456 | Landmark Bancorp, Inc. | 13,224 | ||||||
712 | LCNB Corp. | 14,560 | ||||||
1,376 | LegacyTexas Financial Group, Inc. | 58,081 | ||||||
1,145 | M&T Bank Corp. | 195,784 | ||||||
2,571 | Macatawa Bank Corp. | 25,710 | ||||||
918 | Mackinac Financial Corp. | 14,688 | ||||||
1,644 | Mainsource Financial Group, Inc. | 59,694 | ||||||
2,620 | MB Financial, Inc. | 116,642 | ||||||
1,869 | MBT Financial Corp. | 19,811 | ||||||
1,293 | Mercantile Bank Corp. | 45,733 | ||||||
638 | MidWestone Financial Group, Inc. | 21,392 | ||||||
570 | MutualFirst Financial, Inc. | 21,974 | ||||||
1,805 | National Bank Holdings Corp. | 58,536 | ||||||
514 | National Bankshares, Inc. | 23,361 | ||||||
2,730 | NBT Bancorp, Inc.^ | 100,464 | ||||||
373 | Nicolet Bankshares, Inc.*^ | 20,418 | ||||||
510 | Northrim Bancorp, Inc.^ | 17,264 | ||||||
511 | Norwood Financial Corp. | 16,863 | ||||||
3,309 | OFG Bancorp | 31,105 | ||||||
440 | Ohio Valley Banc Corp. | 17,776 | ||||||
819 | Old Line Bancshares, Inc. | 24,111 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
7,959 | Old National Bancorp | $ | 138,885 | |||||
2,225 | Old Second Bancorp, Inc. | 30,371 | ||||||
1,951 | Opus Bank*^ | 53,262 | ||||||
638 | Orrstown Financial Services, Inc. | 16,110 | ||||||
1,205 | Pacific Mercantile Bancorp* | 10,544 | ||||||
2,125 | Pacific Premier Bancorp, Inc.* | 85,000 | ||||||
3,233 | PacWest Bancorp | 162,943 | ||||||
584 | Park National Corp.^ | 60,736 | ||||||
1,165 | Peapack-Gladstone Financial Corp. | 40,798 | ||||||
364 | Penns Woods Bancorp, Inc. | 16,955 | ||||||
608 | Peoples Bancorp of NC | 18,660 | ||||||
1,361 | Peoples Bancorp, Inc. | 44,396 | ||||||
7,227 | People’s United Financial, Inc. | 135,145 | ||||||
749 | People’s Utah BanCorp | 22,695 | ||||||
2,933 | Pinnacle Financial Partners, Inc.^ | 194,458 | ||||||
5,378 | PNC Financial Services Group, Inc. | 775,991 | ||||||
3,717 | Popular, Inc. | 131,916 | ||||||
878 | Preferred Bank Los Angeles^ | 51,609 | ||||||
757 | Premier Financial Bancorp, Inc. | 15,201 | ||||||
2,332 | Prosperity Bancshares, Inc.^ | 163,403 | ||||||
606 | QCR Holdings, Inc. | 25,967 | ||||||
17,681 | Regions Financial Corp. | 305,528 | ||||||
2,630 | Renasant Co. | 107,541 | ||||||
1,417 | Republic Bancorp, Inc., Class A | 53,874 | ||||||
2,322 | S & T Bancorp, Inc.^ | 92,439 | ||||||
348 | Salisbury Bancorp, Inc. | 15,625 | ||||||
1,898 | Sandy Spring Bancorp, Inc. | 74,060 | ||||||
1,879 | Seacoast Banking Corp.* | 47,370 | ||||||
1,252 | Select Bancorp, Inc.* | 15,813 | ||||||
2,412 | ServisFirst Bancshares, Inc.^ | 100,098 | ||||||
1,113 | Shore Bancshares, Inc. | 18,587 | ||||||
1,028 | Sierra Bancorp | 27,304 | ||||||
933 | Signature Bank* | 128,064 | ||||||
2,267 | Simmons First National Corp., Class A | 129,446 | ||||||
2,041 | South State Corp. | 177,873 | ||||||
2,003 | Southern National Bancorp^ | 32,108 | ||||||
1,127 | Southside Bancshares, Inc. | 37,957 | ||||||
2,709 | State Bank Financial Corp. | 80,837 | ||||||
10,054 | Sterling Bancorp | 247,328 | ||||||
1,432 | Stock Yards Bancorp, Inc.^ | 53,986 | ||||||
557 | Summit Financial Group, Inc. | 14,660 | ||||||
1,426 | Sun Bancorp, Inc. | 34,652 | ||||||
4,384 | SunTrust Banks, Inc. | 283,163 | ||||||
1,716 | SVB Financial Group* | 401,149 | ||||||
6,676 | Synovus Financial Corp. | 320,047 | ||||||
8,535 | TCF Financial Corp. | 174,968 | ||||||
1,633 | Texas Capital Bancshares, Inc.*^ | 145,174 | ||||||
1,121 | Tompkins Financial Corp.^ | 91,193 | ||||||
4,008 | TowneBank^ | 123,246 | ||||||
1,726 | TriCo Bancshares | 65,346 | ||||||
2,154 | Tristate Capital Holdings, Inc.* | 49,542 | ||||||
1,220 | Triumph BanCorp, Inc.* | 38,430 |
Continued
6
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
4,028 | Trustmark Corp.^ | $ | 128,332 | |||||
98 | Two River Bancorp | 1,777 | ||||||
23,568 | U.S. Bancorp | 1,262,772 | ||||||
1,755 | UMB Financial Corp.^ | 126,220 | ||||||
8,349 | Umpqua Holdings Corp. | 173,659 | ||||||
2,871 | Union Bankshares Corp. | 103,844 | ||||||
3,516 | United Bankshares, Inc.^ | 122,181 | ||||||
3,077 | United Community Banks, Inc. | 86,587 | ||||||
1,190 | United Security Bancshares | 13,090 | ||||||
42 | Unity Bancorp, Inc. | 830 | ||||||
1,914 | Univest Corp.^ | 53,688 | ||||||
8,196 | Valley National Bancorp^ | 91,959 | ||||||
1,496 | Veritex Holdings, Inc.* | 41,275 | ||||||
1,113 | Washington Trust Bancorp | 59,267 | ||||||
653 | WashingtonFirst Bankshare, Inc. | 22,372 | ||||||
3,174 | Webster Financial Corp.^ | 178,252 | ||||||
80,093 | Wells Fargo & Co. | 4,859,241 | ||||||
2,557 | WesBanco, Inc. | 103,942 | ||||||
1,062 | West Bancorp | 26,709 | ||||||
1,687 | Westamerica Bancorp^ | 100,461 | ||||||
5,581 | Western Alliance Bancorp* | 315,996 | ||||||
2,102 | Wintrust Financial Corp. | 173,142 | ||||||
83 | Xenith Bankshares, Inc.* | 2,808 | ||||||
2,669 | Zions Bancorp | 135,665 | ||||||
|
| |||||||
38,498,923 | ||||||||
|
| |||||||
Beverages (1.7%): | ||||||||
466 | Boston Beer Co., Inc. (The), Class A*^ | 89,053 | ||||||
1,935 | Brown-Forman Corp., Class A | 130,109 | ||||||
4,968 | Brown-Forman Corp., Class B | 341,153 | ||||||
545 | Coca-Cola Bottling Co. Consolidated | 117,317 | ||||||
78,353 | Coca-Cola Co. (The) | 3,594,835 | ||||||
2,550 | Constellation Brands, Inc., Class C | 582,854 | ||||||
787 | Craft Brewers Alliance, Inc.*^ | 15,110 | ||||||
5,609 | Dr Pepper Snapple Group, Inc. | 544,410 | ||||||
1,327 | MGP Ingredients, Inc. | 102,020 | ||||||
2,011 | Molson Coors Brewing Co., Class B | 165,043 | ||||||
5,703 | Monster Beverage Corp.* | 360,943 | ||||||
1,132 | National Beverage Corp.^ | 110,302 | ||||||
32,638 | PepsiCo, Inc. | 3,913,948 | ||||||
876 | Primo Water Corp.*^ | 11,011 | ||||||
|
| |||||||
10,078,108 | ||||||||
|
| |||||||
Biotechnology (2.5%): | ||||||||
40,789 | AbbVie, Inc. | 3,944,704 | ||||||
890 | Acadia Pharmaceuticals, Inc.*^ | 26,798 | ||||||
1,921 | Acorda Therapeutics, Inc.*^ | 41,205 | ||||||
1,278 | Alexion Pharmaceuticals, Inc.* | 152,836 | ||||||
1,012 | Alkermes plc*^ | 55,387 | ||||||
838 | Alnylam Pharmaceuticals, Inc.*^ | 106,468 | ||||||
12,316 | Amgen, Inc. | 2,141,752 | ||||||
1,084 | Aptevo Therapeutics, Inc.* | 4,596 | ||||||
3,928 | Biogen Idec, Inc.* | 1,251,343 | ||||||
1,108 | BioMarin Pharmaceutical, Inc.* | 98,800 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Biotechnology, continued | ||||||||
579 | Biospecifics Technologies Corp.* | $ | 25,088 | |||||
2,623 | Bioverativ, Inc.*^ | 141,432 | ||||||
1,367 | Bluebird Bio, Inc.*^ | 243,463 | ||||||
14,276 | Celgene Corp.* | 1,489,843 | ||||||
356 | Clovis Oncology, Inc.*^ | 24,208 | ||||||
2,168 | Emergent Biosolutions, Inc.* | 100,747 | ||||||
1,013 | Enanta Pharmaceuticals, Inc.* | 59,443 | ||||||
785 | Exact Sciences Corp.*^ | 41,244 | ||||||
4,865 | Exelixis, Inc.* | 147,896 | ||||||
544 | Fibrogen, Inc.* | 25,786 | ||||||
33,666 | Gilead Sciences, Inc. | 2,411,832 | ||||||
966 | Incyte Corp.* | 91,490 | ||||||
83 | Insys Therapeutics, Inc.*^ | 798 | ||||||
945 | Ionis Pharmaceuticals, Inc.*^ | 47,534 | ||||||
1,605 | Juno Therapeutics, Inc.* | 73,365 | ||||||
1,605 | Karyopharm Therapeutics, Inc.* | 15,408 | ||||||
526 | Ligand Pharmaceuticals, Inc., Class B*^ | 72,025 | ||||||
2,391 | Mimedx Group, Inc.*^ | 30,151 | ||||||
1,607 | Momenta Pharmaceuticals, Inc.*^ | 22,418 | ||||||
3,689 | Myriad Genetics, Inc.* | 126,699 | ||||||
1,067 | Neurocrine Biosciences, Inc.*^ | 82,789 | ||||||
10,235 | OPKO Health, Inc.* | 50,152 | ||||||
1,317 | Otonomy, Inc.* | 7,309 | ||||||
9,565 | PDL BioPharma, Inc.*^ | 26,208 | ||||||
1,298 | Regeneron Pharmaceuticals, Inc.* | 487,996 | ||||||
1,271 | Repligen Corp.*^ | 46,112 | ||||||
1,105 | Retrophin, Inc.* | 23,282 | ||||||
1,210 | Seattle Genetics, Inc.* | 64,735 | ||||||
600 | Tesaro, Inc.*^ | 49,722 | ||||||
2,797 | United Therapeutics Corp.* | 413,816 | ||||||
1,115 | Vertex Pharmaceuticals, Inc.* | 167,094 | ||||||
1,496 | Xencor, Inc.* | 32,792 | ||||||
|
| |||||||
14,466,766 | ||||||||
|
| |||||||
Building Products (0.7%): | ||||||||
3,264 | A.O. Smith Corp. | 200,018 | ||||||
3,058 | AAON, Inc.^ | 112,229 | ||||||
2,557 | Advanced Drainage Systems, Inc.^ | 60,984 | ||||||
2,889 | Allegion plc | 229,849 | ||||||
1,083 | American Woodmark Corp.* | 141,061 | ||||||
1,885 | Apogee Enterprises, Inc.^ | 86,201 | ||||||
1,778 | Armstrong Flooring, Inc.* | 30,084 | ||||||
2,857 | Armstrong World Industries, Inc.* | 172,991 | ||||||
7,785 | Builders FirstSource, Inc.* | 169,635 | ||||||
2,571 | Continental Building Products, Inc.* | 72,374 | ||||||
889 | Csw Industrials, Inc.* | 40,850 | ||||||
4,434 | Fortune Brands Home & Security, Inc. | 303,463 | ||||||
1,576 | Gibraltar Industries, Inc.* | 52,008 | ||||||
2,893 | Griffon Corp. | 58,873 | ||||||
1,209 | Insteel Industries, Inc.^ | 34,239 | ||||||
6,099 | Johnson Controls International plc | 232,433 | ||||||
1,118 | Lennox International, Inc.^ | 232,835 | ||||||
6,980 | Masco Corp. | 306,700 |
Continued
7
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Building Products, continued | ||||||||
1,451 | Masonite International Corp.* | $ | 107,592 | |||||
3,362 | NCI Building Systems, Inc.* | 64,887 | ||||||
7,118 | Owens Corning, Inc. | 654,428 | ||||||
1,648 | Patrick Industries, Inc.*^ | 114,454 | ||||||
3,615 | PGT, Inc.* | 60,913 | ||||||
3,674 | Ply Gem Holdings, Inc.* | 67,969 | ||||||
1,925 | Quanex Building Products Corp. | 45,045 | ||||||
2,822 | Simpson Manufacturing Co., Inc. | 162,011 | ||||||
1,844 | Trex Co., Inc.* | 199,871 | ||||||
3,399 | Universal Forest Products, Inc. | 127,870 | ||||||
7,225 | USG Corp.*^ | 278,596 | ||||||
|
| |||||||
4,420,463 | ||||||||
|
| |||||||
Capital Markets (2.7%): | ||||||||
1,453 | Affiliated Managers Group, Inc. | 298,228 | ||||||
2,626 | Ameriprise Financial, Inc. | 445,028 | ||||||
2,502 | Artisan Partners Asset Management, Inc., Class A | 98,829 | ||||||
17,563 | Bank of New York Mellon Corp. (The) | 945,943 | ||||||
18,671 | BGC Partners, Inc., Class A | 282,119 | ||||||
1,844 | BlackRock, Inc., Class A | 947,281 | ||||||
3,218 | CBOE Holdings, Inc. | 400,931 | ||||||
11,820 | Charles Schwab Corp. (The) | 607,193 | ||||||
2,686 | CME Group, Inc. | 392,290 | ||||||
2,934 | Cohen & Steers, Inc.^ | 138,749 | ||||||
190 | Diamond Hill Investment Group | 39,265 | ||||||
1,417 | Donnelley Financial Solutions, Inc.* | 27,617 | ||||||
5,873 | E*TRADE Financial Corp.* | 291,125 | ||||||
3,647 | Eaton Vance Corp. | 205,654 | ||||||
1,360 | FactSet Research Systems, Inc.^ | 262,154 | ||||||
6,954 | Federated Investors, Inc., Class B^ | 250,900 | ||||||
2,662 | Financial Engines, Inc.^ | 80,659 | ||||||
5,134 | Franklin Resources, Inc. | 222,456 | ||||||
3,237 | Gain Capital Holdings, Inc.^ | 32,370 | ||||||
388 | GAMCO Investors, Inc., Class A | 11,504 | ||||||
4,352 | Goldman Sachs Group, Inc. (The) | 1,108,715 | ||||||
1,743 | Greenhill & Co., Inc. | 33,989 | ||||||
211 | Hennessy Advisors, Inc. | 3,490 | ||||||
1,166 | Houlihan Lokey, Inc. | 52,971 | ||||||
5,199 | Interactive Brokers Group, Inc., Class A^ | 307,833 | ||||||
8,355 | Intercontinental Exchange, Inc. | 589,529 | ||||||
1,643 | INTL FCStone, Inc.* | 69,877 | ||||||
13,284 | Invesco, Ltd. | 485,397 | ||||||
2,572 | Investment Technology Group, Inc. | 49,511 | ||||||
4,134 | Janus Henderson Group plc | 158,167 | ||||||
10,552 | Ladenburg Thalmann Financial Services, Inc. | 33,344 | ||||||
3,497 | Lazard, Ltd., Class A | 183,593 | ||||||
2,912 | Legg Mason, Inc.^ | 122,246 | ||||||
7,804 | LPL Financial Holdings, Inc. | 445,921 | ||||||
937 | MarketAxess Holdings, Inc.^ | 189,040 | ||||||
1,429 | Moelis & Co., Class A | 69,307 | ||||||
2,964 | Moody’s Corp. | 437,516 | ||||||
18,789 | Morgan Stanley | 985,859 | ||||||
2,689 | Morningstar, Inc. | 260,752 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Capital Markets, continued | ||||||||
2,951 | MSCI, Inc., Class A | $ | 373,420 | |||||
5,365 | NASDAQ OMX Group, Inc. (The) | 412,193 | ||||||
3,267 | Northern Trust Corp. | 326,341 | ||||||
3,965 | Om Asset Management plc | 66,414 | ||||||
1,024 | Oppenheimer Holdings, Class A^ | 27,443 | ||||||
940 | PJT Partners, Inc.^ | 42,864 | ||||||
1,113 | Pzena Investment Management, Inc. | 11,876 | ||||||
4,478 | Raymond James Financial, Inc. | 399,885 | ||||||
6,081 | S&P Global, Inc. | 1,030,120 | ||||||
1,544 | Safeguard Scientifics, Inc.* | 17,293 | ||||||
3,967 | SEI Investments Co. | 285,069 | ||||||
660 | Silvercrest Asset Management Group, Inc., Class A^ | 10,593 | ||||||
3,608 | State Street Corp. | 352,177 | ||||||
2,242 | Stifel Financial Corp. | 133,534 | ||||||
6,118 | T. Rowe Price Group, Inc.^ | 641,962 | ||||||
4,755 | TD Ameritrade Holding Corp. | 243,123 | ||||||
1,429 | Virtu Financial, Inc. | 26,151 | ||||||
438 | Virtus Investment Partners, Inc. | 50,392 | ||||||
7,585 | Waddell & Reed Financial, Inc., Class A^ | 169,449 | ||||||
425 | Westwood Holdings, Inc. | 28,139 | ||||||
7,874 | WisdomTree Investments, Inc. | 98,819 | ||||||
|
| |||||||
16,314,609 | ||||||||
|
| |||||||
Chemicals (3.0%): | ||||||||
2,215 | A. Schulman, Inc. | 82,509 | ||||||
1,306 | Advansix, Inc.* | 54,943 | ||||||
2,247 | Air Products & Chemicals, Inc. | 368,688 | ||||||
1,269 | Albemarle Corp.^ | 162,292 | ||||||
2,318 | American Vanguard Corp. | 45,549 | ||||||
2,194 | Ashland Global Holdings, Inc. | 156,213 | ||||||
3,752 | Axalta Coating Systems, Ltd.* | 121,415 | ||||||
1,338 | Balchem Corp. | 107,843 | ||||||
3,293 | Cabot Corp. | 202,816 | ||||||
4,019 | Calgon Carbon Corp.^ | 85,605 | ||||||
3,943 | Celanese Corp., Series A | 422,216 | ||||||
4,613 | CF Industries Holdings, Inc. | 196,237 | ||||||
691 | Chase Corp. | 83,266 | ||||||
4,033 | Chemours Co. (The) | 201,892 | ||||||
578 | Core Molding Technologies, Inc. | 12,543 | ||||||
45,524 | DowDuPont, Inc. | 3,242,218 | ||||||
8,309 | Eastman Chemical Co. | 769,746 | ||||||
4,958 | Ecolab, Inc. | 665,264 | ||||||
5,990 | Ferro Corp.* | 141,304 | ||||||
2,595 | FMC Corp. | 245,643 | ||||||
3,222 | Futurefuel Corp. | 45,398 | ||||||
1,756 | GCP Applied Technologies, Inc.* | 56,016 | ||||||
3,095 | H.B. Fuller Co. | 166,728 | ||||||
702 | Hawkins, Inc. | 24,710 | ||||||
20,298 | Huntsman Corp. | 675,720 | ||||||
2,062 | Ingevity Corp.* | 145,309 | ||||||
1,620 | Innophos Holdings, Inc. | 75,703 | ||||||
1,633 | Innospec, Inc. | 115,290 | ||||||
1,701 | International Flavor & Fragrances, Inc. | 259,590 |
Continued
8
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Chemicals, continued | ||||||||
14,982 | Intrepid Potash, Inc.* | $ | 71,314 | |||||
743 | KMG Chemicals, Inc. | 49,097 | ||||||
783 | Koppers Holdings, Inc.* | 39,855 | ||||||
2,348 | Kraton Performance Polymers, Inc.* | 113,103 | ||||||
4,741 | Kronos Worldwide, Inc.^ | 122,176 | ||||||
1,233 | LSB Industries, Inc.* | 10,801 | ||||||
8,643 | Lyondellbasell Industries NV | 953,495 | ||||||
2,216 | Minerals Technologies, Inc. | 152,572 | ||||||
10,517 | Monsanto Co. | 1,228,175 | ||||||
5,492 | Mosaic Co. (The) | 140,925 | ||||||
703 | NewMarket Corp. | 279,365 | ||||||
8,796 | Olin Corp. | 312,962 | ||||||
2,346 | Omnova Solutions, Inc.* | 23,460 | ||||||
14,316 | Platform Speciality Products Corp.* | 142,015 | ||||||
6,775 | PolyOne Corp. | 294,713 | ||||||
5,194 | PPG Industries, Inc. | 606,763 | ||||||
7,814 | Praxair, Inc. | 1,208,670 | ||||||
606 | Quaker Chemical Corp. | 91,379 | ||||||
1,835 | Rayonier Advanced Materials, Inc. | 37,526 | ||||||
3,781 | RPM International, Inc. | 198,200 | ||||||
3,059 | Scotts Miracle-Gro Co. (The)^ | 327,282 | ||||||
1,354 | Sensient Technologies Corp. | 99,045 | ||||||
1,907 | Sherwin Williams Co. | 781,946 | ||||||
1,689 | Stepan Co. | 133,380 | ||||||
1,627 | Trecora Resources*^ | 21,965 | ||||||
1,070 | Tredegar Corp. | 20,544 | ||||||
3,102 | Trinseo SA | 225,205 | ||||||
4,906 | Tronox, Ltd., Class A | 100,622 | ||||||
6,023 | Valvoline, Inc. | 150,936 | ||||||
3,026 | W.R. Grace & Co. | 212,213 | ||||||
1,636 | Westlake Chemical Corp. | 174,283 | ||||||
|
| |||||||
17,256,653 | ||||||||
|
| |||||||
Commercial Services & Supplies (1.0%): | ||||||||
3,793 | ABM Industries, Inc.^ | 143,072 | ||||||
9,093 | ACCO Brands Corp.* | 110,935 | ||||||
4,271 | ARC Document Solutions, Inc.* | 10,891 | ||||||
2,684 | Brady Corp., Class A | 101,724 | ||||||
3,041 | Brink’s Co. (The) | 239,327 | ||||||
1,886 | Casella Waste Systems, Inc.* | 43,416 | ||||||
2,003 | CECO Environmental Corp. | 10,275 | ||||||
3,058 | Cintas Corp. | 476,527 | ||||||
4,474 | Clean Harbors, Inc.* | 242,491 | ||||||
6,839 | Copart, Inc.*^ | 295,376 | ||||||
7,746 | Covanta Holding Corp.^ | 130,907 | ||||||
3,160 | Deluxe Corp.^ | 242,814 | ||||||
1,613 | Ennis, Inc. | 33,470 | ||||||
2,517 | Essendant, Inc. | 23,333 | ||||||
2,148 | Healthcare Services Group, Inc.^ | 113,243 | ||||||
1,042 | Heritage-Crystal Clean, Inc.* | 22,664 | ||||||
4,520 | Herman Miller, Inc. | 181,026 | ||||||
2,671 | HNI Corp. | 103,020 | ||||||
3,095 | InnerWorkings, Inc.* | 31,043 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Commercial Services & Supplies, continued | ||||||||
4,002 | Interface, Inc. | $ | 100,650 | |||||
5,972 | KAR Auction Services, Inc. | 301,646 | ||||||
2,829 | Kimball International, Inc., Class B | 52,817 | ||||||
3,654 | Knoll, Inc. | 84,188 | ||||||
1,417 | LSC Communications, Inc. | 21,468 | ||||||
1,875 | Matthews International Corp., Class A | 99,000 | ||||||
2,011 | McGrath Rentcorp | 94,477 | ||||||
2,641 | Mobile Mini, Inc. | 91,115 | ||||||
1,366 | MSA Safety, Inc. | 105,892 | ||||||
1,003 | Multi-Color Corp.^ | 75,075 | ||||||
1,552 | NL Industries, Inc.*^ | 22,116 | ||||||
11,428 | Pitney Bowes, Inc. | 127,765 | ||||||
2,606 | Quad Graphics, Inc. | 58,896 | ||||||
5,673 | Republic Services, Inc., Class A | 383,551 | ||||||
4,705 | Rollins, Inc.^ | 218,924 | ||||||
2,114 | RR Donnelley & Sons Co. | 19,660 | ||||||
1,467 | SP Plus Corp.* | 54,426 | ||||||
5,403 | Steelcase, Inc., Class A^ | 82,126 | ||||||
1,563 | Stericycle, Inc.*^ | 106,268 | ||||||
1,534 | Team, Inc.*^ | 22,857 | ||||||
3,363 | Tetra Tech, Inc. | 161,928 | ||||||
542 | UniFirst Corp. | 89,376 | ||||||
1,309 | US Ecology, Inc.^ | 66,759 | ||||||
1,003 | Viad Corp. | 55,566 | ||||||
824 | Vse Corp. | 39,906 | ||||||
10,317 | Waste Management, Inc. | 890,356 | ||||||
|
| |||||||
5,982,362 | ||||||||
|
| |||||||
Communications Equipment (1.1%): | ||||||||
2,109 | ADTRAN, Inc.^ | 40,809 | ||||||
752 | Applied Optoelectronics, Inc.*^ | 28,441 | ||||||
976 | Arista Networks, Inc.* | 229,926 | ||||||
8,194 | ARRIS International plc* | 210,504 | ||||||
550 | Bel Fuse, Inc., Class B | 13,846 | ||||||
1,000 | Black Box Corp. | 3,550 | ||||||
1,157 | CalAmp Corp.*^ | 24,795 | ||||||
2,202 | Calix, Inc.*^ | 13,102 | ||||||
7,195 | Ciena Corp.* | 150,591 | ||||||
69,484 | Cisco Systems, Inc. | 2,661,238 | ||||||
6,102 | CommScope Holding Co., Inc.* | 230,839 | ||||||
316 | Communications Systems, Inc. | 1,150 | ||||||
1,822 | Comtech Telecommunications Corp. | 40,303 | ||||||
1,262 | Digi International, Inc.* | 12,052 | ||||||
1,548 | EchoStar Corp., Class A* | 92,725 | ||||||
1,189 | EMCORE Corp.* | 7,669 | ||||||
2,598 | Extreme Networks, Inc.* | 32,527 | ||||||
1,778 | F5 Networks, Inc.* | 233,309 | ||||||
5,961 | Finisar Corp.*^ | 121,306 | ||||||
7,060 | Harmonic, Inc.*^ | 29,652 | ||||||
3,291 | Harris Corp. | 466,170 | ||||||
7,816 | Infinera Corp.* | 49,475 | ||||||
2,791 | InterDigital, Inc.^ | 212,535 | ||||||
12,452 | Juniper Networks, Inc. | 354,882 |
Continued
9
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Communications Equipment, continued | ||||||||
909 | KVH Industries, Inc.* | $ | 9,408 | |||||
1,310 | Lumentum Holdings, Inc.*^ | 64,059 | ||||||
3,350 | Motorola Solutions, Inc.^ | 302,639 | ||||||
1,304 | NETGEAR, Inc.*^ | 76,610 | ||||||
4,932 | NetScout Systems, Inc.*^ | 150,179 | ||||||
3,507 | Oclaro, Inc.*^ | 23,637 | ||||||
686 | Palo Alto Networks, Inc.* | 99,429 | ||||||
1,949 | Plantronics, Inc. | 98,191 | �� | |||||
1,714 | Ribbon Communications, Inc.* | 13,249 | ||||||
2,348 | Ubiquiti Networks, Inc.*^ | 166,755 | ||||||
2,004 | ViaSat, Inc.*^ | 149,999 | ||||||
8,628 | Viavi Solutions, Inc.* | 75,409 | ||||||
|
| |||||||
6,490,960 | ||||||||
|
| |||||||
Construction & Engineering (0.4%): | ||||||||
5,468 | Aecom Technology Corp.* | 203,136 | ||||||
800 | Aegion Corp.*^ | 20,344 | ||||||
2,172 | Ameresco, Inc., Class A* | 18,679 | ||||||
1,245 | Argan, Inc. | 56,025 | ||||||
4,618 | Chicago Bridge & Iron Co. NV | 74,535 | ||||||
2,767 | Comfort Systems USA, Inc. | 120,780 | ||||||
2,560 | Dycom Industries, Inc.*^ | 285,260 | ||||||
4,493 | Emcor Group, Inc. | 367,302 | ||||||
2,610 | Fluor Corp. | 134,807 | ||||||
1,265 | Granite Construction, Inc.^ | 80,239 | ||||||
1,221 | IES Holdings, Inc.* | 21,062 | ||||||
2,447 | Jacobs Engineering Group, Inc. | 161,404 | ||||||
8,226 | KBR, Inc. | 163,122 | ||||||
3,504 | MasTec, Inc.*^ | 171,521 | ||||||
1,578 | MYR Group, Inc.* | 56,382 | ||||||
574 | NV5 Holdings, Inc.*^ | 31,082 | ||||||
2,101 | Orion Marine Group, Inc.* | 16,451 | ||||||
4,194 | Primoris Services Corp.^ | 114,035 | ||||||
6,487 | Quanta Services, Inc.* | 253,707 | ||||||
2,791 | Tutor Perini Corp.*^ | 70,752 | ||||||
928 | Valmont Industries, Inc. | 153,909 | ||||||
|
| |||||||
2,574,534 | ||||||||
|
| |||||||
Construction Materials (0.2%): | ||||||||
2,807 | Eagle Materials, Inc., Class A | 318,033 | ||||||
1,291 | Martin Marietta Materials, Inc. | 285,363 | ||||||
2,827 | Summit Materials, Inc., Class A* | 88,881 | ||||||
1,308 | U.S. Concrete, Inc.*^ | 109,414 | ||||||
353 | U.S. Lime & Minerals, Inc. | 27,216 | ||||||
2,476 | Vulcan Materials Co. | 317,844 | ||||||
|
| |||||||
1,146,751 | ||||||||
|
| |||||||
Consumer Finance (1.1%): | ||||||||
20,883 | Ally Financial, Inc. | 608,948 | ||||||
15,815 | American Express Co. | 1,570,588 | ||||||
144 | Asta Funding, Inc.* | 1,066 | ||||||
6,037 | Capital One Financial Corp. | 601,164 | ||||||
1,912 | Consumer Portfolio Services, Inc.* | 7,935 | ||||||
1,240 | Credit Acceptance Corp.*^ | 401,115 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Consumer Finance, continued | ||||||||
10,034 | Discover Financial Services | $ | 771,815 | |||||
868 | Encore Capital Group, Inc.*^ | 36,543 | ||||||
1,910 | Enova International, Inc.* | 29,032 | ||||||
3,948 | EZCORP, Inc., Class A*^ | 48,166 | ||||||
2,171 | Firstcash, Inc. | 146,434 | ||||||
2,785 | Green Dot Corp., Class A* | 167,824 | ||||||
17,319 | LendingClub Corp.*^ | 71,527 | ||||||
14,392 | Navient Corp. | 191,701 | ||||||
2,328 | Nelnet, Inc., Class A | 127,528 | ||||||
750 | Nicholas Financial, Inc.* | 6,600 | ||||||
5,999 | Onemain Holdings, Inc.* | 155,914 | ||||||
1,661 | PRA Group, Inc.* | 55,145 | ||||||
960 | Regional Mgmt Corp.*^ | 25,258 | ||||||
19,000 | Santander Consumer USA Holdings, Inc. | 353,780 | ||||||
26,909 | SLM Corp.* | 304,072 | ||||||
19,518 | Synchrony Financial | 753,590 | ||||||
505 | World Acceptance Corp.*^ | 40,764 | ||||||
|
| |||||||
6,476,509 | ||||||||
|
| |||||||
Containers & Packaging (0.8%): | ||||||||
2,903 | AptarGroup, Inc. | 250,471 | ||||||
3,708 | Avery Dennison Corp. | 425,900 | ||||||
8,374 | Ball Corp.^ | 316,956 | ||||||
7,485 | Bemis Co., Inc. | 357,708 | ||||||
4,966 | Berry Global Group, Inc.* | 291,355 | ||||||
4,226 | Crown Holdings, Inc.* | 237,713 | ||||||
25,959 | Graphic Packaging Holding Co. | 401,067 | ||||||
1,930 | Greif, Inc., Class A | 116,919 | ||||||
1,110 | Greif, Inc., Class B | 76,979 | ||||||
8,689 | International Paper Co. | 503,440 | ||||||
2,608 | Myers Industries, Inc. | 50,856 | ||||||
9,463 | Owens-Illinois, Inc.* | 209,795 | ||||||
3,431 | Packaging Corp. of America | 413,607 | ||||||
5,656 | Sealed Air Corp. | 278,841 | ||||||
9,148 | Silgan Holdings, Inc.^ | 268,860 | ||||||
5,379 | Sonoco Products Co.^ | 285,840 | ||||||
538 | UFP Technologies, Inc.* | 14,956 | ||||||
4,190 | WestRock Co. | 264,850 | ||||||
|
| |||||||
4,766,113 | ||||||||
|
| |||||||
Distributors (0.2%): | ||||||||
3,074 | Core Markt Holdngs Co., Inc. | 97,077 | ||||||
5,041 | Genuine Parts Co. | 478,945 | ||||||
13,291 | LKQ Corp.* | 540,545 | ||||||
2,023 | Pool Corp. | 262,282 | ||||||
811 | Weyco Group, Inc.^ | 24,103 | ||||||
|
| |||||||
1,402,952 | ||||||||
|
| |||||||
Diversified Consumer Services (0.4%): | ||||||||
2,913 | Adtalem Global Education, Inc.*^ | 122,492 | ||||||
1,304 | American Public Education, Inc.* | 32,665 | ||||||
273 | Ascent Capital Group, Inc.*^ | 3,137 | ||||||
3,117 | Bright Horizons Family Solutions, Inc.* | 292,998 | ||||||
3,401 | Cambium Learning Group, Inc.* | 19,318 |
Continued
10
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Diversified Consumer Services, continued | ||||||||
918 | Capella Education Co. | $ | 71,053 | |||||
5,222 | Career Education Corp.* | 63,082 | ||||||
1,464 | Carriage Services, Inc.^ | 37,639 | ||||||
506 | Collectors Universe, Inc. | 14,492 | ||||||
270 | Graham Holdings Co., Class B | 150,755 | ||||||
2,721 | Grand Canyon Education, Inc.* | 243,611 | ||||||
8,744 | H&R Block, Inc.^ | 229,268 | ||||||
5,384 | Houghton Mifflin Harcourt Co.* | 50,071 | ||||||
2,988 | K12, Inc.* | 47,509 | ||||||
482 | Liberty Tax, Inc. | 5,302 | ||||||
2,211 | National American University Holdings, Inc. | 3,095 | ||||||
1,309 | Regis Corp.* | 20,106 | ||||||
6,510 | Service Corp. International^ | 242,953 | ||||||
4,541 | ServiceMaster Global Holdings, Inc.* | 232,817 | ||||||
2,193 | Sotheby’s*^ | 113,159 | ||||||
622 | Strayer Education, Inc. | 55,719 | ||||||
1,696 | Universal Technical Institute, Inc.* | 4,070 | ||||||
1,419 | Weight Watchers International, Inc.* | 62,833 | ||||||
|
| |||||||
2,118,144 | ||||||||
|
| |||||||
Diversified Financial Services (0.7%): | ||||||||
17,209 | Berkshire Hathaway, Inc., Class B* | 3,411,167 | ||||||
3,604 | Cannae Holdings, Inc.* | 61,376 | ||||||
6,246 | Leucadia National Corp. | 165,457 | ||||||
974 | Marlin Business Services, Inc. | 21,818 | ||||||
2,411 | NewStar Financial, Inc.(a) | 1,302 | ||||||
1,763 | PICO Holdings, Inc.^ | 22,566 | ||||||
1,767 | Tiptree Financial, Inc., Class A^ | 10,514 | ||||||
2,777 | Voya Financial, Inc. | 137,378 | ||||||
|
| |||||||
3,831,578 | ||||||||
|
| |||||||
Diversified Telecommunication Services (2.3%): | ||||||||
168,517 | AT&T, Inc. | 6,551,942 | ||||||
1,019 | ATN International, Inc. | 56,310 | ||||||
34,597 | CenturyLink, Inc. | 577,078 | ||||||
2,524 | Cincinnati Bell, Inc.* | 52,625 | ||||||
3,023 | Cogent Communications Group, Inc.^ | 136,942 | ||||||
4,558 | Consolidated Communications Holdings, Inc. | 55,562 | ||||||
1,573 | Frontier Communications Corp.^ | 10,633 | ||||||
3,714 | General Communication, Inc., Class A* | 144,920 | ||||||
815 | Hawaiian Telcom Holdco, Inc.* | 25,151 | ||||||
1,994 | IDT Corp. | 21,136 | ||||||
5,557 | Iridium Communications, Inc.* | 65,573 | ||||||
4,045 | Orbcomm, Inc.*^ | 41,178 | ||||||
97,094 | Verizon Communications, Inc. | 5,139,186 | ||||||
9,821 | Vonage Holdings Corp.* | 99,880 | ||||||
13,718 | Windstream Holdings, Inc.^ | 25,378 | ||||||
4,273 | Zayo Group Holdings, Inc.* | 157,246 | ||||||
|
| |||||||
13,160,740 | ||||||||
|
| |||||||
Electric Utilities (1.4%): | ||||||||
2,450 | ALLETE, Inc. | 182,182 | ||||||
4,490 | Alliant Energy Corp. | 191,319 | ||||||
6,289 | American Electric Power Co., Inc. | 462,682 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electric Utilities, continued | ||||||||
1,163 | Avangrid, Inc.^ | $ | 58,825 | |||||
9,261 | Duke Energy Corp. | 778,943 | ||||||
5,622 | Edison International | 355,535 | ||||||
1,593 | El Paso Electric Co. | 88,173 | ||||||
2,217 | Entergy Corp. | 180,442 | ||||||
4,208 | Eversource Energy | 265,861 | ||||||
16,319 | Exelon Corp. | 643,132 | ||||||
9,633 | FirstEnergy Corp. | 294,962 | ||||||
1,272 | Genie Energy, Ltd., Class B | 5,546 | ||||||
3,510 | Great Plains Energy, Inc. | 113,162 | ||||||
4,681 | Hawaiian Electric Industries, Inc.^ | 169,218 | ||||||
2,156 | IDACORP, Inc. | 196,972 | ||||||
1,626 | MGE Energy, Inc. | 102,601 | ||||||
7,731 | NextEra Energy, Inc. | 1,207,504 | ||||||
4,016 | OGE Energy Corp. | 132,167 | ||||||
2,284 | Otter Tail Power Co. | 101,524 | ||||||
7,605 | PG&E Corp. | 340,932 | ||||||
2,939 | Pinnacle West Capital Corp. | 250,344 | ||||||
3,355 | PNM Resources, Inc. | 135,710 | ||||||
4,369 | Portland General Electric Co. | 199,139 | ||||||
11,330 | PPL Corp. | 350,664 | ||||||
10,893 | Southern Co. (The) | 523,844 | ||||||
5,818 | Westar Energy, Inc. | 307,190 | ||||||
8,857 | Xcel Energy, Inc. | 426,110 | ||||||
|
| |||||||
8,064,683 | ||||||||
|
| |||||||
Electrical Equipment (0.7%): | ||||||||
908 | Acuity Brands, Inc.^ | 159,808 | ||||||
926 | Allied Motion Technologies, Inc. | 30,641 | ||||||
4,962 | AMETEK, Inc. | 359,596 | ||||||
1,175 | AZZ, Inc.^ | 60,043 | ||||||
1,657 | Babcock & Wilcox Enterprises, Inc.* | 9,412 | ||||||
6,086 | Eaton Corp. plc | 480,855 | ||||||
10,732 | Emerson Electric Co. | 747,912 | ||||||
1,159 | Encore Wire Corp. | 56,385 | ||||||
2,195 | EnerSys | 152,838 | ||||||
4,065 | Generac Holdings, Inc.*^ | 201,299 | ||||||
3,673 | General Cable Corp.^ | 108,721 | ||||||
1,311 | Global Power Equipment Group, Inc.*^ | 5,205 | ||||||
2,129 | Hubbell, Inc. | 288,139 | ||||||
1,831 | LSI Industries, Inc. | 12,597 | ||||||
606 | Powell Industries, Inc. | 17,362 | ||||||
415 | Power Solutions International, Inc.* | 3,113 | ||||||
400 | Preformed Line Products Co. | 28,420 | ||||||
2,269 | Regal-Beloit Corp. | 173,805 | ||||||
2,440 | Rockwell Automation, Inc. | 479,094 | ||||||
6,152 | Sensata Technologies Holding NV* | 314,429 | ||||||
1,298 | Thermon Group Holdings, Inc.* | 30,724 | ||||||
|
| |||||||
3,720,398 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (1.5%): | ||||||||
6,427 | Amphenol Corp., Class A | 564,290 | ||||||
1,693 | Anixter International, Inc.* | 128,668 |
Continued
11
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electronic Equipment, Instruments & Components, continued | ||||||||
2,934 | Arrow Electronics, Inc.* | $ | 235,923 | |||||
3,685 | Avnet, Inc. | 146,000 | ||||||
4,886 | AVX Corp.^ | 84,528 | ||||||
1,734 | Badger Meter, Inc.^ | 82,885 | ||||||
2,425 | Belden, Inc.^ | 187,137 | ||||||
3,078 | Benchmark Electronics, Inc.* | 89,570 | ||||||
5,330 | CDW Corp. | 370,382 | ||||||
4,824 | Cognex Corp. | 295,036 | ||||||
707 | Coherent, Inc.* | 199,530 | ||||||
1,010 | Control4 Corp.* | 30,058 | ||||||
13,159 | Corning, Inc. | 420,956 | ||||||
1,576 | CTS Corp. | 40,582 | ||||||
1,747 | CUI Global, Inc.* | 4,804 | ||||||
2,838 | Daktronics, Inc. | 25,911 | ||||||
2,277 | Dolby Laboratories, Inc., Class A | 141,174 | ||||||
2,339 | Electro Scientific Industries, Inc.* | 50,125 | ||||||
876 | ePlus, Inc.* | 65,875 | ||||||
2,177 | Fabrinet*^ | 62,480 | ||||||
1,007 | FARO Technologies, Inc.* | 47,329 | ||||||
25,202 | Flextronics International, Ltd.* | 453,384 | ||||||
7,918 | FLIR Systems, Inc. | 369,137 | ||||||
640 | Frequency Electronics, Inc.* | 5,990 | ||||||
3,548 | II-VI, Inc.*^ | 166,579 | ||||||
1,676 | Insight Enterprises, Inc.* | 64,174 | ||||||
2,100 | IPG Photonics Corp.* | 449,672 | ||||||
1,595 | Itron, Inc.* | 108,779 | ||||||
14,490 | Jabil, Inc. | 380,363 | ||||||
3,410 | KEMET Corp.*^ | 51,355 | ||||||
3,261 | Keysight Technologies, Inc.* | 135,658 | ||||||
1,603 | Kimball Electronics, Inc.* | 29,255 | ||||||
5,037 | Knowles Corp.*^ | 73,842 | ||||||
736 | Littlelfuse, Inc. | 145,596 | ||||||
214 | Mesa Labs, Inc.^ | 26,600 | ||||||
2,290 | Methode Electronics, Inc., Class A | 91,829 | ||||||
915 | MTS Systems Corp. | 49,136 | ||||||
4,833 | National Instruments Corp. | 201,198 | ||||||
1,955 | Novanta, Inc.* | 97,750 | ||||||
894 | OSI Systems, Inc.* | 57,556 | ||||||
953 | Park Electrochemical Corp.^ | 18,726 | ||||||
1,445 | PC Connection, Inc. | 37,873 | ||||||
1,087 | PCM, Inc.*^ | 10,761 | ||||||
772 | Perceptron, Inc.* | 7,527 | ||||||
1,691 | Plexus Corp.* | 102,678 | ||||||
1,193 | Rogers Corp.* | 193,171 | ||||||
4,140 | Sanmina Corp.* | 136,620 | ||||||
1,757 | ScanSource, Inc.* | 62,901 | ||||||
2,996 | SYNNEX Corp. | 407,306 | ||||||
6,195 | TE Connectivity, Ltd. | 588,773 | ||||||
1,453 | Tech Data Corp.* | 142,350 | ||||||
2,955 | Trimble Navigation, Ltd.* | 120,091 | ||||||
6,321 | TTM Technologies, Inc.*^ | 99,050 | ||||||
782 | Universal Display Corp. | 135,012 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electronic Equipment, Instruments & Components, continued | ||||||||
5,185 | VeriFone Systems, Inc.* | $ | 91,826 | |||||
7,620 | Vishay Intertechnology, Inc.^ | 158,115 | ||||||
3,268 | Zebra Technologies Corp., Class A* | 339,218 | ||||||
|
| |||||||
8,883,094 | ||||||||
|
| |||||||
Energy Equipment & Services (0.7%): | ||||||||
4,151 | Archrock, Inc. | 43,586 | ||||||
6,549 | Baker Hughes | 207,210 | ||||||
1,913 | Core Laboratories NV | 209,569 | ||||||
5,986 | Diamond Offshore Drilling, Inc.* | 111,280 | ||||||
2,169 | Dril-Quip, Inc.*^ | 103,461 | ||||||
9,400 | Ensco plc, Class A, ADR^ | 55,554 | ||||||
1,558 | Era Group, Inc.* | 16,749 | ||||||
2,010 | Exterran Corp.* | 63,194 | ||||||
6,125 | Forum Energy Technologies, Inc.*^ | 95,244 | ||||||
4,200 | Frank’s International NV | 27,930 | ||||||
760 | Geospace Technologies Corp.*^ | 9,857 | ||||||
1,086 | Gulf Island Fabrication, Inc.^ | 14,580 | ||||||
4,010 | Halliburton Co. | 195,969 | ||||||
7,826 | Helix Energy Solutions Group, Inc.* | 59,008 | ||||||
2,127 | Helmerich & Payne, Inc. | 137,489 | ||||||
1,750 | Matrix Service Co.* | 31,150 | ||||||
13,741 | McDermott International, Inc.*^ | 90,416 | ||||||
13,067 | Nabors Industries, Ltd. | 89,248 | ||||||
5,324 | National-Oilwell Varco, Inc.^ | 191,770 | ||||||
935 | Natural Gas Services Group* | 24,497 | ||||||
4,799 | Newpark Resources, Inc.*^ | 41,271 | ||||||
12,057 | Noble Corp. plc* | 54,498 | ||||||
4,818 | Oceaneering International, Inc.^ | 101,853 | ||||||
3,066 | Oil States International, Inc.*^ | 86,768 | ||||||
9,357 | Parker Drilling Co.* | 9,357 | ||||||
6,531 | Patterson-UTI Energy, Inc. | 150,278 | ||||||
974 | PHI, Inc.* | 11,269 | ||||||
3,744 | Pioneer Energy Services Corp.* | 11,419 | ||||||
5,837 | Rowan Cos. plc, Class A*^ | 91,407 | ||||||
4,475 | RPC, Inc.^ | 114,247 | ||||||
10,807 | Schlumberger, Ltd. | 728,283 | ||||||
491 | SEACOR Holdings, Inc.^ | 22,694 | ||||||
493 | SEACOR Marine Holdings, Inc.*^ | 5,768 | ||||||
6,258 | Superior Energy Services, Inc.* | 60,265 | ||||||
6,132 | Technipfmc plc | 191,992 | ||||||
4,086 | TETRA Technologies, Inc.* | 17,447 | ||||||
14,584 | Transocean, Ltd.* | 155,757 | ||||||
2,677 | U.S. Silica Holdings, Inc.^ | 87,163 | ||||||
2,800 | Unit Corp.*^ | 61,600 | ||||||
31,453 | Weatherford International plc*^ | 131,159 | ||||||
|
| |||||||
3,912,256 | ||||||||
|
| |||||||
Food & Staples Retailing (1.7%): | ||||||||
2,460 | Casey’s General Stores, Inc.^ | 275,372 | ||||||
1,143 | Chefs’ Warehouse, Inc.*^ | 23,432 | ||||||
8,854 | Costco Wholesale Corp. | 1,647,906 | ||||||
22,272 | CVS Health Corp. | 1,614,720 |
Continued
12
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Food & Staples Retailing, continued | ||||||||
1,267 | Ingles Markets, Inc., Class A | $ | 43,838 | |||||
23,020 | Kroger Co. (The) | 631,899 | ||||||
1,720 | Natural Grocers by Vitamin Cottage, Inc.* | 15,360 | ||||||
1,409 | Performance Food Group Co.* | 46,638 | ||||||
1,261 | PriceSmart, Inc.^ | 108,572 | ||||||
27,665 | Rite Aid Corp.* | 54,500 | ||||||
71 | Smart & Final Stores, Inc.* | 607 | ||||||
1,100 | SpartanNash Co. | 29,348 | ||||||
5,794 | Sprouts Farmers Market, Inc.*^ | 141,084 | ||||||
2,287 | SUPERVALU, Inc.* | 49,399 | ||||||
11,741 | Sysco Corp. | 713,031 | ||||||
1,610 | The Andersons, Inc. | 50,152 | ||||||
3,347 | United Natural Foods, Inc.*^ | 164,907 | ||||||
738 | Village Super Market, Inc., Class A^ | 16,922 | ||||||
12,414 | Walgreens Boots Alliance, Inc. | 901,505 | ||||||
32,066 | Wal-Mart Stores, Inc. | 3,166,517 | ||||||
2,107 | Weis Markets, Inc.^ | 87,209 | ||||||
|
| |||||||
9,782,918 | ||||||||
|
| |||||||
Food Products (1.5%): | ||||||||
5,425 | Archer-Daniels-Midland Co. | 217,434 | ||||||
3,898 | B&G Foods, Inc.^ | 137,015 | ||||||
10,796 | Blue Buffalo Pet Products, Inc.*^ | 354,001 | ||||||
2,204 | Bunge, Ltd. | 147,844 | ||||||
808 | Calavo Growers, Inc.^ | 68,195 | ||||||
1,799 | Cal-Maine Foods, Inc.* | 79,966 | ||||||
5,711 | Campbell Soup Co.^ | 274,756 | ||||||
5,964 | ConAgra Foods, Inc. | 224,664 | ||||||
7,458 | Darling International, Inc.* | 135,214 | ||||||
5,447 | Dean Foods Co.^ | 62,967 | ||||||
1,004 | Farmer Brothers Co.* | 32,279 | ||||||
10,433 | Flowers Foods, Inc.^ | 201,461 | ||||||
2,396 | Fresh Del Monte Produce, Inc.^ | 114,217 | ||||||
13,416 | General Mills, Inc.^ | 795,434 | ||||||
3,802 | Hain Celestial Group, Inc.* | 161,167 | ||||||
3,160 | Hershey Co. (The) | 358,692 | ||||||
5,718 | Hormel Foods Corp.^ | 208,078 | ||||||
3,555 | Hostess Brands, Inc.*^ | 52,650 | ||||||
3,197 | Ingredion, Inc. | 446,941 | ||||||
576 | J & J Snack Foods Corp. | 87,454 | ||||||
3,807 | JM Smucker Co. (The)^ | 472,982 | ||||||
300 | John B Sanfilippo And Son, Inc.^ | 18,975 | ||||||
6,185 | Kellogg Co.^ | 420,456 | ||||||
5,414 | Kraft Heinz Co. (The) | 420,993 | ||||||
3,986 | Lamb Weston Holding, Inc. | 225,010 | ||||||
1,462 | Lancaster Colony Corp. | 188,905 | ||||||
1,028 | Landec Corp.*^ | 12,953 | ||||||
3,335 | McCormick & Co. | 339,870 | ||||||
389 | McCormick & Co., Inc. | 39,231 | ||||||
12,543 | Mondelez International, Inc., Class A | 536,839 | ||||||
4,222 | Pilgrim’s Pride Corp.*^ | 131,135 | ||||||
2,962 | Pinnacle Foods, Inc. | 176,150 | ||||||
3,793 | Post Holdings, Inc.* | 300,519 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Food Products, continued | ||||||||
1,626 | Sanderson Farms, Inc.^ | $ | 225,656 | |||||
34 | Seaboard Corp. | 149,940 | ||||||
677 | Seneca Foods Corp., Class A* | 20,818 | ||||||
2,814 | Snyders-Lance, Inc.^ | 140,925 | ||||||
1,737 | Tootsie Roll Industries, Inc.^ | 63,227 | ||||||
2,148 | TreeHouse Foods, Inc.*^ | 106,240 | ||||||
7,386 | Tyson Foods, Inc., Class A | 598,782 | ||||||
|
| |||||||
8,750,035 | ||||||||
|
| |||||||
Gas Utilities (0.3%): | ||||||||
1,751 | Atmos Energy Corp. | 150,393 | ||||||
900 | Chesapeake Utilities Corp. | 70,695 | ||||||
3,236 | National Fuel Gas Co. | 177,689 | ||||||
2,643 | New Jersey Resources Corp. | 106,249 | ||||||
1,671 | Northwest Natural Gas Co.^ | 99,675 | ||||||
2,227 | ONE Gas, Inc. | 163,150 | ||||||
232 | RGC Resources, Inc. | 6,283 | ||||||
2,958 | South Jersey Industries, Inc. | 92,378 | ||||||
2,850 | Southwest Gas Corp. | 229,368 | ||||||
2,233 | Spire, Inc.^ | 167,810 | ||||||
3,695 | UGI Corp. | 173,480 | ||||||
2,516 | WGL Holdings, Inc. | 215,973 | ||||||
|
| |||||||
1,653,143 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (1.7%): | ||||||||
1,143 | Abaxis, Inc.^ | 56,601 | ||||||
15,097 | Abbott Laboratories | 861,586 | ||||||
886 | ABIOMED, Inc.* | 166,045 | ||||||
2,269 | Accuray, Inc.*^ | 9,757 | ||||||
2,170 | Align Technology, Inc.* | 482,152 | ||||||
703 | Analogic Corp. | 58,876 | ||||||
2,726 | AngioDynamics, Inc.* | 45,333 | ||||||
1,103 | Anika Therapeutics, Inc.*^ | 59,463 | ||||||
115 | Atrion Corp. | 72,519 | ||||||
4,834 | Baxter International, Inc. | 312,470 | ||||||
2,427 | Becton, Dickinson & Co. | 519,459 | ||||||
7,099 | Boston Scientific Corp.* | 175,984 | ||||||
2,008 | Cantel Medical Corp. | 206,563 | ||||||
1,289 | CONMED Corp. | 65,700 | ||||||
1,052 | Cooper Cos., Inc. (The) | 229,210 | ||||||
1,619 | CryoLife, Inc.* | 31,004 | ||||||
4,911 | Danaher Corp. | 455,839 | ||||||
2,748 | DENTSPLY SIRONA, Inc. | 180,901 | ||||||
693 | Dexcom, Inc.*^ | 39,771 | ||||||
3,351 | Edwards Lifesciences Corp.* | 377,691 | ||||||
1,052 | Exactech, Inc.* | 52,021 | ||||||
1,966 | Globus Medical, Inc., Class A*^ | 80,803 | ||||||
2,246 | Haemonetics Corp.* | 130,448 | ||||||
2,733 | Halyard Health, Inc.*^ | 126,210 | ||||||
2,939 | Hill-Rom Holdings, Inc. | 247,728 | ||||||
9,284 | Hologic, Inc.* | 396,891 | ||||||
508 | ICU Medical, Inc.* | 109,728 | ||||||
1,958 | IDEXX Laboratories, Inc.* | 306,192 | ||||||
433 | Inogen, Inc.* | 51,562 |
Continued
13
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Equipment & Supplies, continued | ||||||||
2,057 | Integer Holdings Corp.* | $ | 93,182 | |||||
2,832 | Integra LifeSciences Holdings Corp.*^ | 135,540 | ||||||
1,248 | Intuitive Surgical, Inc.* | 455,445 | ||||||
2,327 | Invacare Corp.^ | 39,210 | ||||||
1,705 | Lantheus Holdings, Inc.* | 34,867 | ||||||
1,209 | LeMaitre Vascular, Inc.^ | 38,495 | ||||||
1,168 | LivaNova plc*^ | 93,347 | ||||||
2,823 | Masimo Corp.*^ | 239,390 | ||||||
10,918 | Medtronic plc | 881,629 | ||||||
3,164 | Meridian Bioscience, Inc.^ | 44,296 | ||||||
2,318 | Merit Medical Systems, Inc.* | 100,138 | ||||||
952 | Natus Medical, Inc.*^ | 36,366 | ||||||
603 | Neogen Corp.* | 49,573 | ||||||
1,849 | NuVasive, Inc.* | 108,148 | ||||||
481 | Nuvectra Corp.* | 3,733 | ||||||
2,383 | OraSure Technologies, Inc.* | 44,943 | ||||||
1,074 | Orthofix International NV* | 58,748 | ||||||
700 | Quidel Corp.*^ | 30,345 | ||||||
3,426 | ResMed, Inc.^ | 290,148 | ||||||
3,310 | RTI Surgical, Inc.* | 13,571 | ||||||
624 | SeaSpine Holdings Corp.* | 6,315 | ||||||
1,649 | STERIS plc | 144,238 | ||||||
4,858 | Stryker Corp. | 752,213 | ||||||
950 | Teleflex, Inc. | 236,379 | ||||||
227 | Utah Medical Products, Inc. | 18,478 | ||||||
2,284 | Varex Imaging Corp.*^ | 91,748 | ||||||
2,117 | Varian Medical Systems, Inc.* | 235,305 | ||||||
1,157 | West Pharmaceutical Services, Inc. | 114,161 | ||||||
1,714 | Zimmer Holdings, Inc. | 206,828 | ||||||
|
| |||||||
10,505,286 | ||||||||
|
| |||||||
Health Care Providers & Services (2.8%): | ||||||||
4,796 | Acadia Healthcare Co., Inc.*^ | 156,493 | ||||||
1,958 | Aceto Corp. | 20,226 | ||||||
634 | Addus HomeCare Corp.* | 22,063 | ||||||
3,648 | Aetna, Inc. | 658,063 | ||||||
766 | Almost Family, Inc.* | 42,398 | ||||||
801 | Amedisys, Inc.* | 42,221 | ||||||
1,839 | AmerisourceBergen Corp. | 168,857 | ||||||
3,501 | AMN Healthcare Services, Inc.*^ | 172,424 | ||||||
3,808 | Anthem, Inc. | 856,838 | ||||||
9,264 | Brookdale Senior Living, Inc.* | 89,861 | ||||||
7,103 | Cardinal Health, Inc. | 435,201 | ||||||
5,547 | Centene Corp.* | 559,581 | ||||||
785 | Chemed Corp.^ | 190,771 | ||||||
4,823 | Cigna Corp. | 979,503 | ||||||
1,442 | Civitas Solutions, Inc.* | 24,658 | ||||||
7,171 | Community Health Systems, Inc.*^ | 30,548 | ||||||
1,253 | CorVel Corp.* | 66,284 | ||||||
1,177 | Cross Country Healthcare, Inc.* | 15,019 | ||||||
9,186 | DaVita, Inc.* | 663,689 | ||||||
2,090 | Diplomat Pharmacy, Inc.*^ | 41,946 | ||||||
3,058 | Ensign Group, Inc. (The)^ | 67,888 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Providers & Services, continued | ||||||||
3,015 | Envision Healthcare Corp.*^ | $ | 104,198 | |||||
15,898 | Express Scripts Holding Co.* | 1,186,627 | ||||||
784 | Five Star Quality Care, Inc.* | 1,176 | ||||||
2,639 | Hanger Orthopedic Group, Inc.*^ | 41,564 | ||||||
4,541 | HCA Holdings, Inc.* | 398,881 | ||||||
1,272 | HealthEquity, Inc.*^ | 59,352 | ||||||
6,210 | HealthSouth Corp. | 306,836 | ||||||
3,972 | Henry Schein, Inc.*^ | 277,563 | ||||||
2,247 | Humana, Inc. | 557,413 | ||||||
2,629 | InfuSystems Holdings, Inc.* | 6,047 | ||||||
4,876 | Kindred Healthcare, Inc. | 47,297 | ||||||
4,425 | Laboratory Corp. of America Holdings* | 705,832 | ||||||
1,326 | LHC Group, Inc.* | 81,218 | ||||||
3,038 | LifePoint Hospitals, Inc.* | 151,292 | ||||||
2,025 | Magellan Health Services, Inc.* | 195,514 | ||||||
4,913 | McKesson Corp. | 766,182 | ||||||
3,346 | MEDNAX, Inc.* | 178,810 | ||||||
1,848 | Molina Healthcare, Inc.*^ | 141,705 | ||||||
1,075 | National Healthcare Corp. | 65,511 | ||||||
1,219 | National Research Corp.^ | 45,469 | ||||||
4,172 | Owens & Minor, Inc.^ | 78,767 | ||||||
4,695 | Patterson Cos., Inc.^ | 169,630 | ||||||
2,269 | Premier, Inc., Class A*^ | 66,232 | ||||||
835 | Providence Service Corp.* | 49,549 | ||||||
7,179 | Quest Diagnostics, Inc. | 707,060 | ||||||
2,317 | Quorum Health Corp.* | 14,458 | ||||||
2,518 | RadNet, Inc.* | 25,432 | ||||||
9,791 | Select Medical Holdings Corp.* | 172,811 | ||||||
2,133 | Surgery Partners, Inc.*^ | 25,809 | ||||||
3,992 | Tenet Healthcare Corp.* | 60,519 | ||||||
2,040 | Tivity Health, Inc.*^ | 74,562 | ||||||
1,240 | Triple-S Management Corp., Class B* | 30,814 | ||||||
937 | U.S. Physical Therapy, Inc. | 67,651 | ||||||
16,191 | UnitedHealth Group, Inc. | 3,569,468 | ||||||
4,862 | Universal Health Services, Inc., Class B | 551,108 | ||||||
1,609 | WellCare Health Plans, Inc.* | 323,586 | ||||||
|
| |||||||
16,610,475 | ||||||||
|
| |||||||
Health Care Technology (0.2%): | ||||||||
8,432 | Allscripts Healthcare Solutions, Inc.* | 122,686 | ||||||
1,052 | athenahealth, Inc.*^ | 139,958 | ||||||
5,336 | Cerner Corp.* | 359,593 | ||||||
339 | Computer Programs & Systems, Inc. | 10,187 | ||||||
648 | Evolent Health, Inc., Class A*^ | 7,970 | ||||||
1,357 | HealthStream, Inc.* | 31,428 | ||||||
4,954 | HMS Holdings Corp.* | 83,970 | ||||||
644 | Medidata Solutions, Inc.*^ | 40,810 | ||||||
1,095 | Omnicell, Inc.* | 53,108 | ||||||
2,464 | Quality Systems, Inc.* | 33,461 | ||||||
1,747 | Simulations Plus, Inc. | 28,127 | ||||||
1,810 | Veeva Systems, Inc., Class A* | 100,057 | ||||||
|
| |||||||
1,011,355 | ||||||||
|
|
Continued
14
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Hotels, Restaurants & Leisure (2.6%): | ||||||||
10,056 | Aramark Holdings Corp. | $ | 429,793 | |||||
2,451 | BBX Capital Corp. | 19,534 | ||||||
4,464 | Belmond, Ltd., Class A*^ | 54,684 | ||||||
67 | Biglari Holdings, Inc.* | 27,765 | ||||||
1,927 | BJ’s Restaurants, Inc.^ | 70,143 | ||||||
3,939 | Bloomin’ Brands, Inc.^ | 84,058 | ||||||
836 | Bob Evans Farms, Inc. | 65,894 | ||||||
541 | Bojangles’, Inc.*^ | 6,384 | ||||||
1,441 | Bravo Brio Restaurant Group, Inc.* | 3,603 | ||||||
2,887 | Brinker International, Inc. | 112,131 | ||||||
1,469 | Buffalo Wild Wings, Inc.*^ | 229,678 | ||||||
4,600 | Caesars Entertainment Corp.* | 58,190 | ||||||
4,851 | Carnival Corp., Class A | 321,961 | ||||||
2,943 | Carrols Restaurant Group, Inc.* | 35,757 | ||||||
1,723 | Century Casinos, Inc.* | 15,731 | ||||||
2,997 | Cheesecake Factory, Inc. (The)^ | 144,395 | ||||||
140 | Chipotle Mexican Grill, Inc.*^ | 40,464 | ||||||
3,153 | Choice Hotels International, Inc. | 244,673 | ||||||
1,178 | Chuy’s Holdings, Inc.*^ | 33,043 | ||||||
1,626 | Cracker Barrel Old Country Store, Inc.^ | 258,355 | ||||||
3,827 | Darden Restaurants, Inc. | 367,469 | ||||||
2,412 | Dave & Buster’s Entertainment, Inc.*^ | 133,070 | ||||||
1,574 | Del Frisco’s Restaurant Group, Inc.* | 24,004 | ||||||
2,144 | del Taco Restaurants, Inc.* | 25,985 | ||||||
4,856 | Denny’s Corp.*^ | 64,293 | ||||||
1,558 | DineEquity, Inc. | 79,037 | ||||||
1,096 | Domino’s Pizza, Inc.^ | 207,100 | ||||||
4,546 | Dunkin’ Brands Group, Inc. | 293,081 | ||||||
1,277 | Fiesta Restaurant Group, Inc.* | 24,263 | ||||||
624 | Habit Restaurants, Inc. (The), Class A* | 5,959 | ||||||
2,724 | Hilton Grand Vacations* | 114,272 | ||||||
3,243 | Hilton Worldwide Holdings, Inc. | 258,986 | ||||||
1,051 | Hyatt Hotels Corp., Class A* | 77,291 | ||||||
7,221 | Ilg, Inc. | 205,654 | ||||||
6,233 | International Game Technology plc | 165,237 | ||||||
1,792 | Jack in the Box, Inc. | 175,813 | ||||||
671 | Jamba, Inc.* | 5,408 | ||||||
5,657 | La Quinta Holdings, Inc.* | 104,428 | ||||||
9,264 | Las Vegas Sands Corp. | 643,755 | ||||||
2,136 | Luby’s, Inc.* | 5,639 | ||||||
977 | Marcus Corp. | 26,721 | ||||||
3,634 | Marriott International, Inc., Class A | 493,243 | ||||||
1,376 | Marriott Vacations Worldwide Corp.^ | 186,049 | ||||||
13,394 | McDonald’s Corp. | 2,305,374 | ||||||
24,340 | MGM Resorts International | 812,713 | ||||||
341 | Nathans Famous, Inc. | 25,746 | ||||||
5,162 | Norwegian Cruise Line Holdings, Ltd.* | 274,877 | ||||||
1,596 | Papa John’s International, Inc.^ | 89,552 | ||||||
1,378 | Pinnacle Entertainment, Inc.* | 45,102 | ||||||
4,017 | Planet Fitness, Inc.*^ | 139,109 | ||||||
763 | Potbelly Corp.* | 9,385 | ||||||
886 | RCI Hospitality Holdings, Inc. | 24,790 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Hotels, Restaurants & Leisure, continued | ||||||||
1,501 | Red Lion Hotels Corp.*^ | $ | 14,785 | |||||
878 | Red Robin Gourmet Burgers*^ | 49,519 | ||||||
2,565 | Royal Caribbean Cruises, Ltd. | 305,953 | ||||||
2,527 | Ruth’s Hospitality Group, Inc. | 54,710 | ||||||
3,394 | Scientific Games Corp., Class A*^ | 174,112 | ||||||
4,011 | Six Flags Entertainment Corp.^ | 267,012 | ||||||
1,933 | Sonic Corp. | 53,119 | ||||||
2,826 | Speedway Motorsports, Inc. | 53,327 | ||||||
32,171 | Starbucks Corp. | 1,847,580 | ||||||
4,257 | Texas Roadhouse, Inc. | 224,259 | ||||||
1,604 | Town Sports International Holdings, Inc.* | 8,902 | ||||||
1,046 | Vail Resorts, Inc. | 222,244 | ||||||
16,156 | Wendy’s Co. (The)^ | 265,282 | ||||||
1,298 | Wingstop, Inc.^ | 50,596 | ||||||
3,606 | Wyndham Worldwide Corp. | 417,827 | ||||||
2,056 | Wynn Resorts, Ltd. | 346,621 | ||||||
5,468 | Yum! Brands, Inc. | 446,243 | ||||||
|
| |||||||
14,471,732 | ||||||||
|
| |||||||
Household Durables (1.0%): | ||||||||
875 | Av Homes, Inc.*^ | 14,569 | ||||||
1,886 | Beazer Homes USA, Inc.* | 36,230 | ||||||
6,757 | CalAtlantic Group, Inc. | 381,027 | ||||||
504 | Cavco Industries, Inc.* | 76,910 | ||||||
1,150 | Century Communities, Inc.* | 35,765 | ||||||
12,050 | D.R. Horton, Inc. | 615,393 | ||||||
1,137 | Dixie Group, Inc. (The)* | 4,377 | ||||||
1,910 | Ethan Allen Interiors, Inc.^ | 54,626 | ||||||
431 | Flexsteel Industries, Inc. | 20,162 | ||||||
5,743 | Garmin, Ltd. | 342,111 | ||||||
2,761 | GoPro, Inc., Class A*^ | 20,901 | ||||||
2,219 | Green Brick Partners, Inc.* | 25,075 | ||||||
1,211 | Helen of Troy, Ltd.* | 116,680 | ||||||
500 | Hooker Furniture Corp. | 21,225 | ||||||
1,333 | Installed Building Products, Inc.*^ | 101,241 | ||||||
931 | iRobot Corp.*^ | 71,408 | ||||||
4,827 | KB Home^ | 154,223 | ||||||
3,931 | La-Z-Boy, Inc. | 122,647 | ||||||
4,024 | Leggett & Platt, Inc.^ | 192,066 | ||||||
3,326 | Lennar Corp., Class A | 210,336 | ||||||
1,206 | LGI Homes, Inc.* | 90,486 | ||||||
1,820 | Libbey, Inc.^ | 13,686 | ||||||
1,017 | Lifetime Brands, Inc. | 16,781 | ||||||
3,335 | M.D.C. Holdings, Inc. | 106,320 | ||||||
1,880 | M/I Homes, Inc.* | 64,672 | ||||||
3,168 | Meritage Corp.*^ | 162,202 | ||||||
1,006 | Mohawk Industries, Inc.* | 277,555 | ||||||
2,791 | Newell Rubbermaid, Inc. | 86,242 | ||||||
150 | NVR, Inc.* | 526,233 | ||||||
10,604 | PulteGroup, Inc. | 352,583 | ||||||
3,491 | Taylor Morrison Home Corp., Class A* | 85,425 | ||||||
3,400 | Tempur Sealy International, Inc.* | 213,146 | ||||||
3,047 | Toll Brothers, Inc.^ | 146,317 |
Continued
15
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Household Durables, continued | ||||||||
2,205 | TopBuild Corp.* | $ | 167,007 | |||||
7,853 | TRI Pointe Homes, Inc.*^ | 140,726 | ||||||
2,153 | Tupperware Brands Corp. | 134,993 | ||||||
718 | Universal Electronics, Inc.*^ | 33,926 | ||||||
3,485 | Whirlpool Corp. | 587,709 | ||||||
2,147 | William Lyon Homes, Class A* | 62,435 | ||||||
1,918 | Zagg, Inc.* | 35,387 | ||||||
|
| |||||||
5,920,803 | ||||||||
|
| |||||||
Household Products (1.2%): | ||||||||
3,237 | Central Garden & Pet Co., Class A* | 122,067 | ||||||
7,372 | Church & Dwight Co., Inc. | 369,853 | ||||||
3,732 | Clorox Co. (The) | 555,098 | ||||||
14,020 | Colgate-Palmolive Co. | 1,057,809 | ||||||
3,074 | Energizer Holdings, Inc.^ | 147,491 | ||||||
11,593 | HRG Group, Inc.* | 196,501 | ||||||
6,541 | Kimberly-Clark Corp. | 789,237 | ||||||
333 | Oil-Dri Corp. | 13,820 | ||||||
582 | Orchids Paper Products Co.^ | 7,450 | ||||||
39,497 | Procter & Gamble Co. (The) | 3,628,983 | ||||||
1,069 | Spectrum Brands Holdings, Inc. | 120,156 | ||||||
698 | WD-40 Co.^ | 82,364 | ||||||
|
| |||||||
7,090,829 | ||||||||
|
| |||||||
Independent Power & Renewable Electricity Producers (0.2%): | ||||||||
15,393 | AES Corp. (The) | 166,706 | ||||||
5,810 | Atlantic Power Corp.* | 13,654 | ||||||
3,123 | Atlantica Yield plc | 66,239 | ||||||
22,655 | Calpine Corp.* | 342,769 | ||||||
7,034 | Dynegy, Inc.* | 83,353 | ||||||
15,643 | NRG Energy, Inc. | 445,512 | ||||||
2,123 | NRG Yield, Inc., Class A^ | 40,019 | ||||||
2,753 | NRG Yield, Inc., Class C | 52,032 | ||||||
2,758 | Ormat Technologies, Inc.^ | 176,402 | ||||||
3,788 | Pattern Energy Group, Inc.^ | 81,404 | ||||||
|
| |||||||
1,468,090 | ||||||||
|
| |||||||
Industrial Conglomerates (1.2%): | ||||||||
14,008 | 3M Co., Class C | 3,297,063 | ||||||
2,046 | Carlisle Cos., Inc. | 232,528 | ||||||
53,601 | General Electric Co. | 935,337 | ||||||
14,754 | Honeywell International, Inc. | 2,262,673 | ||||||
1,736 | Raven Industries, Inc. | 59,632 | ||||||
1,076 | Roper Industries, Inc. | 278,684 | ||||||
|
| |||||||
7,065,917 | ||||||||
|
| |||||||
Insurance (3.0%): | ||||||||
6,895 | Aflac, Inc. | 605,243 | ||||||
333 | Alleghany Corp.* | 198,498 | ||||||
4,705 | Allstate Corp. (The) | 492,661 | ||||||
4,095 | AMBAC Financial Group, Inc.*(a) | 65,438 | ||||||
6,319 | American Equity Investment Life Holding Co. | 194,183 | ||||||
2,316 | American Financial Group, Inc. | 251,379 | ||||||
9,941 | American International Group, Inc. | 592,285 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Insurance, continued | ||||||||
908 | American National Insurance Co. | $ | 116,451 | |||||
1,543 | Amerisafe, Inc.^ | 95,049 | ||||||
12,054 | AmTrust Financial Services^ | 121,384 | ||||||
4,150 | Aon plc | 556,100 | ||||||
1,910 | Arch Capital Group, Ltd.* | 173,371 | ||||||
1,306 | Argo Group International Holdings, Ltd. | 80,515 | ||||||
5,979 | Arthur J. Gallagher & Co. | 378,351 | ||||||
2,735 | Aspen Insurance Holdings, Ltd. | 111,041 | ||||||
1,955 | Assurant, Inc. | 197,142 | ||||||
4,165 | Assured Guaranty, Ltd. | 141,069 | ||||||
3,438 | Axis Capital Holdings, Ltd. | 172,794 | ||||||
1,029 | Brighthouse Financial, Inc.* | 60,341 | ||||||
4,314 | Brown & Brown, Inc. | 221,998 | ||||||
4,915 | Chubb, Ltd. | 718,229 | ||||||
2,852 | Cincinnati Financial Corp. | 213,814 | ||||||
2,176 | Citizens, Inc.*^ | 15,994 | ||||||
1,199 | CNA Financial Corp.^ | 63,607 | ||||||
2,354 | Crawford & Co. | 22,645 | ||||||
2,915 | Crawford & Co., Class A | 24,778 | ||||||
1,631 | Donegal Group, Inc., Class A | 28,216 | ||||||
1,546 | EMC Insurance Group, Inc. | 44,355 | ||||||
1,993 | Employers Holdings, Inc. | 88,489 | ||||||
680 | Enstar Group, Ltd.* | 136,510 | ||||||
1,364 | Erie Indemnity Co., Class A | 166,190 | ||||||
748 | Everest Re Group, Ltd. | 165,502 | ||||||
1,025 | FBL Financial Group, Inc., Class A | 71,391 | ||||||
1,054 | Federated National Holding Co. | 17,465 | ||||||
6,955 | First American Financial Corp. | 389,758 | ||||||
8,665 | FNF Group | 340,015 | ||||||
21,335 | Genworth Financial, Inc., Class A* | 66,352 | ||||||
695 | Global Indemnity, Ltd.*^ | 29,204 | ||||||
2,383 | Greenlight Capital Re, Ltd.* | 47,898 | ||||||
1,469 | Hallmark Financial Services, Inc.* | 15,322 | ||||||
1,690 | Hanover Insurance Group, Inc. (The) | 182,655 | ||||||
6,118 | Hartford Financial Services Group, Inc. (The) | 344,321 | ||||||
997 | HCI Group, Inc.^ | 29,810 | ||||||
387 | Heritage Insurance Holdings, Inc.^ | 6,974 | ||||||
2,388 | Horace Mann Educators Corp. | 105,311 | ||||||
1,317 | Independence Holding Co.^ | 36,152 | ||||||
566 | Infinity Property & Casualty Corp. | 59,996 | ||||||
153 | Investors Title Co. | 30,348 | ||||||
1,436 | James River Group Holdings^ | 57,454 | ||||||
2,904 | Kemper Corp. | 200,086 | ||||||
3,599 | Lincoln National Corp. | 276,655 | ||||||
5,372 | Loews Corp. | 268,761 | ||||||
5,556 | Maiden Holdings, Ltd.^ | 36,670 | ||||||
301 | Markel Corp.*^ | 342,878 | ||||||
10,619 | Marsh & McLennan Cos., Inc. | 864,279 | ||||||
2,503 | Mercury General Corp.^ | 133,760 | ||||||
8,570 | MetLife, Inc. | 433,299 | ||||||
4,959 | National General Holdings Corp. | 97,395 | ||||||
262 | National Western Life Group, Inc., Class A | 86,727 |
Continued
16
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Insurance, continued | ||||||||
1,307 | Navigators Group, Inc. | $ | 63,651 | |||||
10,217 | Old Republic International Corp.^ | 218,439 | ||||||
4,021 | Primerica, Inc. | 408,333 | ||||||
10,099 | Principal Financial Group, Inc. | 712,585 | ||||||
1,502 | ProAssurance Corp. | 85,839 | ||||||
9,474 | Progressive Corp. (The) | 533,576 | ||||||
4,383 | Prudential Financial, Inc. | 503,957 | ||||||
1,338 | Reinsurance Group of America, Inc. | 208,634 | ||||||
1,433 | RenaissanceRe Holdings, Ltd. | 179,969 | ||||||
1,563 | RLI Corp.^ | 94,812 | ||||||
854 | Safety Insurance Group, Inc. | 68,662 | ||||||
3,298 | Selective Insurance Group, Inc. | 193,593 | ||||||
2,664 | State Auto Financial Corp. | 77,576 | ||||||
1,761 | Stewart Information Services Corp. | 74,490 | ||||||
3,912 | Third Point Reinsurance, Ltd.*^ | 57,311 | ||||||
1,775 | Torchmark Corp. | 161,010 | ||||||
6,719 | Travelers Cos., Inc. (The) | 911,364 | ||||||
1,438 | United Fire Group, Inc. | 65,544 | ||||||
1,616 | United Insurance Holdings Co. | 27,876 | ||||||
3,169 | Universal Insurance Holdings, Inc. | 86,672 | ||||||
4,150 | UnumProvident Corp. | 227,794 | ||||||
2,825 | Validus Holdings, Ltd. | 132,549 | ||||||
2,257 | W.R. Berkley Corp. | 161,714 | ||||||
140 | White Mountains Insurance Group, Ltd. | 119,179 | ||||||
1,229 | Willis Towers Watson plc | 185,198 | ||||||
4,400 | Wmih Corp.* | 3,736 | ||||||
4,083 | XL Group, Ltd.^ | 143,558 | ||||||
|
| |||||||
16,792,179 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (2.4%): | ||||||||
2,093 | 1-800 Flowers.com, Inc., Class A* | 22,395 | ||||||
9,398 | Amazon.com, Inc.* | 10,990,679 | ||||||
1,658 | Expedia, Inc. | 198,579 | ||||||
185 | FTD Cos., Inc.* | 1,330 | ||||||
3,111 | HSN, Inc.^ | 125,529 | ||||||
1,597 | Liberty Expedia Holdings, Class A* | 70,795 | ||||||
5,384 | Liberty TripAdvisor Holdings, Inc., Class A* | 50,744 | ||||||
2,421 | Liberty Ventures, Series A, Class A*^ | 131,315 | ||||||
2,282 | Netflix, Inc.* | 438,053 | ||||||
1,637 | Nutri/System, Inc.^ | 86,106 | ||||||
820 | Overstock.com, Inc.*^ | 52,398 | ||||||
1,164 | PetMed Express, Inc.^ | 52,962 | ||||||
824 | Priceline Group, Inc. (The)* | 1,431,898 | ||||||
1,959 | Shutterfly, Inc.*^ | 97,460 | ||||||
2,514 | TripAdvisor, Inc.*^ | 86,632 | ||||||
|
| |||||||
13,836,875 | ||||||||
|
| |||||||
Internet Software & Services (2.6%): | ||||||||
3,020 | Actua Corp.* | 47,112 | ||||||
5,646 | Akamai Technologies, Inc.* | 367,215 | ||||||
2,947 | Alphabet, Inc., Class A* | 3,104,369 | ||||||
3,179 | Alphabet, Inc., Class C* | 3,326,505 | ||||||
913 | Bazaarvoice, Inc.* | 4,976 | ||||||
2,377 | Blucora, Inc.* | 52,532 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Internet Software & Services, continued | ||||||||
3,783 | Cars.com, Inc.*^ | $ | 109,102 | |||||
1,744 | Cimpress NV* | 209,071 | ||||||
304 | CoStar Group, Inc.* | 90,273 | ||||||
2,881 | DHI Group, Inc.* | 5,474 | ||||||
17,800 | eBay, Inc.* | 671,771 | ||||||
990 | Envestnet, Inc.*^ | 49,352 | ||||||
32,810 | Facebook, Inc., Class A* | 5,789,652 | ||||||
1,451 | GoDaddy, Inc., Class A* | 72,956 | ||||||
1,546 | GrubHub, Inc.*^ | 111,003 | ||||||
2,548 | GTT Communications, Inc.*^ | 119,629 | ||||||
911 | IAC/InterActiveCorp* | 111,397 | ||||||
821 | Internap Corp.* | 12,898 | ||||||
2,946 | j2 Global, Inc.^ | 221,038 | ||||||
1,546 | Leaf Group, Ltd.* | 15,305 | ||||||
5,660 | Limelight Networks, Inc.* | 24,961 | ||||||
1,736 | Liquidity Services, Inc.* | 8,420 | ||||||
1,103 | LogMeIn, Inc. | 126,294 | ||||||
2,502 | Marchex, Inc., Class B* | 8,081 | ||||||
1,146 | Match Group, Inc.*^ | 35,881 | ||||||
3,759 | NIC, Inc. | 62,399 | ||||||
2,520 | QuinStreet, Inc.* | 21,118 | ||||||
752 | Qumu Corp.* | 1,722 | ||||||
2,745 | RealNetworks, Inc.* | 9,388 | ||||||
401 | Reis, Inc.^ | 8,281 | ||||||
981 | Shutterstock, Inc.*^ | 42,212 | ||||||
585 | Stamps.com, Inc.* | 109,980 | ||||||
1,895 | TechTarget* | 26,378 | ||||||
3,390 | Telaria, Inc.* | 13,662 | ||||||
2,297 | The Meet Group, Inc. (The)*^ | 6,478 | ||||||
1,344 | Travelzoo, Inc.* | 8,669 | ||||||
4,951 | Twitter, Inc.* | 118,874 | ||||||
2,288 | VeriSign, Inc.*^ | 261,839 | ||||||
4,619 | Web.com Group, Inc.* | 100,694 | ||||||
1,311 | XO Group, Inc.* | 24,201 | ||||||
700 | Yelp, Inc.*^ | 29,372 | ||||||
1,125 | Zillow Group, Inc., Class A* | 45,833 | ||||||
2,504 | Zillow Group, Inc., Class C*^ | 102,464 | ||||||
|
| |||||||
15,688,831 | ||||||||
|
| |||||||
IT Services (4.6%): | ||||||||
14,611 | Accenture plc, Class C | 2,236,798 | ||||||
3,417 | Acxiom Corp.* | 94,173 | ||||||
1,962 | Alliance Data Systems Corp. | 497,328 | ||||||
4,876 | Amdocs, Ltd. | 319,280 | ||||||
10,094 | Automatic Data Processing, Inc. | 1,182,916 | ||||||
3,592 | Black Knight, Inc.* | 158,587 | ||||||
3,213 | Blackhawk Network Holdings, Inc.*^ | 114,543 | ||||||
6,581 | Booz Allen Hamilton Holding Corp. | 250,934 | ||||||
4,071 | Broadridge Financial Solutions, Inc. | 368,751 | ||||||
1,304 | CACI International, Inc., Class A* | 172,584 | ||||||
2,129 | Cardtronics plc* | 39,429 | ||||||
573 | Cass Information Systems, Inc.^ | 33,354 | ||||||
5,920 | Cognizant Technology Solutions Corp., Class A | 420,438 |
Continued
17
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
IT Services, continued | ||||||||
6,347 | Conduent, Inc.* | $ | 102,568 | |||||
5,424 | Convergys Corp.^ | 127,464 | ||||||
4,694 | CoreLogic, Inc.* | 216,910 | ||||||
2,608 | CSG Systems International, Inc. | 114,283 | ||||||
7,054 | CSRA, Inc. | 211,056 | ||||||
4,304 | DST Systems, Inc. | 267,149 | ||||||
8,526 | DXC Technology Co. | 809,117 | ||||||
1,894 | Epam Systems, Inc.* | 203,472 | ||||||
2,653 | Euronet Worldwide, Inc.* | 223,568 | ||||||
1,620 | Exlservice Holdings, Inc.* | 97,767 | ||||||
4,709 | Fidelity National Information Services, Inc. | 443,070 | ||||||
4,922 | Fiserv, Inc.* | 645,422 | ||||||
1,827 | FleetCor Technologies, Inc.* | 351,570 | ||||||
825 | Forrester Research, Inc. | 36,465 | ||||||
1,943 | Gartner, Inc.* | 239,280 | ||||||
6,266 | Genpact, Ltd. | 198,883 | ||||||
2,488 | Global Payments, Inc. | 249,397 | ||||||
1,357 | Hackett Group, Inc. (The) | 21,318 | ||||||
21,125 | International Business Machines Corp. | 3,240,998 | ||||||
2,242 | Jack Henry & Associates, Inc. | 262,224 | ||||||
3,495 | Leidos Holdings, Inc. | 225,672 | ||||||
649 | Luxoft Holding, Inc.* | 36,149 | ||||||
1,840 | ManTech International Corp., Class A | 92,350 | ||||||
22,502 | MasterCard, Inc., Class A | 3,405,903 | ||||||
3,978 | Maximus, Inc. | 284,745 | ||||||
3,966 | ModusLink Global Solutions, Inc.* | 9,875 | ||||||
2,787 | MoneyGram International, Inc.* | 36,733 | ||||||
7,419 | Paychex, Inc. | 505,086 | ||||||
11,658 | PayPal Holdings, Inc.* | 858,262 | ||||||
2,322 | Perficient, Inc.* | 44,281 | ||||||
840 | PFSweb, Inc.* | 6,241 | ||||||
4,398 | Sabre Corp.^ | 90,159 | ||||||
1,901 | Science Applications International Corp.^ | 145,560 | ||||||
3,035 | Servicesource International, Inc.* | 9,378 | ||||||
1,241 | StarTek, Inc.*^ | 12,373 | ||||||
3,283 | Sykes Enterprises, Inc.* | 103,250 | ||||||
4,553 | Syntel, Inc.*^ | 104,673 | ||||||
2,975 | TeleTech Holdings, Inc. | 119,744 | ||||||
7,782 | Teradata Corp.*^ | 299,296 | ||||||
5,570 | Total System Services, Inc. | 440,531 | ||||||
5,685 | Travelport Worldwide, Ltd. | 74,303 | ||||||
3,021 | Unisys Corp.* | 24,621 | ||||||
5,225 | Vantive, Inc., Class A*^ | 384,299 | ||||||
1,226 | Virtusa Corp.* | 54,042 | ||||||
36,614 | Visa, Inc., Class A | 4,174,728 | ||||||
14,583 | Western Union Co. | 277,223 | ||||||
1,662 | WEX, Inc.*^ | 234,724 | ||||||
|
| |||||||
26,005,297 | ||||||||
|
| |||||||
Leisure Products (0.3%): | ||||||||
1,289 | Acushnet Holdings Corp. | 27,172 | ||||||
3,582 | American Outdoor Brands Corp.*^ | 45,993 | ||||||
5,288 | Brunswick Corp. | 292,003 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Leisure Products, continued | ||||||||
3,789 | Callaway Golf Co. | $ | 52,781 | |||||
658 | Escalade, Inc. | 8,093 | ||||||
3,748 | Hasbro, Inc. | 340,656 | ||||||
503 | Johnson Outdoors, Inc., Class A | 31,231 | ||||||
531 | Malibu Boats, Inc.*^ | 15,787 | ||||||
662 | Marine Products Corp. | 8,434 | ||||||
9,123 | Mattel, Inc. | 140,312 | ||||||
1,932 | Nautilus Group, Inc.*^ | 25,792 | ||||||
3,172 | Polaris Industries, Inc. | 393,296 | ||||||
1,015 | Sturm, Ruger & Co., Inc.^ | 56,688 | ||||||
2,859 | Vista Outdoor, Inc.* | 41,656 | ||||||
|
| |||||||
1,479,894 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.7%): | ||||||||
3,542 | Agilent Technologies, Inc. | 237,208 | ||||||
483 | Bio-Rad Laboratories, Inc., Class A* | 115,278 | ||||||
1,354 | Bio-Techne Corp. | 175,411 | ||||||
7,817 | Bruker Corp. | 268,279 | ||||||
2,131 | Cambrex Corp.*^ | 102,288 | ||||||
3,344 | Charles River Laboratories International, Inc.* | 366,001 | ||||||
1,979 | Harvard Bioscience, Inc.* | 6,531 | ||||||
1,311 | Illumina, Inc.* | 286,440 | ||||||
2,622 | INC Research Holdings, Inc., Class A* | 114,319 | ||||||
1,097 | IQVIA Holdings, Inc.* | 107,396 | ||||||
2,457 | Luminex Corp. | 48,403 | ||||||
828 | Mettler-Toledo International, Inc.* | 512,963 | ||||||
1,400 | Neogenomics, Inc.*^ | 12,404 | ||||||
2,154 | PerkinElmer, Inc. | 157,500 | ||||||
2,855 | Pra Health Sciences, Inc.* | 260,005 | ||||||
5,673 | Thermo Fisher Scientific, Inc. | 1,077,189 | ||||||
1,749 | Waters Corp.* | 337,889 | ||||||
|
| |||||||
4,185,504 | ||||||||
|
| |||||||
Machinery (2.8%): | ||||||||
2,898 | Actuant Corp., Class A^ | 73,319 | ||||||
4,367 | AGCO Corp. | 311,935 | ||||||
652 | Alamo Group, Inc. | 73,591 | ||||||
1,377 | Albany International Corp., Class A | 84,617 | ||||||
6,349 | Allison Transmission Holdings, Inc.^ | 273,451 | ||||||
1,577 | Altra Industrial Motion Corp. | 79,481 | ||||||
1,107 | American Railcar Industries | 46,095 | ||||||
1,445 | ARC Group Worldwide, Inc.* | 3,035 | ||||||
1,605 | Astec Industries, Inc. | 93,893 | ||||||
3,002 | Barnes Group, Inc. | 189,937 | ||||||
911 | Blue Bird Corp.* | 18,129 | ||||||
2,517 | Briggs & Stratton Corp. | 63,856 | ||||||
10,638 | Caterpillar, Inc. | 1,676,335 | ||||||
2,289 | Chart Industries, Inc.*^ | 107,263 | ||||||
1,284 | CIRCOR International, Inc.^ | 62,505 | ||||||
4,930 | Colfax Corp.* | 195,327 | ||||||
1,526 | Columbus McKinnon Corp. | 61,009 | ||||||
2,706 | Commercial Vehicle Group, Inc.* | 28,927 | ||||||
1,945 | Crane Co. | 173,533 | ||||||
2,696 | Cummins, Inc. | 476,221 |
Continued
18
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Machinery, continued | ||||||||
6,563 | Deere & Co. | $ | 1,027,174 | |||||
3,424 | Donaldson Co., Inc. | 167,605 | ||||||
1,924 | Douglas Dynamics, Inc. | 72,727 | ||||||
5,463 | Dover Corp. | 551,708 | ||||||
1,120 | EnPro Industries, Inc. | 104,731 | ||||||
1,435 | ESCO Technologies, Inc. | 86,459 | ||||||
4,690 | Federal Signal Corp. | 94,222 | ||||||
3,108 | Flowserve Corp.^ | 130,940 | ||||||
4,043 | Fortive Corp. | 292,511 | ||||||
2,760 | Franklin Electric Co., Inc. | 126,684 | ||||||
694 | FreightCar America, Inc. | 11,854 | ||||||
889 | Gencor Industries, Inc.* | 14,713 | ||||||
1,203 | Global Brass & Copper Holdings, Inc. | 39,819 | ||||||
1,617 | Gorman-Rupp Co. (The) | 50,467 | ||||||
5,481 | Graco, Inc. | 247,851 | ||||||
1,612 | Greenbrier Cos, Inc. | 85,920 | ||||||
995 | Hardinge, Inc. | 17,333 | ||||||
4,803 | Harsco Corp.* | 89,576 | ||||||
3,620 | Hillenbrand, Inc. | 161,814 | ||||||
490 | Hurco Cos, Inc. | 20,678 | ||||||
896 | Hyster-Yale Materials Handling, Inc., Class A | 76,303 | ||||||
1,615 | IDEX Corp. | 213,132 | ||||||
7,061 | Illinois Tool Works, Inc. | 1,178,127 | ||||||
4,692 | Ingersoll-Rand plc | 418,480 | ||||||
4,926 | ITT, Inc. | 262,901 | ||||||
1,662 | John Bean Technologies Corp.^ | 184,150 | ||||||
598 | Kadant, Inc. | 60,039 | ||||||
2,508 | Kennametal, Inc. | 121,412 | ||||||
143 | Key Technology, Inc.* | 2,635 | ||||||
787 | L.B. Foster Co., Class A*^ | 21,367 | ||||||
1,806 | Lincoln Electric Holdings, Inc. | 165,393 | ||||||
539 | Lindsay Corp.^ | 47,540 | ||||||
774 | Lydall, Inc.* | 39,281 | ||||||
1,213 | Manitex International, Inc.* | 11,645 | ||||||
2,529 | Manitowoc Co., Inc. (The)* | 99,491 | ||||||
5,860 | Meritor, Inc.* | 137,476 | ||||||
1,601 | Middleby Corp. (The)*^ | 216,055 | ||||||
2,134 | Milacron Holdings Corp.* | 40,845 | ||||||
3,785 | Mueller Industries, Inc. | 134,103 | ||||||
7,183 | Mueller Water Products, Inc., Class A | 90,003 | ||||||
4,067 | Navistar International Corp.* | 174,393 | ||||||
1,258 | NN, Inc.^ | 34,721 | ||||||
1,555 | Nordson Corp. | 227,652 | ||||||
158 | Omega Flex, Inc. | 11,283 | ||||||
3,290 | OshKosh Corp. | 299,028 | ||||||
6,612 | PACCAR, Inc. | 469,981 | ||||||
2,296 | Parker Hannifin Corp. | 458,236 | ||||||
5,836 | Pentair plc | 412,138 | ||||||
976 | Proto Labs, Inc.*^ | 100,528 | ||||||
1,060 | RBC Bearings, Inc.* | 133,984 | ||||||
7,156 | Rexnord Corp.* | 186,199 | ||||||
2,202 | Snap-On, Inc.^ | 383,809 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Machinery, continued | ||||||||
2,342 | SPX Corp.* | $ | 73,515 | |||||
1,278 | SPX FLOW, Inc.* | 60,769 | ||||||
775 | Standex International Corp. | 78,934 | ||||||
1,748 | Stanley Black & Decker, Inc. | 296,618 | ||||||
1,370 | Sun Hydraulics Corp.^ | 88,625 | ||||||
721 | Tennant Co.^ | 52,381 | ||||||
4,808 | Terex Corp.^ | 231,842 | ||||||
3,355 | Timken Co. | 164,898 | ||||||
3,046 | Titan International, Inc.^ | 39,232 | ||||||
3,651 | Toro Co. | 238,155 | ||||||
2,913 | TriMas Corp.* | 77,923 | ||||||
8,230 | Trinity Industries, Inc.^ | 308,296 | ||||||
5,806 | Wabash National Corp.^ | 125,990 | ||||||
1,688 | WABCO Holdings, Inc.* | 242,228 | ||||||
1,503 | Wabtec Corp.^ | 122,389 | ||||||
1,415 | Watts Water Technologies, Inc., Class A | 107,469 | ||||||
6,694 | Welbilt, Inc.* | 157,376 | ||||||
2,272 | Woodward, Inc. | 173,899 | ||||||
935 | Xerium Technologies, Inc.* | 3,983 | ||||||
4,252 | Xylem, Inc. | 289,986 | ||||||
|
| |||||||
16,834,083 | ||||||||
|
| |||||||
Marine (0.0%): | ||||||||
1,680 | Eagle Bulk Shipping, Inc.* | 7,526 | ||||||
2,348 | Kirby Corp.*^ | 156,847 | ||||||
3,233 | Matson, Inc.^ | 96,473 | ||||||
|
| |||||||
260,846 | ||||||||
|
| |||||||
Media (3.0%): | ||||||||
1,468 | A.H. Belo Corp., Class A | 7,046 | ||||||
3,433 | AMC Entertainment Holdings, Inc., Class A^ | 51,838 | ||||||
2,029 | AMC Networks, Inc., Class A* | 109,728 | ||||||
270 | Cable One, Inc.^ | 189,905 | ||||||
182 | CBS Corp., Class A | 10,800 | ||||||
8,213 | CBS Corp., Class B | 484,567 | ||||||
2,930 | Charter Communications, Inc., Class A* | 984,363 | ||||||
7,978 | Cinemark Holdings, Inc.^ | 277,794 | ||||||
1,661 | Clear Channel Outdoor Holdings, Inc., Class A | 7,641 | ||||||
105,613 | Comcast Corp., Class A | 4,229,800 | ||||||
7,549 | Discovery Communications, Inc., Class A*^ | 168,947 | ||||||
9,189 | Discovery Communications, Inc., Class C*^ | 194,531 | ||||||
5,253 | DISH Network Corp., Class A* | 250,831 | ||||||
4,131 | E.W. Scripps Co. (The), Class A*^ | 64,568 | ||||||
679 | Entercom Communications Corp. | 7,333 | ||||||
4,792 | Entravision Communications Corp., Class A | 34,263 | ||||||
1,834 | Eros International plc*^ | 17,698 | ||||||
6,638 | Gannett Co., Inc.^ | 76,934 | ||||||
4,886 | Gray Television, Inc.* | 81,841 | ||||||
4,727 | Harte-Hanks, Inc.* | 4,485 | ||||||
1,658 | Imax Corp.*^ | 38,383 | ||||||
13,729 | Interpublic Group of Cos., Inc. (The) | 276,777 | ||||||
3,028 | John Wiley & Sons, Inc., Class A | 199,091 | ||||||
192 | John Wiley & Sons, Inc., Class B | 12,626 |
Continued
19
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Media, continued | ||||||||
247 | Liberty Braves Group, Class A* | $ | 5,446 | |||||
527 | Liberty Braves Group, Class C* | 11,710 | ||||||
563 | Liberty Broadband Corp., Class A* | 47,883 | ||||||
2,655 | Liberty Broadband Corp., Class C* | 226,100 | ||||||
619 | Liberty Media Group, Class A* | 20,254 | ||||||
1,318 | Liberty Media Group, Class C*^ | 45,023 | ||||||
2,477 | Liberty SiriusXM Group, Class A* | 98,238 | ||||||
5,273 | Liberty SiriusXM Group, Class C* | 209,127 | ||||||
1,773 | Lions Gate Entertainment Corp., Class A*^ | 59,945 | ||||||
2,411 | Lions Gate Entertainment Corp., Class B* | 76,525 | ||||||
7,488 | Live Nation, Inc.*^ | 318,764 | ||||||
540 | Madison Square Garden Co. (The), Class A* | 113,859 | ||||||
2,449 | Meredith Corp.^ | 161,756 | ||||||
3,759 | MSG Networks, Inc., Class A*^ | 76,120 | ||||||
3,726 | National CineMedia, Inc.^ | 25,560 | ||||||
2,511 | New Media Investment Group, Inc. | 42,135 | ||||||
6,249 | New York Times Co. (The), Class A^ | 115,607 | ||||||
7,481 | News Corp., Class A | 121,267 | ||||||
2,563 | News Corp., Class B | 42,546 | ||||||
2,981 | Nexstar Broadcasting Group, Inc., Class A | 233,114 | ||||||
6,406 | Omnicom Group, Inc.^ | 466,549 | ||||||
1,419 | Reading International, Inc., Class A* | 23,697 | ||||||
8,109 | Regal Entertainment Group, Class A | 186,588 | ||||||
1,853 | Scholastic Corp.^ | 74,324 | ||||||
4,121 | Scripps Networks Interactive, Class C | 351,851 | ||||||
5,191 | Sinclair Broadcast Group, Inc., Class A^ | 196,479 | ||||||
24,685 | Sirius XM Holdings, Inc.^ | 132,312 | ||||||
11,352 | Tegna, Inc. | 159,836 | ||||||
15,669 | Time Warner, Inc. | 1,433,243 | ||||||
6,387 | Time, Inc. | 117,840 | ||||||
933 | Tronc, Inc.* | 16,411 | ||||||
23,830 | Twenty-First Century Fox, Inc. | 822,850 | ||||||
8,290 | Twenty-First Century Fox, Inc., Class B | 282,855 | ||||||
442 | Viacom, Inc., Class A | 15,426 | ||||||
12,859 | Viacom, Inc., Class B | 396,186 | ||||||
29,471 | Walt Disney Co. (The) | 3,168,426 | ||||||
1,692 | World Wrestling Entertainment, Inc., Class A^ | 51,741 | ||||||
|
| |||||||
17,729,383 | ||||||||
|
| |||||||
Metals & Mining (0.7%): | ||||||||
16,272 | AK Steel Holding Corp.*^ | 92,100 | ||||||
4,477 | Alcoa Corp.* | 241,176 | ||||||
6,283 | Allegheny Technologies, Inc.* | 151,672 | ||||||
799 | Ampco-Pittsburgh Corp. | 9,908 | ||||||
2,796 | Carpenter Technology Corp.^ | 142,568 | ||||||
4,968 | Century Aluminum Co.* | 97,572 | ||||||
10,120 | Cleveland-Cliffs, Inc.*^ | 72,965 | ||||||
7,302 | Coeur d’Alene Mines Corp.* | 54,765 | ||||||
5,360 | Commercial Metals Co. | 114,275 | ||||||
1,902 | Compass Minerals International, Inc.^ | 137,420 | ||||||
9,823 | Ferroglobe plc*(a) | 159,133 | ||||||
33,112 | Freeport-McMoRan Copper & Gold, Inc.* | 627,803 | ||||||
2,945 | Gold Resource Corp. | 12,958 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Metals & Mining, continued | ||||||||
943 | Haynes International, Inc.^ | $ | 30,223 | |||||
23,972 | Hecla Mining Co. | 95,169 | ||||||
151 | Kaiser Aluminum Corp.^ | 16,134 | ||||||
1,359 | Materion Corp. | 66,047 | ||||||
12,309 | McEwen Mining, Inc. | 28,065 | ||||||
7,907 | Newmont Mining Corp. | 296,671 | ||||||
5,554 | Nucor Corp. | 353,123 | ||||||
700 | Olympic Steel, Inc. | 15,043 | ||||||
3,407 | Reliance Steel & Aluminum Co. | 292,287 | ||||||
2,119 | Royal Gold, Inc. | 174,012 | ||||||
1,500 | Ryerson Holding Corp.* | 15,600 | ||||||
1,365 | Schnitzer Steel Industries, Inc., Class A^ | 45,728 | ||||||
1,772 | Southern Copper Corp.^ | 84,081 | ||||||
11,919 | Steel Dynamics, Inc. | 514,066 | ||||||
3,673 | SunCoke Energy, Inc.*^ | 44,039 | ||||||
701 | Synalloy Corp. | 9,393 | ||||||
2,052 | TimkenSteel Corp.*^ | 31,170 | ||||||
7,131 | United States Steel Corp. | 250,940 | ||||||
548 | Universal Stainless & Alloy Products, Inc.* | 11,738 | ||||||
2,898 | Worthington Industries, Inc. | 127,686 | ||||||
|
| |||||||
4,415,530 | ||||||||
|
| |||||||
Multiline Retail (0.6%): | ||||||||
3,725 | Big Lots, Inc. | 209,159 | ||||||
1,948 | Dillard’s, Inc., Class A^ | 116,977 | ||||||
6,122 | Dollar General Corp. | 569,407 | ||||||
4,239 | Dollar Tree, Inc.* | 454,887 | ||||||
18,758 | J.C. Penney Co., Inc.*^ | 59,275 | ||||||
12,074 | Kohl’s Corp. | 654,773 | ||||||
13,447 | Macy’s, Inc.^ | 338,730 | ||||||
5,768 | Nordstrom, Inc. | 273,288 | ||||||
2,557 | Ollie’s Bargain Outlet Holdings, Inc.*^ | 136,160 | ||||||
14,447 | Target Corp. | 942,668 | ||||||
|
| |||||||
3,755,324 | ||||||||
|
| |||||||
Multi-Utilities (0.8%): | ||||||||
5,932 | Ameren Corp. | 349,929 | ||||||
2,841 | Avista Corp.^ | 146,283 | ||||||
1,784 | Black Hills Corp.^ | 107,236 | ||||||
9,831 | CenterPoint Energy, Inc. | 278,807 | ||||||
7,207 | CMS Energy Corp. | 340,891 | ||||||
4,293 | Consolidated Edison, Inc. | 364,690 | ||||||
10,556 | Dominion Energy, Inc. | 855,668 | ||||||
3,156 | DTE Energy Co. | 345,456 | ||||||
7,317 | MDU Resources Group, Inc. | 196,681 | ||||||
6,403 | NiSource, Inc. | 164,365 | ||||||
2,365 | NorthWestern Corp. | 141,191 | ||||||
6,391 | Public Service Enterprise Group, Inc. | 329,137 | ||||||
3,103 | SCANA Corp. | 123,437 | ||||||
3,105 | Sempra Energy | 331,987 | ||||||
844 | Unitil Corp. | 38,503 | ||||||
4,645 | Vectren Corp. | 302,018 | ||||||
4,178 | WEC Energy Group, Inc. | 277,545 | ||||||
|
| |||||||
4,693,824 | ||||||||
|
|
Continued
20
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels (3.1%): | ||||||||
332 | Adams Resources & Energy, Inc. | $ | 14,442 | |||||
3,389 | Anadarko Petroleum Corp. | 181,786 | ||||||
9,006 | Andeavor | 1,029,747 | ||||||
8,707 | Antero Resources Corp.* | 165,433 | ||||||
1,647 | Apache Corp.^ | 69,536 | ||||||
1,256 | Arch Coal, Inc. | 117,009 | ||||||
4,084 | Cabot Oil & Gas Corp. | 116,802 | ||||||
10,066 | Callon Petroleum Co.* | 122,302 | ||||||
4,654 | Carrizo Oil & Gas, Inc.*^ | 99,037 | ||||||
1,043 | Centennial Resources Development* | 20,651 | ||||||
500 | Cheniere Energy Partners, LP Holdings LLC^ | 13,845 | ||||||
5,773 | Cheniere Energy, Inc.* | 310,818 | ||||||
22,264 | Chevron Corp. | 2,787,231 | ||||||
671 | Cimarex Energy Co. | 81,869 | ||||||
7,534 | Clean Energy Fuel Corp.* | 15,294 | ||||||
3,508 | Cloud Peak Energy, Inc.*^ | 15,611 | ||||||
9,959 | CNX Resources Corp.* | 145,700 | ||||||
885 | Concho Resources, Inc.* | 132,945 | ||||||
9,378 | ConocoPhillips Co. | 514,758 | ||||||
1,244 | CONSOL Energy, Inc.*^ | 49,150 | ||||||
1,423 | Contango Oil & Gas Co.* | 6,702 | ||||||
1,170 | Continental Resources, Inc.*^ | 61,975 | ||||||
3,623 | CVR Energy, Inc.^ | 134,921 | ||||||
5,134 | Delek US Holdings, Inc.^ | 179,382 | ||||||
23,516 | Denbury Resources, Inc.* | 51,970 | ||||||
2,702 | Devon Energy Corp. | 111,863 | ||||||
8,860 | DHT Holdings, Inc. | 31,807 | ||||||
706 | Diamondback Energy, Inc.* | 89,133 | ||||||
107 | Dorian LPG, Ltd.* | 880 | ||||||
15,555 | Eclipse Resources Corp.* | 37,332 | ||||||
3,486 | Energen Corp.* | 200,689 | ||||||
5,391 | Enlink Midstream LLC | 94,882 | ||||||
3,895 | EOG Resources, Inc. | 420,309 | ||||||
8,400 | EP Energy Corp., Class A* | 19,824 | ||||||
5,153 | EQT Corp. | 293,309 | ||||||
33,019 | Exxon Mobil Corp. | 2,761,710 | ||||||
4,505 | Gaslog, Ltd. | 100,236 | ||||||
2,514 | Green Plains Renewable Energy, Inc.^ | 42,361 | ||||||
8,600 | Gulfport Energy Corp.* | 109,736 | ||||||
5,897 | Halcon Resources Corp.* | 44,640 | ||||||
2,222 | Hallador Energy Co. | 13,532 | ||||||
4,124 | Hess Corp.^ | 195,766 | ||||||
8,952 | HollyFrontier Corp. | 458,521 | ||||||
3,525 | Jones Energy, Inc., Class A*^ | 3,878 | ||||||
26,381 | Kinder Morgan, Inc. | 476,705 | ||||||
14,608 | Kosmos Energy LLC* | 100,065 | ||||||
10,120 | Laredo Petroleum Holdings, Inc.* | 107,373 | ||||||
14,759 | Marathon Oil Corp. | 249,870 | ||||||
12,591 | Marathon Petroleum Corp. | 830,754 | ||||||
6,316 | Matador Resources Co.*^ | 196,617 | ||||||
6,993 | Murphy Oil Corp.^ | 217,133 | ||||||
1,301 | Newfield Exploration Co.* | 41,021 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
7,953 | Noble Energy, Inc. | $ | 231,750 | |||||
11,184 | Oasis Petroleum, Inc.* | 94,057 | ||||||
6,720 | Occidental Petroleum Corp. | 494,995 | ||||||
3,504 | ONEOK, Inc. | 187,289 | ||||||
2,263 | Pacific Ethanol, Inc.* | 10,297 | ||||||
1,401 | Panhandle Oil & Gas, Inc., Class A | 28,791 | ||||||
1,717 | Par Pacific Holdings, Inc.* | 33,104 | ||||||
2,701 | Parsley Energy, Inc., Class A* | 79,517 | ||||||
6,440 | PBF Energy, Inc., Class A | 228,298 | ||||||
3,230 | PDC Energy, Inc.*^ | 166,474 | ||||||
901 | Peabody Energy Corp.* | 35,472 | ||||||
2,898 | Phillips 66 | 293,133 | ||||||
1,015 | Pioneer Natural Resources Co. | 175,443 | ||||||
6 | PrimeEnergy Corp.* | 315 | ||||||
11,578 | QEP Resources, Inc.* | 110,801 | ||||||
4,715 | Range Resources Corp.^ | 80,438 | ||||||
3,344 | Renewable Energy Group, Inc.* | 39,459 | ||||||
374 | REX American Resources Corp.* | 30,963 | ||||||
1,820 | Ring Energy, Inc.*^ | 25,298 | ||||||
2,700 | RSP Permian, Inc.* | 109,836 | ||||||
11,997 | Scorpio Tankers, Inc.^ | 36,591 | ||||||
4,767 | SemGroup Corp., Class A^ | 143,963 | ||||||
5,342 | Ship Finance International | 82,801 | ||||||
4,897 | SM Energy Co.^ | 108,126 | ||||||
8,098 | SRC Energy, Inc.*^ | 69,076 | ||||||
3,765 | Targa Resources Corp. | 182,301 | ||||||
6,407 | Teekay Shipping Corp.^ | 59,713 | ||||||
3,637 | Ultra Petroleum Corp.* | 32,951 | ||||||
7,754 | Valero Energy Corp. | 712,670 | ||||||
6,207 | Whiting Petroleum Corp.*^ | 164,361 | ||||||
3,976 | Williams Cos., Inc. (The) | 121,228 | ||||||
2,914 | World Fuel Services Corp. | 82,000 | ||||||
13,673 | WPX Energy, Inc.* | 192,379 | ||||||
|
| |||||||
18,132,752 | ||||||||
|
| |||||||
Paper & Forest Products (0.2%): | ||||||||
2,511 | Boise Cascade Co.^ | 100,189 | ||||||
1,659 | Clearwater Paper Corp.* | 75,319 | ||||||
375 | Deltic Timber Corp. | 34,331 | ||||||
3,070 | Domtar Corp. | 152,026 | ||||||
9,067 | KapStone Paper & Packaging Corp. | 205,730 | ||||||
6,141 | Louisiana-Pacific Corp.* | 161,263 | ||||||
5,575 | Mercer International, Inc. | 79,723 | ||||||
1,274 | Neenah Paper, Inc.^ | 115,488 | ||||||
700 | P.H. Glatfelter Co. | 15,008 | ||||||
7,266 | Resolute Forest Products* | 80,289 | ||||||
1,197 | Schweitzer-Mauduit International, Inc. | 54,296 | ||||||
|
| |||||||
1,073,662 | ||||||||
|
| |||||||
Personal Products (0.4%): | ||||||||
22,998 | Avon Products, Inc.* | 49,446 | ||||||
12,160 | Coty, Inc., Class A^ | 241,862 |
Continued
21
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Personal Products, continued | ||||||||
2,008 | Edgewell Personal Care Co.*^ | $ | 119,255 | |||||
5,076 | Estee Lauder Co., Inc. (The), Class A | 645,870 | ||||||
2,955 | Herbalife, Ltd.*^ | 200,113 | ||||||
1,755 | Inter Parfums, Inc. | 76,255 | ||||||
923 | Medifast, Inc. | 64,435 | ||||||
1,236 | Natures Sunshine Products, Inc. | 14,276 | ||||||
3,792 | Nu Skin Enterprises, Inc., Class A^ | 258,728 | ||||||
2,385 | Revlon, Inc.*^ | 51,993 | ||||||
340 | United-Guardian, Inc. | 6,290 | ||||||
1,364 | Usana Health Sciences, Inc.* | 101,004 | ||||||
|
| |||||||
1,829,527 | ||||||||
|
| |||||||
Pharmaceuticals (3.0%): | ||||||||
7,282 | Akorn, Inc.*^ | 234,699 | ||||||
4,020 | Allergan plc | 657,592 | ||||||
2,003 | Amphastar Pharmaceuticals, Inc.* | 38,538 | ||||||
400 | ANI Pharmaceuticals, Inc.* | 25,780 | ||||||
1,490 | Aralez Pharmacuticals, Inc.* | 2,116 | ||||||
12,668 | Bristol-Myers Squibb Co. | 776,295 | ||||||
6,427 | Catalent, Inc.* | 264,021 | ||||||
4,376 | Corcept Therapeutics, Inc.*^ | 79,031 | ||||||
1,468 | Cumberland Pharmaceuticals, Inc.* | 10,893 | ||||||
1,045 | Dermira, Inc.*^ | 29,061 | ||||||
16,067 | Eli Lilly & Co. | 1,357,019 | ||||||
8,827 | Endo International plc* | 68,410 | ||||||
392 | Heska Corp.* | 31,442 | ||||||
5,527 | Horizon Pharma plc*^ | 80,694 | ||||||
2,984 | Impax Laboratories, Inc.*^ | 49,684 | ||||||
849 | Innoviva, Inc.*^ | 12,047 | ||||||
1,011 | Jazz Pharmaceuticals plc* | 136,131 | ||||||
42,970 | Johnson & Johnson Co. | 6,003,767 | ||||||
2,281 | Lannett Co., Inc.* | 52,919 | ||||||
42 | Lipocine, Inc.* | 144 | ||||||
3,682 | Mallinckrodt plc*^ | 83,066 | ||||||
44,315 | Merck & Co., Inc. | 2,493,605 | ||||||
3,026 | Mylan NV* | 128,030 | ||||||
728 | Perrigo Co. plc | 63,452 | ||||||
101,121 | Pfizer, Inc. | 3,662,602 | ||||||
793 | Phibro Animal Health Corp., Class A | 26,566 | ||||||
3,358 | Prestige Brands Holdings, Inc.*^ | 149,129 | ||||||
2,641 | Sucampo Pharmaceuticals, Inc., Class A*^ | 47,406 | ||||||
1,789 | Supernus Pharmaceuticals, Inc.*^ | 71,292 | ||||||
923 | Taro Pharmaceutical Industries, Ltd.* | 96,647 | ||||||
11,290 | Zoetis, Inc. | 813,332 | ||||||
817 | Zogenix, Inc.* | 32,721 | ||||||
|
| |||||||
17,578,131 | ||||||||
|
| |||||||
Professional Services (0.6%): | ||||||||
494 | Barrett Business Services, Inc. | 31,858 | ||||||
3,745 | CBIZ, Inc.* | 57,860 | ||||||
456 | CRA International, Inc. | 20,497 | ||||||
2,185 | Dun & Bradstreet Corp. | 258,726 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Professional Services, continued | ||||||||
3,281 | Equifax, Inc. | $ | 386,896 | |||||
1,364 | Exponent, Inc. | 96,980 | ||||||
949 | Franklin Covey Co.*^ | 19,692 | ||||||
2,551 | FTI Consulting, Inc.* | 109,591 | ||||||
1,205 | Heidrick & Struggles International, Inc. | 29,583 | ||||||
3,834 | Hill International, Inc.* | 20,895 | ||||||
1,763 | Huron Consulting Group, Inc.* | 71,313 | ||||||
1,472 | ICF International, Inc.* | 77,280 | ||||||
1,948 | Insperity, Inc. | 111,718 | ||||||
2,223 | Kelly Services, Inc., Class A | 60,621 | ||||||
2,263 | Kforce, Inc. | 57,141 | ||||||
2,258 | Korn/Ferry International | 93,436 | ||||||
3,573 | Manpower, Inc. | 450,591 | ||||||
1,887 | Mistras Group, Inc.* | 44,288 | ||||||
3,651 | Navigant Consulting, Inc.* | 70,866 | ||||||
7,090 | Nielsen Holdings plc^ | 258,076 | ||||||
3,098 | On Assignment, Inc.* | 199,108 | ||||||
2,125 | Resources Connection, Inc. | 32,831 | ||||||
3,340 | Robert Half International, Inc. | 185,504 | ||||||
4,146 | RPX Corp. | 55,722 | ||||||
2,853 | TransUnion* | 156,801 | ||||||
2,994 | TriNet Group, Inc.* | 132,754 | ||||||
2,213 | Trueblue, Inc.* | 60,858 | ||||||
5,710 | Verisk Analytics, Inc.* | 548,160 | ||||||
840 | Volt Information Sciences, Inc.* | 3,192 | ||||||
633 | Willdan Group, Inc.*^ | 15,154 | ||||||
|
| |||||||
3,717,992 | ||||||||
|
| |||||||
Real Estate Management & Development (0.3%): | ||||||||
2,850 | Alexander & Baldwin, Inc. | 79,059 | ||||||
400 | Altisource Portfolio Solutions* | 11,200 | ||||||
11,461 | CBRE Group, Inc., Class A* | 496,376 | ||||||
339 | Consolidated-Tomoka Land Co.^ | 21,527 | ||||||
279 | Forestar Group, Inc.* | 6,138 | ||||||
232 | FRP Holdings, Inc.*^ | 10,266 | ||||||
318 | Griffin Industrial Realty, Inc. | 11,671 | ||||||
2,632 | HFF, Inc., Class A | 128,020 | ||||||
1,644 | Howard Hughes Corp. (The)* | 215,808 | ||||||
1,859 | Jones Lang LaSalle, Inc. | 276,861 | ||||||
7,460 | Kennedy-Wilson Holdings, Inc. | 129,431 | ||||||
2,112 | Marcus & Millichap, Inc.* | 68,872 | ||||||
988 | RE/MAX Holdings, Inc., Class A | 47,918 | ||||||
7,526 | Realogy Holdings Corp. | 199,439 | ||||||
1,447 | Tejon Ranch Co.*^ | 30,040 | ||||||
1,038 | The RMR Group, Inc., Class A | 61,553 | ||||||
3,157 | The St. Joe Co.*^ | 56,984 | ||||||
|
| |||||||
1,851,163 | ||||||||
|
| |||||||
Road & Rail (1.4%): | ||||||||
682 | AMERCO, Inc. | 257,735 | ||||||
1,475 | ArcBest Corp. | 52,731 | ||||||
3,967 | Avis Budget Group, Inc.*^ | 174,072 |
Continued
22
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Road & Rail, continued | ||||||||
2,663 | Celadon Group, Inc.^ | $ | 17,043 | |||||
1,699 | Covenant Transportation Group, Inc., Class A* | 48,812 | ||||||
19,297 | CSX Corp. | 1,061,528 | ||||||
2,294 | Genesee & Wyoming, Inc., Class A*^ | 180,607 | ||||||
4,879 | Heartland Express, Inc.^ | 113,876 | ||||||
660 | Hertz Global Holdings, Inc.* | 14,586 | ||||||
3,855 | J.B. Hunt Transport Services, Inc. | 443,248 | ||||||
4,667 | Kansas City Southern | 491,062 | ||||||
11,293 | Knight-Swift Transportation Holdings, Inc.^ | 493,730 | ||||||
2,480 | Landstar System, Inc. | 258,168 | ||||||
2,223 | Marten Transport, Ltd. | 45,127 | ||||||
6,406 | Norfolk Southern Corp. | 928,229 | ||||||
3,745 | Old Dominion Freight Line, Inc. | 492,655 | ||||||
2,916 | Roadrunner Transportation System, Inc.* | 22,482 | ||||||
4,868 | Ryder System, Inc. | 409,740 | ||||||
1,912 | Saia, Inc.* | 135,274 | ||||||
16,110 | Union Pacific Corp. | 2,160,350 | ||||||
2,010 | Universal Truckload Services, Inc. | 47,738 | ||||||
1,023 | USA Truck, Inc.*^ | 18,547 | ||||||
6,273 | Werner Enterprises, Inc.^ | 242,451 | ||||||
1,829 | YRC Worldwide, Inc.*^ | 26,301 | ||||||
|
| |||||||
8,136,092 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (4.2%): | ||||||||
2,441 | Advanced Energy Industries, Inc.* | 164,719 | ||||||
7,478 | Advanced Micro Devices, Inc.*^ | 76,874 | ||||||
2,031 | Alpha & Omega Semiconductor, Ltd.* | 33,227 | ||||||
22,065 | Amkor Technology, Inc.* | 221,753 | ||||||
2,422 | Analog Devices, Inc. | 215,631 | ||||||
16,074 | Applied Materials, Inc. | 821,703 | ||||||
1,615 | Axcelis Technologies, Inc.*^ | 46,351 | ||||||
1,701 | AXT, Inc.*^ | 14,799 | ||||||
1,948 | Broadcom, Ltd. | 500,441 | ||||||
3,846 | Brooks Automation, Inc. | 91,727 | ||||||
849 | Cabot Microelectronics Corp. | 79,874 | ||||||
1,398 | Cavium, Inc.* | 117,194 | ||||||
437 | CEVA, Inc.* | 20,168 | ||||||
3,276 | Cirrus Logic, Inc.* | 169,893 | ||||||
1,955 | Cohu, Inc. | 42,912 | ||||||
3,350 | Cree, Inc.*^ | 124,419 | ||||||
15,763 | Cypress Semiconductor Corp.^ | 240,228 | ||||||
3,151 | Diodes, Inc.* | 90,339 | ||||||
7,419 | Entegris, Inc. | 225,909 | ||||||
4,300 | First Solar, Inc.* | 290,336 | ||||||
3,971 | FormFactor, Inc.* | 62,146 | ||||||
1,314 | GSI Technology, Inc.* | 10,459 | ||||||
5,415 | Integrated Device Technology, Inc.*^ | 160,988 | ||||||
118,750 | Intel Corp. | 5,481,501 | ||||||
2,413 | IXYS Corp.* | 57,791 | ||||||
5,374 | KLA-Tencor Corp. | 564,646 | ||||||
4,231 | Kulicke & Soffa Industries, Inc.* | 102,961 | ||||||
3,269 | Lam Research Corp. | 601,725 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Semiconductors & Semiconductor Equipment, continued | ||||||||
6,641 | Lattice Semiconductor Corp.* | $ | 38,385 | |||||
740 | MA-COM Technology Solutions Holdings, Inc.* | 24,080 | ||||||
8,186 | Marvell Technology Group, Ltd. | 175,754 | ||||||
5,668 | Maxim Integrated Products, Inc. | 296,323 | ||||||
3,257 | Microchip Technology, Inc.^ | 286,225 | ||||||
35,937 | Micron Technology, Inc.* | 1,477,729 | ||||||
4,902 | Microsemi Corp.* | 253,188 | ||||||
2,866 | MKS Instruments, Inc. | 270,837 | ||||||
793 | Monolithic Power Systems, Inc. | 89,101 | ||||||
1,348 | Nanometrics, Inc.* | 33,592 | ||||||
1,500 | Neophotonics Corp.*^ | 9,870 | ||||||
150 | NVE Corp.^ | 12,900 | ||||||
21,938 | NVIDIA Corp. | 4,245,004 | ||||||
14,154 | ON Semiconductor Corp.* | 296,385 | ||||||
1,438 | PDF Solutions, Inc.*^ | 22,577 | ||||||
5,010 | Photronics, Inc.* | 42,710 | ||||||
999 | Power Integrations, Inc. | 73,476 | ||||||
2,420 | Qorvo, Inc.* | 161,172 | ||||||
23,194 | QUALCOMM, Inc. | 1,484,880 | ||||||
2,529 | Rambus, Inc.* | 35,962 | ||||||
2,922 | Semtech Corp.* | 99,932 | ||||||
1,920 | Sigma Designs, Inc.* | 13,344 | ||||||
867 | Silicon Laboratories, Inc.* | 76,556 | ||||||
5,510 | Skyworks Solutions, Inc. | 523,175 | ||||||
5,527 | Sunpower Corp.*^ | 46,593 | ||||||
2,467 | Synaptics, Inc.*^ | 98,532 | ||||||
4,497 | Teradyne, Inc. | 188,289 | ||||||
22,921 | Texas Instruments, Inc. | 2,393,869 | ||||||
1,678 | Ultra Clean Holdings, Inc.*^ | 38,745 | ||||||
3,598 | Veeco Instruments, Inc.* | 53,430 | ||||||
4,855 | Versum Materials, Inc. | 183,762 | ||||||
3,038 | Xcerra Corp.* | 29,742 | ||||||
5,879 | Xilinx, Inc. | 396,362 | ||||||
1,673 | Xperi Corp.^ | 40,821 | ||||||
|
| |||||||
24,144,016 | ||||||||
|
| |||||||
Software (4.0%): | ||||||||
6,138 | ACI Worldwide, Inc.*^ | 139,148 | ||||||
5,845 | Activision Blizzard, Inc. | 370,105 | ||||||
5,352 | Adobe Systems, Inc.* | 937,885 | ||||||
1,009 | American Software, Inc., Class A | 11,735 | ||||||
1,292 | ANSYS, Inc.* | 190,686 | ||||||
4,353 | Aspen Technology, Inc.* | 288,169 | ||||||
1,104 | Autodesk, Inc.* | 115,732 | ||||||
2,272 | Aware, Inc.* | 10,224 | ||||||
2,812 | Barracuda Networks, Inc.* | 77,330 | ||||||
2,184 | Blackbaud, Inc.^ | 206,366 | ||||||
13,271 | CA, Inc. | 441,659 | ||||||
8,502 | Cadence Design Systems, Inc.* | 355,554 | ||||||
2,961 | CDK Global, Inc. | 211,060 | ||||||
4,211 | Citrix Systems, Inc.* | 370,568 | ||||||
5,712 | Dell Technologies, Inc., Class V* | 464,271 |
Continued
23
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Software, continued | ||||||||
1,468 | Ebix, Inc. | $ | 116,339 | |||||
4,754 | Electronic Arts, Inc.* | 499,455 | ||||||
699 | Ellie Mae, Inc.*^ | 62,491 | ||||||
1,083 | Evolving Systems, Inc.* | 5,090 | ||||||
1,293 | Fair Isaac Corp. | 198,088 | ||||||
1,784 | FireEye, Inc.*^ | 25,333 | ||||||
1,444 | Fortinet, Inc.* | 63,088 | ||||||
977 | Globant SA*^ | 45,391 | ||||||
1,865 | Guidewire Software, Inc.*^ | 138,495 | ||||||
5,744 | Intuit, Inc. | 906,288 | ||||||
2,898 | Manhattan Associates, Inc.*^ | 143,567 | ||||||
142,621 | Microsoft Corp. | 12,199,801 | ||||||
430 | MicroStrategy, Inc., Class A* | 56,459 | ||||||
1,803 | Monotype Imaging Holdings, Inc. | 43,452 | ||||||
11,007 | Nuance Communications, Inc.* | 179,964 | ||||||
32,020 | Oracle Corp. | 1,513,907 | ||||||
2,127 | Paycom Software, Inc.*^ | 170,862 | ||||||
1,263 | Pegasystems, Inc. | 59,550 | ||||||
2,433 | Progress Software Corp. | 103,573 | ||||||
393 | PTC, Inc.* | 23,883 | ||||||
581 | QAD, Inc. | 22,572 | ||||||
1,224 | Qualys, Inc.* | 72,644 | ||||||
1,867 | RealPage, Inc.*^ | 82,708 | ||||||
4,474 | Red Hat, Inc.* | 537,327 | ||||||
294 | Rosetta Stone, Inc.* | 3,666 | ||||||
737 | Rubicon Project, Inc.* | 1,378 | ||||||
2,640 | Salesforce.com, Inc.* | 269,887 | ||||||
2,393 | SeaChange International, Inc.* | 9,404 | ||||||
574 | ServiceNow, Inc.* | 74,844 | ||||||
2,372 | Silver Spring Networks, Inc.* | 38,521 | ||||||
967 | Splunk, Inc.*^ | 80,106 | ||||||
4,018 | SS&C Technologies Holdings, Inc. | 162,649 | ||||||
2,577 | Symantec Corp. | 72,311 | ||||||
2,279 | Synchronoss Technologies, Inc.* | 20,374 | ||||||
1,545 | Synopsys, Inc.* | 131,696 | ||||||
766 | Tableau Software, Inc., Class A* | 53,007 | ||||||
3,732 | Take-Two Interactive Software, Inc.* | 409,699 | ||||||
2,229 | Telenav, Inc.* | 12,260 | ||||||
7,428 | TiVo Corp.^ | 115,877 | ||||||
547 | Tyler Technologies, Inc.* | 96,846 | ||||||
1,722 | VASCO Data Security International, Inc.* | 23,936 | ||||||
2,730 | Verint Systems, Inc.* | 114,251 | ||||||
742 | VMware, Inc., Class A* | 92,987 | ||||||
803 | Workday, Inc., Class A*^ | 81,697 | ||||||
664 | Zedge, Inc., Class B* | 1,826 | ||||||
31,714 | Zynga, Inc.* | 126,856 | ||||||
|
| |||||||
23,454,897 | ||||||||
|
| |||||||
Specialty Retail (3.3%): | ||||||||
4,493 | Aaron’s, Inc. | 179,046 | ||||||
4,015 | Abercrombie & Fitch Co., Class A^ | 69,981 | ||||||
2,444 | Advance Auto Parts, Inc. | 243,642 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Specialty Retail, continued | ||||||||
13,744 | American Eagle Outfitters, Inc. | $ | 258,387 | |||||
492 | America’s Car Mart, Inc.* | 21,968 | ||||||
1,809 | Asbury Automotive Group, Inc.* | 115,776 | ||||||
9,258 | Ascena Retail Group, Inc.*^ | 21,756 | ||||||
2,292 | At Home Group, Inc.* | 69,654 | ||||||
6,942 | AutoNation, Inc.* | 356,333 | ||||||
600 | AutoZone, Inc.* | 426,822 | ||||||
3,164 | Barnes & Noble Education, Inc.* | 26,071 | ||||||
5,007 | Barnes & Noble, Inc.^ | 33,547 | ||||||
9,785 | Bed Bath & Beyond, Inc.^ | 215,172 | ||||||
15,919 | Best Buy Co., Inc. | 1,089,974 | ||||||
1,657 | Big 5 Sporting Goods Corp.^ | 12,593 | ||||||
1,519 | Boot Barn Holdings, Inc.*^ | 25,231 | ||||||
583 | Build-A-Bear Workshop, Inc.* | 5,364 | ||||||
1,808 | Burlington Stores, Inc.* | 222,438 | ||||||
1,772 | Caleres, Inc. | 59,327 | ||||||
6,888 | CarMax, Inc.* | 441,727 | ||||||
1,987 | Cato Corp., Class A^ | 31,633 | ||||||
7,822 | Chico’s FAS, Inc. | 68,990 | ||||||
1,389 | Children’s Place Retail Stores, Inc. (The)^ | 201,891 | ||||||
1,991 | Christopher & Banks Corp.* | 2,529 | ||||||
881 | Citi Trends, Inc. | 23,311 | ||||||
1,097 | Destination Maternity Corp.*^ | 3,258 | ||||||
2,864 | Destination XL Group, Inc.*^ | 6,301 | ||||||
4,900 | Dick’s Sporting Goods, Inc. | 140,826 | ||||||
5,289 | DSW, Inc., Class A^ | 113,237 | ||||||
6,313 | Express, Inc.* | 64,077 | ||||||
2,165 | Finish Line, Inc. (The), Class A^ | 31,457 | ||||||
2,499 | Five Below, Inc.*^ | 165,734 | ||||||
6,511 | Foot Locker, Inc. | 305,236 | ||||||
2,397 | Francesca’s Holdings Corp.* | 17,522 | ||||||
9,167 | GameStop Corp., Class A^ | 164,548 | ||||||
16,270 | Gap, Inc. (The)^ | 554,156 | ||||||
1,571 | Genesco, Inc.*^ | 51,058 | ||||||
1,600 | Group 1 Automotive, Inc.^ | 113,552 | ||||||
4,368 | Guess?, Inc.^ | 73,732 | ||||||
1,166 | Haverty Furniture Cos., Inc. | 26,410 | ||||||
1,874 | Hibbett Sports, Inc.*^ | 38,230 | ||||||
27,349 | Home Depot, Inc. (The) | 5,183,457 | ||||||
1,036 | Kirkland’s, Inc.*^ | 12,396 | ||||||
4,361 | L Brands, Inc.^ | 262,619 | ||||||
1,938 | Lithia Motors, Inc., Class A^ | 220,137 | ||||||
19,023 | Lowe’s Cos., Inc. | 1,767,998 | ||||||
1,427 | MarineMax, Inc.*^ | 26,970 | ||||||
7,372 | Michaels Cos., Inc. (The)*^ | 178,329 | ||||||
1,920 | Monro Muffler Brake, Inc.^ | 109,344 | ||||||
2,552 | Murphy U.S.A., Inc.*^ | 205,079 | ||||||
4,842 | New York & Co.* | 13,848 | ||||||
25,092 | Office Depot, Inc. | 88,826 | ||||||
2,073 | O’Reilly Automotive, Inc.* | 498,639 | ||||||
5,666 | Party City Holdco, Inc.*^ | 79,041 | ||||||
4,639 | Penske Automotive Group, Inc. | 221,976 |
Continued
24
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Specialty Retail, continued | ||||||||
170 | Pier 1 Imports, Inc.^ | $ | 704 | |||||
900 | Rent-A-Center, Inc.^ | 9,990 | ||||||
2,425 | RH* | 209,059 | ||||||
9,723 | Ross Stores, Inc. | 780,271 | ||||||
7,908 | Sally Beauty Holdings, Inc.*^ | 148,354 | ||||||
600 | Shoe Carnival, Inc.^ | 16,050 | ||||||
3,863 | Signet Jewelers, Ltd. | 218,453 | ||||||
2,956 | Sleep Number Corp.*^ | 111,116 | ||||||
3,293 | Sonic Automotive, Inc., Class A | 60,756 | ||||||
1,606 | Sportsman’s Warehouse Holdings, Inc.* | 10,616 | ||||||
3,378 | Stein Mart, Inc.^ | 3,918 | ||||||
289 | Tandy Leather Factory, Inc.* | 2,225 | ||||||
2,860 | The Tile Shop Holdings, Inc. | 27,456 | ||||||
4,460 | Tiffany & Co. | 463,617 | ||||||
854 | Tilly’s, Inc. | 12,605 | ||||||
15,022 | TJX Cos., Inc. (The) | 1,148,582 | ||||||
4,639 | Tractor Supply Co. | 346,765 | ||||||
737 | Trans World Entertainment Corp.* | 1,345 | ||||||
2,124 | Ulta Salon, Cosmetics & Fragrance, Inc.* | 475,054 | ||||||
8,221 | Urban Outfitters, Inc.*^ | 288,228 | ||||||
1,993 | Vitamin Shoppe, Inc.*^ | 8,769 | ||||||
5,095 | Williams-Sonoma, Inc.^ | 263,412 | ||||||
285 | Winmark Corp. | 36,879 | ||||||
2,204 | Zumiez, Inc.*^ | 45,898 | ||||||
|
| |||||||
19,651,278 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (3.6%): | ||||||||
107,910 | Apple, Inc. | 17,685,633 | ||||||
728 | Astro-Med, Inc. | 10,192 | ||||||
2,354 | Avid Technology, Inc.* | 12,688 | ||||||
2,472 | Cray, Inc.*^ | 59,822 | ||||||
2,278 | Diebold, Inc.^ | 37,245 | ||||||
1,956 | Eastman Kodak Co.* | 6,064 | ||||||
2,044 | Electronics for Imaging, Inc.*^ | 60,359 | ||||||
16,417 | Hewlett Packard Enterprise Co. | 235,748 | ||||||
28,215 | HP, Inc. | 592,797 | ||||||
7,166 | NCR Corp.*^ | 243,572 | ||||||
9,540 | NetApp, Inc. | 527,753 | ||||||
9,753 | Seagate Technology plc^ | 408,066 | ||||||
2,522 | Stratasys, Ltd.* | 50,339 | ||||||
2,313 | Super Micro Computer, Inc.*^ | 48,400 | ||||||
6,156 | Western Digital Corp. | 489,587 | ||||||
9,194 | Xerox Corp. | 268,005 | ||||||
|
| |||||||
20,736,270 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (1.0%): | ||||||||
2,618 | Carter’s, Inc. | 307,589 | ||||||
484 | Cherokee, Inc.* | 920 | ||||||
3,392 | Columbia Sportswear Co.^ | 243,817 | ||||||
4,393 | Crocs, Inc.*^ | 55,528 | ||||||
810 | Culp, Inc.^ | 27,135 | ||||||
1,758 | Deckers Outdoor Corp.*^ | 141,080 | ||||||
3,440 | Fossil Group, Inc.*^ | 26,729 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Textiles, Apparel & Luxury Goods, continued | ||||||||
2,480 | G-III Apparel Group, Ltd.* | $ | 91,487 | |||||
13,867 | Hanesbrands, Inc.^ | 289,959 | ||||||
3,172 | Iconix Brand Group, Inc.*^ | 4,092 | ||||||
3,598 | Lululemon Athletica, Inc.* | 282,766 | ||||||
7,166 | Michael Kors Holdings, Ltd.* | 451,100 | ||||||
26,439 | Nike, Inc., Class C | 1,653,758 | ||||||
1,259 | Oxford Industries, Inc.^ | 94,664 | ||||||
600 | Perry Ellis International, Inc.* | 15,024 | ||||||
1,405 | PVH Corp. | 192,780 | ||||||
1,477 | Ralph Lauren Corp.^ | 153,150 | ||||||
570 | Rocky Brands, Inc. | 10,773 | ||||||
3,577 | Sequential Brands Group, Inc.* | 6,367 | ||||||
7,159 | Skechers U.S.A., Inc., Class A* | 270,897 | ||||||
2,863 | Steven Madden, Ltd.* | 133,702 | ||||||
700 | Superior Uniform Group, Inc. | 18,697 | ||||||
9,539 | Tapestry, Inc. | 421,910 | ||||||
3,720 | Under Armour, Inc., Class A* | 53,680 | ||||||
3,746 | Under Armour, Inc., Class C*^ | 49,897 | ||||||
1,027 | Unifi, Inc.* | 36,838 | ||||||
802 | Vera Bradley, Inc.* | 9,768 | ||||||
5,997 | VF Corp. | 443,778 | ||||||
3,237 | Wolverine World Wide, Inc.^ | 103,196 | ||||||
|
| |||||||
5,591,081 | ||||||||
|
| |||||||
Thrifts & Mortgage Finance (0.5%): | ||||||||
3,548 | Bank Mutual Corp. | 37,786 | ||||||
1,591 | BankFinancial Corp. | 24,406 | ||||||
4,285 | Beneficial Bancorp, Inc. | 70,488 | ||||||
4,484 | BofI Holding, Inc.*^ | 134,072 | ||||||
311 | BSB Bancorp, Inc.* | 9,097 | ||||||
7,721 | Capitol Federal Financial, Inc. | 103,539 | ||||||
1,278 | Charter Financial Corp. | 22,416 | ||||||
2,063 | Clifton Bancorp, Inc. | 35,277 | ||||||
2,791 | Dime Community Bancshares | 58,471 | ||||||
855 | ESSA Bancorp, Inc. | 13,398 | ||||||
4,321 | Essent Group, Ltd.* | 187,618 | ||||||
403 | Federal Agricultural Mortgage Corp. | 31,531 | ||||||
408 | First Capital, Inc. | 14,994 | ||||||
772 | First Defiance Financial Corp. | 40,121 | ||||||
3,976 | Flagstar Bancorp, Inc.*^ | 148,781 | ||||||
8 | Greene County Bancorp, Inc. | 261 | ||||||
155 | Hingham Institution for Savings | 32,085 | ||||||
1,670 | HomeStreet, Inc.* | 48,347 | ||||||
787 | HopFed Bancorp, Inc. | 11,191 | ||||||
613 | IF Bancorp, Inc.^ | 12,076 | ||||||
966 | Impac Mortgage Holdings, Inc.* | 9,815 | ||||||
5,119 | Kearny Financial Corp. | 73,970 | ||||||
1,249 | Kentucky First Federal Bancorp^ | 11,179 | ||||||
750 | Lake Shore Bancorp, Inc. | 12,863 | ||||||
194 | LendingTree, Inc.*^ | 66,047 | ||||||
759 | Malvern Bancorp, Inc.* | 19,886 | ||||||
3,570 | Meridian Bancorp, Inc. | 73,542 |
Continued
25
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Thrifts & Mortgage Finance, continued | ||||||||
484 | Meta Financial Group, Inc. | $ | 44,843 | |||||
19,071 | MGIC Investment Corp.* | 269,091 | ||||||
5,566 | Nationstar Mortgage Holdings, Inc.*^ | 102,971 | ||||||
10,538 | New York Community Bancorp, Inc.^ | 137,204 | ||||||
3,378 | NMI Holdings, Inc., Class A* | 57,426 | ||||||
1,311 | Northeast Community Bancorp, Inc. | 13,241 | ||||||
2,984 | Northfield Bancorp, Inc. | 50,967 | ||||||
5,417 | Northwest Bancshares, Inc.^ | 90,626 | ||||||
2,643 | Oceanfirst Financial Corp. | 69,379 | ||||||
503 | Oconee Federal Financial Corp.^ | 14,436 | ||||||
6,975 | Ocwen Financial Corp.*^ | 21,832 | ||||||
3,358 | Oritani Financial Corp.^ | 55,071 | ||||||
1,218 | PennyMac Financial Services, Inc., Class A*^ | 27,222 | ||||||
3,040 | PHH Corp.* | 31,312 | ||||||
679 | Provident Financial Holdings, Inc. | 12,494 | ||||||
4,039 | Provident Financial Services, Inc. | 108,932 | ||||||
8,756 | Radian Group, Inc. | 180,460 | ||||||
420 | Riverview Bancorp, Inc. | 3,641 | ||||||
967 | SI Financial Group, Inc. | 14,215 | ||||||
561 | Southern Missouri Bancorp, Inc. | 21,088 | ||||||
733 | Territorial Bancorp, Inc.^ | 22,628 | ||||||
5,881 | TFS Financial Corp. | 87,862 | ||||||
7,273 | TrustCo Bank Corp. | 66,912 | ||||||
3,739 | United Community Financial Corp. | 34,137 | ||||||
3,669 | United Financial Bancorp, Inc. | 64,721 | ||||||
3,636 | Washington Federal, Inc. | 124,533 | ||||||
2,036 | Waterstone Financial, Inc. | 34,714 | ||||||
2,381 | Wawlker & Dunlop, Inc.* | 113,098 | ||||||
1,498 | Western New England BanCorp, Inc. | 16,328 | ||||||
1,534 | WSFS Financial Corp. | 73,402 | ||||||
|
| |||||||
3,268,043 | ||||||||
|
| |||||||
Tobacco (1.0%): | ||||||||
43,143 | Altria Group, Inc. | 3,080,843 | ||||||
25,293 | Philip Morris International, Inc. | 2,672,205 | ||||||
1,284 | Universal Corp. | 67,410 | ||||||
7,688 | Vector Group, Ltd.^ | 172,057 | ||||||
|
| |||||||
5,992,515 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.7%): | ||||||||
7,861 | Air Lease Corp.^ | 378,035 | ||||||
4,508 | Aircastle, Ltd. | 105,442 | ||||||
2,594 | Applied Industrial Technologies, Inc. | 176,651 | ||||||
2,840 | Beacon Roofing Supply, Inc.* | 181,078 | ||||||
3,157 | BMC Stock Holdings, Inc.* | 79,872 | ||||||
1,592 | CAI International, Inc.* | 45,085 | ||||||
644 | DXP Enterprises, Inc.* | 19,043 | ||||||
8,797 | Fastenal Co.^ | 481,108 | ||||||
2,334 | GMS, Inc.* | 87,852 | ||||||
2,000 | H&E Equipment Services, Inc. | 81,300 | ||||||
6,084 | HD Supply Holdings, Inc.* | 243,543 | ||||||
1,299 | Herc Holdings, Inc.* | 81,330 | ||||||
1,307 | Huttig Building Products, Inc.*^ | 8,692 | ||||||
1,854 | Kaman Corp., Class A | 109,089 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Common Stocks, continued | ||||||||
Trading Companies & Distributors, continued | ||||||||
5,602 | MRC Global, Inc.* | $ | 94,786 | |||||
2,233 | MSC Industrial Direct Co., Inc., Class A | 215,842 | ||||||
4,627 | NOW, Inc.*^ | 51,036 | ||||||
1,902 | Rush Enterprises, Inc., Class A* | 96,641 | ||||||
651 | Titan Machinery, Inc.* | 13,782 | ||||||
1,007 | TransAct Technologies, Inc.* | 14,350 | ||||||
2,536 | Triton International, Ltd. | 94,973 | ||||||
2,958 | United Rentals, Inc.* | 508,510 | ||||||
5,034 | Univar, Inc.* | 155,853 | ||||||
1,184 | Veritiv Corp.*^ | 34,218 | ||||||
2,033 | W.W. Grainger, Inc.^ | 480,296 | ||||||
1,734 | Watsco, Inc. | 294,849 | ||||||
84 | Watsco, Inc., Class B | 13,789 | ||||||
2,455 | WESCO International, Inc.* | 167,308 | ||||||
|
| |||||||
4,314,353 | ||||||||
|
| |||||||
Transportation Infrastructure (0.0%): | ||||||||
2,859 | Macquarie Infrastructure Corp.^ | 183,548 | ||||||
|
| |||||||
Water Utilities (0.2%): | ||||||||
2,327 | American States Water Co. | 134,757 | ||||||
3,393 | American Water Works Co., Inc.^ | 310,425 | ||||||
3,824 | Aqua America, Inc.^ | 150,015 | ||||||
491 | Artesian Resources Corp. | 18,933 | ||||||
2,491 | California Water Service Group | 112,967 | ||||||
665 | Connecticut Water Service, Inc. | 38,178 | ||||||
979 | Middlesex Water Co. | 39,072 | ||||||
669 | Pure Cycle Corp.* | 5,586 | ||||||
1,234 | SJW Corp. | 78,766 | ||||||
772 | York Water Co. (The)^ | 26,171 | ||||||
|
| |||||||
914,870 | ||||||||
|
| |||||||
Wireless Telecommunication Services (0.2%): | ||||||||
2,055 | Boingo Wireless, Inc.* | 46,238 | ||||||
4,154 | Shenandoah Telecommunications Co. | 140,405 | ||||||
1,649 | Spok Holdings, Inc. | 25,807 | ||||||
15,850 | Sprint Corp.*^ | 93,357 | ||||||
4,567 | Telephone & Data Systems, Inc. | 126,963 | ||||||
7,271 | T-Mobile US, Inc.* | 461,780 | ||||||
782 | United States Cellular Corp.* | 29,427 | ||||||
|
| |||||||
923,977 | ||||||||
|
| |||||||
Total Common Stocks (Cost $462,988,408) | 581,712,614 | |||||||
|
| |||||||
Rights (0.0%): | ||||||||
Biotechnology (0.0%): | ||||||||
2,582 | Dyax Corp. CVR, Expires on 12/31/19*(a)(b) | 8,701 | ||||||
|
| |||||||
Media (0.0%): | ||||||||
9,820 | Media General, Inc. CVR, Expires on 1/18/18*(a)(b) | 982 | ||||||
|
| |||||||
Total Rights (Cost $3,043) | 9,683 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (9.7%): | ||||||||
$ | 56,537,757 | AZL DFA U.S. Core Equity Fund Securities Lending Collateral Account(c) | 56,537,757 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 56,537,757 | ||||||
|
|
Continued
26
AZL DFA U.S. Core Equity Fund
Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Unaffiliated Investment Company (0.2%): | ||||||||
$ | 1,146,131 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 1.11%(d) | $ | 1,146,131 | ||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $1,146,131) | 1,146,131 | |||||||
|
| |||||||
Total Investment Securities (Cost $520,675,339)(e) — 109.4% | 639,406,185 | |||||||
Net other assets (liabilities) — (9.4)% | (55,185,202 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 584,220,983 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
ADR—American Depositary Receipt
CVR—Contingency Valued Rights
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2017. The total value of securities on loan as of December 31, 2017, was $54,786,045. |
(a) | The subadviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2017, these securities represent 0.04% 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, 2017. 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, 2017. |
(d) | The rate represents the effective yield at December 31, 2017. |
(e) | See Federal Tax Information listed in the Notes to the Financial Statements. |
See accompanying notes to the financial statements.
27
AZL DFA U.S. Core Equity Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investment securities, at cost | $ | 520,675,339 | |||
|
| ||||
Investment securities, at value* | $ | 639,406,185 | |||
Cash | 6,822 | ||||
Interest and dividends receivable | 537,173 | ||||
Receivable for investments sold | 1,855,634 | ||||
Reclaims receivable | 797 | ||||
Prepaid expenses | 3,426 | ||||
|
| ||||
Total Assets | 641,810,037 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 280,999 | ||||
Payable for capital shares redeemed | 337,758 | ||||
Payable for collateral received on loaned securities | 56,537,757 | ||||
Manager fees payable | 270,042 | ||||
Administration fees payable | 14,457 | ||||
Distribution fees payable | 125,020 | ||||
Custodian fees payable | 2,872 | ||||
Administrative and compliance services fees payable | 1,308 | ||||
Transfer agent fees payable | 762 | ||||
Trustee fees payable | 843 | ||||
Other accrued liabilities | 17,236 | ||||
|
| ||||
Total Liabilities | 57,589,054 | ||||
|
| ||||
Net Assets | $ | 584,220,983 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 444,202,135 | |||
Accumulated net investment income/(loss) | 5,866,072 | ||||
Accumulated net realized gains/(losses) from investment transactions | 15,421,930 | ||||
Net unrealized appreciation/(depreciation) on investments | 118,730,846 | ||||
|
| ||||
Net Assets | $ | 584,220,983 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 45,799,645 | ||||
Net Asset Value (offering and redemption price per share) | $ | 12.76 | |||
|
|
* | Includes securities on loan of $54,786,045. |
For the Year Ended December 31, 2017
Investment Income: | |||||
Dividends | $ | 10,565,570 | |||
Interest | 85 | ||||
Income from securities lending | 265,598 | ||||
Other income | 23,517 | ||||
Foreign withholding tax | (2,220 | ) | |||
|
| ||||
Total Investment Income | 10,852,550 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 4,661,047 | ||||
Administration fees | 166,906 | ||||
Distribution fees | 1,456,575 | ||||
Custodian fees | 22,842 | ||||
Administrative and compliance services fees | 7,419 | ||||
Transfer agent fees | 6,049 | ||||
Trustee fees | 26,537 | ||||
Professional fees | 31,958 | ||||
Shareholder reports | 8,852 | ||||
Other expenses | 14,806 | ||||
|
| ||||
Total expenses before reductions | 6,402,991 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (1,514,844 | ) | |||
|
| ||||
Net expenses | 4,888,147 | ||||
|
| ||||
Net Investment Income/(Loss) | 5,964,403 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions and foreign currencies | 15,378,569 | ||||
Change in net unrealized appreciation/depreciation on investments | 87,380,355 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 102,758,924 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 108,723,327 | |||
|
|
See accompanying notes to the financial statements.
28
AZL DFA U.S. Core Equity Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 5,964,403 | $ | 6,769,827 | ||||||
Net realized gains/(losses) on investment transactions | 15,378,569 | 1,787,765 | ||||||||
Change in unrealized appreciation/depreciation on investments | 87,380,355 | 65,900,402 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 108,723,327 | 74,457,994 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (6,644,057 | ) | (5,009,038 | ) | ||||||
From net realized gains | (1,224,266 | ) | — | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (7,868,323 | ) | (5,009,038 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 7,612,367 | 59,090,768 | ||||||||
Proceeds from dividends reinvested | 7,868,323 | 5,009,038 | ||||||||
Value of shares redeemed | (114,202,622 | ) | (109,037,201 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (98,721,932 | ) | (44,937,395 | ) | ||||||
|
|
|
| |||||||
Change in net assets | 2,133,072 | 24,511,561 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 582,087,911 | 557,576,350 | ||||||||
|
|
|
| |||||||
End of period | $ | 584,220,983 | $ | 582,087,911 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 5,866,072 | $ | 6,602,252 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 661,904 | 5,965,055 | ||||||||
Dividends reinvested | 666,807 | 503,927 | ||||||||
Shares redeemed | (9,741,917 | ) | (10,989,431 | ) | ||||||
|
|
|
| |||||||
Change in shares | (8,413,206 | ) | (4,520,449 | ) | ||||||
|
|
|
|
See accompanying notes to the financial statements.
29
AZL DFA U.S. Core Equity Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, 2017 | Year Ended December 31, 2016 | April 27, 2015 to December 31, 2015(a) | |||||||||||||
Net Asset Value, Beginning of Period | $ | 10.74 | $ | 9.49 | $ | 10.00 | |||||||||
|
|
|
|
|
| ||||||||||
Investment Activities: | |||||||||||||||
Net Investment Income/(Loss) | 0.15 | 0.13 | 0.08 | ||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 2.04 | 1.21 | (0.59 | ) | |||||||||||
|
|
|
|
|
| ||||||||||
Total from Investment Activities | 2.19 | 1.34 | (0.51 | ) | |||||||||||
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|
|
|
|
| ||||||||||
Dividends to Shareholders From: | |||||||||||||||
Net Investment Income | (0.14 | ) | (0.09 | ) | — | ||||||||||
Net Realized Gains | (0.03 | ) | — | — | |||||||||||
|
|
|
|
|
| ||||||||||
Total Dividends | (0.17 | ) | (0.09 | ) | — | ||||||||||
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|
|
|
|
| ||||||||||
Net Asset Value, End of Period | $ | 12.76 | $ | 10.74 | $ | 9.49 | |||||||||
|
|
|
|
|
| ||||||||||
Total Return(b) | 20.45 | % | 14.25 | % | (5.10 | )%(c) | |||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||
Net Assets, End of Period (000’s) | $ | 584,221 | $ | 582,088 | $ | 557,576 | |||||||||
Net Investment Income/(Loss)(d) | 1.02 | % | 1.24 | % | 1.12 | % | |||||||||
Expenses Before Reductions(d)(e) | 1.10 | % | 1.10 | % | 1.12 | % | |||||||||
Expenses Net of Reductions(d) | 0.84 | % | 0.84 | % | 0.86 | % | |||||||||
Portfolio Turnover Rate | 2 | % | 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 for periods less than one year. |
(d) | Annualized for periods less than one year. |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
See accompanying notes to the financial statements.
30
AZL DFA U.S. Core Equity Fund
Notes to the Financial Statements
December 31, 2017
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 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 accrues 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 and Withholding Taxes
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, or from other assets and liabilities, from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains is determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., reclassification of gain/loss and other permanent adjustments), 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.
31
AZL DFA U.S. Core Equity Fund
Notes to the Financial Statements
December 31, 2017
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, 2017 are noted on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $55 million for the year ended December 31, 2017.
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 $24,240 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The fund had securities lending transactions of $56,537,757 accounted for as secured borrowings with cash collateral of overnight and continuous maturities as of December 31, 2017.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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, 2017, the Fund did not engage in any such transactions under the Rule.
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, 2019.
For the year ended December 31, 2017, the annual rate paid 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, 2017, there were no contractual reimbursements 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
32
AZL DFA U.S. Core Equity Fund
Notes to the Financial Statements
December 31, 2017
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.”
FIS Investor Services LLC (“FIS”) 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, 2017, $6,244 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, 2017, actual Trustee compensation was $1,116,333 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.
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, 2017, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value. There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
33
AZL DFA U.S. Core Equity Fund
Notes to the Financial Statements
December 31, 2017
Investment Securities: | Level 1 | Level 2 | Other^ | Total | ||||||||||||||||
Common Stocks | ||||||||||||||||||||
Diversified Financial Services | $ | 3,830,276 | $ | 1,302 | $ | — | $ | 3,831,578 | ||||||||||||
Other Commons Stocks+ | 577,881,036 | — | — | 577,881,036 | ||||||||||||||||
Rights | — | 9,683 | — | 9,683 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | 56,537,757 | 56,537,757 | ||||||||||||||||
Unaffiliated Investment Company | 1,146,131 | — | — | 1,146,131 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investments | $ | 582,857,443 | $ | 10,985 | $ | 56,537,757 | $ | 639,406,185 | ||||||||||||
|
|
|
|
|
|
|
|
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
5. Security Purchases and Sales
For the year ended December 31, 2017, 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 | $ | 14,350,201 | $ | 112,912,178 |
6. Investment Risks
Derivatives Risk: The Fund may invest in derivatives as a principal strategy. A derivative is a financial contract whose value depends on, or is derived from, the value of an underlying asset, reference rate, or risk. Use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of other risks, such as liquidity risk, interest rate risk, market risk, credit risk, and selection risk. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value may not correlate perfectly with the underlying asset, rate, or index. Using derivatives may result in losses, possibly in excess of the principal amount invested. Also, suitable derivative transactions may not be available in all circumstances. The counterparty to a derivatives contract could default. As required by applicable law, a Fund that invests in derivatives segregates cash or liquid securities, or both, to the extent that its obligations under the instrument are not covered through ownership of the underlying security, financial instrument, or currency.
Foreign Securities and Currencies Risk: Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities.
7. Federal Tax Information
It is the 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, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $520,604,595. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 148,002,672 | ||
Unrealized (depreciation) | (29,201,082 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 118,801,590 | ||
|
|
The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL DFA U.S. Core Equity Fund | $ | 6,644,057 | $ | 1,224,266 | $ | 7,868,323 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
34
AZL DFA U.S. Core Equity Fund
Notes to the Financial Statements
December 31, 2017
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, 2017, 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 | $ | 6,440,607 | $ | 14,776,651 | $ | — | $ | 118,801,590 | $ | 140,018,848 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2017, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 75% of the Fund.
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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.
35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
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, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the two-year period then ended and the period from April 27, 2015 (commencement of operations) to December 31, 2015. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, 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 two-year period then ended and the period from April 27, 2015 to December 31, 2015, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2017, 100.00% of the total ordinary income dividends paid by the Fund qualify for the corporate dividendsreceived deductions available to corporate shareholders.
During the year ended December 31, 2017, the Fund declared net long-term capital gain distributions of $1,224,266.
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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 isavailable (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Fund of Funds Trust’swebsite at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q.Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
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Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
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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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
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The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in 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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
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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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC.
These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® DFA U.S. Small Cap Fund
Annual Report
December 31, 2017
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
Page 22
Statements of Changes in Net Assets
Page 23
Page 24
Notes to the Financial Statements
Page 25
Report of Independent Registered Public Accounting Firm
Page 30
Other Federal Income Tax Information
Page 31
Page 32
Approval of Investment Advisory and Subadvisory Agreements
Page 33
Information about the Board of Trustees and Officers
Page 36
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, 2017?
For the year ended December 31, 2017, the AZL® DFA U.S. Small Cap Fund (the “Fund”) returned 10.87%. That compared to a 14.65% total return for its benchmark, the Russell 2000® Index1.
U.S. equities rallied to record highs as a strengthening economy powered high profit growth during the 12-month period. Gains were consistent despite increased political instability in the U.S. and other countries. As confidence in the global recovery grew, investors favored growth-oriented stocks over more defensive shares.
Improved U.S. economic and employment data was tempered somewhat by weak housing indicators in the second and third quarters. Robust consumer demand helped information technology far outpace the other sectors, with the materials and industrials sectors also posting healthy returns. As forecast in late 2016, the U.S. Federal Reserve raised interest rates three times (a total of 0.75%) in 2017 in response to improving economic conditions.
In general, small-cap stocks underperformed their large-cap counterparts for the period. Value stocks underperformed growth in both the large- and small-cap dimensions.
Profitability premiums were mixed in the U.S. market for the period. In the small-cap growth segment, stocks with the lowest profitability and highest relative price outperformed higher-profitability stocks. However, higher-profitability stocks generally outperformed throughout the rest of the small-cap universe, and among large-caps.
The Fund underperformed its benchmark for the 12-month period. The Fund’s exclusion of stocks with the lowest profitability and highest relative price primarily drove underperformance, as those securities outperformed, particularly in the healthcare sector.*
Conversely, the Fund’s general exclusion of real estate investment trusts2 (REITs) benefited relative performance, as REITs underperformed the overall index.*
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2017. |
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. 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, 2017
1 Year | Since Inception (4/27/15) | |||||||
AZL® DFA U.S. Small Cap Fund | 10.87 | % | 9.43 | % | ||||
Russell 2000® Index | 14.65 | % | 9.45 | % |
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 | 1.14 | % |
The above expense ratio is based on the current Fund prospectus dated May 1, 2017. 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, 2019. Additional information pertaining to the December 31, 2017 expense ratios can be found in the financial highlights.
The total return of the Fund does not reflect the effect of any insurance charges, the annual maintenance fee or the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Such charges, fees and tax payments would reduce the performance quoted.
The Fund’s performance is measured against the Russell 2000® Index, which is an unmanaged market capitalization-weighted index comprised of the 2,000 smallest companies listed in 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
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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL DFA U.S. Small Cap Fund | $ | 1,000.00 | $ | 1,090.50 | $ | 5.27 | 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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL DFA U.S. Small Cap Fund | $ | 1,000.00 | $ | 1,020.18 | $ | 5.09 | 1.00 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Financials | 21.3 | % | |||
Industrials | 20.8 | ||||
Consumer Discretionary | 16.4 | ||||
Information Technology | 13.8 | ||||
Health Care | 8.1 | ||||
Materials | 5.5 | ||||
Utilities | 4.2 | ||||
Energy | 4.1 | ||||
Consumer Staples | 4.0 | ||||
Telecommunication Services | 1.2 | ||||
Real Estate | 0.7 | ||||
|
| ||||
Total Common Stocks | 100.1 | ||||
Right | — | ^ | |||
Securities Held as Collateral for Securities on Loan | 27.4 | ||||
|
| ||||
Total Investment Securities | 127.5 | ||||
Net other assets (liabilities) | (27.5 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks (100.1%): | ||||||||
Aerospace & Defense (1.8%): | ||||||||
1,397 | AAR Corp. | $ | 54,888 | |||||
12,122 | Aerojet Rocketdyne Holdings, Inc.* | 378,206 | ||||||
3,952 | AeroVironment, Inc.*^ | 221,944 | ||||||
1,402 | Air Industries Group, Inc.* | 2,369 | ||||||
5,128 | Arotech Corp.* | 18,204 | ||||||
3,415 | Astronics Corp.* | 141,620 | ||||||
7,876 | Axon Enterprise, Inc.*^ | 208,714 | ||||||
685 | CPI Aerostructures, Inc.* | 6,131 | ||||||
4,364 | Cubic Corp. | 257,258 | ||||||
774 | Curtiss-Wright Corp. | 94,312 | ||||||
766 | Ducommun, Inc.* | 21,793 | ||||||
3,343 | Engility Holdings, Inc.* | 94,841 | ||||||
1,175 | Esterline Technologies Corp.* | 87,773 | ||||||
3,376 | Innovative Solutions & Support, Inc.* | 9,925 | ||||||
7,000 | KLX, Inc.* | 477,751 | ||||||
11,071 | Kratos Defense & Security Solutions, Inc.* | 117,242 | ||||||
2,837 | Maxar Technologies, Ltd. | 182,476 | ||||||
4,348 | Mercury Computer Systems, Inc.* | 223,270 | ||||||
5,351 | Moog, Inc., Class A* | 464,734 | ||||||
66 | Moog, Inc., Class B* | 5,509 | ||||||
1,184 | National Presto Industries, Inc. | 117,749 | ||||||
590 | Sparton Corp.* | 13,605 | ||||||
333 | Tel-Instrument Electronics Corp.* | 866 | ||||||
7,022 | The KEYW Holding Corp.*^ | 41,219 | ||||||
6,548 | Triumph Group, Inc.^ | 178,106 | ||||||
459 | Vectrus, Inc.* | 14,160 | ||||||
15,588 | WESCO Aircraft Holdings, Inc.*^ | 115,351 | ||||||
|
| |||||||
3,550,016 | ||||||||
|
| |||||||
Air Freight & Logistics (0.6%): | ||||||||
492 | Air T, Inc.* | 12,128 | ||||||
13,319 | Air Transport Services Group, Inc.* | 308,202 | ||||||
1,862 | Atlas Air Worldwide Holdings, Inc.*^ | 109,206 | ||||||
4,235 | Echo Global Logistics, Inc.* | 118,580 | ||||||
4,353 | Forward Air Corp. | 250,036 | ||||||
5,582 | Hub Group, Inc.* | 267,378 | ||||||
2,328 | Park-Ohio Holdings Corp. | 106,972 | ||||||
5,212 | Radiant Logistics, Inc.* | 23,975 | ||||||
|
| |||||||
1,196,477 | ||||||||
|
| |||||||
Airlines (0.4%): | ||||||||
2,342 | Allegiant Travel Co.^ | 362,425 | ||||||
7,320 | Hawaiian Holdings, Inc. | 291,702 | ||||||
1,113 | SkyWest, Inc. | 59,100 | ||||||
2,668 | Spirit Airlines, Inc.* | 119,660 | ||||||
|
| |||||||
832,887 | ||||||||
|
| |||||||
Auto Components (1.9%): | ||||||||
12,952 | American Axle & Manufacturing Holdings, Inc.*^ | 220,573 | ||||||
8,007 | Cooper Tire & Rubber Co.^ | 283,047 | ||||||
2,216 | Cooper-Standard Holding, Inc.* | 271,460 | ||||||
11,599 | Dana Holding Corp. | 371,284 | ||||||
4,979 | Dorman Products, Inc.*^ | 304,416 | ||||||
5,394 | Fox Factory Holding Corp.*^ | 209,557 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Auto Components, continued | ||||||||
5,653 | Gentherm, Inc.* | $ | 179,483 | |||||
3,680 | Horizon Global Corp.* | 51,594 | ||||||
3,713 | LCI Industries^ | 482,690 | ||||||
7,745 | Modine Manufacturing Co.* | 156,449 | ||||||
2,866 | Motorcar Parts of America, Inc.*^ | 71,621 | ||||||
1,992 | Shiloh Industries, Inc.* | 16,334 | ||||||
6,373 | Spartan Motors, Inc. | 100,375 | ||||||
3,444 | Standard Motor Products, Inc.^ | 154,670 | ||||||
5,329 | Stoneridge, Inc.* | 121,821 | ||||||
733 | Strattec Security Corp. | 31,922 | ||||||
4,822 | Tenneco, Inc. | 282,280 | ||||||
3,420 | Tower International, Inc. | 104,481 | ||||||
3,073 | Visteon Corp.* | 384,555 | ||||||
4,313 | VOXX International Corp.*^ | 24,153 | ||||||
|
| |||||||
3,822,765 | ||||||||
|
| |||||||
Automobiles (0.1%): | ||||||||
4,607 | Winnebago Industries, Inc.^ | 256,149 | ||||||
|
| |||||||
Banks (13.0%): | ||||||||
1,584 | 1st Constitution Bancorp | 29,225 | ||||||
4,120 | 1st Source Corp.^ | 203,734 | ||||||
2,359 | Access National Corp. | 65,675 | ||||||
410 | ACNB Corp. | 12,116 | ||||||
1,639 | American National Bankshares, Inc. | 62,774 | ||||||
346 | American River Bankshares | 5,277 | ||||||
5,842 | Ameris Bancorp | 281,584 | ||||||
1,649 | Ames National Corp. | 45,925 | ||||||
294 | Anchor Bancorp, Inc.* | 7,291 | ||||||
2,572 | Arrow Financial Corp.^ | 87,319 | ||||||
10,707 | Associated Banc-Corp. | 271,958 | ||||||
13 | Auburn National Bancorp, Inc. | 511 | ||||||
6,594 | Banc of California, Inc.^ | 136,166 | ||||||
4,814 | BancFirst Corp. | 246,236 | ||||||
772 | Bancorp of New Jersey, Inc. | 14,089 | ||||||
9,752 | Bancorp, Inc. (The)* | 96,350 | ||||||
13,499 | BancorpSouth Bank | 424,543 | ||||||
2,653 | Bank of Commerce Holdings | 30,510 | ||||||
3,143 | Bank of Hawaii Corp.^ | 269,355 | ||||||
1,095 | Bank of Marin Bancorp^ | 74,460 | ||||||
441 | Bank of South Carolina Corp. | 8,511 | ||||||
4,201 | Banner Corp. | 231,559 | ||||||
2,449 | Bar Harbor Bankshares | 66,147 | ||||||
1,367 | Bay Bancorp, Inc.* | 16,814 | ||||||
595 | BCB Bancorp, Inc. | 8,628 | ||||||
4,723 | Berkshire Hills Bancorp, Inc. | 172,862 | ||||||
13,042 | Boston Private Financial Holdings, Inc.^ | 201,499 | ||||||
2,206 | Bridge Bancorp, Inc. | 77,210 | ||||||
12,156 | Brookline Bancorp, Inc. | 190,849 | ||||||
2,989 | Bryn Mawr Bank Corp. | 132,114 | ||||||
74 | C&F Financial Corp. | 4,292 | ||||||
1,274 | California First National Bancorp | 19,212 | ||||||
2,359 | Camden National Corp. | 99,385 | ||||||
3,242 | Capital City Bank Group, Inc. | 74,371 |
Continued
4
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
1,218 | Carolina Financial Corp. | $ | 45,249 | |||||
10,925 | Cathay General Bancorp | 460,706 | ||||||
8,484 | Centerstate Banks, Inc. | 218,293 | ||||||
5,261 | Central Pacific Financial Corp. | 156,936 | ||||||
1,141 | Central Valley Community Bancorp | 23,025 | ||||||
511 | Century Bancorp, Inc. | 39,986 | ||||||
5,879 | Chemical Financial Corp. | 314,350 | ||||||
940 | Chemung Financial Corp. | 45,214 | ||||||
2,509 | Citizens & Northern Corp.^ | 60,216 | ||||||
261 | Citizens First Corp. | 6,264 | ||||||
718 | Citizens Holding Co. | 16,622 | ||||||
2,576 | City Holding Co.^ | 173,803 | ||||||
797 | Civista Bancshares, Inc. | 17,534 | ||||||
2,720 | CNB Financial Corp. | 71,373 | ||||||
5,330 | CoBiz Financial, Inc.^ | 106,547 | ||||||
78 | Codorus Valley Bancorp, Inc. | 2,147 | ||||||
56 | Colony Bankcorp, Inc. | 815 | ||||||
10,846 | Columbia Banking System, Inc. | 471,149 | ||||||
7,268 | Community Bank System, Inc. | 390,654 | ||||||
3,296 | Community Bankers Trust Corp.* | 26,862 | ||||||
2,698 | Community Trust Bancorp, Inc. | 127,076 | ||||||
525 | Community West Bancshares | 5,618 | ||||||
5,611 | ConnectOne Bancorp, Inc. | 144,483 | ||||||
5,060 | Customers Bancorp, Inc.* | 131,509 | ||||||
16,555 | CVB Financial Corp.^ | 390,036 | ||||||
130 | DNB Financial Corp. | 4,381 | ||||||
609 | Eagle Bancorp Montana, Inc. | 12,759 | ||||||
4,678 | Eagle Bancorp, Inc.* | 270,856 | ||||||
3,787 | Enterprise Financial Services Corp. | 170,983 | ||||||
300 | Equity Bancshares, Inc.* | 10,623 | ||||||
534 | Evans Bancorp, Inc. | 22,375 | ||||||
7,106 | F.N.B. Corp. | 98,205 | ||||||
1,103 | Farmers Capital Bank Corp. | 42,466 | ||||||
2,582 | Farmers National Banc Corp. | 38,085 | ||||||
242 | Fauquier Bankshares, Inc. | 5,295 | ||||||
819 | FCB Financial Holdings, Inc.* | 41,605 | ||||||
3,915 | Fidelity Southern Corp. | 85,347 | ||||||
2,609 | Financial Institutions, Inc. | 81,140 | ||||||
34,474 | First Bancorp* | 175,818 | ||||||
4,473 | First Bancorp | 157,942 | ||||||
2,165 | First Bancorp, Inc. | 58,953 | ||||||
965 | First Bancshares, Inc. (The) | 33,003 | ||||||
5,871 | First Busey Corp. | 175,778 | ||||||
940 | First Business Financial Services, Inc. | 20,793 | ||||||
233 | First Citizens BancShares, Inc., Class A | 93,899 | ||||||
3,144 | First Commonwealth Financial Corp. | 45,022 | ||||||
3,514 | First Community Bankshares | 100,957 | ||||||
2,774 | First Connecticut Bancorp, Inc. | 72,540 | ||||||
9,698 | First Financial Bancorp | 255,542 | ||||||
9,006 | First Financial Bankshares, Inc.^ | 405,719 | ||||||
2,100 | First Financial Corp. | 95,235 | ||||||
1,717 | First Financial Northwest, Inc. | 26,631 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
2,578 | First Foundation, Inc.* | $ | 47,796 | |||||
12,206 | First Horizon National Corp. | 243,998 | ||||||
5,154 | First Interstate BancSystem, Class A | 206,418 | ||||||
6,546 | First Merchants Corp. | 275,325 | ||||||
12,960 | First Midwest Bancorp, Inc. | 311,170 | ||||||
3,897 | First of Long Island Corp. (The) | 111,065 | ||||||
28 | First Savings Financial Group | 1,610 | ||||||
234 | First United Corp.* | 4,083 | ||||||
908 | First US Bancshares, Inc.^ | 11,622 | ||||||
4,932 | Flushing Financial Corp. | 135,630 | ||||||
279 | Franklin Financial Network, Inc.* | 9,514 | ||||||
25,457 | Fulton Financial Corp. | 455,679 | ||||||
4,183 | German American Bancorp, Inc.^ | 147,785 | ||||||
11,162 | Glacier Bancorp, Inc.^ | 439,670 | ||||||
2,265 | Great Southern Bancorp, Inc. | 116,987 | ||||||
1,459 | Great Western Bancorp, Inc. | 58,068 | ||||||
885 | Green BanCorp, Inc.*^ | 17,966 | ||||||
3,876 | Guaranty Bancorp | 107,171 | ||||||
2,405 | Hancock Holding Co. | 119,048 | ||||||
4,853 | Hanmi Financial Corp. | 147,289 | ||||||
39 | Hawthorn Bancshares, Inc. | 809 | ||||||
3,898 | Heartland Financial USA, Inc. | 209,128 | ||||||
5,183 | Heritage Financial Corp. | 159,636 | ||||||
5,806 | Hertiage Commerce Corp. | 88,948 | ||||||
15,083 | Hilltop Holdings, Inc. | 382,052 | ||||||
10,764 | Home Bancshares, Inc. | 250,263 | ||||||
3,318 | Hometrust Bancshares, Inc.* | 85,439 | ||||||
18,841 | Hope BanCorp, Inc. | 343,848 | ||||||
2,971 | Horizon Bancorp | 82,594 | ||||||
1,773 | IBERIABANK Corp. | 137,408 | ||||||
4,227 | Independent Bank Corp.^ | 295,256 | ||||||
3,196 | Independent Bank Group, Inc. | 216,050 | ||||||
9,938 | International Bancshares Corp. | 394,538 | ||||||
7,007 | Lakeland Bancorp, Inc. | 134,885 | ||||||
4,322 | Lakeland Financial Corp.^ | 209,574 | ||||||
782 | Landmark Bancorp, Inc. | 22,678 | ||||||
1,512 | LCNB Corp. | 30,920 | ||||||
7,298 | LegacyTexas Financial Group, Inc. | 308,049 | ||||||
5,225 | Macatawa Bank Corp. | 52,250 | ||||||
1,048 | Mackinac Financial Corp. | 16,768 | ||||||
2,883 | Mainsource Financial Group, Inc. | 104,682 | ||||||
2,092 | MB Financial, Inc. | 93,136 | ||||||
1,565 | MBT Financial Corp. | 16,589 | ||||||
2,659 | Mercantile Bank Corp. | 94,049 | ||||||
442 | Midland States BanCorp, Inc. | 14,356 | ||||||
1,441 | MidWestone Financial Group, Inc. | 48,317 | ||||||
892 | MutualFirst Financial, Inc. | 34,387 | ||||||
4,474 | National Bank Holdings Corp. | 145,092 | ||||||
1,309 | National Bankshares, Inc. | 59,494 | ||||||
410 | National Commerce Corp.* | 16,503 | ||||||
6,403 | NBT Bancorp, Inc.^ | 235,630 | ||||||
378 | Nicolet Bankshares, Inc.*^ | 20,692 |
Continued
5
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
1,136 | Northeast Bancorp^ | $ | 26,298 | |||||
657 | Northrim Bancorp, Inc.^ | 22,239 | ||||||
609 | Norwood Financial Corp. | 20,097 | ||||||
7,468 | OFG Bancorp | 70,199 | ||||||
183 | Ohio Valley Banc Corp. | 7,393 | ||||||
2,029 | Old Line Bancshares, Inc. | 59,734 | ||||||
19,364 | Old National Bancorp^ | 337,902 | ||||||
1,004 | Old Point Financial Corp. | 29,869 | ||||||
3,314 | Old Second Bancorp, Inc. | 45,236 | ||||||
1,178 | Opus Bank*^ | 32,159 | ||||||
1,398 | Orrstown Financial Services, Inc. | 35,300 | ||||||
1,718 | Pacific Mercantile Bancorp* | 15,033 | ||||||
4,430 | Pacific Premier Bancorp, Inc.* | 177,200 | ||||||
2,309 | Park National Corp.^ | 240,136 | ||||||
1,353 | Parke Bancorp, Inc. | 27,804 | ||||||
2,884 | Peapack-Gladstone Financial Corp. | 100,998 | ||||||
968 | Penns Woods Bancorp, Inc. | 45,089 | ||||||
434 | Peoples Bancorp of NC | 13,319 | ||||||
3,369 | Peoples Bancorp, Inc. | 109,897 | ||||||
452 | People’s Utah BanCorp | 13,696 | ||||||
3,264 | Popular, Inc. | 115,839 | ||||||
1,000 | Porter Bancorp, Inc.* | 14,400 | ||||||
2,285 | Preferred Bank Los Angeles^ | 134,312 | ||||||
955 | Premier Financial Bancorp, Inc. | 19,176 | ||||||
1,118 | QCR Holdings, Inc. | 47,906 | ||||||
5,547 | Renasant Co. | 226,817 | ||||||
2,499 | Republic Bancorp, Inc., Class A | 95,012 | ||||||
6,466 | Republic First Bancorp, Inc.*^ | 54,638 | ||||||
5,001 | S & T Bancorp, Inc.^ | 199,090 | ||||||
320 | Salisbury Bancorp, Inc. | 14,368 | ||||||
3,630 | Sandy Spring Bancorp, Inc. | 141,643 | ||||||
552 | SB Financial Group, Inc. | 10,206 | ||||||
6,202 | Seacoast Banking Corp.* | 156,352 | ||||||
1,252 | Select Bancorp, Inc.* | 15,813 | ||||||
2,703 | ServisFirst Bancshares, Inc.^ | 112,175 | ||||||
2,325 | Shore Bancshares, Inc. | 38,828 | ||||||
2,333 | Sierra Bancorp | 61,964 | ||||||
6,330 | Simmons First National Corp., Class A | 361,443 | ||||||
4,213 | South State Corp. | 367,163 | ||||||
562 | Southern First Bancshares, Inc.* | 23,183 | ||||||
2,309 | Southern National Bancorp^ | 37,013 | ||||||
4,453 | Southside Bancshares, Inc.^ | 149,977 | ||||||
88 | Southwest Georgia Financial Corp. | 2,112 | ||||||
6,242 | State Bank Financial Corp. | 186,261 | ||||||
29,582 | Sterling Bancorp | 727,716 | ||||||
690 | Stewardship Financial Corp.^ | 7,073 | ||||||
3,509 | Stock Yards Bancorp, Inc.^ | 132,289 | ||||||
682 | Summit Financial Group, Inc. | 17,950 | ||||||
1,203 | Summit State Bank | 15,398 | ||||||
2,160 | Sun Bancorp, Inc. | 52,488 | ||||||
625 | Sussex Bancorp | 16,813 | ||||||
21,638 | TCF Financial Corp. | 443,578 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
1,427 | Texas Capital Bancshares, Inc.* | $ | 126,860 | |||||
2,166 | Tompkins Financial Corp.^ | 176,204 | ||||||
9,685 | TowneBank^ | 297,814 | ||||||
4,274 | TriCo Bancshares | 161,814 | ||||||
4,406 | Tristate Capital Holdings, Inc.* | 101,338 | ||||||
200 | Triumph BanCorp, Inc.* | 6,300 | ||||||
10,347 | Trustmark Corp.^ | 329,655 | ||||||
98 | Two River Bancorp | 1,777 | ||||||
3,397 | UMB Financial Corp.^ | 244,312 | ||||||
6,478 | Union Bankshares Corp. | 234,309 | ||||||
249 | Union Bankshares, Inc.^ | 13,185 | ||||||
450 | United Bancshares, Inc. | 9,945 | ||||||
4,132 | United Bankshares, Inc. | 143,587 | ||||||
3,612 | United Community Banks, Inc. | 101,642 | ||||||
916 | United Security Bancshares | 10,076 | ||||||
42 | Unity Bancorp, Inc. | 830 | ||||||
4,339 | Univest Corp.^ | 121,709 | ||||||
33,761 | Valley National Bancorp^ | 378,798 | ||||||
398 | Veritex Holdings, Inc.* | 10,981 | ||||||
2,963 | Washington Trust Bancorp | 157,780 | ||||||
456 | WashingtonFirst Bankshare, Inc. | 15,623 | ||||||
2,067 | Webster Financial Corp.^ | 116,083 | ||||||
127 | Wellesley Bank | 3,683 | ||||||
6,412 | WesBanco, Inc. | 260,648 | ||||||
2,806 | West Bancorp | 70,571 | ||||||
4,131 | Westamerica Bancorp^ | 246,001 | ||||||
2,060 | Wintrust Financial Corp. | 169,682 | ||||||
83 | Xenith Bankshares, Inc.* | 2,808 | ||||||
|
| |||||||
25,931,493 | ||||||||
|
| |||||||
Beverages (0.5%): | ||||||||
547 | Boston Beer Co., Inc. (The), Class A*^ | 104,532 | ||||||
1,011 | Coca-Cola Bottling Co. Consolidated^ | 217,628 | ||||||
1,920 | Craft Brewers Alliance, Inc.* | 36,864 | ||||||
2,640 | MGP Ingredients, Inc. | 202,963 | ||||||
3,583 | National Beverage Corp.^ | 349,128 | ||||||
1,846 | Primo Water Corp.*^ | 23,204 | ||||||
985 | Willamette Valley Vineyards, Inc.* | 8,205 | ||||||
|
| |||||||
942,524 | ||||||||
|
| |||||||
Biotechnology (1.1%): | ||||||||
5,582 | Achillion Pharmaceuticals, Inc.* | 16,076 | ||||||
3,661 | Acorda Therapeutics, Inc.*^ | 78,528 | ||||||
1,905 | Alder Biopharmaceuticals, Inc.* | 21,812 | ||||||
1,397 | AMAG Pharmaceuticals, Inc.*^ | 18,510 | ||||||
2,800 | Amicus Therapeutics, Inc.*^ | 40,292 | ||||||
3,846 | Aptevo Therapeutics, Inc.*^ | 16,307 | ||||||
3,629 | Atara Biotherapeutics, Inc.* | 65,685 | ||||||
3,900 | Atyr Pharma, Inc.* | 13,650 | ||||||
1,280 | Biospecifics Technologies Corp.* | 55,462 | ||||||
740 | Bluebird Bio, Inc.*^ | 131,794 | ||||||
3,300 | Cascadian Therapeutics, Inc.* | 12,210 | ||||||
6,042 | Celldex Theraputics, Inc.*^ | 17,159 |
Continued
6
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Biotechnology, continued | ||||||||
4,691 | Chimerix, Inc.* | $ | 21,719 | |||||
6,811 | Emergent Biosolutions, Inc.* | 316,508 | ||||||
3,175 | Enanta Pharmaceuticals, Inc.* | 186,309 | ||||||
1,280 | Five Prime Therapeutics, Inc.*^ | 28,058 | ||||||
370 | Fortress Biotech, Inc.* | 1,476 | ||||||
592 | ImmuCell Corp.* | 5,198 | ||||||
11,121 | Insys Therapeutics, Inc.*^ | 106,984 | ||||||
1,694 | Intellia Therapeutics, Inc.* | 32,559 | ||||||
2,838 | Karyopharm Therapeutics, Inc.* | 27,245 | ||||||
2,769 | Kindred Biosciences, Inc.* | 26,167 | ||||||
1,057 | Ligand Pharmaceuticals, Inc., Class B*^ | 144,735 | ||||||
1,612 | Macrogenics, Inc.* | 30,628 | ||||||
3,803 | Mimedx Group, Inc.*^ | 47,956 | ||||||
2,500 | Mirati Therapeutics, Inc.*^ | 45,625 | ||||||
9,783 | Myriad Genetics, Inc.* | 335,998 | ||||||
19,735 | OPKO Health, Inc.* | 96,702 | ||||||
2,308 | Otonomy, Inc.* | 12,809 | ||||||
27,986 | PDL BioPharma, Inc.*^ | 76,682 | ||||||
1,429 | Pfenex, Inc.* | 3,801 | ||||||
1,357 | Recro Pharma, Inc.* | 12,552 | ||||||
3,247 | Retrophin, Inc.* | 68,414 | ||||||
2,100 | Spectrum Pharmaceuticals, Inc.*^ | 39,795 | ||||||
1,000 | Syndax Pharmaceuticals, Inc.* | 8,760 | ||||||
7,380 | Trevena, Inc.* | 11,808 | ||||||
6,962 | Verastem, Inc.* | 21,373 | ||||||
3,399 | Zafgen, Inc.* | 15,703 | ||||||
|
| |||||||
2,213,049 | ||||||||
|
| |||||||
Building Products (1.9%): | ||||||||
7,876 | AAON, Inc.^ | 289,049 | ||||||
2,186 | Advanced Drainage Systems, Inc.^ | 52,136 | ||||||
2,533 | American Woodmark Corp.* | 329,923 | ||||||
4,114 | Apogee Enterprises, Inc.^ | 188,133 | ||||||
3,226 | Armstrong Flooring, Inc.* | 54,584 | ||||||
6,018 | Armstrong World Industries, Inc.* | 364,390 | ||||||
14,981 | Builders FirstSource, Inc.* | 326,436 | ||||||
1,725 | Continental Building Products, Inc.* | 48,559 | ||||||
308 | Continental Materials Corp.* | 5,852 | ||||||
815 | Csw Industrials, Inc.* | 37,449 | ||||||
1,117 | Gibraltar Industries, Inc.* | 36,861 | ||||||
3,294 | Insteel Industries, Inc.^ | 93,286 | ||||||
10,561 | NCI Building Systems, Inc.* | 203,827 | ||||||
3,771 | Patrick Industries, Inc.* | 261,896 | ||||||
8,952 | PGT, Inc.* | 150,841 | ||||||
11,370 | Ply Gem Holdings, Inc.* | 210,345 | ||||||
4,793 | Quanex Building Products Corp. | 112,156 | ||||||
7,059 | Simpson Manufacturing Co., Inc. | 405,258 | ||||||
4,288 | Trex Co., Inc.* | 464,777 | ||||||
1,413 | Universal Forest Products, Inc. | 53,157 | ||||||
|
| |||||||
3,688,915 | ||||||||
|
| |||||||
Capital Markets (1.8%): | ||||||||
3,202 | Artisan Partners Asset Management, Inc., Class A^ | 126,479 | ||||||
16,159 | BGC Partners, Inc., Class A | 244,162 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Capital Markets, continued | ||||||||
6,803 | Cohen & Steers, Inc.^ | $ | 321,713 | |||||
575 | Diamond Hill Investment Group | 118,830 | ||||||
1,648 | Donnelley Financial Solutions, Inc.* | 32,120 | ||||||
7,007 | Federated Investors, Inc., Class B^ | 252,813 | ||||||
3,639 | Financial Engines, Inc.^ | 110,262 | ||||||
8,015 | Gain Capital Holdings, Inc.^ | 80,150 | ||||||
1,201 | GAMCO Investors, Inc., Class A | 35,610 | ||||||
4,915 | Greenhill & Co., Inc. | 95,843 | ||||||
211 | Hennessy Advisors, Inc. | 3,490 | ||||||
1,116 | Houlihan Lokey, Inc. | 50,700 | ||||||
10,023 | Interactive Brokers Group, Inc., Class A^ | 593,461 | ||||||
3,072 | INTL FCStone, Inc.* | 130,652 | ||||||
1,911 | Investment Technology Group, Inc. | 36,787 | ||||||
2,461 | Janus Henderson Group plc | 94,158 | ||||||
34,837 | Ladenburg Thalmann Financial Services, Inc. | 110,085 | ||||||
844 | LPL Financial Holdings, Inc. | 48,226 | ||||||
2,775 | Manning & Napier, Inc.^ | 9,990 | ||||||
1,649 | Moelis & Co., Class A | 79,977 | ||||||
1,854 | Morningstar, Inc. | 179,782 | ||||||
4,539 | Om Asset Management plc | 76,028 | ||||||
2,541 | Oppenheimer Holdings, Class A | 68,099 | ||||||
806 | PJT Partners, Inc.^ | 36,754 | ||||||
2,624 | Pzena Investment Management, Inc. | 27,998 | ||||||
3,824 | Safeguard Scientifics, Inc.* | 42,829 | ||||||
1,619 | Silvercrest Asset Management Group, Inc., Class A^ | 25,985 | ||||||
1,266 | Stifel Financial Corp. | 75,403 | ||||||
207 | Value Line, Inc. | 4,005 | ||||||
1,049 | Virtu Financial, Inc.^ | 19,197 | ||||||
345 | Virtus Investment Partners, Inc. | 39,692 | ||||||
1,678 | Westwood Holdings, Inc. | 111,100 | ||||||
21,433 | WisdomTree Investments, Inc. | 268,983 | ||||||
|
| |||||||
3,551,363 | ||||||||
|
| |||||||
Chemicals (2.7%): | ||||||||
4,314 | A. Schulman, Inc. | 160,697 | ||||||
3,852 | Advansix, Inc.* | 162,054 | ||||||
5,740 | American Vanguard Corp. | 112,791 | ||||||
4,463 | Balchem Corp. | 359,717 | ||||||
3,659 | Cabot Corp. | 225,358 | ||||||
8,556 | Calgon Carbon Corp.^ | 182,243 | ||||||
1,192 | Chase Corp. | 143,636 | ||||||
1,403 | Core Molding Technologies, Inc. | 30,445 | ||||||
2,886 | Ferro Corp.* | 68,081 | ||||||
2,318 | Flotek Industries, Inc.*^ | 10,802 | ||||||
7,277 | Futurefuel Corp. | 102,533 | ||||||
3,321 | GCP Applied Technologies, Inc.* | 105,940 | ||||||
7,303 | H.B. Fuller Co. | 393,412 | ||||||
1,989 | Hawkins, Inc. | 70,013 | ||||||
796 | Ingevity Corp.* | 56,094 | ||||||
2,429 | Innophos Holdings, Inc. | 113,507 | ||||||
3,359 | Innospec, Inc. | 237,145 | ||||||
14,475 | Intrepid Potash, Inc.* | 68,901 | ||||||
2,103 | KMG Chemicals, Inc. | 138,966 |
Continued
7
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Chemicals, continued | ||||||||
638 | Koppers Holdings, Inc.* | $ | 32,474 | |||||
4,651 | Kraton Performance Polymers, Inc.* | 224,039 | ||||||
12,087 | Kronos Worldwide, Inc.^ | 311,482 | ||||||
4,373 | LSB Industries, Inc.* | 38,307 | ||||||
5,078 | Minerals Technologies, Inc. | 349,620 | ||||||
893 | Northern Technologies International Corp. | 22,146 | ||||||
6,607 | Omnova Solutions, Inc.* | 66,070 | ||||||
18,384 | Platform Speciality Products Corp.* | 182,369 | ||||||
3,797 | PolyOne Corp. | 165,170 | ||||||
2,081 | Quaker Chemical Corp. | 313,794 | ||||||
5,893 | Rayonier Advanced Materials, Inc. | 120,512 | ||||||
1,528 | Sensient Technologies Corp. | 111,773 | ||||||
3,257 | Stepan Co. | 257,205 | ||||||
279 | TOR Minerals International, Inc.* | 1,646 | ||||||
3,421 | Trecora Resources*^ | 46,184 | ||||||
1,788 | Tredegar Corp. | 34,330 | ||||||
2,135 | Trinseo SA | 155,001 | ||||||
10,917 | Tronox, Ltd., Class A | 223,908 | ||||||
|
| |||||||
5,398,365 | ||||||||
|
| |||||||
Commercial Services & Supplies (3.4%): | ||||||||
8,156 | ABM Industries, Inc.^ | 307,644 | ||||||
16,494 | ACCO Brands Corp.*^ | 201,227 | ||||||
675 | Acme United Corp. | 15,795 | ||||||
1,580 | AMREP Corp.* | 11,060 | ||||||
8,754 | ARC Document Solutions, Inc.* | 22,323 | ||||||
7,230 | Brady Corp., Class A | 274,017 | ||||||
7,338 | Brink’s Co. (The) | 577,500 | ||||||
6,301 | Casella Waste Systems, Inc.* | 145,049 | ||||||
5,965 | CECO Environmental Corp. | 30,600 | ||||||
5,239 | Civeo Corp.* | 14,302 | ||||||
2,332 | Clean Harbors, Inc.* | 126,394 | ||||||
325 | CompX International, Inc. | 4,323 | ||||||
19,019 | Covanta Holding Corp.^ | 321,421 | ||||||
1,356 | Deluxe Corp. | 104,195 | ||||||
535 | Ecology and Environment, Inc., Class A | 5,618 | ||||||
1,100 | Ennis, Inc. | 22,825 | ||||||
6,386 | Essendant, Inc. | 59,198 | ||||||
3,351 | Healthcare Services Group, Inc.^ | 176,665 | ||||||
8,377 | Herman Miller, Inc. | 335,499 | ||||||
6,574 | HNI Corp. | 253,559 | ||||||
3,277 | Hudson Technologies, Inc.*^ | 19,891 | ||||||
5,892 | InnerWorkings, Inc.* | 59,097 | ||||||
9,917 | Interface, Inc. | 249,413 | ||||||
4,059 | Intersections, Inc.* | 9,173 | ||||||
7,005 | Kimball International, Inc., Class B | 130,783 | ||||||
7,373 | Knoll, Inc. | 169,874 | ||||||
1,430 | LSC Communications, Inc. | 21,665 | ||||||
4,706 | Matthews International Corp., Class A | 248,477 | ||||||
3,955 | McGrath Rentcorp | 185,806 | ||||||
6,533 | Mobile Mini, Inc. | 225,389 | ||||||
5,829 | MSA Safety, Inc. | 451,863 | ||||||
2,406 | Multi-Color Corp.^ | 180,089 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Commercial Services & Supplies, continued | ||||||||
2,566 | NL Industries, Inc.* | $ | 36,566 | |||||
2,198 | Perma-Fix Environmental Services, Inc.* | 8,023 | ||||||
4,293 | Pitney Bowes, Inc. | 47,996 | ||||||
5,379 | Quad Graphics, Inc. | 121,565 | ||||||
3,757 | SP Plus Corp.* | 139,385 | ||||||
12,978 | Steelcase, Inc., Class A | 197,266 | ||||||
5,115 | Team, Inc.*^ | 76,214 | ||||||
8,423 | Tetra Tech, Inc. | 405,567 | ||||||
2,218 | UniFirst Corp. | 365,748 | ||||||
3,362 | US Ecology, Inc.^ | 171,462 | ||||||
3,364 | Virco Manufacturing Co. | 16,988 | ||||||
2,196 | Vse Corp. | 106,352 | ||||||
|
| |||||||
6,653,866 | ||||||||
|
| |||||||
Communications Equipment (1.5%): | ||||||||
7,162 | ADTRAN, Inc.^ | 138,585 | ||||||
1,444 | Applied Optoelectronics, Inc.*^ | 54,612 | ||||||
254 | Bel Fuse, Inc., Class A | 5,545 | ||||||
1,595 | Bel Fuse, Inc., Class B | 40,154 | ||||||
2,711 | Black Box Corp. | 9,624 | ||||||
5,439 | CalAmp Corp.*^ | 116,558 | ||||||
7,919 | Calix, Inc.* | 47,118 | ||||||
12,737 | Ciena Corp.* | 266,585 | ||||||
980 | Clearfield, Inc.* | 12,005 | ||||||
1,808 | ClearOne, Inc.^ | 16,182 | ||||||
316 | Communications Systems, Inc. | 1,150 | ||||||
2,902 | Comtech Telecommunications Corp. | 64,192 | ||||||
2,559 | Digi International, Inc.* | 24,438 | ||||||
6,028 | EMCORE Corp.* | 38,881 | ||||||
9,247 | Extreme Networks, Inc.* | 115,772 | ||||||
13,656 | Finisar Corp.*^ | 277,899 | ||||||
12,360 | Harmonic, Inc.*^ | 51,912 | ||||||
6,890 | Infinera Corp.* | 43,614 | ||||||
4,172 | InterDigital, Inc.^ | 317,697 | ||||||
3,225 | KVH Industries, Inc.* | 33,379 | ||||||
1,952 | Lumentum Holdings, Inc.*^ | 95,453 | ||||||
4,297 | NETGEAR, Inc.*^ | 252,449 | ||||||
7,359 | NetScout Systems, Inc.*^ | 224,082 | ||||||
2,391 | Network-1 Technologies, Inc. | 5,738 | ||||||
4,083 | Oclaro, Inc.*^ | 27,519 | ||||||
131 | Optical Cable Corp.* | 321 | ||||||
4,065 | Plantronics, Inc. | 204,795 | ||||||
900 | RELM Wireless Corp. | 3,195 | ||||||
6,923 | Ribbon Communications, Inc.* | 53,515 | ||||||
628 | Sierra Wireless, Inc.* | 12,843 | ||||||
555 | Ubiquiti Networks, Inc.*^ | 39,416 | ||||||
3,430 | ViaSat, Inc.*^ | 256,736 | ||||||
8,844 | Viavi Solutions, Inc.* | 77,297 | ||||||
|
| |||||||
2,929,261 | ||||||||
|
| |||||||
Construction & Engineering (1.4%): | ||||||||
5,275 | Ameresco, Inc., Class A*^ | 45,365 | ||||||
1,970 | Argan, Inc. | 88,650 | ||||||
2,603 | Chicago Bridge & Iron Co. NV | 42,012 |
Continued
8
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Construction & Engineering, continued | ||||||||
5,817 | Comfort Systems USA, Inc. | $ | 253,912 | |||||
4,203 | Dycom Industries, Inc.*^ | 468,341 | ||||||
2,213 | Emcor Group, Inc. | 180,913 | ||||||
5,482 | Granite Construction, Inc.^ | 347,723 | ||||||
2,621 | Great Lakes Dredge & Dock Co.*^ | 14,153 | ||||||
1,979 | IES Holdings, Inc.* | 34,138 | ||||||
19,282 | KBR, Inc.^ | 382,362 | ||||||
2,462 | Layne Christensen Co.* | 30,898 | ||||||
3,054 | MasTec, Inc.*^ | 149,493 | ||||||
2,719 | MYR Group, Inc.* | 97,150 | ||||||
1,479 | Northwest Pipe Co.*^ | 28,308 | ||||||
1,180 | NV5 Holdings, Inc.*^ | 63,897 | ||||||
5,203 | Orion Marine Group, Inc.* | 40,739 | ||||||
1,563 | Primoris Services Corp.^ | 42,498 | ||||||
3,151 | Sterling Construction Co., Inc.* | 51,298 | ||||||
4,317 | The Goldfield Corp.*^ | 21,153 | ||||||
776 | Tutor Perini Corp.*^ | 19,672 | ||||||
2,416 | Valmont Industries, Inc. | 400,694 | ||||||
|
| |||||||
2,803,369 | ||||||||
|
| |||||||
Construction Materials (0.1%): | ||||||||
460 | Summit Materials, Inc., Class A* | 14,462 | ||||||
2,142 | U.S. Concrete, Inc.*^ | 179,179 | ||||||
720 | U.S. Lime & Minerals, Inc. | 55,512 | ||||||
|
| |||||||
249,153 | ||||||||
|
| |||||||
Consumer Finance (0.9%): | ||||||||
195 | Asta Funding, Inc.* | 1,443 | ||||||
2,191 | Atlanticus Holdings Corp.* | 5,258 | ||||||
5,088 | Consumer Portfolio Services, Inc.* | 21,115 | ||||||
3,868 | Encore Capital Group, Inc.*^ | 162,843 | ||||||
�� | 5,261 | Enova International, Inc.* | 79,967 | |||||
9,775 | EZCORP, Inc., Class A*^ | 119,255 | ||||||
7,082 | Firstcash, Inc. | 477,682 | ||||||
3,061 | Green Dot Corp., Class A* | 184,456 | ||||||
7,503 | LendingClub Corp.*^ | 30,987 | ||||||
2,250 | Navient Corp. | 29,970 | ||||||
4,135 | Nelnet, Inc., Class A | 226,515 | ||||||
1,556 | Nicholas Financial, Inc.* | 13,693 | ||||||
6,526 | PRA Group, Inc.*^ | 216,663 | ||||||
1,376 | Regional Mgmt Corp.*^ | 36,203 | ||||||
1,528 | World Acceptance Corp.*^ | 123,340 | ||||||
|
| |||||||
1,729,390 | ||||||||
|
| |||||||
Containers & Packaging (0.3%): | ||||||||
3,648 | Greif, Inc., Class A | 220,995 | ||||||
1,290 | Greif, Inc., Class B | 89,462 | ||||||
5,009 | Myers Industries, Inc. | 97,676 | ||||||
1,193 | Owens-Illinois, Inc.* | 26,449 | ||||||
4,146 | Silgan Holdings, Inc.^ | 121,850 | ||||||
1,332 | UFP Technologies, Inc.* | 37,030 | ||||||
|
| |||||||
593,462 | ||||||||
|
| |||||||
Distributors (0.1%): | ||||||||
12 | AMCON Distributing Co. | 1,078 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Distributors, continued | ||||||||
6,735 | Core Markt Holdngs Co., Inc. | $ | 212,691 | |||||
813 | Educational Development Corp.* | 15,406 | ||||||
1,655 | Weyco Group, Inc. | 49,187 | ||||||
|
| |||||||
278,362 | ||||||||
|
| |||||||
Diversified Consumer Services (1.2%): | ||||||||
6,497 | Adtalem Global Education, Inc.*^ | 273,199 | ||||||
2,153 | American Public Education, Inc.* | 53,933 | ||||||
1,526 | Ascent Capital Group, Inc.*^ | 17,534 | ||||||
3,362 | Bridgepoint Education, Inc.* | 27,905 | ||||||
8,795 | Cambium Learning Group, Inc.* | 49,956 | ||||||
1,825 | Capella Education Co. | 141,255 | ||||||
12,265 | Career Education Corp.* | 148,161 | ||||||
2,338 | Carriage Services, Inc.^ | 60,110 | ||||||
1,667 | Collectors Universe, Inc. | 47,743 | ||||||
188 | Graham Holdings Co., Class B | 104,970 | ||||||
5,258 | Grand Canyon Education, Inc.* | 470,748 | ||||||
4,931 | Houghton Mifflin Harcourt Co.* | 45,858 | ||||||
6,815 | K12, Inc.* | 108,359 | ||||||
2,183 | Liberty Tax, Inc. | 24,013 | ||||||
1,526 | National American University Holdings, Inc. | 2,136 | ||||||
2,561 | Regis Corp.* | 39,337 | ||||||
7,916 | Sotheby’s*^ | 408,465 | ||||||
1,831 | Strayer Education, Inc. | 164,021 | ||||||
5,156 | Universal Technical Institute, Inc.* | 12,374 | ||||||
3,229 | Weight Watchers International, Inc.*^ | 142,980 | ||||||
|
| |||||||
2,343,057 | ||||||||
|
| |||||||
Diversified Financial Services (0.1%): | ||||||||
2,417 | Marlin Business Services, Inc. | 54,140 | ||||||
6,056 | NewStar Financial, Inc.(a)(b) | 3,270 | ||||||
3,566 | PICO Holdings, Inc.^ | 45,645 | ||||||
2,849 | Tiptree Financial, Inc., Class A^ | 16,952 | ||||||
|
| |||||||
120,007 | ||||||||
|
| |||||||
Diversified Telecommunication Services (0.8%): | ||||||||
2,689 | ATN International, Inc. | 148,594 | ||||||
7,179 | Cincinnati Bell, Inc.* | 149,682 | ||||||
6,360 | Cogent Communications Group, Inc.^ | 288,109 | ||||||
5,491 | Consolidated Communications Holdings, Inc. | 66,935 | ||||||
7,358 | General Communication, Inc., Class A* | 287,109 | ||||||
2,168 | Hawaiian Telcom Holdco, Inc.* | 66,904 | ||||||
4,115 | IDT Corp. | 43,619 | ||||||
6,073 | Intelsat S.A.* | 20,587 | ||||||
15,038 | Iridium Communications, Inc.*^ | 177,448 | ||||||
13,354 | Orbcomm, Inc.*^ | 135,944 | ||||||
13,169 | Vonage Holdings Corp.* | 133,929 | ||||||
21,927 | Windstream Holdings, Inc.^ | 40,565 | ||||||
|
| |||||||
1,559,425 | ||||||||
|
| |||||||
Electric Utilities (1.0%): | ||||||||
1,737 | ALLETE, Inc. | 129,163 | ||||||
6,245 | El Paso Electric Co. | 345,661 | ||||||
3,043 | Genie Energy, Ltd., Class B | 13,267 | ||||||
1,608 | IDACORP, Inc. | 146,907 |
Continued
9
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electric Utilities, continued | ||||||||
5,326 | MGE Energy, Inc. | $ | 336,071 | |||||
5,364 | Otter Tail Power Co. | 238,430 | ||||||
12,512 | PNM Resources, Inc. | 506,110 | ||||||
4,234 | Portland General Electric Co. | 192,986 | ||||||
|
| |||||||
1,908,595 | ||||||||
|
| |||||||
Electrical Equipment (0.8%): | ||||||||
1,690 | Allied Motion Technologies, Inc. | 55,922 | ||||||
547 | American Electric Technologies, Inc.* | 821 | ||||||
4,008 | AZZ, Inc.^ | 204,809 | ||||||
3,839 | Babcock & Wilcox Enterprises, Inc.* | 21,806 | ||||||
3,295 | Encore Wire Corp. | 160,302 | ||||||
5,838 | EnerSys | 406,499 | ||||||
411 | Espey Manufacturing & Electronics Corp. | 9,848 | ||||||
2,200 | Fuelcell Energy, Inc.*^ | 3,740 | ||||||
3,351 | Generac Holdings, Inc.*^ | 165,942 | ||||||
1,929 | General Cable Corp. | 57,098 | ||||||
4,534 | LSI Industries, Inc. | 31,194 | ||||||
53 | Pioneer Power Solutions, Inc.* | 405 | ||||||
569 | Powell Industries, Inc. | 16,302 | ||||||
2,209 | Power Solutions International, Inc.* | 16,568 | ||||||
1,064 | Preformed Line Products Co. | 75,597 | ||||||
3,038 | Regal-Beloit Corp. | 232,711 | ||||||
75 | Servotronics, Inc. | 835 | ||||||
5,525 | Thermon Group Holdings, Inc.*^ | 130,777 | ||||||
3,104 | Ultralife Corp.* | 20,331 | ||||||
|
| |||||||
1,611,507 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (3.2%): | ||||||||
2,011 | ADDvantage Technologies Group, Inc.* | 2,996 | ||||||
994 | Agilysys, Inc.* | 12,206 | ||||||
3,997 | Anixter International, Inc.* | 303,772 | ||||||
13,908 | AVX Corp.^ | 240,608 | ||||||
3,861 | Badger Meter, Inc.^ | 184,556 | ||||||
1,972 | Belden, Inc.^ | 152,179 | ||||||
896 | Benchmark Electronics, Inc.* | 26,074 | ||||||
1,093 | Coherent, Inc.* | 308,466 | ||||||
4,630 | Control4 Corp.* | 137,789 | ||||||
4,147 | CUI Global, Inc.*^ | 11,404 | ||||||
8,032 | Daktronics, Inc. | 73,332 | ||||||
1,365 | Data I/O Corp.* | 16,435 | ||||||
5,745 | Electro Scientific Industries, Inc.* | 123,115 | ||||||
4,550 | Fabrinet*^ | 130,585 | ||||||
2,053 | FARO Technologies, Inc.* | 96,491 | ||||||
640 | Frequency Electronics, Inc.* | 5,990 | ||||||
646 | IEC Electronics Corp.* | 2,662 | ||||||
8,062 | II-VI, Inc.*^ | 378,511 | ||||||
1,303 | Insight Enterprises, Inc.* | 49,892 | ||||||
199 | IntriCon Corp.* | 3,940 | ||||||
4,855 | Itron, Inc.* | 331,111 | ||||||
8,386 | KEMET Corp.*^ | 126,293 | ||||||
2,556 | Kimball Electronics, Inc.* | 46,647 | ||||||
12,427 | Knowles Corp.*^ | 182,180 | ||||||
1,870 | Littlelfuse, Inc. | 369,923 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electronic Equipment, Instruments & Components, continued | ||||||||
450 | Mesa Labs, Inc.^ | $ | 55,935 | |||||
4,775 | Methode Electronics, Inc., Class A | 191,478 | ||||||
2,201 | MTS Systems Corp. | 118,194 | ||||||
2,608 | Napco Security Technologies, Inc.* | 22,820 | ||||||
6,056 | Novanta, Inc.* | 302,800 | ||||||
2,432 | OSI Systems, Inc.* | 156,572 | ||||||
3,068 | PAR Technology Corp.* | 28,686 | ||||||
2,564 | Park Electrochemical Corp.^ | 50,383 | ||||||
400 | PC Connection, Inc. | 10,484 | ||||||
1,746 | PCM, Inc.*^ | 17,285 | ||||||
1,875 | Perceptron, Inc.* | 18,281 | ||||||
4,056 | Plexus Corp.* | 246,280 | ||||||
1,727 | RF Industries, Ltd. | 4,663 | ||||||
2,724 | Rogers Corp.* | 441,071 | ||||||
9,534 | Sanmina Corp.* | 314,622 | ||||||
3,045 | ScanSource, Inc.* | 109,011 | ||||||
652 | SYNNEX Corp. | 88,639 | ||||||
2,017 | Systemax, Inc.^ | 67,106 | ||||||
2,482 | Tech Data Corp.* | 243,162 | ||||||
12,240 | TTM Technologies, Inc.*^ | 191,801 | ||||||
203 | Universal Display Corp. | 35,048 | ||||||
3,719 | VeriFone Systems, Inc.* | 65,863 | ||||||
7,410 | Vishay Intertechnology, Inc.^ | 153,758 | ||||||
989 | Wayside Technology Group, Inc. | 16,516 | ||||||
3,952 | Wireless Telecom Group, Inc.* | 9,603 | ||||||
|
| |||||||
6,277,218 | ||||||||
|
| |||||||
Energy Equipment & Services (1.5%): | ||||||||
3,965 | Archrock, Inc. | 41,633 | ||||||
1,261 | Basic Energy Services, Inc.* | 29,596 | ||||||
882 | Bristow Group, Inc. | 11,881 | ||||||
1,388 | Dawson Geophysical Co.* | 6,898 | ||||||
4,461 | Diamond Offshore Drilling, Inc.* | 82,930 | ||||||
4,550 | Dril-Quip, Inc.*^ | 217,035 | ||||||
26,896 | Ensco plc, Class A, ADR | 158,955 | ||||||
3,837 | Era Group, Inc.* | 41,248 | ||||||
4,307 | Exterran Corp.* | 135,412 | ||||||
14,952 | Forum Energy Technologies, Inc.*^ | 232,504 | ||||||
3,592 | Frank’s International NV | 23,887 | ||||||
1,260 | Geospace Technologies Corp.*^ | 16,342 | ||||||
2,641 | Gulf Island Fabrication, Inc.^ | 35,455 | ||||||
6,137 | Helix Energy Solutions Group, Inc.* | 46,273 | ||||||
1,321 | Hornbeck Offshore Services, Inc.* | 4,108 | ||||||
5,580 | Matrix Service Co.* | 99,324 | ||||||
39,348 | McDermott International, Inc.*^ | 258,910 | ||||||
22,026 | Nabors Industries, Ltd. | 150,438 | ||||||
2,316 | Natural Gas Services Group* | 60,679 | ||||||
15,404 | Newpark Resources, Inc.*^ | 132,474 | ||||||
11,459 | Noble Corp. plc* | 51,795 | ||||||
495 | Nordic American Offshore, Ltd. | 594 | ||||||
10,150 | Oceaneering International, Inc.^ | 214,571 | ||||||
2,351 | Oil States International, Inc.*^ | 66,533 | ||||||
23,169 | Parker Drilling Co.* | 23,169 |
Continued
10
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Energy Equipment & Services, continued | ||||||||
5,639 | Patterson-UTI Energy, Inc. | $ | 129,753 | |||||
2,412 | PHI, Inc.* | 27,907 | ||||||
11,895 | Pioneer Energy Services Corp.* | 36,280 | ||||||
1,757 | Rignet, Inc.* | 26,267 | ||||||
16,158 | Rowan Cos. plc, Class A*^ | 253,035 | ||||||
565 | SEACOR Holdings, Inc. | 26,114 | ||||||
567 | SEACOR Marine Holdings, Inc.*^ | 6,634 | ||||||
14,153 | Superior Energy Services, Inc.* | 136,293 | ||||||
5,480 | TETRA Technologies, Inc.* | 23,400 | ||||||
1,113 | Transocean, Ltd.* | 11,887 | ||||||
5,730 | U.S. Silica Holdings, Inc.^ | 186,569 | ||||||
3,954 | Unit Corp.*^ | 86,988 | ||||||
16,452 | Weatherford International plc*^ | 68,605 | ||||||
|
| |||||||
3,162,376 | ||||||||
|
| |||||||
Food & Staples Retailing (0.6%): | ||||||||
4,717 | Chefs’ Warehouse, Inc.*^ | 96,699 | ||||||
2,510 | Ingles Markets, Inc., Class A | 86,846 | ||||||
4,259 | Natural Grocers by Vitamin Cottage, Inc.* | 38,033 | ||||||
4,174 | PriceSmart, Inc. | 359,380 | ||||||
6,101 | Rite Aid Corp.* | 12,019 | ||||||
200 | SpartanNash Co. | 5,336 | ||||||
2,648 | Sprouts Farmers Market, Inc.*^ | 64,479 | ||||||
5,346 | SUPERVALU, Inc.* | 115,474 | ||||||
1,576 | The Andersons, Inc. | 49,092 | ||||||
2,950 | United Natural Foods, Inc.*^ | 145,347 | ||||||
1,832 | Village Super Market, Inc., Class A^ | 42,008 | ||||||
4,355 | Weis Markets, Inc.^ | 180,253 | ||||||
|
| |||||||
1,194,966 | ||||||||
|
| |||||||
Food Products (1.7%): | ||||||||
8,875 | B&G Foods, Inc.^ | 311,956 | ||||||
2,862 | Calavo Growers, Inc.^ | 241,553 | ||||||
5,334 | Cal-Maine Foods, Inc.* | 237,096 | ||||||
1,318 | Coffee Holding Co., Inc.* | 5,628 | ||||||
9,120 | Darling International, Inc.* | 165,346 | ||||||
13,942 | Dean Foods Co.^ | 161,170 | ||||||
3,107 | Farmer Brothers Co.* | 99,890 | ||||||
1,800 | Fresh Del Monte Produce, Inc.^ | 85,806 | ||||||
2,982 | Hostess Brands, Inc.*^ | 44,163 | ||||||
2,736 | J & J Snack Foods Corp. | 415,407 | ||||||
470 | John B Sanfilippo And Son, Inc.^ | 29,728 | ||||||
2,662 | Lancaster Colony Corp. | 343,957 | ||||||
2,754 | Landec Corp.*^ | 34,700 | ||||||
2,658 | Limoneira Co.^ | 59,539 | ||||||
1,220 | Rocky Mountain Chocolate Factory, Inc. | 14,396 | ||||||
2,912 | Sanderson Farms, Inc. | 404,127 | ||||||
927 | Seneca Foods Corp., Class A* | 28,505 | ||||||
12 | Seneca Foods Corp., Class B* | 408 | ||||||
9,626 | Snyders-Lance, Inc.^ | 482,070 | ||||||
5,595 | Tootsie Roll Industries, Inc.^ | 203,658 | ||||||
|
| |||||||
3,369,103 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Gas Utilities (1.4%): | ||||||||
2,387 | Chesapeake Utilities Corp. | $ | 187,499 | |||||
9,297 | New Jersey Resources Corp. | 373,739 | ||||||
4,443 | Northwest Natural Gas Co.^ | 265,025 | ||||||
4,274 | ONE Gas, Inc. | 313,113 | ||||||
118 | RGC Resources, Inc. | 3,195 | ||||||
10,915 | South Jersey Industries, Inc. | 340,875 | ||||||
4,131 | Southwest Gas Corp. | 332,463 | ||||||
6,439 | Spire, Inc.^ | 483,892 | ||||||
5,195 | WGL Holdings, Inc.^ | 445,939 | ||||||
|
| |||||||
2,745,740 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (2.9%): | ||||||||
3,410 | Abaxis, Inc.^ | 168,863 | ||||||
3,101 | Accuray, Inc.*^ | 13,334 | ||||||
1,571 | Analogic Corp. | 131,571 | ||||||
6,750 | AngioDynamics, Inc.* | 112,253 | ||||||
2,261 | Anika Therapeutics, Inc.*^ | 121,891 | ||||||
263 | Atrion Corp. | 165,848 | ||||||
5,386 | Cantel Medical Corp. | 554,058 | ||||||
283 | CONMED Corp. | 14,425 | ||||||
5,343 | CryoLife, Inc.* | 102,318 | ||||||
1,118 | Elctromed, Inc.* | 6,786 | ||||||
2,604 | Exactech, Inc.* | 128,768 | ||||||
10,008 | Globus Medical, Inc., Class A*^ | 411,329 | ||||||
6,166 | Haemonetics Corp.* | 358,121 | ||||||
6,189 | Halyard Health, Inc.*^ | 285,808 | ||||||
1,353 | ICU Medical, Inc.* | 292,248 | ||||||
1,629 | Inogen, Inc.* | 193,981 | ||||||
4,246 | Integer Holdings Corp.* | 192,344 | ||||||
3,897 | Integra LifeSciences Holdings Corp.*^ | 186,510 | ||||||
5,763 | Invacare Corp.^ | 97,107 | ||||||
2,006 | IRIDEX Corp.* | 15,286 | ||||||
249 | Kewaunee Scientific CP | 7,221 | ||||||
3,514 | Lantheus Holdings, Inc.* | 71,861 | ||||||
3,330 | LeMaitre Vascular, Inc.^ | 106,027 | ||||||
2,976 | LivaNova plc*^ | 237,843 | ||||||
1,473 | Masimo Corp.*^ | 124,910 | ||||||
7,277 | Meridian Bioscience, Inc.^ | 101,878 | ||||||
7,716 | Merit Medical Systems, Inc.* | 333,331 | ||||||
4,158 | Natus Medical, Inc.*^ | 158,836 | ||||||
2,315 | Neogen Corp.* | 190,316 | ||||||
4,707 | NuVasive, Inc.* | 275,312 | ||||||
3,020 | Nuvectra Corp.* | 23,435 | ||||||
8,935 | OraSure Technologies, Inc.* | 168,514 | ||||||
3,068 | Orthofix International NV* | 167,820 | ||||||
920 | Quidel Corp.* | 39,882 | ||||||
10,930 | RTI Surgical, Inc.* | 44,813 | ||||||
2,363 | SeaSpine Holdings Corp.* | 23,914 | ||||||
2,431 | Surmodics, Inc.* | 68,068 | ||||||
3,600 | TransEnterix, Inc.* | 6,948 | ||||||
754 | Utah Medical Products, Inc. | 61,376 | ||||||
|
| |||||||
5,765,154 | ||||||||
|
|
Continued
11
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Providers & Services (2.4%): | ||||||||
1,781 | Aac Holdings, Inc.*^ | $ | 16,029 | |||||
5,540 | Aceto Corp. | 57,228 | ||||||
1,870 | Addus HomeCare Corp.* | 65,076 | ||||||
2,004 | Almost Family, Inc.* | 110,921 | ||||||
5,137 | Amedisys, Inc.* | 270,771 | ||||||
7,081 | AMN Healthcare Services, Inc.*^ | 348,739 | ||||||
1,753 | BioScrip, Inc.*^ | 5,101 | ||||||
4,215 | BioTelemetry, Inc.* | 126,029 | ||||||
12,012 | Brookdale Senior Living, Inc.* | 116,516 | ||||||
3,946 | Capital Senior Living Corp.*^ | 53,232 | ||||||
2,222 | Chemed Corp.^ | 539,989 | ||||||
1,432 | Civitas Solutions, Inc.* | 24,487 | ||||||
3,124 | CorVel Corp.* | 165,260 | ||||||
2,958 | Cross Country Healthcare, Inc.* | 37,744 | ||||||
2,588 | Diplomat Pharmacy, Inc.*^ | 51,941 | ||||||
7,737 | Ensign Group, Inc. (The)^ | 171,761 | ||||||
1,905 | Five Star Quality Care, Inc.* | 2,858 | ||||||
2,852 | HealthEquity, Inc.*^ | 133,074 | ||||||
3,529 | InfuSystems Holdings, Inc.* | 8,117 | ||||||
6,484 | Kindred Healthcare, Inc. | 62,895 | ||||||
2,850 | LHC Group, Inc.* | 174,563 | ||||||
1,982 | LifePoint Hospitals, Inc.* | 98,704 | ||||||
3,561 | Magellan Health Services, Inc.* | 343,815 | ||||||
1,895 | Molina Healthcare, Inc.*^ | 145,309 | ||||||
2,158 | National Healthcare Corp. | 131,509 | ||||||
1,920 | National Research Corp.^ | 71,616 | ||||||
680 | National Research Corp., Class A | 38,672 | ||||||
9,789 | Nobilis Health Corp.*^ | 13,215 | ||||||
9,250 | Owens & Minor, Inc.^ | 174,640 | ||||||
2,371 | Providence Service Corp.* | 140,695 | ||||||
1,080 | Psychemedics Corp. | 22,205 | ||||||
5,645 | Quorum Health Corp.*^ | 35,225 | ||||||
3,009 | R1 RCM, Inc.* | 13,270 | ||||||
8,313 | RadNet, Inc.* | 83,961 | ||||||
18,186 | Select Medical Holdings Corp.* | 320,983 | ||||||
3,743 | Tenet Healthcare Corp.* | 56,744 | ||||||
6,106 | Tivity Health, Inc.*^ | 223,174 | ||||||
4,357 | Triple-S Management Corp., Class B* | 108,271 | ||||||
2,000 | U.S. Physical Therapy, Inc. | 144,400 | ||||||
|
| |||||||
4,708,739 | ||||||||
|
| |||||||
Health Care Technology (0.5%): | ||||||||
27,450 | Allscripts Healthcare Solutions, Inc.* | 399,397 | ||||||
2,108 | Computer Programs & Systems, Inc. | 63,345 | ||||||
564 | Evolent Health, Inc., Class A*^ | 6,937 | ||||||
660 | HealthStream, Inc.* | 15,286 | ||||||
3,326 | HMS Holdings Corp.* | 56,376 | ||||||
1,027 | Inovalon Holdings, Inc., Class A* | 15,405 | ||||||
558 | Micron Solutions, Inc.* | 1,953 | ||||||
5,666 | Omnicell, Inc.* | 274,801 | ||||||
10,576 | Quality Systems, Inc.* | 143,622 | ||||||
3,115 | Simulations Plus, Inc. | 50,152 | ||||||
|
| |||||||
1,027,274 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Hotels, Restaurants & Leisure (3.4%): | ||||||||
14,609 | Belmond, Ltd., Class A*^ | $ | 178,960 | |||||
2 | Biglari Holdings, Inc.* | 829 | ||||||
3,469 | BJ’s Restaurants, Inc.^ | 126,272 | ||||||
13,769 | Bloomin’ Brands, Inc.^ | 293,830 | ||||||
3,172 | Bob Evans Farms, Inc. | 250,017 | ||||||
3,066 | Bravo Brio Restaurant Group, Inc.* | 7,665 | ||||||
2,784 | Brinker International, Inc. | 108,131 | ||||||
2,429 | Buffalo Wild Wings, Inc.* | 379,773 | ||||||
4,497 | Carrols Restaurant Group, Inc.* | 54,639 | ||||||
4,585 | Century Casinos, Inc.* | 41,861 | ||||||
6,693 | Cheesecake Factory, Inc. (The)^ | 322,469 | ||||||
3,482 | Choice Hotels International, Inc. | 270,203 | ||||||
2,799 | Chuy’s Holdings, Inc.*^ | 78,512 | ||||||
3,275 | Dave & Buster’s Entertainment, Inc.*^ | 180,682 | ||||||
2,754 | Del Frisco’s Restaurant Group, Inc.* | 41,999 | ||||||
2,980 | del Taco Restaurants, Inc.* | 36,118 | ||||||
11,187 | Denny’s Corp.* | 148,116 | ||||||
1,476 | DineEquity, Inc.^ | 74,877 | ||||||
3,712 | Dover Motorsports, Inc. | 7,238 | ||||||
3,973 | Drive Shack, Inc.*^ | 21,971 | ||||||
2,394 | El Pollo Loco Holdings, Inc.*^ | 23,701 | ||||||
1,421 | Famous Dave’s of America, Inc.*^ | 9,379 | ||||||
4,357 | Fiesta Restaurant Group, Inc.* | 82,783 | ||||||
378 | Flanigan’s Enterprises, Inc. | 8,618 | ||||||
608 | Habit Restaurants, Inc. (The), Class A* | 5,806 | ||||||
11,024 | Ilg, Inc. | 313,964 | ||||||
3,548 | Jack in the Box, Inc. | 348,093 | ||||||
921 | Jamba, Inc.* | 7,423 | ||||||
1,168 | Kona Grill, Inc.* | 2,044 | ||||||
6,975 | La Quinta Holdings, Inc.* | 128,759 | ||||||
2,108 | Lindblad Expeditions Holdings, Inc.* | 20,637 | ||||||
5,681 | Luby’s, Inc.* | 14,998 | ||||||
465 | Marcus Corp. | 12,718 | ||||||
4,068 | Marriott Vacations Worldwide Corp.^ | 550,033 | ||||||
843 | Nathans Famous, Inc. | 63,647 | ||||||
5,384 | Papa John’s International, Inc.^ | 302,096 | ||||||
4,486 | Penn National Gaming, Inc.* | 140,546 | ||||||
2,612 | Pinnacle Entertainment, Inc.* | 85,491 | ||||||
5,086 | Planet Fitness, Inc.*^ | 176,128 | ||||||
3,185 | Potbelly Corp.* | 39,176 | ||||||
2,069 | RCI Hospitality Holdings, Inc. | 57,891 | ||||||
3,634 | Red Lion Hotels Corp.*^ | 35,795 | ||||||
2,030 | Red Robin Gourmet Burgers*^ | 114,492 | ||||||
5,152 | Ruth’s Hospitality Group, Inc. | 111,541 | ||||||
4,134 | Scientific Games Corp., Class A*^ | 212,074 | ||||||
1,859 | SeaWorld Entertainment, Inc.*^ | 25,227 | ||||||
788 | Shake Shack, Inc., Class A*^ | 34,042 | ||||||
6,739 | Sonic Corp. | 185,188 | ||||||
6,549 | Speedway Motorsports, Inc. | 123,580 | ||||||
8,216 | Texas Roadhouse, Inc. | 432,818 | ||||||
4,346 | Town Sports International Holdings, Inc.* | 24,120 | ||||||
13,989 | Wendy’s Co. (The)^ | 229,699 | ||||||
2,153 | Wingstop, Inc.^ | 83,924 | ||||||
|
| |||||||
6,630,593 | ||||||||
|
|
Continued
12
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Household Durables (2.2%): | ||||||||
496 | Av Homes, Inc.*^ | $ | 8,258 | |||||
1,317 | CalAtlantic Group, Inc. | 74,266 | ||||||
1,389 | Cavco Industries, Inc.* | 211,961 | ||||||
786 | Century Communities, Inc.* | 24,445 | ||||||
3,024 | Dixie Group, Inc. (The)* | 11,642 | ||||||
4,218 | Ethan Allen Interiors, Inc.^ | 120,635 | ||||||
820 | Flexsteel Industries, Inc. | 38,360 | ||||||
3,162 | Helen of Troy, Ltd.* | 304,659 | ||||||
370 | Hooker Furniture Corp. | 15,707 | ||||||
7,411 | Hovnanian Enterprises, Inc., Class A* | 24,827 | ||||||
2,905 | Installed Building Products, Inc.*^ | 220,635 | ||||||
3,858 | iRobot Corp.*^ | 295,909 | ||||||
12,052 | KB Home^ | 385,060 | ||||||
1,138 | Koss Corp.* | 3,516 | ||||||
6,113 | La-Z-Boy, Inc. | 190,726 | ||||||
924 | LGI Homes, Inc.* | 69,328 | ||||||
4,396 | Libbey, Inc.^ | 33,058 | ||||||
2,522 | Lifetime Brands, Inc. | 41,613 | ||||||
7,942 | M.D.C. Holdings, Inc. | 253,191 | ||||||
4,157 | M/I Homes, Inc.* | 143,001 | ||||||
6,186 | Meritage Corp.*^ | 316,723 | ||||||
723 | P & F Industries, Inc., Class A | 6,146 | ||||||
1,301 | Skyline Corp.* | 16,718 | ||||||
5,242 | Taylor Morrison Home Corp., Class A* | 128,272 | ||||||
2,725 | Tempur Sealy International, Inc.* | 170,830 | ||||||
2,041 | TopBuild Corp.* | 154,585 | ||||||
24,718 | TRI Pointe Homes, Inc.*^ | 442,946 | ||||||
4,563 | Tupperware Brands Corp. | 286,100 | ||||||
2,325 | Universal Electronics, Inc.* | 109,856 | ||||||
4,639 | William Lyon Homes, Class A* | 134,902 | ||||||
5,426 | Zagg, Inc.* | 100,110 | ||||||
|
| |||||||
4,337,985 | ||||||||
|
| |||||||
Household Products (0.4%): | ||||||||
1,115 | Central Garden & Pet Co.*^ | 43,396 | ||||||
3,036 | Central Garden & Pet Co., Class A* | 114,488 | ||||||
3,445 | Energizer Holdings, Inc.^ | 165,291 | ||||||
11,742 | HRG Group, Inc.* | 199,027 | ||||||
1,767 | Ocean Bio-Chem, Inc. | 7,669 | ||||||
940 | Oil-Dri Corp. | 39,010 | ||||||
1,648 | Orchids Paper Products Co. | 21,094 | ||||||
2,171 | WD-40 Co.^ | 256,178 | ||||||
|
| |||||||
846,153 | ||||||||
|
| |||||||
Independent Power & Renewable Electricity Producers (0.6%): | ||||||||
22,978 | Atlantic Power Corp.* | 53,998 | ||||||
506 | Atlantica Yield plc | 10,732 | ||||||
12,254 | Dynegy, Inc.* | 145,210 | ||||||
3,724 | NRG Yield, Inc., Class A^ | 70,197 | ||||||
5,480 | NRG Yield, Inc., Class C | 103,572 | ||||||
7,214 | Ormat Technologies, Inc.^ | 461,408 | ||||||
10,283 | Pattern Energy Group, Inc.^ | 220,982 | ||||||
2,274 | TerraForm Power, Inc., Class A* | 27,197 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Independent Power & Renewable Electricity Producers, continued | ||||||||
5,942 | Vivint Solar, Inc.* | $ | 24,065 | |||||
|
| |||||||
1,117,361 | ||||||||
|
| |||||||
Industrial Conglomerates (0.1%): | ||||||||
7,017 | Raven Industries, Inc. | 241,034 | ||||||
|
| |||||||
Insurance (2.8%): | ||||||||
8,008 | AMBAC Financial Group, Inc.*(b) | 127,968 | ||||||
13,045 | American Equity Investment Life Holding Co. | 400,874 | ||||||
1,653 | American National Insurance Co. | 211,997 | ||||||
2,876 | Amerisafe, Inc.^ | 177,162 | ||||||
4,675 | AmTrust Financial Services^ | 47,077 | ||||||
4,281 | Argo Group International Holdings, Ltd. | 263,924 | ||||||
8,089 | Aspen Insurance Holdings, Ltd. | 328,414 | ||||||
180 | Baldwin & Lyons, Inc., Class A | 4,176 | ||||||
8,209 | Citizens, Inc.*^ | 60,336 | ||||||
3,445 | Crawford & Co. | 33,141 | ||||||
4,636 | Crawford & Co., Class A | 39,406 | ||||||
2,691 | Donegal Group, Inc., Class A | 46,554 | ||||||
2,004 | eHealth, Inc.* | 34,809 | ||||||
3,293 | EMC Insurance Group, Inc. | 94,476 | ||||||
4,666 | Employers Holdings, Inc. | 207,170 | ||||||
415 | Enstar Group, Ltd.* | 83,311 | ||||||
2,939 | FBL Financial Group, Inc., Class A | 204,701 | ||||||
2,611 | Federated National Holding Co. | 43,264 | ||||||
4,344 | First Acceptance Corp.* | 5,169 | ||||||
10,826 | Genworth Financial, Inc., Class A* | 33,669 | ||||||
1,050 | Global Indemnity, Ltd.*^ | 44,121 | ||||||
4,955 | Greenlight Capital Re, Ltd.* | 99,595 | ||||||
1,752 | Hallmark Financial Services, Inc.* | 18,273 | ||||||
1,470 | HCI Group, Inc.^ | 43,953 | ||||||
414 | Health Insurance Innovations, Inc.* | 10,329 | ||||||
569 | Heritage Insurance Holdings, Inc.^ | 10,253 | ||||||
2,823 | Independence Holding Co.^ | 77,491 | ||||||
379 | Investors Title Co. | 75,175 | ||||||
2,048 | Kemper Corp. | 141,107 | ||||||
1,473 | Kingstone Co., Inc. | 27,692 | ||||||
12,677 | Maiden Holdings, Ltd.^ | 83,668 | ||||||
15,934 | MBIA, Inc.*^ | 116,637 | ||||||
2,096 | Mercury General Corp.^ | 112,010 | ||||||
4,062 | National General Holdings Corp. | 79,778 | ||||||
524 | National Western Life Group, Inc., Class A | 173,454 | ||||||
3,304 | Primerica, Inc. | 335,521 | ||||||
7,274 | ProAssurance Corp. | 415,710 | ||||||
6,548 | RLI Corp.^ | 397,203 | ||||||
513 | Safety Insurance Group, Inc. | 41,245 | ||||||
2,048 | Selective Insurance Group, Inc. | 120,218 | ||||||
5,250 | State Auto Financial Corp. | 152,880 | ||||||
3,277 | Stewart Information Services Corp. | 138,617 | ||||||
204 | The National Security Group, Inc. | 3,356 | ||||||
2,083 | Third Point Reinsurance, Ltd.*^ | 30,516 | ||||||
4,002 | United Insurance Holdings Co. | 69,035 | ||||||
5,267 | Universal Insurance Holdings, Inc. | 144,052 |
Continued
13
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Insurance, continued | ||||||||
978 | Validus Holdings, Ltd. | $ | 45,888 | |||||
|
| |||||||
5,455,375 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (0.6%): | ||||||||
6,186 | 1-800 Flowers.com, Inc., Class A* | 66,190 | ||||||
3,666 | CafePress, Inc.* | 6,745 | ||||||
1,840 | FTD Cos., Inc.* | 13,230 | ||||||
2,799 | Groupon, Inc.*^ | 14,275 | ||||||
1,784 | HSN, Inc. | 71,984 | ||||||
1,300 | Lands’ End, Inc.* | 25,415 | ||||||
834 | Liberty Expedia Holdings, Class A* | 36,971 | ||||||
9,267 | Liberty TripAdvisor Holdings, Inc., Class A* | 87,341 | ||||||
4,721 | Nutri/System, Inc.^ | 248,325 | ||||||
4,189 | Overstock.com, Inc.*^ | 267,677 | ||||||
3,081 | PetMed Express, Inc.^ | 140,186 | ||||||
4,901 | Shutterfly, Inc.*^ | 243,825 | ||||||
1,880 | US Auto Parts Network, Inc.* | 4,738 | ||||||
|
| |||||||
1,226,902 | ||||||||
|
| |||||||
Internet Software & Services (1.3%): | ||||||||
5,748 | Actua Corp.* | 89,669 | ||||||
3,832 | ANGI Homeservices, Inc., Class A* | 40,083 | ||||||
3,300 | Bazaarvoice, Inc.* | 17,985 | ||||||
1,300 | Blucora, Inc.* | 28,730 | ||||||
4,575 | Carbonite, Inc.* | 114,833 | ||||||
3,666 | Cars.com, Inc.*^ | 105,727 | ||||||
3,782 | Cimpress NV* | 453,386 | ||||||
701 | CommerceHub, Inc., Series A* | 15,415 | ||||||
6,181 | DHI Group, Inc.* | 11,744 | ||||||
1,258 | Endurance International Group Holdings, Inc.* | 10,567 | ||||||
691 | Envestnet, Inc.* | 34,446 | ||||||
4,964 | GTT Communications, Inc.*^ | 233,060 | ||||||
1,786 | Internap Corp.*^ | 28,058 | ||||||
1,692 | j2 Global, Inc.^ | 126,951 | ||||||
3,938 | Leaf Group, Ltd.* | 38,986 | ||||||
18,673 | Limelight Networks, Inc.* | 82,348 | ||||||
3,018 | Liquidity Services, Inc.* | 14,637 | ||||||
6,655 | Marchex, Inc., Class B* | 21,496 | ||||||
8,730 | NIC, Inc. | 144,918 | ||||||
8,938 | QuinStreet, Inc.* | 74,900 | ||||||
1,839 | Qumu Corp.* | 4,211 | ||||||
7,302 | RealNetworks, Inc.* | 24,973 | ||||||
2,319 | Reis, Inc.^ | 47,887 | ||||||
4,549 | Shutterstock, Inc.*^ | 195,743 | ||||||
1,743 | Stamps.com, Inc.* | 327,684 | ||||||
5,449 | Synacor, Inc.* | 12,533 | ||||||
4,651 | TechTarget* | 64,742 | ||||||
8,928 | Telaria, Inc.* | 35,980 | ||||||
7,131 | The Meet Group, Inc. (The)*^ | 20,109 | ||||||
2,773 | Travelzoo, Inc.* | 17,886 | ||||||
7,161 | Web.com Group, Inc.* | 156,110 | ||||||
2,184 | XO Group, Inc.* | 40,317 | ||||||
6,743 | YuMe, Inc. | 32,232 | ||||||
|
| |||||||
2,668,346 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
IT Services (2.0%): | ||||||||
10,223 | Acxiom Corp.* | $ | 281,746 | |||||
7,223 | Blackhawk Network Holdings, Inc.*^ | 257,500 | ||||||
2,092 | CACI International, Inc., Class A* | 276,876 | ||||||
5,955 | Cardtronics plc* | 110,287 | ||||||
1,965 | Cass Information Systems, Inc.^ | 114,383 | ||||||
15,807 | Conduent, Inc.* | 255,441 | ||||||
3,848 | Convergys Corp. | 90,428 | ||||||
2,654 | CoreLogic, Inc.* | 122,641 | ||||||
4,402 | CSG Systems International, Inc. | 192,896 | ||||||
758 | CSP, Inc. | 12,045 | ||||||
384 | DST Systems, Inc. | 23,835 | ||||||
4,219 | Exlservice Holdings, Inc.* | 254,617 | ||||||
3,140 | Forrester Research, Inc. | 138,788 | ||||||
4,599 | Hackett Group, Inc. (The) | 72,250 | ||||||
790 | Luxoft Holding, Inc.* | 44,003 | ||||||
3,081 | ManTech International Corp., Class A | 154,635 | ||||||
10,553 | ModusLink Global Solutions, Inc.* | 26,277 | ||||||
6,208 | MoneyGram International, Inc.* | 81,821 | ||||||
5,127 | Perficient, Inc.* | 97,772 | ||||||
3,168 | PFSweb, Inc.* | 23,538 | ||||||
5,456 | Science Applications International Corp.^ | 417,766 | ||||||
8,429 | Servicesource International, Inc.* | 26,046 | ||||||
1,555 | StarTek, Inc.* | 15,503 | ||||||
5,434 | Sykes Enterprises, Inc.* | 170,899 | ||||||
2,617 | Syntel, Inc.*^ | 60,165 | ||||||
5,956 | TeleTech Holdings, Inc. | 239,729 | ||||||
5,724 | Travelport Worldwide, Ltd. | 74,813 | ||||||
7,332 | Unisys Corp.*^ | 59,756 | ||||||
4,150 | Virtusa Corp.* | 182,932 | ||||||
|
| |||||||
3,879,388 | ||||||||
|
| |||||||
Leisure Products (0.3%): | ||||||||
8,017 | American Outdoor Brands Corp.*^ | 102,938 | ||||||
7,292 | Callaway Golf Co. | 101,578 | ||||||
2,916 | Escalade, Inc.^ | 35,867 | ||||||
2,447 | JAKKS Pacific, Inc.*^ | 5,750 | ||||||
230 | Johnson Outdoors, Inc., Class A | 14,281 | ||||||
1,196 | Malibu Boats, Inc.*^ | 35,557 | ||||||
2,419 | Marine Products Corp. | 30,818 | ||||||
4,982 | Nautilus Group, Inc.*^ | 66,510 | ||||||
2,637 | Sturm, Ruger & Co., Inc.^ | 147,276 | ||||||
8,489 | Vista Outdoor, Inc.*^ | 123,685 | ||||||
|
| �� | ||||||
664,260 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.3%): | ||||||||
747 | Bruker Corp. | 25,637 | ||||||
5,004 | Cambrex Corp.*^ | 240,192 | ||||||
7,407 | Enzo Biochem, Inc.*^ | 60,367 | ||||||
7,018 | Harvard Bioscience, Inc.* | 23,159 | ||||||
7,462 | Luminex Corp. | 147,001 | ||||||
1,310 | Neogenomics, Inc.*^ | 11,607 | ||||||
|
| |||||||
507,963 | ||||||||
|
|
Continued
14
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Machinery (5.8%): | ||||||||
8,040 | Actuant Corp., Class A^ | $ | 203,412 | |||||
125 | Alamo Group, Inc. | 14,109 | ||||||
4,390 | Albany International Corp., Class A | 269,766 | ||||||
4,536 | Altra Industrial Motion Corp. | 228,614 | ||||||
1,200 | American Railcar Industries | 49,968 | ||||||
1,974 | ARC Group Worldwide, Inc.* | 4,145 | ||||||
806 | Art’s-Way Manufacturing Co.* | 2,398 | ||||||
3,255 | Astec Industries, Inc. | 190,418 | ||||||
7,867 | Barnes Group, Inc. | 497,744 | ||||||
1,300 | Briggs & Stratton Corp. | 32,981 | ||||||
5,149 | Chart Industries, Inc.*^ | 241,282 | ||||||
2,689 | CIRCOR International, Inc. | 130,901 | ||||||
3,780 | Columbus McKinnon Corp. | 151,124 | ||||||
5,525 | Commercial Vehicle Group, Inc.* | 59,062 | ||||||
1,676 | Dmc Global, Inc.^ | 41,984 | ||||||
4,090 | Douglas Dynamics, Inc. | 154,602 | ||||||
500 | Eastern Co. (The) | 13,075 | ||||||
3,312 | EnPro Industries, Inc. | 309,705 | ||||||
3,629 | ESCO Technologies, Inc. | 218,647 | ||||||
9,840 | Federal Signal Corp. | 197,686 | ||||||
7,163 | Franklin Electric Co., Inc. | 328,782 | ||||||
2,281 | FreightCar America, Inc. | 38,959 | ||||||
1,765 | Gencor Industries, Inc.* | 29,211 | ||||||
3,572 | Global Brass & Copper Holdings, Inc. | 118,233 | ||||||
4,496 | Gorman-Rupp Co. (The) | 140,320 | ||||||
459 | Graham Corp. | 9,607 | ||||||
3,586 | Greenbrier Cos, Inc. | 191,134 | ||||||
2,410 | Hardinge, Inc. | 41,982 | ||||||
12,487 | Harsco Corp.* | 232,883 | ||||||
8,780 | Hillenbrand, Inc. | 392,466 | ||||||
1,212 | Hurco Cos, Inc. | 51,146 | ||||||
1,911 | Hyster-Yale Materials Handling, Inc., Class A | 162,741 | ||||||
2,284 | ITT, Inc. | 121,897 | ||||||
4,544 | John Bean Technologies Corp.^ | 503,474 | ||||||
9,594 | Kennametal, Inc. | 464,446 | ||||||
143 | Key Technology, Inc.* | 2,635 | ||||||
2,094 | L.B. Foster Co., Class A*^ | 56,852 | ||||||
1,368 | Lindsay Corp.^ | 120,658 | ||||||
829 | Lydall, Inc.* | 42,072 | ||||||
3,228 | Manitex International, Inc.* | 30,989 | ||||||
5,273 | Manitowoc Co., Inc. (The)*^ | 207,440 | ||||||
14,363 | Meritor, Inc.* | 336,956 | ||||||
9,004 | Mueller Industries, Inc. | 319,012 | ||||||
23,949 | Mueller Water Products, Inc., Class A | 300,081 | ||||||
5,070 | Navistar International Corp.* | 217,402 | ||||||
3,562 | NN, Inc. | 98,311 | ||||||
738 | Omega Flex, Inc. | 52,701 | ||||||
3,573 | Proto Labs, Inc.*^ | 368,019 | ||||||
3,727 | RBC Bearings, Inc.* | 471,093 | ||||||
14,208 | Rexnord Corp.* | 369,692 | ||||||
1,692 | SPX Corp.* | 53,112 | ||||||
1,085 | SPX FLOW, Inc.* | 51,592 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Machinery, continued | ||||||||
1,898 | Standex International Corp. | $ | 193,311 | |||||
4,643 | Sun Hydraulics Corp.^ | 300,356 | ||||||
466 | Taylor Devices, Inc.* | 6,291 | ||||||
2,754 | Tennant Co.^ | 200,078 | ||||||
9,270 | Terex Corp.^ | 446,999 | ||||||
800 | The Exone Co.* | 6,720 | ||||||
2,794 | Timken Co. | 137,325 | ||||||
9,913 | Titan International, Inc.^ | 127,679 | ||||||
6,807 | TriMas Corp.* | 182,087 | ||||||
1,747 | Twin Disc, Inc.* | 46,418 | ||||||
8,536 | Wabash National Corp.^ | 185,231 | ||||||
3,816 | Watts Water Technologies, Inc., Class A | 289,825 | ||||||
18,993 | Welbilt, Inc.* | 446,525 | ||||||
572 | WSI Industries, Inc.* | 3,432 | ||||||
3,110 | Xerium Technologies, Inc.* | 13,249 | ||||||
|
| |||||||
11,523,047 | ||||||||
|
| |||||||
Marine (0.2%): | ||||||||
2,701 | Kirby Corp.*^ | 180,427 | ||||||
6,330 | Matson, Inc.^ | 188,887 | ||||||
|
| |||||||
369,314 | ||||||||
|
| |||||||
Media (1.9%): | ||||||||
3,904 | A.H. Belo Corp., Class A | 18,739 | ||||||
3,922 | AMC Entertainment Holdings, Inc., Class A^ | 59,222 | ||||||
2,527 | Ballantyne Strong, Inc.* | 11,751 | ||||||
478 | Beasley Broadcast Group, Inc., Class A | 6,405 | ||||||
27,534 | Central Eurpoean Media Enterprises* | 128,033 | ||||||
229 | Daily Journal Corp.* | 52,720 | ||||||
10,779 | E.W. Scripps Co. (The), Class A*^ | 168,476 | ||||||
6,123 | Entercom Communications Corp. | 66,128 | ||||||
11,865 | Entravision Communications Corp., Class A | 84,835 | ||||||
2,242 | Eros International plc*^ | 21,635 | ||||||
4,669 | Gannett Co., Inc.^ | 54,114 | ||||||
338 | Global Eagle Entertainment, Inc.* | 774 | ||||||
8,641 | Gray Television, Inc.* | 144,737 | ||||||
12,577 | Harte-Hanks, Inc.* | 11,932 | ||||||
2,892 | Hemisphere Media Group*^ | 33,403 | ||||||
1,045 | Imax Corp.*^ | 24,192 | ||||||
2,441 | Insignia Systems, Inc. | 2,905 | ||||||
4,052 | John Wiley & Sons, Inc., Class A | 266,419 | ||||||
10,454 | Lee Enterprises, Inc.* | 24,567 | ||||||
372 | McClatchy Co., Class A*^ | 3,322 | ||||||
5,619 | Meredith Corp.^ | 371,134 | ||||||
3,571 | MSG Networks, Inc., Class A*^ | 72,313 | ||||||
10,941 | National CineMedia, Inc.^ | 75,055 | ||||||
827 | New Media Investment Group, Inc. | 13,877 | ||||||
25,122 | New York Times Co. (The), Class A^ | 464,756 | ||||||
7,050 | Nexstar Broadcasting Group, Inc., Class A | 551,309 | ||||||
2,715 | Reading International, Inc., Class A* | 45,341 | ||||||
11,356 | Regal Entertainment Group, Class A | 261,302 | ||||||
1,017 | Scholastic Corp.^ | 40,792 | ||||||
8,414 | Sinclair Broadcast Group, Inc., Class A | 318,470 |
Continued
15
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Media, continued | ||||||||
13,453 | Time, Inc. | $ | 248,208 | |||||
1,170 | Tribune Media Co., Class A | 49,690 | ||||||
8,158 | Urban One, Inc.* | 14,277 | ||||||
1,858 | World Wrestling Entertainment, Inc., Class A^ | 56,818 | ||||||
|
| |||||||
3,767,651 | ||||||||
|
| |||||||
Metals & Mining (1.3%): | ||||||||
23,109 | AK Steel Holding Corp.*^ | 130,797 | ||||||
4,912 | Allegheny Technologies, Inc.* | 118,576 | ||||||
2,124 | Ampco-Pittsburgh Corp. | 26,338 | ||||||
6,694 | Carpenter Technology Corp.^ | 341,326 | ||||||
3,100 | Century Aluminum Co.*^ | 60,884 | ||||||
21,148 | Cleveland-Cliffs, Inc.*^ | 152,477 | ||||||
7,283 | Coeur d’Alene Mines Corp.* | 54,623 | ||||||
15,951 | Commercial Metals Co. | 340,074 | ||||||
4,543 | Compass Minerals International, Inc.^ | 328,232 | ||||||
13,641 | Ferroglobe plc*(b) | 220,984 | ||||||
1,805 | Gold Resource Corp. | 7,942 | ||||||
1,557 | Haynes International, Inc. | 49,902 | ||||||
54,581 | Hecla Mining Co. | 216,687 | ||||||
931 | Kaiser Aluminum Corp.^ | 99,477 | ||||||
4,126 | Materion Corp. | 200,524 | ||||||
9,373 | McEwen Mining, Inc. | 21,370 | ||||||
1,956 | Ryerson Holding Corp.* | 20,342 | ||||||
1,487 | Schnitzer Steel Industries, Inc., Class A^ | 49,815 | ||||||
3,318 | SunCoke Energy, Inc.*^ | 39,783 | ||||||
1,789 | Synalloy Corp. | 23,973 | ||||||
4,467 | TimkenSteel Corp.*^ | 67,854 | ||||||
1,458 | Universal Stainless & Alloy Products, Inc.* | 31,230 | ||||||
2,441 | Worthington Industries, Inc. | 107,550 | ||||||
|
| |||||||
2,710,760 | ||||||||
|
| |||||||
Multiline Retail (0.3%): | ||||||||
5,705 | Big Lots, Inc. | 320,335 | ||||||
654 | Dillard’s, Inc., Class A^ | 39,273 | ||||||
800 | Fred’s, Inc. | 3,240 | ||||||
39,798 | J.C. Penney Co., Inc.*^ | 125,762 | ||||||
2,545 | Ollie’s Bargain Outlet Holdings, Inc.*^ | 135,521 | ||||||
5,314 | Tuesday Morning Corp.*^ | 14,614 | ||||||
|
| |||||||
638,745 | ||||||||
|
| |||||||
Multi-Utilities (0.6%): | ||||||||
8,048 | Avista Corp.^ | 414,392 | ||||||
5,171 | Black Hills Corp.^ | 310,829 | ||||||
6,986 | NorthWestern Corp. | 417,063 | ||||||
2,614 | Unitil Corp. | 119,251 | ||||||
|
| |||||||
1,261,535 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (2.6%): | ||||||||
816 | Adams Resources & Energy, Inc. | 35,496 | ||||||
6,000 | Approach Resources, Inc.* | 17,760 | ||||||
1,367 | Arch Coal, Inc. | 127,350 | ||||||
901 | Barnwell Industries, Inc.* | 1,874 | ||||||
9,079 | Bill Barrett Corp.* | 46,575 | ||||||
360 | Bonanza Creek Energy, Inc.* | 9,932 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
1,697 | California Resources Corp.*^ | $ | 32,990 | |||||
10,631 | Callon Petroleum Co.* | 129,167 | ||||||
1,220 | Carrizo Oil & Gas, Inc.*^ | 25,962 | ||||||
16,914 | Clean Energy Fuel Corp.* | 34,335 | ||||||
8,098 | Cloud Peak Energy, Inc.*^ | 36,036 | ||||||
16,130 | CNX Resources Corp.* | 235,982 | ||||||
2,015 | CONSOL Energy, Inc.*^ | 79,613 | ||||||
1,914 | Contango Oil & Gas Co.* | 9,015 | ||||||
10,065 | Delek US Holdings, Inc.^ | 351,671 | ||||||
39,156 | Denbury Resources, Inc.*^ | 86,535 | ||||||
16,266 | DHT Holdings, Inc. | 58,395 | ||||||
1,225 | Dorian LPG, Ltd.* | 10,070 | ||||||
416 | Earthstone Energy, Inc.* | 4,422 | ||||||
4,363 | Eclipse Resources Corp.* | 10,471 | ||||||
8,619 | Enlink Midstream LLC | 151,694 | ||||||
12,047 | EP Energy Corp., Class A* | 28,431 | ||||||
2,943 | Evolution Petroleum Corp. | 20,160 | ||||||
955 | Extraction Oil & Gas, Inc.* | 13,666 | ||||||
13,216 | Gaslog, Ltd. | 294,055 | ||||||
1,561 | Green Plains Renewable Energy, Inc.^ | 26,303 | ||||||
7,063 | Gulfport Energy Corp.* | 90,124 | ||||||
5,504 | Hallador Energy Co. | 33,519 | ||||||
8,274 | Jones Energy, Inc., Class A*^ | 9,101 | ||||||
34,496 | Kosmos Energy LLC*^ | 236,297 | ||||||
14,513 | Laredo Petroleum Holdings, Inc.* | 153,983 | ||||||
6,187 | Matador Resources Co.*^ | 192,601 | ||||||
12,361 | Nordic American Tankers, Ltd. | 30,408 | ||||||
16,333 | Oasis Petroleum, Inc.* | 137,361 | ||||||
4,913 | Pacific Ethanol, Inc.* | 22,354 | ||||||
3,313 | Panhandle Oil & Gas, Inc., Class A | 68,082 | ||||||
1,648 | Par Pacific Holdings, Inc.* | 31,773 | ||||||
12,598 | PBF Energy, Inc., Class A | 446,599 | ||||||
4,047 | PDC Energy, Inc.*^ | 208,582 | ||||||
7,441 | Peabody Energy Corp.* | 292,952 | ||||||
266 | Penn Virginia Corp.* | 10,403 | ||||||
6 | PrimeEnergy Corp.* | 315 | ||||||
3,285 | QEP Resources, Inc.* | 31,437 | ||||||
6,030 | Renewable Energy Group, Inc.* | 71,154 | ||||||
3,561 | Ring Energy, Inc.* | 49,498 | ||||||
600 | SandRidge Energy, Inc.* | 12,642 | ||||||
28,682 | Scorpio Tankers, Inc.^ | 87,480 | ||||||
4,107 | SemGroup Corp., Class A^ | 124,031 | ||||||
12,619 | Ship Finance International | 195,595 | ||||||
3,446 | SM Energy Co.^ | 76,088 | ||||||
10,401 | Southwestern Energy Co.*^ | 58,038 | ||||||
23,009 | SRC Energy, Inc.*^ | 196,267 | ||||||
400 | Stone Energy Corp.* | 12,864 | ||||||
1,980 | Teekay Shipping Corp. | 18,454 | ||||||
18,909 | Teekay Tankers, Ltd. | 26,473 | ||||||
9,332 | Ultra Petroleum Corp.* | 84,548 | ||||||
6,497 | W&T Offshore, Inc.* | 21,505 | ||||||
3,500 | Westmoreland Coal Co.* | 4,235 |
Continued
16
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
3,008 | Whiting Petroleum Corp.*^ | $ | 79,652 | |||||
2,377 | World Fuel Services Corp. | 66,889 | ||||||
|
| |||||||
5,059,264 | ||||||||
|
| |||||||
Paper & Forest Products (1.1%): | ||||||||
5,866 | Boise Cascade Co.^ | 234,053 | ||||||
2,630 | Clearwater Paper Corp.* | 119,402 | ||||||
2,095 | Deltic Timber Corp. | 191,797 | ||||||
8,287 | Domtar Corp. | 410,372 | ||||||
13,425 | KapStone Paper & Packaging Corp. | 304,613 | ||||||
3,550 | Louisiana-Pacific Corp.* | 93,223 | ||||||
8,641 | Mercer International, Inc. | 123,566 | ||||||
2,510 | Neenah Paper, Inc. | 227,532 | ||||||
1,455 | P.H. Glatfelter Co. | 31,195 | ||||||
15,494 | Resolute Forest Products* | 171,209 | ||||||
4,885 | Schweitzer-Mauduit International, Inc. | 221,584 | ||||||
|
| |||||||
2,128,546 | ||||||||
|
| |||||||
Personal Products (0.6%): | ||||||||
27,730 | Avon Products, Inc.* | 59,620 | ||||||
1,214 | CCA Industries, Inc.* | 3,824 | ||||||
545 | Edgewell Personal Care Co.* | 32,368 | ||||||
4,704 | Inter Parfums, Inc. | 204,389 | ||||||
900 | Lifevantage Corp.* | 4,284 | ||||||
537 | Mannatech, Inc. | 8,055 | ||||||
2,284 | Medifast, Inc. | 159,446 | ||||||
1,387 | Natural Alternatives International, Inc.* | 14,321 | ||||||
369 | Natural Health Trends Corp. | 5,605 | ||||||
2,857 | Natures Sunshine Products, Inc. | 32,998 | ||||||
2,622 | Nu Skin Enterprises, Inc., Class A^ | 178,899 | ||||||
6,063 | Revlon, Inc.* | 132,173 | ||||||
340 | United-Guardian, Inc. | 6,290 | ||||||
3,463 | Usana Health Sciences, Inc.*^ | 256,435 | ||||||
|
| |||||||
1,098,707 | ||||||||
|
| |||||||
Pharmaceuticals (0.9%): | ||||||||
2,163 | Akorn, Inc.*^ | 69,713 | ||||||
2,076 | Amphastar Pharmaceuticals, Inc.* | 39,942 | ||||||
1,566 | ANI Pharmaceuticals, Inc.* | 100,929 | ||||||
1,496 | Aratana Therapeutics, Inc.*^ | 7,869 | ||||||
543 | Catalent, Inc.* | 22,306 | ||||||
3,415 | Cumberland Pharmaceuticals, Inc.* | 25,339 | ||||||
4,744 | DepoMed, Inc.*^ | 38,189 | ||||||
10,521 | Endo International plc* | 81,538 | ||||||
8,459 | Endocyte, Inc.*^ | 36,205 | ||||||
371 | Heska Corp.* | 29,758 | ||||||
10,506 | Horizon Pharma plc*^ | 153,388 | ||||||
1,722 | Impax Laboratories, Inc.*^ | 28,671 | ||||||
4,468 | Innoviva, Inc.*^ | 63,401 | ||||||
1,879 | Intra-Cellular Therapies, Inc.*^ | 27,208 | ||||||
2,063 | Juniper Pharmaceuticals, Inc.* | 10,006 | ||||||
6,034 | Lannett Co., Inc.* | 139,989 | ||||||
2,617 | Lipocine, Inc.*^ | 9,002 | ||||||
2,153 | Mallinckrodt plc*^ | 48,572 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Pharmaceuticals, continued | ||||||||
859 | Phibro Animal Health Corp., Class A | $ | 28,777 | |||||
7,676 | Prestige Brands Holdings, Inc.*^ | 340,891 | ||||||
8,258 | Sucampo Pharmaceuticals, Inc., Class A*^ | 148,231 | ||||||
5,788 | Supernus Pharmaceuticals, Inc.*^ | 230,652 | ||||||
1,949 | Tetraphase Pharmaceuticals, Inc.* | 12,279 | ||||||
2,286 | Zogenix, Inc.* | 91,554 | ||||||
|
| |||||||
1,784,409 | ||||||||
|
| |||||||
Professional Services (1.7%): | ||||||||
1,888 | Acacia Research Corp.* | 7,646 | ||||||
1,199 | Barrett Business Services, Inc. | 77,324 | ||||||
8,272 | CBIZ, Inc.* | 127,802 | ||||||
490 | CRA International, Inc. | 22,026 | ||||||
3,595 | Exponent, Inc. | 255,604 | ||||||
3,126 | Franklin Covey Co.* | 64,865 | ||||||
4,532 | FTI Consulting, Inc.* | 194,695 | ||||||
3,229 | GP Strategies Corp.* | 74,913 | ||||||
2,274 | Heidrick & Struggles International, Inc. | 55,827 | ||||||
9,494 | Hill International, Inc.* | 51,742 | ||||||
3,372 | Huron Consulting Group, Inc.* | 136,397 | ||||||
3,035 | ICF International, Inc.* | 159,338 | ||||||
6,546 | Insperity, Inc. | 375,412 | ||||||
1,000 | Kelly Services, Inc., Class A | 27,270 | ||||||
4,482 | Kforce, Inc. | 113,171 | ||||||
8,105 | Korn/Ferry International | 335,384 | ||||||
666 | Mastech Holdings, Inc.* | 6,700 | ||||||
4,881 | Mistras Group, Inc.* | 114,557 | ||||||
6,221 | Navigant Consulting, Inc.* | 120,750 | ||||||
7,785 | On Assignment, Inc.* | 500,341 | ||||||
5,377 | Resources Connection, Inc. | 83,075 | ||||||
7,702 | RPX Corp. | 103,515 | ||||||
3,165 | TriNet Group, Inc.* | 140,336 | ||||||
6,167 | Trueblue, Inc.* | 169,593 | ||||||
4,212 | Volt Information Sciences, Inc.* | 16,006 | ||||||
1,576 | Willdan Group, Inc.*^ | 37,729 | ||||||
|
| |||||||
3,372,018 | ||||||||
|
| |||||||
Real Estate Management & Development (0.7%): | ||||||||
6,301 | Alexander & Baldwin, Inc. | 174,790 | ||||||
2,400 | Altisource Portfolio Solutions* | 67,200 | ||||||
395 | CKX Lands, Inc. | 4,021 | ||||||
1,120 | Consolidated-Tomoka Land Co.^ | 71,120 | ||||||
692 | Forestar Group, Inc.* | 15,224 | ||||||
232 | FRP Holdings, Inc.* | 10,266 | ||||||
376 | Griffin Industrial Realty, Inc. | 13,799 | ||||||
6,592 | HFF, Inc., Class A | 320,634 | ||||||
10 | J.W. Mays, Inc.* | 380 | ||||||
5,185 | Kennedy-Wilson Holdings, Inc. | 89,960 | ||||||
5,387 | Marcus & Millichap, Inc.* | 175,670 | ||||||
1,035 | Maui Land & Pineapple Co.* | 17,906 | ||||||
1,276 | Realogy Holdings Corp. | 33,814 | ||||||
308 | Stratus Properties, Inc. | 9,148 | ||||||
3,421 | Tejon Ranch Co.*^ | 71,020 |
Continued
17
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Real Estate Management & Development, continued | ||||||||
1,076 | The RMR Group, Inc., Class A | $ | 63,807 | |||||
2,700 | The St. Joe Co.* | 48,735 | ||||||
|
| |||||||
1,187,494 | ||||||||
|
| |||||||
Road & Rail (1.3%): | ||||||||
1,803 | ArcBest Corp. | 64,457 | ||||||
9,143 | Avis Budget Group, Inc.*^ | 401,195 | ||||||
4,522 | Celadon Group, Inc. | 28,941 | ||||||
2,970 | Covenant Transportation Group, Inc., Class A* | 85,328 | ||||||
11,820 | Heartland Express, Inc.^ | 275,879 | ||||||
11,216 | Knight-Swift Transportation Holdings, Inc.^ | 490,363 | ||||||
972 | Landstar System, Inc. | 101,185 | ||||||
1,700 | Marten Transport, Ltd.^ | 34,510 | ||||||
7,221 | Roadrunner Transportation System, Inc.* | 55,674 | ||||||
598 | Ryder System, Inc. | 50,334 | ||||||
4,204 | Saia, Inc.* | 297,433 | ||||||
4,455 | Universal Truckload Services, Inc. | 105,806 | ||||||
1,872 | USA Truck, Inc.*^ | 33,939 | ||||||
10,586 | Werner Enterprises, Inc.^ | 409,149 | ||||||
6,473 | YRC Worldwide, Inc.*^ | 93,082 | ||||||
|
| |||||||
2,527,275 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (3.4%): | ||||||||
4,922 | Advanced Energy Industries, Inc.* | 332,137 | ||||||
3,814 | Alpha & Omega Semiconductor, Ltd.* | 62,397 | ||||||
1,056 | Ambarella, Inc.* | 62,040 | ||||||
30,273 | Amkor Technology, Inc.* | 304,244 | ||||||
1,301 | Amtech Systems, Inc.* | 13,101 | ||||||
4,245 | Axcelis Technologies, Inc.*^ | 121,832 | ||||||
2,777 | AXT, Inc.* | 24,160 | ||||||
2,314 | Brooks Automation, Inc. | 55,189 | ||||||
3,230 | Cabot Microelectronics Corp. | 303,878 | ||||||
1,462 | CEVA, Inc.* | 67,471 | ||||||
5,549 | Cirrus Logic, Inc.* | 287,771 | ||||||
4,840 | Cohu, Inc. | 106,238 | ||||||
7,781 | Cree, Inc.*^ | 288,986 | ||||||
522 | Cyberoptics Corp.* | 7,830 | ||||||
6,488 | Diodes, Inc.* | 186,011 | ||||||
4,185 | DSP Group, Inc.* | 52,313 | ||||||
13,432 | Entegris, Inc. | 409,004 | ||||||
781 | First Solar, Inc.* | 52,733 | ||||||
9,457 | FormFactor, Inc.* | 148,002 | ||||||
4,679 | GSI Technology, Inc.* | 37,245 | ||||||
1,201 | Inphi Corp.*^ | 43,957 | ||||||
16,000 | Integrated Device Technology, Inc.*^ | 475,680 | ||||||
1,349 | inTest Corp.* | 11,669 | ||||||
5,974 | IXYS Corp.* | 143,077 | ||||||
12,127 | Kopin Corp.*^ | 38,806 | ||||||
9,031 | Kulicke & Soffa Industries, Inc.* | 219,769 | ||||||
17,231 | Lattice Semiconductor Corp.* | 99,595 | ||||||
1,636 | MagnaChip Semiconductor Corp.*^ | 16,278 | ||||||
4,333 | MaxLinear, Inc., Class A*^ | 114,478 | ||||||
5,552 | MKS Instruments, Inc. | 524,664 | ||||||
4,011 | Nanometrics, Inc.* | 99,954 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Semiconductors & Semiconductor Equipment, continued | ||||||||
6,163 | Neophotonics Corp.*^ | $ | 40,553 | |||||
807 | NVE Corp.^ | 69,402 | ||||||
4,804 | PDF Solutions, Inc.*^ | 75,423 | ||||||
11,404 | Photronics, Inc.* | 97,219 | ||||||
2,109 | Pixelworks, Inc.* | 13,350 | ||||||
3,570 | Power Integrations, Inc. | 262,574 | ||||||
14,893 | Rambus, Inc.* | 211,778 | ||||||
5,028 | Rudolph Technologies, Inc.* | 120,169 | ||||||
2,280 | Semtech Corp.* | 77,976 | ||||||
6,339 | Sigma Designs, Inc.* | 44,056 | ||||||
5,340 | Silicon Laboratories, Inc.* | 471,522 | ||||||
586 | Sunpower Corp.*^ | 4,940 | ||||||
2,469 | Synaptics, Inc.*^ | 98,612 | ||||||
5,213 | Ultra Clean Holdings, Inc.*^ | 120,368 | ||||||
6,109 | Veeco Instruments, Inc.* | 90,719 | ||||||
3,045 | Versum Materials, Inc. | 115,253 | ||||||
10,031 | Xcerra Corp.* | 98,203 | ||||||
6,535 | Xperi Corp.^ | 159,454 | ||||||
|
| |||||||
6,882,080 | ||||||||
|
| |||||||
Software (2.1%): | ||||||||
14,742 | ACI Worldwide, Inc.* | 334,201 | ||||||
4,794 | American Software, Inc., Class A | 55,754 | ||||||
935 | Asure Software, Inc.*^ | 13,202 | ||||||
2,785 | Aware, Inc.* | 12,533 | ||||||
7,393 | Barracuda Networks, Inc.* | 203,308 | ||||||
1,967 | Blackbaud, Inc.^ | 185,862 | ||||||
2,350 | BSQUARE Corp.* | 10,928 | ||||||
1,750 | Datawatch Corp.* | 16,625 | ||||||
3,842 | Ebix, Inc. | 304,479 | ||||||
1,353 | Ellie Mae, Inc.*^ | 120,958 | ||||||
2,049 | Evolving Systems, Inc.* | 9,630 | ||||||
982 | Fair Isaac Corp. | 150,442 | ||||||
5,614 | Finjan Holdings, Inc.*^ | 12,126 | ||||||
4,113 | GlobalSCAPE, Inc. | 14,601 | ||||||
595 | Globant SA*^ | 27,644 | ||||||
4,000 | Glu Mobile, Inc.* | 14,560 | ||||||
1,789 | Manhattan Associates, Inc.*^ | 88,627 | ||||||
562 | MicroStrategy, Inc., Class A* | 73,791 | ||||||
5,566 | Monotype Imaging Holdings, Inc. | 134,141 | ||||||
2,185 | Paycom Software, Inc.*^ | 175,521 | ||||||
8,126 | Pegasystems, Inc. | 383,141 | ||||||
6,260 | Progress Software Corp. | 266,488 | ||||||
2,878 | QAD, Inc. | 111,810 | ||||||
1,490 | Qualys, Inc.*^ | 88,432 | ||||||
4,646 | RealPage, Inc.*^ | 205,818 | ||||||
2,886 | Rubicon Project, Inc.* | 5,397 | ||||||
6,367 | SeaChange International, Inc.* | 25,022 | ||||||
1,166 | Silver Spring Networks, Inc.* | 18,936 | ||||||
6,375 | Synchronoss Technologies, Inc.* | 56,993 | ||||||
7,906 | Telenav, Inc.* | 43,483 | ||||||
16,342 | TiVo Corp.^ | 254,935 | ||||||
5,507 | VASCO Data Security International, Inc.* | 76,547 |
Continued
18
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Software, continued | ||||||||
3,726 | Verint Systems, Inc.* | $ | 155,933 | |||||
1,473 | Zedge, Inc., Class B* | 4,050 | ||||||
1,895 | Zix Corp.* | 8,300 | ||||||
113,139 | Zynga, Inc.* | 452,555 | ||||||
|
| |||||||
4,116,773 | ||||||||
|
| |||||||
Specialty Retail (3.5%): | ||||||||
9,996 | Aaron’s, Inc. | 398,341 | ||||||
3,905 | Abercrombie & Fitch Co., Class A^ | 68,064 | ||||||
12,099 | American Eagle Outfitters, Inc. | 227,461 | ||||||
1,626 | America’s Car Mart, Inc.* | 72,601 | ||||||
2,978 | Asbury Automotive Group, Inc.* | 190,592 | ||||||
13,213 | Ascena Retail Group, Inc.*^ | 31,051 | ||||||
7,305 | Barnes & Noble Education, Inc.* | 60,193 | ||||||
11,581 | Barnes & Noble, Inc.^ | 77,593 | ||||||
4,102 | Big 5 Sporting Goods Corp.^ | 31,175 | ||||||
3,574 | Boot Barn Holdings, Inc.*^ | 59,364 | ||||||
1,732 | Build-A-Bear Workshop, Inc.* | 15,934 | ||||||
6,983 | Caleres, Inc. | 233,791 | ||||||
5,093 | Cato Corp., Class A^ | 81,081 | ||||||
19,215 | Chico’s FAS, Inc. | 169,476 | ||||||
2,663 | Children’s Place Retail Stores, Inc. (The) | 387,067 | ||||||
7,062 | Christopher & Banks Corp.* | 8,969 | ||||||
2,175 | Citi Trends, Inc. | 57,551 | ||||||
4,898 | Conn’s, Inc.*^ | 174,124 | ||||||
2,917 | Destination Maternity Corp.*^ | 8,663 | ||||||
10,159 | Destination XL Group, Inc.* | 22,350 | ||||||
3,205 | Dick’s Sporting Goods, Inc. | 92,112 | ||||||
8,084 | DSW, Inc., Class A^ | 173,078 | ||||||
13,584 | Express, Inc.* | 137,878 | ||||||
4,871 | Finish Line, Inc. (The), Class A^ | 70,776 | ||||||
7,600 | Five Below, Inc.*^ | 504,031 | ||||||
4,415 | Francesca’s Holdings Corp.* | 32,274 | ||||||
5,741 | GameStop Corp., Class A^ | 103,051 | ||||||
3,363 | Genesco, Inc.*^ | 109,298 | ||||||
693 | Group 1 Automotive, Inc.^ | 49,182 | ||||||
11,356 | Guess?, Inc.^ | 191,689 | ||||||
2,764 | Haverty Furniture Cos., Inc. | 62,605 | ||||||
3,790 | Hibbett Sports, Inc.*^ | 77,316 | ||||||
1,806 | Kirkland’s, Inc.* | 21,609 | ||||||
3,560 | Lithia Motors, Inc., Class A^ | 404,379 | ||||||
1,529 | Lumber Liquidators Holdings, Inc.*^ | 47,995 | ||||||
3,611 | MarineMax, Inc.* | 68,248 | ||||||
3,180 | Michaels Cos., Inc. (The)*^ | 76,924 | ||||||
4,983 | Monro Muffler Brake, Inc.^ | 283,782 | ||||||
4,397 | Murphy U.S.A., Inc.*^ | 353,343 | ||||||
11,726 | New York & Co.* | 33,536 | ||||||
42,056 | Office Depot, Inc. | 148,878 | ||||||
3,403 | Party City Holdco, Inc.*^ | 47,472 | ||||||
1,981 | Penske Automotive Group, Inc. | 94,791 | ||||||
11,557 | Pier 1 Imports, Inc.^ | 47,846 | ||||||
1,537 | Rent-A-Center, Inc.^ | 17,061 | ||||||
7,968 | Sally Beauty Holdings, Inc.*^ | 149,480 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Specialty Retail, continued | ||||||||
2,273 | Signet Jewelers, Ltd. | $ | 128,538 | |||||
5,594 | Sleep Number Corp.*^ | 210,278 | ||||||
4,654 | Sonic Automotive, Inc., Class A | 85,866 | ||||||
2,363 | Sportsman’s Warehouse Holdings, Inc.* | 15,619 | ||||||
884 | Tailored Brands, Inc.^ | 19,298 | ||||||
289 | Tandy Leather Factory, Inc.* | 2,225 | ||||||
6,734 | The Buckle, Inc.^ | 159,933 | ||||||
8,543 | The Container Store Group, Inc.* | 40,494 | ||||||
7,392 | The Tile Shop Holdings, Inc.^ | 70,963 | ||||||
2,271 | Tilly’s, Inc. | 33,520 | ||||||
737 | Trans World Entertainment Corp.* | 1,345 | ||||||
2,621 | Urban Outfitters, Inc.*^ | 91,892 | ||||||
4,282 | Vitamin Shoppe, Inc.*^ | 18,841 | ||||||
727 | Winmark Corp. | 94,074 | ||||||
3,700 | Zumiez, Inc.* | 77,053 | ||||||
|
| |||||||
6,824,014 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (0.3%): | ||||||||
3,723 | 3D Systems Corp.*^ | 32,167 | ||||||
1,308 | Astro-Med, Inc. | 18,312 | ||||||
7,288 | Avid Technology, Inc.* | 39,282 | ||||||
1,901 | Concurrent Computer Corp. | 10,969 | ||||||
1,813 | Cray, Inc.*^ | 43,875 | ||||||
4,887 | Diebold, Inc.^ | 79,902 | ||||||
7,170 | Eastman Kodak Co.* | 22,227 | ||||||
5,656 | Electronics for Imaging, Inc.*^ | 167,021 | ||||||
2,458 | Stratasys, Ltd.* | 49,062 | ||||||
5,858 | Super Micro Computer, Inc.*^ | 122,579 | ||||||
1,590 | TransAct Technologies, Inc. | 21,068 | ||||||
|
| |||||||
606,464 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (0.9%): | ||||||||
1,716 | Cherokee, Inc.* | 3,260 | ||||||
8,448 | Crocs, Inc.*^ | 106,783 | ||||||
2,291 | Culp, Inc. | 76,749 | ||||||
4,229 | Deckers Outdoor Corp.*^ | 339,377 | ||||||
6,596 | G-III Apparel Group, Ltd.* | 243,326 | ||||||
7,140 | Iconix Brand Group, Inc.*^ | 9,211 | ||||||
816 | Lakeland Industries, Inc.* | 11,873 | ||||||
2,740 | Oxford Industries, Inc.^ | 206,021 | ||||||
683 | Perry Ellis International, Inc.* | 17,102 | ||||||
1,515 | Rocky Brands, Inc. | 28,634 | ||||||
6,949 | Sequential Brands Group, Inc.* | 12,369 | ||||||
8,174 | Steven Madden, Ltd.* | 381,725 | ||||||
957 | Unifi, Inc.* | 34,328 | ||||||
1,916 | Vera Bradley, Inc.* | 23,337 | ||||||
10,708 | Wolverine World Wide, Inc.^ | 341,371 | ||||||
|
| |||||||
1,835,466 | ||||||||
|
| |||||||
Thrifts & Mortgage Finance (2.7%): | ||||||||
1,803 | Atlantic Coast Financial Corp.*^ | 17,002 | ||||||
8,784 | Bank Mutual Corp. | 93,550 | ||||||
3,938 | BankFinancial Corp. | 60,409 | ||||||
2,775 | Bear State Financial, Inc. | 28,388 |
Continued
19
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Thrifts & Mortgage Finance, continued | ||||||||
10,884 | Beneficial Bancorp, Inc. | $ | 179,042 | |||||
9,091 | BofI Holding, Inc.*^ | 271,821 | ||||||
1,659 | BSB Bancorp, Inc.* | 48,526 | ||||||
20,912 | Capitol Federal Financial, Inc. | 280,430 | ||||||
3,165 | Charter Financial Corp. | 55,514 | ||||||
280 | Citizens Community Bancorp, Inc. | 3,777 | ||||||
4,482 | Clifton Bancorp, Inc. | 76,642 | ||||||
993 | Coastway Bancorp, Inc.* | 21,151 | ||||||
5,896 | Dime Community Bancshares | 123,521 | ||||||
1,537 | ESSA Bancorp, Inc. | 24,085 | ||||||
1,705 | Essent Group, Ltd.* | 74,031 | ||||||
242 | First Capital, Inc. | 8,894 | ||||||
590 | First Defiance Financial Corp. | 30,662 | ||||||
7,963 | Flagstar Bancorp, Inc.*^ | 297,975 | ||||||
574 | FS Bancorp, Inc. | 31,323 | ||||||
195 | Guaranty Federal Bankshares, Inc. | 4,290 | ||||||
681 | Hamilton Bancorp, Inc.* | 10,658 | ||||||
301 | Hingham Institution for Savings | 62,307 | ||||||
629 | HMN Financial, Inc.* | 12,045 | ||||||
973 | Home Bancorp, Inc. | 42,053 | ||||||
43 | Home Federal Bancorp, Inc. | 1,217 | ||||||
4,136 | HomeStreet, Inc.* | 119,737 | ||||||
1,446 | HopFed Bancorp, Inc. | 20,562 | ||||||
869 | IF Bancorp, Inc.^ | 17,119 | ||||||
865 | Impac Mortgage Holdings, Inc.* | 8,788 | ||||||
7,701 | Kearny Financial Corp. | 111,279 | ||||||
390 | Kentucky First Federal Bancorp | 3,491 | ||||||
1,116 | LendingTree, Inc.*^ | 379,942 | ||||||
940 | Malvern Bancorp, Inc.* | 24,628 | ||||||
7,012 | Meridian Bancorp, Inc. | 144,447 | ||||||
1,197 | Meta Financial Group, Inc. | 110,902 | ||||||
676 | MSB Financial Corp. | 12,100 | ||||||
3,723 | Nationstar Mortgage Holdings, Inc.*^ | 68,876 | ||||||
3,627 | NMI Holdings, Inc., Class A* | 61,659 | ||||||
8,224 | Northfield Bancorp, Inc. | 140,466 | ||||||
13,856 | Northwest Bancshares, Inc.^ | 231,811 | ||||||
4,804 | Oceanfirst Financial Corp. | 126,105 | ||||||
198 | Oconee Federal Financial Corp.^ | 5,683 | ||||||
16,927 | Ocwen Financial Corp.*^ | 52,982 | ||||||
7,654 | Oritani Financial Corp.^ | 125,526 | ||||||
4,022 | PennyMac Financial Services, Inc., Class A*^ | 89,892 | ||||||
2,981 | PHH Corp.* | 30,704 | ||||||
1,677 | Provident Financial Holdings, Inc. | 30,857 | ||||||
2,873 | Provident Financial Services, Inc. | 77,485 | ||||||
1,685 | Prudential Bancorp, Inc. | 29,656 | ||||||
1,982 | Riverview Bancorp, Inc. | 17,184 | ||||||
2,744 | Security National Financial Corp., Class A* | 14,543 | ||||||
671 | Severn Bancorp, Inc.* | 4,898 | ||||||
1,709 | SI Financial Group, Inc. | 25,122 | ||||||
707 | Southern Missouri Bancorp, Inc. | 26,576 | ||||||
1,815 | Territorial Bancorp, Inc. | 56,029 | ||||||
15,166 | TrustCo Bank Corp. | 139,527 | ||||||
25 | United Community Bancorp | 530 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Thrifts & Mortgage Finance, continued | ||||||||
9,257 | United Community Financial Corp. | $ | 84,516 | |||||
8,283 | United Financial Bancorp, Inc. | 146,112 | ||||||
12,907 | Washington Federal, Inc. | 442,065 | ||||||
5,312 | Waterstone Financial, Inc. | 90,570 | ||||||
5,011 | Wawlker & Dunlop, Inc.* | 238,023 | ||||||
3,601 | Western New England BanCorp, Inc. | 39,251 | ||||||
4,511 | WSFS Financial Corp. | 215,851 | ||||||
35 | WVS Financial Corp. | 543 | ||||||
|
| |||||||
5,425,350 | ||||||||
|
| |||||||
Tobacco (0.2%): | ||||||||
1,419 | Alliance One International, Inc.* | 18,802 | ||||||
635 | Universal Corp. | 33,338 | ||||||
17,933 | Vector Group, Ltd.^ | 401,340 | ||||||
|
| |||||||
453,480 | ||||||||
|
| |||||||
Trading Companies & Distributors (1.4%): | ||||||||
311 | AeroCentury Corp.* | 4,740 | ||||||
3,134 | Air Lease Corp.^ | 150,714 | ||||||
2,582 | Aircastle, Ltd. | 60,393 | ||||||
5,198 | Applied Industrial Technologies, Inc. | 353,984 | ||||||
8,168 | Beacon Roofing Supply, Inc.* | 520,792 | ||||||
1,500 | BlueLinx Holdings, Inc.* | 14,640 | ||||||
2,473 | BMC Stock Holdings, Inc.* | 62,567 | ||||||
4,236 | CAI International, Inc.* | 119,964 | ||||||
2,504 | DXP Enterprises, Inc.* | 74,043 | ||||||
1,463 | Envirostar, Inc.^ | 58,520 | ||||||
1,239 | H&E Equipment Services, Inc. | 50,365 | ||||||
1,116 | Herc Holdings, Inc.* | 69,873 | ||||||
4,781 | Huttig Building Products, Inc.*^ | 31,794 | ||||||
4,012 | Kaman Corp., Class A | 236,066 | ||||||
373 | Lawson Products, Inc.* | 9,232 | ||||||
4,569 | MRC Global, Inc.* | 77,307 | ||||||
4,852 | NOW, Inc.*^ | 53,518 | ||||||
2,681 | Rush Enterprises, Inc., Class A* | 136,222 | ||||||
9,126 | Textainer Group Holdings, Ltd.* | 196,209 | ||||||
3,983 | Titan Machinery, Inc.* | 84,320 | ||||||
577 | TransAct Technologies, Inc.* | 8,222 | ||||||
5,731 | Triton International, Ltd. | 214,626 | ||||||
1,668 | Univar, Inc.* | 51,641 | ||||||
2,676 | Veritiv Corp.*^ | 77,336 | ||||||
2,996 | WESCO International, Inc.* | 204,177 | ||||||
|
| |||||||
2,921,265 | ||||||||
|
| |||||||
Water Utilities (0.6%): | ||||||||
5,121 | American States Water Co. | 296,557 | ||||||
1,521 | Artesian Resources Corp. | 58,650 | ||||||
7,681 | California Water Service Group | 348,333 | ||||||
1,558 | Connecticut Water Service, Inc. | 89,445 | ||||||
2,756 | Consolidated Water Co., Ltd. | 34,726 | ||||||
2,508 | Middlesex Water Co. | 100,094 | ||||||
669 | Pure Cycle Corp.* | 5,586 | ||||||
3,454 | SJW Corp. | 220,469 | ||||||
2,392 | York Water Co. (The) | 81,089 | ||||||
|
| |||||||
1,234,949 | ||||||||
|
|
Continued
20
AZL DFA U.S. Small Cap Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Wireless Telecommunication Services (0.4%): | ||||||||
6,783 | Boingo Wireless, Inc.* | $ | 152,618 | |||||
7,479 | Shenandoah Telecommunications Co. | 252,790 | ||||||
2,722 | Spok Holdings, Inc. | 42,599 | ||||||
9,308 | Telephone & Data Systems, Inc. | 258,762 | ||||||
1,049 | United States Cellular Corp.* | 39,474 | ||||||
|
| |||||||
746,243 | ||||||||
|
| |||||||
Total Common Stocks (Cost $166,216,518) | 198,464,236 | |||||||
|
| |||||||
Right (0.0%): | ||||||||
Media (0.0%): | ||||||||
21,894 | Media General, Inc. CVR, Expires on 1/18/18*(a)(b) | 2,189 | ||||||
|
| |||||||
Total Right (Cost $6,785) | 2,189 | |||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Securities Held as Collateral for Securities on Loan (27.4%): | ||||||||
$ | 54,435,142 | AZL DFA U.S. Small Cap Fund Securities Lending Collateral Account(c) | $ | 54,435,142 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 54,435,142 | ||||||
|
| |||||||
| Total Investment Securities | 252,901,567 | ||||||
Net other assets (liabilities) — (27.5)% | (54,482,245 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 198,419,322 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
ADR—American Depositary Receipt
CVR—Contingency Valued Rights
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2017. The total value of securities on loan as of December 31, 2017, was $52,631,684. |
(a) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2017. The total of all such securities represent 0.00% of the net assets of the fund. |
(b) | The subadviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2017, these securities represent 0.18% 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, 2017. |
(d) | See Federal Tax Information listed in the Notes to the Financial Statements. |
See accompanying notes to the financial statements.
21
AZL DFA U.S. Small Cap Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investment securities, at cost | $ | 220,658,445 | |||
|
| ||||
Investment securities, at value* | $ | 252,901,567 | |||
Interest and dividends receivable | 291,702 | ||||
Receivable for investments sold | 921,307 | ||||
Reclaims receivable | 563 | ||||
Prepaid expenses | 1,138 | ||||
|
| ||||
Total Assets | 254,116,277 | ||||
|
| ||||
Liabilities: | |||||
Cash overdraft | 724,129 | ||||
Payable for capital shares redeemed | 362,191 | ||||
Payable for collateral received on loaned securities | 54,435,142 | ||||
Manager fees payable | 118,713 | ||||
Administration fees payable | 5,609 | ||||
Distribution fees payable | 42,397 | ||||
Custodian fees payable | 1,654 | ||||
Administrative and compliance services fees payable | 436 | ||||
Transfer agent fees payable | 676 | ||||
Trustee fees payable | 281 | ||||
Other accrued liabilities | 5,727 | ||||
|
| ||||
Total Liabilities | 55,696,955 | ||||
|
| ||||
Net Assets | $ | 198,419,322 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 155,701,555 | |||
Accumulated net investment income/(loss) | 1,025,913 | ||||
Accumulated net realized gains/(losses) from investment transactions | 9,448,734 | ||||
Net unrealized appreciation/(depreciation) on investments | 32,243,120 | ||||
|
| ||||
Net Assets | $ | 198,419,322 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 15,998,622 | ||||
Net Asset Value (offering and redemption price per share) | $ | 12.40 | |||
|
|
* | Includes securities on loan of $52,631,684. |
For the Year Ended December 31, 2017
Investment Income: | |||||
Dividends | $ | 2,812,248 | |||
Interest | 211 | ||||
Income from securities lending | 267,640 | ||||
Other income | 8,199 | ||||
Foreign withholding tax | (1,436 | ) | |||
|
| ||||
Total Investment Income | 3,086,862 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 1,683,925 | ||||
Administration fees | 66,953 | ||||
Distribution fees | 495,271 | ||||
Custodian fees | 15,314 | ||||
Administrative and compliance services fees | 2,537 | ||||
Transfer agent fees | 5,426 | ||||
Trustee fees | 9,186 | ||||
Professional fees | 10,941 | ||||
Shareholder reports | 3,018 | ||||
Other expenses | 5,091 | ||||
|
| ||||
Total expenses before reductions | 2,297,662 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (297,164 | ) | |||
|
| ||||
Net expenses | 2,000,498 | ||||
|
| ||||
Net Investment Income/(Loss) | 1,086,364 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions and foreign currencies | 9,375,020 | ||||
Change in net unrealized appreciation/depreciation on investments | 9,991,127 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 19,366,147 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 20,452,511 | |||
|
|
See accompanying notes to the financial statements.
22
AZL DFA U.S. Small Cap Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 1,086,364 | $ | 1,136,185 | ||||||
Net realized gains/(losses) on investment transactions | 9,375,020 | 2,962,328 | ||||||||
Change in unrealized appreciation/depreciation on investments | 9,991,127 | 41,654,859 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 20,452,511 | 45,753,372 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (1,109,970 | ) | (897,259 | ) | ||||||
From net realized gains | (2,963,806 | ) | (346,185 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (4,073,776 | ) | (1,243,444 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 3,794,880 | 6,352,461 | ||||||||
Proceeds from dividends reinvested | 4,073,776 | 1,243,444 | ||||||||
Value of shares redeemed | (33,839,893 | ) | (52,625,048 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (25,971,237 | ) | (45,029,143 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (9,592,502 | ) | (519,215 | ) | ||||||
Net Assets: | ||||||||||
Beginning of period | 208,011,824 | 208,531,039 | ||||||||
|
|
|
| |||||||
End of period | $ | 198,419,322 | $ | 208,011,824 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 1,025,913 | $ | 1,121,439 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 327,610 | 651,607 | ||||||||
Dividends reinvested | 348,186 | 125,347 | ||||||||
Shares redeemed | (2,884,226 | ) | (5,243,191 | ) | ||||||
|
|
|
| |||||||
Change in shares | (2,208,430 | ) | (4,466,237 | ) | ||||||
|
|
|
|
See accompanying notes to the financial statements.
23
AZL DFA U.S. Small Cap Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, 2017 | Year Ended December 31, 2016 | April 27, 2015 to December 31, 2015(a) | |||||||||||||
Net Asset Value, Beginning of Period | $ | 11.42 | $ | 9.20 | $ | 10.00 | |||||||||
|
|
|
|
|
| ||||||||||
Investment Activities: | |||||||||||||||
Net Investment Income/(Loss) | 0.07 | 0.07 | 0.03 | ||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.16 | 2.21 | (0.83 | ) | |||||||||||
|
|
|
|
|
| ||||||||||
Total from Investment Activities | 1.23 | 2.28 | (0.80 | ) | |||||||||||
|
|
|
|
|
| ||||||||||
Dividends to Shareholders From: | |||||||||||||||
Net Investment Income | (0.07 | ) | (0.04 | ) | — | ||||||||||
Net Realized Gains | (0.18 | ) | (0.02 | ) | — | ||||||||||
|
|
|
|
|
| ||||||||||
Total Dividends | (0.25 | ) | (0.06 | ) | — | ||||||||||
|
|
|
|
|
| ||||||||||
Net Asset Value, End of Period | $ | 12.40 | $ | 11.42 | $ | 9.20 | |||||||||
|
|
|
|
|
| ||||||||||
Total Return(b) | 10.87 | % | 24.90 | % | (8.00 | )%(c) | |||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||
Net Assets, End of Period (000’s) | $ | 198,419 | $ | 208,012 | $ | 208,531 | |||||||||
Net Investment Income/(Loss)(d) | 0.55 | % | 0.56 | % | 0.50 | % | |||||||||
Expenses Before Reductions(d)(e) | 1.16 | % | 1.14 | % | 1.18 | % | |||||||||
Expenses Net of Reductions(d) | 1.01 | % | 0.99 | % | 1.03 | % | |||||||||
Portfolio Turnover Rate | 9 | % | 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 for periods less than one year. |
(d) | Annualized for periods less than one year. |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
See accompanying notes to the financial statements.
24
AZL DFA U.S. Small Cap Fund
Notes to the Financial Statements
December 31, 2017
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 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 accrues 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 and Withholding Taxes
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, or from other assets and liabilities, from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains is determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., reclassification of gain/loss and other permanent adjustments), 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 DFA U.S. Small Cap Fund
Notes to the Financial Statements
December 31, 2017
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, 2017 are noted on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $45 million for the year ended December 31, 2017.
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 $23,906 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The fund had securities lending transactions of $54,435,142 accounted for as secured borrowings with cash collateral of overnight and continuous maturities as of December 31, 2017.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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, 2017, the Fund did not engage in any such transactions under the Rule.
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, 2019.
For the year ended December 31, 2017, the annual rate paid 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. |
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, 2017, there were no contractual reimbursements 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
26
AZL DFA U.S. Small Cap Fund
Notes to the Financial Statements
December 31, 2017
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.”
FIS Investor Services LLC (“FIS”) 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, 2017, $2,151 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, 2017, actual Trustee compensation was $1,116,333 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.
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, 2017, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value. There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
27
AZL DFA U.S. Small Cap Fund
Notes to the Financial Statements
December 31, 2017
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Other^ | Total | ||||||||||||||||
Common Stocks | ||||||||||||||||||||
Diversified Financial Services | $ | 116,737 | $ | 3,270 | $ | — | $ | 120,007 | ||||||||||||
Other Common Stocks+ | 198,344,229 | — | — | 198,344,229 | ||||||||||||||||
Right | — | 2,189 | — | 2,189 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | 54,435,142 | 54,435,142 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investments | $ | 198,460,966 | $ | 5,459 | $ | 54,435,142 | $ | 252,901,567 | ||||||||||||
|
|
|
|
|
|
|
|
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
5. Security Purchases and Sales
For the year ended December 31, 2017, 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 | $ | 17,226,811 | $ | 44,977,769 |
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, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $ 220,590,946. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 49,769,350 | ||
Unrealized (depreciation) | (17,458,729 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 32,310,621 | ||
|
|
The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL DFA U.S. Small Cap Fund | $ | 2,345,932 | $ | 1,727,844 | $ | 4,073,776 |
(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, 2016 were as follows:
Ordinary Income | Net Long-Term Capital Gains | 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. |
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AZL DFA U.S. Small Cap Fund
Notes to the Financial Statements
December 31, 2017
At December 31, 2017, 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. Small Cap Fund | $ | 1,330,787 | $ | 9,076,361 | $ | — | $ | 32,310,619 | $ | 42,717,767 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2017, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 60% of the Fund.
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
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, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the two-year period then ended and the period from April 27, 2015 (commencement of operations) to December 31, 2015. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, 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 two-year period then ended and the period from April 27, 2015 to December 31, 2015, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2017, 97.70% 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, 2017, the Fund declared net short-term capital gain distributions of $1,235,962.
During the year ended December 31, 2017, the Fund declared net long-term capital gain distributions of $1,727,844.
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A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
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Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
33
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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
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The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in 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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
36
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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
37
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® Enhanced Bond Index Fund
Annual Report
December 31, 2017
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
Page 24
Statements of Changes in Net Assets
Page 25
Page 26
Notes to the Financial Statements
Page 27
Report of Independent Registered Public Accounting Firm
Page 34
Page 35
Approval of Investment Advisory and Subadvisory Agreements
Page 36
Information about the Board of Trustees and Officers
Page 39
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, 2017?
For the year ended December 31, 2017, the AZL® Enhanced Bond Index Fund (Class 2 Shares) (the “Fund”) had a total return of 3.01%. That compared to a 3.54% total return for its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index1.
Investors began 2017 with an appetite for risk—a carryover from the end of 2016—which drove up prices on risk assets. Demand for credit was high enough to absorb the record $142 billion in corporate issuance in the first quarter, which helped to narrow credit spreads in both investment-grade and high-yield markets. Market gains were further supported by positive economic data in the first quarter. Data turned mixed in the second quarter, however, and global rates sold off in the final week of June after hawkish comments about the potential risks of higher inflation were issued by central banks across G102 countries.
Economic data turned broadly positive in the third quarter. Even so, U.S. Treasury yields trended lower as investors sought a safe haven for assets in response to geopolitical tensions involving North Korea. Inflation rebounded in September, and the Federal Reserve Board (the Fed) announced its much anticipated balance sheet reduction program would start in October.
The fourth quarter saw a dramatic flattening of the yield curve. Yields hit a multi-month high in late December after the Senate approved a $1.5 trillion tax reform bill. Global rates continued a gradual trend higher throughout the quarter, as the Fed increased its benchmark target for short-term interest rates at its December meeting.
The Fund underperformed it’s benchmark for the period. It’s underweight exposure to credit, which includes corporate investment-grade bond, dragged on returns given that corporate bonds strongly outperformed during the period under review. Concern about tight valuations among corporate bonds led the Fund managers to adopt this positioning.
The Fund’s relative performance benefited from its overweight allocation to and security selection among commercial mortgage-backed securities (CMBS) and asset-backed securities (ABS). In particular, the Fund benefited from its exposure to private student loans in the ABS market, collateralized loan obligations (CLOs), and the single asset/single borrower market among CMBS deals. The Fund’s strategy to opportunistically trade duration throughout the year, positioning itself underweight duration versus the benchmark for most of the final three quarters of the year, also added to relative results. (Underweight duration describes a state in which a bond fund positions itself to benefit from rising interest rates relative to the benchmark.)*
The Fund held derivatives in the form Treasury futures. The derivative positions benefited the portfolio’s relative performance as a tool to manage duration and curve risk.*
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, 2017. |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
2 | The Group of Ten (G10) is made up of eleven industrial countries (Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States) which consult and co-operate on economic, monetary and financial matters. The Ministers of Finance and central bank Governors of the Group of Ten meet as needed in connection with the meetings of the International Monetary Fund and the World Bank. |
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, 2017
1 Year | 3 Year | 5 Year | Since Inception (7/10/09) | |||||||||||||
AZL® Enhanced Bond Index Fund (Class 2 Shares) | 3.01 | % | 1.83 | % | 1.68 | % | 3.03 | % | ||||||||
Bloomberg Barclays U.S. Aggregate Bond Index | 3.54 | % | 2.24 | % | 2.10 | % | 3.74 | % |
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 Ratios | Gross | |||
AZL® Enhanced Bond Index Fund (Class 2 Shares) | 0.67 | % |
The above expense ratios are based on the current Fund prospectus dated May 1, 2017. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), 0.70% for Class 2 Shares through April 30, 2019. Additional information pertaining to the December 31, 2017 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
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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Enhanced Bond Index Fund | $ | 1,000.00 | $ | 1,009.30 | $ | 3.29 | 0.65 | % |
The Hypothetical Expense table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Beginning Account Value 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Enhanced Bond Index Fund | $ | 1,000.00 | $ | 1,021.93 | $ | 3.31 | 0.65 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
U.S. Government Agency Mortgages | 32.2 | % | |||
U.S. Treasury Obligations | 32.6 | ||||
Corporate Bonds | 19.1 | ||||
Securities Held as Collateral for Securities on Loan | 15.4 | ||||
Money Markets | 8.8 | ||||
Asset Backed Securities | 5.2 | ||||
Yankee Dollars | 5.2 | ||||
Collateralized Mortgage Obligations | 4.4 | ||||
Municipal Bonds | 0.1 | ||||
|
| ||||
Total Investment Securities | 123.0 | ||||
Net other assets (liabilities) | (23.0 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
Asset Backed Securities (5.2%): | ||||||||
$ | 6,930,000 | Aebor Realty Collateralized Loan, Class A, Series 17-FL1, 2.78%(US0001M+130bps), 4/15/27, Callable 11/15/19 @ 100(a) | $ | 6,931,866 | ||||
2,492,686 | American Homes 4 Rent LLC, Class A, Series 2014-SFR3, 3.68%, 12/17/36(a) | 2,581,256 | ||||||
6,000,000 | AmeriCredit Automoblie Receivables Trust, Class A3, Series 16-3, 1.46%, 5/10/21, Callable 9/8/20 @ 100 | 5,972,417 | ||||||
2,330,000 | AmeriCredit Automoblie Receivables Trust, Class A3, Series 16-4, 1.53%, 7/8/21, Callable 11/8/20 @ 100 | 2,314,819 | ||||||
1,000,000 | Apidos CLO, Class A1R, Series 15-20A, 2.69%(US0003M+133bps), 1/16/27, Callable 1/16/18 @ 100(a) | 1,001,544 | ||||||
1,885,000 | Arbor Realty Collateralized Loan, Class A, Series 15-FL2A, 3.23%(US0001M+175bps), 9/15/25, Callable 3/15/18 @ 100(a) | 1,888,522 | ||||||
5,350,000 | Banc of America Merrill Lynch Large Loan, Class A, Series 2015-ASHF, 2.70%(US0001M+122bps), 1/15/28(a) | 5,360,137 | ||||||
1,502,000 | Benefit Street Partners CLO, Ltd., Class A1R, Series 2014-IVA, 2.85%(US0003M+149bps), 1/20/29, Callable 1/20/19 @ 100(a) | 1,515,692 | ||||||
1,000,000 | Cent CLO, LP, Class A1R, Series 14-22A, 2.80%(US0003M+141bps), 11/7/26(a) | 1,001,772 | ||||||
2,000,000 | Chase Issuance Trust, Class A5, Series 2016-A5, 1.27%, 7/15/21 | 1,976,467 | ||||||
2,210,000 | Citibank Credit Card Issuance Trust, Class A1, Series 2014-A1, 2.88%, 1/23/23 | 2,249,685 | ||||||
3,335,000 | Citibank Credit Card Issuance Trust, Class A3, Series 2017-A3, 1.92%, 4/7/22 | 3,314,196 | ||||||
1,314,880 | Credit Acceptance Auto Loan Trust, Class A, Series 15-2A, 2.40%, 2/15/23, Callable 12/15/18 @ 100(a)(b) | 1,316,178 | ||||||
1,460,000 | Drive Auto Receivables Trust, Class A3, Series 2017-3, 1.85%, 4/15/20 | 1,457,699 | ||||||
623,216 | Drive Auto Receivables Trust, Class A2, Series 17-BA, 1.59%, 12/17/18, Callable 2/15/20 @ 100(a) | 623,169 | ||||||
1,495,000 | Ford Credit Floorplan Master Owner Trust, Class A, Series 2014-2, 1.98%(US0001M+50bps), 2/15/21 | 1,503,364 | ||||||
1,855,000 | Golden Credit Card Trust, Class A, Series 2015-2A, 2.02%, 4/15/22(a) | 1,844,904 | ||||||
1,899,493 | GoldenTree Loan Opportunities VII, Ltd., Class A, Series 2013-7A, 2.52%(US0003M+115bps), 4/25/25, Callable 1/25/18 @ 100(a) | 1,899,888 | �� | |||||
4,476,213 | JPMorgan Chase Commercial Mortgage Securities Corp., Class A4, Series 17-1, 3.50%, 1/25/47, Callable 3/25/36 @ 100(a)(b) | 4,544,480 | ||||||
679,577 | Navient Student Loan Trust, Class A, Series 14-CTA, 2.18%(US0001M+70bps), 9/16/24, Callable 9/15/21 @ 100(a) | 681,362 | ||||||
4,042,300 | Navient Student Loan Trust, Class A, Series 2015-CA, 2.98%(US0001M+150bps), 1/16/35, Callable 3/15/20 @ 100(a) | 4,067,153 |
Principal Amount | Fair Value | |||||||
Asset Backed Securities, continued | ||||||||
$ | 1,466,921 | Navient Student Loan Trust, Class A2A, Series 2016-AA, 3.91%, 12/15/45, Callable 8/15/29 @ 100(a) | $ | 1,507,300 | ||||
1,400,000 | OCP CLO, Ltd., Class A1R, Series 2012-2A, 2.85%(US0003M+140bps), 11/22/25, Callable 11/22/18 @ 100(a) | 1,409,449 | ||||||
35,938 | OneMain Financial Issuance Trust, Class A, Series 2014-2A, 2.47%, 9/18/24, Callable 1/18/18 @ 101(a) | 35,944 | ||||||
1,875,000 | OneMain Financial Issuance Trust, Class A, Series 2015-1A, 3.19%, 3/18/26, Callable 1/18/18 @ 101(a) | 1,884,586 | ||||||
1,250,000 | OZLM, Ltd., Class A1BR, Series 14-7A, 2.50%(US0003M+115bps), 7/17/26, Callable 1/17/18 @ 100(a) | 1,251,271 | ||||||
11,770,000 | Pfs Financing Corp., Class A, Series 2017-AA, 2.06%(US0001M+58bps), 3/15/21(a) | 11,795,301 | ||||||
2,425,000 | PFS Financing Corp., Class 4, Series 16-A, 2.68%(US0001M+120bps), 2/18/20(a) | 2,428,001 | ||||||
480,000 | PFS Financing Corp., Class A, Series 2016-BA, 1.87%, 10/15/21(a) | 477,116 | ||||||
2,300,000 | Prestige Auto Receivables Trust, Class C, Series 2014-1A, 2.39%, 5/15/20, Callable 8/15/18 @ 100(a) | 2,303,685 | ||||||
2,044,083 | Progress Residential Trust, Class A, Series 2015-SFR2, 2.74%, 6/12/32(a) | 2,039,379 | ||||||
1,700,000 | Santander Drive Auto Receivables Trust, Class A3, Series 16-3, 1.50%, 8/17/20, Callable 1/15/20 @ 100 | 1,697,207 | ||||||
76,986 | SLM Student Loan Trust, Class A4, Series 2006-A, 1.78%(US0003M+19bps), 12/15/23, Callable 3/15/28 @ 100 | 76,975 | ||||||
104,855 | SLM Student Loan Trust, Class A2, Series 2012-C, 3.31%, 10/15/46, Callable 3/15/18 @ 100(a) | 105,119 | ||||||
614,797 | SMB Private Education Loan Trust, Class A2A, Series 15-B, 2.98%, 7/15/27(a) | 618,363 | ||||||
3,964,009 | SMB Private Education Loan Trust, Class A1, Series 17-A, 1.93%(US0001M+45bps), 6/17/24(a) | 3,969,892 | ||||||
2,250,000 | SMB Private Education Loan Trust, Class A2A, Series 2017-A, 2.88%, 9/15/34(a) | 2,253,993 | ||||||
250,000 | SMB Private Education Loan Trust, Class A2A, Series 16-A, 2.70%, 5/15/31(a)(b) | 248,735 | ||||||
1,500,000 | SMB Private Education Loan Trust, Class A2A, Series 2017-B, 2.82%, 10/15/35, Callable 9/15/27 @ 100(a) | 1,496,363 | ||||||
900,000 | SMB Private Education Loan Trust, Class A2B, Series 2017-B, 2.10%(US0001M+75bps), 10/15/35, Callable 9/15/27 @ 100(a) | 899,924 | ||||||
2,746,626 | Social Professional Loan Program, Class A2, Series 2015-D, 2.72%, 10/27/36(a) | 2,745,050 | ||||||
999,794 | Social Professional Loan Program, Class A2, Series 2015-C, 2.51%, 8/25/33(a) | 995,780 | ||||||
5,850,000 | SOFI Professional Loan Program LLC, Class A2FX, Series 2017-F, 2.84%, 1/25/41(a) | 5,857,801 | ||||||
2,190,000 | Springleaf Funding Trust, Class A, Series 2015-AA, 3.16%, 11/15/24, Callable 2/15/18 @ 100(a) | 2,198,696 |
Continued
4
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
Asset Backed Securities, continued | ||||||||
$ | 2,435,000 | Synchrony Credit Card Master Note Trust, Class A, Series 2012-7, 1.76%, 9/15/22 | $ | 2,417,006 | ||||
435,000 | World Financial Network Credit Card Master Trust, Class A, Series 2012-A, 3.14%, 1/17/23 | 440,314 | ||||||
2,000,000 | World Financial Network Credit Card Master Trust, Class A, Series 2016-C, 1.72%, 8/15/23 | 1,982,556 | ||||||
|
| |||||||
Total Asset Backed Securities (Cost $107,189,454) | 107,182,376 | |||||||
|
| |||||||
Collateralized Mortgage Obligations (4.4%): | ||||||||
2,540,000 | BHMS Mortgage Trust, Class AFL, Series 2014-ATLS, 2.86%(US0001M+150bps), 7/5/33(a) | 2,551,799 | ||||||
1,847,000 | Caesars Palace Las Vegas Trust, Class A, Series 2017-VICI, 3.53%, 10/15/34(a) | 1,887,359 | ||||||
580,000 | Cedar Funding Ltd., Class A1, Series 2017-8A, 2.62%(US0003M+125bps), 10/17/30, Callable 10/17/19 @ 100(a) | 583,634 | ||||||
5,206,818 | CGGS Commercial Mortgage Trust, Class AFX, Series 2016-RNDA, 2.76%, 2/10/33(a) | 5,214,161 | ||||||
3,000,000 | CIFC Funding, Ltd., Class ARR, Series 2015-1A, 2.47%(US0003M+111bps), 1/22/31, Callable 1/22/20 @ 100(a)(c) | 3,000,000 | ||||||
26,343,422 | Commercial Mortgage Loan Trust, Class XA, Series 2015-CCRE23, 0.98%, 5/10/48(b) | 1,241,025 | ||||||
667,000 | Commercial Mortgage Loan Trust, Class A5, Series 2015-CR24, 3.70%, 8/10/48 | 696,830 | ||||||
1,279,058 | Commercial Mortgage Loan Trust, Class AM, Series 2013-CR7, 3.31%, 3/10/46(a) | 1,283,486 | ||||||
8,970,000 | Commercial Mortgage Loan Trust, Class A, Series 2014-TWC, 2.28%(US0001M+85bps), 2/13/32(a) | 8,978,306 | ||||||
2,500,000 | Core Industrial Trust, Class A, Series 2015-WEST, 3.29%, 2/10/37(a) | 2,537,650 | ||||||
3,640,000 | Core Industrial Trust, Class A, Series 2015-CALW, 3.04%, 2/10/34(a) | 3,697,632 | ||||||
3,720,000 | Cosmopolitan Hotel Trust, Class A, Series 2017-CSMO, 2.31%(US0001M+93bps), 11/15/36(a) | 3,725,842 | ||||||
1,430,000 | Credit Suisse Mortgage Trust, Class A, Series 2017-CALI, 3.43%, 11/10/32(a) | 1,463,770 | ||||||
1,590,000 | Credit Suisse Mortgage Trust, Class A, Series 2016-MFF, 3.08%(US0001M+160bps), 11/15/33(a) | 1,599,801 | ||||||
515,362 | GAHR Commercial Mortgage Trust, Class AFL1, Series 2015-NRF, 2.55%(US0001M+130bps), 12/15/34(a) | 515,522 | ||||||
640,000 | GAHR Commercial Mortgage Trust, Class AFX, Series 2015-NRF, 3.23%, 12/15/34(a) | 648,095 | ||||||
1,100,000 | GS Mortgage Securities Trust, Class A, Series 2012-SHOP, 2.93%, 6/5/31(a) | 1,109,306 | ||||||
1,525,000 | IMT Trust, Class BFX, Series 2017-APTS, 3.50%, 6/15/34(a)(b) | 1,531,620 | ||||||
246,631 | JPMorgan Chase Commercial Mortgage Securities Corp., Class A, Series 2012-WLDN, 3.91%, 5/5/30(a) | 254,101 | ||||||
5,065,000 | JPMorgan Chase Commercial Mortgage Securities Corp., Class A4FX, Series 2012-CBX, 3.48%, 6/15/45(a) | 5,211,471 |
Principal Amount | Fair Value | |||||||
Collateralized Mortgage Obligations, continued | ||||||||
$ | 955,000 | JPMorgan Chase Commercial Mortgage Securities Corp., Class A, Series 2016-NINE, 2.85%, 10/6/38(a)(b) | $ | 935,437 | ||||
3,185,762 | JPMorgan Mortgage Trust, Class A6, Series 2017-2, 3.00%, 5/25/47, Callable 12/25/33 @ 100(a)(b) | 3,191,737 | ||||||
3,676,600 | JPMorgan Mortgage Trust, Class A6, Series 2017-4, 3.00%, 11/25/48, Callable 1/25/30 @ 100(a)(b) | 3,698,362 | ||||||
1,180,000 | Latitude Management Real Estate Capital, Class A, Series 2016-CRE2, 2.99%(US0001M+170bps), 11/24/31(a) | 1,191,800 | ||||||
2,600,000 | Merrill Lynch Mortgage Trust, Class E, Series 2005-MKB2, 6.32%, 9/12/42(b) | 2,758,211 | ||||||
1,300,000 | Morgan Stanley Bank of America Merrill Lynch Trust, Class A3, Series 2015-C24, 3.48%, 5/15/48 | 1,342,023 | ||||||
2,775,000 | Morgan Stanley Bank of America Merrill Lynch Trust, Class A4, Series 2015-C24, 3.73%, 5/15/48 | 2,909,710 | ||||||
1,540,000 | Morgan Stanley Capital I Trust, Class A4, Series 2016-BNK2, 3.05%, 11/15/49 | 1,533,930 | ||||||
139,650,000 | Morgan Stanley Capital I Trust, Class XCP, Series 2017-PRME, 1.25%, 8/15/18(a)(b) | 1,409,069 | ||||||
1,740,000 | Morgan Stanley Capital I Trust, Class A, Series 2014-MP, 3.47%, 8/11/33(a) | 1,781,330 | ||||||
4,779,766 | One Lincoln Street Commercial Mortgage, Class A1, Series 2004-C3, 5.72%, 10/15/30(a)(b) | 5,306,735 | ||||||
1,220,000 | SFAVE Commercial Mortgage Securities Trust, Class A2A, Series 2015-5AVE, 3.66%, 1/5/43(a)(b) | 1,209,203 | ||||||
125,000 | SG Commercial Mortgage Securities Trust, Class A4, Series 2016-C5, 3.06%, 10/10/48 | 123,202 | ||||||
947,588 | SMB Private Education Loan Trust, Class A2B, Series 14-A, 2.63%(US0001M+115bps), 5/15/26(a) | 960,037 | ||||||
336,000 | SMB Private Education Loan Trust, Class A2A, Series 16-B, 2.43%, 2/17/32(a)(b) | 330,272 | ||||||
120,000 | Social Professional Loan Program, Class A2B, Series 16-D, 2.34%, 4/25/33(a) | 118,047 | ||||||
1,460,000 | VNO Mortgage Trust, Class A, Series 2013-PENN, 3.81%, 12/13/29(a) | 1,505,005 | ||||||
170,000 | Waldorf Astoria Boca Raton Trust, Class A, Series 2016-BOCA, 2.83%(US0001M+135bps), 6/15/29(a) | 170,262 | ||||||
1,250,000 | Wells Fargo Commercial Mortgage Trust, Class AS, Series 2015-NXS1, 3.41%, 5/15/48 | 1,245,286 | ||||||
5,100,000 | Wells Fargo Commercial Mortgage Trust, Class A4, Series 2015-C28, 3.54%, 5/15/48 | 5,269,859 | ||||||
1,800,000 | Wells Fargo Commercial Mortgage Trust, Class A5, Series 2015-NXS2, 3.77%, 7/15/58(b) | 1,886,239 | ||||||
1,635,000 | Wells Fargo Commercial Mortgage Trust, Class A4, Series 2015-NXS4, 3.72%, 12/15/48 | 1,707,639 | ||||||
31,736,035 | Wells Fargo Commercial Mortgage Trust, Class XA, Series 2016-LC25, 1.09%, 12/15/59(b) | 2,012,518 | ||||||
17,545,487 | WF-RBS Commercial Mortgage Trust, Class XA, Series 2014-C20, 1.13%, 5/15/47(b) | 808,761 | ||||||
|
| |||||||
Total Collateralized Mortgage Obligations (Cost $94,753,729) | 91,136,084 | |||||||
|
|
Continued
5
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
Corporate Bonds (19.0%): | ||||||||
Aerospace & Defense (0.7%): | ||||||||
$ | 580,000 | Aviation Capital Group Corp., 2.88%, 9/17/18, Callable 8/17/18 @ 100(a) | $ | 581,947 | ||||
95,000 | BAE Systems plc, 3.85%, 12/15/25, Callable 9/15/25 @ 100(a) | 98,520 | ||||||
1,280,000 | Huntington Ingalls Industries, Inc., 3.48%, 12/1/27, Callable 9/1/27 @ 100(a) | 1,276,800 | ||||||
325,000 | Lockheed Martin Corp., 3.55%, 1/15/26, Callable 10/15/25 @ 100^ | 337,472 | ||||||
319,000 | Lockheed Martin Corp., 4.50%, 5/15/36, Callable 11/15/35 @ 100 | 357,694 | ||||||
1,280,000 | Lockheed Martin Corp., 4.70%, 5/15/46, Callable 11/15/45 @ 100 | 1,493,392 | ||||||
469,000 | Lockheed Martin Corp., 4.09%, 9/15/52, Callable 3/15/52 @ 100 | 490,952 | ||||||
615,000 | Northrop Grumman Corp., 2.08%, 10/15/20 | 609,988 | ||||||
1,810,000 | Northrop Grumman Corp., 3.25%, 8/1/23 | 1,846,996 | ||||||
515,000 | Northrop Grumman Corp., 3.25%, 1/15/28, Callable 10/15/27 @ 100 | 515,752 | ||||||
700,000 | Northrop Grumman Corp., 4.03%, 10/15/47, Callable 4/15/47 @ 100 | 731,573 | ||||||
1,800,000 | Rockwell Collins, Inc., 2.80%, 3/15/22, Callable 2/15/22 @ 100^ | 1,802,536 | ||||||
1,154,000 | United Technologies Corp., 1.78%, 5/4/18 | 1,152,235 | ||||||
2,115,000 | United Technologies Corp., 1.90%, 5/4/20^ | 2,094,161 | ||||||
500,000 | United Technologies Corp., 4.50%, 6/1/42 | 554,182 | ||||||
500,000 | United Technologies Corp., 3.75%, 11/1/46, Callable 5/1/46 @ 100 | 500,796 | ||||||
|
| |||||||
14,444,996 | ||||||||
|
| |||||||
Air Freight & Logistics (0.1%): | ||||||||
500,000 | FedEx Corp., 3.88%, 8/1/42 | 497,798 | ||||||
1,550,000 | FedEx Corp., 4.55%, 4/1/46, Callable 10/1/45 @ 100 | 1,702,227 | ||||||
120,000 | FedEx Corp., 4.40%, 1/15/47, Callable 7/15/46 @ 100 | 128,043 | ||||||
|
| |||||||
2,328,068 | ||||||||
|
| |||||||
Airlines (0.1%): | ||||||||
610,665 | American Airlines, Series A, 3.38%, 5/1/27 | 610,018 | ||||||
557,387 | American Airlines Pass Through Trust, Class AA, Series 2015-2, 3.60%, 3/22/29 | 566,863 | ||||||
1,270,000 | Southwest Airlines Co., 2.75%, 11/16/22, Callable 10/16/22 @ 100 | 1,268,632 | ||||||
|
| |||||||
2,445,513 | ||||||||
|
| |||||||
Auto Components (0.0%): | ||||||||
50,000 | Delphi Corp., 4.15%, 3/15/24, Callable 12/15/23 @ 100 | 52,801 | ||||||
|
| |||||||
Automobiles (0.2%): | ||||||||
1,375,000 | Ford Motor Co., 5.29%, 12/8/46, Callable 6/8/46 @ 100^ | 1,496,287 | ||||||
2,150,000 | General Motors Co., 5.40%, 4/1/48, Callable 10/1/47 @ 100^ | 2,345,077 | ||||||
|
| |||||||
3,841,364 | ||||||||
|
| |||||||
Banks (2.7%): | ||||||||
403,000 | Bank of America Corp., 2.00%, 1/11/18, MTN | 403,008 | ||||||
1,065,000 | Bank of America Corp., 2.73%(US0003M+107bps), 3/22/18, MTN | 1,067,007 |
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Banks, continued | ||||||||
$ | 500,000 | Bank of America Corp., 5.65%, 5/1/18, MTN | $ | 505,967 | ||||
311,000 | Bank of America Corp., 1.95%, 5/12/18, MTN | 311,024 | ||||||
108,000 | Bank of America Corp., 2.60%, 1/15/19 | 108,370 | ||||||
766,000 | Bank of America Corp., Series L, 2.25%, 4/21/20, MTN | 766,535 | ||||||
5,360,000 | Bank of America Corp., Series G, 2.63%, 4/19/21 | 5,387,344 | ||||||
890,000 | Bank of America Corp., 2.50%, 10/21/22, Callable 10/21/21 @ 100 | 880,532 | ||||||
1,010,000 | Bank of America Corp., 3.30%, 1/11/23, MTN | 1,033,230 | ||||||
643,000 | Bank of America Corp., 3.00%(US0003M+79bps), 12/20/23, Callable 12/20/22 @ 100^(a) | 644,651 | ||||||
1,095,000 | Bank of America Corp., 4.00%, 4/1/24 | 1,157,553 | ||||||
455,000 | Bank of America Corp., 4.00%, 1/22/25, MTN | 473,365 | ||||||
1,810,000 | Bank of America Corp., Series G, 3.50%, 4/19/26 | 1,850,549 | ||||||
1,040,000 | Bank of America Corp., 3.82%(US0003M+158bps), 1/20/28, Callable 1/20/27 @ 100, MTN | 1,075,745 | ||||||
380,000 | Bank of America Corp., 4.24%(US0003M+181bps), 4/24/38, Callable 4/24/37 @ 100 | 412,122 | ||||||
284,000 | Branch Banking & Trust, 3.63%, 9/16/25, Callable 8/16/25 @ 100 | 294,416 | ||||||
1,880,000 | Citibank NA, 1.85%, 9/18/19, Callable 8/18/19 @ 100 | 1,868,438 | ||||||
2,580,000 | Citigroup, Inc., 1.80%, 2/5/18 | 2,579,730 | ||||||
830,000 | Citigroup, Inc., 2.40%, 2/18/20 | 829,029 | ||||||
1,030,000 | Citigroup, Inc., 2.65%, 10/26/20 | 1,033,448 | ||||||
920,000 | Citigroup, Inc., 2.88%(US0003M+95bps), 7/24/23, Callable 7/24/22 @ 100 | 915,390 | ||||||
965,000 | Citizens Bank NA, 2.20%, 5/26/20, Callable 4/26/20 @ 100 | 958,267 | ||||||
250,000 | Citizens Bank NA, 2.55%, 5/13/21, Callable 4/13/21 @ 100 | 249,075 | ||||||
40,000 | Citizens Financial Group, Inc., 2.38%, 7/28/21, Callable 6/28/21 @ 100 | 39,476 | ||||||
206,000 | Fifth Third Bank, 2.15%, 8/20/18, Callable 7/20/18 @ 100 | 206,241 | ||||||
1,042,000 | Fifth Third Bank, Series BKNT, 3.85%, 3/15/26, Callable 2/15/26 @ 100^ | 1,074,961 | ||||||
1,306,000 | HSBC USA, Inc., 1.70%, 3/5/18 | 1,305,603 | ||||||
1,660,000 | HSBC USA, Inc., 2.35%, 3/5/20 | 1,659,791 | ||||||
435,000 | HSBC USA, Inc., 5.00%, 9/27/20 | 460,494 | ||||||
470,000 | Huntington National Bank (The), 2.40%, 4/1/20, Callable 3/1/20 @ 100 | 469,214 | ||||||
1,095,000 | JPMorgan Chase & Co., 2.20%, 10/22/19^ | 1,093,966 | ||||||
20,000 | JPMorgan Chase & Co., 2.75%, 6/23/20, Callable 5/23/20 @ 100 | 20,175 | ||||||
1,720,000 | JPMorgan Chase & Co., 2.30%, 8/15/21, Callable 8/15/20 @ 100 | 1,704,597 | ||||||
125,000 | JPMorgan Chase & Co., 4.50%, 1/24/22 | 133,757 | ||||||
7,314,000 | JPMorgan Chase & Co., 2.78%(US0003M+94bps), 4/25/23, Callable 4/25/22 @ 100^ | 7,321,088 | ||||||
300,000 | JPMorgan Chase & Co., 3.20%, 6/15/26, Callable 3/15/26 @ 100^ | 299,839 | ||||||
1,271,000 | JPMorgan Chase & Co., 2.95%, 10/1/26, Callable 7/1/26 @ 100 | 1,248,428 |
Continued
6
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Banks, continued | ||||||||
$ | 3,710,000 | JPMorgan Chase & Co., 3.78%(US0003M+134bps), 2/1/28, Callable 2/1/27 @ 100 | $ | 3,844,489 | ||||
200,000 | JPMorgan Chase & Co., 3.54%(US0003M+138bps), 5/1/28, Callable 5/1/27 @ 100^ | 203,469 | ||||||
2,170,000 | JPMorgan Chase & Co., Series CC, 4.62%(US0003M+258bps), 12/31/99, Callable 11/1/22 @ 100^ | 2,121,175 | ||||||
500,000 | KeyBank NA, Series BKNT, 2.40%, 6/9/22^ | 493,280 | ||||||
200,000 | KeyCorp, 2.90%, 9/15/20 | 201,872 | ||||||
142,000 | Merrill Lynch & Co., 6.88%, 4/25/18, MTN | 144,169 | ||||||
440,000 | Synovus Financial Corp., 3.13%, 11/1/22, Callable 10/1/22 @ 100 | 436,348 | ||||||
830,000 | US BanCorp, Series X, 3.15%, 4/27/27, Callable 3/27/27 @ 100 | 831,519 | ||||||
128,000 | Wachovia Corp., 5.50%, 8/1/35 | 153,187 | ||||||
514,000 | Wells Fargo & Co., Series G, 2.60%, 7/22/20 | 517,165 | ||||||
1,590,000 | Wells Fargo & Co., 2.10%, 7/26/21^ | 1,563,378 | ||||||
2,960,000 | Wells Fargo & Co., 2.63%, 7/22/22, MTN | 2,944,079 | ||||||
250,000 | Wells Fargo & Co., 3.00%, 4/22/26 | 245,275 | ||||||
1,257,000 | Wells Fargo & Co., 3.00%, 10/23/26 | 1,232,057 | ||||||
655,000 | Wells Fargo & Co., Series G, 4.30%, 7/22/27^ | 697,447 | ||||||
195,000 | Wells Fargo & Co., 3.58%(US0003M+131bps), 5/22/28, Callable 5/22/27 @ 100^ | 198,794 | ||||||
|
| |||||||
57,670,128 | ||||||||
|
| |||||||
Beverages (0.4%): | ||||||||
1,090,000 | Anheuser-Busch InBev NV, 4.70%, 2/1/36, Callable 8/1/35 @ 100 | 1,218,783 | ||||||
2,195,000 | Anheuser-Busch InBev NV, 4.90%, 2/1/46, Callable 8/1/45 @ 100 | 2,543,982 | ||||||
500,000 | Constellation Brands, Inc., 3.50%, 5/9/27, Callable 2/9/27 @ 100^ | 510,160 | ||||||
1,150,000 | Molson Coors Brewing Co., 1.90%, 3/15/19^ | 1,144,871 | ||||||
675,000 | Molson Coors Brewing Co., 2.25%, 3/15/20, Callable 2/15/20 @ 100^ | 671,596 | ||||||
1,200,000 | PepsiCo, Inc., 1.70%, 10/6/21, Callable 9/6/21 @ 100^ | 1,170,479 | ||||||
200,000 | PepsiCo, Inc., 2.38%, 10/6/26, Callable 7/6/26 @ 100^ | 190,199 | ||||||
730,000 | PepsiCo, Inc., 3.00%, 10/15/27, Callable 7/15/27 @ 100 | 727,423 | ||||||
200,000 | PepsiCo, Inc., 3.45%, 10/6/46, Callable 4/6/46 @ 100 | 194,027 | ||||||
|
| |||||||
8,371,520 | ||||||||
|
| |||||||
Biotechnology (0.5%): | ||||||||
1,000,000 | AbbVie, Inc., 2.30%, 5/14/21, Callable 4/14/21 @ 100 | 992,693 | ||||||
2,415,000 | AbbVie, Inc., 3.60%, 5/14/25, Callable 2/14/25 @ 100 | 2,482,802 | ||||||
240,000 | AbbVie, Inc., 4.45%, 5/14/46, Callable 11/14/45 @ 100 | 260,880 | ||||||
570,000 | Amgen, Inc., 2.20%, 5/11/20 | 566,849 | ||||||
500,000 | Amgen, Inc., 1.85%, 8/19/21, Callable 7/19/21 @ 100^ | 487,419 | ||||||
450,000 | Amgen, Inc., 3.63%, 5/15/22, Callable 2/15/22 @ 100 | 465,885 |
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Biotechnology, continued | ||||||||
$ | 640,000 | Amgen, Inc., 2.60%, 8/19/26, Callable 5/19/26 @ 100^ | $ | 612,819 | ||||
350,000 | Amgen, Inc., 4.40%, 5/1/45, Callable 11/1/44 @ 100 | 380,814 | ||||||
254,000 | Amgen, Inc., 4.56%, 6/15/48, Callable 12/15/47 @ 100 | 283,213 | ||||||
367,000 | Amgen, Inc., 4.66%, 6/15/51, Callable 12/15/50 @ 100 | 410,491 | ||||||
390,000 | Baxalta, Inc., 5.25%, 6/23/45, Callable 12/23/44 @ 100 | 454,518 | ||||||
50,000 | Gilead Sciences, Inc., 2.50%, 9/1/23, Callable 7/1/23 @ 100 | 49,361 | ||||||
800,000 | Gilead Sciences, Inc., 3.65%, 3/1/26, Callable 12/1/25 @ 100 | 829,920 | ||||||
230,000 | Gilead Sciences, Inc., 4.80%, 4/1/44, Callable 10/1/43 @ 100 | 266,875 | ||||||
880,000 | Gilead Sciences, Inc., 4.15%, 3/1/47, Callable 9/1/46 @ 100^ | 936,035 | ||||||
|
| |||||||
9,480,574 | ||||||||
|
| |||||||
Capital Markets (1.2%): | ||||||||
1,475,000 | Bank of New York Mellon Corp. (The), 2.05%, 5/3/21, Callable 4/3/21 @ 100, MTN | 1,457,076 | ||||||
205,000 | Bank of New York Mellon Corp. (The), Series G, 3.00%, 2/24/25, Callable 1/24/25 @ 100^ | 205,037 | ||||||
135,000 | Bank of New York Mellon Corp. (The), 2.80%, 5/4/26, Callable 2/4/26 @ 100^ | 131,835 | ||||||
2,300,000 | Bank of New York Mellon Corp. (The), 3.44%(US0003M+107bps), 2/7/28, Callable 2/7/27 @ 100, MTN | 2,350,935 | ||||||
185,000 | Bank of New York Mellon Corp. (The), 3.00%, 10/30/28, Callable 7/30/28 @ 100 | 179,839 | ||||||
1,000,000 | Bank of New York Mellon Corp. (The), 3.30%, 8/23/29, Callable 5/23/29 @ 100, MTN | 996,844 | ||||||
950,000 | Bank of New York Mellon Corp. (The), 4.62%(US0003M+313bps), 12/29/49, Callable 9/20/26 @ 100 | 965,438 | ||||||
1,435,000 | Chalres Schwab Corp., Series E, 4.62%(US0003M+332bps), 12/29/49, Callable 3/1/22 @ 100^ | 1,463,700 | ||||||
1,135,000 | Goldman Sachs Group, Inc. (The), 2.38%, 1/22/18 | 1,135,232 | ||||||
562,000 | Goldman Sachs Group, Inc. (The), 2.90%, 7/19/18 | 564,555 | ||||||
610,000 | Goldman Sachs Group, Inc. (The), 2.60%, 4/23/20, Callable 3/23/20 @ 100 | 610,831 | ||||||
650,000 | Goldman Sachs Group, Inc. (The), 2.88%, 2/25/21, Callable 1/25/21 @ 100 | 654,806 | ||||||
4,730,000 | Goldman Sachs Group, Inc. (The), 2.16%(US0003M+78bps), 10/31/22, Callable 10/31/21 @ 100^ | 4,736,144 | ||||||
415,000 | Goldman Sachs Group, Inc. (The), 3.75%, 2/25/26, Callable 11/25/25 @ 100 | 425,828 | ||||||
106,000 | Goldman Sachs Group, Inc. (The), 5.95%, 1/15/27^ | 123,826 | ||||||
180,000 | Goldman Sachs Group, Inc. (The), 4.80%, 7/8/44, Callable 1/8/44 @ 100 | 205,300 | ||||||
706,000 | Morgan Stanley, 1.88%, 1/5/18 | 705,987 | ||||||
414,000 | Morgan Stanley, 2.13%, 4/25/18 | 414,215 |
Continued
7
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Capital Markets, continued | ||||||||
$ | 1,000,000 | Morgan Stanley, 2.50%, 1/24/19 | $ | 1,002,547 | ||||
2,280,000 | Morgan Stanley, 2.80%, 6/16/20 | 2,300,572 | ||||||
930,000 | Morgan Stanley, 2.63%, 11/17/21 | 925,762 | ||||||
295,000 | Morgan Stanley, 3.75%, 2/25/23 | 305,727 | ||||||
760,000 | Morgan Stanley, 4.38%, 1/22/47 | 833,098 | ||||||
610,000 | Northern Trust Corp., 4.60%(US0003M+320bps), 12/29/49, Callable 10/1/26 @ 100^ | 629,825 | ||||||
1,355,000 | State Street Corp., 2.55%, 8/18/20 | 1,363,988 | ||||||
741,000 | State Street Corp., Series F, 5.25%(US0003M+360bps), 12/31/49, Callable 9/15/20 @ 100 | 777,161 | ||||||
|
| |||||||
25,466,108 | ||||||||
|
| |||||||
Chemicals (0.2%): | ||||||||
49,000 | Dow Chemical Co. (The), 4.38%, 11/15/42, Callable 5/15/42 @ 100 | 51,556 | ||||||
345,000 | E.I. du Pont de Nemours & Co., 2.20%, 5/1/20 | 344,696 | ||||||
410,000 | Eastman Chemical Co., 2.70%, 1/15/20, Callable 12/15/19 @ 100^ | 412,644 | ||||||
220,000 | Eastman Chemical Co., 4.65%, 10/15/44, Callable 4/15/44 @ 100 | 239,982 | ||||||
1,000,000 | Ecolab, Inc., 2.70%, 11/1/26, Callable 8/1/26 @ 100^ | 958,618 | ||||||
410,000 | LyondellBasell Idustries NV, 4.88%, 3/15/44, Callable 9/15/43 @ 100 | 455,070 | ||||||
199,000 | Monsanto Co., 3.38%, 7/15/24, Callable 4/15/24 @ 100 | 201,982 | ||||||
90,000 | Monsanto Co., 4.40%, 7/15/44, Callable 1/15/44 @ 100^ | 95,899 | ||||||
250,000 | Monsanto Co., 3.95%, 4/15/45, Callable 10/15/44 @ 100 | 244,624 | ||||||
220,000 | RPM International, Inc., 3.75%, 3/15/27, Callable 12/15/26 @ 100 | 222,615 | ||||||
1,500,000 | Sherwin-Williams Co. (The), 4.50%, 6/1/47, Callable 12/1/46 @ 100^ | 1,640,017 | ||||||
|
| |||||||
4,867,703 | ||||||||
|
| |||||||
Commercial Services & Supplies (0.1%): | ||||||||
535,000 | Republic Services, Inc., 3.20%, 3/15/25, Callable 12/15/24 @ 100 | 537,943 | ||||||
45,000 | Republic Services, Inc., 2.90%, 7/1/26, Callable 4/1/26 @ 100 | 44,063 | ||||||
575,000 | Republic Services, Inc., 3.38%, 11/15/27, Callable 8/15/27 @ 100^ | 579,300 | ||||||
|
| |||||||
1,161,306 | ||||||||
|
| |||||||
Communications Equipment (0.1%): | ||||||||
435,000 | Cisco Systems, Inc., 2.20%, 9/20/23, Callable 7/20/23 @ 100 | 426,297 | ||||||
550,000 | Cisco Systems, Inc., 2.50%, 9/20/26, Callable 6/20/26 @ 100^ | 532,018 | ||||||
135,000 | Harris Corp., 2.70%, 4/27/20, Callable 3/27/20 @ 100^ | 135,543 | ||||||
1,000,000 | Harris Corp., 3.83%, 4/27/25, Callable 1/27/25 @ 100^ | 1,036,332 | ||||||
50,000 | Juniper Networks, Inc., 4.35%, 6/15/25, Callable 3/15/25 @ 100^ | 51,572 | ||||||
400,000 | Motorola Solutions, Inc., 3.50%, 9/1/21 | 406,025 | ||||||
224,000 | Motorola Solutions, Inc., 4.00%, 9/1/24^ | 229,748 | ||||||
|
| |||||||
2,817,535 | ||||||||
|
|
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Consumer Finance (1.0%): | ||||||||
$ | 1,578,000 | Capital One Bank USA NA, Series BKNT, 2.25%, 2/13/19, Callable 1/13/19 @ 100 | $ | 1,575,927 | ||||
335,000 | Capital One Financial Corp., 3.75%, 7/28/26, Callable 6/28/26 @ 100 | 333,592 | ||||||
1,185,000 | Capital One NA, Series BKNT, 1.65%, 2/5/18 | 1,184,968 | ||||||
4,120,000 | Capital One NA, 2.35%, 1/31/20, Callable 12/31/19 @ 100 | 4,107,595 | ||||||
455,000 | Discover Bank, 2.60%, 11/13/18, Callable 10/12/18 @ 100 | 456,544 | ||||||
330,000 | Discover Bank, Series BKNT, 3.10%, 6/4/20, Callable 5/4/20 @ 100 | 333,916 | ||||||
370,000 | Discover Bank, 3.45%, 7/27/26, Callable 4/27/26 @ 100 | 365,246 | ||||||
3,600,000 | Ford Motor Credit Co. LLC, 5.00%, 5/15/18 | 3,636,644 | ||||||
850,000 | Ford Motor Credit Co. LLC, 3.10%, 5/4/23 | 845,131 | ||||||
1,740,000 | General Motors Financial Co., Inc., 2.45%, 11/6/20 | 1,726,914 | ||||||
220,000 | Hyundai Capital America, 2.40%, 10/30/18(a) | 219,788 | ||||||
95,000 | Hyundai Capital America, 2.50%, 3/18/19^(a) | 94,769 | ||||||
2,060,000 | Hyundai Capital America, 1.75%, 9/27/19(a) | 2,020,761 | ||||||
945,000 | Hyundai Capital America, 2.55%, 4/3/20(a) | 937,288 | ||||||
588,000 | Hyundai Capital America, 3.00%, 10/30/20(a) | 587,053 | ||||||
600,000 | John Deere Capital Corp., 2.65%, 1/6/22, MTN^ | 603,494 | ||||||
910,000 | John Deere Capital Corp., 2.80%, 3/6/23^ | 913,551 | ||||||
1,180,000 | Synovus Financial, 2.70%, 2/3/20, Callable 1/3/20 @ 100 | 1,182,949 | ||||||
|
| |||||||
21,126,130 | ||||||||
|
| |||||||
Containers & Packaging (0.1%): | ||||||||
715,000 | International Paper Co., 4.35%, 8/15/48, Callable 2/15/48 @ 100 | 746,486 | ||||||
685,000 | WestRock RKT Co., 4.90%, 3/1/22 | 738,692 | ||||||
|
| |||||||
1,485,178 | ||||||||
|
| |||||||
Diversified Consumer Services (0.1%): | ||||||||
145,000 | California Institute of Technology, 4.32%, 8/1/45 | 166,379 | ||||||
360,000 | Massachusetts Institute of Technology, 4.68%, 7/1/14 | 420,393 | ||||||
114,000 | Pres & Fellows of Harvar, 3.15%, 7/15/46, Callable 1/15/46 @ 100^ | 111,242 | ||||||
575,000 | Pres & Fellows of Harvar, 3.30%, 7/15/56, Callable 1/15/56 @ 100^ | 562,872 | ||||||
|
| |||||||
1,260,886 | ||||||||
|
| |||||||
Diversified Financial Services (0.1%): | ||||||||
135,000 | Berkshire Hathaway, Inc., 2.75%, 3/15/23, Callable 1/15/23 @ 100 | 135,882 | ||||||
95,000 | Berkshire Hathaway, Inc., 3.13%, 3/15/26, Callable 12/15/25 @ 100 | 96,075 | ||||||
1,090,000 | Daimler Finance NA LLC, 1.88%, 1/11/18(a) | 1,089,960 | ||||||
|
| |||||||
1,321,917 | ||||||||
|
| |||||||
Diversified Telecommunication Services (1.2%): | ||||||||
1,000,000 | AT&T, Inc., 2.80%, 2/17/21, Callable 1/17/21 @ 100^ | 1,004,427 | ||||||
150,000 | AT&T, Inc., 4.45%, 4/1/24, Callable 1/1/24 @ 100 | 158,672 | ||||||
185,000 | AT&T, Inc., 3.95%, 1/15/25, Callable 10/15/24 @ 100 | 189,415 |
Continued
8
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Diversified Telecommunication Services, continued | ||||||||
$ | 2,000,000 | AT&T, Inc., 4.13%, 2/17/26, Callable 11/17/25 @ 100 | $ | 2,045,712 | ||||
6,797,000 | AT&T, Inc., 4.30%, 2/15/30, Callable 11/15/29 @ 100(a) | 6,778,001 | ||||||
170,000 | AT&T, Inc., 4.50%, 5/15/35, Callable 11/15/34 @ 100 | 168,991 | ||||||
122,000 | AT&T, Inc., 5.35%, 9/1/40 | 128,746 | ||||||
1,010,000 | AT&T, Inc., 4.75%, 5/15/46, Callable 11/15/45 @ 100 | 987,827 | ||||||
1,405,000 | AT&T, Inc., 5.45%, 3/1/47, Callable 9/1/46 @ 100 | 1,501,625 | ||||||
2,320,000 | AT&T, Inc., 5.15%, 2/14/50, Callable 8/14/49 @ 100 | 2,348,917 | ||||||
2,030,000 | Verizon Communications, Inc., 2.00%(US0003M+55bps), 5/22/20 | 2,041,803 | ||||||
1,930,000 | Verizon Communications, Inc., 4.50%, 8/10/33 | 2,024,241 | ||||||
880,000 | Verizon Communications, Inc., 4.13%, 8/15/46^ | 812,947 | ||||||
1,962,000 | Verizon Communications, Inc., 4.86%, 8/21/46 | 2,043,664 | ||||||
1,390,000 | Verizon Communications, Inc., 5.50%, 3/16/47^ | 1,583,784 | ||||||
250,000 | Verizon Communications, Inc., 5.01%, 4/15/49 | 262,197 | ||||||
525,000 | Verizon Communications, Inc., 5.01%, 8/21/54 | 537,594 | ||||||
|
| |||||||
24,618,563 | ||||||||
|
| |||||||
Electric Utilities (1.5%): | ||||||||
430,000 | Aep Texas, Inc., 2.40%, 10/1/22, Callable 9/1/22 @ 100(a) | 423,608 | ||||||
168,000 | Alabama Power Co., Series 11-C, 5.20%, 6/1/41 | 202,093 | ||||||
320,000 | Alabama Power Co., 3.85%, 12/1/42 | 330,417 | ||||||
500,000 | Baltimore Gas & Electric, 2.80%, 8/15/22, Callable 5/15/22 @ 100 | 501,493 | ||||||
500,000 | Baltimore Gas & Electric, 2.40%, 8/15/26, Callable 5/15/26 @ 100 | 472,180 | ||||||
900,000 | Baltimore Gas & Electric Co., 3.75%, 8/15/47, Callable 2/15/47 @ 100 | 922,089 | ||||||
220,000 | Carolina Power & Light Co., 5.70%, 4/1/35 | 268,818 | ||||||
430,000 | Carolina Power & Light Co., 4.10%, 3/15/43, Callable 9/15/42 @ 100 | 467,009 | ||||||
1,000,000 | Duke Energy Carolinas, 4.25%, 12/15/41, Callable 6/15/41 @ 100 | 1,100,637 | ||||||
555,000 | Duke Energy Carolinas, 3.75%, 6/1/45, Callable 12/1/44 @ 100 | 571,598 | ||||||
1,500,000 | Duke Energy Corp., 1.80%, 9/1/21, Callable 8/1/21 @ 100 | 1,458,980 | ||||||
1,780,000 | Duke Energy Corp., 3.55%, 9/15/21, Callable 6/15/21 @ 100^ | 1,837,016 | ||||||
430,000 | Duke Energy Corp., 3.05%, 8/15/22, Callable 5/15/22 @ 100 | 434,719 | ||||||
1,500,000 | Duke Energy Corp., 2.65%, 9/1/26, Callable 6/1/26 @ 100^ | 1,437,251 | ||||||
600,000 | Duke Energy Corp., 3.75%, 9/1/46, Callable 3/1/46 @ 100 | 593,347 | ||||||
205,000 | Duke Energy Florida LLC, 2.10%, 12/15/19 | 204,834 | ||||||
45,000 | Emera US Finance LP, 2.15%, 6/15/19 | 44,825 | ||||||
1,500,000 | Entergy Corp., 5.13%, 9/15/20, Callable 6/15/20 @ 100 | 1,584,716 | ||||||
1,015,000 | Entergy Corp., 2.95%, 9/1/26, Callable 6/1/26 @ 100 | 987,538 |
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Electric Utilities, continued | ||||||||
$ | 490,000 | Entergy Texas, Inc., 3.45%, 12/1/27, Callable 9/1/27 @ 100 | $ | 496,544 | ||||
440,000 | Eversource Energy, Series L, 2.90%, 10/1/24, Callable 8/1/24 @ 100 | 436,652 | ||||||
135,000 | Exelon Corp., 2.85%, 6/15/20, Callable 5/15/20 @ 100 | 136,259 | ||||||
15,000 | Exelon Corp., 2.45%, 4/15/21, Callable 3/15/21 @ 100 | 14,932 | ||||||
35,000 | Exelon Corp., 3.40%, 4/15/26, Callable 1/15/26 @ 100 | 35,012 | ||||||
92,000 | Exelon Corp., 4.95%, 6/15/35, Callable 12/15/34 @ 100 | 104,912 | ||||||
163,000 | Exelon Corp., 5.63%, 6/15/35 | 200,326 | ||||||
450,000 | Florida Power & Light Co., 3.13%, 12/1/25, Callable 6/1/25 @ 100 | 457,558 | ||||||
110,000 | Florida Power & Light Co., 5.69%, 3/1/40 | 146,058 | ||||||
460,000 | Florida Power & Light Co., 4.05%, 6/1/42, Callable 12/1/41 @ 100 | 504,371 | ||||||
170,000 | Florida Power & Light Co., 3.80%, 12/15/42, Callable 6/15/42 @ 100 | 178,246 | ||||||
340,000 | Florida Power & Light Co., 3.70%, 12/1/47, Callable 6/1/47 @ 100 | 354,385 | ||||||
568,000 | Georgia Power Co., 2.00%, 3/30/20 | 564,336 | ||||||
750,000 | Georgia Power Co., 3.25%, 3/30/27, Callable 12/30/26 @ 100 | 752,480 | ||||||
375,000 | ITC Holdings Corp., 2.70%, 11/15/22, Callable 10/15/22 @ 100(a) | 374,322 | ||||||
40,000 | MidAmerican Energy Holdings Co., 5.95%, 5/15/37 | 52,405 | ||||||
365,000 | NextEra Energy Capital Holdings, Inc., 3.55%, 5/1/27, Callable 2/1/27 @ 100 | 371,805 | ||||||
110,000 | Northern States Power Co., 3.40%, 8/15/42, Callable 2/15/42 @ 100^ | 108,865 | ||||||
320,000 | Northern States Power Co., 3.60%, 5/15/46, Callable 11/15/45 @ 100 | 323,694 | ||||||
660,000 | Northern States Power Co., 3.60%, 9/15/47, Callable 3/15/47 @ 100 | 671,577 | ||||||
575,000 | NSTAR Electric Co., 3.20%, 5/15/27, Callable 2/15/27 @ 100 | 581,964 | ||||||
170,000 | Oncor Electric Delivery Co. LLC, 3.80%, 9/30/47, Callable 3/30/47 @ 100(a) | 176,613 | ||||||
619,000 | PacifiCorp, 5.65%, 7/15/18 | 631,714 | ||||||
325,000 | PacifiCorp, 5.75%, 4/1/37 | 419,606 | ||||||
1,000,000 | PPL Capital Funding, Inc., 3.40%, 6/1/23, Callable 3/1/23 @ 100 | 1,020,191 | ||||||
350,000 | Progress Energy Carolinas, Inc., 5.30%, 1/15/19 | 361,275 | ||||||
600,000 | Southwestern Public Service Co., 3.30%, 6/15/24, Callable 12/15/23 @ 100 | 614,301 | ||||||
5,510,000 | Virginia Electric & Power Co., 3.45%, 9/1/22, Callable 6/1/22 @ 100^ | 5,690,709 | ||||||
1,075,000 | Virginia Electric & Power Co., Series A, 3.15%, 1/15/26, Callable 10/15/25 @ 100 | 1,085,316 | ||||||
215,000 | Virginia Electric & Power Co., Series B, 2.95%, 11/15/26, Callable 8/15/26 @ 100^ | 212,935 | ||||||
25,000 | Virginia Electric & Power Co., 6.35%, 11/30/37 | 34,463 |
Continued
9
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Electric Utilities, continued | ||||||||
$ | 255,000 | Virginia Electric & Power Co., Series C, 4.00%, 11/15/46, Callable 5/15/46 @ 100^ | $ | 272,915 | ||||
390,000 | Wisconsin Power & Light Co., 3.05%, 10/15/27, Callable 7/15/27 @ 100 | 390,092 | ||||||
|
| |||||||
31,620,001 | ||||||||
|
| |||||||
Electrical Equipment (0.0%): | ||||||||
645,000 | Eaton Corp., 2.75%, 11/2/22 | 646,887 | ||||||
|
| |||||||
Electronic Equipment, Instruments & Components (0.1%): | ||||||||
40,000 | Avnet, Inc., 4.63%, 4/15/26, Callable 1/15/26 @ 100^ | 41,255 | ||||||
1,645,000 | Corning, Inc., 4.38%, 11/15/57, Callable 5/15/57 @ 100 | 1,632,996 | ||||||
|
| |||||||
1,674,251 | ||||||||
|
| |||||||
Energy Equipment & Services (0.0%): | ||||||||
665,000 | Baker Hughes a GE Co LLC/Baker Hughes Co-Obligor, Inc., 4.08%, 12/15/47, Callable 6/15/47 @ 100(a) | 676,348 | ||||||
75,000 | Halliburton Co., 3.80%, 11/15/25, Callable 8/15/25 @ 100 | 77,945 | ||||||
|
| |||||||
754,293 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (0.3%): | ||||||||
150,000 | Boston Properties, LP, 2.75%, 10/1/26, Callable 7/1/26 @ 100 | 141,504 | ||||||
25,000 | Crown Castle International Corp., 3.40%, 2/15/21, Callable 1/15/21 @ 100 | 25,531 | ||||||
175,000 | Crown Castle International Corp., 2.25%, 9/1/21, Callable 8/1/21 @ 100 | 172,048 | ||||||
2,000,000 | Crown Castle International Corp., 5.25%, 1/15/23 | 2,189,892 | ||||||
535,000 | Crown Castle International Corp., 3.70%, 6/15/26, Callable 3/15/26 @ 100 | 534,635 | ||||||
240,000 | Crown Castle International Corp., 4.75%, 5/15/47, Callable 11/15/46 @ 100 | 252,648 | ||||||
535,000 | Crown Castle Towers LLC, Series 144A, 6.11%, 1/15/20(a) | 563,966 | ||||||
1,460,000 | Realty Income Corp., 3.00%, 1/15/27, Callable 10/15/26 @ 100^ | 1,397,081 | ||||||
|
| |||||||
5,277,305 | ||||||||
|
| |||||||
Food & Staples Retailing (0.2%): | ||||||||
2,000,000 | CVS Health Corp., 2.80%, 7/20/20, Callable 6/20/20 @ 100^ | 2,008,330 | ||||||
155,000 | CVS Health Corp., 5.13%, 7/20/45, Callable 1/20/45 @ 100 | 177,645 | ||||||
650,000 | Walgreens Boots Alliance, Inc., 4.65%, 6/1/46, Callable 12/1/45 @ 100 | 684,741 | ||||||
305,000 | Wal-Mart Stores, Inc., 4.00%, 4/11/43, Callable 10/11/42 @ 100^ | 335,405 | ||||||
251,000 | Wal-Mart Stores, Inc., 4.30%, 4/22/44, Callable 10/22/43 @ 100 | 292,726 | ||||||
|
| |||||||
3,498,847 | ||||||||
|
| |||||||
Food Products (0.1%): | ||||||||
502,000 | Kraft Foods Group, Inc., 5.38%, 2/10/20 | 531,867 | ||||||
1,340,000 | Kraft Heinz Foods Co., 3.00%, 6/1/26, Callable 3/1/26 @ 100^ | 1,289,456 | ||||||
310,000 | Kraft Heinz Foods Co., 4.38%, 6/1/46, Callable 12/1/45 @ 100 | 307,070 | ||||||
|
| |||||||
2,128,393 | ||||||||
|
|
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Health Care Equipment & Supplies (0.2%): | ||||||||
$ | 670,000 | Abbott Laboratories, 2.90%, 11/30/21, Callable 10/30/21 @ 100 | $ | 677,757 | ||||
35,000 | Abbott Laboratories, 3.88%, 9/15/25, Callable 6/15/25 @ 100 | 36,201 | ||||||
166,000 | Abbott Laboratories, 4.75%, 4/15/43, Callable 10/15/42 @ 100 | 184,311 | ||||||
109,000 | Becton, Dickinson & Co., 2.68%, 12/15/19 | 109,394 | ||||||
84,000 | Becton, Dickinson & Co., 3.73%, 12/15/24, Callable 9/15/24 @ 100 | 86,032 | ||||||
311,000 | Medtronic, Inc., 3.15%, 3/15/22 | 318,540 | ||||||
1,132,000 | Medtronic, Inc., 3.50%, 3/15/25 | 1,174,276 | ||||||
810,000 | Medtronic, Inc., 4.63%, 3/15/45 | 943,692 | ||||||
200,000 | Stryker Corp., 2.63%, 3/15/21, Callable 2/15/21 @ 100 | 200,472 | ||||||
50,000 | Stryker Corp., 3.50%, 3/15/26, Callable 12/15/25 @ 100 | 51,593 | ||||||
285,000 | Stryker Corp., 4.63%, 3/15/46, Callable 9/15/45 @ 100 | 323,650 | ||||||
|
| |||||||
4,105,918 | ||||||||
|
| |||||||
Health Care Providers & Services (0.4%): | ||||||||
185,000 | Aetna, Inc., 2.75%, 11/15/22, Callable 8/15/22 @ 100 | 183,208 | ||||||
105,000 | Aetna, Inc., 3.50%, 11/15/24, Callable 8/15/24 @ 100 | 106,599 | ||||||
380,000 | Aetna, Inc., 4.13%, 11/15/42, Callable 5/15/42 @ 100 | 384,854 | ||||||
175,000 | Aetna, Inc., 3.88%, 8/15/47, Callable 2/15/47 @ 100 | 172,466 | ||||||
485,000 | Anthem, Inc., 2.50%, 11/21/20 | 483,987 | ||||||
1,180,000 | Anthem, Inc., 2.95%, 12/1/22, Callable 11/1/22 @ 100^ | 1,180,494 | ||||||
590,000 | Anthem, Inc., 3.65%, 12/1/27, Callable 9/1/27 @ 100 | 601,403 | ||||||
255,000 | Anthem, Inc., 4.38%, 12/1/47, Callable 6/1/47 @ 100 | 271,127 | ||||||
710,000 | Cigna Corp., 3.25%, 4/15/25, Callable 1/15/25 @ 100 | 713,462 | ||||||
230,000 | Cigna Corp., 3.05%, 10/15/27, Callable 7/15/27 @ 100^ | 225,914 | ||||||
220,000 | Humana, Inc., 4.80%, 3/15/47, Callable 9/15/46 @ 100 | 248,059 | ||||||
160,000 | UnitedHealth Group, Inc., 2.70%, 7/15/20 | 161,850 | ||||||
545,000 | UnitedHealth Group, Inc., 3.35%, 7/15/22 | 562,784 | ||||||
1,000,000 | UnitedHealth Group, Inc., 3.10%, 3/15/26 | 1,007,390 | ||||||
1,320,000 | UnitedHealth Group, Inc., 4.75%, 7/15/45 | 1,559,189 | ||||||
|
| |||||||
7,862,786 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure (0.1%): | ||||||||
10,000 | McDonald’s Corp., 2.75%, 12/9/20, Callable 11/9/20 @ 100^ | 10,104 | ||||||
50,000 | McDonald’s Corp., 4.70%, 12/9/35, Callable 6/9/35 @ 100 | 56,794 | ||||||
120,000 | McDonald’s Corp., 4.60%, 5/26/45, Callable 11/26/44 @ 100 | 133,958 | ||||||
60,000 | McDonald’s Corp., 4.88%, 12/9/45, Callable 6/9/45 @ 100, MTN | 69,507 | ||||||
1,110,000 | McDonald’s Corp., 4.45%, 3/1/47, Callable 9/1/46 @ 100, MTN | 1,208,135 | ||||||
|
| |||||||
1,478,498 | ||||||||
|
|
Continued
10
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Industrial Conglomerates (0.2%): | ||||||||
$ | 439,000 | General Electric Co., 4.50%, 3/11/44 | $ | 486,311 | ||||
2,140,000 | General Electric Co., Series D, 5.00%(US0003M+333bps), 12/31/49, Callable 1/21/21 @ 100 | 2,205,485 | ||||||
164,000 | Georgia-Pacific LLC, 5.40%, 11/1/20(a) | 176,877 | ||||||
309,000 | Georgia-Pacific LLC, 3.60%, 3/1/25, Callable 12/1/24 @ 100(a) | 317,566 | ||||||
174,000 | Georgia-Pacific LLC, 7.75%, 11/15/29 | 244,579 | ||||||
|
| |||||||
3,430,818 | ||||||||
|
| |||||||
Insurance (0.2%): | ||||||||
325,000 | ACE INA Holdings, Inc., 3.35%, 5/15/24 | 334,751 | ||||||
410,000 | ACE INA Holdings, Inc., 4.15%, 3/13/43 | 445,202 | ||||||
550,000 | American International Group, Inc., 4.50%, 7/16/44, Callable 1/16/44 @ 100 | 592,406 | ||||||
401,000 | Hartford Financial Services Group, Inc. (The), 4.30%, 4/15/43 | 429,729 | ||||||
20,000 | Marsh & McLennan Cos., Inc., 3.50%, 3/10/25, Callable 12/10/24 @ 100 | 20,605 | ||||||
1,060,000 | Marsh & McLennan Cos., Inc., 3.75%, 3/14/26, Callable 12/14/25 @ 100 | 1,107,042 | ||||||
610,000 | Marsh & McLennan Cos., Inc., 4.35%, 1/30/47, Callable 7/30/46 @ 100^ | 675,684 | ||||||
95,000 | Principal Financial Group, Inc., 3.13%, 5/15/23 | 95,512 | ||||||
196,000 | Principal Financial Group, Inc., 3.10%, 11/15/26, Callable 8/15/26 @ 100 | 193,578 | ||||||
25,000 | Principal Financial Group, Inc., 4.63%, 9/15/42 | 27,846 | ||||||
12,000 | Teachers Insurance & Annuity Association of America, 6.85%, 12/16/39(a) | 16,954 | ||||||
50,000 | Teachers Insurance & Annuity Association of America, 4.90%, 9/15/44(a) | 57,194 | ||||||
540,000 | Teachers Insurance & Annuity Association of America, 4.27%, 5/15/47, Callable 11/15/46 @ 100(a) | 571,072 | ||||||
214,000 | Travelers Cos., Inc. (The), 4.30%, 8/25/45, Callable 2/25/45 @ 100 | 237,740 | ||||||
|
| |||||||
4,805,315 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (0.1%): | ||||||||
861,000 | Amazon.com, Inc., 4.80%, 12/5/34, Callable 6/5/34 @ 100 | 1,010,581 | ||||||
368,000 | Amazon.com, Inc., 4.05%, 8/22/47, Callable 2/22/47 @ 100(a) | 396,600 | ||||||
570,000 | Amazon.com, Inc., 4.25%, 8/22/57, Callable 2/22/57 @ 100(a) | 621,810 | ||||||
|
| |||||||
2,028,991 | ||||||||
|
| |||||||
IT Services (0.2%): | ||||||||
125,000 | DXC Technology Co., 2.88%, 3/27/20 | 125,608 | ||||||
1,110,000 | DXC Technology Co., 4.25%, 4/15/24, Callable 2/15/24 @ 100 | 1,156,221 | ||||||
49,000 | Fidelity National Information Services, Inc., 5.00%, 10/15/25, Callable 7/15/25 @ 100 | 54,151 | ||||||
250,000 | Fidelity National Information Services, Inc., 4.50%, 8/15/46, Callable 2/15/46 @ 100 | 260,594 | ||||||
420,000 | International Business Machines Corp., 2.88%, 11/9/22 | 423,198 |
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
IT Services, continued | ||||||||
$ | 100,000 | International Business Machines Corp., 4.70%, 2/19/46^ | $ | 118,215 | ||||
487,000 | Visa, Inc., 4.15%, 12/14/35, Callable 6/14/35 @ 100 | 540,697 | ||||||
784,000 | Visa, Inc., 4.30%, 12/14/45, Callable 6/14/45 @ 100 | 892,137 | ||||||
|
| |||||||
3,570,821 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.1%): | ||||||||
313,000 | Thermo Fisher Scientific, Inc., 3.60%, 8/15/21, Callable 5/15/21 @ 100 | 323,085 | ||||||
550,000 | Thermo Fisher Scientific, Inc., 2.95%, 9/19/26, Callable 6/19/26 @ 100 | 534,440 | ||||||
690,000 | Thermo Fisher Scientific, Inc., 3.20%, 8/15/27, Callable 5/15/27 @ 100 | 683,891 | ||||||
|
| |||||||
1,541,416 | ||||||||
|
| |||||||
Machinery (0.0%): | ||||||||
605,000 | Deere & Co., 2.60%, 6/8/22, Callable 3/8/22 @ 100 | 605,668 | ||||||
|
| |||||||
Media (1.6%): | ||||||||
880,000 | CBS Corp., 3.70%, 6/1/28, Callable 3/1/28 @ 100(a) | 867,837 | ||||||
778,000 | Comcast Corp., 3.15%, 3/1/26, Callable 12/1/25 @ 100 | 783,777 | ||||||
2,331,000 | Comcast Corp., 2.35%, 1/15/27, Callable 10/15/26 @ 100 | 2,201,389 | ||||||
6,270,000 | Comcast Corp., 3.30%, 2/1/27, Callable 11/1/26 @ 100^ | 6,396,669 | ||||||
2,300,000 | Comcast Corp., 3.15%, 2/15/28, Callable 11/15/27 @ 100^ | 2,307,351 | ||||||
2,800,000 | Comcast Corp., 3.40%, 7/15/46, Callable 1/15/46 @ 100^ | 2,649,237 | ||||||
2,105,000 | COX Communications, Inc., 3.15%, 8/15/24, Callable 6/15/24 @ 100(a) | 2,073,182 | ||||||
250,000 | Discovery Communications LLC, 2.20%, 9/20/19 | 248,845 | ||||||
3,100,000 | Discovery Communications LLC, 2.95%, 3/20/23, Callable 2/20/23 @ 100^ | 3,067,996 | ||||||
1,700,000 | Discovery Communications LLC, 3.95%, 3/20/28, Callable 12/20/27 @ 100^ | 1,690,915 | ||||||
392,000 | Discovery Communications, Inc., 4.88%, 4/1/43 | 389,287 | ||||||
2,930,000 | NBCUniversal Enterprise, Inc., 1.73%(US0003M+40bps), 4/1/21(a) | 2,939,195 | ||||||
4,710,000 | NBCUniversal Enterprise, Inc., 5.25%, 12/31/99, Callable 3/19/21 @ 100(a) | 5,004,374 | ||||||
820,000 | NBCUniversal Media LLC, 5.15%, 4/30/20 | 873,641 | ||||||
580,000 | NBCUniversal Media LLC, 4.45%, 1/15/43 | 632,906 | ||||||
1,640,000 | Time Warner, Inc., 3.80%, 2/15/27, Callable 11/15/26 @ 100 | 1,638,450 | ||||||
206,000 | Twenty-First Century Fox, Inc., 6.40%, 12/15/35 | 273,765 | ||||||
|
| |||||||
34,038,816 | ||||||||
|
| |||||||
Multiline Retail (0.0%): | ||||||||
423,000 | Dollar General Corp., 4.15%, 11/1/25, Callable 8/1/25 @ 100^ | 447,766 | ||||||
|
|
Continued
11
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Multi-Utilities (0.3%): | ||||||||
$ | 170,000 | Black Hills Corp., 3.15%, 1/15/27, Callable 7/15/26 @ 100 | $ | 165,665 | ||||
745,000 | CenterPoint Energy Resources Corp., 4.10%, 9/1/47, Callable 3/1/47 @ 100^ | 782,795 | ||||||
85,000 | CMS Energy Corp., 3.00%, 5/15/26, Callable 2/15/26 @ 100 | 83,455 | ||||||
775,000 | CMS Energy Corp., 4.70%, 3/31/43, Callable 9/30/42 @ 100 | 871,186 | ||||||
255,000 | Dominion Energy, Inc., 2.58%, 7/1/20 | 255,107 | ||||||
600,000 | DTE Electric Co., 3.75%, 8/15/47, Callable 2/15/47 @ 100 | 624,177 | ||||||
590,000 | DTE Energy Co., Series B, 3.30%, 6/15/22, Callable 4/15/22 @ 100 | 598,704 | ||||||
2,515,000 | NiSource Finance Corp., 3.49%, 5/15/27, Callable 2/15/27 @ 100 | 2,559,870 | ||||||
|
| |||||||
5,940,959 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (1.6%): | ||||||||
135,000 | Apache Corp., 6.00%, 1/15/37 | 159,675 | ||||||
689,000 | Apache Corp., 5.10%, 9/1/40, Callable 3/1/40 @ 100 | 734,050 | ||||||
2,630,000 | Apache Corp., 4.75%, 4/15/43, Callable 10/15/42 @ 100^ | 2,702,947 | ||||||
1,025,000 | Chevron Corp., 2.90%, 3/3/24, Callable 1/3/24 @ 100 | 1,034,107 | ||||||
176,000 | Cimarex Energy Co., 4.38%, 6/1/24, Callable 3/1/24 @ 100 | 186,767 | ||||||
3,930,000 | Cimarex Energy Co., 3.90%, 5/15/27, Callable 2/15/27 @ 100 | 4,018,497 | ||||||
250,000 | El Paso Pipeline Partners Operating Co. LLC, 5.00%, 10/1/21, Callable 7/1/21 @ 100^ | 266,464 | ||||||
265,000 | Energy Transfer Partners LP, 4.05%, 3/15/25, Callable 12/15/24 @ 100 | 264,802 | ||||||
700,000 | Energy Transfer Partners LP, 4.75%, 1/15/26, Callable 10/15/25 @ 100^ | 726,238 | ||||||
910,000 | Energy Transfer Partners LP, 5.15%, 3/15/45, Callable 9/15/44 @ 100 | 884,836 | ||||||
1,350,000 | Energy Transfer Partners LP, 6.13%, 12/15/45, Callable 6/15/45 @ 100 | 1,465,988 | ||||||
479,000 | Enterprise Products Operating LLC, 5.10%, 2/15/45, Callable 8/15/44 @ 100 | 546,571 | ||||||
95,000 | Enterprise Products Operating LLC, Series E, 5.25%(US0003M+303bps), 8/16/77, Callable 8/16/27 @ 100 | 94,050 | ||||||
595,000 | Enterprise Products Operating LP, 4.90%, 5/15/46, Callable 11/15/45 @ 100^ | 655,568 | ||||||
450,000 | EOG Resources, Inc., 2.63%, 3/15/23, Callable 12/15/22 @ 100 | 444,837 | ||||||
1,480,000 | EOG Resources, Inc., 4.15%, 1/15/26, Callable 10/15/25 @ 100^ | 1,575,164 | ||||||
1,300,000 | EOG Resources, Inc., 3.90%, 4/1/35, Callable 10/1/34 @ 100 | 1,326,877 | ||||||
330,000 | Kinder Morgan (Delaware), Inc., 3.05%, 12/1/19, Callable 11/1/19 @ 100^ | 332,891 | ||||||
2,510,000 | Kinder Morgan (Delaware), Inc., 5.55%, 6/1/45, Callable 12/1/44 @ 100 | 2,746,929 |
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
$ | 200,000 | Kinder Morgan (Delaware), Inc., 5.05%, 2/15/46, Callable 8/15/45 @ 100^ | $ | 207,587 | ||||
235,000 | Kinder Morgan Energy Partners LP, 5.40%, 9/1/44, Callable 3/1/44 @ 100 | 248,456 | ||||||
150,000 | Magellan Midstream Partners LP, 4.20%, 10/3/47, Callable 4/3/47 @ 100 | 151,247 | ||||||
348,000 | Marathon Petroleum Corp., 4.75%, 9/15/44, Callable 3/15/44 @ 100 | 363,600 | ||||||
1,060,000 | MPLX, LP, 5.20%, 3/1/47, Callable 9/1/46 @ 100 | 1,163,272 | ||||||
411,000 | Pioneer Natural Resource, 3.95%, 7/15/22, Callable 4/15/22 @ 100 | 428,384 | ||||||
2,104,000 | Pioneer Natural Resource Co., 4.45%, 1/15/26, Callable 10/15/25 @ 100^ | 2,255,143 | ||||||
600,000 | Sabine Pass Liquefaction LLC, 5.63%, 2/1/21, Callable 11/1/20 @ 100 | 643,235 | ||||||
1,680,000 | Sabine Pass Liquefaction LLC, 5.75%, 5/15/24, Callable 2/15/24 @ 100 | 1,867,288 | ||||||
3,200,000 | Sabine Pass Liquefaction LLC, 5.63%, 3/1/25, Callable 12/1/24 @ 100 | 3,529,629 | ||||||
1,000,000 | Sabine Pass Liquefcation LLC, 6.25%, 3/15/22, Callable 12/15/21 @ 100^ | 1,112,631 | ||||||
290,000 | Spectra Energy Partners, 3.38%, 10/15/26, Callable 7/15/26 @ 100^ | 286,592 | ||||||
470,000 | Spectra Energy Partners LP, 4.75%, 3/15/24, Callable 12/15/23 @ 100 | 510,973 | ||||||
1,030,000 | Spectra Energy Partners LP, 4.50%, 3/15/45, Callable 9/15/44 @ 100 | 1,062,059 | ||||||
378,000 | Sunoco Logistics Partner LP, 5.35%, 5/15/45, Callable 11/15/44 @ 100 | 375,624 | ||||||
|
| |||||||
34,372,978 | ||||||||
|
| |||||||
Pharmaceuticals (0.3%): | ||||||||
1,540,000 | Bayer US Finance LLC, 3.00%, 10/8/21(a) | 1,555,808 | ||||||
500,000 | Johnson & Johnson, 2.45%, 3/1/26, Callable 12/1/25 @ 100 | 487,588 | ||||||
200,000 | Johnson & Johnson, 2.95%, 3/3/27, Callable 12/3/26 @ 100^ | 202,660 | ||||||
690,000 | Johnson & Johnson, 2.90%, 1/15/28, Callable 10/15/27 @ 100^ | 691,025 | ||||||
250,000 | Merck & Co., Inc., 2.75%, 2/10/25, Callable 11/10/24 @ 100 | 248,988 | ||||||
250,000 | Merck & Co., Inc., 3.70%, 2/10/45, Callable 8/10/44 @ 100 | 260,985 | ||||||
1,290,000 | Novartis Capital Corp., 3.10%, 5/17/27, Callable 2/17/27 @ 100 | 1,315,237 | ||||||
320,000 | Pfizer, Inc., 4.40%, 5/15/44 | 367,304 | ||||||
|
| |||||||
5,129,595 | ||||||||
|
| |||||||
Professional Services (0.0%): | ||||||||
120,000 | Equifax, Inc., 2.30%, 6/1/21, Callable 5/1/21 @ 100^ | 117,132 | ||||||
|
| |||||||
Real Estate Management & Development (0.1%): | ||||||||
1,617,000 | CC Holdings GS V LLC, 3.85%, 4/15/23 | 1,668,239 | ||||||
575,000 | Northwest Florida Timber Finance LLC, 4.75%, 3/4/29(a) | 544,425 | ||||||
|
| |||||||
2,212,664 | ||||||||
|
|
Continued
12
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Road & Rail (0.5%): | ||||||||
$ | 1,000,000 | Burlington North Santa Fe LLC, 3.05%, 9/1/22, Callable 6/1/22 @ 100 | $ | 1,019,663 | ||||
1,260,000 | Burlington North Santa Fe LLC, 4.55%, 9/1/44, Callable 3/1/44 @ 100 | 1,442,634 | ||||||
130,000 | Burlington North Santa Fe LLC, 4.15%, 4/1/45, Callable 10/1/44 @ 100 | 141,270 | ||||||
440,000 | Burlington North Santa Fe LLC, 4.13%, 6/15/47, Callable 12/15/46 @ 100^ | 482,118 | ||||||
1,305,000 | CSX Corp., 3.25%, 6/1/27, Callable 3/1/27 @ 100 | 1,303,726 | ||||||
1,035,000 | CSX Corp., 3.80%, 11/1/46, Callable 5/1/46 @ 100 | 1,029,086 | ||||||
432,000 | Norfolk Southern Corp., 2.90%, 6/15/26, Callable 3/15/26 @ 100^ | 424,943 | ||||||
575,000 | Norfolk Southern Corp., 3.15%, 6/1/27, Callable 3/1/27 @ 100 | 573,536 | ||||||
500,000 | Penske Truck Leasing, 3.40%, 11/15/26, Callable 8/15/26 @ 100(a) | 493,688 | ||||||
484,000 | Union Pacific Corp., 3.88%, 2/1/55, Callable 8/1/54 @ 100 | 491,738 | ||||||
1,705,000 | Union Pacific Corp., 4.10%, 9/15/67, Callable 3/15/67 @ 100 | 1,778,826 | ||||||
452,885 | Union Pacific Railroad Co., Series 14-1, 3.23%, 5/14/26 | 461,821 | ||||||
|
| |||||||
9,643,049 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (0.6%): | ||||||||
515,000 | Analog Devices, Inc., 3.50%, 12/5/26, Callable 9/5/26 @ 100 | 521,168 | ||||||
280,000 | Analog Devices, Inc., 4.50%, 12/5/36, Callable 6/5/36 @ 100 | 301,840 | ||||||
190,000 | Analog Devices, Inc., 5.30%, 12/15/45, Callable 6/15/45 @ 100 | 225,815 | ||||||
130,000 | Applied Materials, Inc., 5.85%, 6/15/41 | 170,305 | ||||||
135,000 | Applied Materials, Inc., 4.35%, 4/1/47, Callable 10/1/46 @ 100 | 151,441 | ||||||
1,970,000 | Broadcom Corp./Broadcom Cayman Finance, Ltd., 3.00%, 1/15/22, Callable 12/15/21 @ 100^(a) | 1,953,314 | ||||||
1,570,000 | Broadcom Corp./Broadcom Cayman Finance, Ltd., 3.63%, 1/15/24, Callable 11/15/23 @ 100(a) | 1,561,184 | ||||||
2,035,000 | Broadcom Corp./Broadcom Cayman Finance, Ltd., 3.13%, 1/15/25, Callable 11/15/24 @ 100(a) | 1,945,389 | ||||||
220,000 | Intel Corp., 4.10%, 5/19/46, Callable 11/19/45 @ 100 | 242,599 | ||||||
19,000 | KLA-Tencor Corp., 4.65%, 11/1/24, Callable 8/1/24 @ 100 | 20,609 | ||||||
302,000 | Lam Research Corp., 2.80%, 6/15/21, Callable 5/15/21 @ 100 | 303,895 | ||||||
541,000 | Lam Research Corp., 3.80%, 3/15/25, Callable 12/15/24 @ 100 | 562,406 | ||||||
250,000 | NVIDIA Corp., 3.20%, 9/16/26, Callable 6/16/26 @ 100 | 250,754 | ||||||
1,650,000 | QUALCOMM, Inc., 2.10%, 5/20/20 | 1,643,061 | ||||||
228,000 | QUALCOMM, Inc., 3.45%, 5/20/25, Callable 2/20/25 @ 100 | 228,518 | ||||||
478,000 | QUALCOMM, Inc., 4.80%, 5/20/45, Callable 11/20/44 @ 100 | 514,111 | ||||||
800,000 | Xilinx, Inc., 2.95%, 6/1/24, Callable 4/1/24 @ 100 | 795,005 | ||||||
|
| |||||||
11,391,414 | ||||||||
|
|
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Software (0.5%): | ||||||||
$ | 345,000 | Autodesk, Inc., 3.50%, 6/15/27, Callable 3/15/27 @ 100 | $ | 338,419 | ||||
970,000 | Microsoft Corp., 2.40%, 8/8/26, Callable 5/8/26 @ 100 | 935,434 | ||||||
925,000 | Microsoft Corp., 3.45%, 8/8/36, Callable 2/8/36 @ 100 | 953,666 | ||||||
4,290,000 | Microsoft Corp., 3.70%, 8/8/46, Callable 2/8/46 @ 100 | 4,472,374 | ||||||
270,000 | Microsoft Corp., Series 30Y, 4.25%, 2/6/47, Callable 8/6/46 @ 100 | 308,683 | ||||||
250,000 | Microsoft Corp., 3.95%, 8/8/56, Callable 2/8/56 @ 100 | 266,848 | ||||||
760,000 | Microsoft Corp., 4.50%, 2/6/57, Callable 8/6/56 @ 100 | 899,934 | ||||||
195,000 | Oracle Corp., 4.50%, 7/8/44, Callable 1/8/44 @ 100 | 222,277 | ||||||
525,000 | Oracle Corp., 4.00%, 7/15/46, Callable 1/15/46 @ 100 | 558,606 | ||||||
450,000 | Oracle Corp., 4.38%, 5/15/55, Callable 11/15/54 @ 100 | 502,974 | ||||||
|
| |||||||
9,459,215 | ||||||||
|
| |||||||
Specialty Retail (0.1%): | ||||||||
135,000 | Bed Bath & Beyond, Inc., 5.17%, 8/1/44, Callable 2/1/44 @ 100 | 118,754 | ||||||
750,000 | Home Depot, Inc. (The), 3.00%, 4/1/26, Callable 1/1/26 @ 100^ | 750,979 | ||||||
560,000 | Home Depot, Inc. (The), 4.25%, 4/1/46, Callable 10/1/45 @ 100 | 625,406 | ||||||
290,000 | Lowe’s Companies, Inc., 3.38%, 9/15/25, Callable 6/15/25 @ 100^ | 298,811 | ||||||
145,000 | Lowe’s Cos., Inc., 2.50%, 4/15/26, Callable 1/15/26 @ 100 | 139,391 | ||||||
|
| |||||||
1,933,341 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (0.2%): | ||||||||
340,000 | Apple, Inc., 3.45%, 2/9/45 | 331,816 | ||||||
640,000 | Apple, Inc., 4.65%, 2/23/46, Callable 8/23/45 @ 100 | 749,462 | ||||||
1,015,000 | Apple, Inc., 3.85%, 8/4/46, Callable 2/4/46 @ 100 | 1,057,802 | ||||||
170,000 | Apple, Inc., 4.25%, 2/9/47, Callable 8/9/46 @ 100^ | 188,909 | ||||||
220,000 | Diamond 1 Finance Corp./Diamond 2 Finance Corp., 6.02%, 6/15/26, Callable 3/15/26 @ 100(a) | 242,576 | ||||||
520,000 | HP Enterprise Co., 2.85%, 10/5/18 | 522,506 | ||||||
400,000 | Xerox Corp., 3.63%, 3/15/23, Callable 2/15/23 @ 100 | 390,207 | ||||||
|
| |||||||
3,483,278 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (0.0%): | ||||||||
245,000 | Coach, Inc., 4.13%, 7/15/27, Callable 4/15/27 @ 100 | 246,863 | ||||||
120,000 | Michael Kors USA, Inc., 4.00%, 11/1/24, Callable 9/1/24 @ 100^(a) | 121,086 | ||||||
|
| |||||||
367,949 | ||||||||
|
|
Continued
13
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Tobacco (0.2%): | ||||||||
$ | 300,000 | Altria Group, Inc., 2.63%, 9/16/26, Callable 6/16/26 @ 100^ | $ | 290,075 | ||||
740,000 | BAT Capital Corp., 3.22%, 8/15/24, Callable 6/15/24 @ 100(a) | 739,971 | ||||||
1,075,000 | BAT Capital Corp., 3.56%, 8/15/27, Callable 5/15/27 @ 100(a) | 1,076,394 | ||||||
92,000 | Reynolds American, Inc., 3.25%, 6/12/20 | 93,481 | ||||||
450,000 | Reynolds American, Inc., 4.00%, 6/12/22 | 470,173 | ||||||
1,030,000 | Reynolds American, Inc., 4.45%, 6/12/25, Callable 3/12/25 @ 100 | 1,098,232 | ||||||
|
| |||||||
3,768,326 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.0%): | ||||||||
75,000 | Air Lease Corp., 3.63%, 4/1/27, Callable 1/1/27 @ 100 | 74,942 | ||||||
|
| |||||||
Wireless Telecommunication Services (0.5%): | ||||||||
9,942,188 | Sprint Spectrum, 3.36%, 3/20/23(a) | 10,004,326 | ||||||
|
| |||||||
Total Corporate Bonds (Cost $384,745,586) | 390,176,248 | |||||||
|
| |||||||
Yankee Dollars (5.2%): | ||||||||
Auto Components (0.0%): | ||||||||
641,000 | Aptiv plc, 4.40%, 10/1/46, Callable 4/1/46 @ 100 | 660,279 | ||||||
|
| |||||||
Banks (1.8%): | ||||||||
1,275,000 | Barclays Bank plc, 2.75%, 11/8/19 | 1,277,741 | ||||||
210,000 | Barclays Bank plc, 5.14%, 10/14/20 | 222,381 | ||||||
888,000 | Barclays Bank plc, 4.38%, 1/12/26 | 923,715 | ||||||
1,400,000 | BNP Paribas SA, 4.63%, 3/13/27(a) | 1,493,494 | ||||||
240,000 | BNP Paribas SA, 3.50%, 11/16/27(a) | 238,886 | ||||||
720,000 | BPCE SA, 3.00%, 5/22/22(a) | 719,601 | ||||||
1,410,000 | BPCE SA, 3.50%, 10/23/27(a) | 1,387,427 | ||||||
2,350,000 | Credit Agricole, 3.38%, 1/10/22(a) | 2,386,661 | ||||||
1,855,000 | Credit Agricole SA, 3.25%, 10/4/24(a) | 1,842,520 | ||||||
1,092,000 | Federal Republic of Germany, 1.50%, 2/6/19 | 1,087,060 | ||||||
1,525,000 | HSBC Holdings plc, 3.26%(US0003M+106bps), 3/13/23, Callable 3/13/22 @ 100 | 1,546,229 | ||||||
1,600,000 | HSBC Holdings plc, 4.38%, 11/23/26 | 1,670,429 | ||||||
600,000 | ING Bank NV, Series E, 4.13%(USISDA05+270bps), 11/21/23, Callable 11/21/18 @ 100(a) | 605,954 | ||||||
1,160,000 | ING Groep NV, 3.15%, 3/29/22 | 1,173,872 | ||||||
835,000 | ING Groep NV, 3.95%, 3/29/27 | 870,509 | ||||||
1,150,000 | Intesa Sanpaolo SpA, 3.13%, 7/14/22(a) | 1,141,707 | ||||||
660,000 | Intesa Sanpaolo SpA, 3.88%, 7/14/27(a) | 659,691 | ||||||
200,000 | Lloyds Banking Group plc, 3.00%, 1/11/22 | 200,998 | ||||||
530,000 | Lloyds Banking Group plc, 2.91%(US0003M+81bps), 11/7/23, Callable 11/7/22 @ 100 | 525,458 | ||||||
550,000 | Lloyds Banking Group plc, 3.75%, 1/11/27 | 558,543 | ||||||
750,000 | Mitsubishi UFJ Finance GRP, 3.00%, 2/22/22 | 754,765 | ||||||
1,810,000 | Mitsubishi UFJ Financial Group, Inc., 2.95%, 3/1/21 | 1,826,518 | ||||||
650,000 | Mitsubishi UFJ Financial Group, Inc., 2.67%, 7/25/22 | 643,861 | ||||||
2,890,000 | Mizuho Financial Group, 2.95%, 2/28/22 | 2,892,827 | ||||||
420,000 | Mizuho Financial Group, Inc., 2.60%, 9/11/22^ | 413,390 | ||||||
1,010,000 | National Australia Bank of New York, 2.13%, 5/22/20^ | 1,004,038 |
Principal Amount | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Banks, continued | ||||||||
$ | 2,670,000 | Royal Bank of Canada, 2.20%, 9/23/19 | $ | 2,668,535 | ||||
860,000 | Royal Bank of Canada, Series G, 2.13%, 3/2/20^ | 857,418 | ||||||
690,000 | Royal Bank of Canada, 2.15%, 10/26/20^ | 685,545 | ||||||
1,985,000 | Santander UK Group Holdings plc, 2.88%, 10/16/20 | 1,991,560 | ||||||
240,000 | Santander UK plc, 7.95%, 10/26/29 | 311,615 | ||||||
1,625,000 | Sumitomo Mitsui Banking Corp., 1.66%(US0003M+31bps), 10/18/19 | 1,625,179 | ||||||
1,655,000 | Sumitomo Mitsui Trust Bank, Ltd., 1.95%, 9/19/19(a) | 1,641,781 | ||||||
|
| |||||||
37,849,908 | ||||||||
|
| |||||||
Biotechnology (0.0%): | ||||||||
455,000 | Shire Acq INV Ireland DA, 1.90%, 9/23/19 | 450,881 | ||||||
|
| |||||||
Building Products (0.0%): | ||||||||
256,000 | Johnson Controls International, 4.62%, 7/2/44, Callable 1/2/44 @ 100 | 281,980 | ||||||
|
| |||||||
Capital Markets (0.9%): | ||||||||
1,515,000 | CDP Financial, Inc., 4.40%, 11/25/19(a) | 1,574,495 | ||||||
770,000 | Credit Suisse AG, NY, 1.70%, 4/27/18 | 769,427 | ||||||
1,000,000 | Credit Suisse AG, NY, 3.00%, 10/29/21 | 1,010,261 | ||||||
1,035,000 | Credit Suisse Group Fun, Ltd., 2.75%, 3/26/20 | 1,039,036 | ||||||
360,000 | Credit Suisse Group Fun, Ltd., 3.45%, 4/16/21 | 368,406 | ||||||
250,000 | Credit Suisse, NY, 3.63%, 9/9/24 | 258,685 | ||||||
433,000 | Deutsche Bank AG, 1.88%, 2/13/18 | 432,935 | ||||||
2,790,000 | FMS Wertmanagement, 1.63%, 11/20/18 | 2,783,082 | ||||||
280,000 | Nomura Holdings, Inc., 2.75%, 3/19/19 | 282,094 | ||||||
1,980,000 | UBS AG, 2.20%, 6/8/20, Callable 5/8/20 @ 100(a) | 1,967,296 | ||||||
1,135,000 | UBS AG, 2.45%, 12/1/20, Callable 11/1/20 @ 100^(a) | 1,131,579 | ||||||
670,000 | UBS Group AG, 4.13%, 9/24/25(a) | 703,134 | ||||||
3,675,000 | UBS Group Funding, 3.49%, 5/23/23, Callable 5/23/22 @ 100(a) | 3,733,484 | ||||||
870,000 | UBS Group Funding Switzerland AG, 2.86%(US0003M+95bps), 8/15/23, Callable 8/15/22 @ 100(a) | 860,053 | ||||||
|
| |||||||
16,913,967 | ||||||||
|
| |||||||
Chemicals (0.0%): | ||||||||
750,000 | Air Liquide Finance SA, 1.75%, 9/27/21, Callable 8/27/21 @ 100(a) | 727,331 | ||||||
|
| |||||||
Consumer Finance (0.1%): | ||||||||
1,675,000 | Hyundai Capital Services, Inc., 3.00%, 8/29/22(a) | 1,647,037 | ||||||
|
| |||||||
Diversified Financial Services (0.2%): | ||||||||
245,000 | Corp. Financiera de Desarrollo SA, 4.75%, 7/15/25(a) | 260,803 | ||||||
1,640,000 | Deutsche Telekom International Finance, 1.95%, 9/19/21, Callable 8/19/21 @ 100(a) | 1,594,777 | ||||||
635,000 | Export Development Canada, 0.88%, 8/27/18(a) | 631,104 | ||||||
2,335,000 | ORIX Corp., 2.90%, 7/18/22 | 2,326,828 | ||||||
|
| |||||||
4,813,512 | ||||||||
|
| |||||||
Electric Utilities (0.1%): | ||||||||
2,447,000 | ENEL Finance International NV, 2.88%, 5/25/22^(a) | 2,440,349 | ||||||
|
| |||||||
Electronic Equipment, Instruments & Components (0.0%): | ||||||||
125,000 | Tyco Electronics Group SA, 3.45%, 8/1/24, Callable 5/1/24 @ 100 | 128,501 | ||||||
|
|
Continued
14
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Food Products (0.1%): | ||||||||
$ | 1,570,000 | Danone SA, 2.08%, 11/2/21, Callable 10/2/21 @ 100^(a) | $ | 1,535,775 | ||||
|
| |||||||
Industrial Conglomerates (0.2%): | ||||||||
2,874,000 | GE Capital International Funding, 4.42%, 11/15/35 | 3,110,405 | ||||||
|
| |||||||
Insurance (0.1%): | ||||||||
1,210,000 | Aon plc, 3.88%, 12/15/25, Callable 9/15/25 @ 100 | 1,265,112 | ||||||
81,000 | Aon plc, 4.45%, 5/24/43, Callable 2/24/43 @ 100 | 84,734 | ||||||
744,000 | Aon plc, 4.60%, 6/14/44, Callable 3/14/44 @ 100 | 811,646 | ||||||
200,000 | Aon plc, 4.75%, 5/15/45, Callable 11/15/44 @ 100 | 222,379 | ||||||
500,000 | Trinity Acquistion plc, 4.40%, 3/15/26, Callable 12/15/25 @ 100 | 528,794 | ||||||
|
| |||||||
2,912,665 | ||||||||
|
| |||||||
Internet Software & Services (0.1%): | ||||||||
320,000 | Alibaba Group Holding Ltd., 2.80%, 6/6/23, Callable 5/6/23 @ 100 | 319,089 | ||||||
1,095,000 | Alibaba Group Holding Ltd., 4.40%, 12/6/57, Callable 6/6/57 @ 100 | 1,140,721 | ||||||
|
| |||||||
1,459,810 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.0%): | ||||||||
555,000 | Ecopetrol SA, 4.13%, 1/16/25 | 557,775 | ||||||
107,000 | Petroleos Mexicanos, 6.00%, 3/5/20 | 113,527 | ||||||
883,000 | Petroleos Mexicanos, 5.63%, 1/23/46 | 817,217 | ||||||
215,000 | Shell International Finance BV, 2.13%, 5/11/20 | 214,553 | ||||||
490,000 | Shell International Finance BV, 1.75%, 9/12/21 | 478,160 | ||||||
396,000 | Suncor Energy, Inc., 6.80%, 5/15/38 | 545,780 | ||||||
|
| |||||||
2,727,012 | ||||||||
|
| |||||||
Pharmaceuticals (0.6%): | ||||||||
4,055,000 | Actavis Funding SCS, 3.45%, 3/15/22, Callable 1/15/22 @ 100 | 4,120,100 | ||||||
345,000 | Actavis Funding SCS, 3.85%, 6/15/24, Callable 3/15/24 @ 100 | 353,536 | ||||||
3,455,000 | Actavis Funding SCS, 3.80%, 3/15/25, Callable 12/15/24 @ 100^ | 3,517,351 | ||||||
330,000 | Actavis Funding SCS, 4.75%, 3/15/45, Callable 9/15/44 @ 100^ | 351,304 | ||||||
225,000 | AstraZeneca plc, 2.38%, 6/12/22, Callable 5/12/22 @ 100 | 222,332 | ||||||
2,590,000 | Teva Pharmaceuticals Industries, Ltd., 2.20%, 7/21/21^ | 2,365,889 | ||||||
375,000 | Teva Pharmaceuticals Ne, 1.40%, 7/20/18^ | 372,503 | ||||||
|
| |||||||
11,303,015 | ||||||||
|
| |||||||
Sovereign Bond (1.0%): | ||||||||
620,000 | Canada Government, 1.63%, 2/27/19 | 617,849 | ||||||
1,964,000 | Mexico Government International Bond, 4.15%, 3/28/27^ | 2,036,668 | ||||||
589,561 | Oriental Republic of Uruguay, 4.50%, 8/14/24^ | 639,379 | ||||||
600,000 | Oriental Republic of Uruguay, 4.38%, 10/27/27^ | 642,510 | ||||||
689,000 | Province of Manitoba, 3.05%, 5/14/24 | 702,749 | ||||||
870,000 | Province of Quebec, 2.50%, 4/20/26^ | 850,917 | ||||||
595,000 | Republic of Colombia, 4.50%, 1/28/26, Callable 10/28/25 @ 100^ | 634,568 |
Principal Amount | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Sovereign Bond, continued | ||||||||
$ | 5,630,000 | Republic of Colombia, 3.88%, 4/25/27, Callable 1/25/27 @ 100^ | $ | 5,731,340 | ||||
575,000 | Republic of Panama, 4.00%, 9/22/24, Callable 6/22/24 @ 100 | 611,513 | ||||||
540,000 | Republic of Panama, 4.50%, 5/15/47 | 581,310 | ||||||
281,000 | Republic of Peru, 5.63%, 11/18/50 | 360,523 | ||||||
1,270,000 | Saudi Government International Bond, 3.63%, 3/4/28(a) | 1,258,570 | ||||||
262,000 | United Mexican States, Series E, 3.50%, 1/21/21 | 270,908 | ||||||
2,506,000 | United Mexican States, 4.13%, 1/21/26^ | 2,612,505 | ||||||
|
| |||||||
17,551,309 | ||||||||
|
| |||||||
Transportation Infrastructure (0.0%): | ||||||||
410,000 | Mexico City Airport Trust, 5.50%, 7/31/47, Callable 1/31/47 @ 100(a) | 404,875 | ||||||
|
| |||||||
Wireless Telecommunication Services (0.0%): | ||||||||
95,000 | Rogers Communications, Inc., 3.63%, 12/15/25, Callable 9/15/25 @ 100 | 97,030 | ||||||
130,000 | Rogers Communications, Inc., 5.00%, 3/15/44, Callable 9/15/43 @ 100 | 150,137 | ||||||
|
| |||||||
247,167 | ||||||||
|
| |||||||
Total Yankee Dollars (Cost $106,505,048) | 107,165,778 | |||||||
|
| |||||||
Municipal Bonds (0.1%): | ||||||||
Massachusetts (0.0%): | ||||||||
450,000 | Massachusetts State School Building Authority Sales Tax Revenue, Series B, 5.00%, 10/15/41, Continuously Callable @100 | 497,039 | ||||||
|
| |||||||
New Jersey (0.1%): | ||||||||
800,000 | New Jersey State Transportation Trust Fund Authority Revenue, Series AA, 5.00%, 6/15/36, Continuously Callable @100 | 864,832 | ||||||
|
| |||||||
New York (0.0%): | ||||||||
540,000 | New York State Urban Development Corp. Revenue, Series E, 5.00%, 3/15/24, Continuously Callable @100 | 626,270 | ||||||
|
| |||||||
California (0.0%): | ||||||||
50,000 | University of California Revenue, 4.86%, 5/15/12 | 55,812 | ||||||
347,000 | University of California Revenue, 4.77%, 5/15/15 | 379,406 | ||||||
|
| |||||||
435,218 | ||||||||
|
| |||||||
Total Municipal Bonds (Cost $2,284,876) | 2,423,359 | |||||||
|
| |||||||
U.S. Government Agency Mortgages (32.2%): | ||||||||
Federal Home Loan Mortgage Corporation (9.5%) | ||||||||
1,544,643 | 2.50%, 2/1/24, Pool #G14989 | 1,550,196 | ||||||
2,131,499 | Class A1, Series KIR2, 2.75%, 3/25/27 | 2,143,695 | ||||||
591,000 | 3.47%, 9/15/29, TBA(d) | 418,596 | ||||||
96,155 | 3.00%, 1/1/30, Pool #V60724 | 98,065 | ||||||
68,699 | 3.00%, 1/1/30, Pool #V60696 | 70,063 | ||||||
139,147 | 2.50%, 3/1/30, Pool #V60770 | 139,097 | ||||||
307,241 | 3.00%, 5/1/30, Pool #J31689 | 313,642 | ||||||
157,759 | 2.50%, 5/1/30, Pool #J31418 | 157,659 | ||||||
214,710 | 2.50%, 5/1/30, Pool #V60796 | 214,500 | ||||||
593,227 | 3.00%, 6/1/30, Pool #V60840 | 605,235 |
Continued
15
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal Home Loan Mortgage Corporation, continued | ||||||||
$ | 31,403 | 3.00%, 7/1/30, Pool #J32181 | $ | 32,058 | ||||
12,651 | 2.50%, 7/1/30, Pool #J32491 | 12,636 | ||||||
18,105 | 2.50%, 7/1/30, Pool #V60905 | 18,087 | ||||||
53,529 | 2.50%, 7/1/30, Pool #J32209 | 53,495 | ||||||
57,496 | 2.50%, 7/1/30, Pool #J32204 | 57,450 | ||||||
266,464 | 3.00%, 7/1/30, Pool #G15520 | 271,763 | ||||||
57,618 | 3.00%, 8/1/30, Pool #V60909 | 58,784 | ||||||
179,141 | 2.50%, 8/1/30, Pool #V60902 | 179,026 | ||||||
240,186 | 2.50%, 8/1/30, Pool #V60886 | 240,036 | ||||||
37,344 | 3.00%, 8/1/30, Pool #J32436 | 38,086 | ||||||
364,042 | 2.50%, 9/1/30, Pool #V60904 | 363,685 | ||||||
176,784 | 2.50%, 9/1/30, Pool #V60903 | 176,640 | ||||||
197,000 | 3.67%, 3/15/31, TBA(d) | 132,078 | ||||||
190,000 | 6.75%, 3/15/31, TBA | 271,708 | ||||||
191,291 | 5.50%, 2/1/35, Pool #G04692 | 212,504 | ||||||
94,538 | 5.00%, 7/1/35, Pool #G01838 | 102,557 | ||||||
73,623 | 5.00%, 7/1/35, Pool #G01840 | 79,870 | ||||||
808,220 | 5.00%, 2/1/38, Pool #G60365 | 876,499 | ||||||
262,829 | 6.00%, 4/1/39, Pool #G07613 | 301,848 | ||||||
50,421 | 4.50%, 12/1/39, Pool #A90196 | 53,803 | ||||||
46,118 | 4.50%, 7/1/40, Pool #A93010 | 49,207 | ||||||
58,108 | 4.00%, 8/1/40, Pool #A93534 | 61,002 | ||||||
356,782 | 4.00%, 9/1/40, Pool #A93851 | 377,148 | ||||||
948,079 | 4.50%, 9/1/40, Pool #A93700 | 1,022,461 | ||||||
52,847 | 4.00%, 10/1/40, Pool #A95923 | 55,999 | ||||||
53,676 | 4.00%, 11/1/40, Pool #A94779 | 56,876 | ||||||
50,775 | 4.00%, 11/1/40, Pool #A94977 | 53,802 | ||||||
50,073 | 4.00%, 11/1/40, Pool #A95144 | 53,058 | ||||||
3,337 | 4.00%, 4/1/41, Pool #Q00093 | 3,503 | ||||||
159,561 | 4.50%, 5/1/41, Pool #Q00959 | 170,256 | ||||||
145,216 | 4.50%, 5/1/41, Pool #Q00804 | 154,824 | ||||||
685,377 | Class FL, Series 4248, 1.93%(US0001M+45bps), 5/15/41 | 689,001 | ||||||
777,613 | 5.50%, 6/1/41, Pool #G07553 | 859,341 | ||||||
52,062 | 4.00%, 10/1/41, Pool #Q03841 | 54,854 | ||||||
100,087 | 4.00%, 10/1/41, Pool #Q04022 | 106,054 | ||||||
735,306 | 3.50%, 10/1/41, Pool #G08462 | 758,799 | ||||||
170,286 | 5.00%, 10/1/41, Pool #G07642 | 186,071 | ||||||
1,473,026 | 5.00%, 11/1/41, Pool #G07962 | 1,610,824 | ||||||
369,804 | 3.50%, 4/1/42, Pool #C03811 | 383,044 | ||||||
300,542 | 3.50%, 4/1/42, Pool #Q07417 | 310,583 | ||||||
19,665 | 3.50%, 5/1/42, Pool #Q07896 | 20,293 | ||||||
52,626 | 3.50%, 8/1/42, Pool #Q12162 | 54,385 | ||||||
317,363 | 3.50%, 8/1/42, Pool #G07106 | 327,966 | ||||||
533,060 | 3.50%, 8/1/42, Pool #Q10724 | 550,094 | ||||||
49,654 | 3.50%, 10/1/42, Pool #Q11750 | 51,242 | ||||||
26,740 | 3.50%, 10/1/42, Pool #Q11909 | 27,544 | ||||||
603,940 | 3.50%, 11/1/42, Pool #Q13134 | 623,256 | ||||||
345,865 | 3.00%, 12/1/42, Pool #C04320 | 347,771 | ||||||
399,098 | 3.00%, 1/1/43, Pool #Q14866 | 401,339 | ||||||
387,780 | 3.00%, 3/1/43, Pool #Q16673 | 390,018 | ||||||
478,247 | 3.00%, 3/1/43, Pool #Q16567 | 480,982 | ||||||
265,203 | 3.00%, 3/1/43, Pool #Q16403 | 266,733 | ||||||
133,723 | 3.00%, 4/1/43, Pool #Q17095 | 134,495 | ||||||
176,526 | 3.50%, 6/1/43, Pool #Q18718 | 182,478 | ||||||
270,380 | 3.50%, 7/1/43, Pool #Q20206 | 280,058 |
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal Home Loan Mortgage Corporation, continued | ||||||||
$ | 1,461,781 | 3.00%, 8/1/43, Pool #G07550 | $ | 1,470,216 | ||||
182,781 | 3.50%, 8/1/43, Pool #Q21320 | 188,625 | ||||||
123,827 | 4.00%, 9/1/43, Pool #Q21579 | 131,414 | ||||||
4,295,852 | 3.00%, 9/1/43, Pool #G60675 | 4,316,547 | ||||||
389,839 | 4.50%, 12/1/43, Pool #G60018 | 417,274 | ||||||
448,960 | 4.50%, 12/1/43, Pool #Q23779 | 478,079 | ||||||
29,018 | 3.50%, 1/1/44, Pool #Q24368 | 30,056 | ||||||
822,498 | Class XZ, Series 4316, 4.50%, 3/15/44 | 922,453 | ||||||
24,322 | 3.50%, 4/1/44, Pool #Q25812 | 25,192 | ||||||
185,330 | 4.00%, 4/1/44, Pool #Q25643 | 196,308 | ||||||
1,284,383 | 3.50%, 4/1/44, Pool #G07848 | 1,330,284 | ||||||
1,219,006 | Class ZX, Series 4352, 4.00%, 4/15/44 | 1,293,369 | ||||||
27,810 | 3.50%, 5/1/44, Pool #Q26452 | 28,804 | ||||||
21,030 | 3.50%, 5/1/44, Pool #Q25988 | 21,782 | ||||||
37,722 | 3.50%, 5/1/44, Pool #Q26218 | 39,123 | ||||||
64,917 | 3.50%, 5/1/44, Pool #Q26362 | 67,237 | ||||||
32,749 | 3.50%, 6/1/44, Pool #Q26707 | 33,920 | ||||||
155,005 | 3.50%, 6/1/44, Pool #Q28764 | 160,173 | ||||||
30,345 | 3.50%, 7/1/44, Pool #Q27319 | 31,472 | ||||||
125,506 | 3.50%, 8/1/44, Pool #Q27843 | 129,993 | ||||||
696,716 | 4.00%, 8/1/44, Pool #G07786 | 739,375 | ||||||
139,349 | 3.50%, 9/1/44, Pool #Q28605 | 144,331 | ||||||
53,110 | 3.50%, 9/1/44, Pool #Q28604 | 55,082 | ||||||
48,878 | 4.00%, 2/1/45, Pool #Q31338 | 51,322 | ||||||
21,307 | 4.00%, 2/1/45, Pool #Q31128 | 22,441 | ||||||
4,429,409 | 3.50%, 8/1/45, Pool #G60138 | 4,587,898 | ||||||
35,888 | 3.50%, 9/1/45, Pool #Q36302 | 37,222 | ||||||
346,073 | 4.00%, 10/1/45, Pool #Q36972 | 365,177 | ||||||
52,023 | 4.00%, 12/1/45, Pool #Q37955 | 54,793 | ||||||
60,834 | 4.00%, 12/1/45, Pool #Q37957 | 63,982 | ||||||
595,316 | 3.50%, 1/1/46, Pool #G60393 | 614,044 | ||||||
438,659 | 3.50%, 3/1/46, Pool #Q39250 | 452,385 | ||||||
490,138 | 3.50%, 5/1/46, Pool #G60561 | 505,474 | ||||||
1,389,367 | 3.00%, 6/1/46, Pool #G08710 | 1,391,290 | ||||||
811,015 | 4.00%, 7/1/46, Pool #V82528 | 855,824 | ||||||
1,815,076 | 3.50%, 7/1/46, Pool #G60658 | 1,880,027 | ||||||
477,929 | 4.00%, 8/1/46, Pool #V82553 | 504,335 | ||||||
10,702,257 | 3.00%, 8/1/46, Pool #G60717 | 10,731,425 | ||||||
929,445 | Class FB, Series 4606, 1.98%(US0001M+50bps), 8/15/46 | 935,286 | ||||||
587,477 | 3.00%, 9/1/46, Pool #G60718 | 588,631 | ||||||
67,212 | 4.00%, 9/1/46, Pool #G60729 | 70,925 | ||||||
2,119,798 | 3.00%, 9/1/46, Pool #Q42979 | 2,123,963 | ||||||
3,865,334 | 3.00%, 9/1/46, Pool #Q43104 | 3,878,168 | ||||||
133,097 | 4.00%, 10/1/46, Pool #V82661 | 140,478 | ||||||
15,206,193 | 3.00%, 11/1/46, Pool #Q44452 | 15,222,531 | ||||||
4,985,663 | 3.00%, 11/1/46, Pool #Q44665 | 4,992,564 | ||||||
2,157,175 | 3.00%, 12/1/46, Pool #V82781 | 2,160,412 | ||||||
319,917 | 3.00%, 12/1/46, Pool #Q45080 | 321,115 | ||||||
10,597,490 | 3.00%, 12/1/46, Pool #G08737 | 10,608,329 | ||||||
162,185 | 3.00%, 12/1/46, Pool #Q45083 | 163,100 | ||||||
651,928 | 3.00%, 12/1/46, Pool #Q44853 | 654,093 | ||||||
271,156 | 3.00%, 12/1/46, Pool #Q45079 | 272,298 | ||||||
635,287 | 3.00%, 12/1/46, Pool #Q45064 | 636,535 | ||||||
14,808,937 | 3.00%, 1/1/47, Pool #Q45872 | 14,827,157 | ||||||
11,415,701 | 3.00%, 1/1/47, Pool #G08741 | 11,426,787 |
Continued
16
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal Home Loan Mortgage Corporation, continued | ||||||||
$ | 2,915,003 | 4.00%, 2/1/47, Pool #V82929 | $ | 3,076,441 | ||||
2,030,353 | 3.00%, 2/1/47, Pool #Q46441 | 2,032,150 | ||||||
26,752,148 | 3.00%, 2/1/47, Pool #G08747 | 26,774,446 | ||||||
1,273,102 | 3.50%, 3/1/47, Pool #G60968 | 1,318,123 | ||||||
3,989,150 | 3.00%, 4/1/47, Pool #G08756 | 3,992,821 | ||||||
2,394,395 | 4.00%, 8/1/47, Pool #G67704 | 2,539,480 | ||||||
799,171 | 3.50%, 10/1/47, Pool #G61178 | 828,728 | ||||||
4,502,619 | 4.50%, 11/1/47, Pool #Q52321 | 4,794,845 | ||||||
300,000 | 6.00%, 1/15/48, TBA | 335,238 | ||||||
1,700,000 | 2.50%, 1/15/48, TBA | 1,641,064 | ||||||
2,600,000 | 5.50%, 1/15/48, TBA | 2,842,708 | ||||||
4,482,943 | 3.50%, 1/15/48, TBA | 4,603,657 | ||||||
7,531,000 | 4.00%, 1/15/48, TBA | 7,875,190 | ||||||
2,836,000 | 4.50%, 1/15/48, TBA | 3,014,580 | ||||||
|
| |||||||
189,459,313 | ||||||||
|
| |||||||
Federal Home Loan Mortgage Corporation Multifamily Structured Pass Through Certificates (0.2%) | ||||||||
1,816,000 | Class A2, Series K066, 3.12%, 6/25/27 | 1,853,089 | ||||||
1,230,000 | Class A2, Series KIR3, 3.28%, 8/25/27 | 1,268,313 | ||||||
|
| |||||||
3,121,402 | ||||||||
|
| |||||||
Federal National Mortgage Association (17.0%) | ||||||||
13,922 | 4.00%, 7/1/19, Pool #AE0968 | 14,328 | ||||||
11,225 | 5.50%, 3/1/20, Pool #888557 | 11,310 | ||||||
60,897 | 5.50%, 5/1/25, Pool #AE0378 | 62,141 | ||||||
8,939 | 5.50%, 9/1/25, Pool #AL4903 | 9,090 | ||||||
227,593 | 4.00%, 9/1/26, Pool #AL2683 | 238,202 | ||||||
1,380,000 | Class A2, Series 2017-M1, 2.42%, 10/25/26 | 1,334,213 | ||||||
163,393 | 4.00%, 12/1/26, Pool #AL1938 | 170,198 | ||||||
2,087,816 | 4.00%, 5/1/27, Pool #AL5956 | 2,168,400 | ||||||
86,068 | 3.00%, 4/1/28, Pool #AT3121 | 87,936 | ||||||
108,141 | 3.00%, 5/1/28, Pool #AT6033 | 110,477 | ||||||
51,380 | 3.00%, 8/1/28, Pool #AU5151 | 52,543 | ||||||
1,758,627 | 3.50%, 9/1/28, Pool #AL4245 | 1,825,900 | ||||||
487,191 | 3.50%, 10/1/28, Pool #AV0198 | 505,813 | ||||||
199,499 | 3.00%, 10/1/28, Pool #AU8774 | 203,576 | ||||||
22,953 | 3.00%, 10/1/28, Pool #AQ4132 | 23,473 | ||||||
22,794 | 3.00%, 11/1/28, Pool #AV0298 | 23,310 | ||||||
721,431 | 3.50%, 11/1/28, Pool #AV1360 | 748,982 | ||||||
570,466 | 3.00%, 4/1/29, Pool #AW0937 | 582,830 | ||||||
407,519 | 3.00%, 5/1/29, Pool #AW2544 | 416,745 | ||||||
776,883 | 3.00%, 6/1/29, Pool #AS2676 | 793,723 | ||||||
546,644 | 3.50%, 9/1/29, Pool #AL5806 | 567,532 | ||||||
306,104 | 3.50%, 9/1/29, Pool #AX0105 | 316,922 | ||||||
143,219 | 3.00%, 9/1/29, Pool #AS3355 | 146,443 | ||||||
523,988 | 3.00%, 9/1/29, Pool #AS3220 | 535,293 | ||||||
1,601,491 | 3.00%, 9/1/29, Pool #AL6897 | 1,637,765 | ||||||
72,549 | 3.50%, 10/1/29, Pool #AX2741 | 75,320 | ||||||
5,539,098 | 3.50%, 12/1/29, Pool #AL9230 | 5,754,863 | ||||||
402,273 | 3.50%, 12/1/29, Pool #AS3988 | 418,373 | ||||||
2,410,417 | 3.50%, 12/1/29, Pool #AL6161 | 2,504,356 | ||||||
1,046,716 | 3.00%, 1/1/30, Pool #AL6144 | 1,069,287 | ||||||
2,605,000 | 3.53%, 1/15/30, TBA(d) | 1,819,747 | ||||||
211,355 | 3.00%, 3/1/30, Pool #AL6583 | 216,116 | ||||||
143,508 | 2.50%, 4/1/30, Pool #AY3416 | 143,785 | ||||||
183,857 | 3.00%, 4/1/30, Pool #AL6584 | 187,820 |
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal National Mortgage Association, continued | ||||||||
$ | 71,154 | 2.50%, 5/1/30, Pool #AY0828 | $ | 71,291 | ||||
102,676 | 3.00%, 5/1/30, Pool #AL6761 | 104,988 | ||||||
3,901,000 | 3.59%, 5/15/30, TBA(d) | 2,689,547 | ||||||
140,230 | 3.00%, 7/1/30, Pool #AL7139 | 143,180 | ||||||
65,773 | 2.50%, 7/1/30, Pool #AZ2170 | 65,900 | ||||||
27,987 | 3.00%, 7/1/30, Pool #AZ2297 | 28,556 | ||||||
159,783 | 3.00%, 7/1/30, Pool #AX9701 | 163,151 | ||||||
49,844 | 3.00%, 7/1/30, Pool #AX9700 | 50,931 | ||||||
18,591 | 3.00%, 8/1/30, Pool #AZ8597 | 18,997 | ||||||
275,449 | 2.50%, 8/1/30, Pool #AS5616 | 275,980 | ||||||
1,167,141 | 3.50%, 8/1/30, Pool #AL7430 | 1,211,806 | ||||||
239,426 | 3.00%, 8/1/30, Pool #AL7227 | 244,389 | ||||||
262,278 | 3.00%, 8/1/30, Pool #AL7225 | 267,800 | ||||||
41,760 | 3.00%, 8/1/30, Pool #AZ7833 | 42,672 | ||||||
34,744 | 3.50%, 8/1/30, Pool #AS5707 | 36,031 | ||||||
152,819 | 3.50%, 8/1/30, Pool #AS5708 | 158,787 | ||||||
202,153 | 3.00%, 8/1/30, Pool #AS5623 | 206,352 | ||||||
192,957 | 3.00%, 8/1/30, Pool #AS5622 | 197,022 | ||||||
144,858 | 2.50%, 8/1/30, Pool #AS5614 | 145,137 | ||||||
35,412 | 3.00%, 8/1/30, Pool #AX3298 | 36,185 | ||||||
112,674 | 2.50%, 8/1/30, Pool #AS5548 | 112,891 | ||||||
184,169 | 3.00%, 9/1/30, Pool #AS5728 | 188,189 | ||||||
79,390 | 3.00%, 9/1/30, Pool #AZ5719 | 81,005 | ||||||
136,897 | 3.00%, 9/1/30, Pool #AS5714 | 139,784 | ||||||
161,616 | 2.50%, 9/1/30, Pool #AS5872 | 161,927 | ||||||
134,967 | 2.50%, 9/1/30, Pool #AS5786 | 135,227 | ||||||
147,107 | 2.50%, 11/1/30, Pool #AS6115 | 147,391 | ||||||
155,724 | 2.50%, 11/1/30, Pool #AS6141 | 156,024 | ||||||
155,300 | 2.50%, 11/1/30, Pool #AS6116 | 155,134 | ||||||
141,058 | 2.50%, 11/1/30, Pool #AS6142 | 141,330 | ||||||
228,524 | 2.50%, 6/1/31, Pool #AS7320 | 228,383 | ||||||
423,323 | 2.50%, 7/1/31, Pool #AS7617 | 423,063 | ||||||
279,211 | 2.50%, 7/1/31, Pool #AS7605 | 279,040 | ||||||
92,041 | 4.00%, 8/1/31, Pool #AY4707 | 97,652 | ||||||
3,351,571 | 3.00%, 8/1/31, Pool #AL9376 | 3,419,486 | ||||||
59,655 | 4.00%, 8/1/31, Pool #AY4688 | 63,285 | ||||||
1,166,355 | 3.50%, 9/1/31, Pool #BM1600 | 1,210,629 | ||||||
398,441 | 2.50%, 10/1/31, Pool #AS8009 | 398,143 | ||||||
534,957 | 2.50%, 10/1/31, Pool #AS8193 | 534,576 | ||||||
3,386,917 | 2.50%, 10/1/31, Pool #BC4773 | 3,386,010 | ||||||
681,322 | 2.50%, 10/1/31, Pool #AS8208 | 680,938 | ||||||
1,656,043 | 2.50%, 10/1/31, Pool #AS8195 | 1,655,476 | ||||||
437,497 | 2.50%, 11/1/31, Pool #BM1896 | 437,941 | ||||||
234,833 | 2.50%, 11/1/31, Pool #BC2628 | 234,770 | ||||||
482,720 | 2.50%, 11/1/31, Pool #BC2631 | 482,305 | ||||||
243,920 | 2.50%, 11/1/31, Pool #BC2629 | 243,770 | ||||||
290,224 | 2.50%, 11/1/31, Pool #AS8245 | 290,146 | ||||||
387,948 | 2.50%, 11/1/31, Pool #AS8240 | 387,730 | ||||||
353,641 | 2.50%, 11/1/31, Pool #AS8241 | 353,389 | ||||||
4,645,619 | 3.50%, 1/1/32, Pool #BM1494 | 4,822,342 | ||||||
282,765 | 2.50%, 1/1/32, Pool #BM1890 | 282,919 | ||||||
860,000 | 2.50%, 1/25/32, TBA | 858,656 | ||||||
687,900 | 2.50%, 3/1/32, Pool #AS9321 | 687,715 | ||||||
884,998 | 2.50%, 3/1/32, Pool #AS9319 | 884,052 | ||||||
438,364 | 2.50%, 3/1/32, Pool #AS9317 | 438,052 | ||||||
190,030 | 2.50%, 3/1/32, Pool #BM1422 | 189,827 |
Continued
17
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal National Mortgage Association, continued | ||||||||
$ | 548,413 | 2.50%, 3/1/32, Pool #AS9316 | $ | 548,103 | ||||
840,992 | 2.50%, 3/1/32, Pool #AS9318 | 840,267 | ||||||
284,125 | 3.50%, 4/1/32, Pool #BH0914 | 295,254 | ||||||
2,086,246 | 3.50%, 5/1/32, Pool #BM1272 | 2,164,586 | ||||||
13,836,850 | 3.00%, 6/1/32, Pool #BM1791 | 14,137,193 | ||||||
160,611 | 3.50%, 7/1/32, Pool #BH2998 | 166,733 | ||||||
145,601 | 3.50%, 9/1/32, Pool #BH7482 | 151,731 | ||||||
112,175 | 3.50%, 9/1/32, Pool #BH9555 | 116,351 | ||||||
129,890 | 3.50%, 9/1/32, Pool #BH7484 | 134,855 | ||||||
197,848 | 3.50%, 10/1/32, Pool #BJ0329 | 205,785 | ||||||
28,264 | 3.00%, 10/1/32, Pool #BJ1473 | 28,883 | ||||||
42,504 | 3.00%, 10/1/32, Pool #BH8696 | 43,436 | ||||||
28,675 | 3.00%, 10/1/32, Pool #BJ1979 | 29,305 | ||||||
493,175 | 3.50%, 10/1/32, Pool #BJ0317 | 513,794 | ||||||
33,638 | 3.00%, 10/1/32, Pool #BH8456 | 34,376 | ||||||
93,858 | 3.50%, 10/1/32, Pool #BH7855 | 97,623 | ||||||
294,980 | 3.50%, 10/1/32, Pool #BJ0769 | 307,770 | ||||||
43,503 | 3.00%, 10/1/32, Pool #BH7543 | 44,457 | ||||||
49,739 | 3.00%, 11/1/32, Pool #BH8499 | 50,852 | ||||||
382,210 | 3.50%, 11/1/32, Pool #BH5785 | 398,783 | ||||||
57,733 | 3.00%, 11/1/32, Pool #BJ3910 | 59,025 | ||||||
195,498 | 3.50%, 11/1/32, Pool #BM1994 | 203,733 | ||||||
103,501 | 3.50%, 11/1/32, Pool #BJ3911 | 107,989 | ||||||
47,707 | 3.00%, 11/1/32, Pool #BJ3912 | 48,753 | ||||||
49,414 | 3.00%, 11/1/32, Pool #BH8501 | 50,497 | ||||||
177,609 | 3.50%, 11/1/32, Pool #BH5780 | 185,090 | ||||||
466,624 | 3.50%, 11/1/32, Pool #CA0789 | 485,703 | ||||||
503,729 | 3.00%, 11/1/32, Pool #CA0784 | 514,780 | ||||||
427,481 | 3.50%, 12/1/32, Pool #CA0792 | 446,016 | ||||||
176,430 | 5.50%, 1/1/33, Pool #676661 | 195,350 | ||||||
4,000,000 | 2.00%, 1/25/33, TBA | 3,895,625 | ||||||
1,900,000 | 5.00%, 1/25/33, TBA | 1,931,430 | ||||||
200,000 | 4.50%, 1/25/33, TBA | 202,871 | ||||||
119,430 | 5.50%, 5/1/33, Pool #555424 | 132,275 | ||||||
285,301 | 5.50%, 2/1/35, Pool #735989 | 316,171 | ||||||
987,748 | 5.00%, 2/1/35, Pool #735226 | 1,072,583 | ||||||
70,560 | 5.00%, 3/1/35, Pool #735288 | 76,851 | ||||||
25,604 | 6.00%, 4/1/35, Pool #735504 | 29,074 | ||||||
132,826 | 5.00%, 9/1/35, Pool #889974 | 144,278 | ||||||
269,637 | 4.00%, 1/1/36, Pool #AB0686 | 283,756 | ||||||
662,426 | 5.50%, 9/1/36, Pool #995113 | 734,843 | ||||||
66,774 | 3.00%, 10/1/36, Pool #AL9227 | 67,857 | ||||||
469,274 | 3.00%, 11/1/36, Pool #AS8348 | 477,902 | ||||||
196,027 | 3.00%, 11/1/36, Pool #AS8349 | 199,510 | ||||||
463,266 | 3.00%, 12/1/36, Pool #BE1896 | 470,638 | ||||||
571,161 | 3.00%, 12/1/36, Pool #AS8553 | 582,194 | ||||||
42,812 | 5.50%, 2/1/38, Pool #961545 | 46,965 | ||||||
21,283 | 6.00%, 3/1/38, Pool #889529 | 24,056 | ||||||
158,766 | 5.50%, 5/1/38, Pool #889692 | 175,406 | ||||||
119,126 | 5.50%, 5/1/38, Pool #889441 | 131,492 | ||||||
69,166 | 6.00%, 5/1/38, Pool #889466 | 78,384 | ||||||
105,692 | 5.50%, 6/1/38, Pool #995018 | 116,852 | ||||||
30,006 | 5.50%, 9/1/38, Pool #889995 | 33,133 | ||||||
72,333 | 6.00%, 10/1/38, Pool #889983 | 81,556 | ||||||
397,145 | 5.50%, 1/1/39, Pool #AB0200 | 437,821 | ||||||
153,021 | 4.50%, 4/1/39, Pool #930922 | 164,666 |
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal National Mortgage Association, continued | ||||||||
$ | 165,517 | 4.50%, 5/1/39, Pool #AL1472 | $ | 178,596 | ||||
1,637,888 | 5.00%, 6/1/39, Pool #AL7521 | 1,778,338 | ||||||
1,044,564 | 6.00%, 7/1/39, Pool #BF0056 | 1,155,128 | ||||||
77,750 | 5.50%, 10/1/39, Pool #AD0362 | 85,755 | ||||||
74,592 | 5.50%, 12/1/39, Pool #AD0571 | 82,426 | ||||||
559,569 | 5.50%, 12/1/39, Pool #AC6680 | 616,440 | ||||||
9,989,324 | 4.50%, 1/1/40, Pool #AC8568 | 10,706,477 | ||||||
61,107 | 5.50%, 3/1/40, Pool #AL5304 | 68,280 | ||||||
485,501 | 6.00%, 4/1/40, Pool #AL4141 | 547,594 | ||||||
55,230 | 4.50%, 4/1/40, Pool #AD4038 | 59,595 | ||||||
91,761 | 6.50%, 5/1/40, Pool #AL1704 | 102,580 | ||||||
118,047 | 4.50%, 7/1/40, Pool #AB1226 | 126,411 | ||||||
183,971 | 4.50%, 7/1/40, Pool #AD7127 | 197,869 | ||||||
226,430 | 4.00%, 7/1/40, Pool #AE0113 | 237,873 | ||||||
404,638 | 4.00%, 8/1/40, Pool #AE0216 | 425,165 | ||||||
5,988 | 4.00%, 8/1/40, Pool #AD9136 | 6,291 | ||||||
51,305 | 6.00%, 9/1/40, Pool #AE0823 | 57,676 | ||||||
448,008 | 4.00%, 10/1/40, Pool #AE7535 | 470,599 | ||||||
1,086,107 | 4.00%, 10/1/40, Pool #AB1614 | 1,149,147 | ||||||
72,244 | 4.00%, 11/1/40, Pool #AE8407 | 75,890 | ||||||
327,719 | 4.00%, 12/1/40, Pool #AH0946 | 344,245 | ||||||
50,133 | 4.00%, 12/1/40, Pool #AH0006 | 52,660 | ||||||
2,680,000 | Class CY, Series 2010-136, 4.00%, 12/25/40 | 2,868,329 | ||||||
92,307 | 4.00%, 1/1/41, Pool #AL7167 | 97,414 | ||||||
11,171,068 | Class ZA, Series 2011-8, 4.00%, 2/25/41, Callable 9/25/29 @ 100 | 11,714,829 | ||||||
740,119 | 4.00%, 4/1/41, Pool #AI1186 | 777,207 | ||||||
113,886 | 6.00%, 6/1/41, Pool #AL4142 | 128,692 | ||||||
1,251,546 | 5.00%, 7/1/41, Pool #AL7524 | 1,351,440 | ||||||
67,802 | 4.50%, 7/1/41, Pool #AB3314 | 72,683 | ||||||
62,663 | 4.50%, 9/1/41, Pool #AI8961 | 67,771 | ||||||
877,017 | 4.00%, 9/1/41, Pool #AJ1541 | 921,010 | ||||||
1,453,211 | 5.50%, 9/1/41, Pool #AL8430 | 1,607,554 | ||||||
73,675 | 4.00%, 9/1/41, Pool #AI5228 | 77,371 | ||||||
54,215 | 4.00%, 10/1/41, Pool #AC9312 | 56,938 | ||||||
3,814,444 | 4.00%, 11/1/41, Pool #AJ4701 | 4,033,075 | ||||||
188,592 | 4.00%, 12/1/41, Pool #AB4054 | 200,820 | ||||||
63,439 | 4.00%, 12/1/41, Pool #AJ7684 | 67,552 | ||||||
1,689,666 | 4.00%, 1/1/42, Pool #AB4307 | 1,783,537 | ||||||
391,068 | 3.50%, 1/1/42, Pool #AW8154 | 403,966 | ||||||
63,691 | 3.50%, 1/1/42, Pool #AK2073 | 65,901 | ||||||
205,111 | 4.00%, 2/1/42, Pool #AB4530 | 215,417 | ||||||
80,047 | 3.50%, 4/1/42, Pool #AK7510 | 82,658 | ||||||
184,468 | 3.50%, 4/1/42, Pool #AO0777 | 190,484 | ||||||
338,683 | 4.00%, 5/1/42, Pool #AO2961 | 355,700 | ||||||
107,770 | 4.00%, 5/1/42, Pool #A02114 | 113,186 | ||||||
111,935 | 4.00%, 5/1/42, Pool #AT6144 | 119,198 | ||||||
25,806 | 3.50%, 5/1/42, Pool #AO2881 | 26,599 | ||||||
53,693 | 3.50%, 6/1/42, Pool #AL2168 | 55,611 | ||||||
119,819 | 4.00%, 6/1/42, Pool #AL2003 | 125,828 | ||||||
55,608 | 3.50%, 6/1/42, Pool #AO3107 | 57,534 | ||||||
29,231 | 3.50%, 6/1/42, Pool #AO3048 | 30,184 | ||||||
49,343 | 3.50%, 6/1/42, Pool #AK9225 | 50,952 | ||||||
4,227,940 | 4.00%, 7/1/42, Pool #AL2160 | 4,502,082 | ||||||
246,840 | 4.00%, 7/1/42, Pool #AL4244 | 262,825 | ||||||
83,463 | 4.00%, 7/1/42, Pool #AL2607 | 87,621 |
Continued
18
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal National Mortgage Association, continued | ||||||||
$ | 62,873 | 3.50%, 7/1/42, Pool #AO9707 | $ | 64,924 | ||||
1,410,554 | 4.00%, 8/1/42, Pool #AL2242 | 1,481,270 | ||||||
109,314 | 3.50%, 8/1/42, Pool #AO7152 | 112,879 | ||||||
404,159 | 4.50%, 9/1/42, Pool #AL2482 | 431,600 | ||||||
61,017 | 4.00%, 9/1/42, Pool #AX3706 | 64,076 | ||||||
123,329 | 4.00%, 9/1/42, Pool #AL2901 | 129,527 | ||||||
571,436 | 3.50%, 10/1/42, Pool #AB6512 | 589,812 | ||||||
164,678 | 3.00%, 10/1/42, Pool #AP9726 | 165,568 | ||||||
72,420 | 3.50%, 10/1/42, Pool #AQ0393 | 75,072 | ||||||
1,020,208 | 3.00%, 12/1/42, Pool #AB7269 | 1,027,507 | ||||||
232,733 | 3.00%, 12/1/42, Pool #AB7425 | 234,209 | ||||||
298,900 | 4.00%, 12/1/42, Pool #AL6055 | 318,238 | ||||||
277,213 | 3.00%, 12/1/42, Pool #AB7271 | 278,971 | ||||||
129,349 | 3.50%, 12/1/42, Pool #AQ7127 | 133,556 | ||||||
529,361 | 3.50%, 12/1/42, Pool #AL8045 | 546,607 | ||||||
680,239 | 3.00%, 1/1/43, Pool #AB7458 | 684,185 | ||||||
375,253 | 3.00%, 1/1/43, Pool #AB7565 | 377,938 | ||||||
675,338 | 3.00%, 1/1/43, Pool #AB7497 | 679,256 | ||||||
746,386 | 3.00%, 1/1/43, Pool #AB7567 | 750,716 | ||||||
467,817 | 3.00%, 1/1/43, Pool #AB7755 | 470,784 | ||||||
193,045 | 4.00%, 1/1/43, Pool #AL7369 | 202,724 | ||||||
2,673,035 | 4.50%, 1/1/43, Pool #AL8206 | 2,865,489 | ||||||
252,317 | 3.00%, 2/1/43, Pool #AB8558 | 254,122 | ||||||
307,237 | 3.50%, 2/1/43, Pool #AL2935 | 317,741 | ||||||
256,008 | 3.00%, 2/1/43, Pool #AB7762 | 257,840 | ||||||
121,550 | 3.00%, 3/1/43, Pool #AR7576 | 122,175 | ||||||
18,735 | 3.50%, 3/1/43, Pool #AR6909 | 19,336 | ||||||
40,302 | 3.50%, 3/1/43, Pool #AR8128 | 41,452 | ||||||
104,885 | 3.00%, 3/1/43, Pool #AR7568 | 105,430 | ||||||
175,896 | 3.00%, 3/1/43, Pool #AR9218 | 176,842 | ||||||
163,746 | 3.00%, 3/1/43, Pool #AB8830 | 164,784 | ||||||
64,663 | 3.00%, 3/1/43, Pool #AB8712 | 65,073 | ||||||
304,464 | 4.00%, 3/1/43, Pool #AL3300 | 321,424 | ||||||
25,040 | 3.50%, 3/1/43, Pool #AT0310 | 25,847 | ||||||
762,846 | 3.50%, 3/1/43, Pool #AL3409 | 787,365 | ||||||
471,189 | 3.00%, 3/1/43, Pool #AB8701 | 474,178 | ||||||
504,926 | 3.00%, 3/1/43, Pool #AR9194 | 508,539 | ||||||
135,608 | 3.00%, 4/1/43, Pool #AT2043 | 136,326 | ||||||
224,386 | 3.00%, 4/1/43, Pool #AT2040 | 225,581 | ||||||
73,586 | 3.00%, 4/1/43, Pool #AT2037 | 73,984 | ||||||
123,526 | 3.00%, 4/1/43, Pool #AB8924 | 124,181 | ||||||
134,570 | 3.00%, 4/1/43, Pool #AB8923 | 135,270 | ||||||
189,917 | 3.00%, 4/1/43, Pool #AR8630 | 190,913 | ||||||
450,235 | 3.00%, 4/1/43, Pool #AB9016 | 453,091 | ||||||
60,866 | 3.00%, 4/1/43, Pool #AB9033 | 61,252 | ||||||
26,249 | 3.50%, 4/1/43, Pool #AT3019 | 27,100 | ||||||
181,607 | 3.00%, 5/1/43, Pool #AL3759 | 182,901 | ||||||
490,750 | 3.00%, 5/1/43, Pool #AT2719 | 494,258 | ||||||
46,214 | 3.50%, 5/1/43, Pool #MA1440 | 47,651 | ||||||
186,395 | 3.00%, 5/1/43, Pool #AT6654 | 187,729 | ||||||
235,230 | 3.00%, 5/1/43, Pool #AB9462 | 237,438 | ||||||
336,920 | 3.00%, 5/1/43, Pool #AB9173 | 339,331 | ||||||
267,752 | 3.00%, 6/1/43, Pool #AB9662 | 270,258 | ||||||
29,621 | 3.50%, 6/1/43, Pool #AB9567 | 30,599 | ||||||
16,909 | 3.00%, 6/1/43, Pool #AB9564 | 17,068 | ||||||
93,853 | 3.00%, 6/1/43, Pool #AT7676 | 94,522 |
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal National Mortgage Association, continued | ||||||||
$ | 512,145 | 3.50%, 7/1/43, Pool #AT9667 | $ | 527,857 | ||||
549,484 | 3.50%, 7/1/43, Pool #AL4010 | 568,294 | ||||||
764,976 | 3.50%, 7/1/43, Pool #AU0918 | 791,937 | ||||||
730,473 | 3.00%, 7/1/43, Pool #AL5778 | 734,379 | ||||||
250,852 | 3.50%, 7/1/43, Pool #AT8464 | 259,695 | ||||||
678,593 | 3.50%, 7/1/43, Pool #AT7940 | 703,326 | ||||||
74,628 | 3.50%, 7/1/43, Pool #AT3906 | 77,090 | ||||||
3,256,176 | 3.00%, 7/1/43, Pool #AB9940 | 3,279,479 | ||||||
239,492 | 3.50%, 7/1/43, Pool #AT4327 | 248,222 | ||||||
224,919 | 3.50%, 7/1/43, Pool #AR7145 | 231,593 | ||||||
133,801 | 3.50%, 8/1/43, Pool #AU0570 | 138,382 | ||||||
70,116 | 3.50%, 8/1/43, Pool #AU3267 | 72,672 | ||||||
18,906 | 3.50%, 8/1/43, Pool #AT7333 | 19,572 | ||||||
137,116 | 3.50%, 8/1/43, Pool #AU0613 | 141,810 | ||||||
16,353 | 3.50%, 8/1/43, Pool #AU3032 | 16,930 | ||||||
616,965 | 3.50%, 8/1/43, Pool #AS0209 | 638,086 | ||||||
598,581 | 3.00%, 8/1/43, Pool #AS0331 | 601,692 | ||||||
64,365 | 3.50%, 8/1/43, Pool #AU3270 | 66,569 | ||||||
23,298 | 3.50%, 9/1/43, Pool #AT7267 | 24,119 | ||||||
142,404 | 4.00%, 10/1/43, Pool #AL7577 | 149,540 | ||||||
26,225 | 3.50%, 10/1/43, Pool #AU7247 | 27,181 | ||||||
2,088,315 | 4.00%, 10/1/43, Pool #BM1502 | 2,192,427 | ||||||
1,348,490 | 3.50%, 11/1/43, Pool #AL9745 | 1,392,427 | ||||||
1,823,595 | 5.00%, 12/1/43, Pool #AL7777 | 1,968,756 | ||||||
673,972 | 3.50%, 12/1/43, Pool #AL4682 | 698,499 | ||||||
117,164 | 3.50%, 1/1/44, Pool #AS1539 | 121,294 | ||||||
71,871 | 3.50%, 1/1/44, Pool #AS1453 | 74,490 | ||||||
129,264 | 3.50%, 1/1/44, Pool #AS1703 | 133,814 | ||||||
499,023 | 3.50%, 1/1/44, Pool #AL4750 | 517,184 | ||||||
903,987 | 3.50%, 1/1/44, Pool #AL9422 | 936,912 | ||||||
151,576 | 4.00%, 3/1/44, Pool #AV6577 | 160,453 | ||||||
4,573,071 | 4.50%, 4/1/44, Pool #AL6887 | 4,902,145 | ||||||
1,103,888 | 3.50%, 5/1/44, Pool #AL5554 | 1,144,060 | ||||||
16,259 | 3.50%, 6/1/44, Pool #AS2591 | 16,831 | ||||||
5,768,752 | 3.50%, 6/1/44, Pool #AL9405 | 5,956,692 | ||||||
33,847 | 3.50%, 6/1/44, Pool #AW6405 | 35,039 | ||||||
30,923 | 4.00%, 7/1/44, Pool #AW7055 | 32,524 | ||||||
1,139,029 | 4.00%, 8/1/44, Pool #890629 | 1,211,196 | ||||||
1,991,490 | 4.00%, 8/1/44, Pool #AL5601 | 2,116,481 | ||||||
981,661 | 5.00%, 11/1/44, Pool #AL8878 | 1,058,328 | ||||||
230,814 | 4.00%, 12/1/44, Pool #AX9372 | 244,932 | ||||||
18,847 | 4.00%, 12/1/44, Pool #AY0299 | 19,832 | ||||||
19,184 | 4.00%, 12/1/44, Pool #AX6255 | 20,413 | ||||||
220,106 | 4.00%, 1/1/45, Pool #AY0367 | 233,629 | ||||||
77,170 | 4.00%, 1/1/45, Pool #AX8713 | 81,898 | ||||||
32,526 | 4.00%, 2/1/45, Pool #AY1866 | 34,609 | ||||||
142,348 | 4.00%, 2/1/45, Pool #AY2693 | 149,931 | ||||||
212,243 | 4.00%, 2/1/45, Pool #AS4308 | 224,714 | ||||||
591,572 | 3.50%, 2/1/45, Pool #BM1100 | 610,515 | ||||||
918,629 | 4.00%, 5/1/45, Pool #AS5017 | 977,757 | ||||||
37,003 | 4.00%, 5/1/45, Pool #AY8218 | 38,929 | ||||||
74,850 | 4.00%, 5/1/45, Pool #AY9770 | 79,638 | ||||||
1,420,950 | 3.50%, 7/1/45, Pool #AS5453 | 1,466,230 | ||||||
538,800 | 3.50%, 7/1/45, Pool #AS5459 | 558,352 | ||||||
295,233 | 4.50%, 9/1/45, Pool #AL7936 | 320,275 | ||||||
165,884 | 4.00%, 10/1/45, Pool #AL7443 | 176,003 |
Continued
19
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal National Mortgage Association, continued | ||||||||
$ | 583,077 | 4.00%, 10/1/45, Pool #AS5949 | $ | 618,220 | ||||
123,321 | 4.00%, 10/1/45, Pool #AL7442 | 131,204 | ||||||
55,243 | 4.00%, 10/1/45, Pool #AZ9244 | 58,606 | ||||||
57,726 | 4.00%, 10/1/45, Pool #BA2878 | 61,181 | ||||||
62,188 | 4.00%, 10/1/45, Pool #BA2877 | 65,485 | ||||||
60,179 | 4.00%, 10/1/45, Pool #BA2879 | 63,419 | ||||||
52,466 | 4.00%, 10/1/45, Pool #AZ9243 | 55,812 | ||||||
272,532 | 4.00%, 11/1/45, Pool #BA2905 | 288,895 | ||||||
118,763 | 3.50%, 11/1/45, Pool #AS6195 | 123,067 | ||||||
20,479 | 4.50%, 11/1/45, Pool #AS6233 | 21,932 | ||||||
2,000,614 | 3.50%, 11/1/45, Pool #BM1124 | 2,070,896 | ||||||
146,438 | 4.50%, 11/1/45, Pool #AL9501 | 158,785 | ||||||
180,566 | 4.00%, 11/1/45, Pool #BA2904 | 190,907 | ||||||
178,575 | 4.00%, 12/1/45, Pool #BA4737 | 189,430 | ||||||
492,694 | 4.50%, 12/1/45, Pool #BM1756 | 530,203 | ||||||
152,117 | 4.00%, 12/1/45, Pool #BA4736 | 161,801 | ||||||
78,094 | 4.00%, 12/1/45, Pool #BA2924 | 82,283 | ||||||
561,751 | 4.00%, 12/1/45, Pool #AS6347 | 594,512 | ||||||
206,319 | 4.00%, 1/1/46, Pool #BA4781 | 219,449 | ||||||
353,289 | 4.00%, 2/1/46, Pool #AS6662 | 373,908 | ||||||
657,158 | 3.50%, 3/1/46, Pool #AS6823 | 678,102 | ||||||
246,736 | 3.50%, 4/1/46, Pool #AL8521 | 255,388 | ||||||
7,879,250 | 3.50%, 4/1/46, Pool #BC5981 | 8,146,354 | ||||||
418,970 | 3.50%, 5/1/46, Pool #AL8570 | 432,337 | ||||||
32,816 | 3.00%, 6/1/46, Pool #AS7365 | 32,895 | ||||||
278,351 | 3.00%, 6/1/46, Pool #AS7362 | 279,480 | ||||||
1,725,302 | 3.50%, 6/1/46, Pool #AS7353 | 1,780,531 | ||||||
2,192,155 | 3.50%, 6/1/46, Pool #AS7383 | 2,262,251 | ||||||
153,660 | 3.00%, 6/1/46, Pool #AS7370 | 154,472 | ||||||
44,635 | 4.00%, 6/1/46, Pool #BD0734 | 46,929 | ||||||
2,241,721 | 4.00%, 6/1/46, Pool #AL9093 | 2,359,450 | ||||||
80,726 | 3.50%, 6/1/46, Pool #BC1154 | 83,651 | ||||||
1,185,269 | 4.50%, 7/1/46, Pool #BM1920 | 1,285,820 | ||||||
3,975,181 | 3.00%, 7/1/46, Pool #BC1450 | 3,984,495 | ||||||
818,625 | 4.50%, 7/1/46, Pool #BM3053 | 891,928 | ||||||
5,961,152 | 4.00%, 7/1/46, Pool #AL8857 | 6,300,950 | ||||||
4,368,349 | 3.50%, 7/1/46, Pool #BA7748 | 4,500,571 | ||||||
38,885 | 4.00%, 8/1/46, Pool #AW7541 | 41,263 | ||||||
64,843 | 4.00%, 8/1/46, Pool #BD4900 | 68,996 | ||||||
4,611,149 | 3.00%, 8/1/46, Pool #AS7729 | 4,621,953 | ||||||
4,182,210 | 3.00%, 8/1/46, Pool #BC1486 | 4,192,009 | ||||||
47,098 | 3.00%, 8/1/46, Pool #AL9031 | 47,346 | ||||||
943,698 | 3.50%, 8/1/46, Pool #AL8952 | 973,873 | ||||||
38,936 | 4.00%, 8/1/46, Pool #BD3933 | 41,429 | ||||||
1,664,952 | Class UF, Series 2016-48, 1.95%(US0001M+40bps), 8/25/46 | 1,672,626 | ||||||
2,935,625 | 3.00%, 9/1/46, Pool #BD1469 | 2,946,242 | ||||||
869,980 | 3.50%, 9/1/46, Pool #AL9511 | 898,571 | ||||||
325,336 | 3.00%, 9/1/46, Pool #AL9045 | 326,494 | ||||||
135,570 | 4.00%, 9/1/46, Pool #BD1481 | 144,252 | ||||||
912,928 | 3.00%, 9/1/46, Pool #AL9214 | 915,067 | ||||||
43,076 | 4.00%, 9/1/46, Pool #BD7826 | 45,834 | ||||||
437,357 | 3.00%, 9/1/46, Pool #AS7878 | 439,130 | ||||||
3,462,214 | 3.00%, 9/1/46, Pool #AS7847 | 3,470,327 | ||||||
20,996 | 3.50%, 9/1/46, Pool #BE0547 | 21,668 | ||||||
224,874 | 3.00%, 9/1/46, Pool #AS7889 | 226,055 |
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal National Mortgage Association, continued | ||||||||
$ | 5,338,982 | 3.00%, 10/1/46, Pool #BD3309 | $ | 5,354,007 | ||||
1,218,564 | 3.00%, 10/1/46, Pool #BD8925 | 1,222,192 | ||||||
723,563 | 3.00%, 10/1/46, Pool #AL9266 | 725,258 | ||||||
934,377 | 3.00%, 10/1/46, Pool #AL9215 | 937,485 | ||||||
371,913 | 3.00%, 11/1/46, Pool #BD9641 | 373,430 | ||||||
132,393 | 3.50%, 11/1/46, Pool #BD8477 | 136,640 | ||||||
387,089 | 3.00%, 11/1/46, Pool #BD9643 | 388,383 | ||||||
820,444 | 3.50%, 11/1/46, Pool #AS8371 | 850,450 | ||||||
960,893 | 3.00%, 11/1/46, Pool #BD9644 | 964,089 | ||||||
1,412,680 | 3.50%, 11/1/46, Pool #BD8970 | 1,456,892 | ||||||
34,445 | 3.50%, 11/1/46, Pool #BC7299 | 35,507 | ||||||
400,822 | 4.00%, 11/1/46, Pool #BC9012 | 426,489 | ||||||
2,084,854 | 4.00%, 11/1/46, Pool #AS8379 | 2,218,363 | ||||||
867,191 | 3.00%, 11/1/46, Pool #BD8962 | 869,769 | ||||||
7,982,950 | 4.00%, 11/1/46, Pool #AS8374 | 8,451,121 | ||||||
500,461 | 3.00%, 11/1/46, Pool #BD9645 | 501,633 | ||||||
623,480 | 3.50%, 11/1/46, Pool #BM1938 | 645,562 | ||||||
1,046,029 | 3.00%, 11/1/46, Pool #AL9325 | 1,049,508 | ||||||
334,516 | 3.00%, 11/1/46, Pool #AL9481 | 335,872 | ||||||
58,772 | 3.50%, 11/1/46, Pool #BE1932 | 60,657 | ||||||
1,923,062 | 4.00%, 12/1/46, Pool #AS8499 | 2,040,688 | ||||||
1,606,807 | 3.50%, 12/1/46, Pool #AS8493 | 1,662,049 | ||||||
795,903 | 3.50%, 12/1/46, Pool #BC9084 | 823,582 | ||||||
37,369 | 4.00%, 12/1/46, Pool #BE3141 | 39,655 | ||||||
84,631 | 4.00%, 12/1/46, Pool #BD9583 | 89,808 | ||||||
58,354 | 4.00%, 12/1/46, Pool #BE2862 | 61,918 | ||||||
2,014,308 | 3.00%, 12/1/46, Pool #AS8486 | 2,021,605 | ||||||
234,526 | 3.00%, 1/1/47, Pool #AS8589 | 235,481 | ||||||
947,070 | 3.50%, 1/1/47, Pool #AS8653 | 981,774 | ||||||
1,671,329 | 4.00%, 1/1/47, Pool #AS8657 | 1,773,558 | ||||||
2,425,531 | 3.50%, 1/1/47, Pool #AL9725 | 2,514,327 | ||||||
52,359 | 4.00%, 1/1/47, Pool #BE5312 | 55,562 | ||||||
157,390 | 3.50%, 1/1/47, Pool #BE4913 | 162,439 | ||||||
552,007 | 4.00%, 1/1/47, Pool #BD2439 | 585,281 | ||||||
287,062 | 3.50%, 1/1/47, Pool #BD8531 | 296,423 | ||||||
387,527 | 3.50%, 2/1/47, Pool #BE3188 | 401,253 | ||||||
436,075 | 3.00%, 2/1/47, Pool #BD5049 | 437,533 | ||||||
125,783 | 3.00%, 2/1/47, Pool #BD5056 | 126,296 | ||||||
3,873,654 | 4.00%, 3/1/47, Pool #BM1155 | 4,094,488 | ||||||
808,401 | 3.00%, 3/1/47, Pool #AS8936 | 810,307 | ||||||
930,101 | 3.00%, 3/1/47, Pool #AS8925 | 933,221 | ||||||
227,653 | 3.50%, 5/1/47, Pool #BM1937 | 235,971 | ||||||
859,014 | 3.50%, 5/1/47, Pool #BM1174 | 887,466 | ||||||
32,741,076 | 4.00%, 8/1/47, Pool #MA3088 | 34,269,339 | ||||||
1,020,195 | 4.00%, 8/1/47, Pool #BM1619 | 1,076,884 | ||||||
300,298 | 3.50%, 9/1/47, Pool #BM1822 | 310,610 | ||||||
511,084 | 4.50%, 10/1/47, Pool #BM3052 | 557,128 | ||||||
694,329 | 3.50%, 10/1/47, Pool #BM1952 | 718,924 | ||||||
762,091 | 3.50%, 11/1/47, Pool #CA0689 | 790,325 | ||||||
656,000 | 4.50%, 12/1/47, Pool #BH7067 | 708,680 | ||||||
1,200,000 | 2.50%, 1/25/48, TBA | 1,158,050 | ||||||
3,890,000 | 5.00%, 1/25/48, TBA | 4,180,914 | ||||||
4,523,000 | 6.00%, 1/25/48, TBA | 5,058,516 | ||||||
8,148,832 | 3.00%, 1/25/48, TBA | 8,148,832 | ||||||
|
| |||||||
364,700,047 | ||||||||
|
|
Continued
20
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Government National Mortgage Association (5.5%) | ||||||||
$ | 26,956 | 4.50%, 9/15/33, Pool #615516 | $ | 28,633 | ||||
97,018 | 5.00%, 12/15/33, Pool #783571 | 105,192 | ||||||
27,494 | 6.50%, 8/20/38, Pool #4223 | 31,501 | ||||||
26,971 | 6.50%, 10/15/38, Pool #673213 | 31,073 | ||||||
15,156 | 6.50%, 11/20/38, Pool #4292 | 17,214 | ||||||
29,837 | 6.50%, 12/15/38, Pool #782510 | 34,049 | ||||||
313,755 | 5.00%, 1/15/39, Pool #782557 | 340,313 | ||||||
128,102 | 5.00%, 4/15/39, Pool #711939 | 139,068 | ||||||
213,361 | 5.00%, 4/15/39, Pool #782619 | 231,391 | ||||||
24,275 | 4.00%, 4/20/39, Pool #4422 | 25,547 | ||||||
20,327 | 5.00%, 6/15/39, Pool #782696 | 22,094 | ||||||
86,479 | 4.00%, 7/20/39, Pool #4494 | 91,011 | ||||||
140,477 | 5.00%, 10/20/39, Pool #4559 | 153,058 | ||||||
16,165 | 4.50%, 12/20/39, Pool #G24598 | 17,146 | ||||||
43,889 | 4.50%, 1/15/40, Pool #728627 | 46,378 | ||||||
20,176 | 4.50%, 1/20/40, Pool #4617 | 21,400 | ||||||
15,902 | 4.50%, 2/20/40, Pool #G24636 | 16,866 | ||||||
109,470 | 5.00%, 5/15/40, Pool #782958 | 118,711 | ||||||
1,102 | 4.50%, 5/20/40, Pool #G24696 | 1,169 | ||||||
94,147 | 5.00%, 6/15/40, Pool #697862 | 103,134 | ||||||
945,449 | 4.50%, 7/15/40, Pool #733795 | 1,001,391 | ||||||
101,227 | 4.50%, 7/15/40, Pool #745793 | 106,962 | ||||||
41,299 | 4.50%, 7/20/40, Pool #4746 | 43,803 | ||||||
79,214 | 4.50%, 8/20/40, Pool #4771 | 84,014 | ||||||
23,311 | 4.00%, 9/20/40, Pool #G24800 | 24,533 | ||||||
36,168 | 4.50%, 9/20/40, Pool #748948 | 38,904 | ||||||
190,573 | 4.50%, 10/15/40, Pool #783609 | 201,814 | ||||||
589,835 | 4.00%, 10/20/40, Pool #G24833 | 620,842 | ||||||
69,390 | 4.50%, 10/20/40, Pool #4834 | 73,597 | ||||||
1,104,814 | 4.00%, 11/20/40, Pool #4853 | 1,162,803 | ||||||
536,397 | 4.00%, 12/20/40, Pool #G24882 | 564,587 | ||||||
247,203 | 4.00%, 1/15/41, Pool #759138 | 259,347 | ||||||
469,494 | 4.00%, 1/20/41, Pool #4922 | 494,122 | ||||||
65,947 | 4.50%, 2/15/41, Pool #738019 | 70,264 | ||||||
8,061 | 4.00%, 2/20/41, Pool #4945 | 8,484 | ||||||
1,567,984 | 4.00%, 2/20/41, Pool #742887 | 1,644,237 | ||||||
165,201 | 4.00%, 3/15/41, Pool #762838 | 172,642 | ||||||
11,129 | 5.00%, 4/20/41, Pool #5018 | 12,098 | ||||||
186,240 | 4.50%, 6/20/41, Pool #783590 | 197,372 | ||||||
24,108 | 5.00%, 6/20/41, Pool #5083 | 26,208 | ||||||
426,097 | 4.50%, 7/20/41, Pool #5115 | 451,399 | ||||||
81,547 | 4.50%, 7/20/41, Pool #754367 | 85,700 | ||||||
906,836 | 4.00%, 7/20/41, Pool #742895 | 948,337 | ||||||
12,741 | 5.00%, 7/20/41, Pool #5116 | 13,853 | ||||||
126,430 | 4.50%, 7/20/41, Pool #783584 | 133,938 | ||||||
133,239 | 4.50%, 11/15/41, Pool #783610 | 141,107 | ||||||
57,595 | 4.50%, 11/20/41, Pool #5234 | 61,000 | ||||||
739,494 | 3.50%, 12/20/41, Pool #5258 | 768,586 | ||||||
376,115 | 3.50%, 1/15/42, Pool #553461 | 390,068 | ||||||
503,910 | 4.00%, 4/20/42, Pool #MA0023 | 530,349 | ||||||
198,782 | 5.00%, 7/20/42, Pool #MA0223 | 215,077 | ||||||
50,361 | 3.50%, 9/20/42, Pool #MA0392 | 52,342 | ||||||
100,887 | 3.50%, 10/20/42, Pool #MA0462 | 104,856 | ||||||
150,838 | 3.50%, 1/20/43, Pool #MA0699 | 156,772 | ||||||
584,304 | 3.50%, 4/15/43, Pool #AD2334 | 605,264 | ||||||
44,001 | 4.00%, 7/20/43, Pool #MA1158 | 46,281 |
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Government National Mortgage Association, continued | ||||||||
$ | 1,974,768 | 4.50%, 6/20/44, Pool #MA1997 | $ | 2,087,232 | ||||
17,206 | 4.00%, 8/20/44, Pool #AI4166 | 18,249 | ||||||
23,326 | 4.00%, 8/20/44, Pool #AJ4687 | 24,659 | ||||||
1,728,756 | 4.00%, 8/20/44, Pool #MA2149 | 1,815,432 | ||||||
43,484 | 4.00%, 8/20/44, Pool #AJ2723 | 46,031 | ||||||
46,083 | 4.00%, 8/20/44, Pool #AI4167 | 48,095 | ||||||
282,071 | 4.50%, 10/20/44, Pool #MA2305 | 298,013 | ||||||
1,410,888 | 4.50%, 11/20/44, Pool #MA2373 | 1,489,797 | ||||||
894,831 | 5.00%, 12/20/44, Pool #MA2448 | 955,159 | ||||||
1,466,202 | Class ZD, Series 2015-3, 4.00%, 1/20/45 | 1,598,127 | ||||||
511,529 | 5.00%, 12/20/45, Pool #MA3313 | 546,276 | ||||||
192,080 | 3.50%, 10/20/46, Pool #AX4341 | 200,180 | ||||||
44,745 | 4.00%, 10/20/46, Pool #AQ0542 | 46,843 | ||||||
182,376 | 3.50%, 10/20/46, Pool #AX4342 | 189,489 | ||||||
385,470 | 3.50%, 10/20/46, Pool #AX4345 | 399,545 | ||||||
460,095 | 3.50%, 10/20/46, Pool #AX4344 | 477,395 | ||||||
157,698 | 3.50%, 10/20/46, Pool #AX4343 | 163,894 | ||||||
1,000,000 | 5.00%, 1/15/48, TBA | 1,074,785 | ||||||
2,800,000 | 4.50%, 1/15/48, TBA | 2,945,687 | ||||||
10,883,000 | 4.00%, 1/20/48, TBA | 11,344,678 | ||||||
27,037,000 | 3.00%, 1/20/48, TBA | 27,282,024 | ||||||
46,501,297 | 3.50%, 1/20/48, TBA | 48,070,717 | ||||||
2,525,000 | 4.00%, 2/20/48, TBA | 2,631,277 | ||||||
|
| |||||||
116,841,485 | ||||||||
|
| |||||||
Total U.S. Government Agency Mortgages (Cost $676,850,361) | 674,122,247 | |||||||
|
| |||||||
U.S. Treasury Obligations (32.6%): | ||||||||
U.S. Treasury Bonds (6.3%) | ||||||||
4,105,000 | 5.38%, 2/15/31^ | 5,454,358 | ||||||
20,525,000 | 4.75%, 2/15/37 | 27,343,950 | ||||||
16,560,000 | 3.13%, 11/15/41 | 17,802,647 | ||||||
1,205,000 | 3.13%, 8/15/44 | 1,295,140 | ||||||
15,000 | 2.50%, 2/15/45 | 14,300 | ||||||
955,000 | 3.00%, 5/15/45 | 1,002,937 | ||||||
1,770,000 | 2.88%, 8/15/45 | 1,815,218 | ||||||
2,248,100 | 2.50%, 2/15/46 | 2,139,295 | ||||||
43,010,000 | 2.88%, 11/15/46# | 44,120,532 | ||||||
22,678,000 | 3.00%, 2/15/47 | 23,849,992 | ||||||
2,435,000 | 2.75%, 11/15/47^ | 2,438,995 | ||||||
|
| |||||||
127,277,364 | ||||||||
|
| |||||||
U.S. Treasury Notes (26.3%) | ||||||||
95,020,000 | 1.50%, 10/31/19^ | 94,366,737 | ||||||
25,885,000 | 1.88%, 12/31/19 | 25,876,911 | ||||||
2,645,000 | 2.00%, 9/30/20#^ | 2,648,616 | ||||||
88,825,000 | 1.88%, 12/15/20^ | 88,568,240 | ||||||
25,615,000 | 1.38%, 5/31/21 | 25,038,663 | ||||||
2,975,000 | 2.00%, 12/31/21 | 2,959,893 | ||||||
42,911,000 | 1.75%, 6/30/22^ | 42,134,914 | ||||||
2,275,000 | 1.88%, 7/31/22 | 2,244,163 | ||||||
8,985,000 | 1.63%, 8/31/22 | 8,762,832 | ||||||
21,635,000 | 1.88%, 9/30/22^ | 21,321,461 | ||||||
59,780,000 | 2.00%, 11/30/22^ | 59,235,909 | ||||||
11,315,000 | 2.13%, 12/31/22 | 11,268,149 | ||||||
3,085,000 | 2.00%, 5/31/24^ | 3,027,397 | ||||||
8,985,000 | 2.00%, 6/30/24 | 8,813,022 |
Continued
21
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
U.S. Treasury Obligations, continued | ||||||||
U.S. Treasury Notes, continued | ||||||||
$ | 25,665,000 | 2.13%, 7/31/24 | $ | 25,360,228 | ||||
41,202,000 | 2.13%, 9/30/24 | 40,683,756 | ||||||
13,470,000 | 2.13%, 11/30/24 | 13,293,206 | ||||||
46,000 | 2.00%, 11/15/26 | 44,518 | ||||||
35,766,000 | 2.38%, 5/15/27^ | 35,664,011 | ||||||
26,435,000 | 2.25%, 8/15/27^ | 26,063,258 | ||||||
2,370,000 | 2.25%, 11/15/27^ | 2,336,579 | ||||||
|
| |||||||
539,712,463 | ||||||||
|
| |||||||
Total U.S. Treasury Obligations (Cost $667,835,886) | 666,989,827 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (15.4%): | ||||||||
314,718,570 | AZL Enhanced Bond Index Fund Securities Lending Collateral Account(e) | 314,718,570 | ||||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 314,718,570 | ||||||
|
|
Shares | Fair Value | |||||||
Unaffiliated Investment Company (8.8%): | ||||||||
$ | 180,910,506 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 1.11%(d) | $ | 180,910,506 | ||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $180,910,506) | 180,910,506 | |||||||
|
| |||||||
Total Investment Securities | 2,534,824,995 | |||||||
Net other assets (liabilities) — (22.9)% | (486,145,735 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 2,048,679,260 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
LIBOR—London Interbank Offered Rate
MTN—Medium Term Note
TBA—To Be Announced Security
US0001M—1 Month US Dollar LIBOR
US0003M—3 Month US Dollar LIBOR
USISDA05—5 Year ICE Swap Rate
^ | This security or a partial position of this security was on loan as of December 31, 2017. The total value of securities on loan as of December 31, 2017, was $306,785,685. |
# | All or a portion of the security has been pledged as collateral for open derivative positions. |
(a) | Rule 144A, Section 4(2) or other security which is restricted to resale to institutional investors. The subadviser has deemed these securities to be liquid based on procedures approved by the Board of Trustees. |
(b) | The rate for certain asset-backed and mortgage-backed securities may vary based on factors relating to the pool of assets underlying the security. The rate presented is the rate in effect at December 31, 2017. |
(c) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2017. The total of all such securities represent 0.15% of the net assets of the fund. |
(d) | The rate represents the effective yield at December 31, 2017. |
(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, 2017. |
(f) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Securities Sold Short (-8.4%):
Security Description | Coupon Rate | Maturity Date | Par Amount | Proceeds Received | Fair Value | Unrealized Appreciation/ Depreciation | ||||||||||||||||||
Federal Home Loan Mortgage Corporation, TBA | 3.00 | % | 1/15/33 | $ | (1,435,000 | ) | $ | (1,461,907 | ) | $ | (1,461,120 | ) | $ | 787 | ||||||||||
Federal Home Loan Mortgage Corporation, TBA | 2.50 | % | 1/15/33 | (1,528,000 | ) | (1,526,568 | ) | (1,525,374 | ) | 1,194 | ||||||||||||||
Federal Home Loan Mortgage Corporation, TBA | 5.00 | % | 1/15/48 | (2,500,000 | ) | (2,689,556 | ) | (2,685,645 | ) | 3,911 | ||||||||||||||
Federal Home Loan Mortgage Corporation, TBA | 3.00 | % | 1/15/48 | (81,527,584 | ) | (81,531,873 | ) | (81,514,808 | ) | 17,065 | ||||||||||||||
Federal National Mortgage Association, TBA | 5.50 | % | 1/25/48 | (900,000 | ) | (989,469 | ) | (986,163 | ) | 3,306 | ||||||||||||||
Federal National Mortgage Association, TBA | 3.50 | % | 1/25/32 | (21,854,766 | ) | (22,571,904 | ) | (22,557,767 | ) | 14,137 | ||||||||||||||
Federal National Mortgage Association, TBA | 3.00 | % | 1/25/32 | (6,170,000 | ) | (6,291,547 | ) | (6,284,483 | ) | 7,064 | ||||||||||||||
Federal National Mortgage Association, TBA | 3.50 | % | 1/25/48 | (4,925,888 | ) | (5,044,798 | ) | (5,057,502 | ) | (12,704 | ) | |||||||||||||
Federal National Mortgage Association, TBA | 4.50 | % | 2/25/48 | (5,082,000 | ) | (5,406,653 | ) | (5,392,478 | ) | 14,175 | ||||||||||||||
Federal National Mortgage Association, TBA | 4.00 | % | 2/25/48 | (39,937,000 | ) | (41,714,951 | ) | (41,707,512 | ) | 7,439 | ||||||||||||||
Government National Mortgage Association, TBA | 4.50 | % | 1/20/48 | (3,022,000 | ) | (3,179,947 | ) | (3,169,795 | ) | 10,152 | ||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
$ | (172,409,173 | ) | $ | (172,342,647 | ) | $ | 66,526 | |||||||||||||||||
|
|
|
|
|
|
Continued
22
AZL Enhanced Bond Index Fund
Schedule of Portfolio Investments
December 31, 2017
Futures Contracts
Short Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Unrealized Appreciation/ (Depreciation) | ||||||||||||
90-Day Eurodollar December Futures (U.S. Dollar) | 12/16/19 | 424 | $ | (103,530,200 | ) | $ | 49,727 | |||||||||
Euro-Bond March Futures (Euro) | 3/8/18 | 31 | (6,013,005 | ) | 67,299 | |||||||||||
Euro-OAT March Futures (Euro) | 3/8/18 | 33 | (6,143,604 | ) | 93,326 | |||||||||||
U.S. Treasury 5-Year Note April Futures (U.S. Dollar) | 3/30/18 | 196 | (22,768,156 | ) | 109,112 | |||||||||||
Ultra U.S. 10-Year March Futures (U.S. Dollar) | 3/20/18 | 149 | (19,900,813 | ) | 110,153 | |||||||||||
|
| |||||||||||||||
$ | 429,617 | |||||||||||||||
|
|
Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Unrealized Appreciation/ (Depreciation) | ||||||||||||
90-Day Eurodollar December Futures (U.S. Dollar) | 12/17/18 | 424 | 103,726,300 | $ | (45,483 | ) | ||||||||||
U.S. Treasury 10-Year Note March Futures (U.S. Dollar) | 3/20/18 | 759 | 94,151,578 | (317,288 | ) | |||||||||||
U.S. Treasury 2-Year Note April Futures (U.S. Dollar) | 3/30/18 | 857 | 183,491,734 | (392,815 | ) | |||||||||||
U.S. Treasury 30-Year Bond March Futures (U.S. Dollar) | 3/20/18 | 38 | 5,814,000 | (9,117 | ) | |||||||||||
Ultra Long Term US Treasury Bond March Future | 3/20/18 | 60 | 10,059,375 | 44,457 | ||||||||||||
|
| |||||||||||||||
(720,246 | ) | |||||||||||||||
|
| |||||||||||||||
Total Net Futures Contracts | $ | (290,629 | ) | |||||||||||||
|
|
See accompanying notes to the financial statements.
23
AZL Enhanced Bond Index Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investment securities, at cost | $ | 2,535,794,016 | |||
|
| ||||
Investment securities, at value* | $ | 2,534,824,995 | |||
Cash | 640,390 | ||||
Interest and dividends receivable | 10,005,876 | ||||
Foreign currency, at value (cost $154,424) | 155,703 | ||||
Receivable for capital shares issued | 2,760 | ||||
Receivable for investments sold | 327,534,632 | ||||
Receivable for variation margin on futures contracts | 262,290 | ||||
Prepaid expenses | 12,071 | ||||
|
| ||||
Total Assets | 2,873,438,717 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 336,441,342 | ||||
Payable for collateral received on loaned securities | 314,718,570 | ||||
Securities sold short (Proceeds received $172,409,173) | 172,342,647 | ||||
Payable for variation margin on futures contracts | 81,579 | ||||
Manager fees payable | 606,506 | ||||
Administration fees payable | 54,997 | ||||
Distribution fees payable | 433,220 | ||||
Custodian fees payable | 9,031 | ||||
Administrative and compliance services fees payable | 4,685 | ||||
Transfer agent fees payable | 1,099 | ||||
Trustee fees payable | 3,019 | ||||
Other accrued liabilities | 62,762 | ||||
|
| ||||
Total Liabilities | 824,759,457 | ||||
|
| ||||
Net Assets | $ | 2,048,679,260 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 2,030,784,407 | |||
Accumulated net investment income/(loss) | 43,264,853 | ||||
Accumulated net realized gains/(losses) from investment transactions | (24,178,155 | ) | |||
Net unrealized appreciation/(depreciation) on investments | (1,191,845 | ) | |||
|
| ||||
Net Assets | $ | 2,048,679,260 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 188,128,857 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.89 | |||
|
|
* | Includes securities on loan of $306,785,685. |
For the Year Ended December 31, 2017
Investment Income: | |||||
Interest | $ | 48,871,954 | |||
Dividends | 445,868 | ||||
Income from securities lending | 1,164,310 | ||||
Other income | 78,679 | ||||
|
| ||||
Total Investment Income | 50,560,811 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 7,011,743 | ||||
Administration fees | 660,823 | ||||
Distribution fees | 5,008,398 | ||||
Custodian fees | 67,427 | ||||
Administrative and compliance services fees | 24,056 | ||||
Transfer agent fees | 8,172 | ||||
Trustee fees | 85,345 | ||||
Professional fees | 104,136 | ||||
Shareholder reports | 29,879 | ||||
Other expenses | 45,519 | ||||
|
| ||||
Total expenses | 13,045,498 | ||||
|
| ||||
Net Investment Income/(Loss) | 37,515,313 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions and foreign currencies | (7,253,562 | ) | |||
Net realized gains/(losses) on futures contracts | 818,323 | ||||
Net realized gains/(losses) on securities held short | (3,657,042 | ) | |||
Change in net unrealized appreciation/depreciation on investments and foreign currencies | 32,563,746 | ||||
Change in net unrealized appreciation/depreciation on futures contracts | (218,936 | ) | |||
Change in net unrealized appreciation/depreciation on securities sold short | 349,221 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 22,601,750 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 60,117,063 | |||
|
|
See accompanying notes to the financial statements.
24
AZL Enhanced Bond Index Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 37,515,313 | $ | 18,408,356 | ||||||
Net realized gains/(losses) on investment transactions | (10,092,281 | ) | (7,781,591 | ) | ||||||
Change in unrealized appreciation/depreciation on investments | 32,694,031 | (26,515,684 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 60,117,063 | (15,888,919 | ) | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (18,214,095 | ) | (14,423,627 | ) | ||||||
From net realized gains | — | (9,626,836 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (18,214,095 | ) | (24,050,463 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 187,627,945 | 1,494,336,008 | ||||||||
Proceeds from dividends reinvested | 18,214,095 | 24,050,464 | ||||||||
Value of shares redeemed | (208,787,058 | ) | (150,994,846 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (2,945,018 | ) | 1,367,391,626 | |||||||
|
|
|
| |||||||
Change in net assets | 38,957,950 | 1,327,452,244 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 2,009,721,310 | 682,269,066 | ||||||||
|
|
|
| |||||||
End of period | $ | 2,048,679,260 | $ | 2,009,721,310 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 43,264,853 | $ | 18,214,031 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 17,317,900 | 136,696,292 | ||||||||
Dividends reinvested | 1,671,018 | 2,200,408 | ||||||||
Shares redeemed | (19,261,705 | ) | (13,775,065 | ) | ||||||
|
|
|
| |||||||
Change in shares | (272,787 | ) | 125,121,635 | |||||||
|
|
|
|
See accompanying notes to the financial statements.
25
AZL Enhanced Bond Index Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.67 | $ | 10.78 | $ | 11.13 | $ | 10.67 | $ | 11.17 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.20 | 0.09 | 0.27 | 0.14 | 0.05 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.12 | 0.16 | (0.24 | ) | 0.43 | (0.31 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 0.32 | 0.25 | 0.03 | 0.57 | (0.26 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.10 | ) | (0.22 | ) | (0.24 | ) | (0.11 | ) | (0.12 | ) | |||||||||||||||
Net Realized Gains | — | (0.14 | ) | (0.14 | ) | — | (0.12 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.10 | ) | (0.36 | ) | (0.38 | ) | (0.11 | ) | (0.24 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 10.89 | $ | 10.67 | $ | 10.78 | $ | 11.13 | $ | 10.67 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 3.01 | % | 2.28 | % | 0.23 | % | 5.35 | % | (2.32 | )% | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 2,048,679 | $ | 2,009,721 | $ | 682,269 | $ | 949,426 | $ | 788,913 | |||||||||||||||
Net Investment Income/(Loss) | 1.87 | % | 1.93 | % | 1.65 | % | 1.49 | % | 1.14 | % | |||||||||||||||
Expenses Before Reductions(b) | 0.65 | % | 0.67 | % | 0.66 | % | 0.65 | % | 0.66 | % | |||||||||||||||
Expenses Net of Reductions | 0.65 | % | 0.67 | % | 0.66 | % | 0.65 | % | 0.66 | % | |||||||||||||||
Portfolio Turnover Rate | 214 | % | 288 | % | 342 | % | 564 | % | 663 | % |
(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, 2017
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 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 accrues 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, or from other assets and liabilities, 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 the 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, the Fund also may be required to pay a premium, which would increase the cost of the security sold.
27
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2017
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., reclassification of gain/loss and paydowns), 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, 2017 are noted on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $349 million for the year ended December 31, 2017.
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 $106,552 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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, 2017.
Overnight and Continuous | Less than | Between 30 & 90 Days | Greater 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions | $ | 267,072,512 | $ | 47,646,058 | $ | — | $ | — | $ | 314,718,570 |
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, 2017, no collateral had been posted by the Fund to counterparties for TBAs.
28
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2017
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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. For the year ended December 31, 2017, the Fund participated in the following cross-trade transactions:
Purchases | Sales | Realized (Gain/Loss) | |||||||||||||
AZL Enhanced Bond Index Fund | $ | 4,349,593 | $ | 1,067,228 | $ | (7,622 | ) |
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, 2017, 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. For the year ended December 31, 2017, the monthly average notional amount for long contracts was $263.8 million and the monthly average notional amount for short contracts was $59.6 million. 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, 2017:
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 | ||||||||||||
Interest Rate Contracts | Receivable for variation margin on futures contracts | $ | 474,074 | Payable for variation margin on futures contracts* | $ | 764,703 |
* | 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, 2017:
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 | ||||||||||
Interest Rate Contracts | Net realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | $ | 818,323 | $ | (218,936 | ) |
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, 2019.
29
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2017
For the year ended December 31, 2017, the annual rate paid 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, 2017, there were no contractual reimbursements 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, 2017, 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.”
FIS Investor Services LLC (“FIS”) 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, 2017, $21,413 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, 2017, actual Trustee compensation was $1,116,333 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.
30
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value. There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Other^ | Total | ||||||||||||||||
Asset Backed Securities | $ | — | $ | 107,182,376 | $ | — | $ | 107,182,376 | ||||||||||||
Collateralized Mortgage Obligations | — | 91,136,084 | — | 91,136,084 | ||||||||||||||||
Corporate Bonds+ | — | 390,176,248 | — | 390,176,248 | ||||||||||||||||
Municipal Bonds | — | 2,423,359 | — | 2,423,359 | ||||||||||||||||
U.S. Government Agency Mortgages | — | 674,122,247 | — | 674,122,247 | ||||||||||||||||
U.S. Treasury Obligations | — | 666,989,827 | — | 666,989,827 | ||||||||||||||||
Yankee Dollars | — | 107,165,778 | — | 107,165,778 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | 314,718,570 | 314,718,570 | ||||||||||||||||
Unaffiliated Investment Company | 180,910,506 | — | — | 180,910,506 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investment Securities | 180,910,506 | 2,039,195,919 | 314,718,570 | 2,534,824,995 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Securities Sold Short | — | (172,342,647 | ) | — | (172,342,647 | ) | ||||||||||||||
Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | (290,629 | ) | — | — | (290,629 | ) | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investments | $ | 180,619,877 | $ | 1,866,853,272 | $ | 314,718,570 | $ | 2,362,191,719 | ||||||||||||
|
|
|
|
|
|
|
|
+ | 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 presented in the financial statements at variation margin. |
^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
5. Security Purchases and Sales
For the year ended December 31, 2017, 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 | $ | 3,980,466,513 | $ | 3,895,864,836 |
For the year ended December 31, 2017, purchases and sales of long-term U.S. government securities were as follows:
Purchases | Sales | |||||||||
AZL Enhanced Bond Index Fund | $ | 3,405,389,061 | $ | 3,338,506,662 |
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. There were no illiquid restricted securities held as of December 31, 2017.
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
31
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2017
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.
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, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $2,537,317,146. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 35,861,507 | ||
Unrealized (depreciation) | (38,287,132 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | (2,425,625 | ) | |
|
|
As of the end of its tax year ended December 31, 2017, 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 | Amount Total | |||||||||||||
AZL Enhanced Bond Index Fund | $ | 21,477,720 | $ | 1,467,933 | $ | 22,945,653 |
The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Enhanced Bond Index Fund | $ | 18,214,095 | $ | — | $ | 18,214,095 |
(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, 2016 were as follows:
Ordinary Income | Net Long-Term Capital Gains | 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. |
32
AZL Enhanced Bond Index Fund
Notes to the Financial Statements
December 31, 2017
At December 31, 2017, 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 Earnings/ | |||||||||||||||||||||
AZL Enhanced Bond Index Fund | $ | 43,264,853 | $ | — | $ | (22,945,653 | ) | $ | (2,424,347 | ) | $ | 17,894,853 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
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, 2017, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 30% of the Fund.
10. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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 .
33
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
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, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, 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.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
34
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Fund of Funds Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
35
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
36
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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
37
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
38
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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
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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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
40
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® Gateway Fund
Annual Report
December 31, 2017
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
Page 9
Statements of Changes in Net Assets
Page 10
Page 11
Notes to the Financial Statements
Page 12
Report of Independent Registered Public Accounting Firm
Page 17
Other Federal Income Tax Information
Page 18
Page 19
Approval of Investment Advisory and Subadvisory Agreements
Page 20
Information about the Board of Trustees and Officers
Page 23
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, 2017?
For the year ended December 31, 2017, the AZL® Gateway Fund (the “Fund”) returned 9.46%. That compared to a 21.83% 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 un-hedged equity market investments. Selling index call options reduces the Fund’s volatility and provides 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 help protect against sudden short-term stock market declines.*
The domestic equity market performed strongly during the 12-month period. In fact, for the first time in its history, the total return of the S&P 500 Index (S&P 500) was positive in each month of the calendar year. The market shrugged off a contentious domestic political environment, three major hurricanes, escalating rhetoric between the Trump administration and North Korea, and tightening monetary policy conditions. Contributors to the market’s upward momentum included a globally synchronized economic expansion and strong earnings growth for U.S. corporations.
The Fund’s relative return was tempered by historically low volatility in the equity market. Realized volatility, as measured by the S&P 500’s annualized standard deviation2 of daily returns, was 6.78%, the lowest reading since 1964. Implied volatility, as measured by the Chicago Board Options Exchange Volatility Index3 (the VIX), averaged 11.09 for the year, well below its long-term average of 19.39 and the lowest annual average in the history of the statistic, which was first measured in 1990. The VIX also set new all-time records for an intra-day low, 8.56 on November 24, and a closing low, 9.14 on November 3. The VIX closed below 10 on 52 days in 2017, something that had happened only nine times in its history prior to 2017.
The Fund’s objective to reduce risk from market volatility hampered performance, as volatility remained consistently low during the period. As a result, the Fund underperformed its benchmark during the 12-month period. Equity market declines in 2017 were brief, shallow, and infrequent, but the Fund delivered downside protection during the market’s largest peak-to-trough decline for the year. Specifically, from March 1, 2017, through April 13, 2017, the Fund declined 0.56%, delivering 202 basis points (2.02%) of downside protection relative to the loss of 2.58% for the S&P 500 Index. The Fund’s equity portfolio returned 22.67% for the year, a performance differential of positive 84 basis points (0.84%) versus the S&P 500, which contributed to its return. Consistent with its objective, the measured risk of the Fund was low relative to the S&P 500, as its standard deviation for 2017 was 3.09% versus 6.78% for the Index.*
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2017. |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
2 | 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. |
3 | Chicago Board Options Exchange Market Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by the S&P 500 Index options. |
1
AZL® Gateway Fund Review (Unaudited)
Fund Objective
The Fund’s investment objective is to seek to capture the majority of the returns associated with equity market investments, while exposing investors to less risk than other equity investments. This objective may be changed by the Trustees of the Fund without shareholder approval. The Fund seeks to achieve its objective by investing in a broadly diversified portfolio of common stocks, while also selling index call options.
Investment Concerns
Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes.
International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations.
The performance of investments in real estate depends on the overall strength of the real estate market, the management of real estate investments trusts (REITs), 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.
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.
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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, 2017
1 Year | 3 Year | 5 Year | Since Inception (4/30/10) | |||||||||||||
AZL® Gateway Fund | 9.46 | % | 5.38 | % | 5.52 | % | 4.79 | % | ||||||||
S&P 500 Index | 21.83 | % | 11.41 | % | 15.79 | % | 13.55 | % |
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® Gateway Fund | 1.10 | % |
The above expense ratio is based on the current Fund prospectus dated May 1, 2017. 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, 2019. Additional information pertaining to the December 31, 2017 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
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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Gateway Fund | $ | 1,000.00 | $ | 1,044.50 | $ | 5.67 | 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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Gateway Fund | $ | 1,000.00 | $ | 1,019.67 | $ | 5.60 | 1.10 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 23.9 | % | |||
Financials | 14.6 | ||||
Health Care | 13.6 | ||||
Consumer Discretionary | 12.1 | ||||
Industrials | 10.4 | ||||
Consumer Staples | 8.1 | ||||
Energy | 6.0 | ||||
Utilities | 3.1 | ||||
Materials | 2.9 | ||||
Real Estate | 2.4 | ||||
Telecommunication Services | 2.0 | ||||
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Total Common Stocks | 99.1 | ||||
Money Market | 2.5 | ||||
Purchased Put Options | 0.2 | ||||
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Total Investment Securities | 101.8 | ||||
Net other assets (liabilities) | (1.8 | ) | |||
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Net Assets | 100.0 | % | |||
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3
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks+ (99.1%): | ||||||||
Aerospace & Defense (2.3%): | ||||||||
6,446 | Boeing Co. (The) | $ | 1,900,990 | |||||
1,436 | Huntington Ingalls Industries, Inc. | 338,465 | ||||||
6,032 | Raytheon Co. | 1,133,111 | ||||||
1,257 | TransDigm Group, Inc. | 345,197 | ||||||
9,531 | United Technologies Corp. | 1,215,870 | ||||||
|
| |||||||
4,933,633 | ||||||||
|
| |||||||
Air Freight & Logistics (0.6%): | ||||||||
11,377 | United Parcel Service, Inc., Class B | 1,355,570 | ||||||
|
| |||||||
Airlines (0.5%): | ||||||||
2,678 | Alaska Air Group, Inc. | 196,860 | ||||||
8,934 | American Airlines Group, Inc. | 464,836 | ||||||
5,353 | JetBlue Airways Corp.* | 119,586 | ||||||
5,233 | United Continental Holdings, Inc.* | 352,704 | ||||||
|
| |||||||
1,133,986 | ||||||||
|
| |||||||
Auto Components (0.1%): | ||||||||
766 | Adient plc | 60,284 | ||||||
1,416 | Autoliv, Inc. | 179,945 | ||||||
1,819 | Cooper Tire & Rubber Co. | 64,302 | ||||||
|
| |||||||
304,531 | ||||||||
|
| |||||||
Automobiles (0.4%): | ||||||||
61,417 | Ford Motor Co. | 767,098 | ||||||
359 | Tesla Motors, Inc.* | 111,775 | ||||||
|
| |||||||
878,873 | ||||||||
|
| |||||||
Banks (6.7%): | ||||||||
8,692 | Associated Banc-Corp. | 220,777 | ||||||
100,449 | Bank of America Corp. | 2,965,254 | ||||||
28,600 | Citigroup, Inc. | 2,128,126 | ||||||
29,728 | Huntington Bancshares, Inc. | 432,840 | ||||||
37,289 | JPMorgan Chase & Co. | 3,987,685 | ||||||
8,353 | Old National Bancorp | 145,760 | ||||||
1,935 | Signature Bank* | 265,598 | ||||||
906 | SVB Financial Group* | 211,796 | ||||||
22,261 | U.S. Bancorp | 1,192,744 | ||||||
45,318 | Wells Fargo & Co. | 2,749,443 | ||||||
|
| |||||||
14,300,023 | ||||||||
|
| |||||||
Beverages (2.0%): | ||||||||
42,470 | Coca-Cola Co. (The) | 1,948,524 | ||||||
5,751 | Monster Beverage Corp.* | 363,981 | ||||||
17,025 | PepsiCo, Inc. | 2,041,637 | ||||||
|
| |||||||
4,354,142 | ||||||||
|
| |||||||
Biotechnology (3.3%): | ||||||||
16,340 | AbbVie, Inc. | 1,580,242 | ||||||
3,124 | Alexion Pharmaceuticals, Inc.* | 373,599 | ||||||
7,596 | Amgen, Inc. | 1,320,945 | ||||||
2,396 | Biogen Idec, Inc.* | 763,294 | ||||||
2,647 | Bioverativ, Inc.* | 142,726 | ||||||
9,176 | Celgene Corp.* | 957,607 | ||||||
14,374 | Gilead Sciences, Inc. | 1,029,753 | ||||||
1,337 | Seattle Genetics, Inc.* | 71,530 | ||||||
1,537 | Shire plc, ADR | 238,419 |
Shares | Fair Value | |||||||
Common Stocks+, continued | ||||||||
Biotechnology, continued | ||||||||
551 | Tesaro, Inc.* | $ | 45,661 | |||||
2,985 | Vertex Pharmaceuticals, Inc.* | 447,332 | ||||||
|
| |||||||
6,971,108 | ||||||||
|
| |||||||
Building Products (0.5%): | ||||||||
5,471 | Fortune Brands Home & Security, Inc. | 374,435 | ||||||
11,237 | Johnson Controls International plc | 428,243 | ||||||
970 | Lennox International, Inc. | 202,012 | ||||||
|
| |||||||
1,004,690 | ||||||||
|
| |||||||
Capital Markets (2.5%): | ||||||||
1,739 | Affiliated Managers Group, Inc. | 356,930 | ||||||
16,278 | Charles Schwab Corp. (The) | 836,201 | ||||||
4,560 | CME Group, Inc. | 665,988 | ||||||
2,730 | Eaton Vance Corp. | 153,945 | ||||||
4,454 | Goldman Sachs Group, Inc. (The) | 1,134,700 | ||||||
9,723 | Intercontinental Exchange, Inc. | 686,055 | ||||||
2,853 | Legg Mason, Inc. | 119,769 | ||||||
17,314 | Morgan Stanley | 908,466 | ||||||
1,658 | MSCI, Inc., Class A | 209,803 | ||||||
3,436 | TD Ameritrade Holding Corp. | 175,683 | ||||||
2,219 | Waddell & Reed Financial, Inc., Class A | 49,572 | ||||||
|
| |||||||
5,297,112 | ||||||||
|
| |||||||
Chemicals (2.2%): | ||||||||
332 | Advansix, Inc.* | 13,967 | ||||||
3,662 | Ashland Global Holdings, Inc. | 260,734 | ||||||
1,507 | Celanese Corp., Series A | 161,370 | ||||||
689 | Chemours Co. (The) | 34,491 | ||||||
25,780 | DowDuPont, Inc. | 1,836,052 | ||||||
3,810 | Eastman Chemical Co. | 352,958 | ||||||
683 | Ingevity Corp.* | 48,131 | ||||||
5,231 | Lyondellbasell Industries NV | 577,084 | ||||||
6,870 | Monsanto Co. | 802,279 | ||||||
2,193 | Olin Corp. | 78,027 | ||||||
5,772 | RPM International, Inc. | 302,568 | ||||||
4,416 | Valvoline, Inc. | 110,665 | ||||||
|
| |||||||
4,578,326 | ||||||||
|
| |||||||
Commercial Services & Supplies (0.4%): | ||||||||
2,527 | Waste Connections, Inc. | 179,265 | ||||||
7,695 | Waste Management, Inc. | 664,079 | ||||||
|
| |||||||
843,344 | ||||||||
|
| |||||||
Communications Equipment (1.2%): | ||||||||
465 | Arista Networks, Inc.* | 109,545 | ||||||
51,268 | Cisco Systems, Inc. | 1,963,563 | ||||||
3,105 | Motorola Solutions, Inc. | 280,506 | ||||||
1,091 | Palo Alto Networks, Inc.* | 158,130 | ||||||
|
| |||||||
2,511,744 | ||||||||
|
| |||||||
Consumer Finance (0.8%): | ||||||||
4,386 | Ally Financial, Inc. | 127,896 | ||||||
11,027 | American Express Co. | 1,095,091 | ||||||
6,156 | Discover Financial Services | 473,520 | ||||||
|
| |||||||
1,696,507 | ||||||||
|
|
Continued
4
AZL Gateway Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks+, continued | ||||||||
Containers & Packaging (0.4%): | ||||||||
2,723 | Avery Dennison Corp. | $ | 312,764 | |||||
3,166 | Sonoco Products Co. | 168,241 | ||||||
4,406 | WestRock Co. | 278,503 | ||||||
|
| |||||||
759,508 | ||||||||
|
| |||||||
Distributors (0.2%): | ||||||||
3,491 | Genuine Parts Co. | 331,680 | ||||||
|
| |||||||
Diversified Financial Services (2.0%): | ||||||||
21,105 | Berkshire Hathaway, Inc., Class B* | 4,183,433 | ||||||
|
| |||||||
Diversified Telecommunication Services (2.0%): | ||||||||
57,446 | AT&T, Inc. | 2,233,501 | ||||||
38,071 | Verizon Communications, Inc. | 2,015,098 | ||||||
|
| |||||||
4,248,599 | ||||||||
|
| |||||||
Electric Utilities (1.6%): | ||||||||
12,907 | Alliant Energy Corp. | 549,967 | ||||||
17,086 | American Electric Power Co., Inc. | 1,257,017 | ||||||
14,818 | Duke Energy Corp. | 1,246,342 | ||||||
1,812 | Hawaiian Electric Industries, Inc. | 65,504 | ||||||
2,434 | OGE Energy Corp. | 80,103 | ||||||
2,778 | Westar Energy, Inc. | 146,678 | ||||||
|
| |||||||
3,345,611 | ||||||||
|
| |||||||
Electrical Equipment (0.5%): | ||||||||
4,970 | Eaton Corp. plc | 392,680 | ||||||
8,661 | Emerson Electric Co. | 603,585 | ||||||
904 | Hubbell, Inc. | 122,347 | ||||||
|
| |||||||
1,118,612 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (0.4%): | ||||||||
13,744 | Corning, Inc. | 439,671 | ||||||
5,221 | TE Connectivity, Ltd. | 496,204 | ||||||
|
| |||||||
935,875 | ||||||||
|
| |||||||
Energy Equipment & Services (1.0%): | ||||||||
6,207 | Baker Hughes | 196,389 | ||||||
13,469 | Halliburton Co. | 658,230 | ||||||
7,650 | Patterson-UTI Energy, Inc. | 176,027 | ||||||
17,299 | Schlumberger, Ltd. | 1,165,780 | ||||||
|
| |||||||
2,196,426 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (2.4%): | ||||||||
4,519 | Camden Property Trust | 416,019 | ||||||
4,922 | Digital Realty Trust, Inc. | 560,616 | ||||||
16,150 | Duke Realty Corp. | 439,442 | ||||||
4,682 | Extra Space Storage, Inc. | 409,441 | ||||||
6,399 | Healthcare Realty Trust, Inc. | 205,536 | ||||||
4,730 | Kilroy Realty Corp. | 353,095 | ||||||
7,730 | Liberty Property Trust | 332,467 | ||||||
5,879 | Mack-Cali Realty Corp. | 126,751 | ||||||
1,987 | Parks Hotels & Resorts, Inc. | 57,126 | ||||||
8,560 | Regency Centers Corp. | 592,180 | ||||||
5,182 | Sabra Health Care REIT, Inc. | 97,266 | ||||||
1,988 | SBA Communications Corp.* | 324,760 | ||||||
6,960 | Senior Housing Properties Trust | 133,284 |
Shares | Fair Value | |||||||
Common Stocks+, continued | ||||||||
Equity Real Estate Investment Trusts, continued | ||||||||
12,811 | UDR, Inc. | $ | 493,480 | |||||
8,412 | Ventas, Inc. | 504,804 | ||||||
|
| |||||||
5,046,267 | ||||||||
|
| |||||||
Food & Staples Retailing (1.7%): | ||||||||
13,249 | CVS Health Corp. | 960,553 | ||||||
14,903 | Walgreens Boots Alliance, Inc. | 1,082,256 | ||||||
15,656 | Wal-Mart Stores, Inc. | 1,546,029 | ||||||
|
| |||||||
3,588,838 | ||||||||
|
| |||||||
Food Products (1.2%): | ||||||||
2,069 | Bunge, Ltd. | 138,789 | ||||||
11,704 | ConAgra Foods, Inc. | 440,890 | ||||||
1,424 | Ingredion, Inc. | 199,075 | ||||||
9,115 | Kraft Heinz Co. (The) | 708,782 | ||||||
2,316 | Lamb Weston Holding, Inc. | 130,738 | ||||||
19,755 | Mondelez International, Inc., Class A | 845,514 | ||||||
|
| |||||||
2,463,788 | ||||||||
|
| |||||||
Gas Utilities (0.1%): | ||||||||
2,368 | National Fuel Gas Co. | 130,027 | ||||||
110 | ONE Gas, Inc. | 8,059 | ||||||
1,281 | WGL Holdings, Inc. | 109,961 | ||||||
|
| |||||||
248,047 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (2.6%): | ||||||||
19,036 | Abbott Laboratories | 1,086,384 | ||||||
1,219 | Align Technology, Inc.* | 270,850 | ||||||
7,525 | Baxter International, Inc. | 486,416 | ||||||
20,149 | Boston Scientific Corp.* | 499,494 | ||||||
10,047 | Hologic, Inc.* | 429,509 | ||||||
1,921 | Intuitive Surgical, Inc.* | 701,050 | ||||||
21,550 | Medtronic plc | 1,740,162 | ||||||
2,990 | ResMed, Inc. | 253,223 | ||||||
618 | Teleflex, Inc. | 153,771 | ||||||
|
| |||||||
5,620,859 | ||||||||
|
| |||||||
Health Care Providers & Services (2.8%): | ||||||||
5,751 | Aetna, Inc. | 1,037,423 | ||||||
3,639 | Anthem, Inc. | 818,811 | ||||||
7,936 | Express Scripts Holding Co.* | 592,343 | ||||||
5,268 | HCA Holdings, Inc.* | 462,741 | ||||||
4,215 | Patterson Cos., Inc. | 152,288 | ||||||
3,176 | Quest Diagnostics, Inc. | 312,804 | ||||||
11,010 | UnitedHealth Group, Inc. | 2,427,266 | ||||||
2,307 | Universal Health Services, Inc., Class B | 261,498 | ||||||
|
| |||||||
6,065,174 | ||||||||
|
| |||||||
Health Care Technology (0.0%): | ||||||||
1,621 | Veeva Systems, Inc., Class A* | 89,609 | ||||||
|
| |||||||
Hotels, Restaurants & Leisure (1.8%): | ||||||||
1,028 | Domino’s Pizza, Inc. | 194,251 | ||||||
1,786 | Hilton Grand Vacations* | 74,923 | ||||||
5,705 | Hilton Worldwide Holdings, Inc. | 455,601 | ||||||
1,458 | Las Vegas Sands Corp. | 101,316 | ||||||
10,426 | McDonald’s Corp. | 1,794,523 |
Continued
5
AZL Gateway Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks+, continued | ||||||||
Hotels, Restaurants & Leisure, continued | ||||||||
2,406 | Melco Resorts & Entertainment, Ltd., ADR | $ | 69,870 | |||||
9,366 | MGM Resorts International | 312,731 | ||||||
3,620 | Norwegian Cruise Line Holdings, Ltd.* | 192,765 | ||||||
2,113 | Restaurant Brands International, Inc. | 129,907 | ||||||
1,014 | Vail Resorts, Inc. | 215,445 | ||||||
11,810 | Wendy’s Co. (The) | 193,920 | ||||||
|
| |||||||
3,735,252 | ||||||||
|
| |||||||
Household Durables (0.6%): | ||||||||
3,412 | Leggett & Platt, Inc. | 162,855 | ||||||
7,475 | Newell Rubbermaid, Inc. | 230,978 | ||||||
60 | NVR, Inc.* | 210,493 | ||||||
6,850 | Toll Brothers, Inc. | 328,936 | ||||||
703 | Tupperware Brands Corp. | 44,078 | ||||||
1,384 | Whirlpool Corp. | 233,398 | ||||||
|
| |||||||
1,210,738 | ||||||||
|
| |||||||
Household Products (1.8%): | ||||||||
7,553 | Church & Dwight Co., Inc. | 378,934 | ||||||
12,649 | Colgate-Palmolive Co. | 954,367 | ||||||
26,279 | Procter & Gamble Co. (The) | 2,414,515 | ||||||
|
| |||||||
3,747,816 | ||||||||
|
| |||||||
Industrial Conglomerates (2.3%): | ||||||||
7,187 | 3M Co., Class C | 1,691,604 | ||||||
88,249 | General Electric Co. | 1,539,945 | ||||||
10,722 | Honeywell International, Inc. | 1,644,326 | ||||||
|
| |||||||
4,875,875 | ||||||||
|
| |||||||
Insurance (2.3%): | ||||||||
7,493 | Aflac, Inc. | 657,736 | ||||||
7,513 | Allstate Corp. (The) | 786,686 | ||||||
3,735 | American Financial Group, Inc. | 405,397 | ||||||
13,463 | American International Group, Inc. | 802,125 | ||||||
4,568 | Aon plc | 612,112 | ||||||
3,984 | Arch Capital Group, Ltd.* | 361,627 | ||||||
6,371 | Arthur J. Gallagher & Co. | 403,157 | ||||||
2,018 | FNF Group | 79,186 | ||||||
4,896 | Lincoln National Corp. | 376,356 | ||||||
4,668 | Principal Financial Group, Inc. | 329,374 | ||||||
7,499 | XL Group, Ltd. | 263,665 | ||||||
|
| |||||||
5,077,421 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (2.9%): | ||||||||
3,828 | Amazon.com, Inc.* | 4,476,732 | ||||||
4,067 | Netflix, Inc.* | 780,701 | ||||||
560 | Priceline Group, Inc. (The)* | 973,134 | ||||||
|
| |||||||
6,230,567 | ||||||||
|
| |||||||
Internet Software & Services (5.4%): | ||||||||
3,319 | Alphabet, Inc., Class A* | 3,496,235 | ||||||
2,551 | Alphabet, Inc., Class C* | 2,669,366 | ||||||
334 | Baidu, Inc., ADR* | 78,226 | ||||||
12,450 | eBay, Inc.* | 469,863 | ||||||
24,462 | Facebook, Inc., Class A* | 4,316,564 | ||||||
198 | MercadoLibre, Inc. | 62,303 |
Shares | Fair Value | |||||||
Common Stocks+, continued | ||||||||
Internet Software & Services, continued | ||||||||
2,440 | VeriSign, Inc.* | $ | 279,234 | |||||
1,595 | Zillow Group, Inc., Class C* | 65,267 | ||||||
|
| |||||||
11,437,058 | ||||||||
|
| |||||||
IT Services (3.5%): | ||||||||
5,359 | Automatic Data Processing, Inc. | 628,021 | ||||||
630 | Black Knight, Inc.* | 27,815 | ||||||
1,636 | Broadridge Financial Solutions, Inc. | 148,189 | ||||||
7,791 | Cognizant Technology Solutions Corp., Class A | 553,317 | ||||||
6,087 | Fidelity National Information Services, Inc. | 572,726 | ||||||
820 | FleetCor Technologies, Inc.* | 157,793 | ||||||
9,667 | International Business Machines Corp. | 1,483,111 | ||||||
4,979 | Paychex, Inc. | 338,970 | ||||||
12,584 | PayPal Holdings, Inc.* | 926,434 | ||||||
21,496 | Visa, Inc., Class A | 2,450,974 | ||||||
9,822 | Western Union Co. | 186,716 | ||||||
|
| |||||||
7,474,066 | ||||||||
|
| |||||||
Leisure Products (0.1%): | ||||||||
10,454 | Mattel, Inc. | 160,783 | ||||||
879 | Polaris Industries, Inc. | 108,987 | ||||||
|
| |||||||
269,770 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.2%): | ||||||||
2,082 | Illumina, Inc.* | 454,896 | ||||||
|
| |||||||
Machinery (2.0%): | ||||||||
7,283 | Caterpillar, Inc. | 1,147,655 | ||||||
2,711 | Cummins, Inc. | 478,871 | ||||||
4,219 | Deere & Co. | 660,316 | ||||||
3,237 | Parker Hannifin Corp. | 646,040 | ||||||
4,739 | Pentair plc | 334,668 | ||||||
1,723 | Snap-On, Inc. | 300,319 | ||||||
3,591 | Stanley Black & Decker, Inc. | 609,357 | ||||||
1,307 | Timken Co. | 64,239 | ||||||
|
| |||||||
4,241,465 | ||||||||
|
| |||||||
Media (2.7%): | ||||||||
47,997 | Comcast Corp., Class A | 1,922,280 | ||||||
2,745 | Liberty Broadband Corp., Class C* | 233,764 | ||||||
4,457 | Liberty Global plc, Series C* | 150,825 | ||||||
3,300 | Liberty Global plc, LiLAC, Class C* | 65,637 | ||||||
3,810 | News Corp., Class B | 63,246 | ||||||
4,689 | Omnicom Group, Inc. | 341,500 | ||||||
66,845 | Sirius XM Holdings, Inc. | 358,289 | ||||||
8,962 | Time Warner, Inc. | 819,754 | ||||||
1,576 | Time, Inc. | 29,077 | ||||||
16,705 | Walt Disney Co. (The) | 1,795,955 | ||||||
|
| |||||||
5,780,327 | ||||||||
|
| |||||||
Metals & Mining (0.3%): | ||||||||
4,993 | Southern Copper Corp. | 236,918 | ||||||
5,765 | Steel Dynamics, Inc. | 248,644 | ||||||
1,496 | Worthington Industries, Inc. | 65,914 | ||||||
|
| |||||||
551,476 | ||||||||
|
|
Continued
6
AZL Gateway Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks+, continued | ||||||||
Mortgage Real Estate Investment Trusts (0.3%): | ||||||||
16,246 | Agnc Investment Corp. | $ | 328,007 | |||||
31,341 | Annaly Capital Management, Inc. | 372,644 | ||||||
|
| |||||||
700,651 | ||||||||
|
| |||||||
Multiline Retail (0.4%): | ||||||||
2,729 | Nordstrom, Inc. | 129,300 | ||||||
9,766 | Target Corp. | 637,232 | ||||||
|
| |||||||
766,532 | ||||||||
|
| |||||||
Multi-Utilities (1.4%): | ||||||||
8,424 | Ameren Corp. | 496,932 | ||||||
13,204 | CenterPoint Energy, Inc. | 374,465 | ||||||
8,360 | Consolidated Edison, Inc. | 710,182 | ||||||
12,377 | Public Service Enterprise Group, Inc. | 637,416 | ||||||
12,880 | WEC Energy Group, Inc. | 855,618 | ||||||
|
| |||||||
3,074,613 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (5.0%): | ||||||||
3,407 | Cheniere Energy, Inc.* | 183,433 | ||||||
20,442 | Chevron Corp. | 2,559,134 | ||||||
5,260 | Concho Resources, Inc.* | 790,157 | ||||||
19,444 | ConocoPhillips Co. | 1,067,281 | ||||||
6,695 | Continental Resources, Inc.* | 354,634 | ||||||
41,725 | Exxon Mobil Corp. | 3,489,878 | ||||||
12,850 | Gulfport Energy Corp.* | 163,966 | ||||||
2,175 | HollyFrontier Corp. | 111,404 | ||||||
10,875 | Occidental Petroleum Corp. | 801,053 | ||||||
5,831 | ONEOK, Inc. | 311,667 | ||||||
7,684 | Phillips 66 | 777,237 | ||||||
|
| |||||||
10,609,844 | ||||||||
|
| |||||||
Personal Products (0.0%): | ||||||||
847 | Herbalife, Ltd.* | 57,359 | ||||||
|
| |||||||
Pharmaceuticals (4.7%): | ||||||||
4,573 | Allergan plc | 748,051 | ||||||
16,305 | Bristol-Myers Squibb Co. | 999,170 | ||||||
10,447 | Eli Lilly & Co. | 882,354 | ||||||
1,295 | Jazz Pharmaceuticals plc* | 174,372 | ||||||
25,798 | Johnson & Johnson Co. | 3,604,497 | ||||||
27,277 | Merck & Co., Inc. | 1,534,877 | ||||||
57,342 | Pfizer, Inc. | 2,076,927 | ||||||
|
| |||||||
10,020,248 | ||||||||
|
| |||||||
Professional Services (0.4%): | ||||||||
1,420 | Dun & Bradstreet Corp. | 168,142 | ||||||
907 | Manpower, Inc. | 114,382 | ||||||
5,312 | Verisk Analytics, Inc.* | 509,952 | ||||||
|
| |||||||
792,476 | ||||||||
|
| |||||||
Road & Rail (0.8%): | ||||||||
3,822 | Avis Budget Group, Inc.* | 167,709 | ||||||
1,712 | Canadian Pacific Railway, Ltd. | 312,886 | ||||||
15,073 | CSX Corp. | 829,167 | ||||||
3,901 | Hertz Global Holdings, Inc.* | 86,212 | ||||||
3,059 | Old Dominion Freight Line, Inc. | 402,411 | ||||||
|
| |||||||
1,798,385 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks+, continued | ||||||||
Semiconductors & Semiconductor Equipment (4.0%): | ||||||||
11,512 | Advanced Micro Devices, Inc.* | $ | 118,343 | |||||
6,581 | Analog Devices, Inc. | 585,906 | ||||||
16,753 | Applied Materials, Inc. | 856,413 | ||||||
47,129 | Intel Corp. | 2,175,476 | ||||||
5,923 | Microchip Technology, Inc. | 520,513 | ||||||
6,260 | NVIDIA Corp. | 1,211,310 | ||||||
16,465 | QUALCOMM, Inc. | 1,054,089 | ||||||
4,034 | Skyworks Solutions, Inc. | 383,028 | ||||||
6,561 | Teradyne, Inc. | 274,709 | ||||||
13,082 | Texas Instruments, Inc. | 1,366,285 | ||||||
|
| |||||||
8,546,072 | ||||||||
|
| |||||||
Software (5.5%): | ||||||||
10,173 | Activision Blizzard, Inc. | 644,154 | ||||||
6,337 | Adobe Systems, Inc.* | 1,110,496 | ||||||
2,094 | ANSYS, Inc.* | 309,053 | ||||||
9,475 | Cadence Design Systems, Inc.* | 396,245 | ||||||
1,510 | Dell Technologies, Inc., Class V* | 122,733 | ||||||
73,935 | Microsoft Corp. | 6,324,400 | ||||||
7,859 | Nuance Communications, Inc.* | 128,495 | ||||||
34,027 | Oracle Corp. | 1,608,797 | ||||||
2,837 | PTC, Inc.* | 172,404 | ||||||
1,144 | ServiceNow, Inc.* | 149,166 | ||||||
9,705 | Symantec Corp. | 272,322 | ||||||
894 | Take-Two Interactive Software, Inc.* | 98,143 | ||||||
1,860 | VMware, Inc., Class A* | 233,095 | ||||||
1,529 | Workday, Inc., Class A* | 155,560 | ||||||
�� |
|
| ||||||
11,725,063 | ||||||||
|
| |||||||
Specialty Retail (2.5%): | ||||||||
9,507 | American Eagle Outfitters, Inc. | 178,732 | ||||||
3,731 | Foot Locker, Inc. | 174,909 | ||||||
5,433 | Gap, Inc. (The) | 185,048 | ||||||
13,525 | Home Depot, Inc. (The) | 2,563,393 | ||||||
2,777 | L Brands, Inc. | 167,231 | ||||||
11,634 | Lowe’s Cos., Inc. | 1,081,264 | ||||||
2,699 | Tiffany & Co. | 280,561 | ||||||
9,290 | TJX Cos., Inc. (The) | 710,313 | ||||||
|
| |||||||
5,341,451 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (3.9%): | ||||||||
48,989 | Apple, Inc. | 8,290,408 | ||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (0.4%): | ||||||||
3,207 | Lululemon Athletica, Inc.* | 252,038 | ||||||
5,462 | Michael Kors Holdings, Ltd.* | 343,833 | ||||||
14,773 | Under Armour, Inc., Class A* | 213,175 | ||||||
2,313 | Under Armour, Inc., Class C* | 30,809 | ||||||
|
| |||||||
839,855 | ||||||||
|
| |||||||
Tobacco (1.4%): | ||||||||
20,135 | Altria Group, Inc. | 1,437,840 | ||||||
15,263 | Philip Morris International, Inc. | 1,612,537 | ||||||
1,877 | Vector Group, Ltd. | 42,007 | ||||||
|
| |||||||
3,092,384 | ||||||||
|
|
Continued
7
AZL Gateway Fund
Schedule of Portfolio Investments
December 31, 2017
Shares |
Fair Value | |||||||
Common Stocks+, continued | ||||||||
Trading Companies & Distributors (0.1%): | ||||||||
1,807 | GATX Corp. | $ | 112,323 | |||||
|
| |||||||
Wireless Telecommunication Services (0.0%): | ||||||||
5,817 | Sprint Corp.* | 34,262 | ||||||
1,022 | T-Mobile US, Inc.* | 64,907 | ||||||
|
| |||||||
99,169 | ||||||||
|
| |||||||
Total Common Stocks (Cost $135,588,244) | 211,359,475 | |||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Purchased Options (0.2%): | ||||||||
Total Purchased Options (Cost $937,840) | $ | 332,585 | ||||||
|
| |||||||
Unaffiliated Investment Company (2.5%): | ||||||||
5,409,158 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 1.11%(a) | 5,409,158 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $5,409,158) | 5,409,158 | |||||||
|
| |||||||
Total Investment Securities (Cost $141,935,242)(b) — 101.8% | 217,101,218 | |||||||
Net other assets (liabilities) — (1.8)% | (3,806,017 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 213,295,201 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
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, 2017. |
(b) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Exchange-traded options purchased as of December 31, 2017 were as follows:
Description | Put/ Call | Strike Price | Expiration Date | Contracts | Notional | Fair Value | ||||||||||||||||||||||
S&P 500 Index | Put | 2375.00 | USD | 1/19/18 | 130 | $ | 308,750 | $ | 14,950 | |||||||||||||||||||
S&P 500 Index | Put | 2400.00 | USD | 1/19/18 | 91 | 218,400 | 12,285 | |||||||||||||||||||||
S&P 500 Index | Put | 2325.00 | USD | 2/16/18 | 78 | 181,350 | 20,280 | |||||||||||||||||||||
S&P 500 Index | Put | 2350.00 | USD | 2/16/18 | 91 | 213,850 | 27,300 | |||||||||||||||||||||
S&P 500 Index | Put | 2375.00 | USD | 2/16/18 | 111 | 263,625 | 38,850 | |||||||||||||||||||||
S&P 500 Index | Put | 2400.00 | USD | 2/16/18 | 91 | 218,400 | 36,400 | |||||||||||||||||||||
S&P 500 Index | Put | 2400.00 | USD | 3/16/18 | 94 | 225,600 | 84,600 | |||||||||||||||||||||
S&P 500 Index | Put | 2425.00 | USD | 3/16/18 | 96 | 232,800 | 97,920 | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Total (Cost $937,840) |
| $ | 332,585 | |||||||||||||||||||||||||
|
|
Exchange-traded options written as of December 31, 2017 were as follows:
Description | Put/ Call | Strike Price | Expiration Date | Contracts | Notional | Fair Value | ||||||||||||||||||||||
S&P 500 Index | Call | 2650.00 | USD | 1/05/18 | 77 | $ | 204,050 | $ | (228,690 | ) | ||||||||||||||||||
S&P 500 Index | Call | 2600.00 | USD | 1/19/18 | 88 | 228,800 | (729,960 | ) | ||||||||||||||||||||
S&P 500 Index | Call | 2650.00 | USD | 1/19/18 | 89 | 235,850 | (345,765 | ) | ||||||||||||||||||||
S&P 500 Index | Call | 2700.00 | USD | 1/26/18 | 88 | 237,600 | (90,640 | ) | ||||||||||||||||||||
S&P 500 Index | Call | 2600.00 | USD | 2/16/18 | 92 | 239,200 | (845,020 | ) | ||||||||||||||||||||
S&P 500 Index | Call | 2625.00 | USD | 2/16/18 | 92 | 241,500 | (649,980 | ) | ||||||||||||||||||||
S&P 500 Index | Call | 2650.00 | USD | 2/16/18 | 82 | 217,300 | (417,790 | ) | ||||||||||||||||||||
S&P 500 Index | Call | 2675.00 | USD | 2/16/18 | 84 | 224,700 | (279,300 | ) | ||||||||||||||||||||
S&P 500 Index | Call | 2700.00 | USD | 3/16/18 | 90 | 243,000 | (279,450 | ) | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Total (Premiums $3,042,401) |
| $ | (3,866,595 | ) | ||||||||||||||||||||||||
|
|
(a) | Notional amount is expressed as the number of contracts multiplied by the strike price of the underlying asset. |
See accompanying notes to the financial statements.
8
AZL Gateway Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investment securities, at cost | $ | 141,935,242 | |||
|
| ||||
Investment securities, at value | $ | 217,101,218 | |||
Interest and dividends receivable | 261,097 | ||||
Receivable for investments sold | 131,780 | ||||
Reclaims receivable | 994 | ||||
Prepaid expenses | 1,241 | ||||
|
| ||||
Total Assets | 217,496,330 | ||||
|
| ||||
Liabilities: | |||||
Payable for capital shares redeemed | 127,736 | ||||
Written Options (Premiums received $3,042,401) | 3,866,595 | ||||
Manager fees payable | 145,025 | ||||
Administration fees payable | 5,247 | ||||
Distribution fees payable | 45,320 | ||||
Custodian fees payable | 1,909 | ||||
Administrative and compliance services fees payable | 486 | ||||
Transfer agent fees payable | 703 | ||||
Trustee fees payable | 313 | ||||
Other accrued liabilities | 7,795 | ||||
|
| ||||
Total Liabilities | 4,201,129 | ||||
|
| ||||
Net Assets | $ | 213,295,201 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 170,702,193 | |||
Accumulated net investment income/(loss) | 2,073,599 | ||||
Accumulated net realized gains/(losses) from investment transactions | (33,822,373 | ) | |||
Net unrealized appreciation/(depreciation) on investments | 74,341,782 | ||||
|
| ||||
Net Assets | $ | 213,295,201 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 16,015,041 | ||||
Net Asset Value (offering and redemption price per share) | $ | 13.32 | |||
|
|
For the Year Ended December 31, 2017
Investment Income: | |||||
Dividends | $ | 4,438,186 | |||
Other income | 10,164 | ||||
Foreign withholding tax | (649 | ) | |||
|
| ||||
Total Investment Income | 4,447,701 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 1,643,803 | ||||
Administration fees | 53,752 | ||||
Distribution fees | 513,687 | ||||
Custodian fees | 13,481 | ||||
Administrative and compliance services fees | 2,681 | ||||
Transfer agent fees | 5,485 | ||||
Trustee fees | 9,387 | ||||
Professional fees | 11,617 | ||||
Shareholder reports | 6,260 | ||||
Other expenses | 5,150 | ||||
|
| ||||
Total expenses | 2,265,303 | ||||
|
| ||||
Net Investment Income/(Loss) | 2,182,398 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions and foreign currencies | 13,840,986 | ||||
Net realized gains/(losses) on written options contracts | (13,542,169 | ) | |||
Change in net unrealized appreciation/depreciation on investments | 16,501,301 | ||||
Change in net unrealized appreciation/depreciation on written options contracts | (645,080 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 16,155,038 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 18,337,436 | |||
|
|
See accompanying notes to the financial statements.
9
AZL Gateway Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 2,182,398 | $ | 2,240,277 | ||||||
Net realized gains/(losses) on investment transactions | 298,817 | 3,766,879 | ||||||||
Change in unrealized appreciation/depreciation on investments | 15,856,221 | 2,424,904 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 18,337,436 | 8,432,060 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (2,139,703 | ) | (3,778,083 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (2,139,703 | ) | (3,778,083 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 43,382,092 | 20,573,427 | ||||||||
Proceeds from dividends reinvested | 2,139,703 | 3,778,083 | ||||||||
Value of shares redeemed | (27,375,086 | ) | (50,762,419 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 18,146,709 | (26,410,909 | ) | |||||||
|
|
|
| |||||||
Change in net assets | 34,344,442 | (21,756,932 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 178,950,759 | 200,707,691 | ||||||||
|
|
|
| |||||||
End of period | $ | 213,295,201 | $ | 178,950,759 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 2,073,599 | $ | 2,178,309 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 3,413,870 | 1,701,718 | ||||||||
Dividends reinvested | 164,340 | 316,688 | ||||||||
Shares redeemed | (2,123,780 | ) | (4,236,081 | ) | ||||||
|
|
|
| |||||||
Change in shares | 1,454,430 | (2,217,675 | ) | |||||||
|
|
|
|
See accompanying notes to the financial statements.
10
AZL Gateway Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 12.29 | $ | 11.96 | $ | 11.87 | $ | 11.65 | $ | 10.83 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.12 | 0.17 | 0.15 | 0.13 | 0.13 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.04 | 0.40 | 0.08 | 0.23 | 0.78 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.16 | 0.57 | 0.23 | 0.36 | 0.91 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.13 | ) | (0.24 | ) | (0.14 | ) | (0.14 | ) | (0.09 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.13 | ) | (0.24 | ) | (0.14 | ) | (0.14 | ) | (0.09 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 13.32 | $ | 12.29 | $ | 11.96 | $ | 11.87 | $ | 11.65 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 9.46 | % | 4.84 | % | 1.98 | % | 3.09 | % | 8.44 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 213,295 | $ | 178,951 | $ | 200,708 | $ | 217,753 | $ | 212,164 | |||||||||||||||
Net Investment Income/(Loss) | 1.06 | % | 1.19 | % | 1.11 | % | 1.14 | % | 1.35 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.10 | % | 1.10 | % | 1.10 | % | 1.10 | % | 1.11 | % | |||||||||||||||
Expenses Net of Reductions | 1.10 | % | 1.10 | % | 1.10 | % | 1.10 | % | 1.10 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly | 1.10 | % | 1.10 | % | 1.10 | % | 1.10 | %(c) | 1.11 | %(c) | |||||||||||||||
Portfolio Turnover Rate | 24 | % | 20 | % | 5 | % | 18 | % | 16 | % |
(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 remitted a portion of the brokerage commission which were used to pay certain Fund expenses. The Fund ceased participation in the program in June 2014. |
See accompanying notes to the financial statements.
11
AZL Gateway Fund
Notes to the Financial Statements
December 31, 2017
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 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 accrues 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 and Withholding Taxes
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, or from other assets and liabilities, from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains is determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., reclassification of gain/loss and other permanent adjustments), 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.
12
AZL Gateway Fund
Notes to the Financial Statements
December 31, 2017
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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 andlowest asked price. During the year ended December 31, 2017, the Fund did not engage in any such transactions under the Rule.
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, 2017, 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 options that expire are treated as realized losses. When a put 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.
For the year ended December 31, 2017, the monthly average notional amount for written options contracts was $3.7 million. Realized gains and losses are reported as “Net realized gains/(losses) on options 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, 2017:
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 | ||||||||||||
Equity Contracts | Written options | $ | 3,866,595 |
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, 2017:
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 | ||||||||||
Equity Contracts | Net realized gains/(losses) on written options contracts/ Change in net unrealized appreciation/depreciation on written options contracts | $ | (13,542,169) | $(645,080) |
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, 2019.
13
AZL Gateway Fund
Notes to the Financial Statements
December 31, 2017
For the year ended December 31, 2017, the annual rate paid 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, 2017, there were no contractual reimbursements 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, 2017, 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.”
FIS Investor Services LLC (“FIS”) 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, 2017, $2,108 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, 2017, actual Trustee compensation was $1,116,333 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.
14
AZL Gateway Fund
Notes to the Financial Statements
December 31, 2017
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, 2017, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value. There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Common Stocks+ | $ | 211,359,475 | $ | — | $ | — | $ | 211,359,475 | ||||||||||||
Purchased Put Options | 332,585 | — | — | 332,585 | ||||||||||||||||
Unaffiliated Investment Company | 5,409,158 | — | — | 5,409,158 | ||||||||||||||||
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Total Investment Securities | 217,101,218 | — | — | 217,101,218 | ||||||||||||||||
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Other Financial Instruments:* | ||||||||||||||||||||
Written Options | (3,866,595 | ) | — | — | (3,866,595 | ) | ||||||||||||||
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Total Investments | $ | 213,234,623 | $ | — | $ | — | $ | 213,234,623 | ||||||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other Financial Instruments would include any derivative instruments, such as written options. |
5. Security Purchases and Sales
For the year ended December 31, 2017, 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 | $ | 59,683,347 | $ | 48,849,725 |
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, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $142,725,910. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 76,033,826 | ||
Unrealized (depreciation) | (1,991,103 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 74,042,723 | ||
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As of the end of its tax year ended December 31, 2017, 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.
15
AZL Gateway Fund
Notes to the Financial Statements
December 31, 2017
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 | $ | 33,513,143 | $ | — | $ | 33,513,143 |
During the year ended December 31, 2017, the Fund utilized $2,360,419 in CLCFs to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Gateway Fund | $ | 2,139,703 | $ | — | $ | 2,139,703 |
(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, 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. |
At December 31, 2017, 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 | $ | 2,073,599 | $ | — | $ | (33,523,314 | ) | $ | 74,042,723 | $ | 42,593,008 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2017, the Fund had multiple shareholder accounts which are affiliated with the Investment Adviser representing ownership in excess of 75% of the Fund.
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
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, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, 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.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
17
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2017, 100.00% 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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A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Fund of Funds Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
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Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
20
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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
21
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
22
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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
23
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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
24
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® Government Money Market Fund
Annual Report
December 31, 2017
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
Page 6
Statements of Changes in Net Assets
Page 7
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
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)
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, 2017?
For the year ended December 31, 2017, the AZL® Government Money Market Fund (the “Fund”) returned 0.05%. That compared to a 0.93% total return for its benchmark, the Three-Month U.S. Treasury Bill Index1.
Fixed-income markets performed well during the year despite the gradual tightening of monetary policy by the Federal Reserve (the Fed). Volatility ticked up in the money markets during the period amid uncertainty over U.S. lawmakers’ abilities to pass measures to continue funding the government. The deployment of stopgap spending measures in September helped to steady markets. In December, the Fed increased its federal funds target range from 1.25% to 1.50%, upgrading its forecasts for growth and employment.
The Fund underperformed it’s benchmark for the period. The Fund benefited from exposure to floating-rate notes during the first nine months of the period, and to fixed-rate Treasuries during the period’s final three months. The Fund held between 40% and 50% of its portfolio in ultra-short repurchase agreements. The exposure to these securities provided the Fund with liquidity during the period.*
The Fund maintained duration modestly shorter than that of its peer group during the first quarter. That positioning benefited relative results as the money markets did not price in a rate hike by the Fed until shortly before the Fed’s March meeting. We extended the Fund’s duration beyond that of its peer group after the first quarter in anticipation of additional interest rate increases by the Fed. The Fund benefited from that positioning, as well as from a longer weighted average maturity and weighted average life that aimed to capture elevated yields amid volatility around the Fed’s September meeting.*
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, 2017. |
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, 2017
1 | 3 | 5 | 10 | |||||||||||||
Year | Year | Year | Years | |||||||||||||
AZL® Government Money Market Fund | 0.05 | % | 0.02 | % | 0.01 | % | 0.27 | % | ||||||||
Three-Month U.S. Treasury Bill Index | 0.93 | % | 0.43 | % | 0.28 | % | 0.32 | % |
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 May 1, 2017. 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, 2019. Additional information pertaining to the December 31, 2017 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, 2017
7 Day | 7 Day | 30 Day | ||||||||||
Average | Effective | Average | ||||||||||
AZL® Government Money Market Fund | 0.47 | % | 0.47 | % | 0.38 | % |
Prior to the year ended December 31, 2017, the Manager 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% during such periods. The Distributor was also permitted to waive its Rule 12b-1 fees during such periods. Amounts waived, reimbursed or paid by the Manager and/or the Distributor are subject to repayment to the Manager and/or the Distributor, subject to certain limitations as further described in Note 3 of the Notes to Financial Statements. The repayment of amounts previously waived, reimbursed or paid during 2017 served to reduce the Fund’s yield during the period.
The 7-day yield quotation is as of December 31, 2017 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, which 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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Government Money Market Fund | $ | 1,000.00 | $ | 1,000.50 | $ | 4.39 | 0.87 | % |
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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Government Money Market Fund | $ | 1,000.00 | $ | 1,020.82 | $ | 4.43 | 0.87 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
U.S. Government Agency Mortgages | 44.8 | % | |||
Repurchase Agreements | 36.8 | ||||
U.S. Treasury Obligations | 18.4 | ||||
|
| ||||
Total Investment Securities | 100.0 | ||||
Net other assets (liabilities) | — | ^ | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05%. |
3
AZL Government Money Market Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages (44.8%): | ||||||||
Federal Home Loan Bank (36.8%): | ||||||||
$ | 2,185,000 | 1.06%, 1/8/18(a) | $ | 2,184,552 | ||||
7,500,000 | 1.14%, 1/19/18(a) | 7,495,748 | ||||||
15,085,000 | 1.12%, 1/24/18(a) | 15,073,416 | ||||||
1,805,000 | 1.09%, 1/29/18(a) | 1,803,470 | ||||||
5,730,000 | 1.15%, 1/31/18(a) | 5,724,542 | ||||||
25,500,000 | 1.18%, 2/2/18(a) | 25,473,297 | ||||||
4,000,000 | 1.28%(US0003M-11bps), 2/5/18 | 4,000,000 | ||||||
4,000,000 | 1.22%, 2/7/18(a) | 3,995,005 | ||||||
3,300,000 | 1.13%, 2/28/18(a) | 3,294,045 | ||||||
4,790,000 | 1.31%, 3/7/18(a) | 4,778,722 | ||||||
4,500,000 | 1.10%, 3/9/18 | 4,502,221 | ||||||
10,000,000 | 1.23%(US0003M-33bps), 3/13/18 | 10,000,000 | ||||||
22,000,000 | 1.10%, 3/19/18 | 21,985,957 | ||||||
12,520,000 | 1.32%(US0001M-14bps), 4/13/18 | 12,520,000 | ||||||
5,180,000 | 1.35%(US0001M-15bps), 4/17/18 | 5,180,000 | ||||||
3,000,000 | 1.05%(US0003M-35bps), 5/9/18 | 3,000,000 | ||||||
3,700,000 | 1.24%(US0001M-14bps), 6/5/18 | 3,700,000 | ||||||
2,500,000 | 1.48%, 6/6/18(a) | 2,484,086 | ||||||
960,000 | 1.33%(US0001M-15bps), 8/15/18 | 960,000 | ||||||
960,000 | 1.33%(US0001M-15bps), 8/15/18 | 960,000 | ||||||
3,845,000 | 1.39%(US0001M-15bps), 8/22/18 | 3,845,000 | ||||||
4,500,000 | 1.26%(US0001M-12bps), 10/3/18 | 4,500,000 | ||||||
8,000,000 | 1.36%(US0001M-13bps), 11/16/18 | 8,000,000 | ||||||
4,260,000 | 1.46%(US0001M-9bps), 1/25/19 | 4,260,000 | ||||||
1,140,000 | 1.33%(US0001M-7bps), 2/11/19 | 1,140,448 | ||||||
1,570,000 | 1.42%(US0003M-16bps), 6/12/19 | 1,569,410 | ||||||
2,310,000 | 1.47%(US0003M-16bps), 6/20/19 | 2,310,000 | ||||||
1,895,000 | 1.47%(US0003M-16bps), 6/20/19 | 1,895,000 | ||||||
7,000,000 | 1.47%(US0003M-16bps), 6/20/19 | 7,000,000 | ||||||
5,000,000 | 1.37%(US0001M-6bps), 9/11/19 | 5,000,000 | ||||||
2,015,000 | 1.47%(US0003M-14bps), 12/19/19 | 2,015,000 | ||||||
|
| |||||||
180,649,919 | ||||||||
|
| |||||||
Federal Farm Credit Bank (3.1%): | ||||||||
4,205,000 | 0.87%, 1/11/18(a) | 4,203,995 | ||||||
3,000,000 | 1.16%, 1/19/18 | 2,999,761 | ||||||
2,500,000 | 1.06%, 2/8/18(a) | 2,497,229 | ||||||
1,380,000 | 1.19%, 2/16/18 | 1,379,251 | ||||||
3,365,000 | 1.56%(US0001M+18bps), 4/4/18 | 3,364,914 | ||||||
410,000 | 1.54%, 8/10/18(a) | 406,174 | ||||||
|
| |||||||
14,851,324 | ||||||||
|
| |||||||
Federal Home Loan Mortgage Corporation (2.8%): | ||||||||
1,250,000 | 1.10%, 2/16/18(a) | 1,248,259 | ||||||
4,000,000 | 1.54%(US0003M+2bps), 3/8/18 | 4,000,000 | ||||||
3,500,000 | 1.22%, 4/9/18 | 3,495,587 | ||||||
1,500,000 | 1.33%, 6/27/18 | 1,499,965 | ||||||
3,210,000 | 1.63%, 10/12/18 | 3,191,423 | ||||||
|
| |||||||
13,435,234 | ||||||||
|
| |||||||
Federal National Mortgage Association (2.1%): | ||||||||
7,000,000 | 1.10%, 3/28/18 | 6,996,237 | ||||||
3,480,000 | 1.23%, 5/21/18 | 3,475,195 | ||||||
|
| |||||||
10,471,432 | ||||||||
|
| |||||||
Total U.S. Government Agency Mortgages (Cost $219,407,909) | 219,407,909 | |||||||
|
|
Principal Amount | Fair Value | |||||||
U.S. Treasury Obligations (18.4%): | ||||||||
U.S. Treasury Bills (14.7%) | ||||||||
$ | 670,000 | 1.20%, 3/22/18(a) | $ | 668,243 | ||||
30,180,000 | 1.19%, 3/29/18(a) | 30,088,388 | ||||||
10,845,000 | 1.20%, 4/5/18(a) | 10,811,324 | ||||||
6,000,000 | 1.29%, 5/3/18(a) | 5,974,380 | ||||||
5,435,000 | 1.47%, 5/31/18(a) | 5,402,503 | ||||||
7,935,000 | 1.48%, 6/7/18(a) | 7,884,822 | ||||||
1,130,000 | 1.48%, 6/14/18(a) | 1,122,510 | ||||||
355,000 | 1.49%, 6/21/18(a) | 352,496 | ||||||
10,000,000 | 1.56%, 6/28/18(a) | 9,924,350 | ||||||
|
| |||||||
72,229,016 | ||||||||
|
| |||||||
U.S. Treasury Notes (3.7%) | ||||||||
4,000,000 | 1.74%(USBMMY3M+27bps), 1/31/18 | 3,999,931 | ||||||
6,000,000 | 1.64%(USBMMY3M+19bps), 4/30/18 | 6,000,098 | ||||||
6,000,000 | 1.49%, 6/30/18 | 6,026,100 | ||||||
2,240,000 | 1.43%, 7/31/18 | 2,239,239 | ||||||
|
| |||||||
18,265,368 | ||||||||
|
| |||||||
Total U.S. Treasury Obligations (Cost $90,494,384) | 90,494,384 | |||||||
|
| |||||||
Repurchase Agreements (36.8%): | ||||||||
15,000,000 | Bank of Montreal, 1.36%, 1/2/18, (Purchased on 12/29/17, proceeds at maturity $15,002,267, Collateralized by U.S. Government Agency Obligations, 2.50% - 4.50%, 1/1/29 - 2/15/40, fair value of $15,448,396) | 15,000,000 | ||||||
2,000,000 | Bank of Nova Scotia, 1.35%, 1/2/18, (Purchased on 12/29/17, proceeds at maturity $2,000,300, Collateralized by U.S. Treasury Notes, 1.38%, 10/31/20, fair value of $2,040,397) | 2,000,000 | ||||||
2,000,000 | BNP Paribas, 1.40%, 1/2/18, (Purchased on 12/29/17, proceeds at maturity $2,000,311, Collateralized by U.S. Government Agency Obligations, 0.63% - 3.00%, 3/31/19 - 2/20/46, fair value of $2,040,019) | 2,000,000 | ||||||
5,000,000 | Citigroup Global Markets, 1.40%, 1/2/18, (Purchased on 12/29/17, proceeds at maturity $5,000,778, Collateralized by U.S. Government Agency Obligations, 0.00% - 4.50%, 5/4/18 - 7/1/47, fair value of $5,122,515) | 5,000,000 | ||||||
15,000,000 | HSBC Securities (USA), Inc., 1.38%, 1/2/18, (Purchased on 12/29/17, proceeds at maturity $15,002,300, Collateralized by U.S. Treasury Notes, 2.13%, 9/30/24, fair value of $15,302,402) | 15,000,000 | ||||||
2,500,000 | HSBC Securities (USA), Inc., 1.35%, 1/2/18, (Purchased on 12/29/17, proceeds at maturity $2,500,656, Collateralized by U.S. Treasury Obligations, 0.25% - 0.38%, 7/31/18 - 5/15/44, fair value of $2,551,443) | 2,500,000 | ||||||
17,000,000 | Mistubishi UFJ Securities USA, Inc., 1.29%, 1/2/18, (Purchased on 12/29/17, proceeds at maturity $17,002,437, Collateralized by U.S. Treasury Bonds, 2.00% - 6.63%, 1/15/26 - 11/15/46, fair value of $17,340,020) | 17,000,000 | ||||||
20,000,000 | Mizuho Securities USA, Inc., 1.37%, 1/2/18, (Purchased on 12/29/17, proceeds at maturity $20,003,044, Collateralized by U.S. Treasury Obligations, 0.00% - 2.00%, 1/2/18 - 7/31/22, fair value of $20,400,060) | 20,000,000 |
Continued
4
AZL Government Money Market Fund
Schedule of Portfolio Investments
December 31, 2017
Principal Amount | Fair Value | |||||||
Repurchase Agreements, continued | ||||||||
$ | 5,000,000 | Natixis S.A., 1.34%, 1/2/18, (Purchased on 12/29/17, proceeds at maturity $5,000,744, Collateralized by U.S. Government Agency Obligations, 2.75% - 5.38%, 6/13/18 - 4/1/25, fair value of $5,101,843) | $ | 5,000,000 | ||||
25,000,000 | Natixis S.A., 1.33%, 1/2/18, (Purchased on 12/29/17, proceeds at maturity $25,003,694, Collateralized by U.S. Treasury Obligations, 1.50% -5.38%, 10/31/20 - 2/15/31, fair value of $25,500,005) | 25,000,000 | ||||||
15,000,000 | Royal Bank of Canada, 1.38%, 1/2/18, (Purchased on 12/29/17, proceeds at maturity $15,002,300, Collateralized by U.S. Government Agency Obligations, 2.50% - 4.50%, 3/1/26 - 12/1/47, fair value of $15,450,000) | 15,000,000 | ||||||
7,000,000 | Royal Bank of Canada, 1.35%, 1/2/18, (Purchased on 12/29/17, proceeds at maturity $7,001,050, Collateralized by U.S. Treasury Notes, 3.13%, 5/15/21, fair value of $7,140,001) | 7,000,000 |
Principal Amount | Fair Value | |||||||
Repurchase Agreements, continued | ||||||||
$ | 40,000,000 | Toronto Dominion Bank NY, 1.41%, 1/2/18, (Purchased on 12/29/17, proceeds at maturity $40,006,267, Collateralized by U.S. Treasury Notes, 0.63% - 2.13%, 1/15/24 - 2/29/24, fair value of $40,800,027) | $ | 40,000,000 | ||||
10,000,000 | Toronto Dominion Bank NY, 1.39%, 1/2/18, (Purchased on 12/29/17, proceeds at maturity $10,001,544, Collateralized by U.S. Treasury Notes, 2.13% - 2.25%, 12/31/23 - 2/29/24, fair value of $10,200,085) | 10,000,000 | ||||||
|
| |||||||
Total Repurchase Agreements (Cost $180,500,000) | 180,500,000 | |||||||
|
| |||||||
Total Investment Securities (Cost $490,402,293) — 100.0% | 490,402,293 | |||||||
Net other assets (liabilities) — 0.0% | 229,839 | |||||||
|
| |||||||
Net Assets — 100.0% | $ | 490,632,132 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
US0001M—1 Month US Dollar LIBOR
US0003M—3 Month US Dollar LIBOR
USBMMY3M—3 Month Treasury Bill Rate
(a) | The rate represents the effective yield at December 31, 2017. |
See accompanying notes to the financial statements.
5
AZL Government Money Market Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investment securities, at cost | $ | 309,902,293 | |||
|
| ||||
Investment securities, at value | $ | 309,902,293 | |||
Repurchase agreements, at value/cost | 180,500,000 | ||||
Cash | 310,515 | ||||
Interest and dividends receivable | 303,345 | ||||
Receivable for capital shares issued | 158,210 | ||||
Prepaid expenses | 2,930 | ||||
|
| ||||
Total Assets | 491,177,293 | ||||
|
| ||||
Liabilities: | |||||
Distributions payable | 158,210 | ||||
Manager fees payable | 245,846 | ||||
Administration fees payable | 11,575 | ||||
Distribution fees payable | 105,663 | ||||
Custodian fees payable | 1,109 | ||||
Administrative and compliance services fees payable | 1,189 | ||||
Transfer agent fees payable | 767 | ||||
Trustee fees payable | 766 | ||||
Other accrued liabilities | 20,036 | ||||
|
| ||||
Total Liabilities | 545,161 | ||||
|
| ||||
Net Assets | $ | 490,632,132 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 490,630,722 | |||
Accumulated net realized gains/(losses) from investment transactions | 1,410 | ||||
|
| ||||
Net Assets | $ | 490,632,132 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 490,630,845 | ||||
Net Asset Value (offering and redemption price per share) | $ | 1.00 | |||
|
|
For the Year Ended December 31, 2017
Investment Income: | |||||
Interest | $ | 5,033,218 | |||
Dividends | 88 | ||||
Other income | 23,383 | ||||
|
| ||||
Total Investment Income | 5,056,689 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 1,945,151 | ||||
Administration fees | 143,285 | ||||
Distribution fees | 1,389,397 | ||||
Custodian fees | 10,288 | ||||
Administrative and compliance services fees | 6,953 | ||||
Transfer agent fees | 5,804 | ||||
Trustee fees | 25,461 | ||||
Professional fees | 28,616 | ||||
Shareholder reports | 18,925 | ||||
Recoupment of prior expenses reimbursed by the manager | 1,246,653 | ||||
Other expenses | 14,886 | ||||
|
| ||||
Total expenses | 4,835,419 | ||||
|
| ||||
Net Investment Income/(Loss) | 221,270 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 1,823 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 1,823 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 223,093 | |||
|
|
See accompanying notes to the financial statements.
6
AZL Government Money Market Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 221,270 | $ | — | ||||||
Net realized gains/(losses) on investment transactions | 1,823 | 33,051 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 223,093 | 33,051 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (221,270 | ) | — | |||||||
From net realized gains | (33,260 | ) | (45,885 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (254,530 | ) | (45,885 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 314,529,729 | 466,951,287 | ||||||||
Proceeds from dividends reinvested | 254,530 | 45,885 | ||||||||
Value of shares redeemed | (487,124,200 | ) | (491,615,856 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (172,339,941 | ) | (24,618,684 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (172,371,378 | ) | (24,631,518 | ) | ||||||
Net Assets: | ||||||||||
Beginning of period | 663,003,510 | 687,635,028 | ||||||||
|
|
|
| |||||||
End of period | $ | 490,632,132 | $ | 663,003,510 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 314,529,729 | 466,951,287 | ||||||||
Dividends reinvested | 254,530 | 45,885 | ||||||||
Shares redeemed | (487,124,842 | ) | (491,615,856 | ) | ||||||
|
|
|
| |||||||
Change in shares | (172,340,583 | ) | (24,618,684 | ) | ||||||
|
|
|
|
See accompanying notes to the financial statements.
7
AZL Government Money Market Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||||
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 Investment Income | — | (a) | — | — | — | — | |||||||||||||||||||
Net Realized Gains | — | (a) | — | (a) | — | (a) | — | (a) | — | (a) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | — | (a) | — | (a) | — | (a) | — | (a) | — | (a) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(b) | 0.05 | % | 0.01 | % | 0.01 | % | 0.01 | % | — | ||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 490,632 | $ | 663,004 | $ | 687,635 | $ | 700,335 | $ | 806,642 | |||||||||||||||
Net Investment Income/(Loss) | 0.04 | % | — | — | — | — | |||||||||||||||||||
Expenses Before Reductions(c) | 0.87 | % | 0.65 | % | 0.65 | % | 0.65 | % | 0.65 | % | |||||||||||||||
Expenses Net of Reductions(d) | 0.87 | % | 0.44 | % | 0.26 | % | 0.20 | % | 0.22 | % |
(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 may reflect 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, 2017
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 (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 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.
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, such amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences 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, 2017
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, 2019.
For the year ended December 31, 2017, the annual rate paid 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, 2017 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, 2017, the contractual reimbursements subject to repayment by the Fund in subsequent years were as follows:
Expires 12/31/2018 | Expires 12/31/2019 | Total | |||||||||||||
AZL Government Money Market Fund | $ | 2,615,420 | $ | 1,440,270 | $ | 4,055,690 |
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, 2017, there were no voluntary waivers in addition to the amounts disclosed above.
Pursuant to separate agreements between the Funds and the Manager, the Manager provides a Chief Compliance Officer (“CCO”) and certain compliance oversight and regulatory filing services to the Trust. Under these agreements the Manager is entitled to an amount equal to a portion of the compensation and certain other expenses related to the individuals performing the CCO and compliance oversight services, as well as $100 per hour for time incurred in connection with the preparation and filing of certain documents with the Securities and Exchange Commission (“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.”
FIS Investor Services LLC (“FIS”) 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, 2017, $6,156 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
10
AZL Government Money Market Fund
Notes to the Financial Statements
December 31, 2017
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, 2017, actual Trustee compensation was $1,116,333 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, 2017, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value. There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Repurchase Agreements | $ | — | $ | 180,500,000 | $ | — | $ | 180,500,000 | ||||||||||||
U.S. Government Agency Mortgages | — | 219,407,909 | — | 219,407,909 | ||||||||||||||||
U.S. Treasury Obligations | — | 90,494,384 | — | 90,494,384 | ||||||||||||||||
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Total Investments | $ | — | $ | 490,402,293 | $ | — | $ | 490,402,293 | ||||||||||||
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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, 2017 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Government Money Market Fund | $ | 254,530 | $ | — | $ | 254,530 |
(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, 2016 were as follows:
Ordinary Income | Net Long-Term Capital Gains | 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. |
At December 31, 2017, 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 Government Money Market Fund | $ | 1,410 | $ | — | $ | — | $ | — | $ | 1,410 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
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AZL Government Money Market Fund
Notes to the Financial Statements
December 31, 2017
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, 2017, 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 Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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.
12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AZL Government Money Market Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, 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.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian or counterparties. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
13
Other Federal Income Tax Information (Unaudited)
During the year ended December 31, 2017, the Fund declared net short-term capital gain distributions of $33,260.
14
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Fund of Funds Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
15
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
16
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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
17
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
18
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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
20
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® International Index Fund
Annual Report
December 31, 2017
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
Page 16
Statements of Changes in Net Assets
Page 17
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
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, 2017?
For the year ended December 31, 2017, the Class 2 shares of the AZL® International Index Fund (the “Fund”) returned 24.77%†. That compared to a 25.62% 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 Index. The Fund takes positions in securities that, in combination, should have similar return characteristics as the return of the Index.*
International stocks had a strong start in 2017, in part due to robust gains among Japanese equities, which make up nearly a quarter of the Index’s holdings. Japanese companies are well exposed to global growth, and they advanced after reporting strong earnings from the fourth quarter of 2016. Gains were also supported by the Bank of Japan’s (BoJ) ongoing efforts to control the country’s yield curve. Positive European economic data supported stocks in that region, particularly among export-driven nations such as Germany, as the European inflation rate stabilized at 1.8% year-over-year. In the U.K., Prime Minister Theresa May triggered Article 50 at the end of March, giving the U.K. two years to exit the European Union. Lower-than-expected retail sales and earnings provided investors with the first signs of potential stress from the so-called Brexit effort, and continued weakening of the pound squeezed consumers.
In the second quarter, Japanese equities advanced on the BoJ’s assessment of the nation’s improving economic prospects as well as on strong corporate earnings growth. European stocks gained on accelerating investor interest after election results in France and the Netherlands diminished political risk across the eurozone. Investors were also encouraged by the strongest European earnings season in seven years against a backdrop of strengthening regional and global economies. With that said, gains among eurozone stocks were capped as investors grew cautious about the potential for monetary tightening by the European Central Bank (ECB).
In the third quarter, strong growth in corporate profits and in the eurozone economy sustained the rally in European markets. The value of the euro rose on expectations that strong economic growth would temper the ECB quantitative easing efforts, which would, in turn, help buoy the region’s low bond yields. European banks rallied during this quarter on the resulting expectations of higher interest rates in the region. Meanwhile, Japanese equities gained amid accelerating growth conditions, low inflation and accommodative monetary policy.
In the fourth quarter, Japanese equities surged following Prime Minister Shinzo Abe’s victory in October elections, which helped diminish the political uncertainty that had weighed on markets. Investors focused on an improved earnings outlook and a strengthening domestic economy, which supported strong gains in equity markets. Robust growth in the European economy and in corporate earnings helped drive gains among European stocks, even as political uncertainty in Spain and stubbornly low inflation created market headwinds.
The Fund underperformed it’s benchmark for the period. In general, international stocks outperformed the S&P 5002 for the period. From a sector perspective, information technology stocks had the strongest returns of the Index (in USD), with the materials and industrials sectors also showing particularly strong gains as well. Increases were seen across all sectors of the Index during the 12-month period.
The Fund held derivatives in the form of futures contracts, which it used to hedge its cash position. The futures had a slightly negative impact on relative results. The fund underperformed its benchmark for the period primarily due to expenses incurred by the Fund.*
Past performance does not guarantee future results.
† | The recent appreciation in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. |
* | 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, 2017. |
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, 2017
Inception | 1 | 3 | 5 | Since | ||||||||||||||||
Date | Year | Year | Year | Inception | ||||||||||||||||
AZL® International Index Fund (Class 1 Shares) | 10/14/16 | 25.12 | %† | — | — | 20.97 | % | |||||||||||||
AZL® International Index Fund (Class 2 Shares) | 5/1/09 | 24.77 | %† | 7.29 | % | 7.05 | % | 8.72 | % | |||||||||||
MSCI EAFE Index (gross of withholding taxes) | 5/1/09 | 25.62 | % | 8.30 | % | 8.39 | % | 10.04 | % | |||||||||||
MSCI EAFE Index (net of withholding taxes) | 5/1/09 | 25.03 | % | 7.80 | % | 7.90 | % | 9.54 | % |
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® International Index Fund (Class 1 Shares) | 0.40 | % | ||
AZL® International Index Fund (Class 2 Shares) | 0.65 | % |
Expense Ratios are based on the current Fund prospectus dated May 1, 2017. 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, 2019. Additional information pertaining to the December 31, 2017 expense ratios can be found in the financial highlights.
† | The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes. |
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
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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period | |||||||||||||||||
AZL International Index Fund, Class 1 | $ | 1,000.00 | $ | 1,090.90 | $ | 2.58 | 0.49 | % | ||||||||||||
AZL International Index Fund, Class 2 | $ | 1,000.00 | $ | 1,090.00 | $ | 3.90 | 0.74 | % |
The Hypothetical Expense table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Beginning Account Value 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period | |||||||||||||||||
AZL International Index Fund, Class 1 | $ | 1,000.00 | $ | 1,022.76 | $ | 2.50 | 0.49 | % | ||||||||||||
AZL International Index Fund, Class 2 | $ | 1,000.00 | $ | 1,021.50 | $ | 3.77 | 0.74 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Japan | 23.9 | % | |||
United Kingdom | 16.7 | ||||
France | 9.9 | ||||
Germany | 9.7 | ||||
Switzerland | 8.6 | ||||
Australia | 6.8 | ||||
Netherlands | 4.1 | ||||
Hong Kong | 3.4 | ||||
Spain | 3.2 | ||||
Sweden | 2.6 | ||||
All other countries | 10.3 | ||||
|
| ||||
Total Common Stocks | 99.2 | ||||
Rights | — | ^ | |||
Securities Held as Collateral for Securities on Loan | 1.5 | ||||
|
| ||||
Total Investment Securities | 100.7 | ||||
Net other assets (liabilities) | (0.7 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05%. |
3
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks (98.8%): | ||||||||
Aerospace & Defense (1.2%): | ||||||||
414,179 | BAE Systems plc | $ | 3,184,948 | |||||
336,665 | Cobham plc* | 571,882 | ||||||
321 | Dassault Aviation SA | 498,964 | ||||||
3,310 | Elbit Systems, Ltd. | 442,726 | ||||||
77,056 | European Aeronautic Defence & Space Co. NV | 7,651,161 | ||||||
46,044 | Finmeccanica SpA | 547,398 | ||||||
108,817 | Meggitt plc | 704,458 | ||||||
6,873 | MTU Aero Engines AG | 1,229,129 | ||||||
216,138 | Rolls-Royce Holdings plc | 2,459,378 | ||||||
44,097 | Safran SA | 4,533,913 | ||||||
219,800 | Singapore Technologies Engineering, Ltd. | 535,032 | ||||||
13,567 | Thales SA | 1,459,779 | ||||||
26,082 | Zodiac Aerospace | 780,080 | ||||||
|
| |||||||
24,598,848 | ||||||||
|
| |||||||
Air Freight & Logistics (0.3%): | ||||||||
120,019 | Bollore, Inc. | 651,889 | ||||||
128,742 | Deutsche Post AG | 6,115,128 | ||||||
110,220 | Royal Mail plc | 673,391 | ||||||
44,600 | Yamato Holdings Co., Ltd. | 897,996 | ||||||
|
| |||||||
8,338,404 | ||||||||
|
| |||||||
Airlines (0.2%): | ||||||||
15,800 | All Nippon Airways Co., Ltd. | 659,493 | ||||||
29,257 | Deutsche Lufthansa AG, Registered Shares | 1,075,361 | ||||||
24,129 | easyJet plc | 476,864 | ||||||
82,030 | International Consolidated Airlines Group SA | 711,124 | ||||||
17,070 | Japan Airlines Co., Ltd. | 668,037 | ||||||
82,900 | Singapore Airlines, Ltd. | 660,495 | ||||||
|
| |||||||
4,251,374 | ||||||||
|
| |||||||
Auto Components (1.3%): | ||||||||
24,000 | Aisin Sieki Co., Ltd. | 1,348,715 | ||||||
87,100 | Bridgestone Corp. | 4,051,213 | ||||||
22,244 | Compagnie Generale des Establissements Michelin SCA, Class B | 3,185,936 | ||||||
14,699 | Continental AG | 3,967,877 | ||||||
62,600 | Denso Corp. | 3,758,885 | ||||||
10,035 | Faurecia | 782,449 | ||||||
209,554 | GKN plc | 899,630 | ||||||
13,700 | Koito Manufacturing Co., Ltd. | 963,470 | ||||||
98,000 | Minth Group, Ltd. | 589,756 | ||||||
19,700 | NGK Spark Plug Co., Ltd. | 479,115 | ||||||
12,900 | NOK Corp. | 300,502 | ||||||
16,266 | Nokian Renkaat OYJ | 736,672 | ||||||
23,550 | Schaeffler AG | 415,664 | ||||||
18,000 | Stanley Electric Co., Ltd. | 731,168 | ||||||
97,700 | Sumitomo Electric Industries, Ltd. | 1,648,834 | ||||||
24,700 | Sumitomo Rubber Industries, Ltd. | 458,976 | ||||||
7,200 | Toyoda Gosei Co., Ltd. | 182,591 | ||||||
22,500 | Toyota Industries Corp. | 1,446,455 | ||||||
32,347 | Valeo SA | 2,410,266 | ||||||
14,700 | Yokohama Rubber Co., Ltd. (The) | 360,674 | ||||||
|
| |||||||
28,718,848 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Automobiles (3.4%): | ||||||||
43,530 | Bayerische Motoren Werke AG (BMW) | $ | 4,521,019 | |||||
127,228 | Daimler AG, Registered Shares | 10,801,932 | ||||||
15,846 | Ferrari NV | 1,661,967 | ||||||
144,895 | Fiat Chrysler Automobiles NV | 2,583,250 | ||||||
78,900 | Fuji Heavy Industries, Ltd. | 2,498,373 | ||||||
225,300 | Honda Motor Co., Ltd. | 7,725,553 | ||||||
74,700 | Isuzu Motors, Ltd. | 1,249,369 | ||||||
70,600 | Mazda Motor Corp. | 947,444 | ||||||
91,600 | Mitsubishi Motors Corp. | 662,028 | ||||||
309,200 | Nissan Motor Co., Ltd. | 3,084,025 | ||||||
77,738 | PSA Peugeot Citroen SA | 1,578,942 | ||||||
25,407 | Renault SA | 2,553,289 | ||||||
44,800 | Suzuki Motor Corp. | 2,595,166 | ||||||
344,666 | Toyota Motor Corp. | 22,073,886 | ||||||
4,529 | Volkswagen AG | 916,839 | ||||||
36,300 | Yamaha Motor Co., Ltd. | 1,188,791 | ||||||
|
| |||||||
66,641,873 | ||||||||
|
| |||||||
Banks (12.9%): | ||||||||
55,911 | ABN AMRO Group NV | 1,798,891 | ||||||
107,633 | AIB Group plc | 710,202 | ||||||
13,500 | Aozora Bank, Ltd. | 525,613 | ||||||
389,042 | Australia & New Zealand Banking Group, Ltd. | 8,688,112 | ||||||
883,964 | Banco Bilbao Vizcaya Argentaria SA | 7,523,746 | ||||||
695,793 | Banco de Sabadell SA | 1,376,888 | ||||||
2,135,113 | Banco Santander SA | 13,998,980 | ||||||
150,505 | Bank Hapoalim BM | 1,107,832 | ||||||
186,368 | Bank Leumi Le-Israel Corp. | 1,124,096 | ||||||
153,800 | Bank of East Asia, Ltd. (The) | 665,518 | ||||||
129,220 | Bank of Ireland Group plc* | 1,099,110 | ||||||
8,400 | Bank of Kyoto, Ltd. (The) | 437,038 | ||||||
51,449 | Bank of Queensland, Ltd. | 509,486 | ||||||
135,076 | Bankia SA | 644,648 | ||||||
80,402 | Bankinter SA | 760,933 | ||||||
2,232,995 | Barclays plc | 6,087,348 | ||||||
60,506 | Bendigo & Adelaide Bank, Ltd. | 549,689 | ||||||
148,572 | BNP Paribas SA | 11,078,233 | ||||||
488,500 | BOC Hong Kong Holdings, Ltd. | 2,470,872 | ||||||
96,000 | Chiba Bank, Ltd. (The) | 799,622 | ||||||
43,503 | Chuo Mitsui Trust Holdings, Inc. | 1,727,881 | ||||||
141,232 | Commerzbank AG* | 2,118,115 | ||||||
227,555 | Commonwealth Bank of Australia | 14,219,375 | ||||||
167,400 | Concordia Financial Group, Ltd. | 1,010,848 | ||||||
151,209 | Credit Agricole SA | 2,497,625 | ||||||
472,082 | Criteria Caixacorp SA | 2,195,529 | ||||||
99,947 | Danske Bank A/S | 3,886,319 | ||||||
241,800 | DBS Group Holdings, Ltd. | 4,478,285 | ||||||
127,278 | DnB NOR ASA | 2,354,119 | ||||||
40,047 | Erste Group Bank AG | 1,726,818 | ||||||
104,000 | Fukuoka Financial Group, Inc. | 584,580 | ||||||
44,800 | Hachijuni Bank, Ltd. (The) | 255,943 | ||||||
98,200 | Hang Seng Bank, Ltd. | 2,434,870 | ||||||
2,641,026 | HSBC Holdings plc | 27,231,826 |
Continued
4
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
507,100 | ING Groep NV | $ | 9,329,904 | |||||
128,007 | Intesa Sanpaolo | 408,138 | ||||||
1,772,236 | Intesa Sanpaolo SpA | 5,876,966 | ||||||
52,500 | Japan Post Bank Co., Ltd. | 681,785 | ||||||
33,035 | KBC Groep NV | 2,814,197 | ||||||
52,200 | Kyushu Financial Group, Inc. | 315,544 | ||||||
9,467,267 | Lloyds Banking Group plc | 8,667,481 | ||||||
132,460 | Mebuki Financial Group, Inc. | 561,042 | ||||||
79,154 | Mediobanca SpA | 896,354 | ||||||
1,576,000 | Mitsubishi UFJ Financial Group, Inc. | 11,565,278 | ||||||
15,515 | Mizrahi Tefahot Bank, Ltd. | 286,280 | ||||||
3,167,039 | Mizuho Financial Group, Inc. | 5,753,414 | ||||||
355,798 | National Australia Bank, Ltd. | 8,183,200 | ||||||
114,848 | Natixis | 908,434 | ||||||
398,198 | Nordea Bank AB | 4,821,030 | ||||||
423,099 | Oversea-Chinese Banking Corp., Ltd. | 3,910,022 | ||||||
20,053 | Raiffeisen International Bank-Holding AG* | 726,048 | ||||||
275,087 | Resona Holdings, Inc. | 1,644,176 | ||||||
472,082 | Royal Bank of Scotland Group plc* | 1,760,455 | ||||||
83,400 | Seven Bank, Ltd. | 285,826 | ||||||
20,000 | Shinsei Bank, Ltd. | 344,481 | ||||||
70,000 | Shizuoka Bank, Ltd. (The) | 723,501 | ||||||
195,916 | Skandinaviska Enskilda Banken AB, Class A | 2,296,000 | ||||||
101,145 | Societe Generale | 5,214,160 | ||||||
431,134 | Standard Chartered plc* | 4,536,119 | ||||||
176,769 | Sumitomo Mitsui Financial Group, Inc. | 7,635,667 | ||||||
24,500 | Suruga Bank, Ltd. | 524,082 | ||||||
199,348 | Svenska Handelsbanken AB, Class A | 2,722,233 | ||||||
118,282 | Swedbank AB, Class A | 2,848,670 | ||||||
264,765 | Unicredit SpA* | 4,931,780 | ||||||
177,273 | United Overseas Bank, Ltd. | 3,498,039 | ||||||
447,927 | Westpac Banking Corp. | 10,930,810 | ||||||
29,000 | Yamaguchi Financial Group, Inc. | 344,765 | ||||||
|
| |||||||
244,624,871 | ||||||||
|
| |||||||
Beverages (2.3%): | ||||||||
100,538 | Anheuser-Busch InBev NV | 11,212,921 | ||||||
49,300 | Asahi Breweries, Ltd. | 2,444,569 | ||||||
14,284 | Carlsberg A/S, Class B | 1,711,216 | ||||||
79,912 | Coca-Cola Amatil, Ltd. | 529,922 | ||||||
17,000 | Coca-Cola Bottlers Japan Holdings, Inc. | 620,983 | ||||||
28,271 | Coca-Cola European Partners plc | 1,125,962 | ||||||
23,561 | Coca-Cola HBC AG | 766,225 | ||||||
76,768 | Davide Campari — Milano SpA | 593,407 | ||||||
332,942 | Diageo plc | 12,182,790 | ||||||
15,495 | Heineken Holding NV | 1,530,674 | ||||||
34,854 | Heineken NV | 3,632,540 | ||||||
113,400 | Kirin Holdings Co., Ltd. | 2,853,511 | ||||||
27,821 | Pernod Ricard SA | 4,403,266 | ||||||
2,993 | Remy Cointreau SA | 414,626 | ||||||
19,600 | Suntory Beverage & Food, Ltd. | 871,732 | ||||||
93,277 | Treasury Wine Estates, Ltd. | 1,159,968 | ||||||
|
| |||||||
46,054,312 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Biotechnology (0.8%): | ||||||||
59,807 | CSL, Ltd. | $ | 6,581,165 | |||||
7,589 | Genmab A/S* | 1,258,681 | ||||||
38,394 | Grifols SA | 1,122,536 | ||||||
119,588 | Shire plc | 6,201,644 | ||||||
|
| |||||||
15,164,026 | ||||||||
|
| |||||||
Building Products (0.8%): | ||||||||
27,900 | Asahi Glass Co., Ltd. | 1,206,914 | ||||||
133,312 | Assa Abloy AB, Class B | 2,767,324 | ||||||
66,898 | Compagnie de Saint-Gobain SA | 3,681,330 | ||||||
32,500 | Daikin Industries, Ltd. | 3,848,262 | ||||||
4,768 | Geberit AG, Registered Shares | 2,098,517 | ||||||
37,500 | Lixil Group Corp. | 1,013,992 | ||||||
17,300 | TOTO, Ltd. | 1,020,051 | ||||||
|
| |||||||
15,636,390 | ||||||||
|
| |||||||
Capital Markets (2.4%): | ||||||||
128,681 | 3i Group plc | 1,585,868 | ||||||
7,990 | Amundi SA | 676,302 | ||||||
24,990 | ASX, Ltd. | 1,068,501 | ||||||
322,099 | Credit Suisse Group AG | 5,734,930 | ||||||
206,300 | Daiwa Securities Group, Inc. | 1,294,850 | ||||||
273,650 | Deutsche Bank AG, Registered Shares | 5,192,498 | ||||||
24,833 | Deutsche Boerse AG | 2,878,147 | ||||||
34,429 | Hargreaves Lansdown plc | 837,335 | ||||||
154,693 | Hong Kong Exchanges & Clearing, Ltd. | 4,725,110 | ||||||
94,172 | Investec plc | 677,543 | ||||||
71,600 | Japan Exchange Group, Inc. | 1,240,562 | ||||||
28,908 | Julius Baer Group, Ltd. | 1,767,802 | ||||||
540,000 | Kingston Financial Group, Ltd. | 517,319 | ||||||
40,081 | London Stock Exchange Group plc | 2,051,819 | ||||||
42,505 | Macquarie Group, Ltd. | 3,294,748 | ||||||
474,100 | Nomura Holdings, Inc. | 2,799,912 | ||||||
2,156 | Partners Group Holding AG | 1,477,748 | ||||||
24,390 | SBI Holdings, Inc. | 509,197 | ||||||
17,609 | Schroders plc | 832,777 | ||||||
110,300 | Singapore Exchange, Ltd. | 612,477 | ||||||
478,418 | UBS Group AG | 8,792,809 | ||||||
|
| |||||||
48,568,254 | ||||||||
|
| |||||||
Chemicals (3.8%): | ||||||||
56,445 | Air Liquide SA | 7,098,284 | ||||||
21,500 | Air Water, Inc. | 452,073 | ||||||
33,939 | AkzoNobel NV | 2,968,263 | ||||||
9,324 | Arkema SA | 1,132,910 | ||||||
161,600 | Asahi Kasei Corp. | 2,082,013 | ||||||
121,045 | BASF SE | 13,282,478 | ||||||
12,328 | Christian Hansen Holding A/S | 1,156,415 | ||||||
30,712 | Clariant AG | 857,801 | ||||||
16,059 | Covestro AG | 1,651,022 | ||||||
15,955 | Croda International plc | 952,531 | ||||||
37,400 | Daicel Chemical Industries, Ltd. | 425,665 | ||||||
1,142 | EMS-Chemie Holding AG | 762,348 | ||||||
22,095 | Evonik Industries AG | 828,828 |
Continued
5
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Chemicals, continued | ||||||||
5,394 | Frutarom Industries, Ltd. | $ | 506,983 | |||||
9,840 | Fuchs Petrolub AG | 520,333 | ||||||
1,211 | Givaudan SA, Registered Shares | 2,794,016 | ||||||
15,500 | Hitachi Chemical Co., Ltd. | 398,307 | ||||||
237,562 | Incitec Pivot, Ltd. | 722,181 | ||||||
75,847 | Israel Chemicals, Ltd. | 307,648 | ||||||
24,735 | Johnson Matthey plc | 1,022,499 | ||||||
26,100 | JSR Corp. | 514,040 | ||||||
26,950 | K+S AG, Registered Shares^ | 671,138 | ||||||
42,000 | Kaneka Corp. | 383,762 | ||||||
26,300 | Kansai Paint Co., Ltd. | 683,006 | ||||||
24,365 | Koninklijke DSM NV | 2,322,310 | ||||||
45,400 | Kuraray Co., Ltd. | 857,032 | ||||||
11,649 | Lanxess AG | 926,125 | ||||||
24,376 | Linde AG* | 5,701,744 | ||||||
191,600 | Mitsubishi Chemical Holdings Corp. | 2,103,735 | ||||||
22,800 | Mitsubishi Gas Chemical Co., Inc. | 656,012 | ||||||
26,000 | Mitsui Chemicals, Inc. | 836,912 | ||||||
22,400 | Nippon Paint Holdings Co., Ltd. | 706,073 | ||||||
13,800 | Nissan Chemical Industries, Ltd. | 550,013 | ||||||
21,100 | Nitto Denko Corp. | 1,875,715 | ||||||
29,510 | Novozymes A/S, Class B | 1,686,182 | ||||||
52,317 | Orica, Ltd. | 738,135 | ||||||
51,000 | Shin-Etsu Chemical Co., Ltd. | 5,173,354 | ||||||
273 | Sika AG, Class B | 2,164,570 | ||||||
10,040 | Solvay SA | 1,394,078 | ||||||
204,000 | Sumitomo Chemical Co., Ltd. | 1,467,293 | ||||||
16,118 | Symrise AG | 1,381,733 | ||||||
18,300 | Taiyo Nippon Sanso Corp. | 255,828 | ||||||
25,200 | Teijin, Ltd. | 561,645 | ||||||
188,300 | Toray Industries, Inc. | 1,776,330 | ||||||
39,500 | Tosoh Corp. | 895,911 | ||||||
26,138 | Umicore SA | 1,234,985 | ||||||
22,846 | Yara International ASA | 1,046,047 | ||||||
|
| |||||||
78,486,306 | ||||||||
|
| |||||||
Commercial Services & Supplies (0.5%): | ||||||||
34,240 | Babcock International Group plc^ | 324,487 | ||||||
209,282 | Brambles, Ltd. | 1,640,311 | ||||||
34,000 | Dai Nippon Printing Co., Ltd. | 758,674 | ||||||
30,200 | Edenred | 874,802 | ||||||
215,567 | G4S plc | 774,788 | ||||||
20,973 | ISS A/S | 809,189 | ||||||
13,800 | Park24 Co., Ltd. | 330,202 | ||||||
27,100 | SECOM Co., Ltd. | 2,046,935 | ||||||
42,984 | Securitas AB, Class B | 749,207 | ||||||
3,751 | Societe BIC SA | 412,415 | ||||||
9,500 | Sohgo Security Services Co., Ltd. | 516,541 | ||||||
72,000 | Toppan Printing Co., Ltd. | 650,693 | ||||||
|
| |||||||
9,888,244 | ||||||||
|
| |||||||
Communications Equipment (0.3%): | ||||||||
776,603 | Nokia OYJ | 3,626,940 | ||||||
394,259 | Telefonaktiebolaget LM Ericsson, Class B | 2,585,451 | ||||||
|
| |||||||
6,212,391 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Construction & Engineering (0.8%): | ||||||||
33,616 | ACS Actividades de Construccion y Servicios SA | $ | 1,315,099 | |||||
27,320 | Bouygues SA | 1,419,062 | ||||||
11,842 | Cimic Group, Ltd. | 474,779 | ||||||
9,424 | Eiffage SA | 1,032,464 | ||||||
65,283 | Ferrovial SA | 1,479,463 | ||||||
2,435 | Hochtief AG | 429,108 | ||||||
27,400 | JGC Corp. | 529,289 | ||||||
123,000 | Kajima Corp. | 1,182,289 | ||||||
12,467 | Koninklijke Boskalis Westminster NV | 469,859 | ||||||
83,300 | Obayashi Corp. | 1,007,445 | ||||||
76,000 | Shimizu Corp. | 784,337 | ||||||
44,956 | Skanska AB, Class B | 930,223 | ||||||
28,000 | TAISEI Corp. | 1,392,910 | ||||||
66,441 | Vinci SA | 6,777,945 | ||||||
|
| |||||||
19,224,272 | ||||||||
|
| |||||||
Construction Materials (0.4%): | ||||||||
151,866 | Boral, Ltd. | 920,229 | ||||||
110,552 | CRH plc | 3,976,652 | ||||||
95,267 | Fletcher Building, Ltd. | 512,681 | ||||||
19,776 | HeidelbergCement AG | 2,140,531 | ||||||
5,203 | Imerys SA | 490,080 | ||||||
53,069 | James Hardie Industries SE | 934,030 | ||||||
59,860 | LafargeHolcim, Ltd., Registered Shares | 3,373,491 | ||||||
16,500 | Taiheiyo Cement Corp. | 712,654 | ||||||
|
| |||||||
13,060,348 | ||||||||
|
| |||||||
Consumer Finance (0.0%): | ||||||||
53,700 | ACOM Co., Ltd.*^ | 226,463 | ||||||
13,000 | Aeon Credit Service Co., Ltd. | 301,941 | ||||||
21,100 | Credit Saison Co., Ltd. | 384,083 | ||||||
|
| |||||||
912,487 | ||||||||
|
| |||||||
Containers & Packaging (0.1%): | ||||||||
158,983 | Amcor, Ltd. | 1,909,896 | ||||||
23,200 | Toyo Seikan Kaisha, Ltd. | 372,257 | ||||||
|
| |||||||
2,282,153 | ||||||||
|
| |||||||
Distributors (0.0%): | ||||||||
13,588 | Jardine Cycle & Carriage, Ltd. | 413,086 | ||||||
|
| |||||||
Diversified Consumer Services (0.0%): | ||||||||
9,400 | Benesse Holdings, Inc. | 330,105 | ||||||
|
| |||||||
Diversified Financial Services (0.8%): | ||||||||
368,762 | AMP, Ltd. | 1,489,676 | ||||||
79,769 | Challenger, Ltd. | 871,154 | ||||||
6,127 | Eurazeo Se | 565,072 | ||||||
12,905 | EXOR NV | 790,897 | ||||||
239,081 | First Pacific Co., Ltd. | 162,449 | ||||||
10,102 | Groupe Bruxelles Lambert SA | 1,089,338 | ||||||
22,562 | Industrivarden AB, Class C | 555,793 | ||||||
59,788 | Investor AB, Class B | 2,720,055 | ||||||
32,165 | Kinnevik AB | 1,085,188 | ||||||
5,351 | L E Lundbergforetagen AB | 399,721 | ||||||
68,700 | Mitsubishi UFJ Lease & Finance Co., Ltd. | 409,317 |
Continued
6
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Diversified Financial Services, continued | ||||||||
173,700 | ORIX Corp. | $ | 2,937,362 | |||||
5,211 | Pargesa Holding SA | 451,571 | ||||||
3,885 | Wendel | 672,960 | ||||||
|
| |||||||
14,200,553 | ||||||||
|
| |||||||
Diversified Telecommunication Services (2.4%): | ||||||||
17,673 | Belgacom SA | 580,001 | ||||||
272,655 | Bezeq Israeli Telecommunication Corp., Ltd. (The) | 412,740 | ||||||
1,106,862 | BT Group plc | 4,051,929 | ||||||
440,546 | Deutsche Telekom AG, Registered Shares | 7,811,960 | ||||||
19,741 | Elisa OYJ | 773,814 | ||||||
262,321 | France Telecom SA | 4,551,464 | ||||||
527,525 | HKT Trust & HKT, Ltd. | 672,739 | ||||||
3,341 | Iliad SA | 800,521 | ||||||
441,597 | Koninklijke (Royal) KPN NV | 1,540,424 | ||||||
91,052 | Nippon Telegraph & Telephone Corp. | 4,285,074 | ||||||
617,000 | PCCW, Ltd. | 358,301 | ||||||
1,069,400 | Singapore Telecommunications, Ltd. | 2,855,126 | ||||||
3,469 | Swisscom AG, Registered Shares | 1,844,435 | ||||||
91,869 | TDC A/S | 564,621 | ||||||
232,354 | Telecom Corp. of New Zealand, Ltd. | 597,431 | ||||||
828,154 | Telecom Italia SpA | 591,451 | ||||||
1,565,252 | Telecom Italia SpA* | 1,351,060 | ||||||
102,334 | Telefonica Deutschland Holding AG | 513,838 | ||||||
596,433 | Telefonica SA | 5,806,536 | ||||||
100,585 | Telenor ASA | 2,155,307 | ||||||
345,906 | Telia Co AB | 1,540,263 | ||||||
526,157 | Telstra Corp., Ltd. | 1,489,150 | ||||||
45,014 | TPG Telecom, Ltd.^ | 230,613 | ||||||
|
| |||||||
45,378,798 | ||||||||
|
| |||||||
Electric Utilities (1.6%): | ||||||||
262,481 | AusNet Services | 370,055 | ||||||
88,500 | Chubu Electric Power Co., Inc. | 1,099,281 | ||||||
39,200 | Chugoku Electric Power Co., Inc. (The) | 420,851 | ||||||
78,570 | CK Infrastructure Holdings, Ltd. | 674,515 | ||||||
211,500 | CLP Holdings, Ltd. | 2,164,417 | ||||||
326,926 | EDP — Energias de Portugal SA | 1,131,483 | ||||||
74,288 | Electricite de France | 926,615 | ||||||
44,867 | Endesa SA^ | 959,693 | ||||||
1,075,034 | Enel SpA | 6,606,999 | ||||||
56,341 | Fortum OYJ | 1,115,156 | ||||||
370,000 | HK Electric Investments, Ltd.^ | 338,603 | ||||||
174,000 | Hongkong Electric Holdings, Ltd. | 1,468,479 | ||||||
748,542 | Iberdrola SA | 5,791,995 | ||||||
96,700 | Kansai Electric Power Co., Inc. (The) | 1,183,620 | ||||||
60,100 | Kyushu Electric Power Co., Inc. | 629,629 | ||||||
112,573 | Mighty River Power, Ltd. | 268,216 | ||||||
25,004 | Orsted A/S | 1,362,499 | ||||||
58,234 | Red Electrica Corporacion SA | 1,305,629 | ||||||
131,003 | Scottish & Southern Energy plc | 2,333,332 | ||||||
175,152 | Terna SpA | 1,016,963 | ||||||
53,700 | Tohoku Electric Power Co., Inc. | 686,986 | ||||||
179,400 | Tokyo Electric Power Co., Inc. (The)* | 710,374 | ||||||
|
| |||||||
32,565,390 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electrical Equipment (1.4%): | ||||||||
243,591 | ABB, Ltd. | $ | 6,515,882 | |||||
81,000 | Fuji Electric Holdings Co., Ltd. | 609,374 | ||||||
34,580 | Legrand SA | 2,658,254 | ||||||
7,200 | Mabuchi Motor Co., Ltd. | 388,729 | ||||||
250,500 | Mitsubishi Electric Corp. | 4,162,803 | ||||||
31,300 | Nidec Corp. | 4,394,278 | ||||||
13,146 | OSRAM Licht AG | 1,176,862 | ||||||
27,217 | Prysmian SpA | 887,671 | ||||||
73,738 | Schneider Electric SA | 6,253,040 | ||||||
28,762 | Siemens Gamesa Renewable Energy^ | 393,800 | ||||||
28,894 | Vestas Wind Systems A/S | 1,980,962 | ||||||
|
| |||||||
29,421,655 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (1.5%): | ||||||||
26,300 | ALPS Electric Co., Ltd. | 748,546 | ||||||
20,100 | Hamamatsu Photonics K.K. | 673,442 | ||||||
34,450 | Hexagon AB, Class B | 1,723,578 | ||||||
4,395 | Hirose Electric Co., Ltd. | 642,685 | ||||||
9,900 | Hitachi High-Technologies Corp. | 417,574 | ||||||
635,100 | Hitachi, Ltd. | 4,941,160 | ||||||
7,914 | Ingenico Group | 844,381 | ||||||
12,740 | Keyence Corp. | 7,114,526 | ||||||
41,700 | Kyocera Corp. | 2,725,081 | ||||||
25,600 | Murata Manufacturing Co., Ltd. | 3,422,011 | ||||||
9,000 | Nippon Electric Glass Co., Ltd. | 343,626 | ||||||
24,800 | Omron Corp. | 1,477,333 | ||||||
32,000 | Shimadzu Corp. | 726,694 | ||||||
17,400 | TDK Corp. | 1,389,067 | ||||||
33,200 | Yaskawa Electric Corp. | 1,450,898 | ||||||
30,900 | Yokogawa Electric Corp. | 590,785 | ||||||
|
| |||||||
29,231,387 | ||||||||
|
| |||||||
Energy Equipment & Services (0.0%): | ||||||||
90,882 | John Wood Group plc | 794,196 | ||||||
57,915 | Tenaris SA | 914,092 | ||||||
|
| |||||||
1,708,288 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (1.4%): | ||||||||
346,582 | Ascendas Real Estate Investment Trust | 704,828 | ||||||
122,411 | British Land Co. plc | 1,141,863 | ||||||
346,418 | CapitaLand Commercial Trust | 499,837 | ||||||
346,100 | CapitaMall Trust | 551,036 | ||||||
180 | Daiwahouse Residential Investment Corp. | 427,645 | ||||||
136,646 | Dexus Property Group | 1,037,532 | ||||||
4,798 | Fonciere des Regions SA | 543,568 | ||||||
5,867 | Gecina SA | 1,082,339 | ||||||
247,193 | GPT Group(a) | 983,866 | ||||||
111,293 | Hammerson plc | 821,324 | ||||||
4,198 | ICADE | 412,559 | ||||||
110 | Japan Prime Realty Investment Corp. | 349,555 | ||||||
166 | Japan Real Estate Investment Corp. | 788,271 | ||||||
360 | Japan Retail Fund Investment Corp. | 660,008 | ||||||
29,085 | Klepierre | 1,278,855 | ||||||
97,657 | Land Securities Group plc | 1,324,184 |
Continued
7
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Equity Real Estate Investment Trusts, continued | ||||||||
287,500 | Link REIT (The) | $ | 2,664,225 | |||||
245,601 | Macquarie Goodman Group | 1,609,632 | ||||||
470,481 | Mirvac Group | 859,987 | ||||||
183 | Nippon Building Fund, Inc. | 895,439 | ||||||
208 | Nippon Prologis REIT, Inc. | 439,791 | ||||||
496 | Nomura Real Estate Master Fund, Inc. | 615,913 | ||||||
713,112 | Scentre Group | 2,326,727 | ||||||
127,104 | SERGO plc | 1,006,512 | ||||||
298,358 | Stockland Trust Group | 1,043,384 | ||||||
327,800 | Suntec REIT | 526,336 | ||||||
13,087 | Unibail-Rodamco SE | 3,296,560 | ||||||
427 | United Urban Investment Corp. | 614,089 | ||||||
428,169 | Vicinity Centres^ | 909,542 | ||||||
267,442 | Westfield Corp. | 1,981,435 | ||||||
|
| |||||||
31,396,842 | ||||||||
|
| |||||||
Food & Staples Retailing (1.3%): | ||||||||
82,700 | Aeon Co., Ltd. | 1,396,832 | ||||||
78,162 | Carrefour SA | 1,691,321 | ||||||
8,093 | Casino Guichard-Perrachon SA | 490,076 | ||||||
7,927 | Colruyt SA | 412,294 | ||||||
11,300 | FamilyMart Co., Ltd. | 791,456 | ||||||
7,954 | ICA Gruppen AB | 288,729 | ||||||
228,855 | J Sainsbury plc | 744,906 | ||||||
32,776 | Jeronimo Martins SGPS SA | 636,440 | ||||||
169,356 | Koninklijke Ahold Delhaize NV | 3,716,537 | ||||||
6,600 | LAWSON, Inc. | 438,419 | ||||||
22,671 | METRO AG*^ | 452,762 | ||||||
98,400 | Seven & I Holdings Co., Ltd. | 4,087,551 | ||||||
10,600 | Sundrug Co., Ltd. | 493,114 | ||||||
1,056,218 | Tesco plc | 2,982,108 | ||||||
4,900 | Tsuruha Holdings, Inc. | 664,476 | ||||||
149,440 | Wesfarmers, Ltd. | 5,174,334 | ||||||
304,579 | William Morrison Supermarkets plc^ | 903,767 | ||||||
173,160 | Woolworths, Ltd.^ | 3,684,982 | ||||||
|
| |||||||
29,050,104 | ||||||||
|
| |||||||
Food Products (3.1%): | ||||||||
69,200 | Ajinomoto Co., Inc. | 1,304,215 | ||||||
47,593 | Associated British Foods plc | 1,808,970 | ||||||
318 | Barry Callebaut AG, Registered Shares | 662,676 | ||||||
11,500 | Calbee, Inc.^ | 374,186 | ||||||
14 | Chocoladefabriken Lindt & Spruengli AG, Registered Shares | 1,012,552 | ||||||
79,787 | Danone SA | 6,688,329 | ||||||
731,782 | Golden Agri-Resources, Ltd. | 202,356 | ||||||
20,950 | Kerry Group plc, Class A | 2,349,208 | ||||||
18,300 | Kikkoman Corp. | 739,998 | ||||||
129 | Lindt & Spruengli AG | 787,826 | ||||||
54,039 | Marine Harvest | 915,090 | ||||||
16,152 | Meiji Holdings Co., Ltd. | 1,372,784 | ||||||
409,729 | Nestle SA, Registered Shares | 35,217,921 | ||||||
23,000 | Nippon Meat Packers, Inc. | 558,990 | ||||||
27,945 | Nisshin Seifun Group, Inc. | 563,392 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Food Products, continued | ||||||||
7,900 | Nissin Foods Holdings Co., Ltd. | $ | 576,076 | |||||
98,786 | Orkla ASA, Class A | 1,047,568 | ||||||
11,700 | Toyo Suisan Kaisha, Ltd. | 499,009 | ||||||
1,106,388 | WH Group, Ltd. | 1,247,156 | ||||||
213,300 | Wilmar International, Ltd. | 491,889 | ||||||
12,200 | Yakult Honsha Co., Ltd. | 919,937 | ||||||
18,000 | Yamazaki Baking Co., Ltd. | 350,368 | ||||||
|
| |||||||
59,690,496 | ||||||||
|
| |||||||
Gas Utilities (0.3%): | ||||||||
144,533 | APA Group | 937,816 | ||||||
49,495 | Gas Natural SDG SA | 1,141,871 | ||||||
1,130,023 | Hong Kong & China Gas Co., Ltd. | 2,215,128 | ||||||
46,000 | Osaka Gas Co., Ltd. | 885,433 | ||||||
10,600 | Toho Gas Co., Ltd. | 290,538 | ||||||
51,600 | Tokyo Gas Co., Ltd. | 1,178,524 | ||||||
|
| |||||||
6,649,310 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (1.0%): | ||||||||
5,476 | bioMerieux | 490,592 | ||||||
7,060 | Cochlear, Ltd. | 942,341 | ||||||
15,676 | Coloplast A/S, Class B | 1,243,284 | ||||||
158,619 | Convatec Group plc | 438,280 | ||||||
11,400 | Cyberdyne, Inc.* | 196,453 | ||||||
27,347 | Essilor International SA Compagnie Generale d’Optique | 3,770,559 | ||||||
75,419 | Fisher & Paykel Healthcare Corp., Ltd. | 764,586 | ||||||
32,206 | Getinge AB, Class B | 465,512 | ||||||
50,900 | HOYA Corp. | 2,543,704 | ||||||
36,900 | Olympus Co., Ltd. | 1,413,018 | ||||||
117,368 | Smith & Nephew plc | 2,030,475 | ||||||
7,090 | Sonova Holding AG, Registered Shares | 1,107,254 | ||||||
1,291 | Straumann Holding AG, Registered Shares | 911,468 | ||||||
21,500 | Sysmex Corp. | 1,693,195 | ||||||
43,300 | Terumo Corp. | 2,046,233 | ||||||
17,288 | William Demant Holding A/S*^ | 481,352 | ||||||
|
| |||||||
20,538,306 | ||||||||
|
| |||||||
Health Care Providers & Services (0.6%): | ||||||||
46,897 | Al Noor Hospitals Group plc | 409,364 | ||||||
24,800 | Alfresa Holdings Corp. | 582,147 | ||||||
28,989 | Fresenius Medical Care AG & Co., KGaA | 3,052,840 | ||||||
54,491 | Fresenius SE & Co. KGaA | 4,242,161 | ||||||
227,520 | Healthscope, Ltd. | 372,237 | ||||||
24,400 | Medipal Holdings Corp. | 477,905 | ||||||
17,336 | Ramsay Health Care, Ltd. | 946,734 | ||||||
56,623 | Ryman Healthcare, Ltd. | 424,562 | ||||||
47,400 | Sonic Healthcare, Ltd. | 843,825 | ||||||
8,570 | Suzuken Co., Ltd. | 352,678 | ||||||
|
| |||||||
11,704,453 | ||||||||
|
| |||||||
Health Care Technology (0.0%): | ||||||||
27,400 | M3, Inc. | 959,360 | ||||||
|
|
Continued
8
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Hotels, Restaurants & Leisure (1.6%): | ||||||||
24,215 | Accor SA | $ | 1,248,027 | |||||
70,739 | Aristocrat Leisure, Ltd. | 1,303,299 | ||||||
25,316 | Carnival plc | 1,664,229 | ||||||
207,722 | Compass Group plc | 4,490,702 | ||||||
51,862 | Crown, Ltd. | 526,418 | ||||||
8,337 | Domino’s Pizza Enterprises, Ltd.^ | 303,631 | ||||||
6,425 | Flight Centre, Ltd.^ | 221,535 | ||||||
311,000 | Galaxy Entertainment Group, Ltd. | 2,486,972 | ||||||
755,757 | Genting Singapore plc | 738,701 | ||||||
23,857 | Intercontinental Hotels Group plc | 1,517,167 | ||||||
9,029 | McDonald’s Holdings Co., Ltd.^ | 397,168 | ||||||
33,825 | Melco Resorts & Entertainment, Ltd., ADR | 982,278 | ||||||
99,934 | Merlin Entertainments plc | 488,425 | ||||||
133,873 | MGM China Holdings, Ltd.^ | 404,960 | ||||||
29,000 | Oriental Land Co., Ltd. | 2,644,160 | ||||||
11,216 | Paddy Power plc | 1,330,443 | ||||||
309,532 | Sands China, Ltd. | 1,593,173 | ||||||
169,333 | Shangri-La Asia, Ltd. | 382,799 | ||||||
220,987 | SJM Holdings, Ltd. | 197,418 | ||||||
12,073 | Sodexo SA | 1,620,795 | ||||||
253,768 | Tabcorp Holdings, Ltd.^ | 1,103,573 | ||||||
59,644 | TUI AG | 1,234,718 | ||||||
25,150 | Whitbread plc | 1,357,986 | ||||||
223,600 | Wynn Macau, Ltd. | 704,500 | ||||||
|
| |||||||
28,943,077 | ||||||||
|
| |||||||
Household Durables (1.2%): | ||||||||
126,196 | Barratt Developments plc | 1,102,621 | ||||||
16,009 | Berkeley Group Holdings plc (The) | 906,354 | ||||||
24,800 | Casio Computer Co., Ltd. | 356,924 | ||||||
31,179 | Electrolux AB, Series B | 1,003,151 | ||||||
58,809 | Husqvarna AB, Class B | 559,393 | ||||||
21,200 | Iida Group Holdings Co., Ltd. | 399,509 | ||||||
41,300 | Nikon Corp. | 831,081 | ||||||
289,500 | Panasonic Corp. | 4,240,143 | ||||||
40,483 | Persimmon plc | 1,494,695 | ||||||
4,700 | Rinnai Corp. | 425,591 | ||||||
3,179 | SEB SA | 588,930 | ||||||
52,600 | Sekisui Chemical Co., Ltd. | 1,054,878 | ||||||
77,000 | Sekisui House, Ltd. | 1,389,662 | ||||||
19,900 | Sharp Corp.* | 679,563 | ||||||
166,400 | Sony Corp. | 7,475,520 | ||||||
425,451 | Taylor Wimpey plc | 1,184,948 | ||||||
176,500 | Techtronic Industries Co., Ltd. | 1,150,434 | ||||||
|
| |||||||
24,843,397 | ||||||||
|
| |||||||
Household Products (0.7%): | ||||||||
78,303 | Essity AB, Class B* | 2,218,298 | ||||||
13,853 | Henkel AG & Co. KGaA | 1,662,850 | ||||||
29,300 | Lion Corp. | 553,205 | ||||||
88,723 | Reckitt Benckiser Group plc | 8,285,946 | ||||||
49,700 | Unicharm Corp. | 1,292,120 | ||||||
|
| |||||||
14,012,419 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Independent Power & Renewable Electricity Producers (0.0%): | ||||||||
19,600 | Electric Power Development Co., Ltd. | $ | 528,239 | |||||
125,095 | Meridian Energy, Ltd. | 258,909 | ||||||
26,604 | Uniper SE | 829,754 | ||||||
|
| |||||||
1,616,902 | ||||||||
|
| |||||||
Industrial Conglomerates (1.9%): | ||||||||
351,744 | CK Hutchison Holdings, Ltd. | 4,416,281 | ||||||
11,687 | DCC plc | 1,177,380 | ||||||
29,000 | Jardine Matheson Holdings, Ltd. | 1,760,730 | ||||||
27,600 | Jardine Strategic Holdings, Ltd. | 1,092,488 | ||||||
13,800 | Keihan Electric Railway Co., Ltd. | 405,828 | ||||||
186,300 | Keppel Corp., Ltd. | 1,020,628 | ||||||
121,922 | Koninklijke Philips Electronics NV | 4,611,916 | ||||||
215,834 | NWS Holdings, Ltd. | 388,884 | ||||||
24,400 | Seibu Holdings, Inc. | 461,007 | ||||||
137,200 | SembCorp Industries, Ltd. | 310,308 | ||||||
101,115 | Siemens AG, Registered Shares | 14,027,891 | ||||||
54,285 | Smiths Group plc | 1,085,772 | ||||||
862,000 | Toshiba Corp.*^ | 2,423,391 | ||||||
|
| |||||||
33,182,504 | ||||||||
|
| |||||||
Insurance (5.5%): | ||||||||
26,944 | Admiral Group plc | 726,460 | ||||||
220,145 | AEGON NV | 1,402,871 | ||||||
25,387 | Ageas NV | 1,239,142 | ||||||
1,596,000 | AIA Group, Ltd. | 13,611,632 | ||||||
58,832 | Allianz SE, Registered Shares+ | 13,471,678 | ||||||
163,654 | Assicurazioni Generali SpA | 2,979,191 | ||||||
525,692 | Aviva plc | 3,591,909 | ||||||
255,165 | AXA SA | 7,561,769 | ||||||
6,191 | Baloise Holding AG, Registered Shares | 963,774 | ||||||
23,730 | CNP Assurances SA | 547,491 | ||||||
139,200 | Dai-ichi Life Insurance Co., Ltd. | 2,872,475 | ||||||
165,692 | Direct Line Insurance Group plc | 853,723 | ||||||
28,271 | Gjensidige Forsikring ASA | 533,355 | ||||||
7,419 | Hannover Rueck SE | 930,796 | ||||||
325,001 | Insurance Australia Group, Ltd. | 1,832,192 | ||||||
211,600 | Japan Post Holdings Co., Ltd. | 2,425,650 | ||||||
788,993 | Legal & General Group plc | 2,903,729 | ||||||
150,399 | MAPFRE SA | 482,118 | ||||||
334,223 | Medibank Private, Ltd. | 856,943 | ||||||
61,111 | MS&AD Insurance Group Holdings, Inc. | 2,069,496 | ||||||
20,676 | Muenchener Rueckversicherungs-Gesellschaft AG | 4,481,800 | ||||||
46,725 | NKSJ Holdings, Inc. | 1,801,669 | ||||||
40,826 | NN Group NV | 1,765,061 | ||||||
663,010 | Old Mutual plc | 2,073,111 | ||||||
73,563 | Poste Italiane SpA | 553,753 | ||||||
339,563 | Prudential plc | 8,728,548 | ||||||
185,809 | QBE Insurance Group, Ltd. | 1,546,002 | ||||||
132,507 | RSA Insurance Group plc | 1,128,907 | ||||||
59,530 | Sampo OYJ, Class A | 3,269,904 | ||||||
23,362 | SCOR SA | 939,855 | ||||||
24,300 | Sony Financial Holdings, Inc. | 430,662 |
Continued
9
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Insurance, continued | ||||||||
72,413 | St. James Place plc | $ | 1,196,732 | |||||
351,863 | Standard Life plc | 2,072,537 | ||||||
172,822 | Suncorp-Metway, Ltd. | 1,863,573 | ||||||
4,246 | Swiss Life Holding AG, Registered Shares | 1,503,185 | ||||||
41,570 | Swiss Re AG | 3,892,233 | ||||||
67,436 | T&D Holdings, Inc. | 1,153,857 | ||||||
89,800 | Tokio Marine Holdings, Inc. | 4,099,144 | ||||||
15,770 | Tryg A/S | 393,211 | ||||||
128,309 | UnipolSai SpA^ | 299,174 | ||||||
20,130 | Zurich Insurance Group AG | 6,123,671 | ||||||
|
| |||||||
111,172,983 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (0.1%): | ||||||||
122,800 | Rakuten, Inc. | 1,123,174 | ||||||
25,000 | Start Today Co., Ltd. | 760,377 | ||||||
15,073 | Zalando SE*^ | 794,119 | ||||||
|
| |||||||
2,677,670 | ||||||||
|
| |||||||
Internet Software & Services (0.2%): | ||||||||
138,014 | Auto Trader Group plc | 655,019 | ||||||
14,900 | DeNA Co., Ltd. | 307,308 | ||||||
21,100 | Kakaku.com, Inc. | 356,887 | ||||||
5,200 | mixi, Inc. | 233,605 | ||||||
15,977 | United Internet AG, Registered Shares | 1,098,807 | ||||||
201,200 | Yahoo! Japan Corp. | 922,784 | ||||||
|
| |||||||
3,574,410 | ||||||||
|
| |||||||
IT Services (0.8%): | ||||||||
57,290 | Amadeus IT Holding SA | 4,123,039 | ||||||
12,460 | Atos Origin SA | 1,813,466 | ||||||
21,026 | Capgemini SA | 2,487,961 | ||||||
61,335 | Computershare, Ltd. | 779,395 | ||||||
266,000 | Fujitsu, Ltd. | 1,885,685 | ||||||
18,546 | Nomura Research Institute, Ltd. | 861,575 | ||||||
86,600 | NTT Data Corp. | 1,027,903 | ||||||
8,700 | OBIC Co., Ltd. | 639,625 | ||||||
5,600 | Otsuka Corp. | 429,032 | ||||||
15,516 | Wirecard AG | 1,732,069 | ||||||
274,549 | Worldpay Group plc | 1,573,177 | ||||||
|
| |||||||
17,352,927 | ||||||||
|
| |||||||
Leisure Products (0.2%): | ||||||||
24,200 | Namco Bandai Holdings, Inc. | 791,753 | ||||||
6,300 | Sankyo Co., Ltd. | 198,145 | ||||||
23,800 | Sega Sammy Holdings, Inc. | 294,931 | ||||||
9,900 | Shimano, Inc. | 1,393,120 | ||||||
23,700 | Yamaha Corp. | 869,397 | ||||||
|
| |||||||
3,547,346 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.1%): | ||||||||
1,543 | Eurofins Scientific SE | 939,383 | ||||||
9,969 | Lonza Group AG, Registered Shares | 2,693,660 | ||||||
26,233 | Qiagen NV* | 819,054 | ||||||
|
| |||||||
4,452,097 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Machinery (2.8%): | ||||||||
36,984 | Alfa Laval AB | $ | 872,362 | |||||
20,025 | Alstom SA | 831,023 | ||||||
44,900 | AMADA Co., Ltd. | 610,562 | ||||||
9,566 | Andritz AG^ | 540,109 | ||||||
88,932 | Atlas Copco AB, Class A | 3,831,726 | ||||||
51,578 | Atlas Copco AB, Class B | 1,973,459 | ||||||
135,228 | CNH Industrial NV | 1,807,631 | ||||||
13,100 | Daifuku Co., Ltd. | 712,773 | ||||||
25,200 | FANUC Corp. | 6,055,324 | ||||||
23,705 | GEA Group AG | 1,136,494 | ||||||
37,000 | Hino Motors, Ltd. | 480,028 | ||||||
14,800 | Hitachi Construction Machinery Co., Ltd. | 536,922 | ||||||
7,000 | Hoshizaki Electric Co., Ltd. | 618,100 | ||||||
20,900 | IHI Corp. | 695,811 | ||||||
38,298 | IMI plc | 685,430 | ||||||
29,900 | JTEKT Corp. | 514,021 | ||||||
20,000 | Kawasaki Heavy Industries, Ltd. | 701,097 | ||||||
9,653 | Kion Group AG | 832,726 | ||||||
120,600 | Komatsu, Ltd. | 4,369,127 | ||||||
44,947 | Kone OYJ, Class B | 2,411,617 | ||||||
136,400 | Kubota Corp. | 2,671,301 | ||||||
10,400 | Kurita Water Industries, Ltd. | 337,915 | ||||||
30,800 | Makita Corp. | 1,289,708 | ||||||
4,681 | MAN AG | 535,947 | ||||||
15,935 | Metso Corp. OYJ | 543,534 | ||||||
53,100 | Minebea Co., Ltd. | 1,114,293 | ||||||
41,300 | Mitsubishi Heavy Industries, Ltd. | 1,542,102 | ||||||
15,200 | Nabtesco Corp. | 583,094 | ||||||
37,300 | NGK Insulators, Ltd. | 703,430 | ||||||
50,700 | NSK, Ltd. | 798,659 | ||||||
145,430 | Sandvik AB | 2,543,039 | ||||||
5,125 | Schindler Holding AG | 1,179,744 | ||||||
2,833 | Schindler Holding AG, Registered Shares | 641,090 | ||||||
51,092 | SKF AB, Class B | 1,133,373 | ||||||
7,600 | SMC Corp. | 3,129,985 | ||||||
16,000 | Sumitomo Heavy Industries, Ltd. | 677,819 | ||||||
15,100 | THK Co., Ltd. | 565,683 | ||||||
204,149 | Volvo AB, Class B | 3,799,924 | ||||||
19,324 | Wartsila Corp. OYJ, Class B | 1,217,599 | ||||||
27,770 | Weir Group plc (The) | 792,880 | ||||||
321,450 | Yangzijiang Shipbuilding Holdings, Ltd. | 353,372 | ||||||
|
| |||||||
56,370,833 | ||||||||
|
| |||||||
Marine (0.3%): | ||||||||
510 | A.P. Moeller — Maersk A/S, Class A | 850,094 | ||||||
839 | A.P. Moeller — Maersk A/S, Class B | 1,462,358 | ||||||
7,085 | Kuehne & Nagel International AG, Registered Shares | 1,252,409 | ||||||
16,600 | Mitsui O.S.K. Lines, Ltd. | 554,275 | ||||||
22,000 | Nippon Yusen Kabushiki Kaisha* | 536,219 | ||||||
|
| |||||||
4,655,355 | ||||||||
|
|
Continued
10
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Media (1.0%): | ||||||||
65,114 | Altice NV, Class A*^ | $ | 681,077 | |||||
6,418 | Axel Springer AG | 500,014 | ||||||
27,877 | Dentsu, Inc. | 1,176,344 | ||||||
23,455 | Eutelsat Communications SA | 541,484 | ||||||
30,100 | Hakuhodo DY Holdings, Inc. | 391,610 | ||||||
475,946 | ITV plc | 1,059,441 | ||||||
11,326 | JCDecaux SA | 456,332 | ||||||
16,468 | Lagardere SCA | 527,518 | ||||||
115,987 | Pearson plc | 1,149,468 | ||||||
29,053 | ProSiebenSat.1 Media AG | 1,000,189 | ||||||
26,100 | Publicis Groupe SA | 1,772,928 | ||||||
6,156 | REA Group, Ltd. | 367,465 | ||||||
5,481 | RTL Group | 440,126 | ||||||
13,208 | Schibsted ASA, Class B | 350,474 | ||||||
50,007 | SES Global, Class A | 779,157 | ||||||
126,768 | Singapore Press Holdings, Ltd. | 250,915 | ||||||
138,234 | Sky plc* | 1,884,602 | ||||||
7,593 | Telenet Group Holding NV* | 528,563 | ||||||
15,100 | Toho Co., Ltd. | 523,093 | ||||||
134,899 | Vivendi Universal SA | 3,626,996 | ||||||
170,596 | WPP plc | 3,091,050 | ||||||
|
| |||||||
21,098,846 | ||||||||
|
| |||||||
Metals & Mining (3.4%): | ||||||||
345,631 | Alumina, Ltd. | 654,316 | ||||||
175,431 | Anglo American plc^ | 3,665,827 | ||||||
50,760 | Antofagasta plc | 688,060 | ||||||
85,336 | ArcelorMittal* | 2,763,285 | ||||||
277,640 | BHP Billiton plc | 5,681,842 | ||||||
420,782 | BHP Billiton, Ltd. | 9,683,782 | ||||||
77,572 | BlueScope Steel, Ltd. | 929,421 | ||||||
37,546 | Boliden AB | 1,279,442 | ||||||
213,723 | Fortescue Metals Group, Ltd. | 811,980 | ||||||
28,344 | Fresnillo plc | 547,131 | ||||||
1,618,375 | Glencore International plc | 8,513,110 | ||||||
29,800 | Hitachi Metals, Ltd. | 426,093 | ||||||
68,500 | JFE Holdings, Inc. | 1,646,024 | ||||||
45,500 | Kobe Steel, Ltd.^ | 422,169 | ||||||
7,500 | Maruichi Steel Tube, Ltd. | 219,474 | ||||||
15,800 | Mitsubishi Materials Corp. | 562,583 | ||||||
102,099 | Newcrest Mining, Ltd. | 1,813,719 | ||||||
98,548 | Nippon Steel Corp. | 2,529,812 | ||||||
176,799 | Norsk Hydro ASA | 1,337,123 | ||||||
12,287 | Randgold Resources, Ltd. | 1,218,713 | ||||||
163,839 | Rio Tinto plc | 8,645,298 | ||||||
57,208 | Rio Tinto, Ltd. | 3,375,534 | ||||||
664,616 | South32, Ltd. | 1,806,655 | ||||||
31,200 | Sumitomo Metal & Mining Co., Ltd. | 1,431,582 | ||||||
58,605 | ThyssenKrupp AG | 1,701,563 | ||||||
14,170 | Voestalpine AG | 846,847 | ||||||
|
| |||||||
63,201,385 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Multiline Retail (0.3%): | ||||||||
15,100 | Don Quijote Co., Ltd. | $ | 789,492 | |||||
80,935 | Harvey Norman Holdings, Ltd.^ | 262,767 | ||||||
44,800 | Isetan Mitsukoshi Holdings, Ltd. | 553,795 | ||||||
32,600 | J. Front Retailing Co., Ltd. | 613,365 | ||||||
206,470 | Marks & Spencer Group plc | 875,489 | ||||||
23,900 | MARUI GROUP Co., Ltd. | 436,749 | ||||||
19,494 | Next plc | 1,193,363 | ||||||
3,300 | Ryohin Keikaku Co., Ltd. | 1,027,609 | ||||||
45,000 | Takashimaya Co., Ltd. | 473,294 | ||||||
|
| |||||||
6,225,923 | ||||||||
|
| |||||||
Multi-Utilities (1.0%): | ||||||||
86,095 | AGL Energy, Ltd. | 1,633,570 | ||||||
730,143 | Centrica plc | 1,351,643 | ||||||
290,888 | E.ON AG | 3,153,619 | ||||||
241,415 | Engie Group | 4,147,337 | ||||||
16,058 | Innogy Se | 625,710 | ||||||
451,140 | National Grid plc | 5,298,524 | ||||||
69,134 | RWE AG | 1,409,593 | ||||||
47,126 | Suez Environnement Co. | 828,352 | ||||||
61,827 | Veolia Environnement SA | 1,577,252 | ||||||
|
| |||||||
20,025,600 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (5.5%): | ||||||||
2,591,699 | BP plc | 18,274,480 | ||||||
36,863 | Caltex Australia, Ltd. | 977,512 | ||||||
22,895 | Enagas SA | 654,848 | ||||||
335,382 | ENI SpA | 5,545,480 | ||||||
65,749 | Galp Energia SGPS SA | 1,207,733 | ||||||
18,600 | Idemitsu Kosan Co., Ltd. | 744,418 | ||||||
130,700 | INPEX Corp. | 1,635,761 | ||||||
391,820 | JX Holdings, Inc. | 2,531,984 | ||||||
9,900 | Koninklijke Vopak NV | 434,204 | ||||||
26,708 | Lundin Petroleum AB* | 611,296 | ||||||
15,800 | Neste Oil OYJ | 1,010,996 | ||||||
175,770 | Oil Search, Ltd. | 1,069,047 | ||||||
20,094 | OMV AG | 1,272,916 | ||||||
226,990 | Origin Energy, Ltd.* | 1,669,061 | ||||||
161,466 | Repsol SA | 2,853,341 | ||||||
596,196 | Royal Dutch Shell plc, Class A | 19,954,895 | ||||||
492,196 | Royal Dutch Shell plc, Class B | 16,597,077 | ||||||
236,820 | Santos, Ltd.* | 1,004,095 | ||||||
25,100 | Showa Shell Sekiyu K.K. | 341,029 | ||||||
304,672 | Snam SpA | 1,491,564 | ||||||
153,599 | Statoil ASA | 3,286,885 | ||||||
311,694 | Total SA | 17,195,704 | ||||||
111,351 | Woodside Petroleum, Ltd. | 2,877,381 | ||||||
|
| |||||||
103,241,707 | ||||||||
|
| |||||||
Paper & Forest Products (0.3%): | ||||||||
48,212 | Mondi plc | 1,256,714 | ||||||
108,000 | OYI Paper Co., Ltd. | 718,033 | ||||||
72,099 | Stora Enso OYJ, Registered Shares | 1,141,293 | ||||||
70,233 | UPM-Kymmene OYJ | 2,178,947 | ||||||
|
| |||||||
5,294,987 | ||||||||
|
|
Continued
11
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Personal Products (2.0%): | ||||||||
13,399 | Beiersdorf AG | $ | 1,570,260 | |||||
64,800 | Kao Corp. | 4,383,512 | ||||||
4,200 | KOSE Corp. | 655,923 | ||||||
33,244 | L’Oreal SA | 7,363,635 | ||||||
12,800 | POLA ORBIS HOLDINGS, Inc. | 448,124 | ||||||
50,700 | Shiseido Co., Ltd. | 2,444,132 | ||||||
214,593 | Unilever NV | 12,055,289 | ||||||
166,905 | Unilever plc | 9,244,694 | ||||||
|
| |||||||
38,165,569 | ||||||||
|
| |||||||
Pharmaceuticals (7.3%): | ||||||||
270,400 | Astellas Pharma, Inc. | 3,434,836 | ||||||
166,881 | AstraZeneca plc | 11,449,682 | ||||||
109,295 | Bayer AG, Registered Shares | 13,591,907 | ||||||
28,700 | Chugai Pharmaceutical Co., Ltd. | 1,467,730 | ||||||
76,800 | Daiichi Sankyo Co., Ltd. | 2,000,515 | ||||||
22,800 | Dainippon Sumitomo Pharma Co., Ltd.^ | 338,880 | ||||||
35,200 | Eisai Co., Ltd. | 1,993,268 | ||||||
643,992 | GlaxoSmithKline plc | 11,388,648 | ||||||
9,371 | H. Lundbeck A/S | 476,649 | ||||||
8,500 | Hisamitsu Pharmaceutical Co., Inc. | 514,850 | ||||||
5,095 | Ipsen SA | 608,500 | ||||||
36,400 | Kyowa Hakko Kogyo Co., Ltd. | 703,150 | ||||||
16,556 | Merck KGaA | 1,782,689 | ||||||
30,400 | Mitsubishi Tanabe Pharma Corp. | 626,721 | ||||||
292,382 | Novartis AG, Registered Shares | 24,724,830 | ||||||
246,434 | Novo Nordisk A/S, Class B | 13,247,202 | ||||||
56,600 | Ono Pharmaceutical Co., Ltd. | 1,317,469 | ||||||
14,355 | Orion OYJ, Class B | 534,535 | ||||||
51,800 | Otsuka Holdings Co., Ltd. | 2,268,773 | ||||||
14,165 | Recordati SpA | 629,152 | ||||||
92,862 | Roche Holding AG | 23,494,842 | ||||||
149,017 | Sanofi-Aventis SA | 12,829,324 | ||||||
50,700 | Santen Pharmaceutical Co., Ltd. | 796,085 | ||||||
38,200 | Shionogi & Co., Ltd. | 2,065,633 | ||||||
3,000 | Taisho Pharmaceutical Holdings Co., Ltd. | 238,957 | ||||||
92,300 | Takeda Pharmacuetical Co., Ltd. | 5,226,408 | ||||||
116,466 | Teva Pharmaceutical Industries, Ltd., ADR^ | 2,207,031 | ||||||
16,519 | UCB SA | 1,308,880 | ||||||
6,604 | Vifor Pharma AG^ | 846,505 | ||||||
|
| |||||||
142,113,651 | ||||||||
|
| |||||||
Professional Services (1.2%): | ||||||||
21,462 | Adecco SA, Registered Shares | 1,640,754 | ||||||
35,053 | Bureau Veritas SA | 958,246 | ||||||
92,451 | Capita Group plc | 499,736 | ||||||
121,707 | Experian plc | 2,674,270 | ||||||
20,137 | Intertek Group plc | 1,410,299 | ||||||
23,500 | Persol Holdings Co., Ltd. | 589,252 | ||||||
15,220 | Randstad Holding NV | 933,724 | ||||||
144,200 | Recruit Holdings Co., Ltd. | 3,581,820 | ||||||
142,655 | Reed Elsevier plc | 3,341,442 | ||||||
126,629 | RELX NV | 2,910,699 | ||||||
46,524 | Seek, Ltd. | 688,513 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Professional Services, continued | ||||||||
706 | SGS SA, Registered Shares | $ | 1,840,752 | |||||
7,637 | Teleperformance | 1,092,991 | ||||||
39,349 | Wolters Kluwer NV | 2,048,798 | ||||||
|
| |||||||
24,211,296 | ||||||||
|
| |||||||
Real Estate Management & Development (1.8%): | ||||||||
15,060 | AEON Mall Co., Ltd. | 294,700 | ||||||
5,827 | Azrieli Group | 326,394 | ||||||
74,028 | BGP Holdings plc*(b) | 89 | ||||||
315,100 | CapitaLand, Ltd. | 830,383 | ||||||
57,700 | City Developments, Ltd. | 536,736 | ||||||
347,744 | CK Asset Holdings Ltd. | 3,039,694 | ||||||
8,900 | Daito Trust Construction Co., Ltd. | 1,813,178 | ||||||
73,200 | Daiwa House Industry Co., Ltd. | 2,812,499 | ||||||
44,599 | Deutsche Wohnen AG | 1,944,319 | ||||||
317,700 | Global Logistic Properties, Ltd. | 800,117 | ||||||
124,000 | Hang Lung Group, Ltd. | 456,188 | ||||||
274,000 | Hang Lung Properties, Ltd. | 668,677 | ||||||
155,089 | Henderson Land Development Co., Ltd. | 1,022,192 | ||||||
142,100 | Hongkong Land Holdings, Ltd. | 996,121 | ||||||
40,900 | Hulic Co., Ltd. | 457,906 | ||||||
90,000 | Hysan Development Co., Ltd. | 477,715 | ||||||
75,775 | Kerry Properties, Ltd. | 340,885 | ||||||
78,059 | Lend Lease Group | 993,877 | ||||||
162,000 | Mitsubishi Estate Co., Ltd. | 2,815,186 | ||||||
118,300 | Mitsui Fudosan Co., Ltd. | 2,652,396 | ||||||
798,623 | New World Development Co., Ltd. | 1,199,946 | ||||||
16,100 | Nomura Real Estate Holdings, Inc. | 361,087 | ||||||
444,601 | Sino Land Co., Ltd. | 787,173 | ||||||
46,000 | Sumitomo Realty & Development Co., Ltd. | 1,510,047 | ||||||
195,000 | Sun Hung Kai Properties, Ltd. | 3,248,382 | ||||||
67,464 | Swire Pacific, Ltd., Class A | 624,454 | ||||||
157,000 | Swire Properties, Ltd. | 506,384 | ||||||
9,911 | Swiss Prime Site AG | 914,767 | ||||||
30,200 | Tokyo Tatemono Co., Ltd. | 407,544 | ||||||
71,200 | Tokyu Fudosan Holdings Corp. | 514,540 | ||||||
66,296 | UOL Group, Ltd. | 439,677 | ||||||
64,119 | Vonovia SE | 3,173,510 | ||||||
164,300 | Wharf Holdings, Ltd. (The) | 568,158 | ||||||
164,300 | Wharf Real Estate Investment Co., Ltd.* | 1,093,567 | ||||||
108,897 | Wheelock & Co., Ltd. | 778,086 | ||||||
|
| |||||||
39,406,574 | ||||||||
|
| |||||||
Road & Rail (1.2%): | ||||||||
282,044 | Aurizon Holdings, Ltd. | 1,090,180 | ||||||
18,700 | Central Japan Railway Co. | 3,347,075 | ||||||
292,200 | ComfortDelGro Corp., Ltd. | 432,213 | ||||||
24,818 | DSV A/S | 1,954,346 | ||||||
43,213 | East Japan Railway Co. | 4,213,444 | ||||||
30,300 | Hankyu Hanshin Holdings, Inc. | 1,217,448 | ||||||
32,000 | Keihin Electric Express Railway Co., Ltd. | 614,296 | ||||||
16,200 | Keio Corp. | 712,475 | ||||||
18,600 | Keisei Electric Railway Co., Ltd. | 597,170 | ||||||
22,000 | Kintetsu Corp. | 841,432 |
Continued
12
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Road & Rail, continued | ||||||||
21,700 | Kyushu Railway Co. | $ | 671,513 | |||||
191,494 | MTR Corp., Ltd. | 1,122,138 | ||||||
25,000 | Nagoya Railroad Co., Ltd. | 629,246 | ||||||
11,000 | Nippon Express Co., Ltd. | 730,574 | ||||||
41,600 | Odakyu Electric Railway Co., Ltd. | 889,167 | ||||||
24,800 | Tobu Railway Co., Ltd. | 800,640 | ||||||
72,900 | Tokyu Corp. | 1,161,457 | ||||||
21,800 | West Japan Railway Co. | 1,590,591 | ||||||
�� |
|
| ||||||
22,615,405 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (1.4%): | ||||||||
35,900 | ASM Pacific Technology, Ltd. | 499,354 | ||||||
51,326 | ASML Holding NV | 8,903,354 | ||||||
3,900 | Disco Corp. | 858,792 | ||||||
149,128 | Infineon Technologies AG | 4,072,527 | ||||||
46,060 | NXP Semiconductors NV* | 5,393,165 | ||||||
68,100 | Renesas Electronics Corp.* | 788,375 | ||||||
12,300 | ROHM Co., Ltd. | 1,355,253 | ||||||
79,969 | STMicroelectronics NV | 1,736,483 | ||||||
31,000 | SUMCO Corp. | 788,455 | ||||||
20,500 | Tokyo Electron, Ltd. | 3,672,613 | ||||||
|
| |||||||
28,068,371 | ||||||||
|
| |||||||
Software (1.6%): | ||||||||
17,063 | Check Point Software Technologies, Ltd.*^ | 1,768,068 | ||||||
17,189 | Dassault Systemes SA | 1,825,359 | ||||||
12,400 | Konami Corp. | 681,487 | ||||||
6,100 | Line Corp.* | 249,468 | ||||||
56,616 | Micro Focus International plc | 1,921,065 | ||||||
25,000 | Nexon Co., Ltd.* | 726,600 | ||||||
8,416 | NICE Systems, Ltd. | 769,273 | ||||||
15,100 | Nintendo Co., Ltd. | 5,497,917 | ||||||
5,100 | Oracle Corp. | 422,932 | ||||||
134,847 | Sage Group plc | 1,448,770 | ||||||
129,903 | SAP AG | 14,564,220 | ||||||
16,700 | Trend Micro, Inc. | 945,968 | ||||||
8,336 | UbiSoft Entertainment SA* | 641,325 | ||||||
|
| |||||||
31,462,452 | ||||||||
|
| |||||||
Specialty Retail (0.8%): | ||||||||
5,200 | ABC-Mart, Inc. | 298,512 | ||||||
4,855 | Dufry AG, Registered Shares* | 722,015 | ||||||
7,000 | Fast Retailing Co., Ltd. | 2,791,545 | ||||||
126,552 | Hennes & Mauritz AB, Class B^ | 2,608,660 | ||||||
2,900 | Hikari Tsushin, Inc. | 416,730 | ||||||
143,600 | Industria de Diseno Textil SA | 4,994,021 | ||||||
299,670 | Kingfisher plc | 1,365,855 | ||||||
10,600 | Nitori Co., Ltd. | 1,511,615 | ||||||
3,200 | Shimamura Co., Ltd. | 352,020 | ||||||
28,900 | USS Co., Ltd. | 611,464 | ||||||
69,100 | Yamada Denki Co., Ltd. | 380,309 | ||||||
|
| |||||||
16,052,746 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Technology Hardware, Storage & Peripherals (0.6%): | ||||||||
32,900 | Brother Industries, Ltd. | $ | 812,182 | |||||
140,000 | Canon, Inc. | 5,214,478 | ||||||
52,400 | Fujifilm Holdings Corp. | 2,139,554 | ||||||
63,700 | Konica Minolta Holdings, Inc. | 613,182 | ||||||
33,100 | NEC Corp. | 893,303 | ||||||
94,600 | Ricoh Co., Ltd. | 879,406 | ||||||
38,400 | Seiko Epson Corp. | 904,381 | ||||||
|
| |||||||
11,456,486 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (2.0%): | ||||||||
24,707 | Adidas AG | 4,931,507 | ||||||
21,600 | ASICS Corp. | 344,470 | ||||||
58,998 | Burberry Group plc | 1,426,058 | ||||||
68,985 | Compagnie Financiere Richemont SA | 6,247,705 | ||||||
4,025 | Hermes International SA | 2,154,291 | ||||||
8,698 | Hugo Boss AG | 737,717 | ||||||
9,943 | Kering | 4,686,803 | ||||||
811,120 | Li & Fung, Ltd. | 444,738 | ||||||
22,347 | Luxottica Group SpA | 1,369,289 | ||||||
36,731 | LVMH Moet Hennessy Louis Vuitton SA | 10,788,407 | ||||||
13,980 | Pandora A/S | 1,521,732 | ||||||
4,123 | Swatch Group AG (The), Class B | 1,681,175 | ||||||
6,517 | Swatch Group AG (The), Registered Shares | 498,246 | ||||||
107,486 | Yue Yuen Industrial Holdings, Ltd. | 421,782 | ||||||
|
| |||||||
37,253,920 | ||||||||
|
| |||||||
Tobacco (1.5%): | ||||||||
301,086 | British American Tobacco plc | 20,316,542 | ||||||
126,040 | Imperial Tobacco Group plc, Class A | 5,385,287 | ||||||
146,400 | Japan Tobacco, Inc. | 4,715,897 | ||||||
22,378 | Swedish Match AB, Class B | 881,149 | ||||||
|
| |||||||
31,298,875 | ||||||||
|
| |||||||
Trading Companies & Distributors (1.4%): | ||||||||
18,012 | AerCap Holdings NV* | 947,611 | ||||||
68,531 | Ashtead Group plc | 1,828,598 | ||||||
21,247 | Brenntag AG | 1,340,125 | ||||||
44,364 | Bunzl plc | 1,240,264 | ||||||
196,500 | ITOCHU Corp. | 3,669,307 | ||||||
217,800 | Marubeni Corp. | 1,581,695 | ||||||
35,000 | Misumi Group, Inc. | 1,014,216 | ||||||
197,600 | Mitsubishi Corp. | 5,461,745 | ||||||
221,800 | Mitsui & Co., Ltd. | 3,602,692 | ||||||
42,562 | Rexel SA | 771,827 | ||||||
152,600 | Sumitomo Corp. | 2,586,950 | ||||||
25,900 | Toyota Tsushu Corp. | 1,041,056 | ||||||
34,908 | Travis Perkins plc | 737,955 | ||||||
34,179 | Wolseley plc | 2,445,131 | ||||||
|
| |||||||
28,269,172 | ||||||||
|
| |||||||
Transportation Infrastructure (0.6%): | ||||||||
93,253 | Abertis Infraestructuras SA | 2,074,698 | ||||||
8,795 | Aena SA | 1,780,266 | ||||||
4,091 | Aeroports de Paris | 777,130 | ||||||
61,528 | Atlantia SpA | 1,940,608 |
Continued
13
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Transportation Infrastructure, continued | ||||||||
121,970 | Auckland International Airport, Ltd. | $ | 559,717 | |||||
5,710 | Fraport AG | 628,077 | ||||||
65,234 | Groupe Eurotunnel SA | 838,884 | ||||||
754,100 | Hutchison Port Holdings Trust | 312,890 | ||||||
5,100 | Japan Airport Terminal Co., Ltd. | 189,270 | ||||||
16,000 | Kamigumi Co., Ltd. | 353,681 | ||||||
95,000 | SATS, Ltd. | 368,813 | ||||||
139,052 | Sydney Airport | 762,539 | ||||||
283,823 | Transurban Group | 2,746,650 | ||||||
|
| |||||||
13,333,223 | ||||||||
|
| |||||||
Water Utilities (0.1%): | ||||||||
29,897 | Severn Trent plc | 872,156 | ||||||
89,639 | United Utilities Group plc | 1,003,080 | ||||||
|
| |||||||
1,875,236 | ||||||||
|
| |||||||
Wireless Telecommunication Services (1.5%): | ||||||||
7,009 | Drillisch AG | 578,479 | ||||||
238,500 | KDDI Corp. | 5,938,806 | ||||||
8,973 | Millicom International Cellular SA, SDR | 606,006 | ||||||
179,700 | NTT DoCoMo, Inc. | 4,245,401 | ||||||
109,300 | SoftBank Group Corp. | 8,636,193 | ||||||
80,102 | StarHub, Ltd. | 170,723 | ||||||
48,913 | Tele2 AB | 600,854 | ||||||
3,495,901 | Vodafone Group plc | 11,041,686 | ||||||
|
| |||||||
31,818,148 | ||||||||
|
| |||||||
Total Common Stocks (Cost $1,531,658,195) | 1,968,793,026 | |||||||
|
|
Contracts, Shares, Notional Amount or Principal | Fair Value | |||||||
Preferred Stocks (0.5%): | ||||||||
Automobiles (0.3%): | ||||||||
7,717 | Bayerische Motoren Werke AG (BMW), 4.73% | $ | 688,998 | |||||
19,297 | Porsche Automobil Holding SE, 1.45% | 1,614,921 | ||||||
24,414 | Volkswagen AG, 1.24% | 4,864,870 | ||||||
|
| |||||||
7,168,789 | ||||||||
|
| |||||||
Household Products (0.2%): | ||||||||
23,457 | Henkel AG & Co. KGaA, 1.47% | 3,096,872 | ||||||
|
| |||||||
Total Preferred Stocks (Cost $7,035,391) | 10,265,661 | |||||||
|
| |||||||
Rights (0.0%): | ||||||||
Aerospace & Defense (0.0%): | ||||||||
9,942,348 | Rolls-Royce Holdings plc, Expires on 1/08/18*(b) | 13,421 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.0%): | ||||||||
161,466 | Repsol SA, Expires on 1/08/18*^ | 73,417 | ||||||
|
| |||||||
Transportation Infrastructure (0.0%): | ||||||||
21,286 | Transurban Group, Expires on 1/25/18*(b) | – | ||||||
|
| |||||||
Total Rights (Cost $—) | 86,838 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (1.4%): | ||||||||
$ | 28,869,401 | AZL International Index Fund Securities Lending Collateral Account(c) | 28,869,401 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 28,869,401 | ||||||
|
| |||||||
Total Investment Securities (Cost $1,567,562,987)(d) — 100.7% | 2,008,014,926 | |||||||
Net other assets (liabilities) — (0.7)% | (13,241,452 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 1,994,773,474 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
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, 2017. The total value of securities on loan as of December 31, 2017, was $27,597,730. |
+ | Affiliated Securities |
(a) | The subadviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2017, 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, 2017. 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, 2017. |
(d) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Continued
14
AZL International Index Fund
Schedule of Portfolio Investments
December 31, 2017
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, 2017: (Unaudited)
Country | Percentage | |||
Australia | 6.8 | % | ||
Austria | 0.3 | % | ||
Belgium | 1.1 | % | ||
Bermuda | 0.2 | % | ||
China | — | %^ | ||
Denmark | 1.8 | % | ||
Finland | 0.9 | % | ||
France | 9.9 | % | ||
Germany | 9.7 | % | ||
Hong Kong | 3.4 | % | ||
Ireland | — | %^ | ||
Ireland (Republic of) | 0.8 | % | ||
Israel | 0.5 | % | ||
Italy | 2.1 | % |
Country | Percentage | |||
Japan | 23.7 | % | ||
Luxembourg | 0.3 | % | ||
Netherlands | 4.1 | % | ||
New Zealand | 0.2 | % | ||
Norway | 0.6 | % | ||
Portugal | 0.1 | % | ||
Singapore | 1.3 | % | ||
Spain | 3.2 | % | ||
Sweden | 2.6 | % | ||
Switzerland | 8.5 | % | ||
United Arab Emirates | — | %^ | ||
United Kingdom | 16.5 | % | ||
United States | 1.4 | % | ||
|
| |||
100.0 | % | |||
|
|
^ | Represents less than 0.05%. |
Futures Contracts
Cash | of $776,767 has been segregated to cover margin requirements for the following open contracts as of December 31, 2017: |
Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Unrealized Appreciation/ (Depreciation) | ||||||||||||
ASX SPI 200 Index March Futures (Australian Dollar) | 3/15/18 | 15 | $ | 1,761,072 | $ | 6,581 | ||||||||||
DJ EURO STOXX 50 March Futures (Euro) | 3/16/18 | 124 | 5,196,295 | (106,925 | ) | |||||||||||
FTSE 100 Index March Futures (British Pounds) | 3/16/18 | 36 | 3,711,771 | 93,101 | ||||||||||||
SGX Nikkei 225 Index March Futures (Japanese Yen) | 3/8/18 | 32 | 3,231,671 | 22,071 | ||||||||||||
|
| |||||||||||||||
$ | 14,828 | |||||||||||||||
|
|
See accompanying notes to the financial statements.
15
AZL International Index Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investments in non-affiliates, at cost | $ | 1,559,158,494 | |||
Investments in affiliates, at cost | 8,404,493 | ||||
|
| ||||
Total Investment securities, at cost | $ | 1,567,562,987 | |||
|
| ||||
Investments in non-affiliates, at value* | $ | 1,994,543,248 | |||
Investments in affiliates, at value | 13,471,678 | ||||
|
| ||||
Total Investment securities, at value | 2,008,014,926 | ||||
Segregated cash for collateral | 776,767 | ||||
Interest and dividends receivable | 2,011,923 | ||||
Foreign currency, at value (cost $10,853,015) | 11,024,626 | ||||
Receivable for investments sold | 31,353 | ||||
Receivable for variation margin on futures contracts | 34,923 | ||||
Reclaims receivable | 4,080,556 | ||||
Prepaid expenses | 11,474 | ||||
|
| ||||
Total Assets | 2,025,986,548 | ||||
|
| ||||
Liabilities: | |||||
Cash overdraft | 46,114 | ||||
Payable for capital shares redeemed | 937,310 | ||||
Payable for collateral received on loaned securities | 28,869,401 | ||||
Payable for variation margin on futures contracts | 40,257 | ||||
Manager fees payable | 588,249 | ||||
Administration fees payable | 43,323 | ||||
Distribution fees payable | 392,295 | ||||
Custodian fees payable | 37,593 | ||||
Administrative and compliance services fees payable | 2,195 | ||||
Transfer agent fees payable | 836 | ||||
Trustee fees payable | 1,415 | ||||
Other accrued liabilities | 254,086 | ||||
|
| ||||
Total Liabilities | 31,213,074 | ||||
|
| ||||
Net Assets | $ | 1,994,773,474 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 1,527,143,396 | |||
Accumulated net investment income/(loss) | 41,135,060 | ||||
Accumulated net realized gains/(losses) from investment transactions | (14,271,219 | ) | |||
Net unrealized appreciation/(depreciation) on investments | 440,766,237 | ||||
|
| ||||
Net Assets | $ | 1,994,773,474 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 132,265,084 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 10,757,550 | ||||
Net Asset Value (offering and redemption price per share) | $ | 12.30 | |||
|
| ||||
Class 2 | |||||
Net Assets | $ | 1,862,508,390 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 107,688,606 | ||||
Net Asset Value (offering and redemption price per share) | $ | 17.30 | |||
|
|
* | Includes securities on loan of $27,597,730. |
For the Year Ended December 31, 2017
Investment Income: | |||||
Dividends | $ | 61,028,215 | |||
Dividends from affiliates | 532,322 | ||||
Interest | (39,887 | ) | |||
Income from securities lending | 850,735 | ||||
Other income | 80,097 | ||||
Foreign withholding tax | (6,970,665 | ) | |||
|
| ||||
Total Investment Income | 55,480,817 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 6,601,074 | ||||
Administration fees | 570,348 | ||||
Distribution fees — Class 2 | 4,388,516 | ||||
Custodian fees | 575,759 | ||||
Administrative and compliance services fees | 24,674 | ||||
Transfer agent fees | 13,648 | ||||
Trustee fees | 86,892 | ||||
Professional fees | 108,208 | ||||
Shareholder reports | 59,153 | ||||
Other expenses | 990,441 | ||||
|
| ||||
Total expenses | 13,418,713 | ||||
|
| ||||
Net Investment Income/(Loss) | 42,062,104 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions and foreign currencies | 19,859,443 | ||||
Net realized gains/(losses) on affiliated transactions | 457,785 | ||||
Net realized gains/(losses) on futures contracts | 1,816,206 | ||||
Change in net unrealized appreciation/depreciation on investments and foreign currencies | 344,340,854 | ||||
Change in net unrealized appreciation/depreciation on affiliated transactions | 3,527,247 | ||||
Change in net unrealized appreciation/depreciation on futures contracts | (254,226 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 369,747,309 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 411,809,413 | |||
|
|
See accompanying notes to the financial statements.
16
AZL International Index Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016* | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 42,062,104 | $ | 16,596,733 | ||||||
Net realized gains/(losses) on investment transactions | 22,133,434 | 61,199,671 | ||||||||
Change in unrealized appreciation/depreciation on investments | 347,613,875 | (69,297,090 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 411,809,413 | 8,499,314 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1 | (1,715,781 | ) | — | |||||||
Class 2 | (16,020,466 | ) | (15,359,017 | ) | ||||||
From net realized gains: | ||||||||||
Class 1 | (1,426,418 | ) | — | |||||||
Class 2 | (13,973,086 | ) | — | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (33,135,751 | ) | (15,359,017 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Class 1 | ||||||||||
Proceeds from shares issued | 364,282 | 128,504,865 | ||||||||
Proceeds from dividends reinvested | 3,142,199 | — | ||||||||
Value of shares redeemed | (20,249,269 | ) | (6,235,117 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | (16,742,788 | ) | 122,269,748 | |||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Proceeds from shares issued | 122,065,809 | 590,662,470 | ||||||||
Proceeds from shares issued in merger | — | 526,478,321 | ||||||||
Proceeds from dividends reinvested | 29,993,552 | 15,359,017 | ||||||||
Value of shares redeemed | (247,926,849 | ) | (95,529,373 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | (95,867,488 | ) | 1,036,970,435 | |||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (112,610,276 | ) | 1,159,240,183 | |||||||
|
|
|
| |||||||
Change in net assets | 266,063,386 | 1,152,380,480 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 1,728,710,088 | 576,329,608 | ||||||||
|
|
|
| |||||||
End of period | $ | 1,994,773,474 | $ | 1,728,710,088 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 41,135,060 | $ | 14,300,600 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Class 1 | ||||||||||
Shares issued | 34,123 | 12,850,775 | ||||||||
Dividends reinvested | 267,649 | — | ||||||||
Shares redeemed | (1,769,550 | ) | (625,447 | ) | ||||||
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Total Class 1 Shares | (1,467,778 | ) | 12,225,328 | |||||||
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Class 2 | ||||||||||
Shares issued | 7,560,049 | 42,216,948 | ||||||||
Shares issued in merger | — | 37,338,888 | ||||||||
Dividends reinvested | 1,815,590 | 1,091,615 | ||||||||
Shares redeemed | (15,536,341 | ) | (6,757,221 | ) | ||||||
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Total Class 2 Shares | (6,160,702 | ) | 73,890,230 | |||||||
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Change in shares | (7,628,480 | ) | 86,115,558 | |||||||
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* | Class 1 activity is 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
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2017 | 2016* | 2015 | 2014 | 2013 | |||||||||||||||||||||
Class 1 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.07 | $ | 10.00 | |||||||||||||||||||||
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Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.37 | 0.12 | |||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 2.15 | (0.05 | ) | ||||||||||||||||||||||
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Total from Investment Activities | 2.52 | 0.07 | |||||||||||||||||||||||
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Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.16 | ) | — | ||||||||||||||||||||||
Net Realized Gains | (0.13 | ) | — | ||||||||||||||||||||||
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Total Dividends | (0.29 | ) | — | ||||||||||||||||||||||
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Net Asset Value, End of Period | $ | 12.30 | $ | 10.07 | |||||||||||||||||||||
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Total Return(a) | 25.12 | % | 0.70 | %(b) | |||||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 132,265 | $ | 123,158 | |||||||||||||||||||||
Net Investment Income/(Loss)(c) | 2.48 | % | 1.19 | % | |||||||||||||||||||||
Expenses Before Reductions(c)(d) | 0.48 | % | 0.40 | % | |||||||||||||||||||||
Expenses Net of Reductions(c) | 0.48 | % | 0.40 | % | |||||||||||||||||||||
Portfolio Turnover Rate(e) | 8 | % | 55 | %(f) | |||||||||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 14.10 | $ | 14.42 | $ | 15.28 | $ | 16.57 | $ | 13.93 | |||||||||||||||
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Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.36 | 0.15 | 0.58 | 0.42 | 0.29 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 3.12 | (0.10 | ) | (0.79 | ) | (1.43 | ) | 2.65 | |||||||||||||||||
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Total from Investment Activities | 3.48 | 0.05 | (0.21 | ) | (0.99 | ) | 2.94 | ||||||||||||||||||
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Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.15 | ) | (0.37 | ) | (0.65 | ) | (0.30 | ) | (0.30 | ) | |||||||||||||||
Net Realized Gains | (0.13 | ) | — | — | — | — | |||||||||||||||||||
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Total Dividends | (0.28 | ) | (0.37 | ) | (0.65 | ) | (0.30 | ) | (0.30 | ) | |||||||||||||||
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Net Asset Value, End of Period | $ | 17.30 | $ | 14.10 | $ | 14.42 | $ | 15.28 | $ | 16.57 | |||||||||||||||
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Total Return(a) | 24.77 | % | 0.37 | % | (1.39 | )% | (6.18 | )% | 21.36 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 1,862,508 | $ | 1,605,552 | $ | 576,330 | $ | 863,302 | $ | 808,196 | |||||||||||||||
Net Investment Income/(Loss) | 2.21 | % | 2.11 | % | 2.16 | % | 2.88 | % | 2.23 | % | |||||||||||||||
Expenses Before Reductions(d) | 0.73 | % | 0.71 | % | 0.75 | % | 0.75 | % | 0.76 | % | |||||||||||||||
Expenses Net of Reductions | 0.73 | % | 0.71 | % | 0.74 | % | 0.75 | % | 0.76 | % | |||||||||||||||
Portfolio Turnover Rate(e) | 8 | % | 55 | %(f) | 13 | % | 3 | % | 2 | % |
* | Class 1 activity is 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 for periods less than one year. |
(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, 2017
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 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 accrues 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 and Withholding Taxes
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, or from other assets and liabilities, from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains is determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., reclassification of certain market discounts and gain/loss, and other permanent adjustments) 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.
19
AZL International Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017 are noted on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $46 million for the year ended December 31, 2017.
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 $75,953 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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, 2017.
Overnight and Continuous | Less than 30 Days | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions | $ | 27,882,297 | $ | 987,104 | $ | — | $ | — | $ | 28,869,401 |
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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. For the year ended December 31, 2017, the Fund participated in the following cross-trade transactions:
Purchases | Sales | Realized (Gain/Loss) | |||||||||||||
AZL International Index Fund | $ | 6,282,934 | $ | — | $ | — |
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, 2017, 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. For the year ended December 31, 2017, the monthly average notional amount for long contracts was $15.2 million. 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, 2017:
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 | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 121,753 | Payable for variation margin on futures contracts | $ | 106,925 |
* | 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. |
20
AZL International Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017:
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 | ||||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | $ | 1,816,206 | $ | (254,226 | ) |
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, 2019.
For the year ended December 31, 2017, the annual rate paid 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, 2017, there were no contractual reimbursements 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, 2017, there were no voluntary waivers.
At December 31, 2017, the following investments are noted as Affiliated Securities in the Fund’s Schedule of Portfolio Investments.
Fair Value 12/31/2016 | Purchases at Cost | Proceeds from Sales | Net Realized Gains/(Losses) | Net Change in Unrealized Appreciation/ Depreciation | Fair Value 12/31/2017 | Shares as of | Dividend Income | |||||||||||||||||||||||||||||||||
Allianz SE, Registered Shares | $ | 10,663,491 | $ | 644,624 | $ | (1,821,469 | ) | $ | 457,785 | $ | 3,527,247 | $ | 13,471,678 | 58,832 | $ | 532,322 | ||||||||||||||||||||||||
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$ | 10,663,491 | $ | 644,624 | $ | (1,821,469 | ) | $ | 457,785 | $ | 3,527,247 | $ | 13,471,678 | 58,832 | $ | 532,322 | |||||||||||||||||||||||||
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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.”
FIS Investor Services LLC (“FIS”) 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 of 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.
21
AZL International Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017, $19,761 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, 2017, actual Trustee compensation was $1,116,333 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.
There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Other^ | Total | ||||||||||||||||||||
Common Stocks | |||||||||||||||||||||||||
Banks | $ | 710,202 | $ | 243,914,669 | $ | — | $ | — | $ | 244,624,871 | |||||||||||||||
Hotels, Restaurants & Leisure | 982,278 | 27,960,799 | — | — | 28,943,077 | ||||||||||||||||||||
Paper & Forest Products | 1,256,714 | 4,038,273 | — | — | 5,294,987 | ||||||||||||||||||||
Pharmaceuticals | 2,207,031 | 139,906,620 | — | — | 142,113,651 | ||||||||||||||||||||
Real Estate Management & Development | 2,089,688 | 37,316,797 | 89 | — | 39,406,574 | ||||||||||||||||||||
Semiconductors & Semiconductor Equipment | 5,393,165 | 22,675,206 | — | — | 28,068,371 | ||||||||||||||||||||
Software | 1,768,068 | 29,694,384 | — | — | 31,462,452 | ||||||||||||||||||||
Trading Companies & Distributors | 947,611 | 27,321,561 | — | — | 28,269,172 | ||||||||||||||||||||
Other Common Stocks+ | 1,420,609,871 | — | 1,420,609,871 | ||||||||||||||||||||||
Preferred Stocks | — | 10,265,661 | — | — | 10,265,661 | ||||||||||||||||||||
Rights | 73,417 | — | 13,421 | — | 86,838 | ||||||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | — | 28,869,401 | 28,869,401 | ||||||||||||||||||||
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|
| ||||||||||||||||
Total Investment Securities | 15,428,174 | 1,963,703,841 | 13,510 | 28,869,401 | 2,008,014,926 | ||||||||||||||||||||
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| ||||||||||||||||
Other Financial Instruments:* | |||||||||||||||||||||||||
Futures Contracts | 14,828 | — | — | — | 14,828 | ||||||||||||||||||||
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|
|
|
|
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|
|
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| ||||||||||||||||
Total Investments | $ | 15,443,002 | $ | 1,963,703,841 | $ | 13,510 | $ | 28,869,401 | $ | 2,008,029,754 | |||||||||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
22
AZL International Index Fund
Notes to the Financial Statements
December 31, 2017
* | Other Financial Instruments would include any derivative instruments, such as futures contracts. These investments are generally presented in the financial statements at variation margin. |
^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
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, 2017, 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 | $ | 155,039,196 | $ | 254,432,390 |
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, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $1,613,922,160. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 414,222,144 | ||
Unrealized (depreciation) | (20,129,378 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 394,092,766 | ||
|
|
The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL International Index Fund | $ | 17,736,247 | $ | 15,399,504 | $ | 33,135,751 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
23
AZL International Index Fund
Notes to the Financial Statements
December 31, 2017
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 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. |
At December 31, 2017, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ Depreciation(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL International Index Fund | $ | 53,411,324 | $ | 19,797,865 | $ | — | $ | 394,420,889 | $ | 467,630,078 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2017, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 35% of the Fund.
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
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, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the periods or years in the five-year period then ended. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the periods or years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
25
Other Federal Income Tax Information (Unaudited)
During the year ended December 31, 2017, the Fund declared net long-term capital gain distributions of $15,399,504
26
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Fund of Funds Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
27
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
28
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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
29
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in 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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
32
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® MetWest Total Return Bond Fund
Annual Report
December 31, 2017
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
Page 12
Statements of Changes in Net Assets
Page 13
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
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® 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, 2017?
For the year ended December 31, 2017, the AZL® MetWest Total Return Bond Fund (the “Fund”) returned 3.14%. That compared to a 3.54% total return for its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index1.
Fixed-income markets were positive during the year. The Federal Reserve (the Fed) raised interest rates three times, sending short-term yields higher. At the same time, investor demand for yield pushed long-term yields lower, causing the yield curve to flatten sharply. Corporate bonds benefited from these narrowing spreads. Agency mortgage backed securities also rose in value, experiencing a boost in returns due to range-bound interest rates and low volatility.
The Fund underperformed its benchmark during the period. Relative performance was hurt by an underweight allocation to corporate credit and a conservative positioning within corporates due to the relatively good performance of the corporate sector during the period. In particular, though the Fund’s emphasis on banking and REITs2 boosted returns, underweight allocations to technology and commodity-related sectors such as energy and metals dragged on performance.*
A defensive duration position, which helped relative performance as U.S. Treasury rates rose across short and intermediate maturities. An overweight allocation to government guaranteed student loans and commercial mortgage-backed securities also contributed to return, as both outpaced the Bloomberg Barclays U.S. Aggregate
Index. Additionally, an allocation to non-agency mortgage backed securities, particularly those backed by subprime collateral, contributed to relative performance. These bonds benefited from solid fundamentals in the form of faster prepayments and rising home values.*
The Fund had exposure to futures and currency forwards during the period. These derivatives did not materially affect Fund performance. The Fund’s underweight allocations to technology and commodity-related sectors such as energy and metals dragged on 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, 2017. |
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® 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 nderivatives 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, 2017
Since | ||||||||||||
1 | 3 | Inception | ||||||||||
Year | Year | (11/17/14) | ||||||||||
AZL® MetWest Total Return Bond Fund | 3.14 | % | 1.74 | % | 1.89 | % | ||||||
Bloomberg Barclays U.S. Aggregate Bond Index | 3.54 | % | 2.24 | % | 2.41 | % |
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 | 0.91 | % |
The above expense ratio is based on the current Fund prospectus dated May 1, 2017. 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, 2019. Additional information pertaining to the December 31, 2017 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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL MetWest Total Return Bond Fund | $ | 1,000.00 | $ | 1,010.30 | $ | 4.31 | 0.85 | % |
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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL MetWest Total Return Bond Fund | $ | 1,000.00 | $ | 1,020.90 | $ | 4.33 | 0.85 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
U.S. Treasury Obligations | 30.5 | % | |||
U.S. Government Agency Mortgages | 29.7 | ||||
Corporate Bonds | 26.0 | ||||
Collateralized Mortgage Obligations | 9.1 | ||||
Money Markets | 7.5 | ||||
Asset Backed Securities | 5.3 | ||||
Foreign Bonds | 3.8 | ||||
Yankee Dollars | 2.7 | ||||
Municipal Bonds | 1.5 | ||||
Securities Held as Collateral for Securities on Loan | 0.2 | ||||
|
| ||||
Total Investment Securities | 116.3 | ||||
Net other assets (liabilities) | (16.3 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL MetWest Total Return Bond Fund
Schedule of Portfolio Investments
December 31, 2017
Principal | Fair Value | |||||||
Asset Backed Securities (5.3%): | ||||||||
$ | 655,987 | Goal Capital Funding Trust, Class A3, Series 2005-2, 1.63%(US0003M+17bps), 5/28/30 | $ | 655,201 | ||||
750,000 | Magnetite CLO, Ltd., Class 2A3, Series 2015-12A, 2.69%(US0003M+133bps), 4/15/27, Callable 1/15/18 @ 100(a) | 754,908 | ||||||
703,103 | Navient Student Loan Trust, Class A, Series 2014-2, 1.97%(US0001M+64bps), 3/25/83, Callable 10/25/33 @ 100 | 697,645 | ||||||
682,031 | Navient Student Loan Trust, Class A, Series 2014-3, 1.95%(US0001M+62bps), 3/25/83, Callable 11/25/32 @ 100 | 677,790 | ||||||
450,835 | Navient Student Loan Trust, Class A, Series 2014-4, 1.95%(US0001M+62bps), 3/25/83, Callable 2/25/33 @ 100 | 446,764 | ||||||
865,913 | Navient Student Loan Trust, Class A, Series 2016-1A, 2.25%(US0001M+70bps), 2/25/70, Callable 8/25/33 @ 100(a) | 868,588 | ||||||
965,000 | Navient Student Loan Trust, Class A3, Series 2016-2, 3.05%(US0001M+150bps), 6/25/65, Callable 12/25/29 @ 100(a) | 1,000,526 | ||||||
950,000 | Navient Student Loan Trust, Class A3, Series 2017-3A, 2.60%(US0001M+105bps), 7/26/66, Callable 9/25/33 @ 100(a) | 975,003 | ||||||
1,325,655 | Nelnet Student Loan Trust, Class A2, Series 2015-2A, 2.15%(US0001M+60bps), 9/25/47, Callable 7/25/32 @ 100(a) | 1,321,116 | ||||||
2,615,000 | SLC Student Loan Trust, Class 2A3, Series 2006-1, 1.75%(US0003M+16bps), 3/15/55, Callable 3/15/30 @ 100 | 2,507,807 | ||||||
1,384,351 | SLC Student Loan Trust, Class 2A3, Series 2008-1, 3.19%(US0003M+160bps), 12/15/32, Callable 3/15/27 @ 100 | 1,428,919 | ||||||
789,813 | SLM Student Loan Trust, Class 2A3, Series 2003-7, 2.16%(US0003M+57bps), 9/15/39, Callable 12/15/28 @ 100 | 742,102 | ||||||
698,584 | SLM Student Loan Trust, Class A3, Series 2003-10A, 2.06%(US0003M+55bps), 12/15/27(a) | 700,128 | ||||||
940,000 | SLM Student Loan Trust, Class A6A, Series 2004-3A, 1.92%(US0003M+55bps), 10/25/64, Callable 10/25/28 @ 100(a) | 933,578 | ||||||
680,370 | SLM Student Loan Trust, Class A4, Series 2007-6, 1.75%(US0003M+38bps), 10/25/24, Callable 10/25/33 @ 100 | 680,108 | ||||||
1,220,000 | SLM Student Loan Trust, Class 2A3, Series 2008-5, 3.22%(US0003M+185bps), 7/25/73, Callable 1/25/24 @ 100 | 1,223,046 | ||||||
240,000 | SLM Student Loan Trust, Class 2A3, Series 2008-9, 3.62%(US0003M+225bps), 10/25/83, Callable 1/25/24 @ 100 | 245,262 | ||||||
1,548,350 | SLM Student Loan Trust, Class A, Series 2009-3, 2.08%(US0001M+75bps), 1/25/45, Callable 10/25/33 @ 100(a) | 1,540,974 | ||||||
1,970,000 | Wachovia Student Loan Trust, Class 2A3, Series 2006-1, 1.54%(US0003M+17bps), 4/25/40, Callable 10/25/25 @ 100(a) | 1,898,661 | ||||||
|
| |||||||
Total Asset Backed Securities (Cost $18,999,098) | 19,298,126 | |||||||
|
|
Principal | Fair Value | |||||||
Collateralized Mortgage Obligations (9.1%): | ||||||||
$ | 52,892 | 7 WTC Depositor LLC Trust, Class A, Series 2012-7WTC, 4.08%, 3/13/31(a) | $ | 53,115 | ||||
1,554,900 | America Home Mortgage Investment Trust, Class 6A, Series 2005-1, 3.56%(US0006M+200bps), 6/25/45, Callable 1/25/18 @ 100 | 1,574,419 | ||||||
893,139 | Ameriquest Mortgage Securities, Inc., Class M2, Series 2005-R5, 2.24%(US0001M+46bps), 7/25/35, Callable 1/25/18 @ 100 | 895,369 | ||||||
497,148 | Ameriquest Mortgage Securities, Inc., Class M2, Series 2005-R5, 2.27%(US0001M+72bps), 4/25/35, Callable 1/25/18 @ 100 | 497,358 | ||||||
210,000 | Babson CLO, Ltd., Class A, Series 2015-IA, 2.79%(US0003M+143bps), 4/20/27, Callable 1/20/18 @ 100(a) | 210,335 | ||||||
732,775 | Bank of America Mortgage Securities, Inc., Class 2A3, Series 2005-F, 3.71%, 7/25/35, Callable 1/25/18 @ 100(b) | 693,900 | ||||||
340,000 | Barclays Commercial Mortgages Securities, Class A2, Series 2013-TYSNC, 3.76%, 9/5/32(a) | 351,328 | ||||||
360,000 | CGRBS Commercial Mortgage Trust, Class A, Series 2013-VN05, 3.37%, 3/13/35(a) | 367,792 | ||||||
262,653 | Citigroup Mortgage Loan Trust, Inc., Class 2A3, Series 2006-WFH3, 1.79%(US0001M+24bps), 10/25/36, Callable 4/25/20 @ 100 | 262,523 | ||||||
1,393,157 | Citigroup Mortgage Loan Trust, Inc., Class 1A1A, Series 2007-AR5, 3.55%, 4/25/37, Callable 6/25/30 @ 100(b) | 1,304,267 | ||||||
390,000 | Commercial Mortgage Trust, Class A, Series 2014-277P, 3.61%, 8/10/49(a)(b) | 404,715 | ||||||
360,000 | Commercial Mortgage Trust, Class A1, Series 2013-300P, 4.35%, 8/10/30(a) | 385,708 | ||||||
365,000 | Commercial Mortgage Trust, Class A, Series 2016-787S, 3.55%, 2/10/36(a)(b) | 372,778 | ||||||
1,184,161 | Credit Suisse Mortgage Capital Certificates, Class A2E, Series 2007-CB2, 4.27%, 2/25/37, Callable 1/25/24 @ 100(b) | 860,560 | ||||||
860,000 | Federal Home Loan Mortgage Corp., Class A3, Series K151, 3.51%, 4/25/30 | 899,224 | ||||||
1,561,511 | Federal National Mortgage Association, Class A3, Series 2015-M2, 3.05%, 12/25/24(b) | 1,597,526 | ||||||
892,234 | First Franklin Mortgage Loan Trust, Class M1, Series 2005-FF8, 2.29%(US0001M+49bps), 9/25/35, Callable 1/25/18 @ 100 | 895,849 | ||||||
1,225,818 | First Horizon Alternative Mortgage Securities Trust, Class 2A1, Series 2005-AA12, 3.19%, 2/25/36, Callable 11/25/18 @ 100(b) | 1,009,627 | ||||||
647,466 | First Horizon Alternative Mortgage Securities Trust, Class 2A1, Series 2005-AR3, 3.28%, 8/25/35, Callable 1/25/18 @ 100(b) | 560,715 | ||||||
1,391,898 | First Horizon Alternative Mortgage Securities Trust, Class 1A1, Series 2006-AA1, 3.21%, 3/25/36, Callable 1/25/19 @ 100(b) | 1,274,742 | ||||||
1,157,947 | First Horizon Alternative Mortgage Securities Trust, Class 2A1, Series 2006-AA1, 3.20%, 4/25/36, Callable 1/25/19 @ 100(b) | 1,066,783 |
Continued
4
AZL MetWest Total Return Bond Fund
Schedule of Portfolio Investments
December 31, 2017
Principal | Fair Value | |||||||
Collateralized Mortgage Obligations, continued | ||||||||
$ | 1,181,522 | GMAC Mortgage Corp. Loan Trust, Class 1A1, Series 2006-AR1, 3.84%, 4/19/36, Callable 9/19/18 @ 100(b) | $ | 1,109,670 | ||||
987,401 | GMAC Mortgage Corp. Loan Trust, Class 3A1, Series 2005-AR5, 3.93%, 9/19/35, Callable 6/19/18 @ 100(b) | 940,377 | ||||||
280,000 | GRACE Mortgage Trust, Class A, Series 2014-GRCE, 3.37%, 6/10/28(a) | 287,189 | ||||||
147,500 | GS Mortgage Securities Trust, Class A, Series 2012-ALOH, 3.55%, 4/10/34(a) | 152,086 | ||||||
1,878,288 | HarborView Mortgage Loan Trust, Class 1A1A, Series 2006-10, 1.69%(US0001M+20bps), 11/19/36, Callable 4/19/25 @ 100 | 1,668,280 | ||||||
365,000 | Liberty Street Trust, Class A, Series 2016-225L, 3.60%, 2/10/36(a) | 375,954 | ||||||
750,000 | Magnetite IX, Ltd., Class A1R, Series 2014-9A, 2.37%(US0003M+100bps), 7/25/26, Callable 1/25/18 @ 100(a) | 750,915 | ||||||
1,000,000 | Magnetite XI, Ltd., Class A1R, Series 2014-11A, 2.47%(US0003M+112bps), 1/18/27, Callable 1/18/18 @ 100(a) | 1,003,358 | ||||||
1,012,728 | Merrill Lynch First Franklin Mortgage Loan Trust, Class 2A2, Series 2007-4, 1.67%(US0001M+12bps), 7/25/37, Callable 8/25/23 @ 100 | 719,190 | ||||||
155,490 | Merrill Lynch Mortgage Trust, Class A1A, Series 2007-C1, 5.81%, 6/12/50(b) | 155,404 | ||||||
86,754 | Morgan Stanley Capital I Trust, Class A3, Series 2011-C1, 4.70%, 9/15/47(a) | 86,942 | ||||||
345,000 | Morgan Stanley Capital I Trust, Class A, Series 2014-MP, 3.47%, 8/11/33(a) | 353,195 | ||||||
1,144,809 | Morgan Stanley Remic Trust, Class 3A, Series 2014-R8, 1.75%(12MTA+75bps), 6/26/47(a) | 1,105,440 | ||||||
844,220 | MortgageIT Trust, Class 2A3, Series 2005-2, 3.01%(US0001M+165bps), 5/25/35, Callable 1/25/18 @ 100 | 832,896 | ||||||
144,854 | Newcastle Mortgage Securities Trust, Class A4, Series 2006-1, 1.83%(US0001M+28bps), 3/25/36, Callable 1/25/18 @ 100 | 144,841 | ||||||
865,726 | Nomura Asset Acceptance Corp., Class 3A1, Series 2005-AR3, 5.69%, 7/25/35, Callable 1/25/18 @ 100(b) | 881,068 | ||||||
385,000 | RBSCF Trust, Class A, Series 2013-GSP, 3.83%, 1/13/32(a)(b) | 398,423 | ||||||
1,693,716 | Residential Accredit Loans, Inc., Class A2, Series 2006-QA10, 1.73%(US0001M+18bps), 12/25/36, Callable 3/25/19 @ 100 | 1,596,753 | ||||||
1,080,861 | WaMu Mortgage Pass-Through Certificates, Class 2A1A, Series 2005-AR6, 2.01%(US0001M+23bps), 4/25/45, Callable 1/25/18 @ 100 | 1,061,530 | ||||||
1,232,634 | WaMu Mortgage Pass-Through Certificates, Class 2A1A, Series 2005-AR8, 1.84%(US0001M+29bps), 7/25/45, Callable 1/25/18 @ 100 | 1,214,228 | ||||||
1,110,392 | WaMu Mortgage Pass-Through Certificates, Class A2, Series 2005-AR3, 3.08%, 3/25/35, Callable 8/25/18 @ 100(b) | 1,123,321 |
Principal | Fair Value | |||||||
Collateralized Mortgage Obligations, continued | ||||||||
$ | 856,310 | Wells Fargo Mortgage Backed Securities Trust, Class 2A1, Series 2006-AR2, 3.54%, 3/25/36, Callable 6/25/18 @ 100(b) | $ | 866,765 | ||||
900,431 | Wells Fargo Mortgage Backed Securities Trust, Class 1A1, Series 2006-AR12, 3.75%, 9/25/36, Callable 1/25/18 @ 100(b) | 898,919 | ||||||
|
| |||||||
Total Collateralized Mortgage Obligations (Cost $32,482,683) | 33,265,377 | |||||||
|
| |||||||
Corporate Bonds (26.0%): | ||||||||
Aerospace & Defense (0.4%): | ||||||||
550,000 | Northrop Grumman Corp., 3.25%, 1/15/28, Callable 10/15/27 @ 100 | 550,803 | ||||||
960,000 | United Technologies Corp., 1.78%, 5/4/18 | 958,532 | ||||||
|
| |||||||
1,509,335 | ||||||||
|
| |||||||
Airlines (0.7%): | ||||||||
1,323,202 | Continental Airlines 2009-2, Series A, 7.25%, 11/10/19 | 1,426,577 | ||||||
233,283 | U.S. Airways 2001-1G PTT, Class G, Series 2001, 7.08%, 9/20/22 | 245,793 | ||||||
812,513 | U.S. Airways 2010-1A PTT, Series A, 6.25%, 10/22/24 | 897,908 | ||||||
|
| |||||||
2,570,278 | ||||||||
|
| |||||||
Auto Components (0.0%): | ||||||||
66,000 | Goodyear Tire & Rubber Co., 4.88%, 3/15/27, Callable 12/15/26 @ 100 | 67,568 | ||||||
|
| |||||||
Automobiles (0.1%): | ||||||||
400,000 | General Motors Co., 3.50%, 10/2/18 | 404,161 | ||||||
|
| |||||||
Banks (6.1%): | ||||||||
1,415,000 | Bank of America Corp., 5.65%, 5/1/18, MTN | 1,431,886 | ||||||
670,000 | Bank of America Corp., Series G, 2.37%(US0003M+66bps), 7/21/21, Callable 7/21/20 @ 100 | 668,826 | ||||||
735,000 | Bank of America Corp., 3.09%(US0003M+109bps), 10/1/25, Callable 10/1/24 @ 100 | 733,314 | ||||||
350,000 | Bank of America Corp., 3.70%(US0003M+151bps), 4/24/28, Callable 4/24/27 @ 100 | 359,238 | ||||||
685,000 | Bank of America Corp., Series G, 3.59%(US0003M+137bps), 7/21/28, Callable 7/21/27 @ 100 | 696,271 | ||||||
2,000,000 | Bear Stearns Co., Inc., 7.25%, 2/1/18 | 2,007,997 | ||||||
1,190,000 | Citigroup, Inc., 1.75%, 5/1/18 | 1,189,008 | ||||||
500,000 | Citigroup, Inc., 2.05%, 12/7/18 | 499,477 | ||||||
500,000 | Citigroup, Inc., 2.55%, 4/8/19 | 501,765 | ||||||
500,000 | Citigroup, Inc., 2.50%, 7/29/19 | 501,534 | ||||||
700,000 | Citigroup, Inc., 3.89%(US0003M+156bps), 1/10/28, Callable 1/10/27 @ 100 | 724,557 | ||||||
2,265,000 | JPMorgan Chase & Co., 6.00%, 1/15/18 | 2,268,150 | ||||||
960,000 | JPMorgan Chase & Co., 3.22%(US0003M+116bps), 3/1/25, Callable 3/1/24 @ 100 | 967,486 | ||||||
750,000 | JPMorgan Chase & Co., 3.54%(US0003M+138bps), 5/1/28, Callable 5/1/27 @ 100 | 763,010 | ||||||
2,485,000 | Merrill Lynch & Co., 6.88%, 4/25/18, MTN | 2,522,964 | ||||||
3,510,000 | Wachovia Corp., 5.75%, 2/1/18 | 3,520,882 | ||||||
265,000 | Wells Fargo & Co., 3.55%, 9/29/25, MTN | 272,013 |
Continued
5
AZL MetWest Total Return Bond Fund
Schedule of Portfolio Investments
December 31, 2017
Principal | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Banks, continued | ||||||||
$ | 2,110,000 | Wells Fargo & Co., 3.00%, 4/22/26 | $ | 2,070,120 | ||||
350,000 | Wells Fargo Bank NA, 2.15%, 12/6/19 | 349,460 | ||||||
|
| |||||||
22,047,958 | ||||||||
|
| |||||||
Beverages (0.5%): | ||||||||
763,000 | Anheuser-Busch InBev NV, 4.90%, 2/1/46, Callable 8/1/45 @ 100 | 884,309 | ||||||
900,000 | Constellation Brands, Inc., 2.00%, 11/7/19 | 894,168 | ||||||
|
| |||||||
1,778,477 | ||||||||
|
| |||||||
Biotechnology (0.7%): | ||||||||
300,000 | AbbVie, Inc., 4.70%, 5/14/45, Callable 11/14/44 @ 100 | 336,382 | ||||||
300,000 | Amgen, Inc., 4.40%, 5/1/45, Callable 11/1/44 @ 100 | 326,412 | ||||||
500,000 | Amgen, Inc., 4.56%, 6/15/48, Callable 12/15/47 @ 100 | 557,506 | ||||||
660,000 | Celgene Corp., 5.00%, 8/15/45, Callable 2/15/45 @ 100 | 748,829 | ||||||
500,000 | Gilead Sciences, Inc., 4.75%, 3/1/46, Callable 9/1/45 @ 100 | 578,370 | ||||||
|
| |||||||
2,547,499 | ||||||||
|
| |||||||
Capital Markets (3.0%): | ||||||||
300,000 | Goldman Sachs Group, Inc. (The), 5.95%, 1/18/18 | 300,473 | ||||||
1,000,000 | Goldman Sachs Group, Inc. (The), 2.38%, 1/22/18 | 1,000,204 | ||||||
1,315,000 | Goldman Sachs Group, Inc. (The), 6.15%, 4/1/18 | 1,328,840 | ||||||
1,600,000 | Goldman Sachs Group, Inc. (The), 2.63%, 1/31/19 | 1,606,912 | ||||||
570,000 | Goldman Sachs Group, Inc. (The), Series G, 7.50%, 2/15/19 | 602,396 | ||||||
400,000 | Goldman Sachs Group, Inc. (The), 3.85%, 7/8/24, Callable 4/8/24 @ 100 | 414,907 | ||||||
550,000 | Goldman Sachs Group, Inc. (The), 3.27%(US0003M+120bps), 9/29/25, Callable 9/29/24 @ 100 | 547,784 | ||||||
2,000,000 | Morgan Stanley, 6.63%, 4/1/18, MTN | 2,021,911 | ||||||
780,000 | Morgan Stanley, Series G, 7.30%, 5/13/19 | 831,566 | ||||||
1,200,000 | Morgan Stanley, 2.21%(US0003M+80bps), 2/14/20, Callable 2/14/19 @ 100 | 1,204,783 | ||||||
500,000 | Morgan Stanley, 5.50%, 7/24/20 | 536,090 | ||||||
400,000 | Morgan Stanley, 2.29%(US0003M+93bps), 7/22/22, Callable 7/22/21 @ 100 | 403,213 | ||||||
|
| |||||||
10,799,079 | ||||||||
|
| |||||||
Chemicals (0.1%): | ||||||||
180,000 | Axalta Coating Systems, 4.88%, 8/15/24, Callable 8/15/19 @ 103.66(a) | 189,000 | ||||||
170,000 | Valvoline, Inc., 4.38%, 8/15/25, Callable 8/15/20 @ 103.28 | 171,700 | ||||||
|
| |||||||
360,700 | ||||||||
|
| |||||||
Commercial Services & Supplies (0.3%): | ||||||||
200,000 | Clean Harbors, Inc., 5.13%, 6/1/21, Callable 2/5/18 @ 101.28 | 202,000 | ||||||
750,000 | Republic Services, Inc., 3.80%, 5/15/18 | 755,185 | ||||||
|
| |||||||
957,185 | ||||||||
|
|
Principal | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Consumer Finance (0.8%): | ||||||||
$ | 1,000,000 | Discover Bank, 2.00%, 2/21/18 | $ | 1,000,070 | ||||
500,000 | Discover Bank, 2.60%, 11/13/18, Callable 10/12/18 @ 100 | 501,697 | ||||||
400,000 | Ford Motor Credit Co. LLC, 2.15%, 1/9/18 | 400,008 | ||||||
500,000 | Ford Motor Credit Co. LLC, 2.55%, 10/5/18 | 501,452 | ||||||
600,000 | General Motors Financial Co., Inc., 3.10%, 1/15/19 | 603,211 | ||||||
|
| |||||||
3,006,438 | ||||||||
|
| |||||||
Containers & Packaging (0.3%): | ||||||||
600,000 | Amcor Finance USA, Inc., 3.63%, 4/28/26, Callable 1/28/26 @ 100(a) | 591,229 | ||||||
339,188 | Beverage Packaging Holdings Luxemberg, 5.75%, 10/15/20, Callable 2/5/18 @ 101.44 | 344,276 | ||||||
175,000 | Crown Americas LLC/Crown Americas Capital Corp., 4.25%, 9/30/26, Callable 3/31/26 @ 100 | 172,375 | ||||||
|
| |||||||
1,107,880 | ||||||||
|
| |||||||
Diversified Consumer Services (0.1%): | ||||||||
185,000 | Service Corp. International/US, 4.63%, 12/15/27, Callable 12/15/22 @ 102.31 | 187,705 | ||||||
|
| |||||||
Diversified Financial Services (0.1%): | ||||||||
400,000 | Berkshire Hathaway Finance Corp., 4.30%, 5/15/43 | 447,194 | ||||||
|
| |||||||
Diversified Telecommunication Services (1.2%): | ||||||||
375,000 | AT&T, Inc., 3.80%, 3/15/22 | 387,557 | ||||||
840,000 | AT&T, Inc., 4.80%, 6/15/44, Callable 12/15/43 @ 100 | 830,828 | ||||||
500,000 | AT&T, Inc., 5.15%, 11/15/46, Callable 5/15/46 @ 100(a) | 511,016 | ||||||
470,000 | AT&T, Inc., 4.50%, 3/9/48, Callable 9/9/47 @ 100 | 440,381 | ||||||
180,000 | Level 3 Financing, Inc., 5.25%, 3/15/26, Callable 3/15/21 @ 102.63 | 176,679 | ||||||
550,000 | Verizon Communications, Inc., 4.50%, 8/10/33 | 576,856 | ||||||
700,000 | Verizon Communications, Inc., 3.85%, 11/1/42, Callable 5/1/42 @ 100 | 633,188 | ||||||
800,000 | Verizon Communications, Inc., 4.86%, 8/21/46 | 833,299 | ||||||
75,000 | Zayo Group LLC/Zayo Capital, Inc., 5.75%, 1/15/27, Callable 1/15/22 @ 102.88(a) | 76,500 | ||||||
|
| |||||||
4,466,304 | ||||||||
|
| |||||||
Electric Utilities (2.3%): | ||||||||
280,000 | American Transmission Systems, Inc., 5.00%, 9/1/44, Callable 3/1/44 @ 100(a) | 325,463 | ||||||
500,000 | Appalachian Power Co., Series H, 5.95%, 5/15/33 | 613,454 | ||||||
400,000 | Cleco Power LLC, 6.00%, 12/1/40 | 502,564 | ||||||
1,000,000 | Duke Energy Progress, Inc., 4.15%, 12/1/44, Callable 6/1/44 @ 100 | 1,090,745 | ||||||
936,000 | Duquesne Light Holdings, Inc., 6.40%, 9/15/20(a) | 1,023,555 | ||||||
1,250,000 | Florida Power & Light Co., 1.67%(US0003M+28bps), 11/6/20, Callable 5/6/18 @ 100 | 1,249,996 | ||||||
750,000 | Jersey Central Power & Light Co., 6.40%, 5/15/36 | 916,793 | ||||||
300,000 | Midamerican Energy Co., 4.25%, 5/1/46, Callable 11/1/45 @ 100 | 336,790 | ||||||
100,000 | NextEra Energy Operating Partners LP, 4.50%, 9/15/27, Callable 6/15/27 @ 100(a) | 99,500 |
Continued
6
AZL MetWest Total Return Bond Fund
Schedule of Portfolio Investments
December 31, 2017
Principal | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Electric Utilities, continued | ||||||||
$ | 1,500,000 | Oncor Electric Delivery Co. LLC, 4.10%, 6/1/22, Callable 3/1/22 @ 100 | $ | 1,579,945 | ||||
700,000 | Public Service Oklahoma, 4.40%, 2/1/21 | 738,689 | ||||||
|
| |||||||
8,477,494 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (0.0%): | ||||||||
100,000 | Itron, Inc., 5.00%, 1/15/26, Callable 1/15/21 @ 102.5(a) | 100,375 | ||||||
|
| |||||||
Equity Real Estate Investment Trusts (2.8%): | ||||||||
500,000 | Alexandria Real Estate Equities, Inc., 3.45%, 4/30/25, Callable 2/28/25 @ 100 | 498,338 | ||||||
590,000 | American Campus Communities Operating Partnership LP, 3.63%, 11/15/27, Callable 8/15/27 @ 100 | 583,515 | ||||||
295,000 | American Tower Corp., 3.00%, 6/15/23 | 294,227 | ||||||
400,000 | Crown Castle International Corp., 3.20%, 9/1/24, Callable 7/1/24 @ 100 | 395,852 | ||||||
180,000 | GLP Capital LP/GLP Financing II, Inc., 4.38%, 11/1/18, Callable 8/1/18 @ 100 | 181,350 | ||||||
575,000 | HCP, Inc., 4.00%, 12/1/22, Callable 10/1/22 @ 100 | 602,074 | ||||||
875,000 | HCP, Inc., 4.25%, 11/15/23, Callable 8/15/23 @ 100 | 918,382 | ||||||
400,000 | HCP, Inc., 3.88%, 8/15/24, Callable 5/17/24 @ 100 | 409,419 | ||||||
750,000 | Highwoods Realty LP, 7.50%, 4/15/18 | 761,349 | ||||||
183,000 | SBA Communications Corp., 4.00%, 10/1/22, Callable 10/1/19 @ 102(a) | 183,229 | ||||||
112,000 | SBA Communications Corp., 4.88%, 9/1/24, Callable 9/1/19 @ 103.66 | 115,080 | ||||||
1,150,000 | SL Green Realty Corp., 5.00%, 8/15/18, Callable 6/15/18 @ 100 | 1,164,090 | ||||||
1,000,000 | Ventas Realty LP, 2.00%, 2/15/18, Callable 2/5/18 @ 100 | 999,943 | ||||||
1,500,000 | WEA Finance LLC, 2.70%, 9/17/19, Callable 8/17/19 @ 100(a) | 1,508,100 | ||||||
1,440,000 | Welltower, Inc., 3.75%, 3/15/23, Callable 12/15/22 @ 100 | 1,492,211 | ||||||
|
| |||||||
10,107,159 | ||||||||
|
| |||||||
Food & Staples Retailing (0.3%): | ||||||||
100,000 | Cumberland Farms, Inc., 6.75%, 5/1/25, Callable 5/1/20 @ 105.06(a) | 106,000 | ||||||
790,000 | Walgreens Boots Alliance, Inc., 3.80%, 11/18/24, Callable 8/18/24 @ 100 | 806,790 | ||||||
300,000 | Walgreens Boots Alliance, Inc., 4.80%, 11/18/44, Callable 5/18/44 @ 100 | 322,994 | ||||||
|
| |||||||
1,235,784 | ||||||||
|
| |||||||
Food Products (0.3%): | ||||||||
46,000 | Chobani LLC/Finance Corp., 7.50%, 4/15/25, Callable 4/15/20 @ 105.63(a) | 48,760 | ||||||
795,000 | Kraft Heinz Foods Co., 3.95%, 7/15/25, Callable 4/15/25 @ 100 | 821,133 | ||||||
92,000 | Pilgrim’s Pride Corp., 5.88%, 9/30/27, Callable 9/30/22 @ 102.94(a) | 94,760 | ||||||
170,000 | Post Holdings, Inc., 5.75%, 3/1/27, Callable 3/1/22 @ 102.88(a) | 172,975 | ||||||
|
| |||||||
1,137,628 | ||||||||
|
|
Principal | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Health Care Equipment & Supplies (0.1%): | ||||||||
$ | 190,000 | Hill-Rom Holdings, Inc., 5.75%, 9/1/23, Callable 9/1/18 @ 104.31(a) | $ | 198,787 | ||||
185,000 | Hologic, Inc., 4.38%, 10/15/25, Callable 10/15/20 @ 102.19(a) | 187,775 | ||||||
92,000 | Teleflex, Inc., 4.63%, 11/15/27, Callable 11/15/22 @ 102.31 | 92,787 | ||||||
|
| |||||||
479,349 | ||||||||
|
| |||||||
Health Care Providers & Services (1.4%): | ||||||||
100,000 | Aetna, Inc., 1.70%, 6/7/18 | 99,843 | ||||||
262,000 | Centene Corp., 4.75%, 1/15/25, Callable 1/15/20 @ 103.56 | 266,585 | ||||||
500,000 | Cigna Corp., 3.05%, 10/15/27, Callable 7/15/27 @ 100 | 491,118 | ||||||
125,000 | Community Health System, Inc., 6.25%, 3/31/23, Callable 3/31/20 @ 103.13 | 112,500 | ||||||
77,000 | DaVita Healthcare Partners, Inc., 5.00%, 5/1/25, Callable 5/1/20 @ 102.5 | 76,977 | ||||||
1,000,000 | Fresenius Medical Care US Finance II, Inc., 6.50%, 9/15/18(a) | 1,031,108 | ||||||
650,000 | HCA, Inc., 6.50%, 2/15/20 | 689,000 | ||||||
850,000 | Kaiser Foundation Hospitals, 3.15%, 5/1/27, Callable 2/1/27 @ 100^ | 850,801 | ||||||
141,000 | Molina Healthcare, Inc., 5.38%, 11/15/22, Callable 8/15/22 @ 100 | 146,993 | ||||||
26,000 | Tenet Healthcare Corp., 4.50%, 4/1/21 | 26,130 | ||||||
131,000 | Tenet Healthcare Corp., 4.63%, 7/15/24, Callable 7/15/20 @ 102.31(a) | 127,725 | ||||||
550,000 | UnitedHealth Group, Inc., 3.75%, 10/15/47, Callable 4/15/47 @ 100 | 561,147 | ||||||
107,000 | WellCare Health Plans, 5.25%, 4/1/25, Callable 4/1/20 @ 103.94 | 112,885 | ||||||
500,000 | WellPoint, Inc., 3.50%, 8/15/24, Callable 5/15/24 @ 100 | 509,769 | ||||||
|
| |||||||
5,102,581 | ||||||||
|
| |||||||
Health Care Technology (0.0%): | ||||||||
170,000 | Change Health/ Finance, Inc., 5.75%, 3/1/25, Callable 3/1/20 @ 102.88(a) | 170,000 | ||||||
|
| |||||||
Hotels, Restaurants & Leisure (0.0%): | ||||||||
100,000 | MGM Growth/MGM Finance, 5.63%, 5/1/24, Callable 2/1/24 @ 100 | 106,500 | ||||||
|
| |||||||
Household Products (0.1%): | ||||||||
160,000 | Central Garden & Pet Co., 6.13%, 11/15/23, Callable 11/15/18 @ 104.59 | 169,200 | ||||||
100,000 | Spectrum Brands, Inc., 5.75%, 7/15/25, Callable 7/15/20 @ 102.88 | 105,250 | ||||||
|
| |||||||
274,450 | ||||||||
|
| |||||||
Industrial Conglomerates (0.1%): | ||||||||
273,000 | General Electric Capital Corp., 5.88%, 1/14/38, MTN | 353,040 | ||||||
|
|
Continued
7
AZL MetWest Total Return Bond Fund
Schedule of Portfolio Investments
December 31, 2017
Principal | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Insurance (0.9%): | ||||||||
$ | 1,600,000 | Farmers Exchange Capital III, 5.45%(US0003M+345bps), 10/15/54, Callable 10/15/34 @ 100(a) | $ | 1,724,480 | ||||
1,000,000 | Protective Life Global, 2.07%(US0003M+55bps), 6/8/18(a) | 1,001,520 | ||||||
605,000 | Protective Life Global, 2.70%, 11/25/20(a) | 607,659 | ||||||
|
| |||||||
3,333,659 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (0.2%): | ||||||||
555,000 | Amazon.com, Inc., 3.15%, 8/22/27, Callable 5/22/27 @ 100(a) | 555,836 | ||||||
|
| |||||||
IT Services (0.0%): | ||||||||
163,000 | First Data Corp., 5.00%, 1/15/24, Callable 1/15/19 @ 102.5(a) | 167,686 | ||||||
|
| |||||||
Life Sciences Tools & Services (0.0%): | ||||||||
176,000 | Quintiles Transnational, 4.88%, 5/15/23, Callable 5/15/18 @ 103.66(a) | 181,280 | ||||||
�� |
|
| ||||||
Media (0.6%): | ||||||||
360,000 | Altice US Finance I Corp., 5.38%, 7/15/23, Callable 7/15/18 @ 104.03(a) | 368,100 | ||||||
146,000 | CCO Holdings LLC/Capital Corp., 5.13%, 5/1/27, Callable 5/1/22 @ 102.56(a) | 143,810 | ||||||
151,000 | CCO Holdings LLC/Capital Corp., 5.00%, 2/1/28, Callable 8/1/22 @ 102.5(a) | 146,848 | ||||||
400,000 | Charter Communications Operating LLC/Capital, 4.46%, 7/23/22, Callable 5/23/22 @ 100 | 417,340 | ||||||
500,000 | Charter Communications Operating LLC/Capital, 6.48%, 10/23/45, Callable 4/23/45 @ 100 | 582,964 | ||||||
200,000 | CSC Holdings LLC, 5.50%, 4/15/27, Callable 4/15/22 @ 102.75(a) | 204,000 | ||||||
175,000 | CSC Holdings, Inc., 8.63%, 2/15/19 | 184,625 | ||||||
200,000 | Dish DBS Corp., 5.88%, 7/15/22 | 201,000 | ||||||
|
| |||||||
2,248,687 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (1.2%): | ||||||||
350,000 | Anadarko Petroleum Corp., 4.50%, 7/15/44, Callable 1/15/44 @ 100 | 348,780 | ||||||
100,000 | Antero Resources Corp., 5.00%, 3/1/25, Callable 3/1/20 @ 103.75 | 102,000 | ||||||
300,000 | Boardwalk Pipeline Partners LP, 4.95%, 12/15/24, Callable 9/15/24 @ 100 | 321,387 | ||||||
75,000 | Cheniere Corpus Christi Holdings LLC, 5.13%, 6/30/27, Callable 1/1/27 @ 100 | 77,580 | ||||||
100,000 | CrownRock LP/CrownRock Finance, Inc., 5.63%, 10/15/25, Callable 10/15/20 @ 104.22(a) | 100,500 | ||||||
72,000 | Diamondback Energy, Inc., 4.75%, 11/1/24, Callable 11/1/19 @ 103.56 | 72,270 | ||||||
100,000 | Endeavor Energy Resources LP/EER Finance, Inc., 5.75%, 1/30/28, Callable 1/30/23 @ 102.88(a) | 102,700 | ||||||
700,000 | Energy Transfer Partners LP, 5.95%, 10/1/43, Callable 4/1/43 @ 100 | 744,260 | ||||||
475,000 | Noble Energy, Inc., 5.05%, 11/15/44, Callable 5/15/44 @ 100 | 508,796 | ||||||
70,000 | Parsley Energy LLC/Finan, 5.38%, 1/15/25, Callable 1/15/20 @ 104.03(a) | 70,700 |
Principal | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
$ | 100,000 | Parsley Energy LLC/Parsley Finance Corp., 5.63%, 10/15/27, Callable 10/15/22 @ 102.81(a) | $ | 102,250 | ||||
300,000 | Plains All American Pipeline LP, 4.65%, 10/15/25, Callable 7/15/25 @ 100 | 309,147 | ||||||
37,000 | QEP Resources, Inc., 5.38%, 10/1/22, Callable 7/1/22 @ 100 | 37,833 | ||||||
38,000 | QEP Resources, Inc., 5.25%, 5/1/23, Callable 2/1/23 @ 100^ | 38,451 | ||||||
430,000 | Rockies Express Pipeline LLC, 6.85%, 7/15/18(a) | 437,525 | ||||||
700,000 | Williams Partners LP, 6.30%, 4/15/40 | 860,958 | ||||||
|
| |||||||
4,235,137 | ||||||||
|
| |||||||
Personal Products (0.0%): | ||||||||
180,000 | First Quality Finance Co., 4.63%, 5/15/21, Callable 2/5/18 @ 102.31(a) | 181,350 | ||||||
|
| |||||||
Pharmaceuticals (0.1%): | ||||||||
375,000 | Teva Pharmaceutical Finance IV LLC, 2.25%, 3/18/20 | 362,640 | ||||||
|
| |||||||
Road & Rail (0.1%): | ||||||||
215,000 | Burlington North Santa Fe LLC, 4.15%, 4/1/45, Callable 10/1/44 @ 100 | 233,639 | ||||||
|
| |||||||
Software (0.2%): | ||||||||
50,000 | Cdk Global, Inc., 4.88%, 6/1/27, Callable 6/1/22 @ 102.44(a) | 50,625 | ||||||
640,000 | Microsoft Corp., 3.75%, 2/12/45, Callable 8/12/44 @ 100 | 674,237 | ||||||
|
| |||||||
724,862 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (0.3%): | ||||||||
920,000 | Apple, Inc., 4.65%, 2/23/46, Callable 8/23/45 @ 100 | 1,077,352 | ||||||
|
| |||||||
Tobacco (0.2%): | ||||||||
735,000 | BAT Capital Corp., 2.76%, 8/15/22, Callable 7/15/22 @ 100(a) | 730,998 | ||||||
|
| |||||||
Trading Companies & Distributors (0.2%): | ||||||||
800,000 | International Lease Finance Corp., 7.13%, 9/1/18(a) | 825,495 | ||||||
|
| |||||||
Wireless Telecommunication Services (0.2%): | ||||||||
148,000 | Sprint Communications, Inc., 9.00%, 11/15/18(a) | 155,785 | ||||||
516,563 | Sprint Spectrum, 3.36%, 3/20/23(a) | 519,791 | ||||||
|
| |||||||
675,576 | ||||||||
|
| |||||||
Total Corporate Bonds (Cost $93,894,307) | 95,336,318 | |||||||
|
| |||||||
Yankee Dollars (2.7%): | ||||||||
Banks (0.5%): | ||||||||
1,100,000 | HBOS plc, Series G, 6.75%, 5/21/18(a) | 1,118,648 | ||||||
365,000 | Lloyds Banking Group plc, 2.91%(US0003M+81bps), 11/7/23, Callable 11/7/22 @ 100 | 361,872 | ||||||
635,000 | Santander UK Group Holdings plc, 2.88%, 10/16/20 | 637,099 | ||||||
|
| |||||||
2,117,619 | ||||||||
|
| |||||||
Biotechnology (0.2%): | ||||||||
600,000 | Shire Acq INV Ireland DA, 1.90%, 9/23/19 | 594,568 | ||||||
|
| |||||||
Capital Markets (0.2%): | ||||||||
610,000 | Credit Suisse GP Funding, 3.13%, 12/10/20 | 617,336 | ||||||
|
|
Continued
8
AZL MetWest Total Return Bond Fund
Schedule of Portfolio Investments
December 31, 2017
Principal | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Containers & Packaging (0.1%): | ||||||||
$ | 185,000 | OI European Group BV, 4.00%, 3/15/23, Callable 12/15/22 @ 100(a) | $ | 185,250 | ||||
|
| |||||||
Diversified Telecommunication Services (0.1%): | ||||||||
110,000 | Intelsat Jackson Holdings SA, 9.75%, 7/15/25, Callable 7/15/21 @ 104.88(a) | 105,875 | ||||||
400,000 | Virgin Media Secured Finance plc, 5.25%, 1/15/26, Callable 1/15/20 @ 102.63(a) | 404,000 | ||||||
|
| |||||||
509,875 | ||||||||
|
| |||||||
Food & Staples Retailing (0.1%): | ||||||||
475,000 | Alimentation Couche-Tard, Inc., 3.55%, 7/26/27, Callable 4/26/27 @ 100(a) | 474,560 | ||||||
|
| |||||||
Hotels, Restaurants & Leisure (0.1%): | ||||||||
255,000 | 1011778 BC ULC New Red Finance, Inc., 4.25%, 5/15/24, Callable 5/15/20 @ 102.13(a) | 254,363 | ||||||
|
| |||||||
Industrial Conglomerates (0.4%): | ||||||||
1,441,000 | GE Capital International Funding, 4.42%, 11/15/35 | 1,559,532 | ||||||
465,000 | Siemens Financieringsmat, 1.70%, 9/15/21(a) | 452,345 | ||||||
|
| |||||||
2,011,877 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.1%): | ||||||||
350,000 | Shell International Finance BV, 4.38%, 5/11/45 | 393,530 | ||||||
|
| |||||||
Pharmaceuticals (0.6%): | ||||||||
1,000,000 | Actavis Funding SCS, 2.35%, 3/12/18 | 1,000,792 | ||||||
250,000 | Actavis Funding SCS, 3.80%, 3/15/25, Callable 12/15/24 @ 100 | 254,512 | ||||||
78,000 | Valeant Pharmaceuticals International, Inc., 5.50%, 11/1/25, Callable 11/1/20 @ 102.75(a) | 79,365 | ||||||
350,000 | VRX Escrow Corp., 5.88%, 5/15/23, Callable 5/15/18 @ 102.94(a) | 324,625 | ||||||
200,000 | VRX Escrow Corp., 6.13%, 4/15/25, Callable 4/15/20 @ 103.06(a) | 183,000 | ||||||
|
| |||||||
1,842,294 | ||||||||
|
| |||||||
Professional Services (0.1%): | ||||||||
121,000 | IHS Markit, Ltd., 5.00%, 11/1/22, Callable 8/1/22 @ 100(a) | 131,188 | ||||||
54,000 | IHS Markit, Ltd., 4.00%, 3/1/26, Callable 12/1/25 @ 100(a) | 53,933 | ||||||
|
| |||||||
185,121 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (0.1%): | ||||||||
200,000 | NXP BV/NXP Funding LLC, 4.13%, 6/1/21(a) | 204,000 | ||||||
|
| |||||||
Tobacco (0.1%): | ||||||||
500,000 | Bat International Finance PLC, 1.85%, 6/15/18(a) | 499,575 | ||||||
|
| |||||||
Total Yankee Dollars (Cost $9,793,876) | 9,889,968 | |||||||
|
| |||||||
Foreign Bonds (3.8%): | ||||||||
Sovereign Bond (3.8%): | ||||||||
1,125,000,000 | Japan Treasury Discount Bill, 2/26/18+(c) | 9,987,975 | ||||||
445,000,000 | Japan Treasury Discount Bill, 3/26/18+(c) | 3,950,767 | ||||||
|
| |||||||
Total Foreign Bonds (Cost $13,994,675) | 13,938,742 | |||||||
|
|
Principal | Fair Value | |||||||
Municipal Bonds (1.5%): | ||||||||
California (0.6%): | ||||||||
$ | 615,000 | The Regents of the University of California General Revenue Bonds, 6.27%, 5/15/31, Continuously Callable @100 | $ | 645,233 | ||||
700,000 | Los Angeles Unified School District, GO, 5.76%, 7/1/29 | 856,695 | ||||||
800,000 | California State, GO, 7.95%, 3/1/36, Continuously Callable @100 | 893,376 | ||||||
|
| |||||||
2,395,304 | ||||||||
|
| |||||||
New York (0.9%): | ||||||||
1,125,000 | New York NY, Build America Bonds, GO, 5.05%, 10/1/24 | 1,250,381 | ||||||
775,000 | New York City Transitional Finance Authority Future Tax Secured Revenue, 3.28%, 8/1/29, Continuously Callable @100 | 778,069 | ||||||
750,000 | New York City Municipal Finance Authority Water & Sewer System Revenue, 5.95%, 6/15/42 | 1,047,908 | ||||||
|
| |||||||
3,076,358 | ||||||||
|
| |||||||
Total Municipal Bonds (Cost $5,398,057) | 5,471,662 | |||||||
|
| |||||||
U.S. Government Agency Mortgages (29.7%): | ||||||||
Federal Home Loan Mortgage Corporation (11.1%) | ||||||||
219,994 | Class A, Series KF34, 1.73%(US0001M+36bps), 8/25/24 | 216,839 | ||||||
659,086 | 3.00%, 3/1/31, Pool #G18592 | 671,466 | ||||||
1,869,597 | 2.50%, 12/1/31, Pool #G18622 | 1,867,380 | ||||||
2,046,283 | 3.50%, 4/1/44, Pool #G07848 | 2,119,412 | ||||||
2,950,673 | 3.50%, 4/1/45, Pool #G60023 | 3,056,251 | ||||||
2,762,615 | 4.00%, 12/1/45, Pool #G60344 | 2,919,027 | ||||||
1,010,954 | 4.00%, 3/1/46, Pool #G08699 | 1,057,239 | ||||||
312,395 | 3.50%, 3/1/46, Pool #G08698 | 321,280 | ||||||
2,196,840 | 4.00%, 5/1/46, Pool #G08707 | 2,297,565 | ||||||
2,721,491 | 3.00%, 6/1/46, Pool #G08710 | 2,725,258 | ||||||
2,687,746 | 3.50%, 6/1/46, Pool #G08711 | 2,764,292 | ||||||
1,793,666 | 3.50%, 8/1/46, Pool #G08716 | 1,844,762 | ||||||
1,340,943 | 3.00%, 8/1/46, Pool #G08715 | 1,342,799 | ||||||
359,914 | 3.00%, 9/1/46, Pool #G08721 | 360,412 | ||||||
715,363 | 3.50%, 9/1/46, Pool #G08722 | 735,742 | ||||||
1,791,925 | 3.00%, 10/1/46, Pool #G08726 | 1,794,128 | ||||||
1,932,619 | 3.00%, 11/1/46, Pool #G08732 | 1,934,696 | ||||||
2,198,278 | 3.00%, 1/1/47, Pool #G08741 | 2,200,413 | ||||||
1,655,202 | 3.50%, 4/1/47, Pool #G67703 | 1,709,967 | ||||||
648,156 | 3.00%, 12/1/47, Pool #G08791 | 648,653 | ||||||
1,290,582 | 3.50%, 12/1/47, Pool #G08792 | 1,327,351 | ||||||
2,187,875 | 3.50%, 12/1/47, Pool #G67706 | 2,260,267 | ||||||
2,985,000 | 3.50%, 1/15/48, TBA | 3,065,378 | ||||||
1,195,728 | Class HZ, Series 4639, 1.75%, 4/15/53 | 1,119,721 | ||||||
|
| |||||||
40,360,298 | ||||||||
|
| |||||||
Federal National Mortgage Association (11.4%) | ||||||||
1,666,525 | 3.42%, 10/1/20, Pool #FN0009 | 1,704,649 | ||||||
948,729 | 3.43%, 10/1/20, Pool #466386 | 974,585 | ||||||
1,294,121 | 3.67%, 10/1/20, Pool #AE0918 | 1,335,631 | ||||||
2,180,681 | 3.76%, 12/1/20, Pool #FN0001 | 2,255,370 | ||||||
972,386 | 3.94%, 1/1/21, Pool #466969 | 1,014,316 |
Continued
9
AZL MetWest Total Return Bond Fund
Schedule of Portfolio Investments
December 31, 2017
Principal | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal National Mortgage Association, continued | ||||||||
$ | 1,245,000 | 3.06%, 5/1/22, Pool #471258 | $ | 1,275,018 | ||||
758,488 | 2.51%, 8/1/26, Pool #AN2270 | 742,970 | ||||||
888,554 | 3.00%, 2/1/27, Pool #MA2915 | 906,587 | ||||||
1,367,795 | 2.97%, 5/1/27, Pool #AL6829 | 1,377,861 | ||||||
780,000 | 2.49%, 9/1/28, Pool #AN2840 | 749,156 | ||||||
791,352 | 3.13%, 4/1/29, Pool # AN5049 | 806,445 | ||||||
791,352 | 3.13%, 4/1/29, Pool # AN5048 | 806,445 | ||||||
704,817 | 3.53%, 12/1/30, Pool #AN0475 | 736,503 | ||||||
725,000 | 3.17%, 5/1/31, Pool #AN6553 | 735,059 | ||||||
1,157,265 | 3.50%, 1/1/32, Pool #AB4262 | 1,203,218 | ||||||
1,825,000 | 3.00%, 1/25/32, TBA | 1,858,862 | ||||||
717,742 | 3.00%, 10/1/33, Pool #MA1676 | 734,021 | ||||||
1,503,645 | 3.50%, 4/1/43, Pool #MA1404 | 1,549,775 | ||||||
250,000 | 4.00%, 1/25/46, TBA | 261,435 | ||||||
1,027,737 | 4.50%, 2/1/46, Pool #AL9106 | 1,095,011 | ||||||
1,118,356 | 4.00%, 6/1/47, Pool #MA3027 | 1,170,443 | ||||||
1,088,885 | 4.00%, 6/1/47, Pool #AS9830 | 1,139,711 | ||||||
947,042 | 4.00%, 7/1/47, Pool #AS9972 | 991,247 | ||||||
1,136,843 | 4.00%, 8/1/47, Pool #MA3088 | 1,189,908 | ||||||
5,805,000 | 4.50%, 1/25/48, TBA | 6,175,975 | ||||||
7,130,000 | 3.50%, 1/25/48, TBA | 7,320,505 | ||||||
1,830,000 | 3.00%, 1/25/48, TBA | 1,830,000 | ||||||
|
| |||||||
41,940,706 | ||||||||
|
| |||||||
Government National Mortgage Association (7.2%) | ||||||||
1,148,094 | 3.50%, 3/20/46, Pool #MA3521 | 1,188,418 | ||||||
1,190,031 | 3.50%, 4/20/46, Pool #MA3597 | 1,231,736 | ||||||
1,426,774 | 3.50%, 5/20/46, Pool #MA3663 | 1,476,667 | ||||||
476,779 | 3.50%, 9/20/46, Pool #MA3937 | 493,366 | ||||||
2,458,404 | 3.00%, 12/20/46, Pool #MA4126 | 2,483,100 | ||||||
1,950,118 | 3.50%, 1/20/47, Pool #MA4196 | 2,017,962 | ||||||
409,409 | 5.00%, 3/20/47, Pool #MA4324 | 437,011 | ||||||
1,220,955 | 5.00%, 6/20/47, Pool #MA4513 | 1,306,903 | ||||||
437,606 | 3.50%, 6/20/47, Pool #MA4510 | 452,830 | ||||||
850,201 | 5.00%, 9/20/47, Pool #MA4722 | 908,137 | ||||||
922,939 | 4.00%, 11/20/47, Pool #MA4838 | 967,066 | ||||||
1,960,000 | 3.50%, 1/20/48, TBA | 2,026,150 | ||||||
1,780,000 | 3.00%, 1/20/48, TBA | 1,796,131 | ||||||
8,425,000 | 4.50%, 1/20/48, TBA | 8,837,036 | ||||||
870,000 | 4.00%, 1/20/48, TBA | 906,907 | ||||||
|
| |||||||
26,529,420 | ||||||||
|
| |||||||
Total U.S. Government Agency Mortgages (Cost $109,646,639) | 108,830,424 | |||||||
|
|
Shares, Principal | Fair Value | |||||||
U.S. Treasury Obligations (30.5%): | ||||||||
U.S. Treasury Bills (1.4%) | ||||||||
$ | 1,400,000 | 1.10%, 1/18/18(c) | $ | 1,399,229 | ||||
208,000 | 1.23%, 3/1/18(c)(d) | 207,574 | ||||||
3,225,000 | 1.38%, 4/19/18(c) | 3,211,628 | ||||||
|
| |||||||
4,818,431 | ||||||||
|
| |||||||
U.S. Treasury Bonds (4.4%) | ||||||||
16,100,000 | 2.75%, 11/15/47 | 16,126,414 | ||||||
|
| |||||||
U.S. Treasury Inflation Index Bonds (1.7%) | ||||||||
2,070,000 | 0.13%, 4/15/18 | 2,206,218 | ||||||
3,628,000 | 0.88%, 2/15/47 | 3,852,322 | ||||||
|
| |||||||
6,058,540 | ||||||||
|
| |||||||
U.S. Treasury Inflation Index Notes (2.3%) | ||||||||
1,575,000 | 1.38%, 7/15/18 | 1,821,636 | ||||||
2,255,000 | 0.13%, 4/15/22 | 2,271,050 | ||||||
2,610,000 | 0.13%, 7/15/26 | 2,624,265 | ||||||
1,865,000 | 0.38%, 7/15/27 | 1,870,578 | ||||||
|
| |||||||
8,587,529 | ||||||||
|
| |||||||
U.S. Treasury Notes (20.7%) | ||||||||
3,790,000 | 1.88%, 12/31/19 | 3,788,816 | ||||||
11,615,000 | 2.00%, 10/31/22 | 11,513,822 | ||||||
29,450,000 | 2.00%, 11/30/22 | 29,181,959 | ||||||
21,060,000 | 2.13%, 12/31/22 | 20,972,799 | ||||||
10,995,000 | 2.25%, 11/15/27 | 10,839,953 | ||||||
|
| |||||||
76,297,349 | ||||||||
|
| |||||||
Total U.S. Treasury Obligations (Cost $111,660,926) | 111,888,263 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (0.2%): | ||||||||
697,672 | AZL MetWest Total Return Bond Fund Securities Lending Collateral Account(e) | 697,672 | ||||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 697,672 | ||||||
|
| |||||||
Unaffiliated Investment Company (7.5%): | ||||||||
27,641,176 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 1.11%(c) | 27,641,176 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $27,641,176) | 27,641,176 | |||||||
|
| |||||||
Total Investment Securities | 426,257,728 | |||||||
Net other assets (liabilities) — (16.3)% | (59,683,255 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 366,574,473 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
12MTA—12 Month Treasury Average
GO—General Obligation
LIBOR—London Interbank Offered Rate
MTN—Medium Term Note
REMIC—Real Estate Mortgage Investment Conduit
TBA—To Be Announced Security
US0001M—1 Month US Dollar LIBOR
US0003M—3 Month US Dollar LIBOR
US0006M—6 Month US Dollar LIBOR
Continued
10
AZL MetWest Total Return Bond Fund
Schedule of Portfolio Investments
December 31, 2017
^ | This security or a partial position of this security was on loan as of December 31, 2017. The total value of securities on loan as of December 31, 2017, was $677,669. |
+ | 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 subadviser has deemed these securities to be liquid based on procedures approved by the Board of Trustees. |
(b) | The rate for certain asset-backed and mortgage-backed securities may vary based on factors relating to the pool of assets underlying the security. The rate presented is the rate in effect at December 31, 2017. |
(c) | The rate represents the effective yield at December 31, 2017. |
(d) | All or a portion of this security has been pledged as collateral for open derivative positions. |
(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, 2017. |
(f) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Futures Contracts
Short Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||
Euro-Bobl Futures (Euro) | 3/8/18 | 48 | $ | (7,578,856 | ) | $ | 25,462 | |||||||||||||
|
| |||||||||||||||||||
$ | 25,462 | |||||||||||||||||||
|
|
Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||
U.S. Treasury 2-Year Note April Futures | 3/30/18 | 210 | 44,962,969 | $ | (87,598 | ) | ||||||||||||||
U.S. Treasury 5-Year Note April Futures | 3/30/18 | 37 | 4,298,070 | 7,569 | ||||||||||||||||
Ultra Long Term US Treasury Bond Futures | 3/20/18 | 5 | 838,281 | 15,135 | ||||||||||||||||
|
| |||||||||||||||||||
(64,894 | ) | |||||||||||||||||||
|
| |||||||||||||||||||
Total Net Futures Contracts | $ | (39,432 | ) | |||||||||||||||||
|
|
Forward Currency Contracts
At December 31, 2017, the Fund’s open forward currency contracts were as follows:
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||
Short Contracts: | ||||||||||||||||
U.S. Dollar | 3,433,678 Japanese Yen | 380,000,000 Goldman Sachs | 2/26/18 | $ | 51,344 | |||||||||||
U.S. Dollar | 6,653,829 Japanese Yen | 745,000,000 Goldman Sachs | 2/26/18 | 22,676 | ||||||||||||
U.S. Dollar | 3,985,098 Japanese Yen | 445,000,000 Goldman Sachs | 3/26/18 | 17,145 | ||||||||||||
|
| |||||||||||||||
$ | 91,165 | |||||||||||||||
|
|
See accompanying notes to the financial statements.
11
AZL MetWest Total Return Bond Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investment securities, at cost | $ | 424,209,109 | |||
|
| ||||
Investment securities, at value* | $ | 426,257,728 | |||
Interest and dividends receivable | 1,830,297 | ||||
Unrealized appreciation on forward currency contracts | 91,165 | ||||
Receivable for capital shares issued | 254 | ||||
Receivable for investments sold | 645,938 | ||||
Receivable for variation margin on futures contracts | 18,725 | ||||
Prepaid expenses | 2,126 | ||||
|
| ||||
Total Assets | 428,846,233 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 61,225,492 | ||||
Payable for capital shares redeemed | 74,346 | ||||
Payable for collateral received on loaned securities | 697,672 | ||||
Manager fees payable | 170,868 | ||||
Administration fees payable | 10,590 | ||||
Distribution fees payable | 77,667 | ||||
Custodian fees payable | 1,867 | ||||
Administrative and compliance services fees payable | 825 | ||||
Transfer agent fees payable | 723 | ||||
Trustee fees payable | 532 | ||||
Other accrued liabilities | 11,178 | ||||
|
| ||||
Total Liabilities | 62,271,760 | ||||
|
| ||||
Net Assets | $ | 366,574,473 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 358,297,528 | |||
Accumulated net investment income/(loss) | 6,853,327 | ||||
Accumulated net realized gains/(losses) from investment transactions | (676,734 | ) | |||
Net unrealized appreciation/(depreciation) on investments | 2,100,352 | ||||
|
| ||||
Net Assets | $ | 366,574,473 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 35,941,059 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.20 | |||
|
|
* | Includes securities on loan of $677,669. |
Statement of Operations
For the Year Ended December 31, 2017
Investment Income: | |||||
Interest | $ | 8,960,965 | |||
Dividends | 68,251 | ||||
Income from securities lending | 742 | ||||
Other income | 18,735 | ||||
|
| ||||
Total Investment Income | 9,048,693 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,182,994 | ||||
Administration fees | 129,922 | ||||
Distribution fees | 909,576 | ||||
Custodian fees | 14,190 | ||||
Administrative and compliance services fees | 4,758 | ||||
Transfer agent fees | 5,771 | ||||
Trustee fees | 16,928 | ||||
Professional fees | 20,469 | ||||
Shareholder reports | 6,317 | ||||
Other expenses | 9,469 | ||||
|
| ||||
Total expenses before reductions | 3,300,394 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (181,921 | ) | |||
|
| ||||
Net expenses | 3,118,473 | ||||
|
| ||||
Net Investment Income/(Loss) | 5,930,220 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions and foreign currencies | 199,414 | ||||
Net realized gains/(losses) on forward currency contracts | 220,646 | ||||
Net realized gains/(losses) on futures contracts | (102,344 | ) | |||
Change in net unrealized appreciation/depreciation on investments | 4,904,696 | ||||
Change in net unrealized appreciation/depreciation on forward currency contracts | 91,165 | ||||
Change in net unrealized appreciation/depreciation on futures contracts | 34,588 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 5,348,165 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 11,278,385 | |||
|
|
See accompanying notes to the financial statements.
12
AZL MetWest Total Return Bond Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 5,930,220 | $ | 5,582,933 | ||||||
Net realized gains/(losses) on investment transactions | 317,716 | 998,658 | ||||||||
Change in unrealized appreciation/depreciation on investments | 5,030,449 | 2,799,110 | ||||||||
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|
|
| |||||||
Change in net assets resulting from operations | 11,278,385 | 9,380,701 | ||||||||
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|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (5,581,130 | ) | (4,414,608 | ) | ||||||
From net realized gains | (978,549 | ) | (2,155,528 | ) | ||||||
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| |||||||
Change in net assets resulting from distributions to shareholders | (6,559,679 | ) | (6,570,136 | ) | ||||||
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| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 11,196,842 | 48,657,852 | ||||||||
Proceeds from dividends reinvested | 6,559,679 | 6,570,136 | ||||||||
Value of shares redeemed | (15,153,280 | ) | (91,454,875 | ) | ||||||
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|
| |||||||
Change in net assets resulting from capital transactions | 2,603,241 | (36,226,887 | ) | |||||||
|
|
|
| |||||||
Change in net assets | 7,321,947 | (33,416,322 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 359,252,526 | 392,668,848 | ||||||||
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|
|
| |||||||
End of period | $ | 366,574,473 | $ | 359,252,526 | ||||||
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| |||||||
Accumulated net investment income/(loss) | $ | 6,853,327 | $ | 5,581,105 | ||||||
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| |||||||
Share Transactions: | ||||||||||
Shares issued | 1,095,692 | 4,747,076 | ||||||||
Dividends reinvested | 642,476 | 638,497 | ||||||||
Shares redeemed | (1,479,972 | ) | (8,920,718 | ) | ||||||
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|
|
| |||||||
Change in shares | 258,196 | (3,535,145 | ) | |||||||
|
|
|
|
See accompanying notes to the financial statements.
13
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, 2017 | Year Ended December 31, 2016 | Year Ended December 31, 2015 | November 17, 2014 to December 31, 2014(a) | |||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.07 | $ | 10.01 | $ | 10.07 | $ | 10.00 | ||||||||||||
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|
|
| |||||||||||||
Investment Activities: | ||||||||||||||||||||
Net Investment Income/(Loss) | 0.17 | 0.16 | 0.11 | 0.01 | ||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.15 | 0.07 | (0.13 | ) | 0.06 | |||||||||||||||
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|
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| |||||||||||||
Total from Investment Activities | 0.32 | 0.23 | (0.02 | ) | 0.07 | |||||||||||||||
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|
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| |||||||||||||
Dividends to Shareholders From: | ||||||||||||||||||||
Net Investment Income | (0.16 | ) | (0.11 | ) | (0.01 | ) | — | |||||||||||||
Net Realized Gains | (0.03 | ) | (0.06 | ) | (0.03 | ) | — | |||||||||||||
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|
|
|
|
|
| |||||||||||||
Total Dividends | (0.19 | ) | (0.17 | ) | (0.04 | ) | — | |||||||||||||
|
|
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|
|
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| |||||||||||||
Net Asset Value, End of Period | $ | 10.20 | $ | 10.07 | $ | 10.01 | $ | 10.07 | ||||||||||||
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| |||||||||||||
Total Return(b) | 3.14 | % | 2.30 | % | (0.20 | )% | 0.70 | %(c) | ||||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 366,574 | $ | 359,253 | $ | 392,669 | $ | 415,586 | ||||||||||||
Net Investment Income/(Loss)(d) | 1.63 | % | 1.45 | % | 1.02 | % | 0.56 | % | ||||||||||||
Expenses Before Reductions(d)(e) | 0.91 | % | 0.91 | % | 0.89 | % | 0.91 | % | ||||||||||||
Expenses Net of Reductions(d) | 0.86 | % | 0.86 | % | 0.84 | % | 0.86 | % | ||||||||||||
Portfolio Turnover Rate | 198 | % | 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 for periods less than one year. |
(d) | Annualized for periods less than one year. |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
See accompanying notes to the financial statements.
14
AZL MetWest Total Return Bond Fund
Notes to the Financial Statements
December 31, 2017
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 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 accrues 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, or from other assets and liabilities, 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., reclassification of 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.
15
AZL MetWest Total Return Bond Fund
Notes to the Financial Statements
December 31, 2017
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, 2017 are noted on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $0.3 million for the year ended December 31, 2017.
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 $56 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The fund had securities lending transactions of $697,672 accounted for as secured borrowings with cash collateral of overnight and continuous maturities as of December 31, 2017.
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, 2017, 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 “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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, 2017, the Fund did not engage in any such transactions under the Rule.
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, 2017, 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. For the year ended December 31, 2017, the monthly average notional amount for long contracts was $- million and the monthly average notional amount for short contracts was $3.7 million. Realized gains and losses are reported as “Net realized gains/(losses) on forward currency contracts” on the Statement of Operations.
Futures Contracts
During the year ended December 31, 2017, 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
16
AZL MetWest Total Return Bond Fund
Notes to the Financial Statements
December 31, 2017
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. For the year ended December 31, 2017, the monthly average notional amount for long contracts was $47.9 million and the monthly average notional amount for short contracts was $6.4 million. 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, 2017:
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 | ||||||||||||
Futures Contracts | Receivable for variation margin on futures contracts | $ | 48,166 | Payable for variation margin on futures contracts | $ | 87,598 | ||||||
Foreign Exchange Rate Risk | ||||||||||||
Forward Currency Contracts | Unrealized appreciation on forward currency contracts | 91,165 | Unrealized depreciation on forward currency 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, 2017:
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 | ||||||||||
Futures Contracts | Net Realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | $ | (102,344 | ) | $ | 34,588 | ||||
Foreign Exchange Risk | ||||||||||
Forward Currency Contracts | Net Realized gains/(losses) on forward currency contracts/ Change in net unrealized appreciation/depreciation on forward currency contracts | 220,646 | 91,165 |
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, 2017. 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, 2017.
As of December 31, 2017, the Fund’s derivative assets and liabilities by type were as follows:
Assets | Liabilities | |||||||||
Derivative Financial Instruments: | ||||||||||
Forward currency contracts | $ | 91,165 | $ | — | ||||||
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|
|
| |||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | 91,165 | — | ||||||||
|
|
|
| |||||||
Total assets and liabilities subject to a master netting agreement or similar agreement (“MNA”) | $ | 91,165 | $ | — | ||||||
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|
|
|
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, 2017:
Counterparty | Derivative Assets Subject to a MNA by Counterparty | Derivatives Available for Offset | Non-cash Collateral Received* | Cash Collateral Received* | Net Amount of Derivative | ||||||||||||||||||||
Goldman Sachs | $ | 91,165 | $ | — | $ | — | $ | — | $ | 91,165 | |||||||||||||||
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| ||||||||||||||||
Total | $ | 91,165 | $ | — | $ | — | $ | — | $ | 91,165 | |||||||||||||||
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|
|
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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. |
17
AZL MetWest Total Return Bond Fund
Notes to the Financial Statements
December 31, 2017
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, 2019.
For the year ended December 31, 2017, the annual rate paid to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL MetWest Total Return Bond Fund | 0.60 | % | 0.91 | % |
* | The Manager voluntarily reduced the management fee to 0.55% on all assets. The manager reserves the right to increase the management fee to the amount shown in the table 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, 2017, there were no contractual reimbursements 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.”
FIS Investor Services LLC (“FIS”) 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, 2017, $3,871 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, 2017, actual Trustee compensation was $1,116,333 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.
18
AZL MetWest Total Return Bond Fund
Notes to the Financial Statements
December 31, 2017
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.
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, 2017, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value. There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Other^ | Total | ||||||||||||||||
Asset Backed Securities | $ | — | $ | 19,298,126 | $ | — | $ | 19,298,126 | ||||||||||||
Collateralized Mortgage Obligations | — | 33,265,377 | — | 33,265,377 | ||||||||||||||||
Corporate Bonds+ | — | 95,336,318 | — | 95,336,318 | ||||||||||||||||
Foreign Bonds+ | — | 13,938,742 | — | 13,938,742 | ||||||||||||||||
Municipal Bonds | — | 5,471,662 | — | 5,471,662 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | 697,672 | 697,672 | ||||||||||||||||
U.S. Government Agency Mortgages | — | 108,830,424 | — | 108,830,424 | ||||||||||||||||
U.S. Treasury Obligations | — | 111,888,263 | — | 111,888,263 | ||||||||||||||||
Yankee Dollars+ | — | 9,889,968 | — | 9,889,968 | ||||||||||||||||
Unaffiliated Investment Company | 27,641,176 | — | — | 27,641,176 | ||||||||||||||||
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Total Investment Securities | 27,641,176 | 397,948,880 | 697,672 | 426,257,728 | ||||||||||||||||
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Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | (39,432 | ) | — | — | (39,432 | ) | ||||||||||||||
Forward Currency Contracts | — | 91,165 | — | 91,165 | ||||||||||||||||
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Total Investments | $ | 27,601,744 | $ | 398,040,045 | $ | 697,672 | $ | 426,309,461 | ||||||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other Financial Instruments would include any derivative instruments, such as futures and forward currency contracts. Forward currency contracts are recorded in the financial statements at the unrealized gain or loss on the investment and futures contracts are presented at variation margin. |
^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
5. Security Purchases and Sales
For the year ended December 31, 2017, 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 | $ | 664,231,186 | $ | 690,820,020 |
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AZL MetWest Total Return Bond Fund
Notes to the Financial Statements
December 31, 2017
For the year ended December 31, 2017, purchases and sales of long-term U.S. government securities were as follows:
Purchases | Sales | |||||||||
AZL MetWest Total Return Bond Fund | $ | 600,388,574 | $ | 630,261,065 |
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.
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, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $424,269,635. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 3,827,590 | ||
Unrealized (depreciation) | (1,839,497 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 1,988,093 | ||
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As of the end of its tax year ended December 31, 2017, 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 MetWest Total Return Bond Fund | $ | 367,165 | $ | 288,476 | $ | 655,641 |
The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL MetWest Total Return Bond Fund | $ | 6,146,557 | $ | 413,122 | $ | 6,559,679 |
(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 MetWest Total Return Bond Fund
Notes to the Financial Statements
December 31, 2017
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. |
At December 31, 2017, 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 MetWest Total Return Bond Fund | $ | 6,944,492 | $ | — | $ | (655,640 | ) | $ | 1,988,093 | $ | 8,276,945 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2017, the Fund had multiple shareholder accounts which are affiliated with the Investment Adviser representing ownership in excess of 80% of the Fund.
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
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, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the three-year period then ended and the period from November 17, 2014 (commencement of operations) to December 31, 2014. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, 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 in the three-year period then ended and the period from November 17, 2014 to December 31, 2014, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
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Other Federal Income Tax Information (Unaudited)
During the year ended December 31, 2017, the Fund declared net short-term capital gain distributions of $565,378.
During the year ended December 31, 2017, the Fund declared net long-term capital gain distributions of $413,122.
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A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Fund of Funds Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
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Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
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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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
26
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in 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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
29
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured | ANNRPT1217 2/18 |
AZL® Mid Cap Index Fund
Annual Report
December 31, 2017
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
Page 10
Statements of Changes in Net Assets
Page 11
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
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® Mid Cap Index Fund Review (Unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® Mid Cap Index Fund and BlackRock Investment Management, LLC serves as Subadviser to the Fund.
|
What factors affected the Fund’s performance during the year ended December 31, 2017?
For the year ended December 31, 2017, the Class 2 shares of the AZL® Mid Cap Index Fund (the “Fund”) returned 15.80%. That compared to a 16.24% 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. It is an unmanaged, market capitalization-weighted index composed of mid-capitalization U.S. equities.*
Steady economic growth and a strengthening labor market helped support the U.S. Federal Reserve’s decision to increase the federal funds rate by 25 basis points (0.25%) in March. It marked the second rate hike in the past six months and drove higher performance among more growth-oriented and cyclical assets.
Political risk created a headwind for U.S. equities in the second quarter of 2017. In May, President Trump’s firing of FBI Director James Comey and the subsequent investigation of pre-election correspondence between administration members and Russian officials became an enduring source of negative market sentiment. One of the largest single-day dips of the quarter occurred in the wake of the House Oversight Committee’s request for all documents from meetings between President Trump and Comey on May 17.
The third quarter witnessed investors focused on sustained corporate earnings expansion, a subdued interest rate environment, and a healthy economic backdrop, despite threats from an increasingly hostile North Korea and a damaging hurricane season. As a result, volatility dropped to the lowest levels in recorded history, with the CBOE Volatility index2 averaging a record low of 10.94 in the quarter.
The U.S. economy continued to demonstrate strength throughout the fourth quarter. Unemployment dipped to 4.1%, the lowest level since 2000. Third quarter gross domestic product3 (GDP) surged to 4.1% year over year, and real GDP rose 2.3% year over year, which boosted investor confidence.
The Fund underperformed it’s benchmark for the period. From a sector perspective, the strongest returns in the S&P 400 Index came from information technology stocks (+25.11%). Increases were seen across most sectors, with other strong gains posted in the industrials (+23.20%) and health care (+22.71%) sectors. In contrast, the telecommunication services (-41.16%) and energy (-15.84%) sectors experienced negative returns for the reporting period.
The Fund held derivatives in the form of futures contracts, which it used to hedge its cash position. The futures had a slightly negative 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, 2017. |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
2 | Chicago Board Options Exchange (CBOE) Volatility Index shows the markets expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking, is calculated from both calls and puts, and is a widely used measure of market risk. |
3 | Gross Domestic Product (GDP) is the measure of the market value of the goods and services produced in a period of time. |
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, 2017
Inception | 1 | 3 | 5 | Since | ||||||||||||||
Date | Year | Year | Year | Inception | ||||||||||||||
AZL® Mid Cap Index Fund (Class 1 Shares) | 10/14/16 | 16.08 | % | — | — | 21.39 | % | |||||||||||
AZL® Mid Cap Index Fund (Class 2 Shares) | 5/1/09 | 15.80 | % | 10.46 | % | 14.33 | % | 16.11 | % | |||||||||
S&P MidCap 400 Index | 5/1/09 | 16.24 | % | 11.14 | % | 15.01 | % | 16.93 | % |
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) | 0.31 | % | ||
AZL® Mid Cap Index Fund (Class 2 Shares) | 0.56 | % |
Expense Ratios are based on the current Fund prospectus dated May 1, 2017. 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, 2019. Additional information pertaining to the December 31, 2017 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
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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Mid Cap Index Fund, Class 1 | $ | 1,000.00 | $ | 1,094.50 | $ | 1.58 | 0.30 | % | ||||||||||||
AZL Mid Cap Index Fund, Class 2 | $ | 1,000.00 | $ | 1,092.80 | �� | $ | 2.90 | 0.55 | % |
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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Mid Cap Index Fund, Class 1 | $ | 1,000.00 | $ | 1,023.69 | $ | 1.53 | 0.30 | % | ||||||||||||
AZL Mid Cap Index Fund, Class 2 | $ | 1,000.00 | $ | 1,022.43 | $ | 2.80 | 0.55 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 18.1 | % | |||
Financials | 16.8 | ||||
Industrials | 15.3 | ||||
Consumer Discretionary | 11.8 | ||||
Real Estate | 8.7 | ||||
Health Care | 7.2 | ||||
Materials | 7.0 | ||||
Utilities | 5.2 | ||||
Energy | 4.1 | ||||
Consumer Staples | 3.7 | ||||
Telecommunication Services | 0.1 | ||||
|
| ||||
Total Common Stocks and Private Placements | 98.0 | ||||
Securities Held as Collateral for Securities on Loan | 26.2 | ||||
Money Market | 2.1 | ||||
|
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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
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks (96.5%): | ||||||||
Aerospace & Defense (1.9%): | ||||||||
30,205 | Curtiss-Wright Corp. | $ | 3,680,479 | |||||
18,068 | Esterline Technologies Corp.* | 1,349,680 | ||||||
31,077 | Huntington Ingalls Industries, Inc. | 7,324,848 | ||||||
35,218 | KLX, Inc.* | 2,403,629 | ||||||
39,470 | Orbital ATK, Inc. | 5,190,305 | ||||||
24,248 | Teledyne Technologies, Inc.* | 4,392,525 | ||||||
|
| |||||||
24,341,466 | ||||||||
|
| |||||||
Airlines (0.4%): | ||||||||
219,556 | JetBlue Airways Corp.* | 4,904,881 | ||||||
|
| |||||||
Auto Components (1.0%): | ||||||||
35,110 | Cooper Tire & Rubber Co.^ | 1,241,139 | ||||||
99,104 | Dana Holding Corp. | 3,172,319 | ||||||
60,870 | Delphi Technologies plc* | 3,193,849 | ||||||
194,384 | Gentex Corp.^ | 4,072,344 | ||||||
|
| |||||||
11,679,651 | ||||||||
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| |||||||
Automobiles (0.4%): | ||||||||
33,537 | Thor Industries, Inc. | 5,054,697 | ||||||
|
| |||||||
Banks (8.2%): | ||||||||
103,544 | Associated Banc-Corp. | 2,630,018 | ||||||
57,628 | BancorpSouth Bank | 1,812,401 | ||||||
29,085 | Bank of Hawaii Corp.^ | 2,492,585 | ||||||
83,098 | Bank of the Ozarks, Inc.^ | 4,026,098 | ||||||
51,935 | Cathay General Bancorp | 2,190,099 | ||||||
48,686 | Chemical Financial Corp. | 2,603,240 | ||||||
64,438 | Commerce Bancshares, Inc.^ | 3,598,218 | ||||||
39,333 | Cullen/Frost Bankers, Inc.^ | 3,722,868 | ||||||
98,889 | East West Bancorp, Inc. | 6,015,417 | ||||||
221,543 | F.N.B. Corp.^ | 3,061,724 | ||||||
222,375 | First Horizon National Corp.^ | 4,445,276 | ||||||
119,943 | Fulton Financial Corp.^ | 2,146,980 | ||||||
58,279 | Hancock Holding Co. | 2,884,811 | ||||||
108,192 | Home Bancshares, Inc. | 2,515,464 | ||||||
37,108 | International Bancshares Corp. | 1,473,188 | ||||||
57,382 | MB Financial, Inc. | 2,554,647 | ||||||
88,258 | PacWest Bancorp | 4,448,203 | ||||||
50,453 | Pinnacle Financial Partners, Inc. | 3,345,034 | ||||||
47,601 | Prosperity Bancshares, Inc.^ | 3,335,402 | ||||||
36,742 | Signature Bank* | 5,043,206 | ||||||
153,668 | Sterling Bancorp | 3,780,233 | ||||||
36,087 | SVB Financial Group* | 8,436,057 | ||||||
81,842 | Synovus Financial Corp. | 3,923,505 | ||||||
117,738 | TCF Financial Corp. | 2,413,629 | ||||||
33,962 | Texas Capital Bancshares, Inc.*^ | 3,019,222 | ||||||
46,431 | Trustmark Corp.^ | 1,479,292 | ||||||
30,061 | UMB Financial Corp.^ | 2,161,987 | ||||||
150,688 | Umpqua Holdings Corp. | 3,134,310 | ||||||
71,876 | United Bankshares, Inc.^ | 2,497,691 | ||||||
181,216 | Valley National Bancorp^ | 2,033,244 | ||||||
63,022 | Webster Financial Corp.^ | 3,539,316 | ||||||
38,239 | Wintrust Financial Corp. | 3,149,746 | ||||||
|
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103,913,111 | ||||||||
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Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Beverages (0.1%): | ||||||||
5,936 | Boston Beer Co., Inc. (The), Class A*^ | $ | 1,134,370 | |||||
|
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Biotechnology (0.7%): | ||||||||
74,038 | Bioverativ, Inc.*^ | 3,992,129 | ||||||
29,578 | United Therapeutics Corp.* | 4,376,065 | ||||||
|
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8,368,194 | ||||||||
|
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Building Products (0.4%): | ||||||||
25,732 | Lennox International, Inc.^ | 5,358,946 | ||||||
|
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Capital Markets (3.5%): | ||||||||
81,086 | Eaton Vance Corp. | 4,572,440 | ||||||
26,806 | FactSet Research Systems, Inc.^ | 5,167,125 | ||||||
61,530 | Federated Investors, Inc., Class B^ | 2,220,002 | ||||||
48,829 | Interactive Brokers Group, Inc., Class A | 2,891,165 | ||||||
123,580 | Janus Henderson Group plc^ | 4,728,171 | ||||||
58,766 | Legg Mason, Inc.^ | 2,466,997 | ||||||
25,743 | MarketAxess Holdings, Inc.^ | 5,193,650 | ||||||
61,675 | MSCI, Inc., Class A | 7,804,354 | ||||||
89,728 | SEI Investments Co. | 6,447,854 | ||||||
47,003 | Stifel Financial Corp. | 2,799,499 | ||||||
|
| |||||||
44,291,257 | ||||||||
|
| |||||||
Chemicals (2.9%): | ||||||||
42,540 | Ashland Global Holdings, Inc. | 3,028,848 | ||||||
42,405 | Cabot Corp. | 2,611,724 | ||||||
126,688 | Chemours Co. (The) | 6,342,001 | ||||||
24,188 | Minerals Technologies, Inc. | 1,665,344 | ||||||
6,334 | NewMarket Corp. | 2,517,068 | ||||||
113,738 | Olin Corp. | 4,046,798 | ||||||
55,270 | PolyOne Corp. | 2,404,245 | ||||||
91,409 | RPM International, Inc. | 4,791,660 | ||||||
27,971 | Scotts Miracle-Gro Co. (The)^ | 2,992,617 | ||||||
29,758 | Sensient Technologies Corp. | 2,176,798 | ||||||
138,680 | Valvoline, Inc.^ | 3,475,321 | ||||||
|
| |||||||
36,052,424 | ||||||||
|
| |||||||
Commercial Services & Supplies (1.8%): | ||||||||
34,534 | Brink’s Co. (The) | 2,717,826 | ||||||
35,544 | Clean Harbors, Inc.* | 1,926,485 | ||||||
137,648 | Copart, Inc.*^ | 5,945,016 | ||||||
32,984 | Deluxe Corp.^ | 2,534,491 | ||||||
40,940 | Herman Miller, Inc. | 1,639,647 | ||||||
29,459 | HNI Corp. | 1,136,234 | ||||||
23,168 | MSA Safety, Inc. | 1,795,983 | ||||||
127,868 | Pitney Bowes, Inc. | 1,429,564 | ||||||
65,677 | Rollins, Inc.^ | 3,055,951 | ||||||
|
| |||||||
22,181,197 | ||||||||
|
| |||||||
Communications Equipment (1.0%): | ||||||||
120,838 | ARRIS International plc* | 3,104,329 | ||||||
97,754 | Ciena Corp.*^ | 2,045,991 | ||||||
23,756 | InterDigital, Inc. | 1,809,019 | ||||||
59,712 | NetScout Systems, Inc.*^ | 1,818,230 | ||||||
22,586 | Plantronics, Inc. | 1,137,883 | ||||||
37,065 | ViaSat, Inc.*^ | 2,774,315 | ||||||
|
| |||||||
12,689,767 | ||||||||
|
|
Continued
4
AZL Mid Cap Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Construction & Engineering (1.3%): | ||||||||
107,923 | Aecom Technology Corp.* | $ | 4,009,338 | |||||
21,171 | Dycom Industries, Inc.*^ | 2,359,085 | ||||||
40,252 | Emcor Group, Inc. | 3,290,601 | ||||||
27,269 | Granite Construction, Inc.^ | 1,729,673 | ||||||
95,926 | KBR, Inc.^ | 1,902,213 | ||||||
15,469 | Valmont Industries, Inc. | 2,565,534 | ||||||
|
| |||||||
15,856,444 | ||||||||
|
| |||||||
Construction Materials (0.3%): | ||||||||
33,273 | Eagle Materials, Inc., Class A | 3,769,831 | ||||||
|
| |||||||
Consumer Finance (0.3%): | ||||||||
296,025 | SLM Corp.* | 3,345,083 | ||||||
|
| |||||||
Containers & Packaging (1.2%): | ||||||||
42,623 | AptarGroup, Inc. | 3,677,512 | ||||||
62,170 | Bemis Co., Inc. | 2,971,104 | ||||||
17,679 | Greif, Inc., Class A | 1,070,994 | ||||||
111,576 | Owens-Illinois, Inc.* | 2,473,640 | ||||||
50,676 | Silgan Holdings, Inc.^ | 1,489,368 | ||||||
68,111 | Sonoco Products Co. | 3,619,419 | ||||||
|
| |||||||
15,302,037 | ||||||||
|
| |||||||
Distributors (0.3%): | ||||||||
27,486 | Pool Corp. | 3,563,560 | ||||||
|
| |||||||
Diversified Consumer Services (0.8%): | ||||||||
41,550 | Adtalem Global Education, Inc.*^ | 1,747,178 | ||||||
3,170 | Graham Holdings Co., Class B | 1,769,969 | ||||||
128,305 | Service Corp. International^ | 4,788,342 | ||||||
25,521 | Sotheby’s*^ | 1,316,884 | ||||||
|
| |||||||
9,622,373 | ||||||||
|
| |||||||
Electric Utilities (1.8%): | ||||||||
147,570 | Great Plains Energy, Inc. | 4,757,657 | ||||||
74,462 | Hawaiian Electric Industries, Inc.^ | 2,691,801 | ||||||
34,399 | IDACORP, Inc. | 3,142,693 | ||||||
136,757 | OGE Energy Corp. | 4,500,673 | ||||||
54,415 | PNM Resources, Inc. | 2,201,087 | ||||||
97,227 | Westar Energy, Inc. | 5,133,585 | ||||||
|
| |||||||
22,427,496 | ||||||||
|
| |||||||
Electrical Equipment (0.7%): | ||||||||
28,853 | EnerSys | 2,009,034 | ||||||
37,447 | Hubbell, Inc. | 5,068,077 | ||||||
30,333 | Regal-Beloit Corp. | 2,323,508 | ||||||
|
| |||||||
9,400,619 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (4.9%): | ||||||||
60,270 | Arrow Electronics, Inc.* | 4,846,311 | ||||||
82,853 | Avnet, Inc. | 3,282,636 | ||||||
28,877 | Belden, Inc.^ | 2,228,438 | ||||||
118,468 | Cognex Corp. | 7,245,502 | ||||||
16,851 | Coherent, Inc.* | 4,755,689 | ||||||
25,667 | IPG Photonics Corp.*^ | 5,496,075 | ||||||
120,890 | Jabil, Inc. | 3,173,363 | ||||||
126,861 | Keysight Technologies, Inc.* | 5,277,418 | ||||||
60,916 | Knowles Corp.*^ | 893,029 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electronic Equipment, Instruments & Components, continued | ||||||||
15,538 | Littlelfuse, Inc.^ | $ | 3,073,727 | |||||
73,305 | National Instruments Corp. | 3,051,687 | ||||||
19,980 | SYNNEX Corp. | 2,716,281 | ||||||
23,764 | Tech Data Corp.* | 2,328,159 | ||||||
172,295 | Trimble Navigation, Ltd.* | 7,002,069 | ||||||
76,810 | VeriFone Systems, Inc.*^ | 1,360,305 | ||||||
90,215 | Vishay Intertechnology, Inc.^ | 1,871,961 | ||||||
36,400 | Zebra Technologies Corp., Class A* | 3,778,320 | ||||||
|
| |||||||
62,380,970 | ||||||||
|
| |||||||
Energy Equipment & Services (1.4%): | ||||||||
30,183 | Core Laboratories NV^ | 3,306,548 | ||||||
43,734 | Diamond Offshore Drilling, Inc.* | 813,015 | ||||||
25,888 | Dril-Quip, Inc.*^ | 1,234,858 | ||||||
298,525 | Ensco plc, Class A, ADR^ | 1,764,283 | ||||||
217,634 | Nabors Industries, Ltd.^ | 1,486,440 | ||||||
67,279 | Oceaneering International, Inc.^ | 1,422,278 | ||||||
152,289 | Patterson-UTI Energy, Inc.^ | 3,504,170 | ||||||
77,647 | Rowan Cos. plc, Class A*^ | 1,215,952 | ||||||
104,081 | Superior Energy Services, Inc.* | 1,002,300 | ||||||
267,733 | Transocean, Ltd.* | 2,859,388 | ||||||
|
| |||||||
18,609,232 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (8.3%): | ||||||||
93,531 | American Campus Communities, Inc. | 3,837,577 | ||||||
63,494 | Camden Property Trust | 5,845,259 | ||||||
80,917 | Corecivic, Inc. | 1,820,633 | ||||||
23,397 | Coresite Realty Corp.^ | 2,664,918 | ||||||
68,330 | Corporate Office Properties Trust^ | 1,995,236 | ||||||
288,155 | Cousins Properties, Inc.^ | 2,665,434 | ||||||
62,465 | Cyrusone, Inc.^ | 3,718,541 | ||||||
63,836 | DCT Industrial Trust, Inc. | 3,752,280 | ||||||
109,324 | Douglas Emmett, Inc. | 4,488,843 | ||||||
52,049 | Education Realty Trust, Inc.^ | 1,817,551 | ||||||
43,939 | EPR Properties | 2,876,247 | ||||||
82,192 | First Industrial Realty Trust, Inc. | 2,586,582 | ||||||
84,906 | Geo Group, Inc. (The) | 2,003,782 | ||||||
85,663 | Healthcare Realty Trust, Inc.^ | 2,751,496 | ||||||
70,983 | Highwoods Properties, Inc. | 3,613,745 | ||||||
109,624 | Hospitality Properties Trust | 3,272,276 | ||||||
64,039 | JBG SMITH Properties | 2,224,074 | ||||||
67,409 | Kilroy Realty Corp. | 5,032,082 | ||||||
57,515 | Lamar Advertising Co., Class A^ | 4,269,914 | ||||||
77,618 | LaSalle Hotel Properties^ | 2,178,737 | ||||||
101,012 | Liberty Property Trust | 4,344,526 | ||||||
31,870 | Life Storage, Inc.^ | 2,838,661 | ||||||
62,027 | Mack-Cali Realty Corp. | 1,337,302 | ||||||
249,463 | Medical Properties Trust, Inc.^ | 3,437,600 | ||||||
104,119 | National Retail Properties, Inc.^ | 4,490,652 | ||||||
135,642 | Omega Healthcare Investors, Inc.^ | 3,735,581 | ||||||
27,842 | Potlatch Corp. | 1,389,316 | ||||||
64,011 | Quality Care Properties* | 883,992 | ||||||
88,559 | Rayonier, Inc. | 2,801,121 | ||||||
122,086 | Sabra Health Care REIT, Inc. | 2,291,554 |
Continued
5
AZL Mid Cap Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Equity Real Estate Investment Trusts, continued | ||||||||
158,535 | Senior Housing Properties Trust | $ | 3,035,945 | |||||
64,846 | Tanger Factory Outlet Centers, Inc.^ | 1,719,067 | ||||||
41,584 | Taubman Centers, Inc.^ | 2,720,841 | ||||||
112,914 | Uniti Group, Inc.^ | 2,008,740 | ||||||
72,754 | Urban Edge Properties^ | 1,854,499 | ||||||
126,327 | Washington Prime Group, Inc.^ | 899,448 | ||||||
81,915 | Weingarten Realty Investors | 2,692,546 | ||||||
|
| |||||||
105,896,598 | ||||||||
|
| |||||||
Food & Staples Retailing (0.5%): | ||||||||
26,164 | Casey’s General Stores, Inc.^ | 2,928,798 | ||||||
84,714 | Sprouts Farmers Market, Inc.*^ | 2,062,786 | ||||||
34,796 | United Natural Foods, Inc.*^ | 1,714,399 | ||||||
|
| |||||||
6,705,983 | ||||||||
|
| |||||||
Food Products (2.5%): | ||||||||
61,638 | Dean Foods Co.^ | 712,535 | ||||||
126,375 | Flowers Foods, Inc.^ | 2,440,301 | ||||||
71,051 | Hain Celestial Group, Inc.* | 3,011,852 | ||||||
49,213 | Ingredion, Inc. | 6,879,978 | ||||||
100,038 | Lamb Weston Holding, Inc. | 5,647,145 | ||||||
13,374 | Lancaster Colony Corp.^ | 1,728,055 | ||||||
45,289 | Post Holdings, Inc.*^ | 3,588,247 | ||||||
13,692 | Sanderson Farms, Inc.^ | 1,900,176 | ||||||
58,706 | Snyders-Lance, Inc. | 2,939,996 | ||||||
12,864 | Tootsie Roll Industries, Inc.^ | 468,250 | ||||||
39,177 | TreeHouse Foods, Inc.*^ | 1,937,694 | ||||||
|
| |||||||
31,254,229 | ||||||||
|
| |||||||
Gas Utilities (2.1%): | ||||||||
75,850 | Atmos Energy Corp. | 6,514,757 | ||||||
58,640 | National Fuel Gas Co. | 3,219,922 | ||||||
59,418 | New Jersey Resources Corp. | 2,388,604 | ||||||
35,719 | ONE Gas, Inc. | 2,616,774 | ||||||
32,669 | Southwest Gas Corp. | 2,629,201 | ||||||
118,603 | UGI Corp. | 5,568,411 | ||||||
35,147 | WGL Holdings, Inc.^ | 3,017,018 | ||||||
|
| |||||||
25,954,687 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (2.9%): | ||||||||
28,737 | ABIOMED, Inc.* | 5,385,601 | ||||||
49,615 | Globus Medical, Inc., Class A*^ | 2,039,177 | ||||||
32,084 | Halyard Health, Inc.*^ | 1,481,639 | ||||||
45,036 | Hill-Rom Holdings, Inc. | 3,796,084 | ||||||
29,661 | LivaNova plc*^ | 2,370,507 | ||||||
32,531 | Masimo Corp.* | 2,758,629 | ||||||
34,895 | NuVasive, Inc.* | 2,041,009 | ||||||
58,209 | STERIS plc^ | 5,091,541 | ||||||
30,821 | Teleflex, Inc. | 7,668,881 | ||||||
50,819 | West Pharmaceutical Services, Inc. | 5,014,311 | ||||||
|
| |||||||
37,647,379 | ||||||||
|
| |||||||
Health Care Providers & Services (1.6%): | ||||||||
55,924 | Acadia Healthcare Co., Inc.*^ | 1,824,800 | ||||||
67,567 | HealthSouth Corp. | 3,338,485 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Providers & Services, continued | ||||||||
27,036 | LifePoint Hospitals, Inc.*^ | $ | 1,346,393 | |||||
64,103 | MEDNAX, Inc.* | 3,425,664 | ||||||
30,080 | Molina Healthcare, Inc.*^ | 2,306,534 | ||||||
41,980 | Owens & Minor, Inc.^ | 792,582 | ||||||
54,742 | Tenet Healthcare Corp.*^ | 829,889 | ||||||
30,453 | WellCare Health Plans, Inc.* | 6,124,404 | ||||||
|
| |||||||
19,988,751 | ||||||||
|
| |||||||
Health Care Technology (0.3%): | ||||||||
123,768 | Allscripts Healthcare Solutions, Inc.* | 1,800,824 | ||||||
40,001 | Medidata Solutions, Inc.*^ | 2,534,864 | ||||||
|
| |||||||
4,335,688 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure (2.5%): | ||||||||
31,752 | Brinker International, Inc.^ | 1,233,248 | ||||||
10,352 | Buffalo Wild Wings, Inc.* | 1,618,535 | ||||||
29,210 | Cheesecake Factory, Inc. (The)^ | 1,407,338 | ||||||
8,870 | Churchill Downs, Inc. | 2,064,049 | ||||||
16,451 | Cracker Barrel Old Country Store, Inc.^ | 2,613,899 | ||||||
29,935 | Domino’s Pizza, Inc.^ | 5,656,518 | ||||||
61,858 | Dunkin’ Brands Group, Inc.^ | 3,987,985 | ||||||
72,116 | Ilg, Inc. | 2,053,864 | ||||||
16,864 | International Speedway Corp., Class A | 672,030 | ||||||
20,152 | Jack in the Box, Inc. | 1,977,113 | ||||||
17,554 | Papa John’s International, Inc.^ | 984,955 | ||||||
53,357 | Six Flags Entertainment Corp.^ | 3,551,975 | ||||||
44,838 | Texas Roadhouse, Inc. | 2,362,066 | ||||||
124,525 | Wendy’s Co. (The)^ | 2,044,701 | ||||||
|
| |||||||
32,228,276 | ||||||||
|
| |||||||
Household Durables (2.0%): | ||||||||
52,097 | CalAtlantic Group, Inc. | 2,937,750 | ||||||
18,678 | Helen of Troy, Ltd.*^ | 1,799,625 | ||||||
57,605 | KB Home^ | 1,840,480 | ||||||
2,380 | NVR, Inc.* | 8,349,563 | ||||||
31,519 | Tempur Sealy International, Inc.* | 1,975,926 | ||||||
100,717 | Toll Brothers, Inc.^ | 4,836,430 | ||||||
102,956 | TRI Pointe Homes, Inc.*^ | 1,844,972 | ||||||
34,833 | Tupperware Brands Corp. | 2,184,029 | ||||||
|
| |||||||
25,768,775 | ||||||||
|
| |||||||
Household Products (0.2%): | ||||||||
41,611 | Energizer Holdings, Inc.^ | 1,996,496 | ||||||
|
| |||||||
Industrial Conglomerates (0.4%): | ||||||||
42,424 | Carlisle Cos., Inc. | 4,821,488 | ||||||
|
| |||||||
Insurance (4.3%): | ||||||||
9,952 | Alleghany Corp.* | 5,932,288 | ||||||
47,295 | American Financial Group, Inc. | 5,133,399 | ||||||
41,108 | Aspen Insurance Holdings, Ltd. | 1,668,985 | ||||||
79,728 | Brown & Brown, Inc. | 4,102,803 | ||||||
113,058 | CNO Financial Group, Inc. | 2,791,402 | ||||||
76,079 | First American Financial Corp. | 4,263,467 | ||||||
342,633 | Genworth Financial, Inc., Class A* | 1,065,589 | ||||||
29,209 | Hanover Insurance Group, Inc. (The) | 3,156,909 |
Continued
6
AZL Mid Cap Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Insurance, continued | ||||||||
33,480 | Kemper Corp. | $ | 2,306,772 | |||||
25,356 | Mercury General Corp.^ | 1,355,025 | ||||||
169,224 | Old Republic International Corp.^ | 3,618,009 | ||||||
30,308 | Primerica, Inc. | 3,077,777 | ||||||
44,296 | Reinsurance Group of America, Inc. | 6,907,075 | ||||||
27,610 | RenaissanceRe Holdings, Ltd. | 3,467,540 | ||||||
66,560 | W.R. Berkley Corp. | 4,769,024 | ||||||
|
| |||||||
53,616,064 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (0.0%): | ||||||||
1,283 | HSN, Inc. | 51,769 | ||||||
|
| |||||||
Internet Software & Services (0.6%): | ||||||||
48,974 | Cars.com, Inc.*^ | �� | 1,412,410 | |||||
33,117 | j2 Global, Inc.^ | 2,484,769 | ||||||
36,033 | LogMeIn, Inc. | 4,125,778 | ||||||
|
| |||||||
8,022,957 | ||||||||
|
| |||||||
IT Services (3.4%): | ||||||||
54,280 | Acxiom Corp.* | 1,495,957 | ||||||
79,739 | Broadridge Financial Solutions, Inc. | 7,222,758 | ||||||
63,305 | Convergys Corp.^ | 1,487,668 | ||||||
56,389 | CoreLogic, Inc.* | 2,605,736 | ||||||
41,212 | DST Systems, Inc. | 2,558,029 | ||||||
52,892 | Jack Henry & Associates, Inc. | 6,186,248 | ||||||
97,337 | Leidos Holdings, Inc. | 6,285,049 | ||||||
44,621 | Maximus, Inc. | 3,193,971 | ||||||
142,799 | Sabre Corp.^ | 2,927,380 | ||||||
29,604 | Science Applications International Corp. | 2,266,778 | ||||||
82,836 | Teradata Corp.*^ | 3,185,873 | ||||||
27,320 | WEX, Inc.*^ | 3,858,404 | ||||||
|
| |||||||
43,273,851 | ||||||||
|
| |||||||
Leisure Products (0.7%): | ||||||||
60,026 | Brunswick Corp. | 3,314,636 | ||||||
39,799 | Polaris Industries, Inc. | 4,934,678 | ||||||
|
| |||||||
8,249,314 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.9%): | ||||||||
13,831 | Bio-Rad Laboratories, Inc., Class A* | 3,301,045 | ||||||
25,612 | Bio-Techne Corp. | 3,318,035 | ||||||
32,404 | Charles River Laboratories International, Inc.* | 3,546,618 | ||||||
38,559 | INC Research Holdings, Inc., Class A*^ | 1,681,172 | ||||||
|
| |||||||
11,846,870 | ||||||||
|
| |||||||
Machinery (5.0%): | ||||||||
45,147 | AGCO Corp. | 3,224,850 | ||||||
34,531 | Crane Co. | 3,080,856 | ||||||
88,927 | Donaldson Co., Inc. | 4,352,977 | ||||||
115,191 | Graco, Inc.^ | 5,208,936 | ||||||
52,257 | IDEX Corp. | 6,896,355 | ||||||
60,219 | ITT, Inc. | 3,213,888 | ||||||
55,485 | Kennametal, Inc. | 2,686,029 | ||||||
42,301 | Lincoln Electric Holdings, Inc. | 3,873,926 | ||||||
34,741 | Nordson Corp. | 5,086,082 | ||||||
51,430 | OshKosh Corp. | 4,674,473 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Machinery, continued | ||||||||
54,711 | Terex Corp.^ | $ | 2,638,164 | |||||
46,750 | Timken Co. | 2,297,763 | ||||||
73,755 | Toro Co. | 4,811,039 | ||||||
103,858 | Trinity Industries, Inc.^ | 3,890,521 | ||||||
58,472 | Wabtec Corp.^ | 4,761,375 | ||||||
37,707 | Woodward, Inc. | 2,886,094 | ||||||
|
| |||||||
63,583,328 | ||||||||
|
| |||||||
Marine (0.2%): | ||||||||
36,771 | Kirby Corp.*^ | 2,456,303 | ||||||
|
| |||||||
Media (1.4%): | ||||||||
34,499 | AMC Networks, Inc., Class A*^ | 1,865,706 | ||||||
3,210 | Cable One, Inc.^ | 2,257,754 | ||||||
72,577 | Cinemark Holdings, Inc.^ | 2,527,130 | ||||||
30,525 | John Wiley & Sons, Inc., Class A | 2,007,019 | ||||||
91,680 | Live Nation, Inc.* | 3,902,817 | ||||||
27,077 | Meredith Corp.^ | 1,788,436 | ||||||
86,169 | New York Times Co. (The), Class A^ | 1,594,127 | ||||||
147,259 | Tegna, Inc. | 2,073,407 | ||||||
|
| |||||||
18,016,396 | ||||||||
|
| |||||||
Metals & Mining (2.2%): | ||||||||
86,141 | Allegheny Technologies, Inc.*^ | 2,079,444 | ||||||
32,029 | Carpenter Technology Corp.^ | 1,633,159 | ||||||
79,323 | Commercial Metals Co. | 1,691,166 | ||||||
23,148 | Compass Minerals International, Inc.^ | 1,672,443 | ||||||
49,895 | Reliance Steel & Aluminum Co. | 4,280,492 | ||||||
44,776 | Royal Gold, Inc. | 3,677,005 | ||||||
162,118 | Steel Dynamics, Inc. | 6,992,149 | ||||||
119,541 | United States Steel Corp. | 4,206,648 | ||||||
30,592 | Worthington Industries, Inc. | 1,347,884 | ||||||
|
| |||||||
27,580,390 | ||||||||
|
| |||||||
Multiline Retail (0.2%): | ||||||||
29,046 | Big Lots, Inc.^ | 1,630,933 | ||||||
14,300 | Dillard’s, Inc., Class A^ | 858,715 | ||||||
|
| |||||||
2,489,648 | ||||||||
|
| |||||||
Multi-Utilities (0.9%): | ||||||||
36,631 | Black Hills Corp.^ | 2,201,889 | ||||||
133,844 | MDU Resources Group, Inc. | 3,597,727 | ||||||
33,260 | NorthWestern Corp. | 1,985,622 | ||||||
56,773 | Vectren Corp. | 3,691,381 | ||||||
|
| |||||||
11,476,619 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (2.7%): | ||||||||
137,898 | Callon Petroleum Co.*^ | 1,675,461 | ||||||
144,895 | CNX Resources Corp.* | 2,119,814 | ||||||
66,417 | Energen Corp.* | 3,823,627 | ||||||
112,608 | Gulfport Energy Corp.* | 1,436,878 | ||||||
121,306 | HollyFrontier Corp.^ | 6,213,292 | ||||||
65,805 | Matador Resources Co.*^ | 2,048,510 | ||||||
110,846 | Murphy Oil Corp.^ | 3,441,768 | ||||||
75,262 | PBF Energy, Inc., Class A^ | 2,668,038 | ||||||
164,766 | QEP Resources, Inc.* | 1,576,811 |
Continued
7
AZL Mid Cap Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
70,223 | SM Energy Co.^ | $ | 1,550,524 | |||||
350,466 | Southwestern Energy Co.*^ | 1,955,600 | ||||||
46,292 | World Fuel Services Corp. | 1,302,657 | ||||||
272,055 | WPX Energy, Inc.* | 3,827,814 | ||||||
|
| |||||||
33,640,794 | ||||||||
|
| |||||||
Paper & Forest Products (0.4%): | ||||||||
42,912 | Domtar Corp. | 2,125,002 | ||||||
99,135 | Louisiana-Pacific Corp.* | 2,603,285 | ||||||
|
| |||||||
4,728,287 | ||||||||
|
| |||||||
Personal Products (0.4%): | ||||||||
297,469 | Avon Products, Inc.* | 639,558 | ||||||
38,410 | Edgewell Personal Care Co.*^ | 2,281,170 | ||||||
33,882 | Nu Skin Enterprises, Inc., Class A^ | 2,311,769 | ||||||
|
| |||||||
5,232,497 | ||||||||
|
| |||||||
Pharmaceuticals (0.8%): | ||||||||
64,182 | Akorn, Inc.*^ | 2,068,586 | ||||||
90,929 | Catalent, Inc.* | 3,735,364 | ||||||
137,601 | Endo International plc* | 1,066,408 | ||||||
65,049 | Mallinckrodt plc*^ | 1,467,505 | ||||||
36,337 | Prestige Brands Holdings, Inc.*^ | 1,613,726 | ||||||
|
| |||||||
9,951,589 | ||||||||
|
| |||||||
Professional Services (0.7%): | ||||||||
25,296 | Dun & Bradstreet Corp. | 2,995,299 | ||||||
45,354 | Manpower, Inc. | 5,719,593 | ||||||
|
| |||||||
8,714,892 | ||||||||
|
| |||||||
Real Estate Management & Development (0.4%): | ||||||||
31,518 | Alexander & Baldwin, Inc. | 874,309 | ||||||
31,056 | Jones Lang LaSalle, Inc. | 4,625,170 | ||||||
|
| |||||||
5,499,479 | ||||||||
|
| |||||||
Road & Rail (1.8%): | ||||||||
49,037 | Avis Budget Group, Inc.*^ | 2,151,744 | ||||||
42,213 | Genesee & Wyoming, Inc., Class A*^ | 3,323,429 | ||||||
87,653 | Knight-Swift Transportation Holdings, Inc.^ | 3,832,189 | ||||||
28,695 | Landstar System, Inc. | 2,987,150 | ||||||
46,776 | Old Dominion Freight Line, Inc. | 6,153,383 | ||||||
36,236 | Ryder System, Inc. | 3,049,984 | ||||||
30,659 | Werner Enterprises, Inc.^ | 1,184,970 | ||||||
|
| |||||||
22,682,849 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (2.9%): | ||||||||
43,569 | Cirrus Logic, Inc.* | 2,259,488 | ||||||
67,151 | Cree, Inc.*^ | 2,493,988 | ||||||
228,242 | Cypress Semiconductor Corp.^ | 3,478,408 | ||||||
55,744 | First Solar, Inc.* | 3,763,835 | ||||||
90,863 | Integrated Device Technology, Inc.*^ | 2,701,357 | ||||||
80,481 | Microsemi Corp.* | 4,156,844 | ||||||
37,125 | MKS Instruments, Inc. | 3,508,313 | ||||||
26,098 | Monolithic Power Systems, Inc. | 2,932,371 | ||||||
29,106 | Silicon Laboratories, Inc.* | 2,570,060 | ||||||
23,597 | Synaptics, Inc.*^ | 942,464 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Semiconductors & Semiconductor Equipment, continued | ||||||||
134,182 | Teradyne, Inc. | $ | 5,618,200 | |||||
74,446 | Versum Materials, Inc. | 2,817,781 | ||||||
|
| |||||||
37,243,109 | ||||||||
|
| |||||||
Software (3.5%): | ||||||||
81,129 | ACI Worldwide, Inc.*^ | 1,839,194 | ||||||
32,876 | Blackbaud, Inc.^ | 3,106,453 | ||||||
89,883 | CDK Global, Inc. | 6,406,860 | ||||||
29,384 | CommVault Systems, Inc.* | 1,542,660 | ||||||
20,517 | Fair Isaac Corp. | 3,143,204 | ||||||
102,351 | Fortinet, Inc.* | 4,471,715 | ||||||
47,210 | Manhattan Associates, Inc.*^ | 2,338,783 | ||||||
79,079 | PTC, Inc.* | 4,805,631 | ||||||
78,014 | Take-Two Interactive Software, Inc.* | 8,564,378 | ||||||
23,897 | Tyler Technologies, Inc.* | 4,230,964 | ||||||
19,426 | Ultimate Software Group, Inc. (The)*^ | 4,239,336 | ||||||
|
| |||||||
44,689,178 | ||||||||
|
| |||||||
Specialty Retail (1.8%): | ||||||||
42,610 | Aaron’s, Inc. | 1,698,009 | ||||||
115,135 | American Eagle Outfitters, Inc. | 2,164,538 | ||||||
40,583 | AutoNation, Inc.* | 2,083,125 | ||||||
98,071 | Bed Bath & Beyond, Inc.^ | 2,156,581 | ||||||
56,598 | Dick’s Sporting Goods, Inc. | 1,626,627 | ||||||
69,356 | GameStop Corp., Class A^ | 1,244,940 | ||||||
75,594 | Michaels Cos., Inc. (The)*^ | 1,828,619 | ||||||
22,143 | Murphy U.S.A., Inc.*^ | 1,779,411 | ||||||
353,337 | Office Depot, Inc. | 1,250,813 | ||||||
87,977 | Sally Beauty Holdings, Inc.*^ | 1,650,449 | ||||||
54,827 | Urban Outfitters, Inc.*^ | 1,922,235 | ||||||
53,210 | Williams-Sonoma, Inc.^ | 2,750,956 | ||||||
|
| |||||||
22,156,303 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (0.3%): | ||||||||
76,996 | 3D Systems Corp.*^ | 665,245 | ||||||
51,374 | Diebold, Inc.^ | 839,965 | ||||||
83,444 | NCR Corp.*^ | 2,836,262 | ||||||
|
| |||||||
4,341,472 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (0.7%): | ||||||||
32,390 | Carter’s, Inc. | 3,805,500 | ||||||
21,882 | Deckers Outdoor Corp.*^ | 1,756,031 | ||||||
91,646 | Skechers U.S.A., Inc., Class A* | 3,467,885 | ||||||
|
| |||||||
9,029,416 | ||||||||
|
| |||||||
Thrifts & Mortgage Finance (0.5%): | ||||||||
334,930 | New York Community Bancorp, Inc.^ | 4,360,789 | ||||||
59,657 | Washington Federal, Inc. | 2,043,252 | ||||||
|
| |||||||
6,404,041 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.7%): | ||||||||
26,215 | GATX Corp.^ | 1,629,524 | ||||||
30,489 | MSC Industrial Direct Co., Inc., Class A | 2,947,067 | ||||||
73,009 | NOW, Inc.*^ | 805,289 | ||||||
20,882 | Watsco, Inc. | 3,550,776 | ||||||
|
| |||||||
8,932,656 | ||||||||
|
|
Continued
8
AZL Mid Cap Index Fund
Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Common Stocks, continued | ||||||||
Water Utilities (0.4%): | ||||||||
121,655 | Aqua America, Inc.^ | $ | 4,772,526 | |||||
|
| |||||||
Wireless Telecommunication Services (0.1%): | ||||||||
62,854 | Telephone & Data Systems, Inc. | 1,747,341 | ||||||
|
| |||||||
Total Common Stocks (Cost $955,202,700) | 1,221,275,894 | |||||||
|
| |||||||
Private Placements (1.5%): | ||||||||
Internet & Direct Marketing Retail (0.9%): | ||||||||
76,914 | Airbnb, Inc., Series D, 0.00%(a)(b) | 9,712,699 | ||||||
31,852 | Flipkart, Series D, 0.00%(a)(b) | 2,806,591 | ||||||
|
| |||||||
12,519,290 | ||||||||
|
| |||||||
Internet Software & Services (0.4%): | ||||||||
245,606 | DropBox, Inc., 0.00%*(a)(b) | 3,487,606 | ||||||
116,948 | SurveyMonkey, 0.00%*(a)(b) | 975,346 | ||||||
|
| |||||||
4,462,952 | ||||||||
|
| |||||||
Software (0.2%): | ||||||||
229,712 | Palantir Technologies, Inc., Series G, 0.00%*(a)(b) | 1,302,468 | ||||||
67,672 | Palantir Technologies, Inc., Series H, 0.00%(a)(b) | 383,700 | ||||||
67,672 | Palantir Technologies, Inc., Series H1, 0.00%(a)(b) | 383,700 | ||||||
|
| |||||||
2,069,868 | ||||||||
|
| |||||||
Total Private Placements (Cost $9,186,594) | 19,052,110 | |||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Securities Held as Collateral for Securities on Loan (26.2%): | ||||||||
$ | 331,221,836 | AZL Mid Cap Index Fund Securities Lending Collateral Account(c) | $ | 331,221,836 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 331,221,836 | ||||||
|
| |||||||
Unaffiliated Investment Company (2.1%): | ||||||||
25,990,389 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 1.11%(d) | 25,990,389 | ||||||
|
| |||||||
Total Unaffiliated Investment Company | 25,990,389 | |||||||
|
| |||||||
Total Investment Securities | 1,597,540,229 | |||||||
Net other assets (liabilities) — (26.3)% | (332,841,830 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 1,264,698,399 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
ADR—American Depositary Receipt
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2017. The total value of securities on loan as of December 31, 2017, was $321,961,333. |
(a) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2017. The total of all such securities represent 1.52% 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 subadviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2017, these securities represent 1.51% 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, 2017. |
(d) | The rate represents the effective yield at December 31, 2017. |
(e) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Futures Contracts
Cash of $885,000 has been segregated to cover margin requirements for the following open contracts as of December 31, 2017:
Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Unrealized (Depreciation) | ||||||||||||||||
S&P MidCap 400 E-Mini March Futures | 3/16/18 | 134 | $ | 25,492,160 | $ | (45,703 | ) | |||||||||||||
|
| |||||||||||||||||||
$ | (45,703 | ) | ||||||||||||||||||
|
|
See accompanying notes to the financial statements.
9
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investment securities, at cost | $ | 1,321,601,519 | |||
|
| ||||
Investment securities, at value* | $ | 1,597,540,229 | |||
Segregated cash for collateral | 885,000 | ||||
Interest and dividends receivable | 1,832,133 | ||||
Receivable for investments sold | 830,281 | ||||
Receivable for variation margin on futures contracts | 13,964 | ||||
Reclaims receivable | 8,474 | ||||
Prepaid expenses | 7,446 | ||||
|
| ||||
Total Assets | 1,601,117,527 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 2,891,409 | ||||
Payable for capital shares redeemed | 1,221,991 | ||||
Payable for collateral received on loaned securities | 331,221,836 | ||||
Payable for variation margin on futures contracts | 180,483 | ||||
Manager fees payable | 269,507 | ||||
Administration fees payable | 28,078 | ||||
Distribution fees payable | 257,675 | ||||
Custodian fees payable | 7,433 | ||||
Administrative and compliance services fees payable | 4,024 | ||||
Transfer agent fees payable | 2,190 | ||||
Trustee fees payable | 2,593 | ||||
Other accrued liabilities | 331,909 | ||||
|
| ||||
Total Liabilities | 336,419,128 | ||||
|
| ||||
Net Assets | $ | 1,264,698,399 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 883,824,716 | |||
Accumulated net investment income/(loss) | 12,626,682 | ||||
Accumulated net realized gains/(losses) from investment transactions | 92,353,443 | ||||
Net unrealized appreciation/(depreciation) on investments | 275,893,558 | ||||
|
| ||||
Net Assets | $ | 1,264,698,399 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 55,763,587 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 4,956,692 | ||||
Net Asset Value (offering and redemption price per share) | $ | 11.25 | |||
|
| ||||
Class 2 | |||||
Net Assets | $ | 1,208,934,812 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 51,559,849 | ||||
Net Asset Value (offering and redemption price per share) | $ | 23.45 | |||
|
|
* | Includes securities on loan of $321,961,333. |
Statement of Operations
For the Year Ended December 31, 2017
Investment Income: | |||||
Dividends | $ | 18,240,788 | |||
Interest | 4,206 | ||||
Income from securities lending | 993,784 | ||||
Other income | 47,697 | ||||
Foreign withholding tax | (6,571 | ) | |||
|
| ||||
Total Investment Income | 19,279,904 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 3,048,106 | ||||
Administration fees | 302,636 | ||||
Distribution fees — Class 2 | 2,911,301 | ||||
Custodian fees | 36,783 | ||||
Administrative and compliance services fees | 14,311 | ||||
Transfer agent fees | 11,220 | ||||
Trustee fees | 50,992 | ||||
Professional fees | 62,717 | ||||
Shareholder reports | 36,549 | ||||
Other expenses | 261,543 | ||||
|
| ||||
Total expenses | 6,736,158 | ||||
|
| ||||
Net Investment Income/(Loss) | 12,543,746 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions and foreign currencies | 97,984,851 | ||||
Net realized gains/(losses) on futures contracts | 1,074,439 | ||||
Change in net unrealized appreciation/depreciation on investments and foreign currencies | 69,092,024 | ||||
Change in net unrealized appreciation/depreciation on futures contracts | 74,052 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 168,225,366 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 180,769,112 | |||
|
|
See accompanying notes to the financial statements.
10
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016* | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 12,543,746 | $ | 6,486,876 | ||||||
Net realized gains/(losses) on investment transactions | 99,059,290 | 66,717,171 | ||||||||
Change in unrealized appreciation/depreciation on investments | 69,166,076 | 79,261,381 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 180,769,112 | 152,465,428 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1 | (548,121 | ) | — | |||||||
Class 2 | (5,176,959 | ) | (4,261,287 | ) | ||||||
From net realized gains: | ||||||||||
Class 1 | (5,404,193 | ) | — | |||||||
Class 2 | (56,722,231 | ) | (57,736,235 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (67,851,504 | ) | (61,997,522 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Class 1 | ||||||||||
Proceeds from shares issued | 141,112 | 51,600,599 | ||||||||
Proceeds from dividends reinvested | 5,952,314 | — | ||||||||
Value of shares redeemed | (6,813,790 | ) | (1,868,942 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | (720,364 | ) | 49,731,657 | |||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Proceeds from shares issued | 74,869,811 | 392,352,971 | ||||||||
Proceeds from shares issued in merger | — | 371,150,604 | ||||||||
Proceeds from dividends reinvested | 61,899,190 | 61,997,522 | ||||||||
Value of shares redeemed | (261,118,646 | ) | (94,941,552 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | (124,349,645 | ) | 730,559,545 | |||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (125,070,009 | ) | 780,291,202 | |||||||
|
|
|
| |||||||
Change in net assets | (12,152,401 | ) | 870,759,108 | |||||||
Net Assets: | ||||||||||
Beginning of period | 1,276,850,800 | 406,091,692 | ||||||||
|
|
|
| |||||||
End of period | $ | 1,264,698,399 | $ | 1,276,850,800 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 12,626,682 | $ | 5,728,469 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Class 1 | ||||||||||
Shares issued | 12,884 | 5,159,658 | ||||||||
Dividends reinvested | 568,511 | — | ||||||||
Shares redeemed | (605,288 | ) | (179,073 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | (23,893 | ) | 4,980,585 | |||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Shares issued | 3,334,698 | 19,931,749 | ||||||||
Shares issued in merger | — | 19,109,902 | ||||||||
Dividends reinvested | 2,835,510 | 3,156,696 | ||||||||
Shares redeemed | (11,596,024 | ) | (4,459,133 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | (5,425,816 | ) | 37,739,214 | |||||||
|
|
|
| |||||||
Change in shares | (5,449,709 | ) | 42,719,799 | |||||||
|
|
|
|
* | Class 1 activity is for the period October 17, 2016 (commencement of operations) to December 31, 2016. |
See accompanying notes to the financial statements.
11
Financial Highlights
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2017 | 2016* | 2015 | 2014 | 2013 | |||||||||||||||||||||
Class 1 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.90 | $ | 10.00 | |||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.25 | 0.12 | |||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.41 | 0.78 | |||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total from Investment Activities | 1.66 | 0.90 | |||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.12 | ) | — | ||||||||||||||||||||||
Net Realized Gains | (1.19 | ) | — | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total Dividends | (1.31 | ) | — | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Net Asset Value, End of Period | $ | 11.25 | $ | 10.90 | |||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total Return(a) | 16.08 | % | 9.00 | %(b) | |||||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 55,764 | $ | 54,300 | |||||||||||||||||||||
Net Investment Income/(Loss)(c) | 1.27 | % | 1.26 | % | |||||||||||||||||||||
Expenses Before Reductions(c)(d) | 0.31 | % | 0.31 | % | |||||||||||||||||||||
Expenses Net of Reductions(c) | 0.31 | % | 0.31 | % | |||||||||||||||||||||
Portfolio Turnover Rate(e) | 21 | % | 86 | %(f) | |||||||||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 21.45 | $ | 21.10 | $ | 23.49 | $ | 22.43 | $ | 17.27 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.24 | 0.13 | 0.30 | 0.19 | 0.14 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 3.06 | 3.67 | (0.91 | ) | 1.85 | 5.47 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 3.30 | 3.80 | (0.61 | ) | 2.04 | 5.61 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.11 | ) | (0.24 | ) | (0.27 | ) | (0.16 | ) | (0.14 | ) | |||||||||||||||
Net Realized Gains | (1.19 | ) | (3.21 | ) | (1.51 | ) | (0.82 | ) | (0.31 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (1.30 | ) | (3.45 | ) | (1.78 | ) | (0.98 | ) | (0.45 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 23.45 | $ | 21.45 | $ | 21.10 | $ | 23.49 | $ | 22.43 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 15.80 | % | 19.52 | % | (2.67 | )% | 9.21 | % | 32.71 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 1,208,935 | $ | 1,222,550 | $ | 406,092 | $ | 554,440 | $ | 492,994 | |||||||||||||||
Net Investment Income/(Loss) | 1.02 | % | 1.14 | % | 0.95 | % | 0.88 | % | 0.86 | % | |||||||||||||||
Expenses Before Reductions(d) | 0.56 | % | 0.57 | % | 0.57 | % | 0.57 | % | 0.58 | % | |||||||||||||||
Expenses Net of Reductions | 0.56 | % | 0.57 | % | 0.57 | % | 0.57 | % | 0.58 | % | |||||||||||||||
Portfolio Turnover Rate(e) | 21 | % | 86 | %(f) | 26 | % | 13 | % | 12 | % |
* | Class 1 activity is 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 for periods less than one year. |
(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
Notes to the Financial Statements
December 31, 2017
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 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 accrues 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 and Withholding Taxes
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, or from other assets and liabilities, from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains is determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., reclassification of gain/loss and other permanent adjustments), 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.
13
AZL Mid Cap Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017 are noted on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $279 million for the year ended December 31, 2017.
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 $95,773 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The fund had securities lending transactions of $331,221,836 accounted for as secured borrowings with cash collateral of overnight and continuous maturities as of December 31, 2017.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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. For the year ended December 31, 2017, the Fund participated in the following cross-trade transactions:
Purchases | Sales | Realized (Gain/Loss) | |||||||||||||
AZL Mid Cap Index Fund | $ | 25,068,210 | $ | 56,076,157 | $ | 13,266,829 |
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, 2017, 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. For the year ended December 31, 2017, the monthly average notional amount for long contracts was $23.2 million. 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, 2017:
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 | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | — | Payable for variation on futures contracts | $ | 45,703 |
* | 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. |
14
AZL Mid Cap Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017:
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 | ||||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | $ | 1,074,439 | $ | 74,052 |
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, 2019.
For the year ended December 31, 2017, the annual rate paid 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, 2017, there were no contractual reimbursements 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, 2017, 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.”
FIS Investor Services LLC (“FIS”) 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 of 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, 2017, $13,145 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, 2017, actual Trustee compensation was $1,116,333 in total for both trusts.
15
AZL Mid Cap Index Fund
Notes to the Financial Statements
December 31, 2017
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.
There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Other^ | Total | ||||||||||||||||||||
Common Stocks+ | $ | 1,221,275,894 | $ | — | $ | — | $ | — | $ | 1,221,275,894 | |||||||||||||||
Private Placements | — | — | 19,052,110 | — | 19,052,110 | ||||||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | — | 331,221,836 | 331,221,836 | ||||||||||||||||||||
Unaffiliated Investment Company | 25,990,389 | — | — | — | 25,990,389 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Investment Securities | 1,247,266,283 | — | 19,052,110 | 331,221,836 | 1,597,540,229 | ||||||||||||||||||||
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|
|
|
|
|
|
|
|
| ||||||||||||||||
Other Financial Instruments:* | |||||||||||||||||||||||||
Futures Contracts | (45,703 | ) | — | — | — | (45,703 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Investments | $ | 1,247,220,580 | $ | — | $ | 19,052,110 | $ | 331,221,836 | $ | 1,597,494,526 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
+ | 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 presented in the financial statements at variation margin. |
^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
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, 2017, 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 | $ | 250,531,531 | $ | 437,194,223 |
16
AZL Mid Cap Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017 are identified below.
Security | Acquisition Date(a) | Acquisition Cost | Shares or Principal Amount | Fair Value | Percentage of Net Assets | ||||||||||||||||||||
Airbnb, Inc., Series D | 4/16/14 | $ | 3,131,402 | $ | 76,914 | $ | 9,712,699 | 0.77 | % | ||||||||||||||||
DropBox, Inc. | 5/1/12 | 2,023,261 | 245,606 | 3,487,606 | 0.28 | % | |||||||||||||||||||
Flipkart, Series D | 10/4/13 | 867,741 | 31,852 | 2,806,591 | 0.22 | % | |||||||||||||||||||
Palantir Technologies, Inc., Series G | 7/19/12 | 702,919 | 229,712 | 1,302,468 | 0.10 | % | |||||||||||||||||||
Palantir Technologies, Inc., Series H1 | 10/25/13 | 237,529 | 67,672 | 383,700 | 0.03 | % | |||||||||||||||||||
Palantir Technologies, Inc., Series H | 10/25/13 | 237,529 | 67,672 | 383,700 | 0.03 | % | |||||||||||||||||||
SurveyMonkey | 11/25/14 | 1,923,795 | 116,948 | 975,346 | 0.08 | % |
(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.
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, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $1,328,568,052. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 301,624,910 | ||
Unrealized (depreciation) | (32,652,733 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 268,972,177 | ||
|
|
The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Mid Cap Index Fund | $ | 5,725,080 | $ | 62,126,424 | $ | 67,851,504 |
(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, 2016 were as follows:
Ordinary Income | Net Long-Term | 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. |
17
AZL Mid Cap Index Fund
Notes to the Financial Statements
December 31, 2017
At December 31, 2017, 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 | $ | 34,345,973 | $ | 77,554,982 | $ | — | $ | 268,972,728 | $ | 380,873,683 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
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, 2017, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 50% of the Fund.
10. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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.
18
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
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, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the periods or years in the five-year period then ended. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the periods or years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian, investees, and brokers or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2017, 89.38% 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, 2017, the Fund declared net long-term capital gain distributions of $62,126,424.
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A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
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Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
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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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
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The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in 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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
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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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® Moderate Index Strategy Fund
Annual Report
December 31, 2017
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
Page 5
Statements of Changes in Net Assets
Page 6
Page 7
Notes to the Financial Statements
Page 8
Report of Independent Registered Public Accounting Firm
Page 12
Other Federal Income Tax Information
Page 13
Page 14
Approval of Investment Advisory Agreement
Page 15
Information about the Board of Trustees and Officers
Page 17
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)
Allianz Investment Management LLC serves as the Manager for the AZL® Moderate Index Strategy Fund.
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What factors affected the Fund’s performance during the year ended December 31, 2017?
For the year ended December 31, 2017, the AZL® Moderate Index Strategy Fund (the “Fund”) returned 13.30%. That compared to a 21.83%, 3.54% and 14.26% total return for its benchmarks, the S&P 500 Index1, Bloomberg Barclays U.S. Aggregate Bond Index1 and the Moderate Composite Index1, respectively.
The AZL Moderate Index Strategy Fund is a fund of funds that pursues broad diversification across four underlying equity portfolios and one fixed income portfolio. The four equity portfolios pursue passive strategies that aim to achieve, before fees, returns similar to the S&P 500 Index (U.S. large cap stocks), the S&P 400 Index (U.S. mid cap stocks), the S&P 600 Index (U.S. small cap stocks) and the MSCI EAFE Index2, which represents shares of large companies in developed foreign markets. The fixed-income sub-portfolio is an enhanced bond index strategy that seeks to achieve a return that exceeds that of the Bloomberg Barclays U.S. Aggregate Bond Index. Generally, the Fund allocates 50% to 70% of its assets to the underlying equity portfolios and between 30% and 50% to the underlying fixed income portfolio.
Global economic expansion supported equities during 2017 and led major stock indexes to all-time highs. U.S. large-cap equities, as measured by the S&P 500 Index, gained amid solid jobs growth, low unemployment, increased business investment, strong consumer confidence, and a low volatility environment. Mid-and small-cap stocks also performed well during the period, but could not keep pace with large-cap stocks. Growth stocks were heavily favored by investors during the year and significantly outperformed value stocks.
International developed markets outperformed U.S. domestic markets, returning 25.03% for the period. Emerging markets equities, as measured by the MSCI Emerging Markets Equity Index2, posted impressive returns of 37.28%, ending years of underperformance relative to domestic and international developed markets.
The U.S. bond market was generally positive, and the market rewarded investors who took on interest rate and spread risk. Although spread movement was variable, spreads tightened over the year, particularly in the high-yield space. Meanwhile, the yield curve flattened sharply, as three rate hikes by the U.S. Federal Reserve sent short-term yields higher while investor demand for yield pushed long-term yields lower.
The Fund underperformed its composite benchmark for the 12-month period. This underperformance was due largely to an overweight allocation to mid- and small-cap stocks, which lagged large-cap equities during the period. The Fund’s allocation to international equities boosted relative results as they outperformed their U.S. counterparts. An overweight allocation to 30-year bonds boosted relative performance of the underlying fixed-income portfolio. However, that benefit was offset by an underweight allocation to corporate bonds, which detracted from relative performance and caused the Fund to modestly lag its fixed-income benchmark for the period.*
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2017. |
1 | For a complete description of the Fund’s performance benchmarks please refer to page 2 of this report. |
2 | MSCI EAFE Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. The MSCI EM Index a free float-adjusted market capitalization index that is designed to measure equity performance of emerging markets. |
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, 2017
1 | 3 | 5 | 10 | |||||||||||||
Year | Year | Year | Year | |||||||||||||
AZL® Moderate Index Strategy Fund | 13.30 | % | 6.37 | % | 10.24 | % | 6.41 | % | ||||||||
S&P 500 Index | 21.83 | % | 11.41 | % | 15.79 | % | 8.50 | % | ||||||||
Bloomberg Barclays U.S. Aggregate Bond Index | 3.54 | % | 2.24 | % | 2.10 | % | 4.01 | % | ||||||||
Moderate Composite Index | 14.26 | % | 7.76 | % | 10.25 | % | 7.09 | % |
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 | 1.03 | % |
The above expense ratio is based on the current Fund prospectus dated May 1, 2017. 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, 2019. Additional information pertaining to the December 31, 2017 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 was subadvised by Invesco Advisers, Inc. and was known as the AZL Invesco Equity and Income Fund. Consequently, the performance information below may have been different if the Fund had been managed according to its current investment objective prior to October 14, 2016.
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, as shown in the prospectus, 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 expense ratio would be 0.43%.
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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Moderate Index Strategy Fund | $ | 1,000.00 | $ | 1,063.90 | $ | 0.31 | 0.06 | % |
The Hypothetical Expense table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Beginning Account Value 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Moderate Index Strategy Fund | $ | 1,000.00 | $ | 1,024.90 | $ | 0.31 | 0.06 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
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, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Affiliated Investment Companies (100.1%): | ||||||||
2,866,024 | AZL Mid Cap Index Fund, Class 2 | $ | 67,236,926 | |||||
6,488,010 | AZL International Index Fund, Class 2 | 112,242,570 | ||||||
27,030,251 | AZL Enhanced Bond Index Fund | 294,359,436 | ||||||
2,280,417 | AZL Small Cap Stock Index Fund, Class 2 | 33,932,605 | ||||||
14,481,146 | AZL S&P 500 Index Fund, Class 2 | 233,580,884 | ||||||
|
| |||||||
Total Affiliated Investment Companies (Cost $664,087,942) | 741,352,421 | |||||||
|
| |||||||
Total Investment Securities | ||||||||
(Cost $664,087,942)(a) — 100.1% | 741,352,421 | |||||||
Net other assets (liabilities) — (0.1)% | (393,147 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 740,959,274 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
(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, 2017
Assets: | |||||
Investments in affiliates, at cost | $ | 664,087,942 | |||
|
| ||||
Investments in affiliates, at value | $ | 741,352,421 | |||
Receivable for capital shares issued | 16,632 | ||||
Receivable for investments sold | 211,640 | ||||
Reclaims receivable | 165,924 | ||||
Prepaid expenses | 4,301 | ||||
|
| ||||
Total Assets | 741,750,918 | ||||
|
| ||||
Liabilities: | |||||
Cash overdraft | 211,640 | ||||
Payable for capital shares redeemed | 508,535 | ||||
Manager fees payable | 31,483 | ||||
Administration fees payable | 7,717 | ||||
Custodian fees payable | 358 | ||||
Administrative and compliance services fees payable | 1,770 | ||||
Transfer agent fees payable | 838 | ||||
Trustee fees payable | 1,140 | ||||
Other accrued liabilities | 28,163 | ||||
|
| ||||
Total Liabilities | 791,644 | ||||
|
| ||||
Net Assets | $ | 740,959,274 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 631,053,577 | |||
Accumulated net investment income/(loss) | 6,573,965 | ||||
Accumulated net realized gains/(losses) from investment transactions | 26,062,191 | ||||
Net unrealized appreciation/(depreciation) on investments | 77,269,541 | ||||
|
| ||||
Net Assets | $ | 740,959,274 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 55,691,823 | ||||
Net Asset Value (offering and redemption price per share) | $ | 13.30 | |||
|
|
Statement of Operations
For the Year Ended December 31, 2017
Investment Income: | |||||
Dividends from affiliates | $ | 6,221,048 | |||
Dividends | 678 | ||||
Interest | 455 | ||||
Other income | 1,454 | ||||
|
| ||||
Total Investment Income | 6,223,635 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,915,416 | ||||
Administration fees | 53,614 | ||||
Custodian fees | 2,913 | ||||
Administrative and compliance services fees | 9,980 | ||||
Transfer agent fees | 6,678 | ||||
Trustee fees | 35,662 | ||||
Professional fees | 43,213 | ||||
Shareholder reports | 24,132 | ||||
Other expenses | 22,777 | ||||
|
| ||||
Total expenses before reductions | 3,114,385 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (2,497,720 | ) | |||
|
| ||||
Net expenses | 616,665 | ||||
|
| ||||
Net Investment Income/(Loss) | 5,606,970 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions and foreign currencies | 110,798 | ||||
Net realized gains/(losses) on affiliated transactions | 10,089,769 | ||||
Net realized gains distributions from affiliated underlying funds | 16,855,627 | ||||
Change in net unrealized appreciation/depreciation on investments and foreign currencies | 14,444 | ||||
Change in net unrealized appreciation/depreciation on affiliated transactions | 58,682,737 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 85,753,375 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 91,360,345 | |||
|
|
See accompanying notes to the financial statements.
5
AZL Moderate Index Strategy Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 5,606,970 | $ | 14,269,887 | ||||||
Net realized gains/(losses) on investment transactions | 27,056,194 | 173,812,372 | ||||||||
Change in unrealized appreciation/depreciation on investments | 58,697,181 | (97,323,376 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 91,360,345 | 90,758,883 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (15,250,038 | ) | (23,360,750 | ) | ||||||
From net realized gains | (164,931,095 | ) | (39,514,827 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (180,181,133 | ) | (62,875,577 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 26,825,246 | 32,714,418 | ||||||||
Proceeds from dividends reinvested | 180,181,133 | 62,875,577 | ||||||||
Value of shares redeemed | (98,159,965 | ) | (685,045,161 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 108,846,414 | (589,455,166 | ) | |||||||
|
|
|
| |||||||
Change in net assets | 20,025,626 | (561,571,860 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 720,933,648 | 1,282,505,508 | ||||||||
|
|
|
| |||||||
End of period | $ | 740,959,274 | $ | 720,933,648 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 6,573,965 | $ | 15,434,325 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 1,705,435 | 2,178,543 | ||||||||
Dividends reinvested | 14,076,651 | 4,163,946 | ||||||||
Shares redeemed | (6,481,019 | ) | (45,256,962 | ) | ||||||
|
|
|
| |||||||
Change in shares | 9,301,067 | (38,914,473 | ) | |||||||
|
|
|
|
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, | |||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 15.54 | $ | 15.03 | $ | 16.50 | $ | 15.73 | $ | 12.73 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.12 | 0.32 | 0.19 | 0.23 | 0.11 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.78 | 1.00 | (0.61 | ) | 1.10 | 3.02 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.90 | 1.32 | (0.42 | ) | 1.33 | 3.13 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.35 | ) | (0.30 | ) | (0.36 | ) | (0.13 | ) | (0.13 | ) | |||||||||||||||
Net Realized Gains | (3.79 | ) | (0.51 | ) | (0.69 | ) | (0.43 | ) | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (4.14 | ) | (0.81 | ) | (1.05 | ) | (0.56 | ) | (0.13 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 13.30 | $ | 15.54 | $ | 15.03 | $ | 16.50 | $ | 15.73 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 13.30 | % | 8.91 | % | (2.47 | )% | 8.50 | % | 24.67 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 740,959 | $ | 720,934 | $ | 1,282,506 | $ | 1,317,095 | $ | 1,072,014 | |||||||||||||||
Net Investment Income/(Loss) | 0.77 | % | 1.25 | % | 1.22 | % | 1.57 | % | 1.20 | % | |||||||||||||||
Expenses Before Reductions*(b) | 0.43 | % | 0.96 | % | 1.05 | % | 1.05 | % | 1.06 | % | |||||||||||||||
Expenses Net of Reductions* | 0.08 | % | 0.83 | % | 0.96 | % | 0.96 | % | 0.97 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly | 0.08 | % | 0.83 | % | 0.96 | % | 0.96 | %(c) | 0.97 | %(c) | |||||||||||||||
Portfolio Turnover Rate | 7 | %(d) | 190 | % | 117 | % | 119 | % | 52 | % |
* | The expense ratios exclude the impact of fees/expenses paid by each underlying fund. |
(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 remitted a portion of the brokerage commission which were used to pay certain Fund expenses. The Fund ceased participation in the program in June 2014. |
(d) | The Fund’s purchases and sales of securities and, accordingly, portfolio turnover ratio decreased during 2017 as a result of a change in the Fund’s investment strategy which became effective October 14, 2016. |
See accompanying notes to the financial statements.
7
AZL Moderate Index Strategy Fund
Notes to the Financial Statements
December 31, 2017
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 Moderate Index Strategy 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 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.
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, or from other assets and liabilities, 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., miscellaneous adjustments on return of capital, reclassification of gain/loss, paydowns, and other permanent adjustments), 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.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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, 2017, the Fund did not engage in any such transactions under the Rule.
8
AZL Moderate Index Strategy Fund
Notes to the Financial Statements
December 31, 2017
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, 2019. Expenses incurred for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.”
For the year ended December 31, 2017, the annual rate paid 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 | % |
* | The Manager 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. |
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, 2017, there were no contractual reimbursements 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 underlying funds in which the Fund invests. At December 31, 2017, these underlying funds are noted as Affiliated Investment Companies in the Fund’s Schedule of Portfolio Investments. Additional information, including financial statements, about these Funds is available at www.allianzlife.com. The Manager or an affiliate of the Manager is paid a separate fee from the underlying funds for such services. A summary of the Fund’s investments in affiliated investment companies for the year ended December 31, 2017 is as follows:
Fair Value 12/31/2016 | Purchases at Cost | Proceeds from Sales | Net Realized | Net Change in Unrealized Appreciation/ Depreciation | Fair Value 12/31/2017 | Shares as of 12/31/2017 | Dividend Income | Net realized gains distributions from affiliated underlying funds | |||||||||||||||||||||||||||||||||||||
AZL Enhanced Bond Index Fund | $ | 277,668,274 | $ | 19,748,137 | $ | (8,778,193 | ) | $ | (13,881 | ) | $ | 5,735,099 | $ | 294,359,436 | 27,030,251 | $ | 2,667,805 | $ | — | ||||||||||||||||||||||||||
AZL International Index Fund, Class 2 | 107,138,700 | 4,119,147 | (21,742,225 | ) | 2,449,425 | 20,277,523 | 112,242,570 | 6,488,010 | 961,497 | 838,620 | |||||||||||||||||||||||||||||||||||
AZL Mid Cap Index Fund, Class 2 | 69,479,826 | 4,563,877 | (13,041,599 | ) | 1,518,816 | 4,716,006 | 67,236,926 | 2,866,024 | 308,232 | 3,377,198 | |||||||||||||||||||||||||||||||||||
AZL Small Cap Stock Index Fund, Class 2 | 37,055,527 | 2,487,997 | (7,225,240 | ) | 988,799 | 625,522 | 33,932,605 | 2,280,417 | 162,012 | 2,249,159 | |||||||||||||||||||||||||||||||||||
AZL S&P 500 Index Fund, Class 2 | 230,145,977 | 17,196,314 | (46,236,604 | ) | 5,146,610 | 27,328,587 | 233,580,884 | 14,481,146 | 2,121,502 | 10,390,650 | |||||||||||||||||||||||||||||||||||
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$ | 721,488,304 | $ | 48,115,472 | $ | (97,023,861 | ) | $ | 10,089,769 | $ | 58,682,737 | $ | 741,352,421 | 53,145,848 | $ | 6,221,048 | $ | 16,855,627 | ||||||||||||||||||||||||||||
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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.”
FIS Investor Services LLC (“FIS”) 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 $7,500, paid by the Manager from its profits and not by the Trust, for recordkeeping and reporting services.
9
AZL Moderate Index Strategy Fund
Notes to the Financial Statements
December 31, 2017
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, 2017, $7,789 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, 2017, actual Trustee compensation was $1,116,333 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.
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. 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.
For the year ended December 31, 2017, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value. There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Affiliated Investment Companies | $ | 741,352,421 | $ | — | $ | — | $ | 741,352,421 | ||||||||||||
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Total Investments | $ | 741,352,421 | $ | — | $ | — | $ | 741,352,421 | ||||||||||||
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5. Security Purchases and Sales
For the year ended December 31, 2017, 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 | $ | 48,115,472 | $ | 97,023,861 |
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.
Fund of Funds Risk: The Fund, as a shareholder of the underlying funds, indirectly bears its proportionate share of any investment management fees and other expenses of the underlying funds. Further due to the fees and expenses paid by the Fund, as well as small variations in the Fund’s actual allocations to the underlying funds and any futures and cash held in the Fund’s portfolio, the performance and income distributions of the Fund will not be the same as the performance and income distributions of the underlying funds.
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.
10
AZL Moderate Index Strategy Fund
Notes to the Financial Statements
December 31, 2017
Cost of securities, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $664,161,001. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 77,666,483 | ||
Unrealized (depreciation) | (475,063 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 77,191,420 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Moderate Index Strategy Fund | $ | 30,788,638 | $ | 149,392,495 | $ | 180,181,133 |
(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, 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. |
At December 31, 2017, 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 | $ | 14,285,211 | $ | 18,424,005 | $ | — | $ | 77,196,481 | $ | 109,905,697 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2017, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 95% of the Fund.
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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.
11
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AZL Moderate Index Strategy Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, 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.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the transfer agent of the underlying funds. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
/s/ KPMG LLP
Columbus, Ohio
February 23, 2018
12
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2017, 31.47% 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, 2017, the Fund declared net short-term capital gain distributions of $15,538,600.
During the year ended December 31, 2017, the Fund declared net long-term capital gain distributions of $149,392,495.
13
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
14
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of the Fund, which is a series of the Allianz Variable Insurance Products Trust (the “Trust”), 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. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, 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, 2019 (the “Expense Limitation Agreement”).
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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz 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 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 and long-term performance; 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 the 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 Services 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 received (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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes 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 independent 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 the Expense Limitation Agreement and additional 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 meetings held in the fall of 2017. Information relevant to the approval of the Management Agreement was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Management Agreement was approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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 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 Board considered all factors it believed relevant. The Board based its decision to approve the Management Agreement 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 the 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, 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
15
The Board 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 Board 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 Board 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 Board 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 every in-person quarterly Board meeting and the fall 2017 contract review process, Trustees received extensive information on the performance results of the Fund. However, the Board also considered the fact that prior to 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 during the period prior to October 14, 2016, was not deemed relevant to the Board’s assessment of the continuance of the Management Agreement in the fall of 2017. Such performance information included performance information on absolute total return, performance versus the appropriate benchmark(s), the contribution to performance of the Manager’s asset class allocation decisions and volatility management strategies, the performance of the underlying funds, and the impact on performance of rebalancing decisions, cash and Fund fees. This included Lipper performance information on the Fund for the previous quarter and year-to-date. In connection with the Board meeting held October 23, 2017, the Manager reported that for the most recent quarter and year-to-day period ended June 30, 2017, the Fund ranked in the in the top 40%.
At the Board meeting held October 23, 2017, the Trustees determined that the investment performance of the Fund was acceptable.
(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 it in the 13th percentile of its customized peer group. (A lower percentile reflects lower fund fees and is better for fund shareholders.) 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 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Fund before taxes and distribution expenses. The Board recognized that the Manager should 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 Board noted that the advisory fee schedule for the Fund does not contain breakpoints that reduce the fee rate on assets above specified levels. The Board 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. The Board found there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. 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 service 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, or if breakpoints exist, they may be at asset levels significantly greater than those of the Fund. The Board also noted that the total assets in the Fund, as of June 30, 2017, were approximately $720 million.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Fund grows larger. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in the Fund’s advisory fee rate schedules was acceptable under the Fund’s circumstances.
16
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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
17
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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
18
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® Morgan Stanley Global Real Estate Fund
Annual Report
December 31, 2017
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
Page 7
Statements of Changes in Net Assets
Page 8
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
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, 2017?
For the year ended December 31, 2017, the Class 2 shares of the AZL® Morgan Stanley Global Real Estate Fund (the “Fund”) returned 9.72%. That compared to a 11.42% total return for its benchmark, the FTSE EPRA/NAREIT Developed Real Estate Index1.
Overall, global real estate securities were up during the period. Property stocks gained based on transactional evidence in the private markets of strong investor demand for core assets at valuations that signaled investor willingness to accept low expected returns. In addition, low government bond yields boosted the share prices of listed property companies.
Property stocks in Europe experienced the strongest gains over the period. The Eurozone economy maintained momentum through the end of the year, as companies made new hires at the fastest pace in a decade. However, political uncertainty remains high due to ongoing Brexit negotiations, lengthy coalition talks in Germany, inconclusive election results in Catalonia and upcoming general elections in Italy. Property stocks in Asia also made strong gains. Hong Kong real estate operating companies traded at the largest discount to net asset values (NAVs), which increased based on healthy operating fundamentals and continued strength in asset values in private markets. Property stocks in the U.S. also gained during the period, though they lagged Europe and Asia. This lag was caused in part by significant investor concerns over the retail sector, which led to weakness in the mall and shopping center sectors.
Performance within the Fund’s European regional portfolio detracted from relative performance. In Europe, the Fund benefited from stock selection in Germany, but these gains were more than offset by the negative effect of an underweight allocation to Germany, and stock selection in Sweden and the U.K.*
Performance within the Asian and North American regional portfolios contributed to relative performance. In Asia, the Fund benefited from an overweight allocation to Hong Kong
and an underweight allocation to Japan. However, this was partially offset by an underweight allocation to Singapore and stock selection in Hong Kong and Japan, which detracted from relative return.*
Among U.S. holdings, the Fund benefited from an underweight position and stock selection in the shopping center sector. The Fund also benefited from stock selection in the mall sector, an underweight position and stock selection in the health care sector, and an overweight position, and stock selection in the apartment sector. These benefits were partially offset by negative impacts from an overweight allocation to the mall sector, an underweight allocation to the industrial sector, and underweight positions and stock selection in the net lease and data center sectors.*
The Fund underperformed it’s benchmark for the period. The Fund has significant overweight exposure to the owners of U.S. Class A malls, given the opportunity to own these assets at very attractive discounted valuations through companies with solid balance sheets. These holdings were a key detractor from Fund performance for the full-year period, but made the largest contributions to relative performance in the fourth quarter of 2017.
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, 2017. |
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, in equity securities of companies in the real estate industry, including real estate investments trusts (REITs), real estate operating companies (REOCs), 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), 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.
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, 2017
Inception | 1 | 3 | 5 | 10 | Since | |||||||||||||||||
Date | Year | Year | Year | Year | Inception | |||||||||||||||||
AZL® Morgan Stanley Global Real Estate Fund (Class 1 Shares) | 10/14/16 | 10.00 | % | — | — | — | 8.61 | % | ||||||||||||||
AZL® Morgan Stanley Global Real Estate Fund (Class 2 Shares) | 5/1/06 | 9.72 | % | 3.74 | % | 5.53 | % | 3.46 | % | 3.89 | % | |||||||||||
FTSE EPRA/NAREIT Developed Real Estate Index (gross of withholding taxes) | 5/1/06 | 11.42 | % | 5.38 | % | 7.20 | % | 4.09 | % | 4.91 | % | |||||||||||
FTSE EPRA/NAREIT Developed Real Estate Index (net of withholding taxes) | 5/1/06 | 10.36 | % | 4.44 | % | 6.32 | % | 3.28 | % | 4.14 | % |
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® Morgan Stanley Global Real Estate Fund (Class 1 Shares) | 1.04 | % | ||
AZL® Morgan Stanley Global Real Estate Fund (Class 2 Shares) | 1.29 | % |
The above expense ratios are based on the current Fund prospectus dated May 1, 2017. The Manager voluntarily reduced the management fee to 0.85% on all assets. The Manager and the Fund have entered into a written contract limiting operating expenses, excluding certain expenses (such as interest expense), to 1.10% for Class 1 Shares and 1.35% for Class 2 Shares through April 30, 2019. Additional information pertaining to the December 31, 2017 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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Morgan Stanley Global Real Estate Fund, Class 1 | $ | 1,000.00 | $ | 1,060.90 | $ | 4.78 | 0.92 | % | ||||||||||||
AZL Morgan Stanley Global Real Estate Fund, Class 2 | $ | 1,000.00 | $ | 1,060.50 | $ | 6.08 | 1.17 | % |
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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Morgan Stanley Global Real Estate Fund, Class 1 | $ | 1,000.00 | $ | 1,020.56 | $ | 4.69 | 0.92 | % | ||||||||||||
AZL Morgan Stanley Global Real Estate Fund, Class 2 | $ | 1,000.00 | $ | 1,019.30 | $ | 5.96 | 1.17 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
United States | 53.5 | % | |||
Hong Kong | 10.5 | ||||
Japan | 8.9 | ||||
United Kingdom | 6.0 | ||||
Australia | 4.9 | ||||
France | 4.1 | ||||
Germany | 2.1 | ||||
Canada | 1.7 | ||||
Bermuda | 1.6 | ||||
Singapore | 1.1 | ||||
All other countries | 4.7 | ||||
|
| ||||
Total Common Stocks | 99.1 | ||||
Securities Held as Collateral for Securities on Loan | 11.2 | ||||
Money Market | 0.3 | ||||
|
| ||||
Total Investment Securities | 110.6 | ||||
Net other assets (liabilities) | (10.6 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Morgan Stanley Global Real Estate Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks (99.1%): | ||||||||
Diversified Real Estate Activities (8.6%): | ||||||||
52,991 | CapitaLand, Ltd. | $ | 139,647 | |||||
63,621 | Henderson Land Development Co., Ltd. | 419,326 | ||||||
141,011 | Mitsubishi Estate Co., Ltd. | 2,450,447 | ||||||
113,498 | Mitsui Fudosan Co., Ltd. | 2,544,731 | ||||||
654,801 | New World Development Co., Ltd. | 983,851 | ||||||
27,331 | Sumitomo Realty & Development Co., Ltd. | 897,197 | ||||||
202,971 | Sun Hung Kai Properties, Ltd. | 3,381,167 | ||||||
26,015 | UOL Group, Ltd. | 172,533 | ||||||
167,399 | Wharf Holdings, Ltd. (The) | 578,874 | ||||||
|
| |||||||
11,567,773 | ||||||||
|
| |||||||
Diversified REITs (7.8%): | ||||||||
91 | Activia Properties, Inc. | 380,842 | ||||||
3,168 | Fonciere des Regions SA | 358,904 | ||||||
5,694 | Gecina SA | 1,050,424 | ||||||
186,588 | GPT Group | 742,649 | ||||||
12,506 | H&R Real Estate Investment Trust | 212,546 | ||||||
222,749 | Hibernia REIT plc | 408,774 | ||||||
20,592 | Hispania Activos Inmobiliarios SA | 387,389 | ||||||
80 | Hulic REIT, Inc. | 116,454 | ||||||
3,882 | ICADE | 381,504 | ||||||
21 | Kenedix Office Investment Corp. | 119,218 | ||||||
153,739 | Land Securities Group plc | 2,084,632 | ||||||
5,155 | Liberty Property Trust | 221,717 | ||||||
53,334 | Merlin Properties Socimi SA | 721,973 | ||||||
229,624 | Mirvac Group | 419,727 | ||||||
515 | Nomura Real Estate Master Fund, Inc. | 639,506 | ||||||
141,136 | Stockland Trust Group | 493,565 | ||||||
84,264 | Suntec REIT | 135,300 | ||||||
345 | United Urban Investment Corp. | 496,161 | ||||||
96,980 | VEREIT, Inc. | 755,474 | ||||||
|
| |||||||
10,126,759 | ||||||||
|
| |||||||
Health Care Facilities (0.1%): | ||||||||
17,971 | Extendicare, Inc. | 130,836 | ||||||
|
| |||||||
Health Care REITs (3.6%): | ||||||||
44,028 | HCP, Inc. | 1,148,250 | ||||||
43,178 | Healthcare Realty Trust, Inc. | 1,386,877 | ||||||
22,674 | Healthcare Trust of America, Inc., Class A^ | 681,127 | ||||||
17,150 | Ventas, Inc. | 1,029,172 | ||||||
11,695 | Welltower, Inc. | 745,790 | ||||||
|
| |||||||
4,991,216 | ||||||||
|
| |||||||
Hotel & Resort REITs (3.0%): | ||||||||
12,993 | Chesapeake Lodging Trust^ | 351,980 | ||||||
31,565 | Host Hotels & Resorts, Inc.^ | 626,565 | ||||||
774 | Invincible Investment Corp. | 329,029 | ||||||
273 | Japan Hotel REIT Investment Corp. | 183,201 | ||||||
74,581 | LaSalle Hotel Properties^ | 2,093,489 | ||||||
26,550 | RLJ Lodging Trust | 583,304 | ||||||
|
| |||||||
4,167,568 | ||||||||
|
| |||||||
Hotels, Resorts & Cruise Lines (0.3%): | ||||||||
5,730 | Hilton Worldwide Holdings, Inc. | 457,598 | ||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Industrial REITs (4.7%): | ||||||||
120,198 | Ascendas Real Estate Investment Trust | $ | 244,441 | |||||
20,854 | DCT Industrial Trust, Inc. | 1,225,798 | ||||||
14,700 | Duke Realty Corp. | 399,987 | ||||||
49,300 | Ec World REIT | 28,017 | ||||||
463 | GLP J-REIT | 500,345 | ||||||
134,021 | Macquarie Goodman Group | 878,354 | ||||||
25,100 | Mapletree Industrial Trust | 38,129 | ||||||
50 | Nippon Prologis REIT, Inc. | 105,719 | ||||||
36,737 | ProLogis, Inc. | 2,369,904 | ||||||
17,357 | Rexford Industrial Realty, Inc. | 506,130 | ||||||
12,076 | SERGO plc | 95,627 | ||||||
|
| |||||||
6,392,451 | ||||||||
|
| |||||||
Mortgage REITs (0.5%): | ||||||||
12,090 | Blackstone Mortgage Trust, Inc., Class A^ | 389,056 | ||||||
14,610 | Starwood Property Trust, Inc.^ | 311,924 | ||||||
|
| |||||||
700,980 | ||||||||
|
| |||||||
Office REITs (19.3%): | ||||||||
3,941 | Alexandria Real Estate Equities, Inc. | 514,655 | ||||||
39,481 | Boston Properties, Inc. | 5,133,714 | ||||||
13,996 | Brandywine Realty Trust | 254,587 | ||||||
172,044 | CapitaLand Commercial Trust | 248,238 | ||||||
402,000 | Champion REIT | 294,741 | ||||||
39,538 | Cousins Properties, Inc.^ | 365,727 | ||||||
16 | Daiwa Office Investment Corp. | 84,362 | ||||||
25,860 | Derwent Valley Holdings plc | 1,088,118 | ||||||
81,610 | Dexus Property Group | 619,652 | ||||||
7,351 | Douglas Emmett, Inc. | 301,832 | ||||||
117,428 | Great Portland Estates plc | 1,090,694 | ||||||
274,847 | Green REIT plc | 512,695 | ||||||
21 | Japan Prime Realty Investment Corp. | 66,733 | ||||||
134 | Japan Real Estate Investment Corp. | 636,315 | ||||||
26,199 | JBG SMITH Properties | 909,891 | ||||||
229,106 | Keppel REIT | 216,243 | ||||||
15,986 | Kilroy Realty Corp. | 1,193,355 | ||||||
51,622 | Mack-Cali Realty Corp. | 1,112,970 | ||||||
178 | Nippon Building Fund, Inc. | 870,974 | ||||||
174 | ORIX JREIT, Inc. | 241,117 | ||||||
58,337 | Paramount Group, Inc.^ | 924,641 | ||||||
36,116 | SL Green Realty Corp. | 3,645,188 | ||||||
5,948 | Tier REIT, Inc.^ | 121,280 | ||||||
69,815 | Vornado Realty Trust^ | 5,458,137 | ||||||
1,654 | Workspace Group plc | 22,364 | ||||||
|
| |||||||
25,928,223 | ||||||||
|
| |||||||
Real Estate Development (2.7%): | ||||||||
123,925 | China Overseas Land & Investment, Ltd. | 398,873 | ||||||
54,000 | China Resources Land, Ltd. | 158,598 | ||||||
49,800 | China Vanke Co., Ltd., Class H | 198,313 | ||||||
202,540 | CK Asset Holdings, Ltd. | 1,770,441 | ||||||
92,800 | Guangzhou R&F Properties Co., Ltd., Class H | 209,227 | ||||||
39,195 | Sino Land Co., Ltd. | 69,395 | ||||||
58,278 | St. Modwen Properties plc | 318,780 | ||||||
97,308 | Urban & Civic plc | 376,913 | ||||||
|
| |||||||
3,500,540 | ||||||||
|
|
Continued
4
AZL Morgan Stanley Global Real Estate Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Real Estate Operating Companies (9.9%): | ||||||||
3,010 | ADO Properties SA | $ | 152,692 | |||||
26,941 | Atrium European Real Estate, Ltd. | 134,151 | ||||||
12,984 | Atrium Ljungberg AB, Class B | 206,250 | ||||||
2,485,087 | BGP Holdings plc*(a)(b) | 2,981 | ||||||
12,406 | BUWOG-Bauen Und Wohnen Gesellschaft mbH | 426,994 | ||||||
7,756 | Capital & Counties Properties plc | 33,455 | ||||||
4,809 | Carmila SA | 133,931 | ||||||
19,322 | Castellum AB | 325,952 | ||||||
123,668 | Citycon OYJ | 320,105 | ||||||
20,898 | Deutsche Wohnen AG | 911,060 | ||||||
24,193 | Entra ASA | 359,538 | ||||||
41,012 | First Capital Realty, Inc. | 676,137 | ||||||
16,001 | Grainger Trust plc | 62,301 | ||||||
311,252 | Hongkong Land Holdings, Ltd. | 2,188,683 | ||||||
23,756 | Hufvudstaden AB | 380,225 | ||||||
40,556 | Hulic Co., Ltd. | 454,054 | ||||||
225,669 | Hysan Development Co., Ltd. | 1,197,839 | ||||||
15,700 | Inmobiliaria Colonial SA | 155,675 | ||||||
2,576 | LEG Immobilien AG | 293,990 | ||||||
214,000 | LXB Retail Properties plc* | 66,074 | ||||||
61,964 | Norwegian Property ASA | 80,012 | ||||||
8,263 | PSP Swiss Property AG | 783,225 | ||||||
498,129 | Swire Properties, Ltd. | 1,606,654 | ||||||
1,119 | Swiss Prime Site AG | 103,282 | ||||||
30,397 | Vonovia SE | 1,504,471 | ||||||
169,710 | Wharf Real Estate Investment Co., Ltd.* | 1,129,575 | ||||||
|
| |||||||
13,689,306 | ||||||||
|
| |||||||
Real Estate Services (0.0%): | ||||||||
83,600 | APAC Realty, Ltd.* | 54,630 | ||||||
|
| |||||||
Residential REITs (8.1%): | ||||||||
148 | Advance Residence Investment | 363,962 | ||||||
1,710 | American Campus Communities, Inc. | 70,161 | ||||||
36,874 | American Homes 4 Rent, Class A | 805,328 | ||||||
13,261 | AvalonBay Communities, Inc. | 2,365,895 | ||||||
7,238 | Boardwalk REIT | 248,158 | ||||||
17,644 | Camden Property Trust | 1,624,307 | ||||||
11,010 | Education Realty Trust, Inc.^ | 384,469 | ||||||
41,922 | Equity Residential Property Trust | 2,673,366 | ||||||
4,785 | Essex Property Trust, Inc. | 1,154,955 | ||||||
25,844 | Invitation Homes, Inc. | 609,143 | ||||||
15,532 | UDR, Inc. | 598,293 | ||||||
|
| |||||||
10,898,037 | ||||||||
|
| |||||||
Retail REITs (24.5%): | ||||||||
188,667 | British Land Co. plc | 1,759,906 | ||||||
27,891 | Brixmor Property Group, Inc. | 520,446 | ||||||
148,300 | Capital & Regional plc | 117,039 | ||||||
158,752 | CapitaMall Trust | 252,753 | ||||||
2,994 | CBL & Associates Properties, Inc.^ | 16,946 | ||||||
17,841 | Crombie REIT | 195,899 | ||||||
11,720 | DDR Corp.^ | 105,011 | ||||||
14,840 | Eurocommercial Properties NV | 646,365 | ||||||
1,273 | Federal Realty Investment Trust | 169,067 | ||||||
129,019 | Ggp US^ | 3,017,754 |
Shares or Principal Amount | Fair Value | |||||||
Common Stocks, continued | ||||||||
Retail REITs, continued | ||||||||
99,439 | Hammerson plc | $ | 733,843 | |||||
310 | Japan Retail Fund Investment Corp. | 568,340 | ||||||
26,266 | Klepierre | 1,154,905 | ||||||
97,879 | Liberty International plc | 334,110 | ||||||
227,884 | Link REIT (The) | 2,111,771 | ||||||
23,754 | Macerich Co. (The)^ | 1,560,163 | ||||||
20,274 | Mercialys SA | 448,527 | ||||||
16,771 | National Retail Properties, Inc.^ | 723,333 | ||||||
18,031 | Pennsylvania Real Estate Investment Trust^ | 214,389 | ||||||
25,949 | Regency Centers Corp. | 1,795,152 | ||||||
32,885 | RioCan REIT | 637,396 | ||||||
467,901 | Scentre Group | 1,526,659 | ||||||
56,409 | Simon Property Group, Inc. | 9,687,682 | ||||||
5,742 | Smart Real Estate Investment Trust | 141,220 | ||||||
6,610 | Tanger Factory Outlet Centers, Inc.^ | 175,231 | ||||||
15,325 | Taubman Centers, Inc.^ | 1,002,715 | ||||||
8,239 | Unibail-Rodamco SE | 2,075,370 | ||||||
217,945 | Vicinity Centres^ | 462,971 | ||||||
614 | Wereldhave NV | 29,437 | ||||||
201,792 | Westfield Corp. | 1,495,044 | ||||||
|
| |||||||
33,679,444 | ||||||||
|
| |||||||
Specialized REITs (6.0%): | ||||||||
39,838 | CubeSmart^ | 1,152,115 | ||||||
8,545 | Digital Realty Trust, Inc. | 973,276 | ||||||
13,772 | Gaming & Leisure Properties, Inc. | 509,564 | ||||||
10,820 | Life Storage, Inc.^ | 963,737 | ||||||
16,704 | Public Storage, Inc.^ | 3,491,136 | ||||||
19,141 | QTS Realty Trust, Inc., Class A^ | 1,036,677 | ||||||
|
| |||||||
8,126,505 | ||||||||
|
| |||||||
Total Common Stocks (Cost $120,861,026) | 134,411,866 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (11.2%): | ||||||||
$ | 15,225,346 | AZL Morgan Stanley Global Real Estate Fund Securities Lending Collateral Account(c) | 15,225,346 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 15,225,346 | ||||||
|
| |||||||
Unaffiliated Investment Company (0.3%): | ||||||||
451,970 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 1.11%(d) | 451,970 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $451,970) | 451,970 | |||||||
|
| |||||||
Total Investment Securities (Cost $136,538,342)(e) — 110.6% | 150,089,182 | |||||||
Net other assets (liabilities) — (10.6)% | (14,369,359 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 135,719,823 | ||||||
|
|
Continued
5
AZL Morgan Stanley Global Real Estate Fund
Schedule of Portfolio Investments
December 31, 2017
Percentages indicated are based on net assets as of December 31, 2017.
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2017. The total value of securities on loan as of December 31, 2017, was $14,809,954. |
(a) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2017. The total of all such securities represent 0.00% of the net assets of the fund. |
(b) | The subadviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2017, 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, 2017. |
(d) | The rate represents the effective yield at December 31, 2017. |
(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, 2017: (Unaudited)
Country | Percentage | |||
Australia | 4.4 | % | ||
Austria | 0.3 | % | ||
Bermuda | 1.5 | % | ||
Canada | 1.5 | % | ||
China | 0.1 | % | ||
Finland | 0.2 | % | ||
France | 3.7 | % | ||
Germany | 1.9 | % | ||
Hong Kong | 9.5 | % | ||
Ireland | 0.6 | % | ||
Japan | 8.0 | % | ||
Jersey | 0.1 | % | ||
Netherlands | 0.5 | % | ||
Norway | 0.3 | % | ||
Singapore | 1.0 | % | ||
Spain | 0.8 | % | ||
Sweden | 0.6 | % | ||
Switzerland | 0.6 | % | ||
United Kingdom | 5.5 | % | ||
United States | 58.9 | % | ||
|
| |||
100.0 | % | |||
|
|
See accompanying notes to the financial statements.
6
AZL Morgan Stanley Global Real Estate Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investment securities, at cost | $ | 136,538,342 | |||
|
| ||||
Investment securities, at value* | $ | 150,089,182 | |||
Interest and dividends receivable | 494,231 | ||||
Foreign currency, at value (cost $336,014) | 341,128 | ||||
Receivable for investments sold | 97,988 | ||||
Reclaims receivable | 139,977 | ||||
Prepaid expenses | 770 | ||||
|
| ||||
Total Assets | 151,163,276 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 1,501 | ||||
Payable for capital shares redeemed | 71,945 | ||||
Payable for collateral received on loaned securities | 15,225,346 | ||||
Manager fees payable | 97,208 | ||||
Administration fees payable | 4,138 | ||||
Distribution fees payable | 23,167 | ||||
Custodian fees payable | 10,264 | ||||
Administrative and compliance services fees payable | 267 | ||||
Transfer agent fees payable | 1,157 | ||||
Trustee fees payable | 172 | ||||
Other accrued liabilities | 8,288 | ||||
|
| ||||
Total Liabilities | 15,443,453 | ||||
|
| ||||
Net Assets | $ | 135,719,823 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 116,294,939 | |||
Accumulated net investment income/(loss) | 3,441,393 | ||||
Accumulated net realized gains/(losses) from investment transactions | 2,423,088 | ||||
Net unrealized appreciation/(depreciation) on investments | 13,560,403 | ||||
|
| ||||
Net Assets | $ | 135,719,823 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 25,793,679 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 2,654,259 | ||||
Net Asset Value (offering and redemption price per share) | $ | 9.72 | |||
|
| ||||
Class 2 | |||||
Net Assets | $ | 109,926,144 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 10,583,996 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.39 | |||
|
|
* | Includes securities on loan of $14,809,954. |
Statement of Operations
For the Year Ended December 31, 2017
Investment Income: | |||||
Dividends | $ | 4,870,585 | |||
Interest | 136 | ||||
Income from securities lending | 30,670 | ||||
Other income | 5,550 | ||||
Foreign withholding tax | (214,420 | ) | |||
|
| ||||
Total Investment Income | 4,692,521 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 1,243,986 | ||||
Administration fees | 54,452 | ||||
Distribution fees — Class 2 | 279,515 | ||||
Custodian fees | 86,055 | ||||
Administrative and compliance services fees | 1,700 | ||||
Transfer agent fees | 9,829 | ||||
Trustee fees | 6,078 | ||||
Professional fees | 7,210 | ||||
Shareholder reports | 12,997 | ||||
Recoupment of prior expenses reimbursed by the manager | 3,457 | ||||
Other expenses | 3,424 | ||||
|
| ||||
Total expenses before reductions | 1,708,703 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (69,112 | ) | |||
|
| ||||
Net expenses | 1,639,591 | ||||
|
| ||||
Net Investment Income/(Loss) | 3,052,930 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions and foreign currencies | 9,568,019 | ||||
Change in net unrealized appreciation/depreciation on investments and foreign currencies | 207,580 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 9,775,599 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 12,828,529 | |||
|
|
See accompanying notes to the financial statements.
7
AZL Morgan Stanley Global Real Estate Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016* | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 3,052,930 | $ | 2,687,590 | ||||||
Net realized gains/(losses) on investment transactions | 9,568,019 | 31,730,308 | ||||||||
Change in unrealized appreciation/depreciation on investments | 207,580 | (29,229,799 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 12,828,529 | 5,188,099 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1 | (1,035,506 | ) | — | |||||||
Class 2 | (4,103,304 | ) | (2,169,052 | ) | ||||||
From net realized gains: | ||||||||||
Class 1 | (2,055,660 | ) | — | |||||||
Class 2 | (8,265,786 | ) | — | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (15,460,256 | ) | (2,169,052 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Class 1 | ||||||||||
Proceeds from shares issued | 14,573 | 28,447,922 | ||||||||
Proceeds from dividends reinvested | 3,091,166 | — | ||||||||
Value of shares redeemed | (4,020,059 | ) | (1,261,028 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | (914,320 | ) | 27,186,894 | |||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Proceeds from shares issued | 800,139 | 63,236,584 | ||||||||
Proceeds from dividends reinvested | 12,369,090 | 2,169,052 | ||||||||
Value of shares redeemed | (16,544,139 | ) | (112,791,976 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | (3,374,910 | ) | (47,386,340 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (4,289,230 | ) | (20,199,446 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (6,920,957 | ) | (17,180,399 | ) | ||||||
Net Assets: | ||||||||||
Beginning of period | 142,640,780 | 159,821,179 | ||||||||
|
|
|
| |||||||
End of period | $ | 135,719,823 | $ | 142,640,780 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 3,441,393 | $ | 4,937,255 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Class 1 | ||||||||||
Shares issued | 1,434 | 2,844,799 | ||||||||
Dividends reinvested | 332,741 | — | ||||||||
Shares redeemed | (397,099 | ) | (127,616 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | (62,924 | ) | 2,717,183 | |||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Shares issued | 73,913 | 5,948,478 | ||||||||
Dividends reinvested | 1,245,629 | 198,087 | ||||||||
Shares redeemed | (1,538,982 | ) | (10,546,438 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | (219,440 | ) | (4,399,873 | ) | ||||||
|
|
|
| |||||||
Change in shares | (282,364 | ) | (1,682,690 | ) | ||||||
|
|
|
|
* | Class 1 activity is 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, | |||||||||||||||||||||||||
2017 | 2016* | 2015 | 2014 | 2013 | |||||||||||||||||||||
Class 1 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.05 | $ | 10.00 | |||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.28 | — | ^+ | ||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.67 | 0.05 | |||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total from Investment Activities | 0.95 | 0.05 | |||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.43 | ) | — | ||||||||||||||||||||||
Net Realized Gains | (0.85 | ) | — | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total Dividends | (1.28 | ) | — | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Net Asset Value, End of Period | $ | 9.72 | $ | 10.05 | |||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total Return(c) | 10.00 | % | 0.50 | %(a) | |||||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 25,794 | $ | 27,302 | |||||||||||||||||||||
Net Investment Income/(Loss)(b) | 2.38 | % | 0.13 | % | |||||||||||||||||||||
Expenses Before Reductions(b)(d) | 1.03 | % | 1.04 | % | |||||||||||||||||||||
Expenses Net of Reductions(b) | 0.98 | % | 1.03 | % | |||||||||||||||||||||
Portfolio Turnover Rate(e) | 33 | % | 52 | % | |||||||||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.68 | $ | 10.51 | $ | 11.11 | $ | 9.86 | $ | 9.99 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.27 | 0.20 | ^ | 0.22 | 0.18 | 0.16 | |||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.71 | 0.13 | (0.39 | ) | 1.17 | 0.14 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 0.98 | 0.33 | (0.17 | ) | 1.35 | 0.30 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.42 | ) | (0.16 | ) | (0.43 | ) | (0.10 | ) | (0.43 | ) | |||||||||||||||
Net Realized Gains | (0.85 | ) | — | — | — | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (1.27 | ) | (0.16 | ) | (0.43 | ) | (0.10 | ) | (0.43 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 10.39 | $ | 10.68 | $ | 10.51 | $ | 11.11 | $ | 9.86 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(c) | 9.72 | % | 3.14 | % | (1.34 | )% | 13.77 | % | 3.02 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 109,926 | $ | 115,339 | $ | 159,821 | $ | 187,892 | $ | 181,795 | |||||||||||||||
Net Investment Income/(Loss) | 2.17 | % | 1.84 | % | 1.70 | % | 1.67 | % | 1.43 | % | |||||||||||||||
Expenses Before Reductions(d) | 1.28 | % | 1.29 | % | 1.29 | % | 1.29 | % | 1.29 | % | |||||||||||||||
Expenses Net of Reductions | 1.23 | % | 1.29 | % | 1.29 | % | 1.28 | % | 1.29 | % | |||||||||||||||
Portfolio Turnover Rate(e) | 33 | % | 52 | % | 25 | % | 32 | % | 29 | % |
* | Class 1 activity is for the period October 17, 2016 (commencement of operations) to December 31, 2016. |
^ | Average shares method used in calculations. |
+ | Represents less than $0.005. |
(a) | Not annualized for periods less than one year. |
(b) | Annualized for periods less than one year. |
(c) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. |
(d) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
(e) | Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares issued. |
See accompanying notes to the financial statements.
9
AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements
December 31, 2017
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 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 accrues 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 invest in 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. A REIT may focus on particular types of projects, such as apartment complexes or shopping centers, or on particular geographic regions, or both. An investment in a REIT may be subject to certain risks similar to those associated with direct ownership of real estate, including: declines in the value of real estate; risks related to general and local economic conditions, overbuilding and competition; increases in property taxes and operating expenses; and variations in rental income.
Foreign Currency Translation and Withholding Taxes
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, or from other assets and liabilities, from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains is determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., reclassification of certain market discounts, gain/loss, and other permanent adjustments) 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, 2017
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, 2017 are noted on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $21 million for the year ended December 31, 2017.
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 $2,717 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The fund had securities lending transactions of $15,225,346 accounted for as secured borrowings with cash collateral of overnight and continuous maturities as of December 31, 2017.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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, 2017, the Fund did not engage in any such transactions under the Rule.
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, 2019.
For the year ended December 31, 2017, the annual rate paid 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 | % |
* | The Manager voluntarily reduced the management fee to 0.85% on all assets. The manager reserves the right to increase the management fee to the amount shown in the table 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, 2017, there were no contractual reimbursements 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
11
AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements
December 31, 2017
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.”
FIS Investor Services LLC (“FIS”) 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 of 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, 2017, $1,487 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, 2017, actual Trustee compensation was $1,116,333 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.
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.
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AZL Morgan Stanley Global Real Estate Fund
Notes to the Financial Statements
December 31, 2017
There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Other^ | Total | ||||||||||||||||||||
Common Stocks | |||||||||||||||||||||||||
Diversified Real Estate Activities | $ | — | $ | 11,567,773 | $ | — | $ | — | $ | 11,567,773 | |||||||||||||||
Diversified REITs | 1,189,737 | 8,937,022 | — | — | 10,126,759 | ||||||||||||||||||||
Health Care Facilities | 130,836 | — | — | — | 130,836 | ||||||||||||||||||||
Health Care REITs | 4,991,216 | — | — | — | 4,991,216 | ||||||||||||||||||||
Hotel & Resort REITs | 3,655,338 | 512,230 | — | — | 4,167,568 | ||||||||||||||||||||
Hotels, Resorts & Cruise Lines | 457,598 | — | — | — | 457,598 | ||||||||||||||||||||
Industrial REITs | 4,501,819 | 1,890,632 | — | — | 6,392,451 | ||||||||||||||||||||
Mortgage REITs | 700,980 | — | — | — | 700,980 | ||||||||||||||||||||
Office REITs | 19,935,977 | 5,992,246 | — | — | 25,928,223 | ||||||||||||||||||||
Real Estate Development | — | 3,500,540 | — | — | 3,500,540 | ||||||||||||||||||||
Real Estate Operating Companies | 1,805,712 | 11,880,613 | 2,981 | — | 13,689,306 | ||||||||||||||||||||
Real Estate Services | — | 54,630 | — | — | 54,630 | ||||||||||||||||||||
Residential REITs | 10,534,075 | 363,962 | — | — | 10,898,037 | ||||||||||||||||||||
Retail REITs | 19,962,404 | 13,717,040 | — | — | 33,679,444 | ||||||||||||||||||||
Specialized REITs | 8,126,505 | — | — | — | 8,126,505 | ||||||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | — | 15,225,346 | 15,225,346 | ||||||||||||||||||||
Unaffiliated Investment Company | 451,970 | — | — | — | 451,970 | ||||||||||||||||||||
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Total Investments | $ | 76,444,167 | $ | 58,416,688 | $ | 2,981 | $ | 15,225,346 | $ | 150,089,182 | |||||||||||||||
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^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
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, 2017, 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 | $ | 45,241,397 | $ | 59,942,593 |
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.
Real Estate Investments Risk: The performance of REITs depends on the strength of real estate markets, REIT management and property management which can be affected by many factors, including national and regional economic conditions.
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, 2017
Cost of securities, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $142,047,470. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 10,462,946 | ||
Unrealized (depreciation) | (2,421,234 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 8,041,712 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Morgan Stanley Global Real Estate Fund | $ | 5,138,810 | $ | 10,321,446 | $ | 15,460,256 |
(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, 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. |
At December 31, 2017, 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 | $ | 4,751,343 | $ | 6,622,033 | $ | — | $ | 8,051,508 | $ | 19,424,884 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2017, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 95% of the Fund.
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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.
14
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
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, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the periods or years in the five-year period then ended. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the periods or years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
15
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2017, 0.34% 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, 2017, the Fund declared net long-term capital gain distributions of $10,321,446.
16
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Fund of Funds Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
17
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
18
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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
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The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in 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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
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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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® MSCI Emerging Markets Equity Index Fund
(formerly AZL® Emerging Markets Equity Index Fund)
Annual Report
December 31, 2017
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
Page 15
Statements of Changes in Net Assets
Page 16
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
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® MSCI Emerging Markets Equity Index Fund Review (Unaudited)
(formerly AZL® Emerging Markets Equity Index Fund)
Allianz Investment Management LLC serves as the Manager for the AZL® MSCI 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, 2017?
For the year ended December 31, 2017, the Class 2 shares of the AZL® MSCI Emerging Markets Equity Index Fund (the “Fund”) returned 36.63%†. That compared to a 37.75% total return for its benchmark, the MSCI Emerging Markets 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 Emerging Markets Index. 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 emerging markets equities.
Emerging market equities posted robust gains for 2017 amid strong global growth, a weakening U.S. dollar and geopolitical developments that supported the asset class. In March 2017, the dollar fell to its lowest level since November 2016 on doubts the new administration would be able to follow through on its many promises. Robust global economic growth and strong export figures among emerging market economies also helped subdue concerns about global trade.
On a regional basis, Asian emerging markets posted the highest returns in the first quarter, particularly China (+12.93%), South Korea (+16.67%) and India (+17.16%) . Chinese equities rose on Purchasing Managers’ Index2 data that indicated strong economic growth and faster-than-expected increases in exports. India was the region’s top performer, advancing on political victories that helped cement the nation’s long-term structural reforms.
In the second quarter, easier financial conditions and a weaker U.S. dollar had a supportive impact on the global macro-economic landscape. Strong earnings-per-share growth among emerging market companies and attractive valuations also contributed to a strong quarter for the Index. On a regional basis, Asian emerging markets once again made the largest contribution to second quarter Index returns, aided by a large exposure to the outperforming information technology sector.
In the third quarter, China posted a robust gain of 14% on a stable, above-average gross domestic product (GDP)3 growth rate. Meanwhile, Brazil (+23%) rallied after investors began to shift capital back into markets after a two-year-long recession.
In the final quarter of the period, an improving economic outlook based on robust data out of large emerging market countries and strengthening emerging market currencies drove strong Index returns. All sectors of the Index moved higher in the fourth quarter.
The Fund underperformed it’s benchmark for the period. From a country perspective, the top performers were Poland (+55.12%), China (+54.18%) and Korea (+46.96%), while Pakistan (-25.47%) and Qatar (-11.49%) lagged other markets.
From a sector perspective, the strongest returns in the Index came from information technology stocks. The real estate and consumer discretionary sectors also posted strong gains during a period in which all sectors increased.
The Fund held derivatives in the form of futures contracts, which it used to hedge its cash position. The futures had a slightly positive impact on relative results.*
Past performance does not guarantee future results.
† | The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes. |
* | 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, 2017. |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
2 | Purchasing Managers’ Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries, and the employment environment. Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company’s profitability. |
3 | Gross Domestic Product (GDP) is the measure of the market value of the goods and services produced in a period of time. |
1
AZL® MSCI 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 its 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, 2017
Inception | 1 | 3 | 5 | 10 | ||||||||||||||||
Date | Year | Year | Year | Year | ||||||||||||||||
AZL® MSCI Emerging Markets Equity Index Fund (Class 1 Shares) | 5/6/07 | 36.97 | %† | 9.64 | % | 4.19 | % | 1.48 | % | |||||||||||
AZL® MSCI Emerging Markets Equity Index Fund (Class 2 Shares) | 5/1/06 | 36.63 | %† | 9.36 | % | 3.95 | % | 1.22 | % | |||||||||||
MSCI Emerging Markets Index (gross of withholding taxes) | 5/1/06 | 37.75 | % | 9.50 | % | 4.73 | % | 2.02 | % | |||||||||||
MSCI Emerging Markets Index (net of withholding taxes) | 5/1/06 | 37.28 | % | 9.10 | % | 4.35 | % | 1.68 | % |
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 Ratios | Gross | |||
AZL® MSCI Emerging Markets Equity Index Fund (Class 1 Shares) | 1.39 | % | ||
AZL® MSCI Emerging Markets Equity Index Fund (Class 2 Shares) | 1.64 | % |
The above expense ratios are based on the current Fund prospectus dated May 1, 2017. 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, 2019. Additional information pertaining to the December 31, 2017 expense ratios can be found in the financial highlights.
† | The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes. |
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 was subadvised by Schroder Investment Management North America Inc. and was known as the AZL Schroder Emerging Markets Equity Fund. Consequently, the performance information below may have been different if the Fund had been managed by its current subadviser and pursuant to its current investment objective prior to October 14, 2016.
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 MSCI Emerging Markets Equity Index Fund
Expense Examples
(Unaudited)
As a shareholder of the AZL MSCI 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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL MSCI Emerging Markets Equity Index Fund, Class 1 | $ | 1,000.00 | $ | 1,156.00 | $ | 3.53 | 0.65 | % | ||||||||||||
AZL MSCI Emerging Markets Equity Index Fund, Class 2 | $ | 1,000.00 | $ | 1,154.60 | $ | 4.89 | 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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL MSCI Emerging Markets Equity Index Fund, Class 1 | $ | 1,000.00 | $ | 1,021.94 | $ | 3.31 | 0.65 | % | ||||||||||||
AZL MSCI Emerging Markets Equity Index Fund, Class 2 | $ | 1,000.00 | $ | 1,020.68 | $ | 4.58 | 0.90 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 27.8 | % | |||
Financials | 23.8 | ||||
Consumer Discretionary | 9.9 | ||||
Materials | 7.3 | ||||
Energy | 6.3 | ||||
Consumer Staples | 6.5 | ||||
Industrials | 5.0 | ||||
Telecommunication Services | 4.9 | ||||
Real Estate | 2.8 | ||||
Health Care | 2.5 | ||||
Utilities | 2.6 | ||||
|
| ||||
Total Common Stocks and Preferred Stocks | 99.4 | ||||
Securities Held as Collateral for Securities on Loan | 1.8 | ||||
Money Market | 0.3 | ||||
|
| ||||
Total Investment Securities | 101.5 | ||||
Net other assets (liabilities) | (1.5 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL MSCI Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks (97.1%): | ||||||||
Aerospace & Defense (0.2%): | ||||||||
14,149 | Aselsan Elektronik Sanayi Ve Ticaret AS | $ | 118,864 | |||||
139,000 | AviChina Industry & Technology Co., Ltd.^ | 73,948 | ||||||
50,270 | Embraer SA | 303,169 | ||||||
4,418 | Korea Aerospace Industries, Ltd. | 195,575 | ||||||
2,385 | Samsung Techwin Co., Ltd.* | 79,181 | ||||||
|
| |||||||
770,737 | ||||||||
|
| |||||||
Air Freight & Logistics (0.0%): | ||||||||
1,401 | Hyundai Glovis Co., Ltd. | 177,983 | ||||||
|
| |||||||
Airlines (0.2%): | ||||||||
126,000 | Air China, Ltd. | 152,588 | ||||||
130,100 | AirAsia Berhad | 107,866 | ||||||
188,000 | China Airlines, Ltd.* | 73,566 | ||||||
126,000 | China Southern Airlines Co., Ltd., Class H | 130,106 | ||||||
144,200 | Eva Airways Corp. | 76,763 | ||||||
3,195 | Korean Air Lines Co., Ltd.* | 100,842 | ||||||
20,240 | Latam Airlines Group SA | 286,934 | ||||||
38,206 | Turk Hava Yollari Anonim Ortakligi* | 158,198 | ||||||
|
| |||||||
1,086,863 | ||||||||
|
| |||||||
Auto Components (0.7%): | ||||||||
14,500 | Bharat Forge, Ltd. | 166,045 | ||||||
562 | Bosch, Ltd. | 177,007 | ||||||
147,000 | Cheng Shin Rubber Industry Co., Ltd. | 259,390 | ||||||
37,200 | Fuyao Glass Industry Group Co., Ltd., Class H^ | 156,696 | ||||||
4,908 | Hankook Tire Co., Ltd. | 250,162 | ||||||
13,244 | Hanon Systems | 171,651 | ||||||
4,688 | Hyundai Mobis Co., Ltd. | 1,152,575 | ||||||
1,155 | Hyundai Wia Corp. | 70,165 | ||||||
43,791 | Motherson Sumi Systems, Ltd. | 260,303 | ||||||
|
| |||||||
2,663,994 | ||||||||
|
| |||||||
Automobiles (2.6%): | ||||||||
5,585 | Bajaj Auto, Ltd. | 291,201 | ||||||
218,000 | Brilliance China Automotive Holdings, Ltd. | 579,209 | ||||||
46,000 | BYD Co., Ltd., Class H | 399,259 | ||||||
188,000 | Dongfeng Motor Corp., Series H | 227,576 | ||||||
5,291 | Ford Otomotiv Sanayi AS | 84,175 | ||||||
350,000 | Geely Automobile Holdings, Ltd. | 1,200,965 | ||||||
235,000 | Great Wall Motor Co.^ | 269,056 | ||||||
148,000 | Guangzhou Automobile Group Co., Ltd. | 349,595 | ||||||
3,486 | Hero MotoCorp, Ltd. | 206,672 | ||||||
10,547 | Hyundai Motor Co. | 1,536,753 | ||||||
1,672 | Hyundai Motor Co., Ltd. | 146,387 | ||||||
16,724 | Kia Motors Corp. | 523,171 | ||||||
49,564 | Mahindra & Mahindra, Ltd. | 582,103 | ||||||
7,274 | Maruti Suzuki India, Ltd. | 1,107,178 | ||||||
1,369,800 | PT Astra International Tbk | 837,479 | ||||||
27,538 | Tata Motors, Ltd.* | 104,544 | ||||||
112,003 | Tata Motors, Ltd.* | 753,388 | ||||||
8,708 | Tofas Turk Otomobil Fabrikasi AS | 75,754 | ||||||
32,400 | UMW Holdings Berhad* | 41,658 | ||||||
|
| |||||||
9,316,123 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks (15.1%): | ||||||||
152,680 | Abu Dhabi Commercial Bank | $ | 282,634 | |||||
1,831,000 | Agricultural Bank of China, Ltd. | 852,108 | ||||||
160,932 | Akbank T.A.S. | 418,348 | ||||||
6,260 | Alior Bank SA* | 142,616 | ||||||
71,600 | Alliance Financial Group Berhad | 72,273 | ||||||
101,827 | Alpha Bank SA* | 218,224 | ||||||
129,400 | AMMB Holdings Berhad | 141,116 | ||||||
115,515 | Axis Bank, Ltd. | 1,020,594 | ||||||
64,874 | Banco Bradesco SA | 627,163 | ||||||
1,756,335 | Banco de Chile | 281,608 | ||||||
2,595 | Banco de Credito e Inversiones | 180,525 | ||||||
60,866 | Banco do Brasil SA | 584,011 | ||||||
29,173 | Banco Santander Brasil SA | 280,444 | ||||||
4,630,723 | Banco Santander Chile | 362,883 | ||||||
13,323 | Bancolombia SA | 133,955 | ||||||
31,108 | Bancolombia SA | 312,147 | ||||||
16,800 | Bangkok Bank Public Co., Ltd. | 112,893 | ||||||
2,261 | Bank Handlowy w Warszawie SA | 53,199 | ||||||
41,982 | Bank Millennium SA* | 107,849 | ||||||
5,530,000 | Bank of China, Ltd. | 2,713,700 | ||||||
613,000 | Bank of Communications Co., Ltd., Class H | 454,430 | ||||||
52,000 | Bank of the Philippine Islands | 112,512 | ||||||
11,468 | Bank Pekao SA | 426,242 | ||||||
2,604 | Bank Zachodni WBK SA | 295,848 | ||||||
46,038 | Barclays Africa Group, Ltd. | 679,499 | ||||||
150,104 | BDO Unibank, Inc. | 493,019 | ||||||
15,481 | BNK Financial Group, Inc. | 136,217 | ||||||
2,795 | Capitec Bank Holdings, Ltd. | 248,322 | ||||||
359,100 | Chang Hwa Commercial Bank | 199,730 | ||||||
616,000 | China Citic Bank Co., Ltd. | 385,756 | ||||||
5,790,000 | China Construction Bank | 5,325,953 | ||||||
890,000 | China Development Financial Holding Corp. | 302,985 | ||||||
136,000 | China Everbright Bank Co., Series H | 63,429 | ||||||
274,500 | China Merchants Bank Co., Ltd. | 1,092,379 | ||||||
408,500 | China Minsheng Banking Corp., Ltd. | 408,555 | ||||||
1,178,000 | Chinatrust Financial Holding Co., Ltd. | 810,529 | ||||||
174,000 | Chongqing Rural Commercial Bank Co., Ltd. | 122,920 | ||||||
313,200 | CIMB Group Holdings Berhad | 506,518 | ||||||
17,658 | Commercial Bank of Qatar Qsc (The)* | 140,701 | ||||||
71,877 | Commercial International Bank Egypt SAE | 314,062 | ||||||
4,443 | Credicorp, Ltd. | 921,611 | ||||||
12,002 | DGB Financial Group, Inc. | 118,062 | ||||||
85,517 | Dubai Islamic Bank | 144,062 | ||||||
633,459 | E.Sun Financial Holding Co., Ltd. | 402,179 | ||||||
128,606 | Eurobank Ergasias SA* | 131,099 | ||||||
642,600 | First Financial Holdings Co., Ltd. | 422,250 | ||||||
242,735 | Grupo Aval Acciones y Valores | 105,014 | ||||||
171,759 | Grupo Financiero Banorte SAB de C.V. | 942,995 | ||||||
156,771 | Grupo Financiero Inbursa SAB de C.V., Class O | 256,705 | ||||||
138,085 | Grupo Financiero Santander Mexico Sab de C.V. | 201,944 | ||||||
42,000 | Habib Bank, Ltd. | 63,729 | ||||||
20,367 | Hana Financial Holdings Group, Inc. | 947,807 | ||||||
45,400 | Hong Leong Bank Berhad | 191,271 |
Continued
4
AZL MSCI Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
15,800 | Hong Leong Financial Group Berhad | $ | 69,849 | |||||
488,450 | Hua Nan Financial Holdings Co., Ltd. | 274,896 | ||||||
164,109 | ICICI Bank, Ltd. | 804,790 | ||||||
86,731 | IDFC Bank, Ltd. | 73,703 | ||||||
5,076,000 | Industrial & Commercial Bank of China | 4,070,664 | ||||||
15,412 | Industrial Bank of Korea (IBK) | 236,372 | ||||||
10,639,682 | Itau Corpbanca | 96,820 | ||||||
271,956 | Itausa - Investimentos Itau SA | 887,303 | ||||||
71,500 | Kasikornbank Public Co., Ltd. | 508,206 | ||||||
50,100 | Kasikornbank Public Co., Ltd. | 356,100 | ||||||
27,520 | KB Financial Group, Inc. | 1,627,353 | ||||||
4,645 | Komercni Banka AS | 199,536 | ||||||
238,400 | Krung Thai Bank | 140,327 | ||||||
290,901 | Malayan Banking Berhad | 704,318 | ||||||
28,544 | Masraf Al Rayan | 290,888 | ||||||
1,057 | mBank SA* | 141,239 | ||||||
10,500 | MCB Bank, Ltd. | 20,212 | ||||||
736,000 | Mega Financial Holdings Co., Ltd. | 595,097 | ||||||
44,020 | Metropolitan Bank & Trust | 89,379 | ||||||
34,531 | Moneta Money Bank As | 133,608 | ||||||
110,748 | National Bank of Abu Dhabi | 309,032 | ||||||
401,473 | National Bank of Greece SA* | 152,826 | ||||||
14,796 | Nedcor, Ltd.^ | 307,297 | ||||||
16,375 | OTP Bank Nyrt | 677,102 | ||||||
17,620 | Piraeus Bank SA* | 64,869 | ||||||
64,016 | Powszechna Kasa Oszczednosci Bank Polski SA* | 813,530 | ||||||
684,500 | PT Bank Central Asia Tbk | 1,103,559 | ||||||
229,000 | PT Bank Danamon Indonesia Tbk | 117,114 | ||||||
1,326,600 | PT Bank Mandiri Tbk | 781,457 | ||||||
521,400 | PT Bank Negara Indonesia Tbk | 380,062 | ||||||
3,819,000 | PT Bank Rakyat Indonesia Tbk | 1,022,633 | ||||||
184,000 | Public Bank Berhad | 944,986 | ||||||
5,089 | Qatar Islamic Bank | 137,054 | ||||||
17,378 | Qatar National Bank | 605,820 | ||||||
56,400 | RHB Capital Berhad | 69,688 | ||||||
170,344 | Sberbank of Russia, ADR | 2,900,958 | ||||||
7,820 | Security Bank Corp. | 39,384 | ||||||
29,039 | Shinhan Financial Group Co., Ltd. | 1,340,438 | ||||||
126,500 | Siam Commercial Bank Public Co., Ltd. | 581,682 | ||||||
784,530 | SinoPac Financial Holdings Co., Ltd. | 254,912 | ||||||
89,177 | Standard Bank Group, Ltd. | 1,413,313 | ||||||
116,456 | State Bank of India | 564,223 | ||||||
692,529 | Taishin Financial Holding Co., Ltd. | 322,132 | ||||||
276,040 | Taiwan Business Bank | 77,803 | ||||||
554,140 | Taiwan Cooperative Financial Holding Co., Ltd. | 309,178 | ||||||
904,900 | TMB Bank PCL | 83,675 | ||||||
158,309 | Turkiye Garanti Bankasi AS | 448,599 | ||||||
43,823 | Turkiye Halk Bankasi AS | 124,839 | ||||||
104,602 | Turkiye Is Bankasi AS, Class C | 192,546 | ||||||
51,287 | Turkiye Vakiflar Bankasi T.A.O., Class D | 91,715 | ||||||
35,000 | United Bank, Ltd. | 59,648 | ||||||
176,822 | VTB Bank OJSC, GDR | 322,919 | ||||||
23,863 | Woori Bank | 350,948 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
60,175 | Yapi ve Kredi Bankasi AS* | $ | 68,962 | |||||
121,570 | Yes Bank, Ltd. | 599,293 | ||||||
|
| |||||||
55,221,480 | ||||||||
|
| |||||||
Beverages (1.4%): | ||||||||
324,430 | Ambev SA Com Npv | 2,081,799 | ||||||
14,344 | Anadolu Efes Biracilik ve Malt Sanayii AS | 91,696 | ||||||
28,489 | Arca Continental SAB de C.V. | 197,307 | ||||||
112,000 | China Resources Enterprises, Ltd. | 401,993 | ||||||
34,918 | Coca-Cola Femsa | 243,626 | ||||||
5,282 | Coca-Cola Icecek AS | 47,672 | ||||||
10,230 | Compania Cervecerias Unidas SA | 153,504 | ||||||
18,016 | Embotelladora Andina SA | 89,961 | ||||||
132,781 | Fomento Economico Mexicano SAB de C.V. | 1,249,082 | ||||||
22,000 | Tsingtao Brewery Co., Ltd., Class H | 113,384 | ||||||
3,771 | United Spirits, Ltd.* | 217,046 | ||||||
|
| |||||||
4,887,070 | ||||||||
|
| |||||||
Biotechnology (0.4%): | ||||||||
70,000 | 3SBio, Inc.* | 137,224 | ||||||
5,595 | Celltrion, Inc.* | 1,149,922 | ||||||
282 | Medy-Tox, Inc. | 127,589 | ||||||
3,659 | Sillajen, Inc.* | 318,714 | ||||||
11,000 | Taimed Biologics, Inc.* | 68,824 | ||||||
|
| |||||||
1,802,273 | ||||||||
|
| |||||||
Building Products (0.0%): | ||||||||
427 | KCC Corp. | 151,962 | ||||||
|
| |||||||
Capital Markets (1.2%): | ||||||||
141,224 | BM&F Bovespa SA | 970,082 | ||||||
23,921 | Brait Se^ | 80,806 | ||||||
604,000 | China Cinda Asset Management Co., Ltd., Class H | 221,081 | ||||||
64,000 | China Everbright, Ltd. | 142,778 | ||||||
217,500 | China Galaxy Securities Co. | 160,329 | ||||||
469,000 | China Huarong Asset Management Co., Ltd., Class H | 220,893 | ||||||
160,500 | Citic Securities Co., Ltd. | 330,055 | ||||||
15,738 | Coronation Fund Managers, Ltd. | 94,167 | ||||||
25,202 | Daewoo Securities Co., Ltd. | 215,991 | ||||||
98,600 | Gf Securities Co., Ltd. | 197,985 | ||||||
227,200 | Haitong Securities Co., Ltd. | 329,192 | ||||||
126,400 | Huatai Securities Co., Ltd., Class H | 251,000 | ||||||
15,336 | Investec, Ltd. | 111,551 | ||||||
2,765 | Korea Investment Holdings Co., Ltd. | 178,234 | ||||||
9,973 | NH Investment & Securities Co., Ltd. | 129,315 | ||||||
4,611 | Samsung Securities Co., Ltd. | 157,369 | ||||||
96,161 | The Moscow Exchange | 181,810 | ||||||
731,000 | Yuanta Financial Holding Co., Ltd. | 338,729 | ||||||
|
| |||||||
4,311,367 | ||||||||
|
| |||||||
Chemicals (2.4%): | ||||||||
20,278 | Asian Paints, Ltd. | 368,059 | ||||||
211,000 | Formosa Chemicals & Fibre Corp. | 730,028 | ||||||
285,000 | Formosa Plastics Corp. | 944,501 |
Continued
5
AZL MSCI Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Chemicals, continued | ||||||||
3,089 | Grupa Azoty SA, ADR | $ | 61,778 | |||||
7,982 | Hanwha Chemical Corp. | 235,215 | ||||||
1,574 | Hyosung Corp. | 205,286 | ||||||
99,500 | Indorama Ventures PCL | 162,669 | ||||||
1,295 | Kumho Petrochemical Co., Ltd. | 120,603 | ||||||
540 | LG Chem, Ltd. | 125,614 | ||||||
3,224 | LG Chem, Ltd. | 1,218,508 | ||||||
1,069 | Lotte Chemical Corp. | 366,702 | ||||||
73,938 | Mexichem SAB de C.V. | 183,053 | ||||||
329,000 | Nan Ya Plastics Corp. | 861,052 | ||||||
1,183 | OCI Co., Ltd. | 150,451 | ||||||
46,719 | Petkim Petrokimya Holding AS | 95,803 | ||||||
172,300 | Petronas Chemicals Group Berhad | 327,668 | ||||||
9,523 | Phosagro OAO, GDR | 146,111 | ||||||
153,700 | PTT Global Chemical Public Co., Ltd. | 400,576 | ||||||
38,550 | Sasol, Ltd. | 1,334,489 | ||||||
240,000 | Sinopec Shanghai Petrochemical Co., Ltd. | 136,721 | ||||||
6,684 | Sociedad Quimica y Minera de Chile SA | 397,247 | ||||||
26,865 | UPL, Ltd. | 320,831 | ||||||
|
| |||||||
8,892,965 | ||||||||
|
| |||||||
Commercial Services & Supplies (0.1%): | ||||||||
168,000 | China Everbright International, Ltd.^ | 239,954 | ||||||
1,571 | KEPCO Plant Service & Engineering Co., Ltd. | 59,543 | ||||||
929 | S1 Corp. | 92,909 | ||||||
|
| |||||||
392,406 | ||||||||
|
| |||||||
Communications Equipment (0.1%): | ||||||||
53,200 | ZTE Corp., Class H*^ | 198,852 | ||||||
|
| |||||||
Construction & Engineering (0.7%): | ||||||||
296,000 | China Communications Construction Co., Ltd. | 336,133 | ||||||
155,000 | China Railway Contstruction Corp., Ltd. | 179,586 | ||||||
302,000 | China Railway Group, Ltd. | 223,408 | ||||||
124,000 | China State Construction International Holdings, Ltd. | 172,995 | ||||||
2,084 | Daelim Industrial Co., Ltd. | 160,421 | ||||||
8,837 | Daewoo Engineering & Construct* | 48,876 | ||||||
222,100 | Dialog Group Berhad | 137,953 | ||||||
145,100 | Gamuda Berhad | 177,670 | ||||||
3,522 | GS Engineering & Construction Corp.* | 93,152 | ||||||
4,047 | Hyandai Development Co. | 145,699 | ||||||
5,511 | Hyundai Engineering & Construction Co., Ltd. | 187,235 | ||||||
203,700 | IJM Corporation Berhad | 153,558 | ||||||
32,411 | Larsen & Toubro, Ltd. | 639,055 | ||||||
309,500 | Waskita Karya Persero TBK PT | 50,528 | ||||||
|
| |||||||
2,706,269 | ||||||||
|
| |||||||
Construction Materials (1.1%): | ||||||||
3,118 | ACC, Ltd. | 85,989 | ||||||
41,230 | Ambuja Cements, Ltd. | 175,706 | ||||||
86,000 | Anhui Conch Cement Co., Ltd. | 404,459 | ||||||
178,000 | Asia Cement Corp. | 168,619 | ||||||
31,885 | Cementos Argos SA | 123,187 | ||||||
1,033,642 | Cemex SAB de C.V.* | 773,446 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Construction Materials, continued | ||||||||
216,000 | China National Buildings Material Co., Ltd.^ | $ | 192,294 | |||||
23,367 | Grasim Industries, Ltd. | 425,691 | ||||||
20,102 | Grupo Argos SA | 140,764 | ||||||
126,300 | PT Indocement Tunggal Prakarsa Tbk | 204,652 | ||||||
203,800 | PT Semen Indonesia (Persero) Tbk | 148,749 | ||||||
588 | Shree Cement, Ltd. | 166,778 | ||||||
18,700 | Siam Cement PCL | 280,806 | ||||||
237,000 | Taiwan Cement Corp. | 290,292 | ||||||
11,900 | The Siam Cement Public Co., Ltd. | 176,613 | ||||||
3,201 | Titan Cement Co. SA | 87,904 | ||||||
6,274 | Ultra Tech Cement, Ltd. | 424,033 | ||||||
|
| |||||||
4,269,982 | ||||||||
|
| |||||||
Consumer Finance (0.2%): | ||||||||
11,411 | Bajaj Finance, Ltd. | 313,991 | ||||||
68,100 | Gentera SAB de C.V. | 56,604 | ||||||
19,290 | Mahindra & Mahindra Financial Services | 142,982 | ||||||
2,462 | Samsung Card Co., Ltd. | 91,099 | ||||||
9,961 | Shriram Transport Finance | 230,569 | ||||||
|
| |||||||
835,245 | ||||||||
|
| |||||||
Containers & Packaging (0.1%): | ||||||||
41,904 | Klabin SA | 222,390 | ||||||
|
| |||||||
Distributors (0.1%): | ||||||||
11,293 | Imperial Holdings, Ltd. | 239,833 | ||||||
|
| |||||||
Diversified Consumer Services (0.4%): | ||||||||
96,713 | Kroton Educacional SA | 536,598 | ||||||
8,921 | New Oriental Education & Technology Group, Inc., ADR | 838,574 | ||||||
18,562 | TAL Education Group, ADR | 551,477 | ||||||
|
| |||||||
1,926,649 | ||||||||
|
| |||||||
Diversified Financial Services (1.5%): | ||||||||
17,170 | Ayala Corp. | 349,205 | ||||||
71,000 | Chailease Holding Co., Ltd. | 206,445 | ||||||
135,000 | Far East Horizon, Ltd. | 115,220 | ||||||
241,057 | FirstRand, Ltd. | 1,314,642 | ||||||
447,000 | Fubon Financial Holdings Co., Ltd. | 760,714 | ||||||
9,452 | Grupo de Inversiones Suramericana | 123,627 | ||||||
16,737 | Grupo de Inversiones Suramericana SA | 226,207 | ||||||
6,780 | GT Capital Holdings, Inc. | 175,526 | ||||||
65,901 | Haci Omer Sabanci Holding AS | 193,391 | ||||||
1,157,500 | Metro Pacific Investments Corp. | 159,087 | ||||||
43,855 | Power Finance Corp., Ltd. | 83,654 | ||||||
6,390 | PSG Group, Ltd. | 139,922 | ||||||
38,242 | Remgro, Ltd. | 731,921 | ||||||
52,249 | Rmb Holdings, Ltd. | 333,751 | ||||||
49,354 | Rural Electrification Corp., Ltd. | 120,417 | ||||||
|
| |||||||
5,033,729 | ||||||||
|
| |||||||
Diversified Telecommunication Services (1.6%): | ||||||||
146,000 | Asia Pacific Telecom Co., Ltd.* | 49,004 | ||||||
41,476 | Bharti Infratel, Ltd. | 246,351 |
Continued
6
AZL MSCI Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Diversified Telecommunication Services, continued | ||||||||
166,000 | China Communications Services Corp., Ltd. | $ | 111,034 | |||||
956,000 | China Telecom Corp., Ltd., Class H | 454,879 | ||||||
426,000 | China Unicom (Hong Kong), Ltd.* | 576,555 | ||||||
265,000 | Chunghwa Telecom Co., Ltd. | 943,901 | ||||||
132,639 | Emirates Telecommunications Group Co. PJSC | 631,693 | ||||||
16,963 | Hellenic Telecommunications Organization SA (OTE) | 234,029 | ||||||
4,302 | O2 Czech Republic AS | 55,881 | ||||||
6,681 | Ooredoo Qsc | 166,965 | ||||||
45,417 | Orange Polska SA* | 75,564 | ||||||
3,514,600 | PT Telekomunikasi Indonesia Tbk | 1,144,099 | ||||||
173,600 | PT Tower Bersama Infrastructure Tbk | 82,165 | ||||||
31,346 | Telefonica Brasil | 459,561 | ||||||
78,100 | Telekom Malaysia Berhad | 121,556 | ||||||
18,236 | Telkom SA SOC, Ltd. | 71,137 | ||||||
681,200 | True Corp. PCL* | 129,696 | ||||||
31,492 | Turk Telekomunikasyon AS* | 53,523 | ||||||
|
| |||||||
5,607,593 | ||||||||
|
| |||||||
Electric Utilities (1.2%): | ||||||||
14,284 | Centrais Eletricas Brasileiras SA* | 83,301 | ||||||
15,700 | Centrais Eletricas Brasileiras SA | 107,466 | ||||||
11,133 | CEZ | 259,803 | ||||||
9,035 | Companhia Energetica de Minas Gerais* | 18,799 | ||||||
56,870 | Companhia Energetica de Minas Gerais, ADR | 117,811 | ||||||
21,000 | EDP — Energias do Brasil SA | 88,653 | ||||||
2,008,828 | ENEL Americas SA | 447,630 | ||||||
1,359,159 | ENEL Chile SA | 160,924 | ||||||
13,700 | Equatorial Energia SA | 271,208 | ||||||
5,442,678 | Federal Hydrogenerating Co. (Rushydro) | 68,853 | ||||||
2,525,149 | Inter Rao Ues PJSC | 149,010 | ||||||
18,720 | Interconexion Electrica SA ESP | 89,149 | ||||||
17,271 | Korea Electric Power Corp., Ltd. | 615,538 | ||||||
61,642 | PGE SA* | 213,426 | ||||||
76,751 | Tata Power Co., Ltd. | 112,346 | ||||||
72,780 | Tauron Polska Energia SA* | 63,685 | ||||||
227,300 | Tenega Nasional Berhad | 856,347 | ||||||
11,295 | Transmissora Alianca de Energia Eletrica SA | 72,682 | ||||||
|
| |||||||
3,796,631 | ||||||||
|
| |||||||
Electrical Equipment (0.2%): | ||||||||
60,987 | Bharat Heavy Electricals, Ltd. | 88,016 | ||||||
3,385 | Doosan Heavy Industries & Construction Co., Ltd. | 48,526 | ||||||
17,292 | Havells India, Ltd. | 151,903 | ||||||
186,000 | Shanghai Electric Group Co., Ltd., Class H* | 76,548 | ||||||
127,000 | Teco Electric & Machinery Co., Ltd. | 121,578 | ||||||
40,500 | Zhuzhou CSR Times Electric Co., Ltd. | 263,086 | ||||||
|
| |||||||
749,657 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (2.5%): | ||||||||
51,000 | AAC Technologies Holdings, Inc. | 907,039 | ||||||
561,000 | AU Optronics Corp. | 233,405 | ||||||
35,300 | Delta Electronics Thai PCL | 79,272 | ||||||
140,000 | Delta Electronics, Inc. | 674,366 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electronic Equipment, Instruments & Components, continued | ||||||||
1,073,000 | Hon Hai Precision Industry Co., Ltd. | $ | 3,418,975 | |||||
605,000 | Innolux Corp. | 251,643 | ||||||
44,000 | Kingboard Chemical Holdings, Ltd. | 237,434 | ||||||
7,000 | Largan Precision Co., Ltd. | 942,978 | ||||||
16,614 | LG Display Co., Ltd. | 464,011 | ||||||
1,006 | LG Innotek Co., Ltd. | 134,772 | ||||||
3,963 | Samsung Electro-Mechanics Co., Ltd., Series L | 368,524 | ||||||
3,757 | Samsung SDI Co., Ltd. | 713,463 | ||||||
50,000 | Sunny Optical Technology Group Co., Ltd. | 633,391 | ||||||
100,000 | Synnex Technology International Corp. | 136,189 | ||||||
130,000 | WPG Holdings, Ltd. | 172,202 | ||||||
14,000 | Yageo Corp. | 165,722 | ||||||
26,000 | Zhen Ding Technology Holding, Ltd. | 57,178 | ||||||
|
| |||||||
9,590,564 | ||||||||
|
| |||||||
Energy Equipment & Services (0.0%): | ||||||||
94,000 | China Oilfield Services, Ltd. | 91,532 | ||||||
269,600 | Sapurakencana Petroleum Berhad | 47,206 | ||||||
|
| |||||||
138,738 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (0.5%): | ||||||||
131,506 | Emlak Konut Gayrimenkul Yatiirim* | 97,521 | ||||||
195,844 | Fibra UNO Amdinistracion SA | 289,802 | ||||||
65,874 | Fortress REIT, Ltd., Class A | 99,151 | ||||||
52,652 | Fortress REIT, Ltd., Class B | 180,205 | ||||||
158,019 | Growthpoint Properties, Ltd. | 354,486 | ||||||
16,836 | Hyprop Investments, Ltd. | 160,156 | ||||||
370,895 | Redefine Properties, Ltd. | 321,822 | ||||||
20,451 | Resilient REIT, Ltd. | 250,757 | ||||||
|
| |||||||
1,753,900 | ||||||||
|
| |||||||
Food & Staples Retailing (1.6%): | ||||||||
27,300 | Atacadao Distribuicao Comercio E Industria, Ltd.* | 125,539 | ||||||
536 | BGF Retail Co., Ltd.* | 105,157 | ||||||
23,649 | Bid Corp., Ltd. | 577,241 | ||||||
13,909 | BIM Birlesik Magazalar AS | 286,676 | ||||||
106,977 | Cencosud SA | 316,069 | ||||||
330,400 | CP All PCL | 780,254 | ||||||
2,473 | Dongsuh Companies, Inc. | 67,268 | ||||||
1,492 | E-Mart Co., Ltd. | 377,296 | ||||||
1,911 | GS Retail Co., Ltd. | 71,977 | ||||||
21,576 | Magnit OJSC, Registered Shares, GDR | 590,134 | ||||||
25,356 | Pickn Pay Stores, Ltd.^ | 142,430 | ||||||
39,000 | President Chain Store Corp. | 371,764 | ||||||
16,090 | Raia Drogasil SA | 445,395 | ||||||
30,490 | Shoprite Holdings, Ltd. | 546,967 | ||||||
154,500 | Sun Art Retail Group, Ltd. | 163,141 | ||||||
12,481 | The Spar Group, Ltd. | 205,756 | ||||||
370,065 | Wal-Mart de Mexico SAB de C.V. | 907,722 | ||||||
|
| |||||||
6,080,786 | ||||||||
|
| |||||||
Food Products (1.6%): | ||||||||
32,081 | BRF-Brasil Foods SA* | 354,059 | ||||||
1,983 | Britannia Industries, Ltd. | 146,214 |
Continued
7
AZL MSCI Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Food Products, continued | ||||||||
182,700 | Charoen Pokphand Foods Public Co., Ltd. | $ | 134,598 | |||||
280,000 | China Huishan Dairy Holdings Co., Ltd.*(a) | — | ||||||
194,000 | China Mengniu Dairy Co., Ltd. | 576,811 | ||||||
609 | CJ CheilJedang Corp. | 208,271 | ||||||
87,700 | Felda Global Ventures Holdings | 36,646 | ||||||
16,400 | Genting Plantations Berhad | 42,573 | ||||||
13,566 | Gruma, SAB de C.V., Class B | 172,071 | ||||||
110,169 | Grupo Bimbo SAB de C.V., Series A | 244,171 | ||||||
42,800 | Grupo Lala Sab de C.V.^ | 60,177 | ||||||
128,600 | IOI Corp. Berhad | 144,360 | ||||||
54,024 | JBS SA | 159,809 | ||||||
30,300 | Kuala Lumpur Kepong Berhad | 187,277 | ||||||
2,168 | Lotte Confectionery Co., Ltd. | 131,780 | ||||||
7,200 | M Dias Branco SA | 113,114 | ||||||
1,780 | Nestle India, Ltd. | 219,500 | ||||||
4,000 | Nestle Malaysia Berhad | 101,896 | ||||||
1,487 | Orion Corp.* | 145,277 | ||||||
84 | Ottogi Corp. | 63,262 | ||||||
8,845 | Pioneer Foods, Ltd. | 98,350 | ||||||
33,700 | PPB Group Berhad | 143,683 | ||||||
526,900 | PT Charoen Pokphand Indonesia Tbk | 116,528 | ||||||
161,400 | PT Indofood CBP Sukses Makmur Tbk | 105,806 | ||||||
311,900 | PT Indofood Sukses Makmur Tbk | 175,123 | ||||||
169,500 | Sime Darby Plantation Berhad* | 251,485 | ||||||
37,000 | Standard Foods Corp. | 92,017 | ||||||
128,100 | Thai Union Frozen Products PCL | 78,215 | ||||||
11,409 | Tiger Brands, Ltd. | 425,422 | ||||||
124,000 | Tingyi (Caymen Is) Holding Corp. | 241,030 | ||||||
10,652 | Ulker Biskuvi Sanayi AS | 55,246 | ||||||
344,000 | Uni-President Enterprises Corp. | 762,701 | ||||||
56,770 | Universal Robina Corp. | 171,767 | ||||||
321,000 | Want Want China Holdings, Ltd.^ | 268,580 | ||||||
|
| |||||||
6,227,819 | ||||||||
|
| |||||||
Gas Utilities (0.6%): | ||||||||
128,000 | China Gas Holdings, Ltd. | 353,111 | ||||||
62,000 | China Resources Gas Group, Ltd. | 224,002 | ||||||
57,000 | ENN Energy Holdings, Ltd. | 404,423 | ||||||
34,648 | GAIL India, Ltd. | 270,527 | ||||||
40,515 | Infraestructura Energetica Nova, SAB de C.V. | 198,261 | ||||||
1,962 | Korea Gas Corp.* | 77,970 | ||||||
49,300 | Petronas Gas Berhad | 213,053 | ||||||
755,000 | PT Perusahaan Gas Negara Tbk | 97,214 | ||||||
|
| |||||||
1,838,561 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (0.0%): | ||||||||
32,700 | Hartalega Holdings Berhad | 86,276 | ||||||
132,000 | Shandong Weigao Group Medical Polymer Co., Ltd., Class H | 95,884 | ||||||
|
| |||||||
182,160 | ||||||||
|
| |||||||
Health Care Providers & Services (0.5%): | ||||||||
323,700 | Bangkok Dusit Medical Services Public Co., Ltd. | 207,211 | ||||||
24,700 | Bumrungrad Hospital PCL | 143,254 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Providers & Services, continued | ||||||||
2,398 | Celltrion Healthcare Co., Ltd.* | $ | 242,204 | |||||
123,600 | IHH Healthcare Berhad | 179,100 | ||||||
85,294 | Life Healthcare Group Holdings Pte, Ltd. | 191,850 | ||||||
65,752 | Netcare, Ltd. | 134,071 | ||||||
18,400 | OdontoPrev SA | 88,274 | ||||||
15,200 | Qualicorp SA | 142,086 | ||||||
43,100 | Shanghai Pharmaceuticals Holding Co., Ltd. | 116,393 | ||||||
82,400 | Sinopharm Group Co., Series H | 354,922 | ||||||
|
| |||||||
1,799,365 | ||||||||
|
| |||||||
Health Care Technology (0.0%): | ||||||||
244,000 | Alibaba Health Information Technology, Ltd.* | 123,110 | ||||||
|
| |||||||
Hotels, Restaurants & Leisure (0.8%): | ||||||||
331,249 | DXB Entertainments PJSC* | 57,245 | ||||||
149,700 | Genting Berhard | 340,209 | ||||||
219,300 | Genting Malaysia Berhad | 305,225 | ||||||
29,670 | Jollibee Foods Corp. | 150,359 | ||||||
7,822 | Kangwon Land, Inc. | 254,270 | ||||||
179,400 | Minor International PCL | 240,559 | ||||||
15,544 | OPAP SA | 195,571 | ||||||
26,520 | Yum China Holdings, Inc. | 1,061,331 | ||||||
|
| |||||||
2,604,769 | ||||||||
|
| |||||||
Household Durables (0.4%): | ||||||||
16,369 | Arcelik AS | 92,915 | ||||||
3,673 | Coway Co., Ltd. | 334,689 | ||||||
83,000 | Haier Electronics Group Co., Ltd. | 227,304 | ||||||
811 | Hanssem Co., Ltd. | 136,383 | ||||||
7,676 | LG Electronics, Inc. | 759,612 | ||||||
10,000 | Nien Made Enterprise Co., Ltd. | 106,880 | ||||||
210,921 | Steinhoff International Holdings NV^ | 79,495 | ||||||
|
| |||||||
1,737,278 | ||||||||
|
| |||||||
Household Products (0.4%): | ||||||||
44,314 | Hindustan Unilever, Ltd. | 947,914 | ||||||
105,600 | Kimberl- Clark de Mexico SAB de C.V. | 185,968 | ||||||
105,800 | PT Unilever Indonesia Tbk | 436,006 | ||||||
|
| |||||||
1,569,888 | ||||||||
|
| |||||||
Independent Power & Renewable Electricity Producers (0.5%): | ||||||||
107,100 | Aboitiz Power Corp. | 89,291 | ||||||
174,425 | AES Gener SA | 57,778 | ||||||
785,000 | Cgn Power Co., Ltd., Class H^ | 212,555 | ||||||
251,000 | China Longyuan Power Group Corp. | 178,424 | ||||||
140,000 | China Resources Power Holdings Co. | 260,669 | ||||||
546,185 | Colbun SA | 125,633 | ||||||
8,800 | Electricity Genera PCL | 58,346 | ||||||
224,748 | ENEL Generacion Chile SA | 203,521 | ||||||
11,300 | Engie Brasil Energia SA | 120,997 | ||||||
48,900 | Glow Energy PCL | 121,897 | ||||||
294,000 | Huaneng Power International, Inc., Class H | 184,302 | ||||||
374,000 | Huaneng Renewables Corp., Ltd. | 126,429 | ||||||
114,594 | NTPC, Ltd. | 317,845 | ||||||
|
| |||||||
2,057,687 | ||||||||
|
|
Continued
8
AZL MSCI Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
��
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Industrial Conglomerates (1.9%): | ||||||||
141,120 | Aboitiz Equity Ventures, Inc. | $ | 208,874 | |||||
208,198 | Alfa SAB de C.V., Class A | 229,288 | ||||||
254,400 | Alliance Global Group, Inc.* | 81,446 | ||||||
37,500 | Beijing Enterprises Holdings, Ltd. | 221,779 | ||||||
24,068 | Bidvest Group, Ltd. | 424,595 | ||||||
410,000 | Citic, Ltd. | 591,338 | ||||||
1,098 | CJ Corp. | 186,286 | ||||||
275,700 | DMCI Holdings, Inc. | 79,505 | ||||||
240,000 | Far Eastern New Century Corp. | 215,973 | ||||||
187,500 | Fosun International, Ltd.^ | 414,059 | ||||||
34,601 | Grupo Carso SAB de C.V. | 114,037 | ||||||
3,187 | Hanwha Corp. | 123,413 | ||||||
41,000 | Hap Seng Consolidated Berhad | 96,821 | ||||||
10,392 | Industries Qatar Q.S.C. | 279,563 | ||||||
214,420 | JG Summit Holdings, Inc. | 309,421 | ||||||
55,651 | KOC Holdings AS | 271,473 | ||||||
6,809 | LG Corp. | 578,526 | ||||||
5,142 | Samsung C&T Corp. | 604,831 | ||||||
33,000 | Shanghai Industrial Holdings, Ltd. | 94,605 | ||||||
4,930 | Siemens, Ltd. | 95,594 | ||||||
169,500 | Sime Darby Berhad | 92,400 | ||||||
2,155 | SK C&C Co., Ltd. | 570,034 | ||||||
16,690 | SM Investments Corp. | 330,620 | ||||||
54,505 | Turkiye Sise ve Cam Fabrikalari AS | 67,607 | ||||||
|
| |||||||
6,282,088 | ||||||||
|
| |||||||
Insurance (3.7%): | ||||||||
2,533 | Bajaj Finserv, Ltd. | 207,565 | ||||||
48,959 | BB Seguridade Participacoes SA | 420,601 | ||||||
556,000 | Cathay Financial Holding Co., Ltd. | 997,213 | ||||||
148,240 | China Life Insurance Co., Ltd. | 149,046 | ||||||
521,000 | China Life Insurance Co., Ltd. | 1,626,477 | ||||||
187,000 | China Pacific Insurance Group Co., Ltd., Class H | 894,410 | ||||||
112,200 | China Taiping Insurance Holdings Co., Ltd. | 418,166 | ||||||
23,849 | Discovery, Ltd. | 359,749 | ||||||
3,804 | Dongbu Insurance Co., Ltd. | 252,944 | ||||||
15,390 | Hanwha Life Insurance Co., Ltd. | 99,240 | ||||||
4,703 | Hyundai Marine & Fire Insurance Co., Ltd. | 206,267 | ||||||
7,924 | Liberty Holding, Ltd. | 79,721 | ||||||
70,805 | MMI Holdings, Ltd. | 120,608 | ||||||
58,200 | New China Life Insurance Co., Ltd. | 395,968 | ||||||
432,000 | People’s Insurance Co. Group of China, Ltd. | 212,025 | ||||||
322,000 | Picc Property & Casuality Co., Ltd., Class H | 617,709 | ||||||
358,500 | Ping An Insurance Group Co. of China, Ltd. | 3,731,455 | ||||||
7,800 | Porto Seguro SA | 85,449 | ||||||
43,323 | Powszechny Zaklad Ubezpieczen SA | 523,877 | ||||||
11,109 | Qatar Insurance Co. | 163,751 | ||||||
46,206 | Rand Merchant Investment Holdings, Ltd. | 171,974 | ||||||
2,142 | Samsung Fire & Marine Insurance Co., Ltd. | 533,962 | ||||||
4,984 | Samsung Life Insurance Co., Ltd. | 580,141 | ||||||
99,116 | Sanlam, Ltd. | 698,850 | ||||||
566,000 | Shin Kong Financial Holdings Co., Ltd. | 199,525 | ||||||
14,112 | Sul America SA | 79,405 | ||||||
|
| |||||||
13,826,098 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Internet & Direct Marketing Retail (0.9%): | ||||||||
27,470 | Ctrip.com International, ADR*^ | $ | 1,211,427 | |||||
46,420 | JD.com, Inc., ADR* | 1,922,716 | ||||||
28,064 | Vipshop Holdings, Ltd., ADR* | 328,910 | ||||||
|
| |||||||
3,463,053 | ||||||||
|
| |||||||
Internet Software & Services (11.9%): | ||||||||
6,308 | 58.com, Inc., ADR* | 451,464 | ||||||
79,633 | Alibaba Group Holding, Ltd., ADR* | 13,731,118 | ||||||
3,701 | Autohome, Inc., ADR* | 239,344 | ||||||
19,175 | Baidu, Inc., ADR* | 4,490,976 | ||||||
2,326 | Daum Kakao Corp. | 297,444 | ||||||
6,605 | Momo, Inc., ADR* | 161,690 | ||||||
5,489 | NetEase, Inc., ADR | 1,894,089 | ||||||
1,961 | NHN Corp. | 1,592,418 | ||||||
3,755 | SINA Corp. | 376,664 | ||||||
392,100 | Tencent Holdings, Ltd. | 20,270,251 | ||||||
2,651 | Weibo Corp.- Spon, ADR*^ | 274,272 | ||||||
2,228 | YY, Inc., ADR* | 251,898 | ||||||
|
| |||||||
44,031,628 | ||||||||
|
| |||||||
IT Services (1.6%): | ||||||||
87,441 | Cielo SA | 620,153 | ||||||
39,769 | HCL Technologies, Ltd. | 554,959 | ||||||
126,041 | Infosys, Ltd. | 2,055,364 | ||||||
2,415 | Samsung SDS Co., Ltd. | 450,398 | ||||||
32,166 | Tata Consultancy Services, Ltd. | 1,361,292 | ||||||
29,797 | Tech Mahindra, Ltd. | 235,061 | ||||||
68,000 | Travelsky Technology, Ltd., Series H | 203,787 | ||||||
29,140 | Vakrangee, Ltd. | 191,644 | ||||||
77,511 | Wipro, Ltd. | 381,468 | ||||||
|
| |||||||
6,054,126 | ||||||||
|
| |||||||
Leisure Products (0.0%): | ||||||||
18,000 | Giant Manufacturing Co., Ltd. | 98,702 | ||||||
|
| |||||||
Life Sciences Tools & Services (0.1%): | ||||||||
1,168 | Samsung Biologics Co., Ltd.* | 404,402 | ||||||
|
| |||||||
Machinery (0.7%): | ||||||||
8,000 | AirTac International Group | 143,497 | ||||||
78,790 | Ashok Leyland, Ltd. | 146,695 | ||||||
116,000 | China Conch Venture Holdings, Ltd. | 268,328 | ||||||
288,000 | CRRC Corp., Ltd., Class H | 307,836 | ||||||
2,340 | Doosan Bobcat, Inc. | 78,275 | ||||||
933 | Eicher Motors, Ltd. | 442,896 | ||||||
44,000 | Haitian International Holdings, Ltd. | 132,331 | ||||||
15,300 | Hiwin Technologies Corp. | 164,862 | ||||||
2,118 | Hyundai Heavy Industries Co.* | 198,630 | ||||||
17,544 | Samsung Heavy Industries Co., Ltd.* | 119,943 | ||||||
37,828 | WEG SA | 275,015 | ||||||
132,000 | Weichai Power Co., Ltd., Class H | 144,600 | ||||||
|
| |||||||
2,422,908 | ||||||||
|
|
Continued
9
AZL MSCI Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Marine (0.0%): | ||||||||
135,893 | Evergreen Marine Corp. (Taiwan), Ltd.* | $ | 74,573 | |||||
95,000 | MISC Berhad | 174,302 | ||||||
|
| |||||||
248,875 | ||||||||
|
| |||||||
Media (2.6%): | ||||||||
860,000 | Alibaba Pictures Group, Ltd.*^ | 115,552 | ||||||
108,100 | Astro Malaysia Holdings Berhad | 70,949 | ||||||
4,891 | Cheil Worldwide, Inc. | 96,834 | ||||||
1,345 | CJ E&M Corp. | 122,564 | ||||||
13,280 | Cyfrowy Polsat SA | 94,574 | ||||||
166,900 | Grupo Televisa SAB | 625,283 | ||||||
30,155 | Naspers, Ltd. | 8,431,441 | ||||||
404,000 | PT Surya Citra Media Tbk | 73,703 | ||||||
39,393 | ZEE Entertainment Enterprises, Ltd. | 359,086 | ||||||
|
| |||||||
9,989,986 | ||||||||
|
| |||||||
Metals & Mining (3.2%): | ||||||||
182,800 | Alrosa PAO | 237,971 | ||||||
288,000 | Aluminum Corp. of China, Ltd.* | 206,322 | ||||||
3,733 | Anglo American Platinum, Ltd.* | 107,026 | ||||||
28,342 | AngloGold Ashanti, Ltd. | 290,135 | ||||||
844,000 | China Steel Corp. | 702,072 | ||||||
13,170 | Cia de Minas Buenaventura SA, ADR | 185,434 | ||||||
43,200 | Companhia Siderurgica Nacional SA (CSN)* | 109,163 | ||||||
96,899 | Eregli Demir ve Celik Fabrikalari T.A.S. | 256,008 | ||||||
53,673 | Gold Fields | 234,156 | ||||||
260,981 | Grupo Mexico SAB de C.V., Series B | 861,989 | ||||||
78,562 | Hindalco Industries, Ltd. | 336,630 | ||||||
5,877 | Hyundai Steel Co. | 321,557 | ||||||
9,186 | Industrias Penoles SAB de C.V. | 192,004 | ||||||
3,202 | Jastrzebska Spolka Weglowa SA* | 88,249 | ||||||
86,000 | Jiangxi Copper Co., Ltd. | 136,257 | ||||||
58,560 | JSW Steel, Ltd. | 247,438 | ||||||
10,258 | KGHM Polska Miedz SA | 326,395 | ||||||
627 | Korea Zinc Co. | 288,498 | ||||||
4,432 | Kumba Iron Ore, Ltd. | 136,265 | ||||||
153,767 | Magnitogorsk Iron & Steel Works PJSC | 111,703 | ||||||
4,355 | MMC Norilsk Nickel PJSC | 819,944 | ||||||
91,871 | Novolipetsk Steel PJSC | 234,617 | ||||||
1,838 | Polyus PJSC | 146,576 | ||||||
5,099 | POSCO | 1,583,467 | ||||||
90,100 | Press Metal Aluminium Holdings Berhad | 119,881 | ||||||
11,606 | Severstal | 178,742 | ||||||
119,266 | Sibanye Gold, Ltd. | 151,753 | ||||||
5,983 | Southern Copper Corp.^ | 283,893 | ||||||
20,514 | Tata Steel, Ltd. | 235,342 | ||||||
212,553 | Vale SA | 2,580,401 | ||||||
106,161 | Vedanta, Ltd. | 547,272 | ||||||
398,000 | Zijin Mining Group Co., Ltd. | 150,130 | ||||||
|
| |||||||
12,407,290 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Multiline Retail (0.4%): | ||||||||
12,985 | El Puerto de Liverpool SAb de C.V.^ | $ | 82,130 | |||||
1,129 | Hyundai Department Store Co., Ltd. | 110,174 | ||||||
49,056 | Lojas Renner SA | 524,982 | ||||||
872 | Lotte Shopping Co., Ltd. | 162,397 | ||||||
141,900 | PT Matahari Department Store Tbk | 104,326 | ||||||
34,100 | Robinson Department Store Public Co., Ltd. | 76,199 | ||||||
48,869 | S.A.C.I. Falabella | 487,482 | ||||||
522 | Shinsegae Department Store Co. | 146,058 | ||||||
74,723 | Woolworths Holdings, Ltd. | 395,824 | ||||||
|
| |||||||
2,089,572 | ||||||||
|
| |||||||
Multi-Utilities (0.0%): | ||||||||
2,470 | Qatar Electricity & Water Co. | 122,686 | ||||||
339,864 | YTL Corporation Berhad | 115,121 | ||||||
143,004 | YTL Power International Berhad | 45,645 | ||||||
|
| |||||||
283,452 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (6.3%): | ||||||||
133,700 | Banpu Public Co., Ltd. | 79,913 | ||||||
53,190 | Bharat Pertoleum Corp., Ltd. | 430,924 | ||||||
1,762,000 | China Petroleum & Chemical Corp., Class H | 1,291,079 | ||||||
243,500 | China Shenhua Energy Co., Ltd. | 629,925 | ||||||
1,233,000 | CNOOC, Ltd. | 1,772,663 | ||||||
43,889 | Coal India, Ltd. | 180,833 | ||||||
11,930 | Cosan sa industria e Comercio | 149,291 | ||||||
342,590 | Ecopetrol SA | 253,917 | ||||||
32,838 | Empresas Copec SA | 518,808 | ||||||
79,400 | Energy Absolute Public Co., Ltd. | 127,900 | ||||||
13,204 | Exxaro Resources, Ltd. | 173,981 | ||||||
91,000 | Formosa Petrochemical Corp. | 352,804 | ||||||
732,973 | Gazprom PJSC | 1,660,305 | ||||||
6,397 | Grupa Lotos SA | 106,053 | ||||||
3,320 | GS Holdings | 192,690 | ||||||
41,744 | Hindustan Petroleum Corp., Ltd. | 273,664 | ||||||
40,181 | Indian Oil Corp., Ltd. | 244,586 | ||||||
908,100 | IRPC PCL | 196,381 | ||||||
246,000 | Kunlun Energy Co., Ltd. | 256,374 | ||||||
30,307 | LUKOIL PJSC | 1,754,179 | ||||||
24,377 | MOL Hungarian Oil & Gas plc | 283,186 | ||||||
6,495 | NovaTek OAO, Registered Shares, GDR | 780,452 | ||||||
46,100 | Oil & Gas Development Co., Ltd. | 67,971 | ||||||
82,768 | Oil & Natural Gas Corp., Ltd. | 253,061 | ||||||
1,446,000 | PetroChina Co., Ltd., Class H | 1,009,125 | ||||||
200,788 | Petroleo Brasileiro SA* | 1,023,829 | ||||||
269,810 | Petroleo Brasileiro SA* | 1,309,876 | ||||||
19,700 | Petronas Dagangan Berhad | 118,157 | ||||||
30,962 | Petronet LNG, Ltd. | 123,430 | ||||||
21,318 | Polski Koncern Naftowy Orlen SA | 647,675 | ||||||
124,057 | Polskie Gornictwo Naftowe i Gazownictwo SA | 223,852 | ||||||
996,300 | PT Adaro Energy Tbk | 136,179 | ||||||
115,900 | PT United Tractors Tbk | 302,099 | ||||||
103,700 | PTT Exploration & Production PCL | 317,898 | ||||||
69,100 | PTT PCL | 932,739 |
Continued
10
AZL MSCI Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
178,995 | Reliance Industries, Ltd. | $ | 2,582,583 | |||||
79,626 | Rosneft Oil Co., Registered Shares, GDR | 397,281 | ||||||
4,654 | SK Energy Co., Ltd. | 886,349 | ||||||
3,116 | S-Oil Corp. | 339,979 | ||||||
506,885 | Surgutneftegas OJSC | 245,379 | ||||||
479,800 | Surgutneftegas Prefernce | 234,373 | ||||||
110,490 | Tatneft PJSC | 918,346 | ||||||
58,300 | Thai Oil Public Co., Ltd. | 185,213 | ||||||
8,910 | Tupras-Turkiye Petrol Rafine | 285,711 | ||||||
26,166 | Ultrapar Participacoes SA | 591,759 | ||||||
130,000 | Yanzhou Coal Mining Co. | 151,531 | ||||||
|
| |||||||
24,994,303 | ||||||||
|
| |||||||
Paper & Forest Products (0.4%): | ||||||||
86,517 | Empresas CMPC SA | 294,210 | ||||||
16,619 | Fibria Celulose SA | 239,791 | ||||||
9,010 | Mondi, Ltd. | 232,944 | ||||||
124,000 | Nine Dragons Paper Holdings, Ltd. | 198,659 | ||||||
41,145 | Sappi, Ltd. | 298,632 | ||||||
28,000 | Suzano Papel e Celulose SA | 157,802 | ||||||
|
| |||||||
1,422,038 | ||||||||
|
| |||||||
Personal Products (0.8%): | ||||||||
2,267 | Amorepacific Corp. | 643,962 | ||||||
635 | Amorepacific Corp. | 98,441 | ||||||
1,878 | Amorepacific Group | 247,436 | ||||||
33,415 | Dabur India, Ltd. | 182,729 | ||||||
16,316 | Godrej Consumer Products, Ltd. | 255,138 | ||||||
49,500 | Hengan International Group Co., Ltd. | 549,438 | ||||||
148 | LG Household & Health Care, Ltd. | 96,441 | ||||||
648 | LG Household & Health Care, Ltd. | 718,495 | ||||||
27,460 | Marico, Ltd. | 138,738 | ||||||
11,900 | Natura Cosmeticos SA | 118,630 | ||||||
|
| |||||||
3,049,448 | ||||||||
|
| |||||||
Pharmaceuticals (1.5%): | ||||||||
27,493 | Aspen Pharmacare Holdings, Ltd. | 618,565 | ||||||
18,377 | Aurobindo Pharma, Ltd. | 198,037 | ||||||
14,212 | Cadila Healthcare, Ltd. | 96,533 | ||||||
85,000 | China Medical System Holdings, Ltd. | 198,108 | ||||||
298,000 | China Pharmaceutical Enterprise & Investment Corp. | 601,679 | ||||||
129,500 | China Resources Pharmaceutical | 167,817 | ||||||
22,292 | Cipla, Ltd. | 211,980 | ||||||
7,939 | Dr Reddy’s Laboratories, Ltd. | 299,760 | ||||||
9,570 | Glenmark Pharmaceuticals, Ltd. | 88,981 | ||||||
435 | Hanmi Pharm Co., Ltd.* | 236,423 | ||||||
900 | Hanmi Science Co., Ltd.* | 93,220 | ||||||
22,628 | Hypermarcas SA | 245,638 | ||||||
16,627 | Lupin, Ltd. | 230,259 | ||||||
5,082 | Piramal Enterprises, Ltd. | 227,923 | ||||||
1,460,000 | PT Kalbe Farma Tbk | 181,970 | ||||||
8,905 | Richter Gedeon Nyrt | 233,386 | ||||||
37,000 | Shanghai Fosun Pharmaceutical Group Co., Ltd. | 237,350 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Pharmaceuticals, continued | ||||||||
262,000 | Sihuan Pharmaceutical Holdings Group, Ltd. | $ | 94,231 | |||||
314,000 | Sino Biopharmaceutical, Ltd. | 555,684 | ||||||
64,708 | Sun Pharmaceutical Industries, Ltd. | 577,163 | ||||||
610 | Yuhan Corp. | 124,772 | ||||||
|
| |||||||
5,519,479 | ||||||||
|
| |||||||
Real Estate Management & Development (2.3%): | ||||||||
217,681 | Aldar Properties PJSC | 130,405 | ||||||
546,900 | Ayala Land, Inc. | 487,587 | ||||||
10,148 | Barwa Real Estate Co. | 90,303 | ||||||
60,731 | BR Malls Participacoes SA | 233,123 | ||||||
95,100 | Central Pattana PCL | 248,480 | ||||||
225,000 | China Evergrande Group*^ | 770,624 | ||||||
276,000 | China Overseas Land & Investment, Ltd. | 888,352 | ||||||
208,000 | China Resources Land, Ltd. | 610,895 | ||||||
81,300 | China Vanke Co., Ltd., Class H | 323,752 | ||||||
383,000 | Country Garden Holdings Co., Ltd.^ | 727,759 | ||||||
120,230 | Damac Properties Dubai Co. PJSC | 108,079 | ||||||
135,116 | Emaar Malls PJSC | 78,365 | ||||||
268,206 | Emaar Properties PJSC | 506,291 | ||||||
64,021 | Ezdan Holding Group | 215,684 | ||||||
258,000 | Franshion Properties China, Ltd. | 113,189 | ||||||
517,500 | Fullshare Holdings, Ltd. | 238,363 | ||||||
64,800 | Guangzhou R&F Properties Co., Ltd., Class H | 146,098 | ||||||
61,000 | Highwealth Construction Corp. | 86,819 | ||||||
109,100 | IOI Properties Group Berhad | 49,896 | ||||||
101,000 | Longfor Properties Co., Ltd. | 253,078 | ||||||
770,000 | Megaworld Corp. | 79,618 | ||||||
5,904 | Multiplan Empreendimentos Imobiliarios SA | 126,223 | ||||||
16,645 | NEPI Rockcastle plc^ | 288,327 | ||||||
570,800 | PT Bumi Serpong Damai Tbk | 71,527 | ||||||
1,266,300 | PT Pakuwon Jati Tbk | 63,943 | ||||||
178,500 | Robinsons Land Corp. | 76,029 | ||||||
68,400 | Ruentex Development Co., Ltd.* | 73,392 | ||||||
60,100 | Shanghai Lujiazue | 86,864 | ||||||
75,500 | Shimao Property Holdings, Ltd. | 164,245 | ||||||
169,500 | Sime Darby Property Berhad* | 74,607 | ||||||
218,500 | Sino-Ocean Land Holdings, Ltd. | 150,245 | ||||||
586,200 | SM Prime Holdings, Inc. | 440,415 | ||||||
204,000 | Soho China, Ltd.^ | 119,313 | ||||||
137,000 | Sunac China Holdings, Ltd. | 564,747 | ||||||
|
| |||||||
8,686,637 | ||||||||
|
| |||||||
Road & Rail (0.1%): | ||||||||
404,600 | BTS Group Holdings PCL | 103,236 | ||||||
400 | CJ Korea Express Co., Ltd.* | 52,293 | ||||||
2,868 | Container Corporation of India, Ltd. | 61,887 | ||||||
34,650 | Localiza Rent a Car SA | 230,491 | ||||||
56,464 | Rumo SA* | 220,830 | ||||||
|
| |||||||
668,737 | ||||||||
|
|
Continued
11
AZL MSCI Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Semiconductors & Semiconductor Equipment (5.5%): | ||||||||
472,930 | Advanced Semiconductor Engineering, Inc. | $ | 607,283 | |||||
966,000 | GCL-Poly Energy Holdings, Ltd.* | 172,096 | ||||||
11,000 | Globalwafers Co., Ltd. | 146,208 | ||||||
436 | Hyundai Robotics Co., Ltd.* | 154,976 | ||||||
124,000 | Macronix International Co., Ltd.* | 183,410 | ||||||
105,000 | MediaTek, Inc. | 1,035,381 | ||||||
48,000 | Nanya Technology Corp. | 122,225 | ||||||
40,000 | Novatek Microelectronics Corp. | 152,391 | ||||||
10,000 | Phison Electronics Corp. | 97,898 | ||||||
60,000 | Powertech Technology, Inc. | 177,329 | ||||||
32,000 | Realtek Semiconductor Corp. | 117,015 | ||||||
209,800 | Semiconductor Manufacturing International Corp.* | 361,785 | ||||||
132,000 | Siliconware Precision Industries Co. | 222,923 | ||||||
40,072 | SK Hynix, Inc. | 2,829,830 | ||||||
1,695,000 | Taiwan Semiconductor Manufacturing Co., Ltd. | 13,028,210 | ||||||
852,000 | United Microelectronics Corp. | 405,281 | ||||||
62,000 | Vanguard International Semiconductor Corp. | 137,206 | ||||||
24,000 | WIN Semiconductors Corp. | 226,896 | ||||||
201,000 | Winbond Electronics Corp. | 158,067 | ||||||
|
| |||||||
20,336,410 | ||||||||
|
| |||||||
Software (0.3%): | ||||||||
62,000 | Kingsoft Corp., Ltd. | 205,672 | ||||||
1,235 | Ncsoft Corp. | 516,003 | ||||||
1,142 | Netmarble Games Corp.* | 200,670 | ||||||
|
| |||||||
922,345 | ||||||||
|
| |||||||
Specialty Retail (0.3%): | ||||||||
2,316 | Ff Group* | 52,680 | ||||||
651,000 | GOME Electrical Appliances Holdings, Ltd.^ | 78,316 | ||||||
271,400 | Home Product Center Public Co., Ltd. | 106,449 | ||||||
17,000 | Hotai Motor Co., Ltd. | 202,209 | ||||||
2,364 | Hotel Shilla Co., Ltd. | 187,162 | ||||||
5,140 | Jumbo SA | 91,727 | ||||||
15,795 | Mr.Price Group, Ltd. | 313,483 | ||||||
14,576 | The Foschini Group, Ltd. | 232,386 | ||||||
29,757 | Truworths International, Ltd. | 227,517 | ||||||
|
| |||||||
1,491,929 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (5.3%): | ||||||||
203,000 | Acer, Inc. | 164,289 | ||||||
24,199 | Advantech Co., Ltd. | 171,067 | ||||||
47,000 | Asustek Computer, Inc. | 441,570 | ||||||
47,000 | Catcher Technology Co., Ltd. | 515,947 | ||||||
36,180 | Chicony Electronics Co., Ltd. | 91,186 | ||||||
262,000 | Compal Electronics, Inc. | 187,241 | ||||||
75,000 | Foxconn Technology Co., Ltd. | 214,250 | ||||||
45,000 | High Tech Computer Corp.* | 110,231 | ||||||
176,000 | Inventec Corp. | 140,380 | ||||||
538,000 | Lenovo Group, Ltd.^ | 303,658 | ||||||
166,000 | Lite-On Technology Corp. | 226,755 | ||||||
42,000 | Micro-Star International Co., Ltd. | 108,094 | ||||||
135,000 | Pegatron Corp. | 326,370 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Technology Hardware, Storage & Peripherals, continued | ||||||||
191,000 | Quanta Computer, Inc. | $ | 396,716 | |||||
6,696 | Samsung Electronics Co., Ltd. | 15,910,752 | ||||||
216,217 | Wistron Corp. | 173,815 | ||||||
|
| |||||||
19,482,321 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (0.5%): | ||||||||
81,000 | Anta Sports Products, Ltd. | 367,439 | ||||||
1,856 | CCC SA | 151,539 | ||||||
11,220 | Eclat Textile Co., Ltd. | 112,309 | ||||||
23,000 | Feng Tay Enterprise Co., Ltd. | 104,669 | ||||||
49,000 | Formosta Taffeta Co., Ltd. | 51,499 | ||||||
97 | LPP SA | 247,624 | ||||||
165,000 | Pou Chen Corp. | 213,624 | ||||||
39,000 | Ruentex Industries, Ltd. | 66,269 | ||||||
37,000 | Shenzhou International Group | 351,444 | ||||||
21,507 | Titan Co., Ltd. | 288,531 | ||||||
|
| |||||||
1,954,947 | ||||||||
|
| |||||||
Thrifts & Mortgage Finance (0.8%): | ||||||||
104,058 | Housing Development Finance Corp., Ltd. | 2,785,279 | ||||||
22,583 | Indiabulls Housing Finance, Ltd. | 422,949 | ||||||
20,876 | LIC Housing Finance, Ltd. | 183,961 | ||||||
|
| |||||||
3,392,189 | ||||||||
|
| |||||||
Tobacco (0.6%): | ||||||||
9,900 | British American Tobacco Malaysia Berhad | 97,925 | ||||||
233,051 | ITC, Ltd. | 959,845 | ||||||
8,005 | KT&G Corp. | 863,925 | ||||||
28,200 | PT Gudang Garam Tbk | 174,211 | ||||||
658,900 | PT Hanjaya Mandala Sampoerna TbK | 229,877 | ||||||
|
| |||||||
2,325,783 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.0%): | ||||||||
3,229 | Daewoo International Corp. | 54,673 | ||||||
124,300 | PT AkR Corporindo Tbk | 58,121 | ||||||
8,796 | SK Network Co., Ltd. | 54,665 | ||||||
|
| |||||||
167,459 | ||||||||
|
| |||||||
Transportation Infrastructure (0.9%): | ||||||||
48,496 | Adani Ports & Special Economic Zone, Ltd. | 307,604 | ||||||
322,600 | Airports of Thailand Public Co., Ltd. | 671,935 | ||||||
476,100 | Bangkok Expressway & Metro | 112,585 | ||||||
106,000 | Beijing Capital International Airport Co., Ltd. | 159,450 | ||||||
99,228 | China Merchants Holdings International Co., Ltd. | 259,708 | ||||||
85,645 | Companhia de Concessoes Rodoviarias | 417,081 | ||||||
112,000 | Cosco Pacific, Ltd. | 116,539 | ||||||
11,337 | DP World, Ltd. | 283,629 | ||||||
15,570 | Grupo Aeroportuario de Sur | 284,066 | ||||||
26,780 | Grupo Aeroporturaio del Pacifico SAB de C.V. | 275,175 | ||||||
35,200 | International Container Terminal Services, Inc. | 74,340 | ||||||
84,000 | Jiangsu Expressway Co., Ltd., Series H | 127,922 | ||||||
54,700 | Malaysia Airports Holdings Berhad | 119,224 | ||||||
15,232 | Promotora y Operadora de Infraestructura SAB de C.V. | 150,526 | ||||||
150,707 | PT Jasa Marga Persero Tbk | 71,025 |
Continued
12
AZL MSCI Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Transportation Infrastructure, continued | ||||||||
108,000 | Taiwan High Speed Rail Corp. | $ | 85,250 | |||||
11,315 | TAV Havalimanlari Holding AS | 67,072 | ||||||
70,800 | Westports Holding Berhad | 64,896 | ||||||
106,000 | Zhejiang Expressway Co., Ltd. | 116,542 | ||||||
|
| |||||||
3,764,569 | ||||||||
|
| |||||||
Water Utilities (0.3%): | ||||||||
180,991 | Aguas Andinas SA, Class A | 119,905 | ||||||
328,000 | Beijing Enterprises Water Group, Ltd.^ | 253,794 | ||||||
23,502 | Cia Saneamento Basico Do Estado de Sao Paulo | 243,290 | ||||||
210,000 | Guangdong Investment, Ltd. | 281,117 | ||||||
|
| |||||||
898,106 | ||||||||
|
| |||||||
Wireless Telecommunication Services (3.3%): | ||||||||
71,200 | Advanced Info Service Public Co., Ltd. | 417,349 | ||||||
2,315,288 | America Movil SAB de C.V., Series L | 1,995,104 | ||||||
183,600 | Axiata Group Berhad | 248,702 | ||||||
84,613 | Bharti Airtel, Ltd. | 700,287 | ||||||
422,500 | China Mobile, Ltd. | 4,276,784 | ||||||
217,200 | DIGI.com Berhad | 273,919 | ||||||
8,615 | Empresa Nacional de Telecomunicaciones SA | 96,850 | ||||||
106,000 | Far EasTone Telecommunications Co., Ltd. | 261,849 | ||||||
181,537 | Global Telecom Holding* | 75,973 | ||||||
2,300 | Globe Telecom, Inc. | 87,555 | ||||||
94,240 | Idea Cellular, Ltd.* | 159,121 | ||||||
107,200 | Maxis Berhad | 159,338 | ||||||
35,032 | Mobile TeleSystems PJSC, ADR | 356,976 | ||||||
116,629 | MTN Group, Ltd. | 1,293,678 | ||||||
6,165 | PLDT, Inc. | 182,348 | ||||||
248,500 | PT XL Axiata Tbk* | 54,229 | ||||||
1,406 | SK Telecom Co., Ltd. | 350,838 | ||||||
111,000 | Taiwan Mobile Co., Ltd. | 401,011 | ||||||
64,588 | Tim Participacoes SA | 255,135 | ||||||
64,877 | Turkcell Iletisim Hizmetleri AS | 265,041 | ||||||
39,909 | Vodacom Group, Ltd. | 470,565 | ||||||
|
| |||||||
12,382,652 | ||||||||
|
| |||||||
Total Common Stocks (Cost $267,487,060) | 364,028,210 | |||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Preferred Stocks (2.3%): | ||||||||
Automobiles (0.1%): | ||||||||
2,422 | Hyundai Motor Co., Ltd., 4.02% | $ | 230,872 | |||||
|
| |||||||
Banks (1.3%): | ||||||||
210,160 | Banco Bradesco SA, 0.51% | 2,145,137 | ||||||
222,275 | Itau Unibanco Holding SA, Series S, 0.42% | 2,853,925 | ||||||
|
| |||||||
4,999,062 | ||||||||
|
| |||||||
Chemicals (0.0%): | ||||||||
11,261 | Braskem SA, Class A, 2.93% | 145,572 | ||||||
|
| |||||||
Food & Staples Retailing (0.1%): | ||||||||
12,045 | Companhia Brasileira de Destribuicao Grupo Pao de Acucar, Series A, 0.02% | 286,678 | ||||||
|
| |||||||
Metals & Mining (0.1%): | ||||||||
68,648 | Gerdau SA, 0.48% | 256,268 | ||||||
|
| |||||||
Multiline Retail (0.1%): | ||||||||
47,082 | Lojas Americanas SA, 0.09% | 242,061 | ||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (0.6%): | ||||||||
1,204 | Samsung Electronics Co., Ltd., 1.34% | 2,347,422 | ||||||
|
| |||||||
Total Preferred Stocks (Cost $6,779,156) | 8,507,935 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (1.8%): | ||||||||
$ | 6,872,549 | AZL MSCI Emerging Markets Equity Index Fund Securities Lending Collateral Account(b) | 6,872,549 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 6,872,549 | ||||||
|
| |||||||
Unaffiliated Investment Company (0.3%): | ||||||||
1,111,015 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 1.11%(c) | 1,111,015 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $1,111,015) | 1,111,015 | |||||||
|
| |||||||
Total Investment Securities | ||||||||
(Cost $282,249,780)(d) — 101.5% | 380,519,709 | |||||||
Net other assets (liabilities) — (1.5)% | (5,750,066 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 374,769,643 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
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, 2017. The total value of securities on loan as of December 31, 2017, was $6,346,799. |
(a) | The subadviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2017, these securities represent 0.00% of the net assets of the Fund. |
(b) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2017. |
(c) | The rate represents the effective yield at December 31, 2017. |
(d) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Continued
13
AZL MSCI Emerging Markets Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
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, 2017: (Unaudited)
Country | Percentage | |||
Bermuda | 0.2 | % | ||
Brazil | 6.6 | % | ||
Cayman Islands | 2.2 | % | ||
Chile | 1.2 | % | ||
China | 20.6 | % | ||
Colombia | 0.4 | % | ||
Czech Republic | 0.2 | % | ||
Egypt | 0.1 | % | ||
Greece | 0.3 | % | ||
Hong Kong | 5.7 | % | ||
Hungary | 0.3 | % | ||
India | 8.6 | % | ||
Indonesia | 2.2 | % | ||
Korea, Republic Of | 0.2 | % | ||
Malaysia | 2.3 | % | ||
Malta | — | %^ | ||
Mexico | 2.9 | % | ||
Pakistan | 0.1 | % | ||
Peru | — | %^ | ||
Philippines | 1.1 | % | ||
Poland | 1.3 | % | ||
Qatar | 0.6 | % | ||
Republic of Korea (South) | 14.9 | % | ||
Romania | 0.1 | % | ||
Russian Federation | 3.3 | % | ||
South Africa | 6.9 | % | ||
Switzerland | 0.2 | % | ||
Taiwan, Province Of China | 11.0 | % | ||
Thailand | 2.2 | % | ||
Turkey | 1.1 | % | ||
United Arab Emirates | 0.7 | % | ||
United States | 2.5 | % | ||
|
| |||
100.0 | % | |||
|
|
^ | Represents less than 0.05%. |
Futures Contracts
Cash of $113,000 has been segregated to cover margin requirements for the following open contracts as of December 31, 2017:
Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Unrealized Appreciation/ (Depreciation) | ||||||||||||
Mini MSCI Emerging Markets Index March Futures (U.S. Dollar) | 3/16/18 | 52 | $ | 3,025,620 | $ | 98,113 | ||||||||||
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| |||||||||||||||
$ | 98,113 | |||||||||||||||
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|
See accompanying notes to the financial statements.
14
AZL MSCI Emerging Markets Equity Index Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investment securities, at cost | $ | 282,249,780 | |||
|
| ||||
Investment securities, at value* | $ | 380,519,709 | |||
Segregated cash for collateral | 113,000 | ||||
Interest and dividends receivable | 627,758 | ||||
Foreign currency, at value (cost $1,153,335) | 1,169,671 | ||||
Receivable for investments sold | 54,753 | ||||
Receivable for variation margin on futures contracts | 14,040 | ||||
Reclaims receivable | 69,530 | ||||
Prepaid expenses | 2,132 | ||||
|
| ||||
Total Assets | 382,570,593 | ||||
|
| ||||
Liabilities: | |||||
Cash overdraft | 39 | ||||
Payable for capital shares redeemed | 252,143 | ||||
Payable for collateral received on loaned securities | 6,872,549 | ||||
Accrued foreign taxes | 383,624 | ||||
Manager fees payable | 139,546 | ||||
Administration fees payable | 11,470 | ||||
Distribution fees payable | 72,781 | ||||
Custodian fees payable | 39,427 | ||||
Administrative and compliance services fees payable | 487 | ||||
Transfer agent fees payable | 792 | ||||
Trustee fees payable | 314 | ||||
Other accrued liabilities | 27,778 | ||||
|
| ||||
Total Liabilities | 7,800,950 | ||||
|
| ||||
Net Assets | $ | 374,769,643 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 263,230,209 | |||
Accumulated net investment income/(loss) | 4,498,523 | ||||
Accumulated net realized gains/(losses) from investment transactions | 9,037,337 | ||||
Net unrealized appreciation/(depreciation) on investments | 98,003,574 | ||||
|
| ||||
Net Assets | $ | 374,769,643 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 22,883,385 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 2,607,652 | ||||
Net Asset Value (offering and redemption price per share) | $ | 8.78 | |||
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| ||||
Class 2 | |||||
Net Assets | $ | 351,886,258 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 40,132,964 | ||||
Net Asset Value (offering and redemption price per share) | $ | 8.77 | |||
|
|
* | Includes securities on loan of $6,346,799. |
For the Year Ended December 31, 2017
Investment Income: | |||||
Dividends | $ | 8,617,155 | |||
Interest | 93,356 | ||||
Income from securities lending | 33,049 | ||||
Other income | 15,805 | ||||
Foreign withholding tax | (1,037,587 | ) | |||
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| ||||
Total Investment Income | 7,721,778 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,846,729 | ||||
Administration fees | 187,628 | ||||
Distribution fees — Class 2 | 784,114 | ||||
Custodian fees | 557,847 | ||||
Administrative and compliance services fees | 4,701 | ||||
Transfer agent fees | 11,464 | ||||
Trustee fees | 16,338 | ||||
Professional fees | 21,129 | ||||
Shareholder reports | 24,133 | ||||
Other expenses | 48,248 | ||||
|
| ||||
Total expenses before reductions | 4,502,331 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (1,341,128 | ) | |||
|
| ||||
Net expenses | 3,161,203 | ||||
|
| ||||
Net Investment Income/(Loss) | 4,560,575 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions and foreign currencies | 9,682,761 | ||||
Net realized gains/(losses) on forward currency contracts | 14,039 | ||||
Net realized gains/(losses) on futures contracts | 774,675 | ||||
Change in net unrealized appreciation/depreciation on investments and foreign currencies | 87,170,796 | ||||
Change in net unrealized appreciation/depreciation on futures contracts | 121,987 | ||||
Change in accrued foreign tax liability | (345,675 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 97,418,583 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 101,979,158 | |||
|
|
See accompanying notes to the financial statements.
15
AZL MSCI Emerging Markets Equity Index Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 4,560,575 | $ | 1,721,574 | ||||||
Net realized gains/(losses) on investment transactions | 10,471,475 | 20,930,816 | ||||||||
Change in unrealized appreciation/depreciation on investments | 86,947,108 | (7,870,303 | ) | |||||||
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| |||||||
Change in net assets resulting from operations | 101,979,158 | 14,782,087 | ||||||||
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| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1 | (118,471 | ) | (177,036 | ) | ||||||
Class 2 | (1,318,973 | ) | (1,002,584 | ) | ||||||
From net realized gains | ||||||||||
Class 1 | (526,133 | ) | — | |||||||
Class 2 | (7,945,692 | ) | — | |||||||
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| |||||||
Change in net assets resulting from distributions to shareholders | (9,909,269 | ) | (1,179,620 | ) | ||||||
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| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 226,440 | 141,405 | ||||||||
Proceeds from dividends reinvested | 644,604 | 177,036 | ||||||||
Value of shares redeemed | (3,046,177 | ) | (3,606,577 | ) | ||||||
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|
|
| |||||||
Total Class 1 Shares | (2,175,133 | ) | (3,288,136 | ) | ||||||
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|
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| |||||||
Proceeds from shares issued | 70,744,659 | 103,334,884 | ||||||||
Proceeds from dividends reinvested | 9,264,665 | 1,002,584 | ||||||||
Value of shares redeemed | (63,012,450 | ) | (39,516,903 | ) | ||||||
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| |||||||
Total Class 2 Shares | 16,996,874 | 64,820,565 | ||||||||
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|
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| |||||||
Change in net assets resulting from capital transactions | 14,821,741 | 61,532,429 | ||||||||
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| |||||||
Change in net assets | 106,891,630 | 75,134,896 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 267,878,013 | 192,743,117 | ||||||||
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| |||||||
End of period | $ | 374,769,643 | $ | 267,878,013 | ||||||
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|
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| |||||||
Accumulated net investment income/(loss) | $ | 4,498,523 | $ | 1,293,824 | ||||||
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| |||||||
Shares Transactions: | ||||||||||
Class 1 | ||||||||||
Shares issued | 29,685 | 21,440 | ||||||||
Dividends reinvested | 78,803 | 26,189 | ||||||||
Shares redeemed | (381,076 | ) | (562,635 | ) | ||||||
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|
|
| |||||||
Total Class 1 Shares | (272,588 | ) | (515,006 | ) | ||||||
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| |||||||
Class 2 | ||||||||||
Shares issued | 9,201,042 | 15,054,324 | ||||||||
Dividends reinvested | 1,132,600 | 148,311 | ||||||||
Shares redeemed | (7,909,223 | ) | (6,019,305 | ) | ||||||
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|
|
| |||||||
Total Class 2 Shares | 2,424,419 | 9,183,330 | ||||||||
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|
|
| |||||||
Change in shares | 2,151,831 | 8,668,324 | ||||||||
|
|
|
|
See accompanying notes to the financial statements.
16
AZL MSCI Emerging Markets Equity Index Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||||
Class 1 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 6.60 | $ | 6.04 | $ | 7.35 | $ | 7.81 | $ | 8.05 | |||||||||||||||
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| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.12 | 0.06 | 0.07 | 0.10 | 0.09 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 2.30 | 0.56 | (1.00 | ) | (0.48 | ) | (0.25 | ) | |||||||||||||||||
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|
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|
|
|
| ||||||||||||||||
Total from Investment Activities | 2.42 | 0.62 | (0.93 | ) | (0.38 | ) | (0.16 | ) | |||||||||||||||||
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| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.04 | ) | (0.06 | ) | (0.10 | ) | (0.07 | ) | (0.08 | ) | |||||||||||||||
Net Realized Gains | (0.20 | ) | — | (0.28 | ) | (0.01 | ) | — | |||||||||||||||||
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|
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| ||||||||||||||||
Total Dividends | (0.24 | ) | (0.06 | ) | (0.38 | ) | (0.08 | ) | (0.08 | ) | |||||||||||||||
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| ||||||||||||||||
Net Asset Value, End of Period | $ | 8.78 | $ | 6.60 | $ | 6.04 | $ | 7.35 | $ | 7.81 | |||||||||||||||
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| ||||||||||||||||
Total Return(a) | 36.97 | % | 10.21 | % | (12.69 | )% | (4.96 | )% | (1.96 | )% | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 22,883 | $ | 19,006 | $ | 20,505 | $ | 26,194 | $ | 31,711 | |||||||||||||||
Net Investment Income/(Loss) | 1.56 | % | 1.05 | % | 0.86 | % | 1.14 | % | 1.04 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.11 | % | 1.41 | % | 1.49 | % | 1.46 | % | 1.45 | % | |||||||||||||||
Expenses Net of Reductions | 0.71 | % | 1.14 | % | 1.33 | % | 1.31 | % | 1.30 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly | 0.71 | % | 1.14 | % | 1.33 | % | 1.31 | %(c) | 1.30 | %(c) | |||||||||||||||
Portfolio Turnover Rate(d) | 19 | % | 115 | % | 45 | % | 58 | % | 49 | % | |||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 6.60 | $ | 6.04 | $ | 7.34 | $ | 7.80 | $ | 8.03 | |||||||||||||||
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| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.10 | 0.04 | 0.05 | 0.08 | 0.07 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 2.30 | 0.56 | (1.00 | ) | (0.48 | ) | (0.24 | ) | |||||||||||||||||
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| ||||||||||||||||
Total from Investment Activities | 2.40 | 0.60 | (0.95 | ) | (0.40 | ) | (0.17 | ) | |||||||||||||||||
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Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.03 | ) | (0.04 | ) | (0.07 | ) | (0.05 | ) | (0.06 | ) | |||||||||||||||
Net Realized Gains | (0.20 | ) | — | (0.28 | ) | (0.01 | ) | — | |||||||||||||||||
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Total Dividends | (0.23 | ) | (0.04 | ) | (0.35 | ) | (0.06 | ) | (0.06 | ) | |||||||||||||||
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Net Asset Value, End of Period | $ | 8.77 | $ | 6.60 | $ | 6.04 | $ | 7.34 | $ | 7.80 | |||||||||||||||
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Total Return(a) | 36.63 | % | 9.89 | % | (12.88 | )% | (5.22 | )% | (2.10 | )% | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 351,886 | $ | 248,872 | $ | 172,238 | $ | 225,276 | $ | 266,951 | |||||||||||||||
Net Investment Income/(Loss) | 1.35 | % | 0.80 | % | 0.60 | % | 0.90 | % | 0.79 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.36 | % | 1.64 | % | 1.74 | % | 1.71 | % | 1.70 | % | |||||||||||||||
Expenses Net of Reductions | 0.96 | % | 1.36 | % | 1.58 | % | 1.56 | % | 1.55 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly | 0.96 | % | 1.36 | % | 1.58 | % | 1.56 | %(c) | 1.55 | %(c) | |||||||||||||||
Portfolio Turnover Rate(d) | 19 | % | 115 | % | 45 | % | 58 | % | 49 | % |
(a) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. |
(b) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
(c) | Expenses net of reductions excludes expenses paid indirectly, pursuant to a “commission recapture” program, under which brokers remitted a portion of the brokerage commission which were used to pay certain Fund expenses. The Fund ceased participation in the program in June 2014. |
(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.
17
AZL MSCI Emerging Markets Equity Index Fund
Notes to the Financial Statements
December 31, 2017
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 MSCI Emerging Markets Equity Index Fund (formerly, AZL 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 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 accrues such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
Foreign Currency Translation and Withholding Taxes
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, or from other assets and liabilities, from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains is determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., reclassification of certain market discounts and gain/loss, and other permanent adjustments), 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
18
AZL MSCI Emerging Markets Equity Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017 are noted on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $13 million for the year ended December 31, 2017.
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 $3,055 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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, 2017.
Overnight and Continuous | Less than 30 Days | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions | $ | 6,034,073 | $ | — | $ | — | $ | 838,476 | $ | 6,872,549 |
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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, 2017, the Fund did not engage in any such transactions under the Rule.
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, 2017, 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. As of December 31, 2017, the Fund did not have forward currency contracts outstanding. Realized gains and losses are reported as “Net realized gains/(losses) on forward currency contracts” on the Statement of Operations.
Futures Contracts
During the year ended December 31, 2017, 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. For the year ended December 31, 2017, the monthly average notional amount for long contracts was $2.2 million. Realized gains and losses are reported as “Net realized gains/(losses) on futures contracts” on the Statement of Operations.
19
AZL MSCI Emerging Markets Equity Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017:
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 | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 98,113 | Payable for variation 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, 2017:
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 | ||||||||||
Equity Contracts | Net Realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | $ | 774,675 | $ | 121,987 |
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, 2019.
For the year ended December 31, 2017, the annual rate paid to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL MSCI Emerging Markets Equity Index Fund Class 1 | 0.85 | % | 0.85 | % | ||||||
AZL MSCI Emerging Markets Equity Index Fund Class 2 | 0.85 | % | 1.10 | % |
* | The Manager 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 above at any time. |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the year are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At December 31, 2017, there were no contractual reimbursements 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.”
FIS Investor Services LLC (“FIS”) 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.
20
AZL MSCI Emerging Markets Equity Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017, $3,417 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, 2017, actual Trustee compensation was $1,116,333 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.
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.
There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Other^ | Total | ||||||||||||||||||||
Common Stocks | |||||||||||||||||||||||||
Aerospace & Defense | $ | 303,169 | $ | 467,568 | $ | — | $ | — | $ | 770,737 | |||||||||||||||
Airlines | 286,934 | 799,929 | — | — | 1,086,863 | ||||||||||||||||||||
Banks | 9,390,148 | 45,831,332 | — | — | 55,221,480 | ||||||||||||||||||||
Beverages | 4,015,279 | 871,791 | — | — | 4,887,070 | ||||||||||||||||||||
Capital Markets | 1,151,892 | 3,159,475 | — | — | 4,311,367 | ||||||||||||||||||||
Chemicals | 580,300 | 8,312,665 | — | — | 8,892,965 | ||||||||||||||||||||
Construction Materials | 1,037,397 | 3,232,585 | — | — | 4,269,982 | ||||||||||||||||||||
Consumer Finance | 56,604 | 778,641 | — | — | 835,245 | ||||||||||||||||||||
Containers & Packaging | 222,390 | — | — | — | 222,390 | ||||||||||||||||||||
Diversified Consumer Services | 1,926,649 | — | — | — | 1,926,649 |
21
AZL MSCI Emerging Markets Equity Index Fund
Notes to the Financial Statements
December 31, 2017
Investment Securities: | Level 1 | Level 2 | Level 3 | Other^ | Total | ||||||||||||||||||||
Diversified Financial Services | $ | 349,834 | $ | 4,683,895 | $ | — | $ | — | $ | 5,033,729 | |||||||||||||||
Diversified Telecommunication Services | 459,561 | 5,148,032 | — | — | 5,607,593 | ||||||||||||||||||||
Electric Utilities | 1,526,476 | 2,270,155 | — | — | 3,796,631 | ||||||||||||||||||||
Equity Real Estate Investment Trusts | 289,802 | 1,464,098 | — | — | 1,753,900 | ||||||||||||||||||||
Food & Staples Retailing | 1,899,882 | 4,180,904 | — | — | 6,080,786 | ||||||||||||||||||||
Food Products | 1,354,886 | 4,872,933 | — | # | — | 6,227,819 | |||||||||||||||||||
Gas Utilities | 198,261 | 1,640,300 | — | — | 1,838,561 | ||||||||||||||||||||
Health Care Providers & Services | 230,360 | 1,569,005 | — | — | 1,799,365 | ||||||||||||||||||||
Hotels, Restaurants & Leisure | 1,061,331 | 1,543,438 | — | — | 2,604,769 | ||||||||||||||||||||
Household Products | 185,968 | 1,383,920 | — | — | 1,569,888 | ||||||||||||||||||||
Independent Power & Renewable Electricity Producers | 507,929 | 1,549,758 | — | — | 2,057,687 | ||||||||||||||||||||
Industrial Conglomerates | 343,325 | 5,938,763 | — | — | 6,282,088 | ||||||||||||||||||||
Insurance | 585,455 | 13,240,643 | — | — | 13,826,098 | ||||||||||||||||||||
Internet & Direct Marketing Retail | 3,463,053 | — | — | — | 3,463,053 | ||||||||||||||||||||
Internet Software & Services | 21,871,515 | 22,160,113 | — | — | 44,031,628 | ||||||||||||||||||||
IT Services | 620,153 | 5,433,973 | — | — | 6,054,126 | ||||||||||||||||||||
Machinery | 275,015 | 2,147,893 | — | — | 2,422,908 | ||||||||||||||||||||
Media | 625,283 | 9,364,703 | — | — | 9,989,986 | ||||||||||||||||||||
Metals & Mining | 4,391,626 | 8,015,664 | — | — | 12,407,290 | ||||||||||||||||||||
Multiline Retail | 1,094,594 | 994,978 | — | — | 2,089,572 | ||||||||||||||||||||
Oil, Gas & Consumable Fuels | 3,847,480 | 21,146,823 | — | — | 24,994,303 | ||||||||||||||||||||
Paper & Forest Products | 691,803 | 730,235 | — | — | 1,422,038 | ||||||||||||||||||||
Personal Products | 118,630 | 2,930,818 | — | — | 3,049,448 | ||||||||||||||||||||
Pharmaceuticals | 245,638 | 5,273,841 | — | — | 5,519,479 | ||||||||||||||||||||
Real Estate Management & Development | 433,953 | 8,252,684 | — | — | 8,686,637 | ||||||||||||||||||||
Road & Rail | 451,321 | 217,416 | — | — | 668,737 | ||||||||||||||||||||
Transportation Infrastructure | 1,126,848 | 2,637,721 | — | — | 3,764,569 | ||||||||||||||||||||
Water Utilities | 363,195 | 534,911 | — | — | 898,106 | ||||||||||||||||||||
Wireless Telecommunication Services | 2,780,038 | 9,602,614 | — | — | 12,382,652 | ||||||||||||||||||||
Other Common Stocks+ | — | 81,280,016 | — | — | 81,280,016 | ||||||||||||||||||||
Preferred Stocks | |||||||||||||||||||||||||
Automobiles | — | 230,872 | — | — | 230,872 | ||||||||||||||||||||
Technology Hardware, Storage & Peripherals | — | 2,347,422 | — | — | 2,347,422 | ||||||||||||||||||||
Other Preferred Stocks+ | 5,929,641 | — | — | — | 5,929,641 | ||||||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | — | 6,872,549 | 6,872,549 | ||||||||||||||||||||
Unaffiliated Investment Company | 1,111,015 | — | — | — | 1,111,015 | ||||||||||||||||||||
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Total Investment Securities | 77,404,633 | 296,242,527 | — | # | 6,872,549 | 380,519,709 | |||||||||||||||||||
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Other Financial Instruments:* | |||||||||||||||||||||||||
Futures Contracts | 98,113 | — | — | — | 98,113 | ||||||||||||||||||||
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| ||||||||||||||||
Total Investments | $ | 77,502,746 | $ | 296,242,527 | $ | — | # | $ | 6,872,549 | $ | 380,617,822 | ||||||||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
# | Represents the interest in securities that were determined to have a value of zero at December 31, 2017. |
* | Other Financial Instruments would include any derivative instruments, such as futures contracts. These investments are generally presented in the financial statements at variation margin. |
^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
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, 2017, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL MSCI Emerging Markets Equity Index Fund | $ | 72,267,101 | $ | 62,109,805 |
22
AZL MSCI Emerging Markets Equity Index Fund
Notes to the Financial Statements
December 31, 2017
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, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $284,705,476. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 102,963,703 | ||
Unrealized (depreciation) | (7,149,470 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 95,814,233 | ||
|
|
The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL MSCI Emerging Markets Equity Index Fund | $ | 1,437,444 | $ | 8,471,825 | $ | 9,909,269 |
(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, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL MSCI 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. |
At December 31, 2017, 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 MSCI Emerging Markets Equity Index Fund | $ | 6,718,452 | $ | 9,371,217 | $ | — | $ | 95,449,765 | $ | 111,539,434 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2017, the Fund had multiple shareholder accounts which are affiliated with the Investment Adviser representing ownership in excess of 80% of the Fund.
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017.
23
AZL MSCI Emerging Markets Equity Index Fund
Notes to the Financial Statements
December 31, 2017
The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AZL MSCI Emerging Markets Equity Index Fund (formerly, AZL Emerging Markets Equity Index Fund) (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2017, 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 related notes (collectively, the “financial statements) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, 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.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
25
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2017, 1.82% 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, 2017, the Fund declared net long-term capital gain distributions of $8,471,825.
26
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Fund of Funds Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
27
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
28
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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
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The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in 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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
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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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® MSCI Global Equity Index Fund
(formerly AZL® Global Equity Index Fund)
Annual Report
December 31, 2017
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 23
Page 23
Statements of Changes in Net Assets
Page 24
Page 25
Notes to the Financial Statements
Page 26
Report of Independent Registered Public Accounting Firm
Page 33
Other Federal Income Tax Information
Page 34
Page 35
Approval of Investment Advisory and Subadvisory Agreements
Page 36
Information about the Board of Trustees and Officers
Page 39
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® MSCI Global Equity Index Fund Review (Unaudited)
(formerly AZL® Global Equity Index Fund)
Allianz Investment Management LLC serves as the Manager for the AZL® MSCI Global Equity 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, 2017?
For the year ended December 31, 2017 the AZL® MSCI Global Equity Index Fund (Class 2 Shares) (the “Fund”) returned 22.18%†. That compared to a 23.07% for its benchmark the MSCI World 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 World Index. 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 global equity markets.
Global equities posted robust returns in 2017, building on more modest performance in 2016 and in response to continuing global economic growth.
The year began with gains among Japanese, European and U.S. equities. Japanese stocks benefited from positive earnings reports from the fourth quarter of 2016, as well as continuing support from the Bank of Japan’s (BoJ) efforts to control the country’s yield curve. Positive European economic data supported stocks in that region, particularly among export-driven nations such as Germany, as the region’s inflation rate stabilized at 1.8% year-over-year. In the U.S., stocks were driven by expectations of lower tax rates and higher growth, along with a strengthening labor market and continued growth in the U.S. economy.
The second quarter also saw broad-based market gains, with Japanese equities advancing on the BoJ’s assessment of the nation’s improving economic prospects as well as strong corporate earnings growth. European stocks gained on accelerating investor interest after election results in France and the Netherlands diminished political risk across the eurozone. Investors were also encouraged by the strongest European earnings season in seven years against a backdrop of strengthening regional and global economies.
In the third quarter, strong corporate profit and economic growth sustained the European market rally. The value of the euro rose on expectations that strong economic growth would temper the European Central Bank’s quantitative easing efforts, which would, in turn, help buoy the region’s low bond yields. European banks rallied strongly in the quarter on the resulting expectations of higher interest rates in the region. In the U.S., investors focused on sustained corporate earnings expansion, a mild interest rate environment and healthy economic growth indicators—even as they ignored the risks from a hostile North Korea
and a damaging hurricane season. Volatility among U.S. stocks averaged a record low of 10.94 for the third quarter—the lowest level in recorded history.
In the fourth quarter, Japanese equities surged following Prime Minister Shinto Abe’s victory in October elections, which helped diminish the political uncertainty that had weighed on markets. Investors focused on an improved earnings outlook and a strengthening domestic economy, which supported strong gains in equity markets. Robust growth in the European economy and in corporate earnings helped drive gains among European stocks, even as political uncertainty in Spain and stubbornly low inflation created market headwinds. Meanwhile, the U.S. economy demonstrated strength throughout the fourth quarter, with real gross domestic product2 increasing to 2.3% year-over-year and the unemployment rate dropping to 4.1%—its lowest level since 2000.
The fund underperformed its benchmark for the period primarily due to expenses incurred by the Fund. From a sector perspective, information technology stocks posted the strongest returns in the MSCI World Index (in USD), with the materials and industrials sectors also showing particularly strong gains. All sectors of the index rose during the 12-month period.
The Fund held derivatives in the form of futures contracts, which it used to hedge its cash position. The futures had a positive impact on relative results.*
Past performance does not guarantee future results.
† | The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes. |
* | 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, 2017. |
1 | For a complete description of the Fund’s performance benchmarks please refer to page 2 of this report. |
2 | Gross Domestic Product (GDP) is the measure of the market value of the goods and services produced in a period of time. |
1
AZL® MSCI 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, 2017
1 Year | 3 Year | 5 Year | Since Inception (5/1/09) | |||||||||||||
AZL® MSCI Global Equity Index Fund (Class 2 Shares) | 22.18 | %† | 1.91 | % | 2.28 | % | 7.06 | % | ||||||||
MSCI World Index (gross of withholding taxes) | 23.07 | % | 9.88 | % | 12.26 | % | 13.26 | % | ||||||||
MSCI World Index (net of withholding taxes) | 22.40 | % | 9.26 | % | 11.64 | % | 12.63 | % |
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratios | Gross | |||
AZL® MSCI Global Equity Index Fund (Class 2 Shares) | 1.20 | % |
The above expense ratios are based on the current Fund prospectus dated May 1, 2017. 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% for Class 2 Shares through April 30, 2019. Additional information pertaining to the December 31, 2017 expense ratios can be found in the financial highlights.
† | The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes. |
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 was subadvised by NFJ Investment Group LLC, an affiliate of the Manager, and was known as the AZL NFJ International Value Fund. Consequently, the performance information below may have been different if the Fund had been managed by its current subadviser and pursuant to its current investment objective prior to October 14, 2016.
The Fund’s performance is measured against the Morgan Stanley Capital International World Index (“MSCI World Index”), an unmanaged broad equity benchmark that represents large- and mid-cap equity performance across 23 developed markets countries. 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 MSCI Global Equity Index Fund
(Unaudited)
As a shareholder of the AZL MSCI 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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL MSCI Global Equity Index Fund | $ | 1,000.00 | $ | 1,101.70 | $ | 4.34 | 0.82 | % |
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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL MSCI Global Equity Index Fund | $ | 1,000.00 | $ | 1,021.07 | $ | 4.18 | 0.82 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Financials | 18.8 | % | |||
Information Technology | 17.0 | ||||
Consumer Discretionary | 12.5 | ||||
Industrials | 10.6 | ||||
Health Care | 11.4 | ||||
Consumer Staples | 8.7 | ||||
Energy | 6.6 | ||||
Materials | 5.5 | ||||
Real Estate | 3.4 | ||||
Utilities | 2.6 | ||||
Telecommunication Services | 2.4 | ||||
|
| ||||
Total Common Stocks | 99.5 | ||||
Right | — | ^ | |||
Securities Held as Collateral for Securities on Loan | 1.9 | ||||
Money Market | 0.2 | ||||
|
| ||||
Total Investment Securities | 101.6 | ||||
Net other assets (liabilities) | (1.6 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL MSCI Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks (99.3%): | ||||||||
Aerospace & Defense (1.8%): | ||||||||
1,624 | Arconic, Inc. | $ | 44,254 | |||||
11,607 | BAE Systems plc | 89,255 | ||||||
2,140 | Boeing Co. (The) | 631,106 | ||||||
8,877 | Bombardier, Inc., Class B* | 21,401 | ||||||
946 | CAE, Inc. | 17,576 | ||||||
6,703 | Cobham plc* | 11,386 | ||||||
10 | Dassault Aviation SA | 15,544 | ||||||
106 | Elbit Systems, Ltd. | 14,178 | ||||||
2,233 | European Aeronautic Defence & Space Co. NV | 221,722 | ||||||
930 | General Dynamics Corp. | 189,209 | ||||||
114 | Huntington Ingalls Industries, Inc. | 26,870 | ||||||
309 | L3 Technologies, Inc. | 61,136 | ||||||
1,004 | Lockheed Martin Corp. | 322,334 | ||||||
3,047 | Meggitt plc | 19,726 | ||||||
198 | MTU Aero Engines AG | 35,409 | ||||||
601 | Northrop Grumman Corp. | 184,453 | ||||||
1,108 | Raytheon Co. | 208,138 | ||||||
657 | Rockwell Collins, Inc. | 89,102 | ||||||
6,626 | Rolls-Royce Holdings plc | 75,396 | ||||||
1,317 | Safran SA | 135,410 | ||||||
6,300 | Singapore Technologies Engineering, Ltd. | 15,335 | ||||||
450 | Spirit AeroSystems Holdings, Inc., Class A | 39,263 | ||||||
1,075 | Textron, Inc. | 60,834 | ||||||
422 | Thales SA | 45,406 | ||||||
211 | TransDigm Group, Inc.^ | 57,945 | ||||||
2,811 | United Technologies Corp. | 358,599 | ||||||
798 | Zodiac Aerospace | 23,867 | ||||||
|
| |||||||
3,014,854 | ||||||||
|
| |||||||
Air Freight & Logistics (0.5%): | ||||||||
3,854 | Bollore, Inc. | 20,933 | ||||||
562 | C.H. Robinson Worldwide, Inc.^ | 50,069 | ||||||
3,723 | Deutsche Post AG | 176,839 | ||||||
721 | Expeditors International of Washington, Inc. | 46,641 | ||||||
978 | FedEx Corp. | 244,050 | ||||||
3,442 | Royal Mail plc | 21,029 | ||||||
2,592 | United Parcel Service, Inc., Class B | 308,837 | ||||||
1,300 | Yamato Holdings Co., Ltd. | 26,175 | ||||||
|
| |||||||
894,573 | ||||||||
|
| |||||||
Airlines (0.1%): | ||||||||
400 | All Nippon Airways Co., Ltd. | 16,696 | ||||||
468 | American Airlines Group, Inc. | 24,350 | ||||||
766 | Delta Air Lines, Inc. | 42,896 | ||||||
966 | Deutsche Lufthansa AG, Registered Shares | 35,506 | ||||||
226 | easyJet plc | 4,466 | ||||||
1,222 | International Consolidated Airlines Group SA | 10,594 | ||||||
400 | Japan Airlines Co., Ltd. | 15,654 | ||||||
2,200 | Singapore Airlines, Ltd. | 17,528 | ||||||
631 | Southwest Airlines Co. | 41,299 | ||||||
338 | United Continental Holdings, Inc.* | 22,781 | ||||||
|
| |||||||
231,770 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Auto Components (0.7%): | ||||||||
700 | Aisin Sieki Co., Ltd. | $ | 39,338 | |||||
998 | Aptiv plc* | 84,660 | ||||||
348 | Autoliv, Inc.^ | 44,224 | ||||||
852 | BorgWarner, Inc. | 43,529 | ||||||
2,400 | Bridgestone Corp. | 111,629 | ||||||
626 | Compagnie Generale des Establissements Michelin SCA, Class B | 89,660 | ||||||
353 | Continental AG | 95,290 | ||||||
332 | Delphi Technologies plc* | 17,420 | ||||||
1,800 | Denso Corp. | 108,083 | ||||||
299 | Faurecia | 23,314 | ||||||
6,575 | GKN plc | 28,227 | ||||||
1,042 | Goodyear Tire & Rubber Co. | 33,667 | ||||||
400 | Koito Manufacturing Co., Ltd. | 28,131 | ||||||
211 | Lear Corp. | 37,275 | ||||||
1,345 | Magna International | 76,240 | ||||||
2,000 | Minth Group, Ltd. | 12,036 | ||||||
700 | NGK Spark Plug Co., Ltd. | 17,024 | ||||||
400 | NOK Corp. | 9,318 | ||||||
459 | Nokian Renkaat OYJ | 20,788 | ||||||
814 | Schaeffler AG | 14,367 | ||||||
600 | Stanley Electric Co., Ltd. | 24,372 | ||||||
2,900 | Sumitomo Electric Industries, Ltd. | 48,942 | ||||||
700 | Sumitomo Rubber Industries, Ltd. | 13,007 | ||||||
300 | Toyoda Gosei Co., Ltd. | 7,608 | ||||||
600 | Toyota Industries Corp. | 38,572 | ||||||
956 | Valeo SA | 71,234 | ||||||
700 | Yokohama Rubber Co., Ltd. (The) | 17,175 | ||||||
|
| |||||||
1,155,130 | ||||||||
|
| |||||||
Automobiles (1.9%): | ||||||||
1,243 | Bayerische Motoren Werke AG (BMW) | 129,098 | ||||||
3,666 | Daimler AG, Registered Shares | 311,251 | ||||||
507 | Ferrari NV | 53,175 | ||||||
3,647 | Fiat Chrysler Automobiles NV | 65,021 | ||||||
13,900 | Ford Motor Co. | 173,611 | ||||||
2,100 | Fuji Heavy Industries, Ltd. | 66,497 | ||||||
5,041 | General Motors Co. | 206,630 | ||||||
717 | Harley-Davidson, Inc.^ | 36,481 | ||||||
6,300 | Honda Motor Co., Ltd. | 216,027 | ||||||
2,400 | Isuzu Motors, Ltd. | 40,140 | ||||||
2,200 | Mazda Motor Corp. | 29,524 | ||||||
2,700 | Mitsubishi Motors Corp. | 19,514 | ||||||
8,100 | Nissan Motor Co., Ltd. | 80,791 | ||||||
1,902 | PSA Peugeot Citroen SA | 38,632 | ||||||
739 | Renault SA | 74,266 | ||||||
1,300 | Suzuki Motor Corp. | 75,306 | ||||||
516 | Tesla Motors, Inc.*^ | 160,657 | ||||||
10,000 | Toyota Motor Corp. | 640,444 | ||||||
130 | Volkswagen AG | 26,317 | ||||||
1,100 | Yamaha Motor Co., Ltd. | 36,024 | ||||||
|
| |||||||
2,479,406 | ||||||||
|
|
Continued
4
AZL MSCI Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks (10.1%): | ||||||||
1,626 | ABN AMRO Group NV | $ | 52,315 | |||||
3,636 | AIB Group plc^ | 23,992 | ||||||
400 | Aozora Bank, Ltd. | 15,574 | ||||||
11,376 | Australia & New Zealand Banking Group, Ltd. | 254,050 | ||||||
24,410 | Banco Bilbao Vizcaya Argentaria SA | 207,763 | ||||||
21,685 | Banco de Sabadell SA | 42,912 | ||||||
61,968 | Banco Santander SA | 406,296 | ||||||
3,600 | Bank Hapoalim BM | 26,499 | ||||||
5,141 | Bank Leumi Le-Israel Corp. | 31,008 | ||||||
37,999 | Bank of America Corp. | 1,121,729 | ||||||
4,800 | Bank of East Asia, Ltd. (The) | 20,770 | ||||||
3,384 | Bank of Ireland Group plc* | 28,783 | ||||||
2,493 | Bank of Montreal | 199,531 | ||||||
4,430 | Bank of Nova Scotia | 285,934 | ||||||
1,540 | Bank of Queensland, Ltd. | 15,250 | ||||||
4,962 | Bankia SA | 23,681 | ||||||
3,202 | Bankinter SA | 30,304 | ||||||
63,484 | Barclays plc | 173,063 | ||||||
3,016 | BB&T Corp. | 149,956 | ||||||
1,721 | Bendigo & Adelaide Bank, Ltd. | 15,635 | ||||||
4,322 | BNP Paribas SA | 322,270 | ||||||
14,500 | BOC Hong Kong Holdings, Ltd. | 73,342 | ||||||
1,592 | Canadian Imperial Bank of Commerce | 155,223 | ||||||
3,000 | Chiba Bank, Ltd. (The) | 24,988 | ||||||
1,300 | Chuo Mitsui Trust Holdings, Inc. | 51,634 | ||||||
464 | CIT Group, Inc. | 22,843 | ||||||
10,271 | Citigroup, Inc. | 764,265 | ||||||
1,764 | Citizens Financial Group, Inc. | 74,053 | ||||||
690 | Comerica, Inc. | 59,899 | ||||||
4,125 | Commerzbank AG* | 61,864 | ||||||
6,602 | Commonwealth Bank of Australia | 412,543 | ||||||
4,400 | Concordia Financial Group, Ltd. | 26,569 | ||||||
4,079 | Credit Agricole SA | 67,376 | ||||||
13,526 | Criteria Caixacorp SA | 62,906 | ||||||
2,612 | Danske Bank A/S | 101,564 | ||||||
6,900 | DBS Group Holdings, Ltd. | 127,792 | ||||||
3,962 | DnB NOR ASA | 73,281 | ||||||
589 | East West Bancorp, Inc. | 35,829 | ||||||
1,178 | Erste Group Bank AG | 50,795 | ||||||
2,970 | Fifth Third Bancorp | 90,110 | ||||||
566 | First Republic Bank | 49,038 | ||||||
3,000 | Fukuoka Financial Group, Inc. | 16,863 | ||||||
2,300 | Hachijuni Bank, Ltd. (The) | 13,140 | ||||||
3,000 | Hang Seng Bank, Ltd. | 74,386 | ||||||
75,566 | HSBC Holdings plc | 779,167 | ||||||
4,194 | Huntington Bancshares, Inc. | 61,065 | ||||||
15,096 | ING Groep NV | 277,745 | ||||||
3,584 | Intesa Sanpaolo | 11,427 | ||||||
52,935 | Intesa Sanpaolo SpA | 175,540 | ||||||
1,600 | Japan Post Bank Co., Ltd. | 20,778 | ||||||
13,382 | JPMorgan Chase & Co. | 1,431,070 | ||||||
844 | KBC Groep NV | 71,899 | ||||||
3,845 | KeyCorp | 77,554 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
1,900 | Kyushu Financial Group, Inc. | $ | 11,485 | |||||
275,064 | Lloyds Banking Group plc | 251,827 | ||||||
480 | M&T Bank Corp. | 82,075 | ||||||
3,600 | Mebuki Financial Group, Inc. | 15,248 | ||||||
2,255 | Mediobanca SpA | 25,536 | ||||||
45,800 | Mitsubishi UFJ Financial Group, Inc. | 336,098 | ||||||
89 | Mizrahi Tefahot Bank, Ltd. | 1,642 | ||||||
87,800 | Mizuho Financial Group, Inc. | 159,502 | ||||||
10,322 | National Australia Bank, Ltd. | 237,402 | ||||||
1,326 | National Bank of Canada | 66,173 | ||||||
3,360 | Natixis | 26,577 | ||||||
11,402 | Nordea Bank AB | 138,045 | ||||||
12,100 | Oversea-Chinese Banking Corp., Ltd. | 111,821 | ||||||
1,195 | People’s United Financial, Inc. | 22,347 | ||||||
1,841 | PNC Financial Services Group, Inc. | 265,638 | ||||||
748 | Raiffeisen International Bank-Holding AG* | 27,082 | ||||||
4,593 | Regions Financial Corp. | 79,367 | ||||||
8,600 | Resona Holdings, Inc. | 51,402 | ||||||
5,412 | Royal Bank of Canada | 442,028 | ||||||
13,709 | Royal Bank of Scotland Group plc* | 51,123 | ||||||
4,000 | Seven Bank, Ltd. | 13,709 | ||||||
400 | Shinsei Bank, Ltd. | 6,890 | ||||||
2,000 | Shizuoka Bank, Ltd. (The) | 20,671 | ||||||
207 | Signature Bank* | 28,413 | ||||||
6,107 | Skandinaviska Enskilda Banken AB, Class A | 71,570 | ||||||
2,880 | Societe Generale | 148,468 | ||||||
12,000 | Standard Chartered plc* | 126,256 | ||||||
5,200 | Sumitomo Mitsui Financial Group, Inc. | 224,618 | ||||||
1,812 | SunTrust Banks, Inc. | 117,037 | ||||||
600 | Suruga Bank, Ltd. | 12,835 | ||||||
214 | SVB Financial Group* | 50,027 | ||||||
5,870 | Svenska Handelsbanken AB, Class A | 80,159 | ||||||
3,442 | Swedbank AB, Class A | 82,896 | ||||||
7,034 | Toronto-Dominion Bank (The) | 412,201 | ||||||
6,164 | U.S. Bancorp | 330,267 | ||||||
7,713 | Unicredit SpA* | 143,670 | ||||||
5,004 | United Overseas Bank, Ltd. | 98,741 | ||||||
17,869 | Wells Fargo & Co. | 1,084,112 | ||||||
12,501 | Westpac Banking Corp. | 305,063 | ||||||
1,000 | Yamaguchi Financial Group, Inc. | 11,888 | ||||||
826 | Zions Bancorp | 41,986 | ||||||
|
| |||||||
14,657,758 | ||||||||
|
| |||||||
Beverages (2.1%): | ||||||||
2,901 | Anheuser-Busch InBev NV | 323,547 | ||||||
1,500 | Asahi Breweries, Ltd. | 74,378 | ||||||
864 | Brown-Forman Corp., Class B | 59,331 | ||||||
425 | Carlsberg A/S, Class B | 50,915 | ||||||
2,188 | Coca-Cola Amatil, Ltd. | 14,509 | ||||||
500 | Coca-Cola Bottlers Japan Holdings, Inc. | 18,264 | ||||||
15,485 | Coca-Cola Co. (The) | 710,452 | ||||||
782 | Coca-Cola European Partners plc | 31,145 | ||||||
698 | Coca-Cola HBC AG | 22,700 |
Continued
5
AZL MSCI Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Beverages, continued | ||||||||
632 | Constellation Brands, Inc., Class C | $ | 144,456 | |||||
2,931 | Davide Campari — Milano SpA | 22,656 | ||||||
9,682 | Diageo plc | 354,277 | ||||||
756 | Dr Pepper Snapple Group, Inc. | 73,377 | ||||||
423 | Heineken Holding NV | 41,786 | ||||||
983 | Heineken NV | 102,450 | ||||||
3,400 | Kirin Holdings Co., Ltd. | 85,556 | ||||||
768 | Molson Coors Brewing Co., Class B | 63,030 | ||||||
1,432 | Monster Beverage Corp.* | 90,631 | ||||||
5,341 | PepsiCo, Inc. | 640,493 | ||||||
756 | Pernod Ricard SA | 119,653 | ||||||
74 | Remy Cointreau SA | 10,251 | ||||||
500 | Suntory Beverage & Food, Ltd. | 22,238 | ||||||
2,869 | Treasury Wine Estates, Ltd. | 35,678 | ||||||
|
| |||||||
3,111,773 | ||||||||
|
| |||||||
Biotechnology (1.9%): | ||||||||
6,042 | AbbVie, Inc. | 584,321 | ||||||
749 | Alexion Pharmaceuticals, Inc.* | 89,573 | ||||||
593 | Alkermes plc*^ | 32,455 | ||||||
336 | Alnylam Pharmaceuticals, Inc.* | 42,689 | ||||||
2,802 | Amgen, Inc. | 487,267 | ||||||
798 | Biogen Idec, Inc.* | 254,219 | ||||||
650 | BioMarin Pharmaceutical, Inc.* | 57,961 | ||||||
2,899 | Celgene Corp.* | 302,540 | ||||||
1,739 | CSL, Ltd. | 191,360 | ||||||
222 | Genmab A/S* | 36,820 | ||||||
4,836 | Gilead Sciences, Inc. | 346,451 | ||||||
1,265 | Grifols SA | 36,985 | ||||||
670 | Incyte Corp.* | 63,456 | ||||||
311 | Regeneron Pharmaceuticals, Inc.* | 116,924 | ||||||
445 | Seattle Genetics, Inc.*^ | 23,808 | ||||||
3,502 | Shire plc | 181,608 | ||||||
154 | Tesaro, Inc.*^ | 12,762 | ||||||
176 | United Therapeutics Corp.* | 26,039 | ||||||
969 | Vertex Pharmaceuticals, Inc.* | 145,214 | ||||||
|
| |||||||
3,032,452 | ||||||||
|
| |||||||
Building Products (0.4%): | ||||||||
583 | A.O. Smith Corp. | 35,726 | ||||||
390 | Allegion plc^ | 31,028 | ||||||
800 | Asahi Glass Co., Ltd. | 34,607 | ||||||
3,043 | Assa Abloy AB, Class B | 63,167 | ||||||
2,130 | Compagnie de Saint-Gobain SA | 117,212 | ||||||
900 | Daikin Industries, Ltd. | 106,567 | ||||||
607 | Fortune Brands Home & Security, Inc. | 41,543 | ||||||
133 | Geberit AG, Registered Shares | 58,537 | ||||||
3,323 | Johnson Controls International plc | 126,640 | ||||||
158 | Lennox International, Inc.^ | 32,905 | ||||||
1,000 | Lixil Group Corp. | 27,040 | ||||||
1,309 | Masco Corp. | 57,517 | ||||||
422 | Owens Corning, Inc. | 38,799 | ||||||
500 | TOTO, Ltd. | 29,481 | ||||||
|
| |||||||
800,769 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Capital Markets (2.8%): | ||||||||
3,720 | 3i Group plc | $ | 45,845 | |||||
210 | Affiliated Managers Group, Inc. | 43,103 | ||||||
546 | Ameriprise Financial, Inc. | 92,531 | ||||||
263 | Amundi SA | 22,261 | ||||||
768 | ASX, Ltd. | 32,838 | ||||||
3,974 | Bank of New York Mellon Corp. (The) | 214,040 | ||||||
466 | BlackRock, Inc., Class A+ | 239,389 | ||||||
3,227 | Brookfield Asset Management, Inc., Class A | 140,501 | ||||||
412 | CBOE Holdings, Inc.^ | 51,331 | ||||||
4,598 | Charles Schwab Corp. (The) | 236,199 | ||||||
879 | CI Financial Corp. | 20,821 | ||||||
1,285 | CME Group, Inc. | 187,674 | ||||||
9,333 | Credit Suisse Group AG | 166,173 | ||||||
7,000 | Daiwa Securities Group, Inc. | 43,936 | ||||||
7,799 | Deutsche Bank AG, Registered Shares | 147,985 | ||||||
743 | Deutsche Boerse AG | 86,114 | ||||||
1,101 | E*TRADE Financial Corp.* | 54,577 | ||||||
451 | Eaton Vance Corp. | 25,432 | ||||||
1,172 | Franklin Resources, Inc. | 50,783 | ||||||
1,413 | Goldman Sachs Group, Inc. (The) | 359,975 | ||||||
1,005 | Hargreaves Lansdown plc | 24,442 | ||||||
4,900 | Hong Kong Exchanges & Clearing, Ltd. | 149,671 | ||||||
14 | IGM Financial, Inc. | 492 | ||||||
2,297 | Intercontinental Exchange, Inc. | 162,076 | ||||||
1,642 | Invesco, Ltd. | 59,999 | ||||||
2,442 | Investec plc | 17,570 | ||||||
2,000 | Japan Exchange Group, Inc. | 34,653 | ||||||
888 | Julius Baer Group, Ltd. | 54,304 | ||||||
8,000 | Kingston Financial Group, Ltd. | 7,664 | ||||||
1,238 | London Stock Exchange Group plc | 63,375 | ||||||
1,257 | Macquarie Group, Ltd. | 97,435 | ||||||
653 | Moody’s Corp. | 96,389 | ||||||
5,203 | Morgan Stanley | 273,001 | ||||||
316 | MSCI, Inc., Class A | 39,987 | ||||||
472 | NASDAQ OMX Group, Inc. (The) | 36,264 | ||||||
11,500 | Nomura Holdings, Inc. | 67,915 | ||||||
762 | Northern Trust Corp. | 76,116 | ||||||
73 | Partners Group Holding AG | 50,035 | ||||||
514 | Raymond James Financial, Inc. | 45,900 | ||||||
913 | S&P Global, Inc. | 154,662 | ||||||
1,100 | SBI Holdings, Inc. | 22,965 | ||||||
529 | Schroders plc | 25,018 | ||||||
544 | SEI Investments Co. | 39,092 | ||||||
3,200 | Singapore Exchange, Ltd. | 17,769 | ||||||
1,438 | State Street Corp. | 140,363 | ||||||
924 | T. Rowe Price Group, Inc.^ | 96,955 | ||||||
1,046 | TD Ameritrade Holding Corp. | 53,482 | ||||||
844 | Thomson Reuters Corp. | 36,794 | ||||||
14,168 | UBS Group AG | 260,392 | ||||||
|
| |||||||
4,466,288 | ||||||||
|
|
Continued
6
AZL MSCI Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Chemicals (3.0%): | ||||||||
514 | Agrium, Inc. | $ | 59,130 | |||||
1,636 | Air Liquide SA | 205,736 | ||||||
840 | Air Products & Chemicals, Inc. | 137,827 | ||||||
700 | Air Water, Inc. | 14,719 | ||||||
787 | AkzoNobel NV | 68,830 | ||||||
441 | Albemarle Corp. | 56,399 | ||||||
263 | Arkema SA | 31,956 | ||||||
5,000 | Asahi Kasei Corp. | 64,419 | ||||||
832 | Axalta Coating Systems, Ltd.* | 26,924 | ||||||
3,521 | BASF SE | 386,365 | ||||||
529 | Celanese Corp., Series A | 56,645 | ||||||
902 | CF Industries Holdings, Inc. | 38,371 | ||||||
702 | Chemours Co. (The) | 35,142 | ||||||
384 | Christian Hansen Holding A/S | 36,021 | ||||||
883 | Clariant AG | 24,663 | ||||||
353 | Covestro AG | 36,292 | ||||||
512 | Croda International plc | 30,567 | ||||||
1,000 | Daicel Chemical Industries, Ltd. | 11,381 | ||||||
8,752 | DowDuPont, Inc. | 623,317 | ||||||
589 | Eastman Chemical Co. | 54,565 | ||||||
1,004 | Ecolab, Inc. | 134,717 | ||||||
34 | EMS-Chemie Holding AG | 22,697 | ||||||
653 | Evonik Industries AG | 24,495 | ||||||
522 | FMC Corp. | 49,413 | ||||||
172 | Frutarom Industries, Ltd. | 16,167 | ||||||
275 | Fuchs Petrolub AG | 14,542 | ||||||
36 | Givaudan SA, Registered Shares | 83,059 | ||||||
500 | Hitachi Chemical Co., Ltd. | 12,849 | ||||||
6,485 | Incitec Pivot, Ltd. | 19,714 | ||||||
319 | International Flavor & Fragrances, Inc. | 48,683 | ||||||
3,372 | Israel Chemicals, Ltd. | 13,677 | ||||||
758 | Johnson Matthey plc | 31,334 | ||||||
800 | JSR Corp. | 15,756 | ||||||
747 | K+S AG, Registered Shares | 18,603 | ||||||
1,000 | Kaneka Corp. | 9,137 | ||||||
900 | Kansai Paint Co., Ltd. | 23,373 | ||||||
738 | Koninklijke DSM NV | 70,341 | ||||||
1,300 | Kuraray Co., Ltd. | 24,541 | ||||||
362 | Lanxess AG | 28,780 | ||||||
714 | Linde AG* | 167,010 | ||||||
1,275 | Lyondellbasell Industries NV | 140,658 | ||||||
373 | Methanex Corp. | 22,603 | ||||||
5,800 | Mitsubishi Chemical Holdings Corp. | 63,683 | ||||||
800 | Mitsubishi Gas Chemical Co., Inc. | 23,018 | ||||||
800 | Mitsui Chemicals, Inc. | 25,751 | ||||||
1,602 | Monsanto Co. | 187,082 | ||||||
1,289 | Mosaic Co. (The) | 33,076 | ||||||
600 | Nippon Paint Holdings Co., Ltd. | 18,913 | ||||||
200 | Nissan Chemical Industries, Ltd. | 7,971 | ||||||
500 | Nitto Denko Corp. | 44,448 | ||||||
899 | Novozymes A/S, Class B | 51,368 | ||||||
1,427 | Orica, Ltd. | 20,134 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Chemicals, continued | ||||||||
3,229 | Potash Corp. of Saskatchewan, Inc. | $ | 66,234 | |||||
944 | PPG Industries, Inc. | 110,278 | ||||||
1,054 | Praxair, Inc. | 163,033 | ||||||
327 | Sherwin Williams Co. | 134,083 | ||||||
1,400 | Shin-Etsu Chemical Co., Ltd. | 142,013 | ||||||
9 | Sika AG, Class B | 71,359 | ||||||
303 | Solvay SA | 42,072 | ||||||
6,000 | Sumitomo Chemical Co., Ltd. | 43,156 | ||||||
485 | Symrise AG | 41,577 | ||||||
600 | Taiyo Nippon Sanso Corp. | 8,388 | ||||||
700 | Teijin, Ltd. | 15,601 | ||||||
6,000 | Toray Industries, Inc. | 56,601 | ||||||
1,000 | Tosoh Corp. | 22,681 | ||||||
776 | Umicore SA | 36,665 | ||||||
280 | W.R. Grace & Co. | 19,636 | ||||||
682 | Yara International ASA | 31,227 | ||||||
|
| |||||||
4,471,466 | ||||||||
|
| |||||||
Commercial Services & Supplies (0.3%): | ||||||||
1,000 | Babcock International Group plc^ | 9,477 | ||||||
5,458 | Brambles, Ltd. | 42,779 | ||||||
344 | Cintas Corp. | 53,606 | ||||||
1,000 | Dai Nippon Printing Co., Ltd. | 22,314 | ||||||
805 | Edenred | 23,319 | ||||||
6,037 | G4S plc | 21,698 | ||||||
648 | ISS A/S | 25,001 | ||||||
400 | Park24 Co., Ltd. | 9,571 | ||||||
959 | Republic Services, Inc., Class A | 64,838 | ||||||
401 | Rollins, Inc.^ | 18,659 | ||||||
900 | SECOM Co., Ltd. | 67,979 | ||||||
1,209 | Securitas AB, Class B | 21,073 | ||||||
109 | Societe BIC SA | 11,984 | ||||||
300 | Sohgo Security Services Co., Ltd. | 16,312 | ||||||
334 | Stericycle, Inc.* | 22,709 | ||||||
2,000 | Toppan Printing Co., Ltd. | 18,075 | ||||||
914 | Waste Connections, Inc. | 64,839 | ||||||
1,666 | Waste Management, Inc. | 143,775 | ||||||
|
| |||||||
658,008 | ||||||||
|
| |||||||
Communications Equipment (0.9%): | ||||||||
188 | Arista Networks, Inc.* | 44,289 | ||||||
18,819 | Cisco Systems, Inc. | 720,767 | ||||||
795 | CommScope Holding Co., Inc.* | 30,075 | ||||||
266 | F5 Networks, Inc.* | 34,905 | ||||||
394 | Harris Corp. | 55,810 | ||||||
1,365 | Juniper Networks, Inc. | 38,903 | ||||||
628 | Motorola Solutions, Inc. | 56,733 | ||||||
22,104 | Nokia OYJ | 103,231 | ||||||
382 | Palo Alto Networks, Inc.* | 55,367 | ||||||
12,374 | Telefonaktiebolaget LM Ericsson, Class B | 81,146 | ||||||
|
| |||||||
1,221,226 | ||||||||
|
|
Continued
7
AZL MSCI Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Construction & Engineering (0.3%): | ||||||||
804 | ACS Actividades de Construccion y Servicios SA | $ | 31,453 | |||||
805 | Bouygues SA | 41,813 | ||||||
148 | Cimic Group, Ltd. | 5,934 | ||||||
227 | Eiffage SA | 24,869 | ||||||
1,882 | Ferrovial SA | 42,651 | ||||||
547 | Fluor Corp. | 28,253 | ||||||
89 | Hochtief AG | 15,684 | ||||||
481 | Jacobs Engineering Group, Inc. | 31,726 | ||||||
800 | JGC Corp. | 15,454 | ||||||
3,000 | Kajima Corp. | 28,836 | ||||||
389 | Koninklijke Boskalis Westminster NV | 14,661 | ||||||
2,600 | Obayashi Corp. | 31,445 | ||||||
2,000 | Shimizu Corp. | 20,640 | ||||||
1,213 | Skanska AB, Class B | 25,099 | ||||||
583 | SNC-Lavalin Group, Inc. | 26,464 | ||||||
800 | TAISEI Corp. | 39,798 | ||||||
1,954 | Vinci SA | 199,337 | ||||||
|
| |||||||
624,117 | ||||||||
|
| |||||||
Construction Materials (0.3%): | ||||||||
4,102 | Boral, Ltd. | 24,856 | ||||||
3,045 | CRH plc | 109,114 | ||||||
2,471 | Fletcher Building, Ltd. | 13,298 | ||||||
608 | HeidelbergCement AG | 65,809 | ||||||
174 | Imerys SA | 16,389 | ||||||
1,726 | James Hardie Industries SE | 30,378 | ||||||
1,463 | LafargeHolcim, Ltd., Registered Shares | 82,449 | ||||||
239 | Martin Marietta Materials, Inc. | 52,829 | ||||||
500 | Taiheiyo Cement Corp. | 21,596 | ||||||
555 | Vulcan Materials Co. | 71,245 | ||||||
|
| |||||||
487,963 | ||||||||
|
| |||||||
Consumer Finance (0.5%): | ||||||||
3,000 | ACOM Co., Ltd.* | 12,652 | ||||||
700 | Aeon Credit Service Co., Ltd. | 16,258 | ||||||
1,649 | Ally Financial, Inc. | 48,085 | ||||||
2,859 | American Express Co. | 283,927 | ||||||
1,838 | Capital One Financial Corp. | 183,028 | ||||||
700 | Credit Saison Co., Ltd. | 12,742 | ||||||
1,394 | Discover Financial Services | 107,226 | ||||||
3,057 | Synchrony Financial | 118,031 | ||||||
|
| |||||||
781,949 | ||||||||
|
| |||||||
Containers & Packaging (0.2%): | ||||||||
4,626 | Amcor, Ltd. | 55,573 | ||||||
351 | Avery Dennison Corp. | 40,316 | ||||||
1,412 | Ball Corp. | 53,444 | ||||||
545 | CCL Industries, Inc. | 25,186 | ||||||
559 | Crown Holdings, Inc.* | 31,444 | ||||||
1,337 | International Paper Co. | 77,466 | ||||||
370 | Packaging Corp. of America | 44,604 | ||||||
778 | Sealed Air Corp. | 38,355 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Containers & Packaging, continued | ||||||||
600 | Toyo Seikan Kaisha, Ltd. | $ | 9,627 | |||||
987 | WestRock Co. | 62,388 | ||||||
|
| |||||||
438,403 | ||||||||
|
| |||||||
Distributors (0.1%): | ||||||||
587 | Genuine Parts Co. | 55,770 | ||||||
400 | Jardine Cycle & Carriage, Ltd. | 12,160 | ||||||
1,183 | LKQ Corp.* | 48,113 | ||||||
|
| |||||||
116,043 | ||||||||
|
| |||||||
Diversified Consumer Services (0.0%): | ||||||||
400 | Benesse Holdings, Inc. | 14,047 | ||||||
876 | H&R Block, Inc.^ | 22,969 | ||||||
|
| |||||||
37,016 | ||||||||
|
| |||||||
Diversified Financial Services (0.9%): | ||||||||
11,633 | AMP, Ltd. | 46,994 | ||||||
4,792 | Berkshire Hathaway, Inc., Class B* | 949,871 | ||||||
2,251 | Challenger, Ltd. | 24,583 | ||||||
1,420 | Element Fleet Management Corp. | 10,734 | ||||||
222 | Eurazeo Se | 20,474 | ||||||
446 | EXOR NV | 27,334 | ||||||
12,000 | First Pacific Co., Ltd. | 8,154 | ||||||
326 | Groupe Bruxelles Lambert SA | 35,154 | ||||||
681 | Industrivarden AB, Class C | 16,776 | ||||||
1,625 | Investor AB, Class B | 73,929 | ||||||
827 | Kinnevik AB | 27,901 | ||||||
171 | L E Lundbergforetagen AB | 12,774 | ||||||
1,211 | Leucadia National Corp. | 32,079 | ||||||
2,600 | Mitsubishi UFJ Lease & Finance Co., Ltd. | 15,491 | ||||||
317 | Onex Corp. | 23,253 | ||||||
5,500 | ORIX Corp. | 93,008 | ||||||
181 | Pargesa Holding SA | 15,685 | ||||||
475 | Voya Financial, Inc. | 23,498 | ||||||
105 | Wendel | 18,188 | ||||||
|
| |||||||
1,475,880 | ||||||||
|
| |||||||
Diversified Telecommunication Services (1.8%): | ||||||||
23,383 | AT&T, Inc. | 909,131 | ||||||
597 | BCE, Inc. | 28,682 | ||||||
582 | Belgacom SA | 19,100 | ||||||
6,945 | Bezeq Israeli Telecommunication Corp., Ltd. (The) | 10,513 | ||||||
30,748 | BT Group plc | 112,560 | ||||||
3,137 | CenturyLink, Inc. | 52,325 | ||||||
12,686 | Deutsche Telekom AG, Registered Shares | 224,954 | ||||||
563 | Elisa OYJ | 22,069 | ||||||
7,668 | France Telecom SA | 133,046 | ||||||
10,000 | HKT Trust & HKT, Ltd. | 12,753 | ||||||
103 | Iliad SA | 24,679 | ||||||
13,592 | Koninklijke (Royal) KPN NV | 47,413 | ||||||
2,400 | Nippon Telegraph & Telephone Corp. | 112,948 | ||||||
21,000 | PCCW, Ltd. | 12,195 |
Continued
8
AZL MSCI Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Diversified Telecommunication Services, continued | ||||||||
27,900 | Singapore Telecommunications, Ltd. | $ | 74,489 | |||||
105 | Swisscom AG, Registered Shares | 55,828 | ||||||
3,158 | TDC A/S | 19,409 | ||||||
6,633 | Telecom Corp. of New Zealand, Ltd. | 17,055 | ||||||
21,887 | Telecom Italia SpA | 15,631 | ||||||
41,770 | Telecom Italia SpA* | 36,054 | ||||||
3,135 | Telefonica Deutschland Holding AG | 15,741 | ||||||
17,807 | Telefonica SA | 173,359 | ||||||
2,866 | Telenor ASA | 61,412 | ||||||
10,107 | Telia Co AB | 45,005 | ||||||
16,000 | Telstra Corp., Ltd. | 45,284 | ||||||
752 | TELUS Corp. | 28,493 | ||||||
2,193 | TPG Telecom, Ltd. | 11,235 | ||||||
15,346 | Verizon Communications, Inc. | 812,264 | ||||||
709 | Zayo Group Holdings, Inc.* | 26,091 | ||||||
|
| |||||||
3,159,718 | ||||||||
|
| |||||||
Electric Utilities (1.8%): | ||||||||
912 | Alliant Energy Corp. | 38,860 | ||||||
1,916 | American Electric Power Co., Inc. | 140,960 | ||||||
2,500 | Chubu Electric Power Co., Inc. | 31,053 | ||||||
1,100 | Chugoku Electric Power Co., Inc. (The) | 11,810 | ||||||
3,000 | CK Infrastructure Holdings, Ltd. | 25,755 | ||||||
6,500 | CLP Holdings, Ltd.^ | 66,518 | ||||||
2,725 | Duke Energy Corp. | 229,200 | ||||||
1,295 | Edison International | 81,896 | ||||||
9,354 | EDP — Energias de Portugal SA | 32,374 | ||||||
1,479 | Electricite de France | 18,448 | ||||||
225 | Emera, Inc. | 8,411 | ||||||
1,282 | Endesa SA^ | 27,422 | ||||||
31,366 | Enel SpA | 192,771 | ||||||
737 | Entergy Corp. | 59,984 | ||||||
1,167 | Eversource Energy | 73,731 | ||||||
3,513 | Exelon Corp. | 138,447 | ||||||
1,624 | FirstEnergy Corp. | 49,727 | ||||||
1,385 | Fortis, Inc. | 50,813 | ||||||
1,782 | Fortum OYJ | 35,271 | ||||||
7,500 | HK Electric Investments, Ltd.^ | 6,864 | ||||||
5,500 | Hongkong Electric Holdings, Ltd. | 46,417 | ||||||
1,223 | Hydro One, Ltd. | 21,798 | ||||||
22,287 | Iberdrola SA | 172,449 | ||||||
2,800 | Kansai Electric Power Co., Inc. (The) | 34,273 | ||||||
1,700 | Kyushu Electric Power Co., Inc. | 17,810 | ||||||
3,588 | Mighty River Power, Ltd. | 8,549 | ||||||
1,819 | NextEra Energy, Inc. | 284,110 | ||||||
776 | OGE Energy Corp. | 25,538 | ||||||
795 | Orsted A/S | 43,321 | ||||||
1,798 | PG&E Corp. | 80,604 | ||||||
461 | Pinnacle West Capital Corp. | 39,268 | ||||||
2,636 | PPL Corp. | 81,584 | ||||||
1,700 | Red Electrica Corporacion SA | 38,115 | ||||||
3,382 | Scottish & Southern Energy plc | 60,238 | ||||||
3,595 | Southern Co. (The) | 172,884 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electric Utilities, continued | ||||||||
4,286 | Terna SpA | $ | 24,885 | |||||
1,800 | Tohoku Electric Power Co., Inc. | 23,027 | ||||||
5,700 | Tokyo Electric Power Co., Inc. (The)* | 22,570 | ||||||
567 | Westar Energy, Inc. | 29,938 | ||||||
1,952 | Xcel Energy, Inc. | 93,911 | ||||||
|
| |||||||
2,641,604 | ||||||||
|
| |||||||
Electrical Equipment (0.8%): | ||||||||
7,024 | ABB, Ltd. | 187,887 | ||||||
172 | Acuity Brands, Inc. | 30,272 | ||||||
933 | AMETEK, Inc. | 67,615 | ||||||
1,663 | Eaton Corp. plc | 131,394 | ||||||
2,386 | Emerson Electric Co. | 166,279 | ||||||
2,000 | Fuji Electric Holdings Co., Ltd. | 15,046 | ||||||
1,001 | Legrand SA | 76,949 | ||||||
200 | Mabuchi Motor Co., Ltd. | 10,798 | ||||||
7,100 | Mitsubishi Electric Corp. | 117,988 | ||||||
900 | Nidec Corp. | 126,353 | ||||||
350 | OSRAM Licht AG | 31,333 | ||||||
801 | Prysmian SpA | 26,124 | ||||||
493 | Rockwell Automation, Inc. | 96,801 | ||||||
2,138 | Schneider Electric SA | 181,305 | ||||||
672 | Sensata Technologies Holding NV* | 34,346 | ||||||
973 | Siemens Gamesa Renewable Energy^ | 13,322 | ||||||
909 | Vestas Wind Systems A/S | 62,321 | ||||||
|
| |||||||
1,376,133 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (1.0%): | ||||||||
700 | ALPS Electric Co., Ltd. | 19,923 | ||||||
1,094 | Amphenol Corp., Class A | 96,053 | ||||||
370 | Arrow Electronics, Inc.* | 29,752 | ||||||
523 | Avnet, Inc. | 20,721 | ||||||
593 | CDW Corp. | 41,208 | ||||||
658 | Cognex Corp. | 40,243 | ||||||
3,461 | Corning, Inc. | 110,716 | ||||||
2,085 | Flextronics International, Ltd.* | 37,509 | ||||||
543 | FLIR Systems, Inc. | 25,315 | ||||||
500 | Hamamatsu Photonics K.K. | 16,752 | ||||||
1,024 | Hexagon AB, Class B | 51,232 | ||||||
100 | Hirose Electric Co., Ltd. | 14,623 | ||||||
300 | Hitachi High-Technologies Corp. | 12,654 | ||||||
17,000 | Hitachi, Ltd. | 132,262 | ||||||
218 | Ingenico Group | 23,259 | ||||||
143 | IPG Photonics Corp.* | 30,621 | ||||||
300 | Keyence Corp. | 167,532 | ||||||
1,200 | Kyocera Corp. | 78,420 | ||||||
700 | Murata Manufacturing Co., Ltd. | 93,571 | ||||||
400 | Nippon Electric Glass Co., Ltd. | 15,272 | ||||||
700 | Omron Corp. | 41,699 | ||||||
1,000 | Shimadzu Corp. | 22,709 | ||||||
500 | TDK Corp. | 39,916 | ||||||
1,333 | TE Connectivity, Ltd. | 126,688 | ||||||
984 | Trimble Navigation, Ltd.* | 39,990 |
Continued
9
AZL MSCI Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electronic Equipment, Instruments & Components, continued | ||||||||
1,000 | Yaskawa Electric Corp. | $ | 43,702 | |||||
900 | Yokogawa Electric Corp. | 17,207 | ||||||
|
| |||||||
1,389,549 | ||||||||
|
| |||||||
Energy Equipment & Services (0.6%): | ||||||||
1,246 | Baker Hughes | 39,423 | ||||||
3,349 | Halliburton Co. | 163,666 | ||||||
427 | Helmerich & Payne, Inc. | 27,601 | ||||||
2,567 | John Wood Group plc | 22,432 | ||||||
1,540 | National-Oilwell Varco, Inc.^ | 55,471 | ||||||
5,270 | Schlumberger, Ltd. | 355,145 | ||||||
1,765 | Technipfmc plc | 55,263 | ||||||
1,915 | Tenaris SA | 30,225 | ||||||
|
| |||||||
749,226 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (2.4%): | ||||||||
297 | Alexandria Real Estate Equities, Inc. | 38,785 | ||||||
1,585 | American Tower Corp. | 226,132 | ||||||
13,600 | Ascendas Real Estate Investment Trust | 27,659 | ||||||
493 | AvalonBay Communities, Inc. | 87,956 | ||||||
518 | Boston Properties, Inc. | 67,356 | ||||||
3,789 | British Land Co. plc | 35,344 | ||||||
1,163 | Brixmor Property Group, Inc. | 21,702 | ||||||
349 | Camden Property Trust | 32,129 | ||||||
10,600 | CapitaLand Commercial Trust | 15,294 | ||||||
10,000 | CapitaMall Trust | 15,921 | ||||||
2,235 | Colony Northstar, Inc. | 25,501 | ||||||
1,476 | Crown Castle International Corp. | 163,851 | ||||||
5 | Daiwahouse Residential Investment Corp. | 11,879 | ||||||
3,890 | Dexus Property Group | 29,536 | ||||||
707 | Digital Realty Trust, Inc. | 80,527 | ||||||
1,337 | Duke Realty Corp. | 36,380 | ||||||
290 | Equinix, Inc. | 131,434 | ||||||
1,437 | Equity Residential Property Trust | 91,637 | ||||||
216 | Essex Property Trust, Inc. | 52,136 | ||||||
492 | Extra Space Storage, Inc.^ | 43,025 | ||||||
295 | Federal Realty Investment Trust^ | 39,179 | ||||||
126 | Fonciere des Regions SA | 14,275 | ||||||
158 | Gecina SA | 29,148 | ||||||
2,344 | Ggp US | 54,826 | ||||||
7,223 | GPT Group | 28,749 | ||||||
716 | H&R Real Estate Investment Trust | 12,169 | ||||||
3,070 | Hammerson plc | 22,656 | ||||||
1,803 | HCP, Inc. | 47,022 | ||||||
2,888 | Host Hotels & Resorts, Inc. | 57,327 | ||||||
168 | ICADE | 16,510 | ||||||
1,183 | Invitation Homes, Inc. | 27,883 | ||||||
957 | Iron Mountain, Inc. | 36,108 | ||||||
4 | Japan Prime Realty Investment Corp. | 12,711 | ||||||
5 | Japan Real Estate Investment Corp. | 23,743 | ||||||
11 | Japan Retail Fund Investment Corp. | 20,167 | ||||||
1,638 | Kimco Realty Corp. | 29,730 | ||||||
844 | Klepierre | 37,110 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Equity Real Estate Investment Trusts, continued | ||||||||
2,886 | Land Securities Group plc | $ | 39,133 | |||||
566 | Liberty Property Trust | 24,344 | ||||||
9,000 | Link REIT (The) | 83,402 | ||||||
500 | Macerich Co. (The)^ | 32,840 | ||||||
6,849 | Macquarie Goodman Group | 44,887 | ||||||
370 | Mid-America Apartment Communities, Inc. | 37,207 | ||||||
14,289 | Mirvac Group | 26,119 | ||||||
661 | National Retail Properties, Inc.^ | 28,509 | ||||||
5 | Nippon Building Fund, Inc. | 24,466 | ||||||
6 | Nippon Prologis REIT, Inc. | 12,686 | ||||||
15 | Nomura Real Estate Master Fund, Inc. | 18,626 | ||||||
2,003 | ProLogis, Inc. | 129,214 | ||||||
592 | Public Storage, Inc. | 123,728 | ||||||
1,090 | Realty Income Corp. | 62,152 | ||||||
394 | Regency Centers Corp. | 27,257 | ||||||
626 | RioCan REIT | 12,133 | ||||||
492 | SBA Communications Corp.* | 80,373 | ||||||
19,896 | Scentre Group | 64,916 | ||||||
3,901 | SERGO plc | 30,891 | ||||||
1,215 | Simon Property Group, Inc.^ | 208,664 | ||||||
397 | SL Green Realty Corp. | 40,069 | ||||||
6,870 | Stockland Trust Group | 24,025 | ||||||
8,200 | Suntec REIT | 13,166 | ||||||
1,048 | UDR, Inc. | 40,369 | ||||||
371 | Unibail-Rodamco SE | 93,453 | ||||||
11 | United Urban Investment Corp. | 15,820 | ||||||
1,261 | Ventas, Inc. | 75,673 | ||||||
3,848 | VEREIT, Inc. | 29,976 | ||||||
12,778 | Vicinity Centres^ | 27,144 | ||||||
695 | Vornado Realty Trust | 54,335 | ||||||
1,360 | Welltower, Inc. | 86,727 | ||||||
6,519 | Westfield Corp. | 48,298 | ||||||
2,894 | Weyerhaeuser Co. | 102,042 | ||||||
|
| |||||||
3,506,141 | ||||||||
|
| |||||||
Food & Staples Retailing (1.7%): | ||||||||
2,500 | Aeon Co., Ltd. | 42,226 | ||||||
1,573 | Alimentation Couche-Tard, Inc. | 82,091 | ||||||
2,336 | Carrefour SA | 50,548 | ||||||
240 | Casino Guichard-Perrachon SA | 14,533 | ||||||
279 | Colruyt SA | 14,511 | ||||||
1,686 | Costco Wholesale Corp. | 313,798 | ||||||
3,907 | CVS Health Corp. | 283,258 | ||||||
850 | Empire Co., Ltd., Class A | 16,563 | ||||||
300 | FamilyMart Co., Ltd. | 21,012 | ||||||
390 | ICA Gruppen AB | 14,157 | ||||||
6,388 | J Sainsbury plc | 20,792 | ||||||
350 | Jean Coutu Group, Inc., Class A | 6,801 | ||||||
1,005 | Jeronimo Martins SGPS SA | 19,515 | ||||||
4,925 | Koninklijke Ahold Delhaize NV | 108,080 | ||||||
3,619 | Kroger Co. (The) | 99,342 | ||||||
200 | LAWSON, Inc. | 13,285 | ||||||
837 | Loblaw Cos., Ltd. | 45,433 |
Continued
10
AZL MSCI Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Food & Staples Retailing, continued | ||||||||
706 | METRO AG*^ | $ | 14,100 | |||||
906 | Metro, Inc. | 29,015 | ||||||
2,700 | Seven & I Holdings Co., Ltd. | 112,159 | ||||||
400 | Sundrug Co., Ltd. | 18,608 | ||||||
1,956 | Sysco Corp. | 118,788 | ||||||
32,655 | Tesco plc | 92,198 | ||||||
100 | Tsuruha Holdings, Inc. | 13,561 | ||||||
3,430 | Walgreens Boots Alliance, Inc. | 249,087 | ||||||
5,599 | Wal-Mart Stores, Inc. | 552,900 | ||||||
4,240 | Wesfarmers, Ltd. | 146,809 | ||||||
218 | Weston (George), Ltd. | 18,935 | ||||||
8,734 | William Morrison Supermarkets plc^ | 25,916 | ||||||
4,614 | Woolworths, Ltd.^ | 98,190 | ||||||
|
| |||||||
2,656,211 | ||||||||
|
| |||||||
Food Products (1.7%): | ||||||||
2,400 | Ajinomoto Co., Inc. | 45,234 | ||||||
2,102 | Archer-Daniels-Midland Co. | 84,248 | ||||||
1,397 | Associated British Foods plc | 53,099 | ||||||
553 | Bunge, Ltd. | 37,095 | ||||||
300 | Calbee, Inc. | 9,761 | ||||||
713 | Campbell Soup Co.^ | 34,302 | ||||||
1,725 | ConAgra Foods, Inc. | 64,981 | ||||||
2,410 | Danone SA | 202,024 | ||||||
2,231 | General Mills, Inc. | 132,276 | ||||||
45,600 | Golden Agri-Resources, Ltd. | 12,610 | ||||||
554 | Hershey Co. (The) | 62,885 | ||||||
1,150 | Hormel Foods Corp.^ | 41,849 | ||||||
288 | Ingredion, Inc. | 40,262 | ||||||
436 | JM Smucker Co. (The) | 54,169 | ||||||
1,034 | Kellogg Co.^ | 70,291 | ||||||
593 | Kerry Group plc, Class A | 66,495 | ||||||
600 | Kikkoman Corp. | 24,262 | ||||||
2,385 | Kraft Heinz Co. (The) | 185,457 | ||||||
4 | Lindt & Spruengli AG | 24,429 | ||||||
1,474 | Marine Harvest | 24,961 | ||||||
472 | McCormick & Co. | 48,102 | ||||||
500 | Meiji Holdings Co., Ltd. | 42,496 | ||||||
5,826 | Mondelez International, Inc., Class A | 249,352 | ||||||
11,705 | Nestle SA, Registered Shares | 1,006,093 | ||||||
800 | Nisshin Seifun Group, Inc. | 16,129 | ||||||
200 | Nissin Foods Holdings Co., Ltd. | 14,584 | ||||||
3,107 | Orkla ASA, Class A | 32,947 | ||||||
1,007 | Saputo, Inc. | 36,200 | ||||||
300 | Toyo Suisan Kaisha, Ltd. | 12,795 | ||||||
1,168 | Tyson Foods, Inc., Class A | 94,690 | ||||||
23,000 | WH Group, Ltd. | 25,926 | ||||||
7,700 | Wilmar International, Ltd. | 17,756 | ||||||
300 | Yakult Honsha Co., Ltd. | 22,621 | ||||||
500 | Yamazaki Baking Co., Ltd. | 9,732 | ||||||
|
| |||||||
2,900,113 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Gas Utilities (0.0%): | ||||||||
4,450 | APA Group | $ | 28,874 | |||||
417 | Atmos Energy Corp. | 35,816 | ||||||
1,377 | Gas Natural SDG SA | 31,768 | ||||||
29,400 | Hong Kong & China Gas Co., Ltd. | 57,631 | ||||||
1,600 | Osaka Gas Co., Ltd. | 30,798 | ||||||
1,400 | Tokyo Gas Co., Ltd. | 31,975 | ||||||
697 | UGI Corp. | 32,724 | ||||||
|
| |||||||
249,586 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (1.8%): | ||||||||
6,465 | Abbott Laboratories | 368,958 | ||||||
238 | Align Technology, Inc.* | 52,881 | ||||||
1,760 | Baxter International, Inc. | 113,766 | ||||||
1,023 | Becton, Dickinson & Co. | 218,975 | ||||||
159 | bioMerieux | 14,245 | ||||||
5,185 | Boston Scientific Corp.* | 128,536 | ||||||
263 | Cochlear, Ltd. | 35,104 | ||||||
461 | Coloplast A/S, Class B | 36,562 | ||||||
4,781 | Convatec Group plc | 13,210 | ||||||
192 | Cooper Cos., Inc. (The) | 41,833 | ||||||
2,374 | Danaher Corp. | 220,355 | ||||||
906 | DENTSPLY SIRONA, Inc. | 59,642 | ||||||
747 | Edwards Lifesciences Corp.* | 84,194 | ||||||
748 | Essilor International SA Compagnie Generale d’Optique | 103,133 | ||||||
2,474 | Fisher & Paykel Healthcare Corp., Ltd. | 25,080 | ||||||
747 | Getinge AB, Class B | 10,797 | ||||||
974 | Hologic, Inc.* | 41,639 | ||||||
1,500 | HOYA Corp. | 74,963 | ||||||
352 | IDEXX Laboratories, Inc.* | 55,046 | ||||||
441 | Intuitive Surgical, Inc.* | 160,939 | ||||||
5,154 | Medtronic plc | 416,186 | ||||||
1,100 | Olympus Co., Ltd. | 42,122 | ||||||
548 | ResMed, Inc.^ | 46,410 | ||||||
2,963 | Smith & Nephew plc | 51,260 | ||||||
211 | Sonova Holding AG, Registered Shares | 32,952 | ||||||
39 | Straumann Holding AG, Registered Shares | 27,535 | ||||||
1,222 | Stryker Corp. | 189,214 | ||||||
600 | Sysmex Corp. | 47,252 | ||||||
137 | Teleflex, Inc. | 34,088 | ||||||
1,300 | Terumo Corp. | 61,434 | ||||||
379 | Varian Medical Systems, Inc.* | 42,126 | ||||||
646 | William Demant Holding A/S* | 17,987 | ||||||
735 | Zimmer Holdings, Inc. | 88,692 | ||||||
|
| |||||||
2,957,116 | ||||||||
|
| |||||||
Health Care Providers & Services (1.7%): | ||||||||
1,274 | Aetna, Inc. | 229,816 | ||||||
1,356 | Al Noor Hospitals Group plc | 11,837 | ||||||
700 | Alfresa Holdings Corp. | 16,432 | ||||||
665 | AmerisourceBergen Corp. | 61,060 | ||||||
973 | Anthem, Inc. | 218,935 | ||||||
1,143 | Cardinal Health, Inc. | 70,032 |
Continued
11
AZL MSCI Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Providers & Services, continued | ||||||||
667 | Centene Corp.* | $ | 67,287 | |||||
981 | Cigna Corp. | 199,231 | ||||||
650 | DaVita, Inc.* | 46,963 | ||||||
240 | Envision Healthcare Corp.*^ | 8,294 | ||||||
2,076 | Express Scripts Holding Co.* | 154,953 | ||||||
819 | Fresenius Medical Care AG & Co., KGaA | 86,249 | ||||||
1,440 | Fresenius SE & Co. KGaA | 112,105 | ||||||
1,038 | HCA Holdings, Inc.* | 91,178 | ||||||
7,247 | Healthscope, Ltd. | 11,857 | ||||||
664 | Henry Schein, Inc.* | 46,400 | ||||||
565 | Humana, Inc. | 140,160 | ||||||
409 | Laboratory Corp. of America Holdings* | 65,240 | ||||||
797 | McKesson Corp. | 124,292 | ||||||
800 | Medipal Holdings Corp. | 15,669 | ||||||
569 | Quest Diagnostics, Inc. | 56,041 | ||||||
548 | Ramsay Health Care, Ltd. | 29,926 | ||||||
1,923 | Ryman Healthcare, Ltd. | 14,419 | ||||||
1,491 | Sonic Healthcare, Ltd. | 26,543 | ||||||
400 | Suzuken Co., Ltd. | 16,461 | ||||||
3,648 | UnitedHealth Group, Inc. | 804,237 | ||||||
359 | Universal Health Services, Inc., Class B | 40,693 | ||||||
|
| |||||||
2,766,310 | ||||||||
|
| |||||||
Health Care Technology (0.1%): | ||||||||
1,083 | Cerner Corp.* | 72,983 | ||||||
700 | M3, Inc. | 24,509 | ||||||
435 | Veeva Systems, Inc., Class A* | 24,047 | ||||||
|
| |||||||
121,539 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure (1.9%): | ||||||||
683 | Accor SA | 35,201 | ||||||
929 | Aramark Holdings Corp. | 39,705 | ||||||
2,102 | Aristocrat Leisure, Ltd. | 38,728 | ||||||
1,219 | Carnival Corp., Class A | 80,905 | ||||||
720 | Carnival plc | 47,332 | ||||||
116 | Chipotle Mexican Grill, Inc.* | 33,527 | ||||||
5,948 | Compass Group plc | 128,589 | ||||||
1,460 | Crown, Ltd. | 14,820 | ||||||
480 | Darden Restaurants, Inc. | 46,090 | ||||||
255 | Domino’s Pizza Enterprises, Ltd. | 9,287 | ||||||
200 | Domino’s Pizza, Inc. | 37,792 | ||||||
207 | Flight Centre, Ltd.^ | 7,137 | ||||||
9,000 | Galaxy Entertainment Group, Ltd. | 71,969 | ||||||
11,400 | Genting Singapore plc | 11,143 | ||||||
715 | Hilton Worldwide Holdings, Inc. | 57,100 | ||||||
704 | Intercontinental Hotels Group plc | 44,770 | ||||||
1,404 | Las Vegas Sands Corp. | 97,564 | ||||||
1,190 | Marriott International, Inc., Class A | 161,519 | ||||||
3,024 | McDonald’s Corp. | 520,490 | ||||||
763 | Melco Resorts & Entertainment, Ltd., ADR | 22,158 | ||||||
2,822 | Merlin Entertainments plc | 13,792 | ||||||
2,400 | MGM China Holdings, Ltd.^ | 7,260 | ||||||
1,778 | MGM Resorts International | 59,367 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Hotels, Restaurants & Leisure, continued | ||||||||
621 | Norwegian Cruise Line Holdings, Ltd.* | $ | 33,068 | |||||
900 | Oriental Land Co., Ltd. | 82,060 | ||||||
308 | Paddy Power plc | 36,535 | ||||||
873 | Restaurant Brands International, Inc. | 53,673 | ||||||
695 | Royal Caribbean Cruises, Ltd. | 82,900 | ||||||
9,600 | Sands China, Ltd. | 49,412 | ||||||
10,000 | SJM Holdings, Ltd. | 8,933 | ||||||
372 | Sodexo SA | 49,941 | ||||||
5,550 | Starbucks Corp. | 318,737 | ||||||
7,935 | Tabcorp Holdings, Ltd. | 34,507 | ||||||
1,739 | TUI AG | 36,000 | ||||||
163 | Vail Resorts, Inc. | 34,633 | ||||||
710 | Whitbread plc | 38,337 | ||||||
448 | Wyndham Worldwide Corp. | 51,910 | ||||||
8,000 | Wynn Macau, Ltd. | 25,206 | ||||||
321 | Wynn Resorts, Ltd. | 54,117 | ||||||
1,155 | Yum! Brands, Inc. | 94,260 | ||||||
|
| |||||||
2,670,474 | ||||||||
|
| |||||||
Household Durables (0.7%): | ||||||||
3,899 | Barratt Developments plc | 34,067 | ||||||
503 | Berkeley Group Holdings plc (The) | 28,477 | ||||||
900 | Casio Computer Co., Ltd. | 12,953 | ||||||
1,387 | D.R. Horton, Inc. | 70,834 | ||||||
982 | Electrolux AB, Series B | 31,595 | ||||||
447 | Garmin, Ltd. | 26,628 | ||||||
1,713 | Husqvarna AB, Class B | 16,294 | ||||||
600 | Iida Group Holdings Co., Ltd. | 11,307 | ||||||
538 | Leggett & Platt, Inc.^ | 25,679 | ||||||
726 | Lennar Corp., Class A | 45,912 | ||||||
254 | Mohawk Industries, Inc.* | 70,079 | ||||||
1,786 | Newell Rubbermaid, Inc. | 55,187 | ||||||
1,300 | Nikon Corp. | 26,160 | ||||||
14 | NVR, Inc.* | 49,115 | ||||||
8,200 | Panasonic Corp. | 120,101 | ||||||
1,265 | Persimmon plc | 46,706 | ||||||
1,202 | PulteGroup, Inc. | 39,967 | ||||||
100 | Rinnai Corp. | 9,055 | ||||||
92 | SEB SA | 17,044 | ||||||
1,200 | Sekisui Chemical Co., Ltd. | 24,066 | ||||||
1,900 | Sekisui House, Ltd. | 34,290 | ||||||
700 | Sharp Corp.* | 23,904 | ||||||
4,700 | Sony Corp. | 211,147 | ||||||
13,519 | Taylor Wimpey plc | 37,653 | ||||||
5,500 | Techtronic Industries Co., Ltd. | 35,849 | ||||||
621 | Toll Brothers, Inc. | 29,820 | ||||||
302 | Whirlpool Corp. | 50,929 | ||||||
|
| |||||||
1,184,818 | ||||||||
|
| |||||||
Household Products (1.1%): | ||||||||
1,025 | Church & Dwight Co., Inc. | 51,424 | ||||||
426 | Clorox Co. (The) | 63,363 | ||||||
3,216 | Colgate-Palmolive Co. | 242,647 |
Continued
12
AZL MSCI Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Household Products, continued | ||||||||
2,044 | Essity AB, Class B* | $ | 57,906 | |||||
405 | Henkel AG & Co. KGaA | 48,614 | ||||||
1,393 | Kimberly-Clark Corp. | 168,079 | ||||||
1,000 | Lion Corp. | 18,881 | ||||||
9,582 | Procter & Gamble Co. (The) | 880,395 | ||||||
2,586 | Reckitt Benckiser Group plc | 241,510 | ||||||
1,600 | Unicharm Corp. | 41,597 | ||||||
|
| |||||||
1,814,416 | ||||||||
|
| |||||||
Independent Power & Renewable Electricity Producers (0.0%): | ||||||||
2,498 | AES Corp. (The) | 27,054 | ||||||
500 | Electric Power Development Co., Ltd. | 13,475 | ||||||
6,653 | Meridian Energy, Ltd. | 13,770 | ||||||
787 | Uniper SE^ | 24,546 | ||||||
1,185 | Vistra Energy Corp.* | 21,709 | ||||||
|
| |||||||
100,554 | ||||||||
|
| |||||||
Industrial Conglomerates (1.7%): | ||||||||
2,229 | 3M Co., Class C | 524,640 | ||||||
9,500 | CK Hutchison Holdings, Ltd. | 119,276 | ||||||
381 | DCC plc | 38,383 | ||||||
32,941 | General Electric Co. | 574,820 | ||||||
2,782 | Honeywell International, Inc. | 426,648 | ||||||
800 | Jardine Matheson Holdings, Ltd. | 48,572 | ||||||
900 | Jardine Strategic Holdings, Ltd. | 35,625 | ||||||
400 | Keihan Electric Railway Co., Ltd. | 11,763 | ||||||
4,300 | Keppel Corp., Ltd. | 23,557 | ||||||
3,640 | Koninklijke Philips Electronics NV | 137,689 | ||||||
7,370 | NWS Holdings, Ltd. | 13,279 | ||||||
361 | Roper Industries, Inc. | 93,499 | ||||||
700 | Seibu Holdings, Inc. | 13,226 | ||||||
6,700 | SembCorp Industries, Ltd. | 15,154 | ||||||
2,897 | Siemens AG, Registered Shares | 401,907 | ||||||
1,528 | Smiths Group plc | 30,562 | ||||||
25,000 | Toshiba Corp.*^ | 70,284 | ||||||
|
| |||||||
2,578,884 | ||||||||
|
| |||||||
Insurance (4.5%): | ||||||||
850 | Admiral Group plc | 22,918 | ||||||
7,322 | AEGON NV | 46,659 | ||||||
1,537 | Aflac, Inc. | 134,918 | ||||||
762 | Ageas NV | 37,193 | ||||||
46,200 | AIA Group, Ltd. | 394,021 | ||||||
38 | Alleghany Corp.* | 22,651 | ||||||
1,662 | Allianz SE, Registered Shares+ | 380,574 | ||||||
1,251 | Allstate Corp. (The) | 130,992 | ||||||
304 | American Financial Group, Inc. | 32,996 | ||||||
3,436 | American International Group, Inc. | 204,717 | ||||||
991 | Aon plc | 132,794 | ||||||
502 | Arch Capital Group, Ltd.* | 45,567 | ||||||
733 | Arthur J. Gallagher & Co. | 46,384 | ||||||
4,785 | Assicurazioni Generali SpA | 87,107 | ||||||
244 | Assurant, Inc. | 24,605 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Insurance, continued | ||||||||
311 | Athene Holding, Ltd.* | $ | 16,082 | |||||
15,816 | Aviva plc | 108,066 | ||||||
7,004 | AXA SA | 207,562 | ||||||
387 | Axis Capital Holdings, Ltd. | 19,451 | ||||||
209 | Baloise Holding AG, Registered Shares | 32,536 | ||||||
327 | Brighthouse Financial, Inc.* | 19,175 | ||||||
1,718 | Chubb, Ltd. | 251,051 | ||||||
647 | Cincinnati Financial Corp. | 48,506 | ||||||
697 | CNP Assurances SA | 16,081 | ||||||
3,700 | Dai-ichi Life Insurance Co., Ltd. | 76,352 | ||||||
5,556 | Direct Line Insurance Group plc | 28,627 | ||||||
166 | Everest Re Group, Ltd. | 36,729 | ||||||
92 | Fairfax Financial Holdings, Ltd. | 48,997 | ||||||
928 | FNF Group | 36,415 | ||||||
727 | Gjensidige Forsikring ASA | 13,715 | ||||||
1,141 | Great-West Lifeco, Inc. | 31,866 | ||||||
228 | Hannover Rueck SE | 28,605 | ||||||
1,400 | Hartford Financial Services Group, Inc. (The) | 78,792 | ||||||
396 | Industrial Alliance Insurance & Financial Services, Inc. | 18,848 | ||||||
9,685 | Insurance Australia Group, Ltd. | 54,599 | ||||||
551 | Intact Financial Corp. | 46,029 | ||||||
6,200 | Japan Post Holdings Co., Ltd. | 71,073 | ||||||
22,081 | Legal & General Group plc | 81,265 | ||||||
739 | Lincoln National Corp. | 56,807 | ||||||
1,142 | Loews Corp. | 57,134 | ||||||
7,294 | Manulife Financial Corp. | 152,171 | ||||||
4,960 | MAPFRE SA | 15,900 | ||||||
46 | Markel Corp.* | 52,400 | ||||||
1,956 | Marsh & McLennan Cos., Inc. | 159,199 | ||||||
10,769 | Medibank Private, Ltd. | 27,612 | ||||||
3,473 | MetLife, Inc. | 175,595 | ||||||
1,600 | MS&AD Insurance Group Holdings, Inc. | 54,183 | ||||||
592 | Muenchener Rueckversicherungs-Gesellschaft AG | 128,324 | ||||||
1,400 | NKSJ Holdings, Inc. | 53,983 | ||||||
948 | NN Group NV | 40,986 | ||||||
19,702 | Old Mutual plc | 61,605 | ||||||
2,312 | Poste Italiane SpA | 17,404 | ||||||
1,383 | Power Corp. of Canada | 35,620 | ||||||
922 | Power Financial Corp. | 25,339 | ||||||
1,177 | Principal Financial Group, Inc. | 83,049 | ||||||
2,306 | Progressive Corp. (The) | 129,874 | ||||||
1,567 | Prudential Financial, Inc. | 180,174 | ||||||
9,367 | Prudential plc | 240,781 | ||||||
5,450 | QBE Insurance Group, Ltd. | 45,346 | ||||||
193 | Reinsurance Group of America, Inc. | 30,094 | ||||||
160 | RenaissanceRe Holdings, Ltd. | 20,094 | ||||||
4,071 | RSA Insurance Group plc | 34,683 | ||||||
1,525 | Sampo OYJ, Class A | 83,766 | ||||||
535 | SCOR SA | 21,523 | ||||||
900 | Sony Financial Holdings, Inc. | 15,950 | ||||||
1,995 | St. James Place plc | 32,970 | ||||||
10,335 | Standard Life plc | 60,875 |
Continued
13
AZL MSCI Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Insurance, continued | ||||||||
2,439 | Sun Life Financial, Inc. | $ | 100,681 | |||||
5,252 | Suncorp-Metway, Ltd. | 56,633 | ||||||
130 | Swiss Life Holding AG, Registered Shares | 46,023 | ||||||
1,209 | Swiss Re AG | 113,200 | ||||||
2,300 | T&D Holdings, Inc. | 39,354 | ||||||
2,600 | Tokio Marine Holdings, Inc. | 118,683 | ||||||
475 | Torchmark Corp. | 43,087 | ||||||
1,061 | Travelers Cos., Inc. (The) | 143,914 | ||||||
213 | Tryg A/S | 5,311 | ||||||
6,441 | UnipolSai SpA^ | 15,018 | ||||||
930 | UnumProvident Corp. | 51,048 | ||||||
458 | W.R. Berkley Corp. | 32,816 | ||||||
435 | Willis Towers Watson plc | 65,550 | ||||||
817 | XL Group, Ltd. | 28,726 | ||||||
577 | Zurich Insurance Group AG | 175,527 | ||||||
|
| |||||||
6,243,530 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (1.7%): | ||||||||
1,542 | Amazon.com, Inc.* | 1,803,324 | ||||||
477 | Expedia, Inc. | 57,130 | ||||||
1,663 | Liberty Interactive Corp., Class A* | 40,610 | ||||||
1,618 | Netflix, Inc.* | 310,591 | ||||||
188 | Priceline Group, Inc. (The)* | 326,695 | ||||||
3,700 | Rakuten, Inc. | 33,841 | ||||||
700 | Start Today Co., Ltd. | 21,291 | ||||||
466 | TripAdvisor, Inc.*^ | 16,058 | ||||||
340 | Zalando SE*^ | 17,913 | ||||||
|
| |||||||
2,627,453 | ||||||||
|
| |||||||
Internet Software & Services (2.8%): | ||||||||
694 | Akamai Technologies, Inc.* | 45,138 | ||||||
1,131 | Alphabet, Inc., Class A* | 1,191,395 | ||||||
1,180 | Alphabet, Inc., Class C* | 1,234,752 | ||||||
3,847 | Auto Trader Group plc | 18,258 | ||||||
147 | CoStar Group, Inc.* | 43,652 | ||||||
500 | DeNA Co., Ltd. | 10,312 | ||||||
3,535 | eBay, Inc.* | 133,411 | ||||||
8,939 | Facebook, Inc., Class A* | 1,577,375 | ||||||
281 | IAC/InterActiveCorp* | 34,361 | ||||||
700 | Kakaku.com, Inc. | 11,840 | ||||||
151 | MercadoLibre, Inc. | 47,514 | ||||||
300 | mixi, Inc. | 13,477 | ||||||
300 | Shopify, Inc., Class A* | 30,300 | ||||||
2,197 | Twitter, Inc.* | 52,750 | ||||||
475 | United Internet AG, Registered Shares | 32,668 | ||||||
386 | VeriSign, Inc.*^ | 44,174 | ||||||
5,500 | Yahoo! Japan Corp. | 25,226 | ||||||
443 | Zillow Group, Inc., Class C*^ | 18,128 | ||||||
|
| |||||||
4,564,731 | ||||||||
|
| |||||||
IT Services (2.9%): | ||||||||
2,307 | Accenture plc, Class C | 353,180 | ||||||
201 | Alliance Data Systems Corp. | 50,949 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
IT Services, continued | ||||||||
1,640 | Amadeus IT Holding SA | $ | 118,027 | |||||
346 | Atos Origin SA | 50,358 | ||||||
1,712 | Automatic Data Processing, Inc. | 200,629 | ||||||
467 | Broadridge Financial Solutions, Inc. | 42,301 | ||||||
584 | Capgemini SA | 69,103 | ||||||
859 | CGI Group, Inc., Class A* | 46,682 | ||||||
2,162 | Cognizant Technology Solutions Corp., Class A | 153,545 | ||||||
1,800 | Computershare, Ltd. | 22,873 | ||||||
1,093 | DXC Technology Co. | 103,726 | ||||||
1,298 | Fidelity National Information Services, Inc. | 122,129 | ||||||
1,382 | First Data Corp., Class A* | 23,093 | ||||||
816 | Fiserv, Inc.* | 107,002 | ||||||
371 | FleetCor Technologies, Inc.* | 71,392 | ||||||
7,000 | Fujitsu, Ltd. | 49,622 | ||||||
324 | Gartner, Inc.* | 39,901 | ||||||
604 | Global Payments, Inc. | 60,545 | ||||||
3,303 | International Business Machines Corp. | 506,746 | ||||||
317 | Jack Henry & Associates, Inc. | 37,076 | ||||||
584 | Leidos Holdings, Inc. | 37,709 | ||||||
3,597 | MasterCard, Inc., Class A | 544,442 | ||||||
440 | Nomura Research Institute, Ltd. | 20,441 | ||||||
2,500 | NTT Data Corp. | 29,674 | ||||||
200 | OBIC Co., Ltd. | 14,704 | ||||||
200 | Otsuka Corp. | 15,323 | ||||||
1,291 | Paychex, Inc. | 87,891 | ||||||
4,185 | PayPal Holdings, Inc.* | 308,100 | ||||||
802 | Sabre Corp. | 16,441 | ||||||
957 | Square, Inc., Class A*^ | 33,179 | ||||||
647 | Total System Services, Inc. | 51,171 | ||||||
617 | Vantive, Inc., Class A*^ | 45,380 | ||||||
6,972 | Visa, Inc., Class A | 794,948 | ||||||
1,873 | Western Union Co. | 35,606 | ||||||
446 | Wirecard AG | 49,788 | ||||||
6,886 | Worldpay Group plc | 39,457 | ||||||
|
| |||||||
4,353,133 | ||||||||
|
| |||||||
Leisure Products (0.2%): | ||||||||
443 | Hasbro, Inc. | 40,264 | ||||||
1,326 | Mattel, Inc.^ | 20,394 | ||||||
800 | Namco Bandai Holdings, Inc. | 26,174 | ||||||
239 | Polaris Industries, Inc.^ | 29,634 | ||||||
300 | Sankyo Co., Ltd. | 9,435 | ||||||
800 | Sega Sammy Holdings, Inc. | 9,914 | ||||||
300 | Shimano, Inc. | 42,216 | ||||||
600 | Yamaha Corp. | 22,010 | ||||||
|
| |||||||
200,041 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.5%): | ||||||||
1,170 | Agilent Technologies, Inc. | 78,355 | ||||||
30 | Eurofins Scientific SE | 18,264 | ||||||
555 | Illumina, Inc.* | 121,262 | ||||||
583 | IQVIA Holdings, Inc.* | 57,076 | ||||||
306 | Lonza Group AG, Registered Shares | 82,682 |
Continued
14
AZL MSCI Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Life Sciences Tools & Services, continued | ||||||||
108 | Mettler-Toledo International, Inc.* | $ | 66,908 | |||||
839 | Qiagen NV* | 26,196 | ||||||
1,481 | Thermo Fisher Scientific, Inc. | 281,212 | ||||||
321 | Waters Corp.* | 62,014 | ||||||
|
| |||||||
793,969 | ||||||||
|
| |||||||
Machinery (2.1%): | ||||||||
264 | AGCO Corp. | 18,858 | ||||||
1,121 | Alfa Laval AB | 26,442 | ||||||
607 | Alstom SA | 25,190 | ||||||
1,300 | AMADA Co., Ltd. | 17,678 | ||||||
291 | Andritz AG | 16,430 | ||||||
2,637 | Atlas Copco AB, Class A | 113,617 | ||||||
1,444 | Atlas Copco AB, Class B | 55,250 | ||||||
2,215 | Caterpillar, Inc. | 349,039 | ||||||
4,138 | CNH Industrial NV | 55,314 | ||||||
576 | Cummins, Inc. | 101,745 | ||||||
500 | Daifuku Co., Ltd. | 27,205 | ||||||
977 | Deere & Co. | 152,910 | ||||||
617 | Dover Corp. | 62,311 | ||||||
700 | FANUC Corp. | 168,204 | ||||||
458 | Flowserve Corp. | 19,296 | ||||||
1,241 | Fortive Corp. | 89,786 | ||||||
718 | GEA Group AG | 34,423 | ||||||
1,200 | Hino Motors, Ltd. | 15,568 | ||||||
600 | Hitachi Construction Machinery Co., Ltd. | 21,767 | ||||||
200 | Hoshizaki Electric Co., Ltd. | 17,660 | ||||||
312 | IDEX Corp. | 41,175 | ||||||
600 | IHI Corp. | 19,975 | ||||||
1,123 | Illinois Tool Works, Inc. | 187,372 | ||||||
1,011 | IMI plc | 18,094 | ||||||
975 | Ingersoll-Rand plc | 86,961 | ||||||
800 | JTEKT Corp. | 13,753 | ||||||
500 | Kawasaki Heavy Industries, Ltd. | 17,527 | ||||||
282 | Kion Group AG^ | 24,327 | ||||||
3,600 | Komatsu, Ltd. | 130,422 | ||||||
1,019 | Kone OYJ, Class B | 54,675 | ||||||
4,200 | Kubota Corp. | 82,254 | ||||||
500 | Kurita Water Industries, Ltd. | 16,246 | ||||||
800 | Makita Corp. | 33,499 | ||||||
156 | MAN AG | 17,861 | ||||||
472 | Metso Corp. OYJ | 16,100 | ||||||
259 | Middleby Corp. (The)*^ | 34,952 | ||||||
1,400 | Minebea Co., Ltd. | 29,379 | ||||||
1,300 | Mitsubishi Heavy Industries, Ltd. | 48,541 | ||||||
400 | Nabtesco Corp. | 15,345 | ||||||
1,000 | NGK Insulators, Ltd. | 18,859 | ||||||
1,800 | NSK, Ltd. | 28,355 | ||||||
1,398 | PACCAR, Inc. | 99,370 | ||||||
512 | Parker Hannifin Corp. | 102,185 | ||||||
670 | Pentair plc | 47,315 | ||||||
4,220 | Sandvik AB | 73,792 | ||||||
141 | Schindler Holding AG | 32,457 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Machinery, continued | ||||||||
31 | Schindler Holding AG, Registered Shares | $ | 7,015 | |||||
1,553 | SKF AB, Class B | 34,450 | ||||||
200 | SMC Corp. | 82,368 | ||||||
234 | Snap-On, Inc.^ | 40,786 | ||||||
620 | Stanley Black & Decker, Inc. | 105,208 | ||||||
400 | Sumitomo Heavy Industries, Ltd. | 16,945 | ||||||
600 | THK Co., Ltd. | 22,477 | ||||||
5,811 | Volvo AB, Class B | 108,163 | ||||||
210 | WABCO Holdings, Inc.* | 30,135 | ||||||
356 | Wabtec Corp.^ | 28,989 | ||||||
592 | Wartsila Corp. OYJ, Class B | 37,302 | ||||||
830 | Weir Group plc (The) | 23,698 | ||||||
704 | Xylem, Inc. | 48,013 | ||||||
|
| |||||||
3,265,033 | ||||||||
|
| |||||||
Marine (0.0%): | ||||||||
17 | A.P. Moeller — Maersk A/S, Class A | 28,336 | ||||||
16 | A.P. Moeller — Maersk A/S, Class B | 27,888 | ||||||
228 | Kuehne & Nagel International AG, Registered Shares | 40,303 | ||||||
500 | Mitsui O.S.K. Lines, Ltd. | 16,695 | ||||||
600 | Nippon Yusen Kabushiki Kaisha* | 14,624 | ||||||
|
| |||||||
127,846 | ||||||||
|
| |||||||
Media (2.0%): | ||||||||
1,500 | Altice NV, Class A*^ | 15,690 | ||||||
245 | Axel Springer AG | 19,087 | ||||||
1,374 | CBS Corp., Class B | 81,066 | ||||||
737 | Charter Communications, Inc., Class A* | 247,603 | ||||||
17,685 | Comcast Corp., Class A | 708,285 | ||||||
800 | Dentsu, Inc. | 33,758 | ||||||
679 | Discovery Communications, Inc., Class A*^ | 15,196 | ||||||
836 | Discovery Communications, Inc., Class C* | 17,698 | ||||||
890 | DISH Network Corp., Class A* | 42,498 | ||||||
678 | Eutelsat Communications SA | 15,652 | ||||||
1,100 | Hakuhodo DY Holdings, Inc. | 14,311 | ||||||
1,539 | Interpublic Group of Cos., Inc. (The) | 31,026 | ||||||
13,978 | ITV plc | 31,115 | ||||||
403 | JCDecaux SA | 16,237 | ||||||
470 | Lagardere SCA | 15,055 | ||||||
423 | Liberty Broadband Corp., Class C* | 36,023 | ||||||
1,786 | Liberty Global plc, Series C* | 60,438 | ||||||
692 | Liberty Global plc, Class A* | 24,801 | ||||||
765 | Liberty Media Group, Class C*^ | 26,132 | ||||||
369 | Liberty SiriusXM Group, Class A* | 14,635 | ||||||
773 | Liberty SiriusXM Group, Class C* | 30,657 | ||||||
548 | Live Nation, Inc.* | 23,328 | ||||||
1,432 | News Corp., Class A | 23,213 | ||||||
762 | Omnicom Group, Inc.^ | 55,496 | ||||||
3,164 | Pearson plc | 31,356 | ||||||
854 | ProSiebenSat.1 Media AG | 29,401 | ||||||
762 | Publicis Groupe SA | 51,761 | ||||||
117 | REA Group, Ltd. | 6,984 | ||||||
170 | RTL Group | 13,651 |
Continued
15
AZL MSCI Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Media, continued | ||||||||
534 | Schibsted ASA, Class B | $ | 14,170 | |||||
321 | Scripps Networks Interactive, Class C | 27,407 | ||||||
1,431 | SES Global, Class A | 22,296 | ||||||
1,928 | Shaw Communications, Inc., Class B | 44,012 | ||||||
1,500 | Singapore Press Holdings, Ltd. | 2,969 | ||||||
7,135 | Sirius XM Holdings, Inc.^ | 38,244 | ||||||
3,978 | Sky plc* | 54,234 | ||||||
227 | Telenet Group Holding NV* | 15,802 | ||||||
2,928 | Time Warner, Inc. | 267,824 | ||||||
400 | Toho Co., Ltd. | 13,857 | ||||||
3,860 | Twenty-First Century Fox, Inc. | 133,286 | ||||||
1,709 | Twenty-First Century Fox, Inc., Class B | 58,311 | ||||||
1,493 | Viacom, Inc., Class B | 45,999 | ||||||
3,773 | Vivendi Universal SA | 101,445 | ||||||
5,791 | Walt Disney Co. (The) | 622,590 | ||||||
4,388 | WPP plc | 79,507 | ||||||
|
| |||||||
3,274,106 | ||||||||
|
| |||||||
Metals & Mining (1.9%): | ||||||||
908 | Agnico Eagle Mines, Ltd. | 41,932 | ||||||
10,099 | Alumina, Ltd. | 19,118 | ||||||
5,289 | Anglo American plc^ | 110,520 | ||||||
1,773 | Antofagasta plc | 24,033 | ||||||
2,681 | ArcelorMittal* | 86,814 | ||||||
4,826 | Barrick Gold Corp. | 69,810 | ||||||
7,636 | BHP Billiton plc | 156,269 | ||||||
12,345 | BHP Billiton, Ltd. | 284,105 | ||||||
2,338 | BlueScope Steel, Ltd. | 28,013 | ||||||
1,073 | Boliden AB | 36,564 | ||||||
2,679 | First Quantum Minerals, Ltd. | 37,538 | ||||||
6,052 | Fortescue Metals Group, Ltd. | 22,993 | ||||||
599 | Franco-Nevada Corp. | 47,880 | ||||||
5,129 | Freeport-McMoRan Copper & Gold, Inc.* | 97,246 | ||||||
837 | Fresnillo plc | 16,157 | ||||||
47,029 | Glencore International plc | 247,386 | ||||||
3,385 | Goldcorp, Inc. | 43,174 | ||||||
1,100 | Hitachi Metals, Ltd. | 15,728 | ||||||
2,000 | JFE Holdings, Inc. | 48,059 | ||||||
4,800 | Kinross Gold Corp.* | 20,700 | ||||||
1,500 | Kobe Steel, Ltd. | 13,918 | ||||||
3,106 | Lundin Mining Corp. | 20,661 | ||||||
400 | Maruichi Steel Tube, Ltd. | 11,705 | ||||||
400 | Mitsubishi Materials Corp. | 14,243 | ||||||
2,928 | Newcrest Mining, Ltd. | 52,014 | ||||||
1,887 | Newmont Mining Corp. | 70,800 | ||||||
2,700 | Nippon Steel Corp. | 69,311 | ||||||
5,187 | Norsk Hydro ASA | 39,229 | ||||||
1,228 | Nucor Corp. | 78,076 | ||||||
380 | Randgold Resources, Ltd. | 37,691 | ||||||
4,767 | Rio Tinto plc | 251,540 | ||||||
1,410 | Rio Tinto, Ltd. | 83,196 | ||||||
20,869 | South32, Ltd. | 56,729 | ||||||
990 | Steel Dynamics, Inc. | 42,699 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Metals & Mining, continued | ||||||||
1,000 | Sumitomo Metal & Mining Co., Ltd. | $ | 45,884 | |||||
2,267 | Teck Cominco, Ltd., Class B | 59,290 | ||||||
1,419 | ThyssenKrupp AG | 41,200 | ||||||
3,978 | Turquoise Hill Resources, Ltd.* | 13,579 | ||||||
415 | Voestalpine AG | 24,802 | ||||||
1,722 | Wheaton Precious Metals Corp. | 38,076 | ||||||
|
| |||||||
2,518,682 | ||||||||
|
| |||||||
Mortgage Real Estate Investment Trusts (0.0%): | ||||||||
1,279 | Agnc Investment Corp. | 25,823 | ||||||
3,700 | Annaly Capital Management, Inc. | 43,993 | ||||||
|
| |||||||
69,816 | ||||||||
|
| |||||||
Multiline Retail (0.5%): | ||||||||
274 | Canadian Tire Corp., Class A | 35,733 | ||||||
966 | Dollar General Corp. | 89,848 | ||||||
839 | Dollar Tree, Inc.* | 90,033 | ||||||
450 | Dollarama, Inc. | 56,232 | ||||||
400 | Don Quijote Co., Ltd. | 20,914 | ||||||
3,176 | Harvey Norman Holdings, Ltd.^ | 10,311 | ||||||
1,300 | Isetan Mitsukoshi Holdings, Ltd. | 16,070 | ||||||
900 | J. Front Retailing Co., Ltd. | 16,933 | ||||||
725 | Kohl’s Corp. | 39,317 | ||||||
1,213 | Macy’s, Inc. | 30,555 | ||||||
6,217 | Marks & Spencer Group plc^ | 26,362 | ||||||
900 | MARUI GROUP Co., Ltd. | 16,447 | ||||||
458 | Next plc | 28,037 | ||||||
511 | Nordstrom, Inc. | 24,211 | ||||||
100 | Ryohin Keikaku Co., Ltd. | 31,139 | ||||||
1,000 | Takashimaya Co., Ltd. | 10,518 | ||||||
2,015 | Target Corp. | 131,479 | ||||||
|
| |||||||
674,139 | ||||||||
|
| |||||||
Multi-Utilities (0.8%): | ||||||||
2,649 | AGL Energy, Ltd. | 50,262 | ||||||
986 | Ameren Corp. | 58,164 | ||||||
348 | Atco, Ltd. | 12,460 | ||||||
463 | Canadian Utilities, Ltd., Class A | 13,782 | ||||||
1,567 | CenterPoint Energy, Inc. | 44,440 | ||||||
23,324 | Centrica plc | 43,177 | ||||||
1,140 | CMS Energy Corp. | 53,922 | ||||||
1,217 | Consolidated Edison, Inc. | 103,384 | ||||||
2,399 | Dominion Energy, Inc. | 194,463 | ||||||
601 | DTE Energy Co. | 65,785 | ||||||
8,601 | E.ON AG | 93,247 | ||||||
6,854 | Engie Group | 117,746 | ||||||
573 | Innogy Se | 22,327 | ||||||
13,423 | National Grid plc | 157,650 | ||||||
1,299 | NiSource, Inc. | 33,345 | ||||||
1,833 | Public Service Enterprise Group, Inc. | 94,400 | ||||||
1,932 | RWE AG | 39,392 | ||||||
563 | SCANA Corp. | 22,396 | ||||||
956 | Sempra Energy | 102,216 |
Continued
16
AZL MSCI Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Multi-Utilities, continued | ||||||||
1,255 | Suez Environnement Co. | $ | 22,060 | |||||
1,772 | Veolia Environnement SA | 45,205 | ||||||
1,085 | WEC Energy Group, Inc. | 72,077 | ||||||
|
| |||||||
1,461,900 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (6.0%): | ||||||||
608 | AltaGas, Ltd. | 13,845 | ||||||
1,954 | Anadarko Petroleum Corp. | 104,813 | ||||||
478 | Andeavor | 54,655 | ||||||
597 | Antero Resources Corp.* | 11,343 | ||||||
1,592 | Apache Corp.^ | 67,214 | ||||||
1,724 | ARC Resources, Ltd. | 20,233 | ||||||
73,753 | BP plc | 520,044 | ||||||
1,817 | Cabot Oil & Gas Corp. | 51,966 | ||||||
1,032 | Caltex Australia, Ltd. | 27,366 | ||||||
1,442 | Cameco Corp. | 13,321 | ||||||
3,930 | Canadian Natural Resources, Ltd. | 140,464 | ||||||
3,747 | Cenovus Energy, Inc. | 34,226 | ||||||
783 | Cheniere Energy, Inc.* | 42,157 | ||||||
7,219 | Chevron Corp. | 903,746 | ||||||
378 | Cimarex Energy Co. | 46,120 | ||||||
543 | Concho Resources, Inc.* | 81,569 | ||||||
4,678 | ConocoPhillips Co. | 256,775 | ||||||
370 | Continental Resources, Inc.* | 19,599 | ||||||
2,681 | Crescent Point Energy Corp. | 20,436 | ||||||
1,958 | Devon Energy Corp. | 81,061 | ||||||
351 | Diamondback Energy, Inc.* | 44,314 | ||||||
595 | Enagas SA | 17,018 | ||||||
6,358 | Enbridge, Inc. | 248,694 | ||||||
2,919 | EnCana Corp. | 38,949 | ||||||
9,933 | ENI SpA | 164,240 | ||||||
2,232 | EOG Resources, Inc. | 240,855 | ||||||
809 | EQT Corp. | 46,048 | ||||||
16,101 | Exxon Mobil Corp. | 1,346,687 | ||||||
1,927 | Galp Energia SGPS SA | 35,397 | ||||||
1,128 | Hess Corp.^ | 53,546 | ||||||
657 | HollyFrontier Corp. | 33,652 | ||||||
1,272 | Husky Energy, Inc.* | 17,965 | ||||||
500 | Idemitsu Kosan Co., Ltd. | 20,011 | ||||||
1,189 | Imperial Oil, Ltd. | 37,114 | ||||||
3,800 | INPEX Corp. | 47,558 | ||||||
1,260 | Inter Pipeline, Ltd. | 26,096 | ||||||
10,850 | JX Holdings, Inc. | 70,114 | ||||||
705 | Keyera Corp. | 19,869 | ||||||
7,857 | Kinder Morgan, Inc. | 141,976 | ||||||
290 | Koninklijke Vopak NV | 12,719 | ||||||
750 | Lundin Petroleum AB* | 17,166 | ||||||
3,305 | Marathon Oil Corp. | 55,954 | ||||||
1,876 | Marathon Petroleum Corp. | 123,778 | ||||||
521 | Neste Oil OYJ | 33,337 | ||||||
781 | Newfield Exploration Co.* | 24,625 | ||||||
1,879 | Noble Energy, Inc. | 54,754 | ||||||
2,927 | Occidental Petroleum Corp. | 215,603 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
5,352 | Oil Search, Ltd. | $ | 32,551 | |||||
488 | OMV AG | 30,914 | ||||||
1,461 | ONEOK, Inc. | 78,090 | ||||||
6,801 | Origin Energy, Ltd.* | 50,008 | ||||||
686 | Parsley Energy, Inc., Class A* | 20,196 | ||||||
2,121 | Pembina Pipelines Corp. | 76,804 | ||||||
1,669 | Phillips 66 | 168,819 | ||||||
681 | Pioneer Natural Resources Co. | 117,711 | ||||||
369 | Plains GP Holdings, LP-CL A^ | 8,100 | ||||||
775 | Prairiesky Royalty, Ltd. | 19,770 | ||||||
726 | Range Resources Corp.^ | 12,386 | ||||||
4,384 | Repsol SA^ | 77,472 | ||||||
16,844 | Royal Dutch Shell plc, Class A | 563,775 | ||||||
14,396 | Royal Dutch Shell plc, Class B | 485,440 | ||||||
6,196 | Santos, Ltd.* | 26,270 | ||||||
1,158 | Seven Generations Energy* | 16,382 | ||||||
1,400 | Showa Shell Sekiyu K.K. | 19,022 | ||||||
6,928 | Snam SpA | 33,917 | ||||||
3,996 | Statoil ASA | 85,511 | ||||||
6,339 | Suncor Energy, Inc. | 232,769 | ||||||
749 | Targa Resources Corp. | 36,267 | ||||||
9,139 | Total SA | 504,185 | ||||||
813 | Tourmaline Oil Corp.* | 14,736 | ||||||
3,348 | TransCanada Corp. | 162,978 | ||||||
1,667 | Valero Energy Corp. | 153,214 | ||||||
444 | Vermilion Energy, Inc. | 16,138 | ||||||
2,850 | Williams Cos., Inc. (The) | 86,897 | ||||||
3,014 | Woodside Petroleum, Ltd. | 77,884 | ||||||
|
| |||||||
8,907,198 | ||||||||
|
| |||||||
Paper & Forest Products (0.1%): | ||||||||
1,393 | Mondi plc | 36,311 | ||||||
3,000 | OYI Paper Co., Ltd. | 19,945 | ||||||
2,017 | Stora Enso OYJ, Registered Shares | 31,928 | ||||||
2,334 | UPM-Kymmene OYJ | 72,411 | ||||||
350 | West Fraser Timber Co., Ltd. | 21,602 | ||||||
|
| |||||||
182,197 | ||||||||
|
| |||||||
Personal Products (0.7%): | ||||||||
413 | Beiersdorf AG | 48,400 | ||||||
1,897 | Coty, Inc., Class A | 37,731 | ||||||
801 | Estee Lauder Co., Inc. (The), Class A | 101,920 | ||||||
1,800 | Kao Corp. | 121,764 | ||||||
100 | KOSE Corp. | 15,617 | ||||||
919 | L’Oreal SA | 203,561 | ||||||
400 | POLA ORBIS HOLDINGS, Inc. | 14,004 | ||||||
1,500 | Shiseido Co., Ltd. | 72,312 | ||||||
6,278 | Unilever NV | 352,682 | ||||||
4,854 | Unilever plc | 268,858 | ||||||
|
| |||||||
1,236,849 | ||||||||
|
| |||||||
Pharmaceuticals (5.4%): | ||||||||
1,275 | Allergan plc | 208,565 | ||||||
7,800 | Astellas Pharma, Inc. | 99,082 |
Continued
17
AZL MSCI Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Pharmaceuticals, continued | ||||||||
4,911 | AstraZeneca plc | $ | 336,943 | |||||
3,084 | Bayer AG, Registered Shares | 383,525 | ||||||
6,121 | Bristol-Myers Squibb Co. | 375,095 | ||||||
900 | Chugai Pharmaceutical Co., Ltd. | 46,026 | ||||||
2,200 | Daiichi Sankyo Co., Ltd. | 57,306 | ||||||
700 | Dainippon Sumitomo Pharma Co., Ltd. | 10,404 | ||||||
1,000 | Eisai Co., Ltd. | 56,627 | ||||||
3,716 | Eli Lilly & Co. | 313,853 | ||||||
18,491 | GlaxoSmithKline plc | 327,003 | ||||||
268 | H. Lundbeck A/S | 13,632 | ||||||
200 | Hisamitsu Pharmaceutical Co., Inc. | 12,114 | ||||||
154 | Ipsen SA | 18,392 | ||||||
237 | Jazz Pharmaceuticals plc* | 31,912 | ||||||
10,207 | Johnson & Johnson Co. | 1,426,121 | ||||||
1,000 | Kyowa Hakko Kogyo Co., Ltd. | 19,317 | ||||||
10,211 | Merck & Co., Inc. | 574,573 | ||||||
517 | Merck KGaA | 55,669 | ||||||
900 | Mitsubishi Tanabe Pharma Corp. | 18,554 | ||||||
1,844 | Mylan NV* | 78,020 | ||||||
8,444 | Novartis AG, Registered Shares | 714,054 | ||||||
6,960 | Novo Nordisk A/S, Class B | 374,138 | ||||||
1,600 | Ono Pharmaceutical Co., Ltd. | 37,243 | ||||||
411 | Orion OYJ, Class B | 15,304 | ||||||
1,500 | Otsuka Holdings Co., Ltd. | 65,698 | ||||||
384 | Perrigo Co. plc | 33,469 | ||||||
22,444 | Pfizer, Inc. | 812,922 | ||||||
427 | Recordati SpA | 18,966 | ||||||
2,700 | Roche Holding AG | 683,122 | ||||||
4,297 | Sanofi-Aventis SA | 369,942 | ||||||
1,400 | Santen Pharmaceutical Co., Ltd. | 21,983 | ||||||
1,200 | Shionogi & Co., Ltd. | 64,889 | ||||||
100 | Taisho Pharmaceutical Holdings Co., Ltd. | 7,965 | ||||||
2,600 | Takeda Pharmacuetical Co., Ltd. | 147,224 | ||||||
3,885 | Teva Pharmaceutical Industries, Ltd., ADR^ | 73,621 | ||||||
502 | UCB SA | 39,776 | ||||||
1,267 | Valeant Pharmaceuticals International, Inc.* | 26,413 | ||||||
160 | Vifor Pharma AG^ | 20,509 | ||||||
1,745 | Zoetis, Inc. | 125,710 | ||||||
|
| |||||||
8,115,681 | ||||||||
|
| |||||||
Professional Services (0.7%): | ||||||||
655 | Adecco SA, Registered Shares | 50,074 | ||||||
996 | Bureau Veritas SA | 27,228 | ||||||
2,593 | Capita Group plc | 14,016 | ||||||
491 | Equifax, Inc. | 57,898 | ||||||
3,578 | Experian plc | 78,619 | ||||||
1,548 | IHS Markit, Ltd.* | 69,892 | ||||||
627 | Intertek Group plc | 43,912 | ||||||
282 | Manpower, Inc. | 35,563 | ||||||
1,123 | Nielsen Holdings plc^ | 40,877 | ||||||
1,000 | Persol Holdings Co., Ltd. | 25,075 | ||||||
465 | Randstad Holding NV | 28,527 | ||||||
3,500 | Recruit Holdings Co., Ltd. | 86,937 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Professional Services, continued | ||||||||
3,885 | Reed Elsevier plc | $ | 91,000 | |||||
3,903 | RELX NV | 89,714 | ||||||
509 | Robert Half International, Inc. | 28,270 | ||||||
1,229 | Seek, Ltd. | 18,188 | ||||||
22 | SGS SA, Registered Shares | 57,361 | ||||||
220 | Teleperformance | 31,486 | ||||||
587 | TransUnion* | 32,262 | ||||||
574 | Verisk Analytics, Inc.* | 55,104 | ||||||
1,199 | Wolters Kluwer NV | 62,429 | ||||||
|
| |||||||
1,024,432 | ||||||||
|
| |||||||
Real Estate Management & Development (1.0%): | ||||||||
165 | Azrieli Group | 9,242 | ||||||
10,400 | CapitaLand, Ltd. | 27,408 | ||||||
1,177 | CBRE Group, Inc., Class A* | 50,975 | ||||||
2,000 | City Developments, Ltd. | 18,604 | ||||||
10,000 | CK Asset Holdings Ltd. | 87,413 | ||||||
300 | Daito Trust Construction Co., Ltd. | 61,118 | ||||||
2,000 | Daiwa House Industry Co., Ltd. | 76,845 | ||||||
1,352 | Deutsche Wohnen AG | 58,941 | ||||||
760 | First Capital Realty, Inc. | 12,530 | ||||||
6,900 | Global Logistic Properties, Ltd. | 17,377 | ||||||
4,000 | Hang Lung Group, Ltd. | 14,716 | ||||||
8,000 | Hang Lung Properties, Ltd. | 19,523 | ||||||
4,400 | Henderson Land Development Co., Ltd. | 29,000 | ||||||
5,100 | Hongkong Land Holdings, Ltd. | 35,863 | ||||||
1,400 | Hulic Co., Ltd. | 15,674 | ||||||
3,000 | Hysan Development Co., Ltd. | 15,924 | ||||||
178 | Jones Lang LaSalle, Inc. | 26,510 | ||||||
2,148 | Lend Lease Group | 27,349 | ||||||
5,000 | Mitsubishi Estate Co., Ltd. | 86,889 | ||||||
3,300 | Mitsui Fudosan Co., Ltd. | 73,989 | ||||||
22,308 | New World Development Co., Ltd. | 33,518 | ||||||
700 | Nomura Real Estate Holdings, Inc. | 15,699 | ||||||
12,117 | Sino Land Co., Ltd. | 21,453 | ||||||
1,000 | Sumitomo Realty & Development Co., Ltd. | 32,827 | ||||||
5,000 | Sun Hung Kai Properties, Ltd. | 83,292 | ||||||
2,000 | Swire Pacific, Ltd., Class A | 18,512 | ||||||
4,800 | Swire Properties, Ltd. | 15,482 | ||||||
318 | Swiss Prime Site AG | 29,351 | ||||||
900 | Tokyo Tatemono Co., Ltd. | 12,145 | ||||||
2,200 | Tokyu Fudosan Holdings Corp. | 15,899 | ||||||
3,069 | UOL Group, Ltd. | 20,354 | ||||||
1,889 | Vonovia SE | 93,495 | ||||||
5,000 | Wharf Holdings, Ltd. (The) | 17,290 | ||||||
5,000 | Wharf Real Estate Investment Co., Ltd.* | 33,280 | ||||||
3,000 | Wheelock & Co., Ltd. | 21,435 | ||||||
|
| |||||||
1,229,922 | ||||||||
|
| |||||||
Road & Rail (1.1%): | ||||||||
39 | AMERCO, Inc. | 14,738 | ||||||
7,972 | Aurizon Holdings, Ltd. | 30,814 | ||||||
2,850 | Canadian National Railway Co. | 235,043 |
Continued
18
AZL MSCI Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Road & Rail, continued | ||||||||
565 | Canadian Pacific Railway, Ltd., Class 1 | $ | 103,245 | |||||
600 | Central Japan Railway Co. | 107,393 | ||||||
2,100 | ComfortDelGro Corp., Ltd. | 3,106 | ||||||
3,308 | CSX Corp. | 181,973 | ||||||
737 | DSV A/S | 58,037 | ||||||
1,200 | East Japan Railway Co. | 117,004 | ||||||
900 | Hankyu Hanshin Holdings, Inc. | 36,162 | ||||||
359 | J.B. Hunt Transport Services, Inc. | 41,278 | ||||||
426 | Kansas City Southern | 44,824 | ||||||
1,000 | Keihin Electric Express Railway Co., Ltd. | 19,197 | ||||||
400 | Keio Corp. | 17,592 | ||||||
500 | Keisei Electric Railway Co., Ltd. | 16,053 | ||||||
700 | Kintetsu Corp. | 26,773 | ||||||
564 | Knight-Swift Transportation Holdings, Inc.^ | 24,658 | ||||||
700 | Kyushu Railway Co. | 21,662 | ||||||
4,000 | MTR Corp., Ltd. | 23,440 | ||||||
600 | Nagoya Railroad Co., Ltd. | 15,102 | ||||||
300 | Nippon Express Co., Ltd. | 19,925 | ||||||
1,129 | Norfolk Southern Corp. | 163,592 | ||||||
1,100 | Odakyu Electric Railway Co., Ltd. | 23,512 | ||||||
235 | Old Dominion Freight Line, Inc. | 30,914 | ||||||
600 | Tobu Railway Co., Ltd. | 19,370 | ||||||
2,000 | Tokyu Corp. | 31,864 | ||||||
2,984 | Union Pacific Corp. | 400,155 | ||||||
700 | West Japan Railway Co. | 51,074 | ||||||
|
| |||||||
1,878,500 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (3.0%): | ||||||||
3,346 | Advanced Micro Devices, Inc.*^ | 34,397 | ||||||
1,383 | Analog Devices, Inc. | 123,128 | ||||||
4,153 | Applied Materials, Inc. | 212,301 | ||||||
1,300 | ASM Pacific Technology, Ltd. | 18,082 | ||||||
1,500 | ASML Holding NV | 260,201 | ||||||
1,539 | Broadcom, Ltd. | 395,370 | ||||||
100 | Disco Corp. | 22,020 | ||||||
4,265 | Infineon Technologies AG | 116,473 | ||||||
17,945 | Intel Corp. | 828,342 | ||||||
618 | KLA-Tencor Corp. | 64,933 | ||||||
570 | Lam Research Corp. | 104,920 | ||||||
1,673 | Marvell Technology Group, Ltd. | 35,919 | ||||||
1,111 | Maxim Integrated Products, Inc. | 58,083 | ||||||
875 | Microchip Technology, Inc.^ | 76,895 | ||||||
4,027 | Micron Technology, Inc.* | 165,590 | ||||||
2,306 | NVIDIA Corp. | 446,212 | ||||||
1,282 | NXP Semiconductors NV* | 150,109 | ||||||
500 | Qorvo, Inc.* | 33,300 | ||||||
5,674 | QUALCOMM, Inc. | 363,249 | ||||||
2,000 | Renesas Electronics Corp.* | 23,153 | ||||||
300 | ROHM Co., Ltd. | 33,055 | ||||||
677 | Skyworks Solutions, Inc. | 64,281 | ||||||
2,574 | STMicroelectronics NV | 55,893 | ||||||
900 | SUMCO Corp. | 22,891 | ||||||
3,687 | Texas Instruments, Inc. | 385,070 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Semiconductors & Semiconductor Equipment, continued | ||||||||
600 | Tokyo Electron, Ltd. | $ | 107,491 | |||||
962 | Xilinx, Inc. | 64,858 | ||||||
|
| |||||||
4,266,216 | ||||||||
|
| |||||||
Software (3.8%): | ||||||||
2,642 | Activision Blizzard, Inc. | 167,291 | ||||||
1,896 | Adobe Systems, Inc.* | 332,254 | ||||||
353 | ANSYS, Inc.* | 52,099 | ||||||
712 | Autodesk, Inc.* | 74,639 | ||||||
1,224 | CA, Inc. | 40,735 | ||||||
1,174 | Cadence Design Systems, Inc.* | 49,097 | ||||||
520 | CDK Global, Inc. | 37,066 | ||||||
506 | Check Point Software Technologies, Ltd.*^ | 52,432 | ||||||
508 | Citrix Systems, Inc.* | 44,704 | ||||||
76 | Constellation Software, Inc. | 46,081 | ||||||
497 | Dassault Systemes SA | 52,778 | ||||||
728 | Dell Technologies, Inc., Class V* | 59,172 | ||||||
1,092 | Electronic Arts, Inc.* | 114,726 | ||||||
566 | Fortinet, Inc.* | 24,729 | ||||||
924 | Intuit, Inc. | 145,789 | ||||||
400 | Konami Corp. | 21,983 | ||||||
200 | Line Corp.* | 8,179 | ||||||
1,745 | Micro Focus International plc | 59,210 | ||||||
27,745 | Microsoft Corp. | 2,373,306 | ||||||
700 | Nexon Co., Ltd.* | 20,345 | ||||||
187 | NICE Systems, Ltd. | 17,093 | ||||||
400 | Nintendo Co., Ltd. | 145,640 | ||||||
946 | Open Text Corp. | 33,653 | ||||||
11,760 | Oracle Corp. | 556,012 | ||||||
200 | Oracle Corp. | 16,586 | ||||||
606 | Red Hat, Inc.* | 72,781 | ||||||
4,174 | Sage Group plc | 44,845 | ||||||
2,537 | Salesforce.com, Inc.* | 259,358 | ||||||
3,765 | SAP AG | 422,117 | ||||||
648 | ServiceNow, Inc.* | 84,493 | ||||||
515 | Splunk, Inc.* | 42,663 | ||||||
708 | SS&C Technologies Holdings, Inc. | 28,660 | ||||||
2,450 | Symantec Corp. | 68,747 | ||||||
605 | Synopsys, Inc.* | 51,570 | ||||||
402 | Take-Two Interactive Software, Inc.* | 44,132 | ||||||
400 | Trend Micro, Inc. | 22,658 | ||||||
274 | UbiSoft Entertainment SA* | 21,080 | ||||||
295 | VMware, Inc., Class A*^ | 36,969 | ||||||
462 | Workday, Inc., Class A* | 47,004 | ||||||
|
| |||||||
5,792,676 | ||||||||
|
| |||||||
Specialty Retail (1.6%): | ||||||||
200 | ABC-Mart, Inc. | 11,481 | ||||||
290 | Advance Auto Parts, Inc. | 28,910 | ||||||
287 | AutoNation, Inc.* | 14,732 | ||||||
108 | AutoZone, Inc.* | 76,828 | ||||||
1,143 | Best Buy Co., Inc. | 78,261 | ||||||
756 | CarMax, Inc.* | 48,482 |
Continued
19
AZL MSCI Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Specialty Retail, continued | ||||||||
133 | Dufry AG, Registered Shares* | $ | 19,779 | |||||
200 | Fast Retailing Co., Ltd. | 79,758 | ||||||
935 | Gap, Inc. (The) | 31,846 | ||||||
3,872 | Hennes & Mauritz AB, Class B | 79,815 | ||||||
100 | Hikari Tsushin, Inc. | 14,370 | ||||||
4,493 | Home Depot, Inc. (The) | 851,559 | ||||||
4,055 | Industria de Diseno Textil SA | 141,022 | ||||||
8,807 | Kingfisher plc | 40,141 | ||||||
983 | L Brands, Inc.^ | 59,196 | ||||||
3,217 | Lowe’s Cos., Inc. | 298,988 | ||||||
300 | Nitori Co., Ltd. | 42,782 | ||||||
329 | O’Reilly Automotive, Inc.* | 79,138 | ||||||
1,445 | Ross Stores, Inc. | 115,961 | ||||||
100 | Shimamura Co., Ltd. | 11,001 | ||||||
492 | Tiffany & Co. | 51,143 | ||||||
2,279 | TJX Cos., Inc. (The) | 174,252 | ||||||
522 | Tractor Supply Co. | 39,020 | ||||||
241 | Ulta Salon, Cosmetics & Fragrance, Inc.* | 53,902 | ||||||
800 | USS Co., Ltd. | 16,926 | ||||||
2,400 | Yamada Denki Co., Ltd. | 13,209 | ||||||
|
| |||||||
2,472,502 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (2.6%): | ||||||||
19,535 | Apple, Inc. | 3,305,909 | ||||||
1,801 | BlackBerry, Ltd.* | 20,119 | ||||||
900 | Brother Industries, Ltd. | 22,218 | ||||||
4,200 | Canon, Inc. | 156,433 | ||||||
1,600 | Fujifilm Holdings Corp. | 65,330 | ||||||
6,243 | Hewlett Packard Enterprise Co. | 89,649 | ||||||
6,492 | HP, Inc. | 136,397 | ||||||
1,800 | Konica Minolta Holdings, Inc. | 17,327 | ||||||
1,000 | NEC Corp. | 26,988 | ||||||
1,134 | NetApp, Inc. | 62,733 | ||||||
2,600 | Ricoh Co., Ltd. | 24,170 | ||||||
1,172 | Seagate Technology plc | 49,036 | ||||||
1,100 | Seiko Epson Corp. | 25,907 | ||||||
1,045 | Western Digital Corp. | 83,109 | ||||||
809 | Xerox Corp. | 23,582 | ||||||
|
| |||||||
4,108,907 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (1.1%): | ||||||||
705 | Adidas AG | 140,718 | ||||||
600 | ASICS Corp. | 9,569 | ||||||
1,799 | Burberry Group plc | 43,484 | ||||||
1,992 | Compagnie Financiere Richemont SA | 180,408 | ||||||
860 | Gildan Activewear, Inc. | 27,789 | ||||||
1,456 | Hanesbrands, Inc.^ | 30,445 | ||||||
128 | Hermes International SA | 68,509 | ||||||
262 | Hugo Boss AG | 22,221 | ||||||
293 | Kering | 138,111 | ||||||
26,000 | Li & Fung, Ltd. | 14,256 | ||||||
432 | Lululemon Athletica, Inc.* | 33,950 | ||||||
696 | Luxottica Group SpA | 42,647 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Textiles, Apparel & Luxury Goods, continued | ||||||||
1,023 | LVMH Moet Hennessy Louis Vuitton SA | $ | 300,469 | |||||
583 | Michael Kors Holdings, Ltd.* | 36,700 | ||||||
4,979 | Nike, Inc., Class C | 311,436 | ||||||
445 | Pandora A/S | 48,439 | ||||||
320 | PVH Corp. | 43,907 | ||||||
224 | Ralph Lauren Corp.^ | 23,227 | ||||||
120 | Swatch Group AG (The), Class B | 48,931 | ||||||
210 | Swatch Group AG (The), Registered Shares | 16,055 | ||||||
1,086 | Tapestry, Inc. | 48,034 | ||||||
731 | Under Armour, Inc., Class A* | 10,548 | ||||||
702 | Under Armour, Inc., Class C*^ | 9,351 | ||||||
1,151 | VF Corp. | 85,174 | ||||||
3,000 | Yue Yuen Industrial Holdings, Ltd. | 11,772 | ||||||
|
| |||||||
1,746,150 | ||||||||
|
| |||||||
Thrifts & Mortgage Finance (0.0%): | ||||||||
1,773 | New York Community Bancorp, Inc. | 23,084 | ||||||
|
| |||||||
Tobacco (1.3%): | ||||||||
7,345 | Altria Group, Inc. | 524,506 | ||||||
8,593 | British American Tobacco plc | 579,835 | ||||||
3,736 | Imperial Tobacco Group plc, Class A | 159,627 | ||||||
4,100 | Japan Tobacco, Inc. | 132,071 | ||||||
5,829 | Philip Morris International, Inc. | 615,834 | ||||||
739 | Swedish Match AB, Class B | 29,099 | ||||||
|
| |||||||
2,040,972 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.6%): | ||||||||
368 | AerCap Holdings NV* | 19,360 | ||||||
1,988 | Ashtead Group plc | 53,045 | ||||||
606 | Brenntag AG | 38,223 | ||||||
1,312 | Bunzl plc | 36,679 | ||||||
1,131 | Fastenal Co. | 61,854 | ||||||
660 | Finning International, Inc. | 16,658 | ||||||
824 | HD Supply Holdings, Inc.* | 32,985 | ||||||
5,800 | ITOCHU Corp. | 108,305 | ||||||
6,400 | Marubeni Corp. | 46,478 | ||||||
1,200 | Misumi Group, Inc. | 34,773 | ||||||
5,700 | Mitsubishi Corp. | 157,550 | ||||||
6,100 | Mitsui & Co., Ltd. | 99,082 | ||||||
1,153 | Rexel SA | 20,909 | ||||||
4,700 | Sumitomo Corp. | 79,677 | ||||||
800 | Toyota Tsushu Corp. | 32,156 | ||||||
958 | Travis Perkins plc | 20,252 | ||||||
331 | United Rentals, Inc.* | 56,902 | ||||||
231 | W.W. Grainger, Inc. | 54,574 | ||||||
832 | Wolseley plc | 59,520 | ||||||
|
| |||||||
1,028,982 | ||||||||
|
| |||||||
Transportation Infrastructure (0.2%): | ||||||||
2,407 | Abertis Infraestructuras SA | 53,551 | ||||||
222 | Aena SA | 44,937 | ||||||
121 | Aeroports de Paris | 22,985 | ||||||
1,830 | Atlantia SpA | 57,719 |
Continued
20
AZL MSCI Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Transportation Infrastructure, continued | ||||||||
3,464 | Auckland International Airport, Ltd. | $ | 15,896 | |||||
182 | Fraport AG | 20,019 | ||||||
1,770 | Groupe Eurotunnel SA | 22,762 | ||||||
27,700 | Hutchison Port Holdings Trust | 11,493 | ||||||
300 | Japan Airport Terminal Co., Ltd. | 11,133 | ||||||
500 | Kamigumi Co., Ltd. | 11,053 | ||||||
348 | Macquarie Infrastructure Corp. | 22,342 | ||||||
3,000 | SATS, Ltd. | 11,647 | ||||||
4,299 | Sydney Airport | 23,575 | ||||||
8,363 | Transurban Group | 80,932 | ||||||
|
| |||||||
410,044 | ||||||||
|
| |||||||
Water Utilities (0.0%): | ||||||||
703 | American Water Works Co., Inc. | 64,317 | ||||||
930 | Severn Trent plc | 27,130 | ||||||
2,680 | United Utilities Group plc | 29,990 | ||||||
|
| |||||||
121,437 | ||||||||
|
| |||||||
Wireless Telecommunication Services (0.6%): | ||||||||
111 | Drillisch AG | 9,161 | ||||||
7,000 | KDDI Corp. | 174,305 | ||||||
285 | Millicom International Cellular SA, SDR | 19,248 | ||||||
5,200 | NTT DoCoMo, Inc. | 122,850 | ||||||
1,431 | Rogers Communications, Inc. | 72,928 | ||||||
3,000 | SoftBank Group Corp. | 237,040 | ||||||
3,079 | Sprint Corp.*^ | 18,135 | ||||||
5,000 | StarHub, Ltd. | 10,657 | ||||||
1,473 | Tele2 AB | 18,095 | ||||||
1,171 | T-Mobile US, Inc.* | 74,371 | ||||||
98,375 | Vodafone Group plc | 310,714 | ||||||
|
| |||||||
1,067,504 | ||||||||
|
| |||||||
Total Common Stocks (Cost $122,079,951) | 152,806,868 | |||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Preferred Stocks (0.2%): | ||||||||
Automobiles (0.1%): | ||||||||
239 | Bayerische Motoren Werke AG (BMW), 4.73% | $ | 21,339 | |||||
605 | Porsche Automobil Holding SE, 1.45% | 50,631 | ||||||
713 | Volkswagen AG, 1.24% | 142,076 | ||||||
|
| |||||||
214,046 | ||||||||
|
| |||||||
Household Products (0.1%): | ||||||||
712 | Henkel AG & Co. KGaA, 1.47% | 94,001 | ||||||
|
| |||||||
Total Preferred Stocks (Cost $235,411) | 308,047 | |||||||
|
| |||||||
Rights (0.0%): | ||||||||
Aerospace & Defense (0.0%): | ||||||||
304,796 | Rolls-Royce Holdings plc, Expires on 1/08/18*(a) | 411 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.0%): | ||||||||
4,384 | Repsol SA, Expires on 1/08/18*^ | 1,994 | ||||||
|
| |||||||
Total Rights (Cost $—) | 2,405 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (1.9%): | ||||||||
$ | 2,933,879 | AZL MSCI Global Equity Index Fund Securities Lending Collateral Account(b) | 2,933,879 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 2,933,879 | ||||||
|
| |||||||
Unaffiliated Investment Company (0.2%): | ||||||||
260,007 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 1.11%(c) | 260,007 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $260,007) | 260,007 | |||||||
|
| |||||||
| Total Investment Securities | 156,311,206 | ||||||
Net other assets (liabilities) — (1.6)% | (2,453,941 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 153,857,265 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
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, 2017. The total value of securities on loan as of December 31, 2017, was $2,837,002. |
+ | Affiliated Securities |
(a) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2017. The total of all such securities represent 0.00% of the net assets of the fund. |
(b) | Purchased with cash collateral held from securities lending. The value of the collateral could include collateral held for securities that were sold on or before December 31, 2017. |
(c) | The rate represents the effective yield at December 31, 2017. |
(d) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Continued
21
AZL MSCI Global Equity Index Fund
Schedule of Portfolio Investments
December 31, 2017
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, 2017: (Unaudited)
Country | Percentage | |||
Argentina | — | %^ | ||
Australia | 2.5 | % | ||
Austria | 0.1 | % | ||
Belgium | 0.4 | % | ||
Bermuda | 0.2 | % | ||
Canada | 3.5 | % | ||
China | — | %^ | ||
Denmark | 0.7 | % | ||
Finland | 0.3 | % | ||
France | 3.6 | % | ||
Germany | 3.6 | % | ||
Hong Kong | 1.3 | % | ||
Ireland (Republic of) | 0.8 | % | ||
Israel | 0.2 | % | ||
Italy | 0.8 | % | ||
Japan | 8.7 | % | ||
Liberia | 0.1 | % | ||
Luxembourg | 0.1 | % | ||
Netherlands | 1.9 | % | ||
New Zealand | 0.1 | % | ||
Norway | 0.2 | % | ||
Panama | 0.1 | % | ||
Portugal | 0.1 | % | ||
Singapore | 0.8 | % | ||
Spain | 1.2 | % | ||
Sweden | 1.0 | % | ||
Switzerland | 3.4 | % | ||
United Arab Emirates | — | %^ | ||
United Kingdom | 6.2 | % | ||
United States | 58.1 | % | ||
|
| |||
100.0 | % | |||
|
|
^ | Represents less than 0.05%. |
Futures Contracts
Cash of $37,548 has been segregated to cover margin requirements for the following open contracts as of December 31, 2017:
Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Unrealized Appreciation/ (Depreciation) | ||||||||||||
DJ EURO STOXX 50 March Futures (Euro) | 3/16/18 | 3 | $ | 125,717 | $ | (1,589 | ) | |||||||||
FTSE 100 Index March Futures (British Pounds) | 3/16/18 | 1 | 103,105 | 2,778 | ||||||||||||
S&P 500 Index E-Mini March Futures (U.S. Dollar) | 3/16/18 | 3 | 401,400 | 508 | ||||||||||||
SGX Nikkei 225 Index March Futures (Japanese Yen) | 3/8/18 | 1 | 100,990 | (335 | ) | |||||||||||
|
| |||||||||||||||
$ | 1,362 | |||||||||||||||
|
|
See accompanying notes to the financial statements.
22
AZL MSCI Global Equity Index Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investment securities, at cost | $ | 125,090,800 | |||
Investments in affiliates, at cost | 418,448 | ||||
|
| ||||
Total Investment securities, at cost | $ | 125,509,248 | |||
|
| ||||
Investment securities, at value* | $ | 155,691,243 | |||
Investments in affiliates, at value | 619,963 | ||||
|
| ||||
Total Investment securities, at value | 156,311,206 | ||||
Cash | 3,148 | ||||
Segregated cash for collateral | 37,548 | ||||
Interest and dividends receivable | 160,594 | ||||
Foreign currency, at value (cost $350,973) | 355,448 | ||||
Receivable for investments sold | 84,526 | ||||
Receivable for variation margin on futures contracts | 1,149 | ||||
Reclaims receivable | 118,414 | ||||
Prepaid expenses | 765 | ||||
|
| ||||
Total Assets | 157,072,798 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 27,902 | ||||
Payable for capital shares redeemed | 144,644 | ||||
Payable for collateral received on loaned securities | 2,933,879 | ||||
Payable for variation margin on futures contracts | 2,735 | ||||
Manager fees payable | 48,866 | ||||
Administration fees payable | 8,754 | ||||
Distribution fees payable | 32,651 | ||||
Custodian fees payable | 4,287 | ||||
Administrative and compliance services fees payable | 223 | ||||
Transfer agent fees payable | 446 | ||||
Trustee fees payable | 144 | ||||
Other accrued liabilities | 11,002 | ||||
|
| ||||
Total Liabilities | 3,215,533 | ||||
|
| ||||
Net Assets | $ | 153,857,265 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 134,939,069 | |||
Accumulated net investment income/(loss) | 2,458,122 | ||||
Accumulated net realized gains/(losses) from investment transactions | (14,353,953 | ) | |||
Net unrealized appreciation/(depreciation) on investments | 30,814,027 | ||||
|
| ||||
Net Assets | $ | 153,857,265 | |||
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| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 13,712,928 | ||||
Net Asset Value (offering and redemption price per share) | $ | 11.22 | |||
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|
* | Includes securities on loan of $2,837,002. |
For the Year Ended December 31, 2017
Investment Income: | |||||
Dividends | $ | 3,814,297 | |||
Dividends from affiliates | 20,641 | ||||
Interest | 1,301 | ||||
Income from securities lending | 15,659 | ||||
Other income | 6,049 | ||||
Foreign withholding tax | (247,871 | ) | |||
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Total Investment Income | 3,610,076 | ||||
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Expenses: | |||||
Manager fees | 1,060,272 | ||||
Administration fees | 169,068 | ||||
Distribution fees | 376,773 | ||||
Custodian fees | 63,421 | ||||
Administrative and compliance services fees | 2,145 | ||||
Transfer agent fees | 5,913 | ||||
Trustee fees | 7,641 | ||||
Professional fees | 9,221 | ||||
Shareholder reports | 2,813 | ||||
Other expenses | 50,513 | ||||
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Total expenses before reductions | 1,747,780 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (587,766 | ) | |||
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Net expenses | 1,160,014 | ||||
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Net Investment Income/(Loss) | 2,450,062 | ||||
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Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions and foreign currencies | 3,489,480 | ||||
Net realized gains/(losses) on affiliated transactions | 27,931 | ||||
Net realized gains/(losses) on futures contracts | 178,026 | ||||
Change in net unrealized appreciation/depreciation on investments and foreign currencies | 23,840,785 | ||||
Change in net unrealized appreciation/depreciation on affiliated transactions | 156,687 | ||||
Change in net unrealized appreciation/depreciation on futures contracts | 201 | ||||
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Net Realized/Unrealized Gains/(Losses) on Investments | 27,693,110 | ||||
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Change in Net Assets Resulting From Operations | $ | 30,143,172 | |||
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See accompanying notes to the financial statements.
23
AZL MSCI Global Equity Index Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 2,450,062 | $ | 3,103,370 | ||||||
Net realized gains/(losses) on investment transactions | 3,695,437 | (11,071,989 | ) | |||||||
Change in unrealized appreciation/depreciation on investments | 23,997,673 | 8,959,236 | ||||||||
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Change in net assets resulting from operations | 30,143,172 | 990,617 | ||||||||
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Distributions to Shareholders: | ||||||||||
From net investment income | (2,867,182 | ) | (3,055,401 | ) | ||||||
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Change in net assets resulting from distributions to shareholders | (2,867,182 | ) | (3,055,401 | ) | ||||||
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| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 4,875,791 | 145,799,062 | ||||||||
Proceeds from dividends reinvested | 2,867,182 | 3,055,401 | ||||||||
Value of shares redeemed | (28,427,058 | ) | (116,735,502 | ) | ||||||
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| |||||||
Change in net assets resulting from capital transactions | (20,684,085 | ) | 32,118,961 | |||||||
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| |||||||
Change in net assets | 6,591,905 | 30,054,177 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 147,265,360 | 117,211,183 | ||||||||
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| |||||||
End of period | $ | 153,857,265 | $ | 147,265,360 | ||||||
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Accumulated net investment income/(loss) | $ | 2,458,122 | $ | 2,854,641 | ||||||
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Share Transactions: | ||||||||||
Shares issued | 455,901 | 16,362,841 | ||||||||
Dividends reinvested | 271,257 | 336,869 | ||||||||
Shares redeemed | (2,742,092 | ) | (13,037,308 | ) | ||||||
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| |||||||
Change in shares | (2,014,934 | ) | 3,662,402 | |||||||
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See accompanying notes to the financial statements.
24
AZL MSCI Global Equity Index Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 9.36 | $ | 9.71 | $ | 11.51 | $ | 12.88 | $ | 11.74 | |||||||||||||||
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Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.20 | 0.20 | 0.23 | 0.28 | 0.25 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.86 | (0.30 | ) | (1.66 | ) | (0.89 | ) | 1.11 | |||||||||||||||||
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| ||||||||||||||||
Total from Investment Activities | 2.06 | (0.10 | ) | (1.43 | ) | (0.61 | ) | 1.36 | |||||||||||||||||
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Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.20 | ) | (0.25 | ) | (0.31 | ) | (0.25 | ) | (0.22 | ) | |||||||||||||||
Net Realized Gains | — | — | (0.06 | ) | (0.51 | ) | — | ||||||||||||||||||
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| ||||||||||||||||
Total Dividends | (0.20 | ) | (0.25 | ) | (0.37 | ) | (0.76 | ) | (0.22 | ) | |||||||||||||||
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Net Asset Value, End of Period | $ | 11.22 | $ | 9.36 | $ | 9.71 | $ | 11.51 | $ | 12.88 | |||||||||||||||
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Total Return(a) | 22.18 | % | (0.93 | )% | (12.57 | )% | (5.26 | )% | 11.66 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 153,857 | $ | 147,265 | $ | 117,211 | $ | 147,054 | $ | 151,096 | |||||||||||||||
Net Investment Income/(Loss) | 1.62 | % | 2.75 | % | 1.80 | % | 2.35 | % | 2.10 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.16 | % | 1.20 | % | 1.24 | % | 1.24 | % | 1.23 | % | |||||||||||||||
Expenses Net of Reductions | 0.77 | % | 1.10 | % | 1.24 | % | 1.24 | % | 1.22 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly | 0.77 | % | 1.10 | % | 1.24 | % | 1.24 | (c) | 1.23 | (c) | |||||||||||||||
Portfolio Turnover Rate | 4 | % | 135 | %(d) | 50 | % | 20 | % | 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 remitted a portion of the brokerage commission which were used to pay certain Fund expenses. The Fund ceased participation in the program in June 2014. |
(d) | Effective October 14, 2016, the investment strategy of the Fund changed. Costs of purchases and proceeds from sales of portfolio securities associated with the changes in investment strategy contributed to higher portfolio turnover rate for the period ended December 31, 2016 as compared to prior years. |
See accompanying notes to the financial statements.
25
AZL MSCI Global Equity Index Fund
Notes to the Financial Statements
December 31, 2017
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 MSCI Global Equity Index Fund (formerly, AZL Global Equity 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 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 accrues 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 and Withholding Taxes
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, or from other assets and liabilities, from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such
countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains is determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., reclassification of certain market discounts and gain/loss, and other permanent adjustments) 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.
26
AZL MSCI Global Equity Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017 are noted on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $6 million for the year ended December 31, 2017.
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 $1,421 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Statement of Operations.
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, 2017.
Overnight and Continuous | Less than | Between 30 & 90 Days | Greater than 90 Days | Total | |||||||||||||||||||||
Securities Lending Transactions | $ | 2,880,919 | $ | 28,197 | $ | — | $ | 24,763 | $ | 2,933,879 |
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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, 2017, the Fund did not engage in any such transactions under the Rule.
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, 2017, 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. For the year ended December 31, 2017, the monthly average notional amount for long contracts was $1.0 million. 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, 2017:
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 | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 3,286 | Payable for variation on futures contracts | $ | 1,924 |
* | 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. |
27
AZL MSCI Global Equity Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017:
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 | ||||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | $ | 178,026 | $ | 201 |
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, 2019.
For the year ended December 31, 2017, the annual rate paid to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL MSCI Global Equity Index Fund | 0.70 | % | 0.80 | % |
* | 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. |
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, 2017, there were no contractual reimbursements 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.
At December 31, 2017, the following investments are noted as Affiliated Securities in the Fund’s Schedule of Portfolio Investments.
Fair Value 12/31/2016 | Purchases at Cost | Proceeds from Sales | Net Realized | Net Change in Unrealized Appreciation/ Depreciation | Fair Value 12/31/2017 | Shares as of 12/31/2017 | Dividend Income | |||||||||||||||||||||||||||||||||
Allianz SE, Registered Shares | $ | 331,550 | $ | 15,495 | $ | (86,567 | ) | $ | 23,837 | $ | 96,259 | $ | 380,574 | 1,662 | $ | 15,669 | ||||||||||||||||||||||||
BlackRock Inc., Class A | 208,536 | — | (33,669 | ) | 4,094 | 60,428 | 239,389 | 466 | 4,972 | |||||||||||||||||||||||||||||||
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$ | 540,086 | $ | 15,495 | $ | (120,236 | ) | $ | 27,931 | $ | 156,687 | $ | 619,963 | 2,128 | $ | 20,641 | |||||||||||||||||||||||||
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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.”
FIS Investor Services LLC (“FIS”) 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.
28
AZL MSCI Global Equity Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017, $1,605 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, 2017, actual Trustee compensation was $1,116,333 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.
There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Other^ | Total | ||||||||||||||||||||
Common Stocks | |||||||||||||||||||||||||
Aerospace & Defense | $ | 2,312,220 | $ | 702,634 | $ | — | $ | — | $ | 3,014,854 | |||||||||||||||
Air Freight & Logistics | 649,597 | 244,976 | — | — | 894,573 | ||||||||||||||||||||
Airlines | 131,326 | 100,444 | — | — | 231,770 | ||||||||||||||||||||
Auto Components | 337,015 | 818,115 | — | — | 1,155,130 | ||||||||||||||||||||
Automobiles | 577,379 | 1,902,027 | — | — | 2,479,406 | ||||||||||||||||||||
Banks | 7,623,762 | 7,033,996 | — | — | 14,657,758 | ||||||||||||||||||||
Beverages | 1,781,770 | 1,330,003 | — | — | 3,111,773 | ||||||||||||||||||||
Biotechnology | 2,585,679 | 446,773 | — | — | 3,032,452 | ||||||||||||||||||||
Building Products | 364,158 | 436,611 | — | — | 800,769 | ||||||||||||||||||||
Capital Markets | 3,027,928 | 1,438,360 | — | — | 4,466,288 | ||||||||||||||||||||
Chemicals | 2,197,816 | 2,273,650 | — | — | 4,471,466 | ||||||||||||||||||||
Commercial Services & Supplies | 368,426 | 289,582 | — | — | 658,008 |
29
AZL MSCI Global Equity Index Fund
Notes to the Financial Statements
December 31, 2017
Investment Securities: | Level 1 | Level 2 | Level 3 | Other^ | Total | ||||||||||||||||||||
Communications Equipment | $ | 1,036,849 | $ | 184,377 | $ | — | $ | — | $ | 1,221,226 | |||||||||||||||
Construction & Engineering | 86,443 | 537,674 | — | — | 624,117 | ||||||||||||||||||||
Construction Materials | 124,074 | 363,889 | — | — | 487,963 | ||||||||||||||||||||
Consumer Finance | 740,297 | 41,652 | — | — | 781,949 | ||||||||||||||||||||
Containers & Packaging | 373,203 | 65,200 | — | — | 438,403 | ||||||||||||||||||||
Distributors | 103,883 | 12,160 | — | — | 116,043 | ||||||||||||||||||||
Diversified Consumer Services | 22,969 | 14,047 | — | — | 37,016 | ||||||||||||||||||||
Diversified Financial Services | 1,039,435 | 436,445 | — | — | 1,475,880 | ||||||||||||||||||||
Diversified Telecommunication Services | 1,856,986 | 1,302,732 | — | — | 3,159,718 | ||||||||||||||||||||
Electric Utilities | 1,701,664 | 939,940 | — | — | 2,641,604 | ||||||||||||||||||||
Electrical Equipment | 526,707 | 849,426 | — | — | 1,376,133 | ||||||||||||||||||||
Electronic Equipment, Instruments & Components | 598,816 | 790,733 | — | — | 1,389,549 | ||||||||||||||||||||
Energy Equipment & Services | 696,569 | 52,657 | — | — | 749,226 | ||||||||||||||||||||
Equity Real Estate Investment Trusts | 2,598,407 | 907,734 | — | — | 3,506,141 | ||||||||||||||||||||
Food & Staples Retailing | 1,816,011 | 840,200 | — | — | 2,656,211 | ||||||||||||||||||||
Food Products | 1,236,159 | 1,663,954 | — | — | 2,900,113 | ||||||||||||||||||||
Gas Utilities | 68,540 | 181,046 | — | — | 249,586 | ||||||||||||||||||||
Health Care Equipment & Supplies | 2,363,480 | 593,636 | — | — | 2,957,116 | ||||||||||||||||||||
Health Care Providers & Services | 2,424,812 | 341,498 | — | — | 2,766,310 | ||||||||||||||||||||
Health Care Technology | 97,030 | 24,509 | — | — | 121,539 | ||||||||||||||||||||
Hotels, Restaurants & Leisure | 1,879,515 | 790,959 | — | — | 2,670,474 | ||||||||||||||||||||
Household Durables | 464,150 | 720,668 | — | — | 1,184,818 | ||||||||||||||||||||
Household Products | 1,405,908 | 408,508 | — | — | 1,814,416 | ||||||||||||||||||||
Independent Power & Renewable Electricity Producers | 48,763 | 51,791 | — | — | 100,554 | ||||||||||||||||||||
Industrial Conglomerates | 1,619,607 | 959,277 | — | — | 2,578,884 | ||||||||||||||||||||
Insurance | 3,050,937 | 3,192,593 | — | — | 6,243,530 | ||||||||||||||||||||
Internet & Direct Marketing Retail | 2,554,408 | 73,045 | — | — | 2,627,453 | ||||||||||||||||||||
Internet Software & Services | 4,452,950 | 111,781 | — | — | 4,564,731 | ||||||||||||||||||||
IT Services | 3,873,763 | 479,370 | — | — | 4,353,133 | ||||||||||||||||||||
Leisure Products | 90,292 | 109,749 | — | — | 200,041 | ||||||||||||||||||||
Life Sciences Tools & Services | 666,827 | 127,142 | — | — | 793,969 | ||||||||||||||||||||
Machinery | 1,646,406 | 1,618,627 | — | — | 3,265,033 | ||||||||||||||||||||
Marine | — | 127,846 | — | — | 127,846 | ||||||||||||||||||||
Media | 2,675,768 | 598,338 | — | — | 3,274,106 | ||||||||||||||||||||
Metals & Mining | 681,461 | 1,837,221 | — | — | 2,518,682 | ||||||||||||||||||||
Mortgage Real Estate Investment Trusts | 69,816 | — | — | — | 69,816 | ||||||||||||||||||||
Multiline Retail | 497,408 | 176,731 | — | — | 674,139 | ||||||||||||||||||||
Multi-Utilities | 870,834 | 591,066 | — | — | 1,461,900 | ||||||||||||||||||||
Oil, Gas & Consumable Fuels | 5,955,279 | 2,951,919 | — | — | 8,907,198 | ||||||||||||||||||||
Paper & Forest Products | 57,913 | 124,284 | — | — | 182,197 | ||||||||||||||||||||
Personal Products | 139,651 | 1,097,198 | — | — | 1,236,849 | ||||||||||||||||||||
Pharmaceuticals | 4,080,274 | 4,035,407 | — | — | 8,115,681 | ||||||||||||||||||||
Professional Services | 319,866 | 704,566 | — | — | 1,024,432 | ||||||||||||||||||||
Real Estate Management & Development | 123,295 | 1,106,627 | — | — | 1,229,922 | ||||||||||||||||||||
Road & Rail | 1,240,420 | 638,080 | — | — | 1,878,500 | ||||||||||||||||||||
Semiconductors & Semiconductor Equipment | 3,606,957 | 659,259 | — | — | 4,266,216 | ||||||||||||||||||||
Software | 4,940,162 | 852,514 | — | — | 5,792,676 | ||||||||||||||||||||
Specialty Retail | 2,002,218 | 470,284 | — | — | 2,472,502 | ||||||||||||||||||||
Technology Hardware, Storage & Peripherals | 3,770,534 | 338,373 | — | — | 4,108,907 | ||||||||||||||||||||
Textiles, Apparel & Luxury Goods | 660,561 | 1,085,589 | — | — | 1,746,150 | ||||||||||||||||||||
Thrifts & Mortgage Finance | 23,084 | — | — | — | 23,084 | ||||||||||||||||||||
Tobacco | 1,140,340 | 900,632 | — | — | 2,040,972 | ||||||||||||||||||||
Trading Companies & Distributors | 242,333 | 786,649 | — | — | 1,028,982 | ||||||||||||||||||||
Transportation Infrastructure | 22,342 | 387,702 | — | — | 410,044 | ||||||||||||||||||||
Water Utilities | 64,317 | 57,120 | — | — | 121,437 | ||||||||||||||||||||
Wireless Telecommunication Services | 165,434 | 902,070 | — | — | 1,067,504 |
30
AZL MSCI Global Equity Index Fund
Notes to the Financial Statements
December 31, 2017
Investment Securities: | Level 1 | Level 2 | Level 3 | Other^ | Total | ||||||||||||||||||||
Preferred Stocks | $ | — | $ | 308,047 | $ | — | $ | — | $ | 308,047 | |||||||||||||||
Rights | 1,994 | — | 411 | — | 2,405 | ||||||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | — | 2,933,879 | 2,933,879 | ||||||||||||||||||||
Unaffiliated Investment Company | 260,007 | — | — | — | 260,007 | ||||||||||||||||||||
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|
|
|
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|
|
|
|
| ||||||||||||||||
Total Investment Securities | 96,835,204 | 56,541,712 | 411 | 2,933,879 | 156,311,206 | ||||||||||||||||||||
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|
|
|
|
|
|
| ||||||||||||||||
Other Financial Instruments:* | |||||||||||||||||||||||||
Futures Contracts | 1,362 | — | — | — | 1,362 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Investments | $ | 96,836,566 | $ | 56,541,712 | $ | 411 | $ | 2,933,879 | $ | 156,312,568 | |||||||||||||||
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|
|
|
|
|
|
|
|
|
* | Other Financial Instruments would include any derivative instruments, such as futures contracts. These investments are generally presented in the financial statements at variation margin. |
^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
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, 2017, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL MSCI Global Equity Index Fund | $ | 5,580,069 | $ | 26,719,923 |
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, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $126,027,892. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 32,349,923 | ||
Unrealized (depreciation) | (2,066,609 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 30,283,314 | ||
|
|
31
AZL MSCI Global Equity Index Fund
Notes to the Financial Statements
December 31, 2017
As of the end of its tax year ended December 31, 2017, 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 MSCI Global Equity Index Fund | $ | 8,501,767 | $ | 5,502,957 | $ | 14,004,724 |
During the year ended December 31, 2017, the Fund utilized $3,600,641 in CLCFs to offset capital gains.
The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL MSCI Global Equity Index Fund | $ | 2,867,182 | $ | — | $ | 2,867,182 |
(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, 2016 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL MSCI 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. |
At December 31, 2017, 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 Earnings/ | |||||||||||||||||||||
AZL MSCI Global Equity Index Fund | $ | 2,629,235 | $ | — | $ | (14,004,724 | ) | $ | 30,293,685 | $ | 18,918,196 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2017, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 95% of the Fund.
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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.
32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AZL MSCI Global Equity Index Fund (formerly, AZL Global Equity Index Fund) (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, 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.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
33
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2017, 10.29% of the total ordinary income dividends paid by the Fund qualify for the corporate dividends received deductions available to corporate shareholders.
34
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Fund of Funds Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
35
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
36
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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
37
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in 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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
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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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® Pyramis® Multi-Strategy Fund
Annual Report
December 31, 2017
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 18
Page 18
Statements of Changes in Net Assets
Page 19
Page 20
Notes to the Financial Statements
Page 21
Report of Independent Registered Public Accounting Firm
Page 28
Other Federal Income Tax Information
Page 29
Page 30
Approval of Investment Advisory and Subadvisory Agreements
Page 31
Information about the Board of Trustees and Officers
Page 34
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)
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 Subadviser and Sub-Subadviser, respectively, 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, 2017?
For the year ended December 31, 2017, the AZL® Pyramis® Multi-Strategy Fund (Class 2 Shares) (the “Fund”) returned 11.12%. That compared to a 21.83%, 3.54% and 10.61% total return for its benchmarks, the S&P 500 Index1, the Bloomberg Barclays U.S. Aggregate Bond Index1, and the Balanced Composite Index1, respectively.
Approximately 60% of the underlying fund’s assets are managed by its subadviser, FIAM LLC, investing primarily in investment-grade fixed-income securities, and approximately 40% of the underlying fund’s assets are managed by the Fund’s sub-subadvisesr, Geode Capital Management, LLC, investing primarily in large-cap common stocks.*
Global economic expansion led major stock indexes to new all-time highs during the 12-month period under review. The S&P 500 Index gained 21.83% during the period, supported by a positive economic environment marked by solid jobs growth, low unemployment, increased business investment, strong consumer confidence and a low-volatility environment. Mid- and small-cap stocks also performed well during the period: The S&P MidCap 400 Index generated a 16.24% return and the SmallCap 600 Index returned 13.23%. Growth stocks were also heavily favored during the year and significantly outperformed value stocks.
The U.S. bond market was generally positive, as the market rewarded investors who took on interest rate and spread risk. The Bloomberg Barclays U.S. Aggregate Bond Index gained 3.54%. Bond investors generally tolerated risk in their quest for more attractive yields. Credit spreads on corporate bonds ended the year tighter than when the year began, with high-yield bond spreads tightening markedly. Meanwhile, the yield curve flattened sharply, as three rate hikes by the Federal Reserve sent short-term yields higher, while investor demand for attractive yield pushed long-term yields lower.
The Fund outperformed its composite benchmark during the period under review, due mostly to strong performance within the fixed income component.*
Strategic allocation decisions added to the Fund’s relative performance, including an overweight position in information technology and an underweight position in energy. Stock selection within the industrials and energy sectors also added to relative results, even as security selection, overall, detracted from relative performance within the equity component.*
Stock selection in the information technology and consumer discretionary sectors weighed on relative results. The Fund’s value-oriented investment style also acted as a headwind for relative performance during most of 2017, as value stocks generally underperformed their growth counterparts.*
The Fund’s fixed income component performed well in 2017 relative to its benchmark, benefiting from strong security selection as well as sector selection. An overweight position in high-yield and investment-grade corporate bonds helped boost relative performance as those assets outperformed as spreads tightened. The Fund’s overweight positions in emerging markets bonds and taxable municipal bonds also contributed to performance. The Fund’s underweight position in investment grade industrial bonds detracted from the Fund’s performance relative to its benchmark.*
The Fund held futures to equitize its cash positions during the period. The exposure to this form of derivatives did not materially impact 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, 2017. |
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, 2017
1 Year | 3 Year | 5 Year | Since Inception (10/23/09) | |||||||||||||
AZL® Pyramis® Multi-Strategy Fund (Class 2 Shares) | 11.12 | % | 3.82 | % | 6.19 | % | 6.80 | % | ||||||||
S&P 500 Index | 21.83 | % | 11.41 | % | 15.79 | % | 14.09 | % | ||||||||
Bloomberg Barclays U.S. Aggregate Bond Index | 3.54 | % | 2.24 | % | 2.10 | % | 3.56 | % | ||||||||
Balanced Composite Index | 10.61 | % | 5.92 | % | 7.51 | % | 7.91 | % |
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 (Class 2 Shares) | 1.04 | % |
The above expense ratio is based on the current Fund prospectus dated May 1, 2017. 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% for Class 2 Shares through April 30, 2019. Additional information pertaining to the December 31, 2017 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 was subadvised by Franklin Mutual Advisers, LLC, Franklin Advisers, Inc., and Templeton Global Advisors Limited and was known as AZL Franklin Templeton Founding Strategy Plus Fund. Consequently, the performance information shown below may have been different if the Fund had been managed according to its current investment objective and by its current subadviser and sub-adviser prior to October 14, 2016.
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
(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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Pyramis® Multi-Strategy Fund | $ | 1,000.00 | $ | 1,062.40 | $ | 3.69 | 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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Pyramis® Multi-Strategy Fund | $ | 1,000.00 | $ | 1,021.63 | $ | 3.62 | 0.71 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Common Stocks | 39.8 | % | |||
U.S. Treasury Obligations | 21.4 | ||||
Corporate Bonds | 15.9 | ||||
U.S. Government Agency Mortgages | 12.5 | ||||
Securities Held as Collateral for Securities on Loan | 8.9 | ||||
Yankee Dollars | 6.9 | ||||
Money Markets | 2.7 | ||||
Municipal Bonds | 0.9 | ||||
Asset Backed Securities | 0.6 | ||||
Collateralized Mortgage Obligations | 0.5 | ||||
Convertible Preferred Stocks | — | ^ | |||
Foreign Bonds | — | ^ | |||
|
| ||||
Total Investment Securities | 110.1 | ||||
Net other assets (liabilities) | (10.1 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL Pyramis® Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks (39.8%): | ||||||||
Aerospace & Defense (1.4%): | ||||||||
10,702 | Boeing Co. (The) | $ | 3,156,126 | |||||
651 | General Dynamics Corp. | 132,446 | ||||||
6,623 | Lockheed Martin Corp. | 2,126,314 | ||||||
1,550 | Moog, Inc., Class A* | 134,618 | ||||||
2,373 | Northrop Grumman Corp. | 728,297 | ||||||
9,859 | Raytheon Co. | 1,852,013 | ||||||
9,329 | Spirit AeroSystems Holdings, Inc., Class A | 813,955 | ||||||
|
| |||||||
8,943,769 | ||||||||
|
| |||||||
Air Freight & Logistics (0.0%): | ||||||||
230 | CEVA Group plc*(a) | 103,343 | ||||||
|
| |||||||
Airlines (0.0%): | ||||||||
165 | Copa Holdings SA, Class A | 22,120 | ||||||
|
| |||||||
Auto Components (0.2%): | ||||||||
4,440 | BorgWarner, Inc.^ | 226,840 | ||||||
5,517 | Lear Corp. | 974,633 | ||||||
|
| |||||||
1,201,473 | ||||||||
|
| |||||||
Automobiles (0.3%): | ||||||||
141,868 | Ford Motor Co. | 1,771,931 | ||||||
|
| |||||||
Banks (2.8%): | ||||||||
140,409 | Bank of America Corp. | 4,144,874 | ||||||
45,614 | Citigroup, Inc. | 3,394,138 | ||||||
49,479 | JPMorgan Chase & Co. | 5,291,283 | ||||||
17,837 | Regions Financial Corp. | 308,223 | ||||||
1,817 | U.S. Bancorp | 97,355 | ||||||
63,237 | Wells Fargo & Co. | 3,836,589 | ||||||
|
| |||||||
17,072,462 | ||||||||
|
| |||||||
Beverages (1.0%): | ||||||||
61,708 | Coca-Cola Co. (The) | 2,831,163 | ||||||
4,605 | Molson Coors Brewing Co., Class B | 377,932 | ||||||
26,193 | PepsiCo, Inc. | 3,141,065 | ||||||
|
| |||||||
6,350,160 | ||||||||
|
| |||||||
Biotechnology (1.4%): | ||||||||
30,439 | AbbVie, Inc. | 2,943,755 | ||||||
15,026 | Amgen, Inc. | 2,613,021 | ||||||
1,699 | Celgene Corp.* | 177,308 | ||||||
31,442 | Gilead Sciences, Inc. | 2,252,505 | ||||||
4,469 | United Therapeutics Corp.*^ | 661,189 | ||||||
|
| |||||||
8,647,778 | ||||||||
|
| |||||||
Building Products (0.2%): | ||||||||
5,370 | Fortune Brands Home & Security, Inc.^ | 367,523 | ||||||
9,720 | Owens Corning, Inc. | 893,657 | ||||||
|
| |||||||
1,261,180 | ||||||||
|
| |||||||
Capital Markets (0.8%): | ||||||||
790 | Artisan Partners Asset Management, Inc., Class A^ | 31,205 | ||||||
20,259 | BGC Partners, Inc., Class A^ | 306,113 | ||||||
12,088 | CME Group, Inc. | 1,765,453 | ||||||
925 | Goldman Sachs Group, Inc. (The) | 235,653 | ||||||
21,196 | Morgan Stanley | 1,112,154 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Capital Markets, continued | ||||||||
1,239 | Raymond James Financial, Inc. | $ | 110,643 | |||||
25,520 | Thomson Reuters Corp.^ | 1,112,417 | ||||||
|
| |||||||
4,673,638 | ||||||||
|
| |||||||
Chemicals (0.6%): | ||||||||
7,316 | DowDuPont, Inc. | 521,046 | ||||||
9,572 | Huntsman Corp. | 318,652 | ||||||
15,917 | LyondellBasell Industries NV, Class A | 1,755,963 | ||||||
2,729 | Monsanto Co. | 318,693 | ||||||
7,938 | Westlake Chemical Corp. | 845,634 | ||||||
|
| |||||||
3,759,988 | ||||||||
|
| |||||||
Commercial Services & Supplies (0.5%): | ||||||||
17,663 | KAR Auction Services, Inc. | 892,158 | ||||||
1,529 | LSC Communications, Inc.^ | 23,164 | ||||||
4,948 | Republic Services, Inc., Class A | 334,534 | ||||||
19,272 | Waste Management, Inc. | 1,663,174 | ||||||
|
| |||||||
2,913,030 | ||||||||
|
| |||||||
Communications Equipment (0.8%): | ||||||||
87,195 | Cisco Systems, Inc. | 3,339,569 | ||||||
51,100 | Juniper Networks, Inc. | 1,456,350 | ||||||
|
| |||||||
4,795,919 | ||||||||
|
| |||||||
Consumer Finance (0.3%): | ||||||||
5,925 | American Express Co. | 588,412 | ||||||
15,989 | Discover Financial Services | 1,229,874 | ||||||
|
| |||||||
1,818,286 | ||||||||
|
| |||||||
Diversified Consumer Services (0.1%): | ||||||||
21,389 | H&R Block, Inc.^ | 560,820 | ||||||
|
| |||||||
Diversified Financial Services (0.9%): | ||||||||
20,926 | Berkshire Hathaway, Inc., Class B* | 4,147,952 | ||||||
51,845 | Leucadia National Corp. | 1,373,374 | ||||||
|
| |||||||
5,521,326 | ||||||||
|
| |||||||
Diversified Telecommunication Services (0.8%): | ||||||||
102,098 | AT&T, Inc. | 3,969,570 | ||||||
19,149 | Verizon Communications, Inc. | 1,013,557 | ||||||
|
| |||||||
4,983,127 | ||||||||
|
| |||||||
Electric Utilities (0.5%): | ||||||||
674 | Eversource Energy | 42,583 | ||||||
2,750 | Exelon Corp. | 108,378 | ||||||
45,640 | FirstEnergy Corp. | 1,397,497 | ||||||
2,754 | NextEra Energy, Inc. | 430,147 | ||||||
34,555 | PPL Corp. | 1,069,477 | ||||||
4,987 | Xcel Energy, Inc. | 239,925 | ||||||
|
| |||||||
3,288,007 | ||||||||
|
| |||||||
Electrical Equipment (0.1%): | ||||||||
7,357 | Eaton Corp. plc | 581,277 | ||||||
629 | Regal-Beloit Corp.^ | 48,181 | ||||||
|
| |||||||
629,458 | ||||||||
|
| |||||||
Energy Equipment & Services (0.0%): | ||||||||
101 | Halliburton Co. | 4,936 | ||||||
|
|
Continued
4
AZL Pyramis® Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Equity Real Estate Investment Trusts (0.6%): | ||||||||
18,236 | Apple Hospitality REIT, Inc. | $ | 357,608 | |||||
18,826 | Gaming & Leisure Properties, Inc. | 696,562 | ||||||
32,453 | Parks Hotels & Resorts, Inc.^ | 933,024 | ||||||
3,145 | Piedmont Office Realty Trust, Inc., Class A | 61,673 | ||||||
1,940 | ProLogis, Inc. | 125,149 | ||||||
44,066 | Weyerhaeuser Co. | 1,553,768 | ||||||
|
| |||||||
3,727,784 | ||||||||
|
| |||||||
Food & Staples Retailing (1.2%): | ||||||||
28,088 | CVS Health Corp. | 2,036,380 | ||||||
54,580 | Kroger Co. (The) | 1,498,221 | ||||||
15,820 | Walgreens Boots Alliance, Inc. | 1,148,848 | ||||||
29,260 | Wal-Mart Stores, Inc. | 2,889,425 | ||||||
|
| |||||||
7,572,874 | ||||||||
|
| |||||||
Food Products (0.9%): | ||||||||
36,171 | Archer-Daniels-Midland Co. | 1,449,734 | ||||||
34,451 | ConAgra Foods, Inc. | 1,297,769 | ||||||
1,318 | Hershey Co. (The) | 149,606 | ||||||
12,218 | JM Smucker Co. (The)^ | 1,517,964 | ||||||
5,503 | Sanderson Farms, Inc.^ | 763,706 | ||||||
8,510 | Tyson Foods, Inc., Class A | 689,906 | ||||||
|
| |||||||
5,868,685 | ||||||||
|
| |||||||
Gas Utilities (0.0%): | ||||||||
4,043 | UGI Corp. | 189,819 | ||||||
|
| |||||||
Health Care Equipment & Supplies (0.4%): | ||||||||
24,779 | Baxter International, Inc. | 1,601,715 | ||||||
30 | Becton, Dickinson & Co. | 6,411 | ||||||
4,747 | Masimo Corp.*^ | 402,546 | ||||||
7,751 | Medtronic plc | 625,893 | ||||||
|
| |||||||
2,636,565 | ||||||||
|
| |||||||
Health Care Providers & Services (1.8%): | ||||||||
2,190 | Aetna, Inc. | 395,054 | ||||||
8,581 | Anthem, Inc. | 1,930,811 | ||||||
14,428 | Centene Corp.* | 1,455,497 | ||||||
24,478 | Express Scripts Holding Co.* | 1,827,038 | ||||||
5,334 | Humana, Inc.^ | 1,323,205 | ||||||
4,585 | Patterson Cos., Inc.^ | 165,656 | ||||||
5,843 | Quest Diagnostics, Inc. | 575,477 | ||||||
16,368 | UnitedHealth Group, Inc. | 3,608,489 | ||||||
|
| |||||||
11,281,227 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure (0.3%): | ||||||||
11,344 | Carnival Corp., Class A | 752,901 | ||||||
979 | McDonald’s Corp. | 168,505 | ||||||
12,192 | Royal Caribbean Cruises, Ltd. | 1,454,262 | ||||||
|
| |||||||
2,375,668 | ||||||||
|
| |||||||
Household Durables (0.6%): | ||||||||
39,576 | PulteGroup, Inc.^ | 1,315,902 | ||||||
54,121 | Taylor Morrison Home Corp., Class A*^ | 1,324,341 | ||||||
26,246 | Toll Brothers, Inc.^ | 1,260,333 | ||||||
|
| |||||||
3,900,576 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Household Products (0.7%): | ||||||||
6,206 | Colgate-Palmolive Co. | $ | 468,243 | |||||
41,358 | Procter & Gamble Co. (The) | 3,799,973 | ||||||
|
| |||||||
4,268,216 | ||||||||
|
| |||||||
Independent Power & Renewable Electricity Producers (0.0%): | ||||||||
12,554 | AES Corp. (The) | 135,960 | ||||||
|
| |||||||
Industrial Conglomerates (0.5%): | ||||||||
11,949 | 3M Co., Class C | 2,812,435 | ||||||
23,126 | General Electric Co. | 403,549 | ||||||
832 | Honeywell International, Inc. | 127,596 | ||||||
|
| |||||||
3,343,580 | ||||||||
|
| |||||||
Insurance (0.6%): | ||||||||
8,142 | Aflac, Inc. | 714,705 | ||||||
117 | Erie Indemnity Co., Class A | 14,255 | ||||||
7,828 | First American Financial Corp. | 438,681 | ||||||
31,987 | FNF Group | 1,255,170 | ||||||
3,260 | Loews Corp. | 163,098 | ||||||
8,333 | Prudential Financial, Inc. | 958,128 | ||||||
|
| |||||||
3,544,037 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (0.9%): | ||||||||
4,720 | Amazon.com, Inc.* | 5,519,898 | ||||||
|
| |||||||
Internet Software & Services (1.9%): | ||||||||
3,230 | Alphabet, Inc., Class A* | 3,402,482 | ||||||
2,721 | Alphabet, Inc., Class C* | 2,847,254 | ||||||
32,258 | Facebook, Inc., Class A* | 5,692,247 | ||||||
|
| |||||||
11,941,983 | ||||||||
|
| |||||||
IT Services (1.1%): | ||||||||
16,669 | Fidelity National Information Services, Inc. | 1,568,386 | ||||||
17,254 | International Business Machines Corp. | 2,647,109 | ||||||
1,415 | MasterCard, Inc., Class A | 214,174 | ||||||
11,661 | Total System Services, Inc. | 922,268 | ||||||
8,527 | Visa, Inc., Class A | 972,249 | ||||||
23,270 | Western Union Co.^ | 442,363 | ||||||
|
| |||||||
6,766,549 | ||||||||
|
| |||||||
Machinery (1.0%): | ||||||||
1,056 | AGCO Corp. | 75,430 | ||||||
30,120 | Allison Transmission Holdings, Inc.^ | 1,297,268 | ||||||
15,254 | Caterpillar, Inc. | 2,403,726 | ||||||
9,183 | Cummins, Inc. | 1,622,085 | ||||||
8,971 | Ingersoll-Rand plc | 800,123 | ||||||
|
| |||||||
6,198,632 | ||||||||
|
| |||||||
Media (1.2%): | ||||||||
83,567 | Comcast Corp., Class A | 3,346,858 | ||||||
82,815 | Tegna, Inc.^ | 1,166,035 | ||||||
5,691 | Time Warner, Inc. | 520,556 | ||||||
4,364 | Twenty-First Century Fox, Inc. | 150,689 | ||||||
20,852 | Walt Disney Co. (The) | 2,241,799 | ||||||
|
| |||||||
7,425,937 | ||||||||
|
|
Continued
5
AZL Pyramis® Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Metals & Mining (0.2%): | ||||||||
13,251 | Freeport-McMoRan Copper & Gold, Inc.* | $ | 251,239 | |||||
15,376 | Newmont Mining Corp. | 576,908 | ||||||
23,401 | Warrior Met Coal, Inc. | 588,535 | ||||||
|
| |||||||
1,416,682 | ||||||||
|
| |||||||
Mortgage Real Estate Investment Trusts (0.3%): | ||||||||
106,477 | Annaly Capital Management, Inc. | 1,266,012 | ||||||
33,336 | Two Harbors Investment Corp.^ | 542,043 | ||||||
|
| |||||||
1,808,055 | ||||||||
|
| |||||||
Multiline Retail (0.3%): | ||||||||
11,462 | Macy’s, Inc.^ | 288,728 | ||||||
22,816 | Target Corp. | 1,488,744 | ||||||
|
| |||||||
1,777,472 | ||||||||
|
| |||||||
Multi-Utilities (0.0%): | ||||||||
5,168 | CenterPoint Energy, Inc. | 146,564 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (2.0%): | ||||||||
17,076 | Chevron Corp. | 2,137,744 | ||||||
37,403 | ConocoPhillips Co. | 2,053,051 | ||||||
61,211 | Exxon Mobil Corp. | 5,119,688 | ||||||
23,963 | Marathon Petroleum Corp. | 1,581,079 | ||||||
19,713 | Valero Energy Corp. | 1,811,822 | ||||||
|
| |||||||
12,703,384 | ||||||||
|
| |||||||
Paper & Forest Products (0.2%): | ||||||||
3,497 | Domtar Corp. | 173,171 | ||||||
42,164 | Louisiana-Pacific Corp.* | 1,107,227 | ||||||
|
| |||||||
1,280,398 | ||||||||
|
| |||||||
Pharmaceuticals (2.6%): | ||||||||
2,176 | Allergan plc | 355,950 | ||||||
36,085 | Bristol-Myers Squibb Co. | 2,211,289 | ||||||
24,580 | Eli Lilly & Co. | 2,076,027 | ||||||
37,805 | Johnson & Johnson Co. | 5,282,114 | ||||||
52,018 | Merck & Co., Inc. | 2,927,053 | ||||||
99,627 | Pfizer, Inc. | 3,608,490 | ||||||
|
| |||||||
16,460,923 | ||||||||
|
| |||||||
Professional Services (0.1%): | ||||||||
15,118 | Robert Half International, Inc. | 839,654 | ||||||
|
| |||||||
Road & Rail (0.4%): | ||||||||
17,550 | Union Pacific Corp. | 2,353,455 | ||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (2.1%): | ||||||||
30,781 | Applied Materials, Inc. | 1,573,525 | ||||||
79,385 | Intel Corp. | 3,664,412 | ||||||
13,604 | KLA-Tencor Corp. | 1,429,372 | ||||||
56,069 | Marvell Technology Group, Ltd.^ | 1,203,801 | ||||||
14,270 | Maxim Integrated Products, Inc. | 746,036 | ||||||
41,836 | Micron Technology, Inc.* | 1,720,296 | ||||||
25 | NVIDIA Corp. | 4,838 | ||||||
12,071 | QUALCOMM, Inc. | 772,785 | ||||||
19,710 | Texas Instruments, Inc. | 2,058,512 | ||||||
|
| |||||||
13,173,577 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Common Stocks, continued | ||||||||
Software (1.9%): | ||||||||
9,630 | Electronic Arts, Inc.* | $ | 1,011,728 | |||||
10,574 | Intuit, Inc. | 1,668,366 | ||||||
96,102 | Microsoft Corp. | 8,220,564 | ||||||
25,695 | Oracle Corp. | 1,214,860 | ||||||
|
| |||||||
12,115,518 | ||||||||
|
| |||||||
Specialty Retail (0.6%): | ||||||||
18,852 | Home Depot, Inc. (The) | 3,573,020 | ||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (2.5%): | ||||||||
63,082 | Apple, Inc. | 10,675,367 | ||||||
77,536 | HP, Inc. | 1,629,031 | ||||||
28,968 | Seagate Technology plc^ | 1,212,021 | ||||||
19,042 | Western Digital Corp. | 1,514,410 | ||||||
|
| |||||||
15,030,829 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (0.1%): | ||||||||
13,872 | Michael Kors Holdings, Ltd.* | 873,242 | ||||||
|
| |||||||
Tobacco (0.1%): | ||||||||
2,182 | Altria Group, Inc. | 155,817 | ||||||
5,014 | Philip Morris International, Inc. | 529,729 | ||||||
|
| |||||||
685,546 | ||||||||
|
| |||||||
Total Common Stocks (Cost $207,109,965) | 249,259,060 | |||||||
|
| |||||||
Convertible Preferred Stocks (0.0%): | ||||||||
Air Freight & Logistics (0.0%): | ||||||||
49 | CEVA Group plc, Series A-2(a) | 21,848 | ||||||
6 | CEVA Group plc, Series A-1(a) | 3,660 | ||||||
|
| |||||||
25,508 | ||||||||
|
| |||||||
Total Convertible Preferred Stocks (Cost $11,360) | 25,508 | |||||||
|
| |||||||
Asset Backed Securities (0.6%): | ||||||||
1,657,012 | Aaset Trust, Class A, Series 2017-1A, 3.97%, 5/16/42(b) | 1,662,821 | ||||||
|
| |||||||
731,542 | Blackbird Capital Aircraft, Class A, Series 2016-1A, 4.21%, 12/16/41, Callable 12/15/24 @ 100(b)(c) | 757,875 | ||||||
|
| |||||||
221,354 | Blackbird Capital Aircraft, Class AA, Series 2016-1A, 2.49%, 12/16/41, Callable 12/15/24 @ 100(b)(c) | 219,300 | ||||||
|
| |||||||
368,000 | DB Master Finance LLC, Class A2II, Series 2017-1A, 4.03%, 11/20/47, Callable 11/20/23 @ 100(b) | 376,537 | ||||||
|
| |||||||
220,000 | DB Master Finance LLC, Class A2I, Series 2017-1A, 3.63%, 11/20/47, Callable 11/20/23 @ 100(b) | 220,674 | ||||||
|
| |||||||
396,750 | Thunderbolt Aircraft Lease Ltd., Class A, Series 2017-A, 4.21%, 5/17/32, Callable 4/15/24 @ 100(b)(c) | 407,501 | ||||||
|
| |||||||
Total Asset Backed Securities (Cost $3,596,159) | 3,644,708 | |||||||
|
| |||||||
Collateralized Mortgage Obligations (0.5%): | ||||||||
860,000 | CSMC Trust, Class D, Series 2017-PFHP, 3.73%(US0001M+225bps), 12/15/30(d) | 859,999 | ||||||
|
| |||||||
1,900,000 | GAHR Commercial Mortgage Trust, Class DFX, Series 2015-NRF, 3.38%, 12/15/34(b)(c) | 1,906,894 | ||||||
|
| |||||||
103,000 | MSCG Trust, Class C, Series 2016-SNR, 5.21%, 11/15/34(b) | 104,582 | ||||||
|
|
Continued
6
AZL Pyramis® Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Collateralized Mortgage Obligations, continued | ||||||||
146,000 | MSCG Trust, Class B, Series 2016-SNR, 4.18%, 11/15/34(b) | $ | 146,289 | |||||
|
| |||||||
414,000 | MSCG Trust, Class A, Series 2016-SNR, 3.35%, 11/15/34(b)(c) | 411,594 | ||||||
|
| |||||||
Total Collateralized Mortgage Obligations (Cost $3,453,654) | 3,429,358 | |||||||
|
| |||||||
Corporate Bonds (15.9%): | ||||||||
Aerospace & Defense (0.1%): | ||||||||
$ | 500,000 | KLX, Inc., 5.88%, 12/1/22, Callable 2/5/18 @ 104.41(b) | 523,600 | |||||
|
| |||||||
Automobiles (0.1%): | ||||||||
330,000 | General Motors Co., 3.50%, 10/2/18 | 333,433 | ||||||
|
| |||||||
Banks (1.5%): | ||||||||
640,000 | Bank of America Corp., 4.20%, 8/26/24 | 673,965 | ||||||
410,000 | Bank of America Corp., Series L, 3.95%, 4/21/25 | 423,989 | ||||||
66,000 | Bank of America Corp., Series G, 4.45%, 3/3/26 | 70,449 | ||||||
396,000 | Bank of America Corp., Series G, 3.50%, 4/19/26^ | 404,872 | ||||||
397,000 | Bank of America Corp., 4.25%, 10/22/26 | 418,372 | ||||||
543,000 | Bank of America Corp., 3.42% (US0003M + 104 bps), 12/20/28, Callable 12/20/27 @ 100(b) | 543,117 | ||||||
135,000 | Bank of America Corp., Series AA, 6.10% (US0003M + 390 bps), 12/29/49, Callable 3/17/25 @ 100^ | 148,163 | ||||||
165,000 | CIT Group, Inc., 5.00%, 8/15/22 | 174,900 | ||||||
730,000 | Citigroup, Inc., 4.05%, 7/30/22 | 759,785 | ||||||
1,000,000 | Citigroup, Inc., 4.30%, 11/20/26 | 1,045,721 | ||||||
250,000 | Citizens Bank NA, 2.55%, 5/13/21, Callable 4/13/21 @ 100 | 249,075 | ||||||
2,005,000 | JPMorgan Chase & Co., 3.88%, 9/10/24 | 2,091,460 | ||||||
231,000 | JPMorgan Chase & Co., 2.95%, 10/1/26, Callable 7/1/26 @ 100 | 226,898 | ||||||
1,422,000 | JPMorgan Chase & Co., 4.13%, 12/15/26 | 1,500,086 | ||||||
160,000 | JPMorgan Chase & Co., Series S, 6.75% (US0003M + 378 bps), 12/31/99, Callable 2/1/24 @ 100, Perpetual Bond^ | 181,200 | ||||||
550,000 | Regions Financial Corp., 3.20%, 2/8/21, Callable 1/8/21 @ 100 | 559,603 | ||||||
|
| |||||||
9,471,655 | ||||||||
|
| |||||||
Beverages (0.5%): | ||||||||
992,000 | Anheuser-Busch InBev NV, 3.30%, 2/1/23, Callable 12/1/22 @ 100 | 1,015,107 | ||||||
939,000 | Anheuser-Busch InBev NV, 4.70%, 2/1/36, Callable 8/1/35 @ 100 | 1,049,942 | ||||||
1,074,000 | Anheuser-Busch InBev NV, 4.90%, 2/1/46, Callable 8/1/45 @ 100 | 1,244,754 | ||||||
|
| |||||||
3,309,803 | ||||||||
|
| |||||||
Capital Markets (0.3%): | ||||||||
399,000 | Global Sachs Group, Inc., 2.88% (US0003M + 82 bps), 10/31/22, Callable 10/31/21 @ 100 | 397,857 | ||||||
154,000 | IntercontinentalExchange, 2.75%, 12/1/20, Callable 11/1/20 @ 100 | 155,825 | ||||||
148,000 | Moody’s Corp., 4.88%, 2/15/24, Callable 11/15/23 @ 100 | 162,566 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Capital Markets, continued | ||||||||
$ | 157,000 | Moody’s Corp., 3.25%, 1/15/28, Callable 10/15/27 @ 100(b) | $ | 155,211 | ||||
523,000 | Morgan Stanley, 4.88%, 11/1/22 | 563,177 | ||||||
145,000 | MSCI, Inc., 4.75%, 8/1/26, Callable 8/1/21 @ 102.38(b) | 152,250 | ||||||
114,000 | Tiaa Asset Management Finance LLC, 2.95%, 11/1/19(b) | 115,090 | ||||||
|
| |||||||
1,701,976 | ||||||||
|
| |||||||
Chemicals (0.3%): | ||||||||
350,000 | CF Industries Holdings, Inc., 3.45%, 6/1/23^ | 345,187 | ||||||
350,000 | CF Industries, Inc., 4.95%, 6/1/43 | 330,750 | ||||||
265,000 | Chemours Co., 5.38%, 5/15/27, Callable 2/15/27 @ 100 | 274,275 | ||||||
200,000 | Platform Specialty Products, 6.50%, 2/1/22, Callable 2/5/18 @ 103.25^(b) | 206,750 | ||||||
45,000 | Platform Specialty Products Corp., 5.88%, 12/1/25, Callable 12/1/20 @ 102.94^(b) | 44,663 | ||||||
200,000 | TPC Group, Inc., 8.75%, 12/15/20, Callable 2/5/18 @ 102.19^(b) | 200,000 | ||||||
95,000 | Tronox Finance LLC, 7.50%, 3/15/22, Callable 3/15/18 @ 103.75(b) | 99,275 | ||||||
130,000 | Valvoline, Inc., 4.38%, 8/15/25, Callable 8/15/20 @ 103.28^ | 131,300 | ||||||
175,000 | Venator Finance SARL/Venator Materials Corp., 5.75%, 7/15/25, Callable 7/15/20 @ 104.31^(b) | 184,625 | ||||||
200,000 | W R Grace & Co., 5.63%, 10/1/24(b) | 215,750 | ||||||
|
| |||||||
2,032,575 | ||||||||
|
| |||||||
Commercial Services & Supplies (0.3%): | ||||||||
500,000 | ADT Corp., 6.25%, 10/15/21 | 547,500 | ||||||
135,000 | ADT Corp., 4.88%, 7/15/32(b) | 127,575 | ||||||
95,000 | Covanta Holding Corp., 5.88%, 3/1/24, Callable 3/1/19 @ 102.94^ | 96,425 | ||||||
800,000 | Prime Securities Services Borrower/Finance, 9.25%, 5/15/23, Callable 5/15/19 @ 104.63(b) | 888,000 | ||||||
|
| |||||||
1,659,500 | ||||||||
|
| |||||||
Communications Equipment (0.0%): | ||||||||
200,000 | Brocade Communications Systems, Inc., 4.63%, 1/15/23, Callable 1/16/18 @ 102.31 | 204,500 | ||||||
|
| |||||||
Construction & Engineering (0.0%): | ||||||||
200,000 | AECOM, 5.13%, 3/15/27, Callable 12/15/26 @ 100 | 203,730 | ||||||
|
| |||||||
Consumer Finance (2.0%): | ||||||||
400,000 | Ally Financial, Inc., 5.75%, 11/20/25, Callable 10/20/25 @ 100^ | 436,000 | ||||||
320,000 | Capital One Financial Co., 2.45%, 4/24/19, Callable 3/24/19 @ 100^ | 320,747 | ||||||
534,000 | Capital One NA, Series BNKT, 2.95%, 7/23/21, Callable 6/23/21 @ 100 | 537,181 | ||||||
1,000,000 | Discover Bank, 3.20%, 8/9/21, Callable 7/9/21 @ 100 | 1,014,437 | ||||||
1,000,000 | Discover Financial Services, 5.20%, 4/27/22 | 1,076,362 |
Continued
7
AZL Pyramis® Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Consumer Finance, continued | ||||||||
$ | 600,000 | Ford Motor Credit Co. LLC, 5.00%, 5/15/18 | $ | 606,107 | ||||
533,000 | Ford Motor Credit Co. LLC, 2.24%, 6/15/18 | 533,504 | ||||||
600,000 | Ford Motor Credit Co. LLC, 2.88%, 10/1/18 | 603,531 | ||||||
1,000,000 | Ford Motor Credit Co. LLC, 2.60%, 11/4/19^ | 1,000,654 | ||||||
751,000 | Ford Motor Credit Co. LLC, 5.88%, 8/2/21 | 824,678 | ||||||
200,000 | General Motors Acceptance Corp., 8.00%, 11/1/31 | 260,000 | ||||||
383,000 | General Motors Financial Co., 3.50%, 7/10/19 | 388,772 | ||||||
500,000 | General Motors Financial Co., 4.20%, 3/1/21, Callable 2/1/21 @ 100 | 519,977 | ||||||
2,003,000 | General Motors Financial Co., 4.38%, 9/25/21 | 2,106,937 | ||||||
200,000 | General Motors Financial Co., 4.25%, 5/15/23 | 209,204 | ||||||
161,000 | Hyundai Capital America, 2.88%, 8/9/18(b) | 161,335 | ||||||
378,000 | Hyundai Capital America, 2.55%, 2/6/19(b) | 377,335 | ||||||
200,000 | SLM Corp., 5.50%, 1/15/19 | 203,500 | ||||||
510,000 | Synchrony Financial, 3.75%, 8/15/21, Callable 6/15/21 @ 100 | 522,959 | ||||||
610,000 | Synchrony Financial, 4.25%, 8/15/24, Callable 5/15/24 @ 100 | 632,483 | ||||||
|
| |||||||
12,335,703 | ||||||||
|
| |||||||
Containers & Packaging (0.1%): | ||||||||
65,000 | Crown Americas LLC/Crown Americas Capital Corp., 4.25%, 9/30/26, Callable 3/31/26 @ 100 | 64,025 | ||||||
50,000 | Crown Cork & Seal Co., Inc., 7.38%, 12/15/26 | 58,250 | ||||||
200,000 | Reynolds Group Issuer, Inc., 5.13%, 7/15/23, Callable 7/15/19 @ 102.56(b) | 207,000 | ||||||
|
| |||||||
329,275 | ||||||||
|
| |||||||
Diversified Consumer Services (0.3%): | ||||||||
700,000 | APX Group, Inc., 8.75%, 12/1/20, Callable 2/5/18 @ 102.19 | 714,000 | ||||||
430,000 | APX Group, Inc., 7.63%, 9/1/23, Callable 9/1/19 @ 105.72^ | 452,575 | ||||||
110,000 | Ascend Learning LLC, 6.88%, 8/1/25, Callable 8/1/20 @ 103.44(b) | 113,575 | ||||||
360,000 | Laureate Education, Inc., 8.25%, 5/1/25, Callable 5/1/20 @ 106.19(b) | 381,600 | ||||||
|
| |||||||
1,661,750 | ||||||||
|
| |||||||
Diversified Financial Services (0.1%): | ||||||||
500,000 | Peachtree Funding Trust, 3.98%, 2/15/25(b) | 514,824 | ||||||
185,000 | Voya Financial, Inc., 3.13%, 7/15/24, Callable 5/15/24 @ 100 | 183,336 | ||||||
|
| |||||||
698,160 | ||||||||
|
| |||||||
Diversified Telecommunication Services (0.7%): | ||||||||
322,000 | AT&T, Inc., 2.45%, 6/30/20, Callable 5/30/20 @ 100^ | 321,648 | ||||||
614,000 | AT&T, Inc., 3.60%, 2/17/23, Callable 12/17/22 @ 100 | 628,104 | ||||||
200,000 | Level 3 Financing, Inc., 5.38%, 1/15/24, Callable 1/15/19 @ 102.69 | 199,750 | ||||||
200,000 | Level 3 Financing, Inc., 5.38%, 5/1/25, Callable 5/1/20 @ 102.69^ | 199,750 | ||||||
200,000 | Qwest Corp., 6.75%, 12/1/21 | 215,376 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Diversified Telecommunication Services, continued | ||||||||
$ | 130,000 | Qwest Corp., 7.25%, 9/15/25 | $ | 139,538 | ||||
130,000 | Qwest Corp., 6.88%, 9/15/33, Callable 2/5/18 @ 100.59 | 124,626 | ||||||
400,000 | Radiate Holdco LLC/Radiate Finance, Inc., 6.63%, 2/15/25, Callable 2/15/20 @ 103.31^(b) | 378,000 | ||||||
100,000 | Verizon Communications, Inc., 5.50%, 3/16/47 | 113,941 | ||||||
603,000 | Verizon Communications, Inc., 5.01%, 4/15/49 | 632,419 | ||||||
930,000 | Verizon Communications, Inc., 5.01%, 8/21/54 | 952,310 | ||||||
500,000 | Zayo Group LLC/Zayo Capital, 6.38%, 5/15/25, Callable 5/15/20 @ 103.19 | 528,750 | ||||||
|
| |||||||
4,434,212 | ||||||||
|
| |||||||
Electric Utilities (0.1%): | ||||||||
110,000 | Emera US Finance LP, 2.15%, 6/15/19^ | 109,572 | ||||||
109,000 | Emera US Finance LP, 2.70%, 6/15/21, Callable 5/15/21 @ 100 | 108,735 | ||||||
174,000 | Emera US Finance LP, 3.55%, 6/15/26, Callable 3/15/26 @ 100^ | 174,499 | ||||||
305,000 | FirstEnergy Solutions Co., 6.05%, 8/15/21 | 126,575 | ||||||
164,004 | NSG Holdings LLC/NSG Holdings, Inc., 7.75%, 12/15/25(d) | 179,993 | ||||||
117,000 | NV Energy, Inc., 6.25%, 11/15/20 | 128,494 | ||||||
2,581,000 | Texas Competitive Electric Holdings Co. LLC, 11.50%, 10/1/20(d)(e) | 19,358 | ||||||
|
| |||||||
847,226 | ||||||||
|
| |||||||
Energy Equipment & Services (0.1%): | ||||||||
234,000 | Halliburton Co., 3.80%, 11/15/25, Callable 8/15/25 @ 100 | 243,188 | ||||||
205,000 | Halliburton Co., 4.85%, 11/15/35, Callable 5/15/35 @ 100 | 229,978 | ||||||
110,000 | Nabors Industries, Inc., 5.50%, 1/15/23, Callable 11/15/22 @ 100^ | 106,700 | ||||||
|
| |||||||
579,866 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (2.2%): | ||||||||
500,000 | American Tower Corp., 2.80%, 6/1/20, Callable 5/1/20 @ 100 | 503,115 | ||||||
1,000,000 | Brandywine Operating Partners LP, 4.10%, 10/1/24, Callable 7/1/24 @ 100 | 1,016,461 | ||||||
212,000 | Brandywine Operating Partnership LP, 3.95%, 11/15/27, Callable 8/15/27 @ 100 | 210,431 | ||||||
528,000 | Brixmor Operating Partners LP, 3.25%, 9/15/23, Callable 7/15/23 @ 100 | 517,296 | ||||||
355,000 | Brixmor Operating Partners LP, 3.85%, 2/1/25, Callable 11/1/24 @ 100 | 354,527 | ||||||
717,000 | Corporate Office Properties LP, 5.25%, 2/15/24, Callable 11/15/23 @ 100 | 773,513 | ||||||
110,000 | Corrections Corp. of America, 5.00%, 10/15/22, Callable 7/15/22 @ 100 | 114,950 | ||||||
773,000 | DDR Corp., 4.63%, 7/15/22, Callable 4/15/22 @ 100^ | 815,001 | ||||||
48,000 | DDR Corp., 3.90%, 8/15/24, Callable 6/15/24 @ 100^ | 48,356 |
Continued
8
AZL Pyramis® Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Equity Real Estate Investment Trusts, continued | ||||||||
$ | 315,000 | Digital Realty Trust LP, 3.95%, 7/1/22, Callable 5/1/22 @ 100^ | $ | 329,069 | ||||
900,000 | Digital Realty Trust LP, 4.75%, 10/1/25, Callable 7/1/25 @ 100 | 978,457 | ||||||
183,000 | Duke Realty LP, 3.63%, 4/15/23, Callable 1/15/23 @ 100 | 187,458 | ||||||
500,000 | Equinix, Inc., 5.75%, 1/1/25, Callable 1/1/20 @ 102.88 | 530,625 | ||||||
500,000 | Health Care REIT, Inc., 4.13%, 4/1/19, Callable 1/1/19 @ 100 | 508,908 | ||||||
735,000 | Lexington Realty Trust, 4.40%, 6/15/24, Callable 3/15/24 @ 100 | 740,521 | ||||||
200,000 | MPT Operating Partnership LP/MPT Finance Corp., 5.25%, 8/1/26, Callable 8/1/21 @ 102.63 | 207,000 | ||||||
549,000 | Omega Healthcare Investors, Inc., 4.38%, 8/1/23, Callable 6/1/23 @ 100 | 556,811 | ||||||
101,000 | Omega Healthcare Investors, Inc., 4.50%, 1/15/25, Callable 10/15/24 @ 100^ | 100,929 | ||||||
526,000 | Omega Healthcare Investors, Inc., 5.25%, 1/15/26, Callable 10/15/25 @ 100 | 545,077 | ||||||
1,628,000 | Omega Healthcare Investors, Inc., 4.50%, 4/1/27, Callable 1/1/27 @ 100^ | 1,592,950 | ||||||
494,000 | Omega Healthcare Investors, Inc., 4.75%, 1/15/28, Callable 10/15/27 @ 100^ | 489,685 | ||||||
600,000 | Sabra Health/Capital Corp., 5.50%, 2/1/21, Callable 2/5/18 @ 102.75 | 612,750 | ||||||
700,000 | Tanger Properties LP, 3.88%, 12/1/23, Callable 9/1/23 @ 100 | 713,512 | ||||||
275,000 | Tanger Properties LP, 3.75%, 12/1/24, Callable 9/1/24 @ 100 | 276,433 | ||||||
111,000 | Ventas Realty LP, 4.00%, 4/30/19, Callable 1/30/19 @ 100 | 113,019 | ||||||
118,000 | Ventas Realty LP, 3.13%, 6/15/23, Callable 3/15/23 @ 100 | 118,050 | ||||||
|
| |||||||
12,954,904 | ||||||||
|
| |||||||
Food & Staples Retailing (0.1%): | ||||||||
244,000 | CVS Health, 3.50%, 7/20/22, Callable 5/20/22 @ 100 | 248,539 | ||||||
65,000 | US Foods, Inc., 5.88%, 6/15/24, Callable 6/15/19 @ 102.94(b) | 68,250 | ||||||
271,000 | Walgreens Boots Alliance, Inc., 3.30%, 11/18/21, Callable 9/18/21 @ 100 | 275,523 | ||||||
|
| |||||||
592,312 | ||||||||
|
| |||||||
Food Products (0.1%): | ||||||||
135,000 | Lamb Weston HLD, 4.88%, 11/1/26, Callable 11/1/21 @ 102.44(b) | 141,075 | ||||||
200,000 | Post Holding, Inc., 5.00%, 8/15/26, Callable 8/15/21 @ 102.5(b) | 196,750 | ||||||
|
| |||||||
337,825 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Health Care Equipment & Supplies (0.0%): | ||||||||
$ | 125,000 | Teleflex, Inc., 4.88%, 6/1/26, Callable 6/1/21 @ 102.44 | $ | 129,063 | ||||
20,000 | Teleflex, Inc., 4.63%, 11/15/27, Callable 11/15/22 @ 102.31 | 20,171 | ||||||
|
| |||||||
149,234 | ||||||||
|
| |||||||
Health Care Providers & Services (0.7%): | ||||||||
300,000 | Community Health System, Inc., 6.88%, 2/1/22, Callable 2/5/18 @ 103.44^ | 172,500 | ||||||
120,000 | Community Health System, Inc., 6.25%, 3/31/23, Callable 3/31/20 @ 103.13 | 108,000 | ||||||
355,000 | HCA, Inc., 3.75%, 3/15/19 | 358,106 | ||||||
1,900,000 | HCA, Inc., 6.50%, 2/15/20 | 2,014,000 | ||||||
25,000 | HCA, Inc., 5.88%, 3/15/22 | 26,750 | ||||||
20,000 | HCA, Inc., 4.75%, 5/1/23 | 20,600 | ||||||
300,000 | HCA, Inc., 5.38%, 2/1/25 | 310,500 | ||||||
320,000 | HCA, Inc., 5.25%, 4/15/25 | 338,400 | ||||||
200,000 | HCA, Inc., 5.25%, 6/15/26, Callable 12/15/25 @ 100 | 212,000 | ||||||
200,000 | Tenet Healthcare Corp., 4.50%, 4/1/21 | 201,000 | ||||||
400,000 | Tenet Healthcare Corp., 8.13%, 4/1/22 | 407,000 | ||||||
130,000 | Vizient, Inc., 10.38%, 3/1/24, Callable 3/1/19 @ 107.78(b) | 145,925 | ||||||
200,000 | WellCare Health Plans, 5.25%, 4/1/25, Callable 4/1/20 @ 103.94 | 211,000 | ||||||
|
| |||||||
4,525,781 | ||||||||
|
| |||||||
Health Care Technology (0.0%): | ||||||||
200,000 | IMS Health, Inc., 5.00%, 10/15/26, Callable 10/15/21 @ 102.5(b) | 205,000 | ||||||
|
| |||||||
Hotels, Restaurants & Leisure (0.3%): | ||||||||
200,000 | Aramark Services, Inc., 5.00%, 4/1/25, Callable 4/1/20 @ 103.75(b) | 211,260 | ||||||
500,000 | Golden Nugget, Inc., 6.75%, 10/15/24, Callable 10/15/19 @ 103.38(b) | 508,750 | ||||||
90,000 | Golden Nugget, Inc., 8.75%, 10/1/25, Callable 10/1/20 @ 104.38(b) | 94,500 | ||||||
100,000 | Hilton Worldwide Finance LLC, 4.63%, 4/1/25, Callable 4/1/20 @ 102.31 | 102,750 | ||||||
86,000 | McDonald’s Corp., 2.75%, 12/9/20, Callable 11/9/20 @ 100^ | 86,892 | ||||||
227,000 | McDonald’s Corp., 3.70%, 1/30/26, Callable 10/30/25 @ 100 | 236,622 | ||||||
300,000 | MGM Growth Properties LLC, 4.50%, 9/1/26, Callable 6/1/26 @ 100 | 298,500 | ||||||
100,000 | Penn National Gaming, Inc., 5.63%, 1/15/27, Callable 1/15/22 @ 102.81^(b) | 103,750 | ||||||
400,000 | Scientific Games International, Inc., 10.00%, 12/1/22, Callable 12/1/18 @ 105 | 439,000 | ||||||
100,000 | Wynn Las Vegas LLC, 5.50%, 3/1/25, Callable 12/1/24 @ 100^(b) | 103,000 | ||||||
|
| |||||||
2,185,024 | ||||||||
|
|
Continued
9
AZL Pyramis® Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Household Products (0.0%): | ||||||||
$ | 200,000 | Energizer Holdings, Inc., 5.50%, 6/15/25, Callable 6/15/20 @ 102.75(b) | $ | 208,310 | ||||
|
| |||||||
Independent Power & Renewable Electricity Producers (0.2%): | ||||||||
200,000 | AES Corp., 5.50%, 3/15/24, Callable 3/15/19 @ 102.75 | 208,000 | ||||||
300,000 | Dynegy, Inc., 8.00%, 1/15/25, Callable 1/15/20 @ 104^(b) | 324,750 | ||||||
500,000 | IPALCO Enterprises, Inc., 3.45%, 7/15/20, Callable 6/15/20 @ 100^ | 505,000 | ||||||
136,000 | IPALCO Enterprises, Inc., 3.70%, 9/1/24, Callable 7/1/24 @ 100(b) | 135,876 | ||||||
30,000 | NextEra Energy Operating Partners LP, 4.25%, 9/15/24, Callable 7/15/24 @ 100(b) | 30,525 | ||||||
230,000 | NRG Energy, 6.25%, 5/1/24, Callable 5/1/19 @ 103.13^ | 240,925 | ||||||
|
| |||||||
1,445,076 | ||||||||
|
| |||||||
Industrial Conglomerates (0.1%): | ||||||||
200,000 | Icahn Enterprises LP, 6.00%, 8/1/20, Callable 2/5/18 @ 103 | 205,685 | ||||||
200,000 | Icahn Enterprises LP, 5.88%, 2/1/22, Callable 2/5/18 @ 102.94 | 202,500 | ||||||
|
| |||||||
408,185 | ||||||||
|
| |||||||
Insurance (0.6%): | ||||||||
65,000 | Acrisure LLC/Finance, Inc., 7.00%, 11/15/25, Callable 11/15/20 @ 103.5(b) | 62,644 | ||||||
218,000 | American International Group, Inc., 3.30%, 3/1/21, Callable 2/1/21 @ 100 | 222,235 | ||||||
809,000 | American International Group, Inc., 3.75%, 7/10/25, Callable 4/10/25 @ 100 | 834,098 | ||||||
436,000 | Pacific Lifecorp, 5.13%, 1/30/43(b) | 492,028 | ||||||
497,000 | Teachers Insurance & Annuity Association of America, 4.90%, 9/15/44(b) | 568,506 | ||||||
1,042,000 | Unum Group, 5.75%, 8/15/42 | 1,275,033 | ||||||
130,000 | USIS Merger Sub, Inc., 6.88%, 5/1/25, Callable 5/1/20 @ 103.44(b) | 131,300 | ||||||
|
| |||||||
3,585,844 | ||||||||
|
| |||||||
Internet Software & Services (0.2%): | ||||||||
135,000 | Genesys/Greeneden LUX/US, 10.00%, 11/30/24, Callable 11/30/19 @ 107.5(b) | 147,488 | ||||||
900,000 | Inception Merger Sub, Inc./Rackspace Hosting, Inc., 8.63%, 11/15/24, Callable 11/15/19 @ 106.47^(b) | 960,750 | ||||||
|
| |||||||
1,108,238 | ||||||||
|
| |||||||
IT Services (0.0%): | ||||||||
200,000 | First Data Corp., 5.38%, 8/15/23, Callable 8/15/18 @ 102.69(b) | 208,180 | ||||||
|
| |||||||
Life Sciences Tools & Services (0.0%): | ||||||||
66,000 | Thermo Fisher Scientific, 2.40%, 2/1/19 | 66,161 | ||||||
|
| |||||||
Machinery (0.0%): | ||||||||
34,000 | Ingersoll-Rand Global Holding Co., Ltd., 2.88%, 1/15/19 | 34,174 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Media (1.6%): | ||||||||
$ | 395,000 | 21st Century Fox America, 7.75%, 12/1/45 | $ | 626,633 | ||||
500,000 | Altice US Finance I Corp., 5.38%, 7/15/23, Callable 7/15/18 @ 104.03(b) | 511,250 | ||||||
115,000 | AMC Entertainment, Inc., 5.75%, 6/15/25, Callable 6/15/20 @ 102.88^ | 113,706 | ||||||
400,000 | AMC Networks, Inc., 5.00%, 4/1/24, Callable 4/1/20 @ 102.5^ | 405,000 | ||||||
400,000 | CCO Holdings LLC, 5.75%, 2/15/26, Callable 2/15/21 @ 102.88(b) | 415,500 | ||||||
400,000 | CCO Holdings LLC, 5.88%, 5/1/27, Callable 5/1/21 @ 102.94(b) | 412,000 | ||||||
200,000 | CSC Holdings LLC, 5.50%, 4/15/27, Callable 4/15/22 @ 102.75^(b) | 204,000 | ||||||
200,000 | Dish DBS Corp., 5.88%, 7/15/22^ | 201,000 | ||||||
200,000 | Dish DBS Corp., 5.00%, 3/15/23^ | 189,000 | ||||||
450,000 | MHGE Parent LLC/Finance, 8.50%, 8/1/19, Callable 2/5/18 @ 100(b) | 447,615 | ||||||
500,000 | Neptune Finco Corp., 6.63%, 10/15/25, Callable 10/15/20 @ 103.31(b) | 541,240 | ||||||
200,000 | Sirius XM Radio, Inc., 4.63%, 5/15/23, Callable 5/15/18 @ 102.31(b) | 204,250 | ||||||
600,000 | Sirius XM Radio, Inc., 5.38%, 4/15/25, Callable 4/15/20 @ 102.69(b) | 624,750 | ||||||
716,000 | Time Warner Cable, Inc., 8.25%, 4/1/19 | 765,252 | ||||||
1,000,000 | Time Warner Cable, Inc., 4.13%, 2/15/21, Callable 11/15/20 @ 100^ | 1,029,783 | ||||||
623,000 | Time Warner Cable, Inc., 4.00%, 9/1/21, Callable 6/1/21 @ 100 | 641,652 | ||||||
155,000 | Time Warner Cable, Inc., 6.55%, 5/1/37 | 182,291 | ||||||
280,000 | Time Warner Cable, Inc., 7.30%, 7/1/38 | 350,970 | ||||||
1,500,000 | Time Warner Cable, Inc., 6.75%, 6/15/39 | 1,799,815 | ||||||
69,000 | Time Warner Cable, Inc., 5.50%, 9/1/41, Callable 3/1/41 @ 100 | 71,918 | ||||||
|
| |||||||
9,737,625 | ||||||||
|
| |||||||
Metals & Mining (0.0%): | ||||||||
200,000 | Freeport-McMoRan, Inc., 3.55%, 3/1/22, Callable 12/1/21 @ 100 | 197,750 | ||||||
|
| |||||||
Mortgage Real Estate Investment Trusts (0.0%): | ||||||||
45,000 | Starwood Property Trust, Inc., 4.75%, 3/15/25, Callable 9/15/24 @ 100(b) | 44,663 | ||||||
|
| |||||||
Multi-Utilities (0.1%): | ||||||||
339,000 | Sempra Energy, 6.00%, 10/15/39 | 437,419 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (1.8%): | ||||||||
800,000 | Access Midstream Partner, 4.88%, 3/15/24, Callable 3/15/19 @ 102.44 | 836,000 | ||||||
149,000 | Anadarko Petroleum Corp., 4.85%, 3/15/21, Callable 2/15/21 @ 100 | 157,349 | ||||||
308,000 | Anadarko Petroleum Corp., 5.55%, 3/15/26, Callable 12/15/25 @ 100^ | 345,571 | ||||||
738,000 | Anadarko Petroleum Corp., 7.50%, 5/1/31 | 947,295 | ||||||
78,000 | Anadarko Petroleum Corp., 6.45%, 9/15/36 | 95,535 |
Continued
10
AZL Pyramis® Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
$ | 410,000 | Anadarko Petroleum Corp., 6.60%, 3/15/46, Callable 9/15/45 @ 100 | $ | 527,374 | ||||
300,000 | Antero Resources Corp., 5.13%, 12/1/22, Callable 2/5/18 @ 103.84^ | 306,000 | ||||||
200,000 | Cheniere Corpus Christi Holdings LLC, 7.00%, 6/30/24, Callable 1/1/24 @ 100 | 227,625 | ||||||
220,000 | Cheniere Energy Partners, 5.25%, 10/1/25, Callable 10/1/20 @ 102.63(b) | 223,850 | ||||||
438,000 | Chesapeake Energy Corp., 8.00%, 12/15/22, Callable 12/15/18 @ 104^(b) | 472,493 | ||||||
110,000 | Chesapeake Energy Corp., 8.00%, 1/15/25, Callable 1/15/20 @ 106^(b) | 111,100 | ||||||
350,000 | Citgo Petroleum Corp., 6.25%, 8/15/22, Callable 2/5/18 @ 104.69(b) | 352,625 | ||||||
88,000 | Columbia Pipeline Group, 2.45%, 6/1/18 | 88,052 | ||||||
132,000 | Columbia Pipeline Group, 4.50%, 6/1/25, Callable 3/1/25 @ 100 | 140,546 | ||||||
110,000 | Continental Resources, Inc., 4.50%, 4/15/23, Callable 1/15/23 @ 100^ | 112,200 | ||||||
100,000 | Crestwood Midstream Partners LP/Crestwood Midstream Finance Corp., 5.75%, 4/1/25, Callable 4/1/20 @ 104.31 | 103,250 | ||||||
100,000 | CVR Refining LLC/Coffeyville Finance, Inc., 6.50%, 11/1/22, Callable 2/5/18 @ 103.25 | 103,000 | ||||||
400,000 | DCP Midstream Operating LLC, 8.13%, 8/16/30 | 468,000 | ||||||
125,000 | Denbury Resources, Inc., 4.63%, 7/15/23, Callable 2/5/18 @ 102.31^ | 80,000 | ||||||
117,000 | Enable Midstream Partners LP, 2.40%, 5/15/19, Callable 4/15/19 @ 100 | 116,329 | ||||||
124,000 | Enable Midstream Partners LP, 3.90%, 5/15/24, Callable 2/15/24 @ 100 | 124,752 | ||||||
200,000 | Energy Transfer Equity, 5.88%, 1/15/24, Callable 10/15/23 @ 100 | 210,500 | ||||||
165,000 | Everest Acquisition Finance, Inc., 8.00%, 11/29/24, Callable 11/30/19 @ 106^(b) | 170,363 | ||||||
200,000 | Global Partners LP, 6.25%, 7/15/22, Callable 2/5/18 @ 104.69 | 205,500 | ||||||
60,000 | Hess Infrastructure Partners LP/Finance Corp., 5.63%, 2/15/26, Callable 2/15/21 @ 104.22(b) | 61,950 | ||||||
205,000 | Hilcorp Energy LP, 5.00%, 12/1/24, Callable 6/1/19 @ 102.5(b) | 202,950 | ||||||
60,000 | Jonah Energy LLC/Jonah Energy Finance Corp., 7.25%, 10/15/25, Callable 10/15/20 @ 105.44(b) | 60,450 | ||||||
111,000 | Kinder Morgan (Delaware), Inc., 3.05%, 12/1/19, Callable 11/1/19 @ 100 | 111,972 | ||||||
112,000 | Kinder Morgan (Delaware), Inc., 5.05%, 2/15/46, Callable 8/15/45 @ 100 | 116,249 | ||||||
195,000 | Kinder Morgan Energy Partners LP, 2.65%, 2/1/19 | 195,350 | ||||||
42,000 | Kinder Morgan Energy Partners LP, 6.55%, 9/15/40 | 49,104 | ||||||
979,000 | Kinder Morgan Energy Partners LP, 5.50%, 3/1/44, Callable 9/1/43 @ 100 | 1,042,822 | ||||||
200,000 | NuStar Logistics LP, 5.63%, 4/28/27, Callable 1/28/27 @ 100^ | 203,500 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
$ | 200,000 | PBF Holding Co. LLC/PBF Finance Corp., 7.00%, 11/15/23, Callable 11/15/18 @ 105.25^ | $ | 208,000 | ||||
38,000 | Phillips 66 Partners LP, 2.65%, 2/15/20, Callable 1/15/20 @ 100^ | 37,999 | ||||||
200,000 | Range Resources Corp., 5.00%, 8/15/22, Callable 5/15/22 @ 100 | 199,000 | ||||||
200,000 | Rose Rock Midstream LP, 5.63%, 7/15/22, Callable 1/22/18 @ 104.22^ | 197,500 | ||||||
233,000 | Southwestern Energy Co., 6.70%, 1/23/25, Callable 10/23/24 @ 100 | 242,029 | ||||||
40,000 | Southwestern Energy Co., 7.50%, 4/1/26, Callable 4/1/21 @ 105.63^ | 42,500 | ||||||
200,000 | Summit Midstream Holdings LLC, 5.75%, 4/15/25, Callable 4/15/20 @ 104.31 | 201,678 | ||||||
548,000 | Sunoco Logistics Partners Operations LP, 5.40%, 10/1/47, Callable 4/1/47 @ 100 | 551,701 | ||||||
200,000 | Sunoco LP/Finance Corp., 6.25%, 4/15/21, Callable 4/15/18 @ 103.13 | 207,900 | ||||||
135,000 | Targa Resources Partners LP, 4.25%, 11/15/23, Callable 5/15/18 @ 102.13 | 133,481 | ||||||
103,000 | Western Gas Partners LP, 4.65%, 7/1/26, Callable 4/1/26 @ 100 | 107,070 | ||||||
239,000 | Williams Partners LP, 3.60%, 3/15/22, Callable 1/15/22 @ 100 | 244,476 | ||||||
162,000 | Williams Partners LP, 4.50%, 11/15/23, Callable 8/15/23 @ 100 | 171,327 | ||||||
285,000 | Williams Partners LP, 4.30%, 3/4/24, Callable 12/4/23 @ 100 | 298,496 | ||||||
|
| |||||||
11,412,813 | ||||||||
|
| |||||||
Pharmaceuticals (0.0%): | ||||||||
15,000 | Catalent Pharma Solutions, Inc., 4.88%, 1/15/26, Callable 10/15/20 @ 102.44(b) | 15,056 | ||||||
|
| |||||||
Professional Services (0.0%): | ||||||||
200,000 | Tempo Finance, Corp., 6.75%, 6/1/25, Callable 6/1/20 @ 103.38(b) | 202,000 | ||||||
|
| |||||||
Real Estate Management & Development (0.3%): | ||||||||
1,625,000 | CBRE Services, Inc., 5.00%, 3/15/23, Callable 3/15/18 @ 102.5 | 1,671,022 | ||||||
200,000 | Howard Hughes Corp. (The), 5.38%, 3/15/25, Callable 3/15/20 @ 104.03(b) | 205,000 | ||||||
|
| |||||||
1,876,022 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (0.0%): | ||||||||
135,000 | Entegris, Inc., 4.63%, 2/10/26, Callable 11/10/20 @ 103.47(b) | 137,025 | ||||||
135,000 | QORVO, Inc., 7.00%, 12/1/25, Callable 12/1/20 @ 103.5 | 150,694 | ||||||
|
| |||||||
287,719 | ||||||||
|
| |||||||
Software (0.2%): | ||||||||
500,000 | Solera LLC, 10.50%, 3/1/24, Callable 3/1/19 @ 107.88(b) | 562,490 | ||||||
250,000 | Sophia LP/Finance, Inc., 9.00%, 9/30/23, Callable 9/30/18 @ 104.5(b) | 264,375 |
Continued
11
AZL Pyramis® Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Software, continued | ||||||||
$ | 125,000 | Symantec Corp., 5.00%, 4/15/25, Callable 4/15/20 @ 102.5(b) | $ | 130,000 | ||||
125,000 | Veritas US, Inc./Veritas Bermuda, Ltd., 10.50%, 2/1/24, Callable 2/1/19 @ 107.88(b) | 130,000 | ||||||
|
| |||||||
1,086,865 | ||||||||
|
| |||||||
Specialty Retail (0.0%): | ||||||||
200,000 | L Brands, Inc., 6.75%, 7/1/36 | 200,000 | ||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (0.1%): | ||||||||
441,000 | HP Enterprise Co., 3.60%, 10/15/20, Callable 9/15/20 @ 100 | 450,261 | ||||||
|
| |||||||
Thrifts & Mortgage Finance (0.0%): | ||||||||
105,000 | Quicken Loans, Inc., 5.25%, 1/15/28, Callable 1/15/23 @ 102.63^(b) | 103,656 | ||||||
|
| |||||||
Tobacco (0.4%): | ||||||||
212,000 | Altria Group, Inc., 4.00%, 1/31/24 | 224,907 | ||||||
94,000 | Reynolds American, Inc., 3.25%, 6/12/20 | 95,513 | ||||||
320,000 | Reynolds American, Inc., 4.00%, 6/12/22 | 334,345 | ||||||
232,000 | Reynolds American, Inc., 4.45%, 6/12/25, Callable 3/12/25 @ 100 | 247,369 | ||||||
120,000 | Reynolds American, Inc., 5.70%, 8/15/35, Callable 2/15/35 @ 100 | 143,038 | ||||||
923,000 | Reynolds American, Inc., 5.85%, 8/15/45, Callable 2/15/45 @ 100 | 1,152,615 | ||||||
600,000 | Vector Group, Ltd., 6.13%, 2/1/25, Callable 2/1/20 @ 103.06(b) | 621,000 | ||||||
|
| |||||||
2,818,787 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.2%): | ||||||||
200,000 | Air Lease Corp., 2.13%, 1/15/18 | 199,987 | ||||||
442,000 | Air Lease Corp., 2.63%, 9/4/18 | 443,303 | ||||||
471,000 | Air Lease Corp., 3.75%, 2/1/22, Callable 12/1/21 @ 100 | 486,651 | ||||||
|
| |||||||
1,129,941 | ||||||||
|
| |||||||
Wireless Telecommunication Services (0.2%): | ||||||||
200,000 | Sprint Communications, Inc., 7.25%, 9/15/21 | 211,750 | ||||||
200,000 | Sprint Communications, Inc., 7.88%, 9/15/23 | 213,000 | ||||||
280,000 | Sprint Communications, Inc., 7.13%, 6/15/24 | 284,900 | ||||||
200,000 | Sprint Communications, Inc., 6.88%, 11/15/28 | 201,250 | ||||||
400,000 | T-Mobile USA, Inc., 5.13%, 4/15/25, Callable 4/15/20 @ 102.56 | 415,500 | ||||||
|
| |||||||
1,326,400 | ||||||||
|
| |||||||
Total Corporate Bonds (Cost $99,333,803) | 99,668,189 | |||||||
|
| |||||||
Foreign Bond (0.0%): | ||||||||
Sovereign Bond (0.0%): | ||||||||
50,000 | Korea Treasury Bond, Series 2103, 2.00%, 3/10/21+ | 46 | ||||||
|
| |||||||
Total Foreign Bond (Cost $44) | 46 | |||||||
|
| |||||||
Yankee Dollars (6.9%): | ||||||||
Banks (1.1%): | ||||||||
430,000 | Barclays Bank plc, 3.25%, 1/12/21^ | 434,129 | ||||||
200,000 | Barclays Bank plc, 7.63%, 11/21/22 | 226,500 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Banks, continued | ||||||||
$ | 585,000 | Barclays Bank plc, 4.38%, 1/12/26 | $ | 608,529 | ||||
205,000 | HSBC Holdings plc, 4.25%, 3/14/24 | 214,139 | ||||||
656,000 | Intesa Sanpaolo SpA, 5.71%, 1/15/26(b) | 691,085 | ||||||
530,000 | Rabobank Nederland NY, 4.38%, 8/4/25 | 559,471 | ||||||
2,550,000 | Royal Bank of Scotland Group plc, 6.13%, 12/15/22 | 2,795,009 | ||||||
452,000 | Royal Bank of Scotland Group plc, 6.10%, 6/10/23 | �� | 497,725 | |||||
316,000 | Royal Bank of Scotland Group plc, 6.00%, 12/19/23 | 348,049 | ||||||
|
| |||||||
6,374,636 | ||||||||
|
| |||||||
Beverages (0.0%): | ||||||||
80,000 | Cott Corp., 5.50%, 4/1/25, Callable 4/1/20 @ 104.13^(b) | 82,200 | ||||||
|
| |||||||
Capital Markets (0.9%): | ||||||||
470,000 | Credit Suisse Group Fun, Ltd., 2.75%, 3/26/20 | 471,832 | ||||||
670,000 | Credit Suisse Group Fun, Ltd., 3.80%, 9/15/22 | 691,131 | ||||||
787,000 | Credit Suisse Group Fun, Ltd., 3.80%, 6/9/23 | 811,630 | ||||||
470,000 | Credit Suisse Group Fun, Ltd., 3.75%, 3/26/25 | 479,582 | ||||||
42,000 | Credit Suisse New York, 6.00%, 2/15/18 | 42,190 | ||||||
176,000 | Deutsche Bank AG, 4.25%, 10/14/21 | 183,104 | ||||||
979,000 | Deutsche Bank AG, 4.50%, 4/1/25^ | 993,535 | ||||||
684,000 | Deutsche Bank AG/New York NY, 3.30%, 11/16/22 | 680,514 | ||||||
314,000 | Thomson Reuters Corp., 3.85%, 9/29/24, Callable 6/29/24 @ 100 | 325,499 | ||||||
491,000 | UBS Group AG, 4.13%, 9/24/25(b) | 515,282 | ||||||
|
| |||||||
5,194,299 | ||||||||
|
| |||||||
Chemicals (0.1%): | ||||||||
200,000 | Consolidated Energy Finance SA, 6.88%, 6/15/25, Callable 6/15/20 @ 105.16(b) | 212,000 | ||||||
200,000 | Nova Chemicals Corp., 4.88%, 6/1/24, Callable 3/3/24 @ 100(b) | 199,500 | ||||||
130,000 | Trinseo Materials operating SCA/Trinseo Materials Finance, Inc., 5.38%, 9/1/25, Callable 9/1/20 @ 102.69(b) | 134,550 | ||||||
|
| |||||||
546,050 | ||||||||
|
| |||||||
Communications Equipment (0.0%): | ||||||||
165,000 | Nokia OYJ, 4.38%, 6/12/27 | 163,103 | ||||||
|
| |||||||
Containers & Packaging (0.0%): | ||||||||
200,000 | Ardagh Packaging Finance plc/Ardagh Holdings USA, Inc., 7.25%, 5/15/24, Callable 5/15/19 @ 105.44(b) | 217,750 | ||||||
70,000 | Ardagh Packaging Finance plc/Ardagh Holdings USA, Inc., 6.00%, 2/15/25, Callable 2/15/20 @ 104.5(b) | 73,675 | ||||||
|
| |||||||
291,425 | ||||||||
|
| |||||||
Diversified Financial Services (0.0%): | ||||||||
120,000 | Camelot Finance SA, 7.88%, 10/15/24, Callable 10/15/19 @ 103.94(b) | 128,100 | ||||||
|
|
Continued
12
AZL Pyramis® Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Diversified Telecommunication Services (0.2%): | ||||||||
$ | 200,000 | Intelsat Jackson Holdings SA, 9.50%, 9/30/22(b) | $ | 230,500 | ||||
200,000 | Intelsat Jackson Holdings SA, 8.00%, 2/15/24, Callable 2/15/19 @ 104^(b) | 210,500 | ||||||
200,000 | Sable International Finance, Ltd., 6.88%, 8/1/22, Callable 8/1/18 @ 105.16(b) | 211,750 | ||||||
200,000 | SFR Group SA, 7.38%, 5/1/26, Callable 5/1/21 @ 103.69(b) | 205,250 | ||||||
200,000 | Telecom Italia SpA, 5.30%, 5/30/24(b) | 213,500 | ||||||
300,000 | Telesat Canada, 8.88%, 11/15/24, Callable 11/15/19 @ 106.66(b) | 336,000 | ||||||
200,000 | Ziggo Secured Finance BV, 5.50%, 1/15/27, Callable 1/15/22 @ 102.75(b) | 198,500 | ||||||
|
| |||||||
1,606,000 | ||||||||
|
| |||||||
Electrical Equipment (0.0%): | ||||||||
200,000 | Sensata Technologies BV, 4.88%, 10/15/23(b) | 209,000 | ||||||
|
| |||||||
Energy Equipment & Services (0.0%): | ||||||||
200,000 | Ensco plc, 4.50%, 10/1/24, Callable 7/1/24 @ 100^ | 168,000 | ||||||
200,000 | Noble Holding International, Ltd., 7.75%, 1/15/24, Callable 10/15/23 @ 100^ | 172,000 | ||||||
120,000 | Precision Drilling Corp., 7.75%, 12/15/23, Callable 12/15/19 @ 103.88^ | 126,000 | ||||||
|
| |||||||
466,000 | ||||||||
|
| |||||||
Food Products (0.0%): | ||||||||
105,000 | Fage International/Fage USA, 5.63%, 8/15/26, Callable 8/15/21 @ 102.81(b) | 101,325 | ||||||
|
| |||||||
Gas Utilities (0.0%): | ||||||||
230,000 | LBC Tank Terminals Holding Netherlands BV, 6.88%, 5/15/23, Callable 5/15/18 @ 103.44(d) | 239,488 | ||||||
|
| |||||||
Hotels, Restaurants & Leisure (0.0%): | ||||||||
115,000 | 1011778 BC ULC New Red Finance, Inc., 4.25%, 5/15/24, Callable 5/15/20 @ 102.13^(b) | 114,713 | ||||||
200,000 | Studio City Co., Ltd., 7.25%, 11/30/21, Callable 11/30/18 @ 103.63(b) | 211,000 | ||||||
|
| |||||||
325,713 | ||||||||
|
| |||||||
Media (0.2%): | ||||||||
400,000 | Altice Financing SA, 7.50%, 5/15/26, Callable 5/15/21 @ 103.75(b) | 426,000 | ||||||
200,000 | Altice Finco SA, 8.13%, 1/15/24, Callable 12/15/18 @ 104.06^(b) | 209,000 | ||||||
125,000 | LG Financeco Corp., 5.88%, 11/1/24, Callable 11/1/19 @ 104.41^(b) | 132,031 | ||||||
525,000 | MDC Partners, Inc., 6.50%, 5/1/24, Callable 5/1/19 @ 104.88^(b) | 527,625 | ||||||
|
| |||||||
1,294,656 | ||||||||
|
| |||||||
Metals & Mining (0.1%): | ||||||||
200,000 | BHP Billiton Finance USA, Ltd., 6.25% (USSW5 + 497 bps), 10/19/75, Callable 10/19/20 @ 100(b) | 216,500 | ||||||
456,000 | BHP Billiton Finance USA, Ltd., 6.75% (USSW5 + 509 bps), 10/19/75, Callable 10/20/25 @ 100^(b) | 532,421 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Metals & Mining, continued | ||||||||
$ | 200,000 | Corp Nacional del Cobre de Chile, 3.63%, 8/1/27, Callable 5/1/27 @ 100(b) | $ | 200,218 | ||||
200,000 | Corp Nacional del Cobre de Chile, 4.50%, 8/1/47, Callable 2/1/47 @ 100(b) | 214,928 | ||||||
200,000 | First Quantum Minerals, Ltd., 7.25%, 5/15/22, Callable 2/5/18 @ 105.44(b) | 209,660 | ||||||
|
| |||||||
1,373,727 | ||||||||
|
| |||||||
Multi-Utilities (0.0%): | ||||||||
148,000 | InterGen NV, 7.00%, 6/30/23, Callable 6/30/18 @ 103.5^(b) | 143,190 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (2.3%): | ||||||||
164,000 | Canadian Natural Resources, Ltd., 1.75%, 1/15/18 | 163,971 | ||||||
28,000 | Canadian Natural Resources, Ltd., 5.85%, 2/1/35 | 32,824 | ||||||
362,000 | Cenovus Energy, Inc., 4.25%, 4/15/27, Callable 1/15/27 @ 100^ | 361,128 | ||||||
330,000 | Empresa Nacional del Pet, 4.38%, 10/30/24(b) | 345,063 | ||||||
135,000 | Enbridge, Inc., 4.25%, 12/1/26, Callable 9/1/26 @ 100 | 141,161 | ||||||
156,000 | Enbridge, Inc., 5.50%, 12/1/46, Callable 5/29/46 @ 100^ | 187,584 | ||||||
950,000 | EnCana Corp., 6.63%, 8/15/37 | 1,209,390 | ||||||
234,000 | Petrobras Global Finance Co., 4.38%, 5/20/23^ | 231,419 | ||||||
823,000 | Petrobras Global Finance Co., 5.63%, 5/20/43^ | 735,466 | ||||||
1,793,000 | Petrobras Global Finance Co., 7.25%, 3/17/44 | 1,864,719 | ||||||
1,081,000 | Petrobras International Finance Co., 5.38%, 1/27/21^ | 1,124,240 | ||||||
151,000 | Petroleos Mexicanos, 6.00%, 3/5/20 | 160,211 | ||||||
1,169,000 | Petroleos Mexicanos, 4.88%, 1/18/24^ | 1,211,025 | ||||||
694,000 | Petroleos Mexicanos, 4.50%, 1/23/26^ | 692,751 | ||||||
310,000 | Petroleos Mexicanos, 6.50%, 3/13/27(b) | 338,830 | ||||||
256,000 | Petroleos Mexicanos, 6.50%, 3/13/27(b) | 279,808 | ||||||
696,000 | Petroleos Mexicanos, 6.50%, 6/2/41 | 715,835 | ||||||
563,000 | Petroleos Mexicanos, 5.50%, 6/27/44^ | 517,937 | ||||||
673,000 | Petroleos Mexicanos, 5.63%, 1/23/46 | 622,862 | ||||||
1,123,000 | Petroleos Mexicanos, 6.75%, 9/21/47 | 1,172,243 | ||||||
330,000 | Petroleos Mexicanos, 6.75%, 9/21/47^(b) | 344,471 | ||||||
130,000 | Teine Energy, Ltd., 6.88%, 9/30/22, Callable 2/5/18 @ 105.16(b) | 134,225 | ||||||
|
| |||||||
12,587,163 | ||||||||
|
| |||||||
Pharmaceuticals (0.7%): | ||||||||
230,000 | Actavis Funding SCS, 2.45%, 6/15/19 | 229,997 | ||||||
820,000 | Actavis Funding SCS, 3.45%, 3/15/22, Callable 1/15/22 @ 100 | 833,164 | ||||||
225,000 | Mylan NV, 2.50%, 6/7/19 | 224,767 | ||||||
459,000 | Mylan NV, 3.15%, 6/15/21, Callable 5/15/21 @ 100 | 461,563 | ||||||
226,000 | Mylan NV, 3.95%, 6/15/26, Callable 3/15/26 @ 100 | 227,891 | ||||||
600,000 | Perrigo Finance plc, 3.90%, 12/15/24, Callable 9/15/24 @ 100 | 610,053 | ||||||
324,000 | Teva Pharmaceuticals Industries, Ltd., 2.20%, 7/21/21 | 295,965 |
Continued
13
AZL Pyramis® Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2017
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^ | $ | 202,028 | ||||
276,000 | Teva Pharmaceuticals Industries, Ltd., 3.15%, 10/1/26^ | 227,878 | ||||||
120,000 | Valeant Pharmaceuticals, 5.50%, 3/1/23, Callable 3/1/18 @ 102.75(b) | 109,800 | ||||||
200,000 | Valeant Pharmaceuticals International, Inc., 6.50%, 3/15/22, Callable 3/15/19 @ 103.25(b) | 210,000 | ||||||
150,000 | Valeant Pharmaceuticals International, Inc., 7.00%, 3/15/24, Callable 3/15/20 @ 103.5(b) | 160,500 | ||||||
395,000 | VRX Escrow Corp., 6.13%, 4/15/25, Callable 4/15/20 @ 103.06^(b) | 361,425 | ||||||
|
| |||||||
4,155,031 | ||||||||
|
| |||||||
Professional Services (0.2%): | ||||||||
205,000 | IHS Markit, Ltd., 4.75%, 2/15/25, Callable 11/15/24 @ 100(b) | 216,275 | ||||||
620,000 | Nielsen Co. Luxembourg SARLl (The), 5.00%, 2/1/25, Callable 2/1/20 @ 103.75(b) | 643,250 | ||||||
|
| |||||||
859,525 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (0.0%): | ||||||||
200,000 | NXP BV/NXP Funding LLC, 4.63%, 6/1/23(b) | 209,200 | ||||||
|
| |||||||
Software (0.1%): | ||||||||
350,000 | Open Text Corp., 5.63%, 1/15/23, Callable 2/5/18 @ 104.22(b) | 364,438 | ||||||
|
| |||||||
Sovereign Bond (0.4%): | ||||||||
900,000 | Dominican Republic, 5.50%, 1/27/25(b) | 952,875 | ||||||
1,500,000 | Republic of Belarus, 8.95%, 1/26/18(b) | 1,502,850 | ||||||
|
| |||||||
2,455,725 | ||||||||
|
| |||||||
Tobacco (0.2%): | ||||||||
462,000 | Imperial Tobacco Finance, 3.75%, 7/21/22, Callable 5/21/22 @ 100(b) | 477,432 | ||||||
700,000 | Imperial Tobacco Finance, 4.25%, 7/21/25, Callable 4/21/25 @ 100(b) | 733,977 | ||||||
|
| |||||||
1,211,409 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.4%): | ||||||||
900,000 | AerCap Ireland Capital, Ltd./AerCap Global Aviation Trust, 5.00%, 10/1/21 | 959,387 | ||||||
1,450,000 | AerCap Ireland Capital, Ltd./AerCap Global Aviation Trust, 4.63%, 7/1/22 | 1,536,115 | ||||||
200,000 | Fly Leasing, Ltd., 6.38%, 10/15/21, Callable 2/5/18 @ 104.78^ | 208,500 | ||||||
|
| |||||||
2,704,002 | ||||||||
|
| |||||||
Wireless Telecommunication Services (0.0%): | ||||||||
200,000 | Millicom International Cellular SA, 6.00%, 3/15/25, Callable 3/15/20 @ 103(b) | 212,500 | ||||||
|
| |||||||
Total Yankee Dollars (Cost $42,011,970) | 43,297,905 | |||||||
|
| |||||||
Municipal Bonds (0.9%): | ||||||||
California (0.3%): | ||||||||
1,150,000 | California State, Build America Bonds, GO, 7.50%, 4/1/34 | 1,771,806 | ||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Municipal Bonds, continued | ||||||||
Illinois (0.6%): | ||||||||
$ | 4,110,000 | Chicago Illinois, Taxable Project, Build America Bonds, GO, Series B, 5.43%, 1/1/42 | $ | 4,109,698 | ||||
|
| |||||||
Total Municipal Bonds (Cost $5,676,769) | 5,881,504 | |||||||
|
| |||||||
U.S. Government Agency Mortgages (12.5%): | ||||||||
Federal National Mortgage Association (7.0%) | ||||||||
174,360 | 3.00%, 11/1/27 | 178,080 | ||||||
48,281 | 3.00%, 10/1/28 | 49,376 | ||||||
55,907 | 3.00%, 1/1/29 | 57,173 | ||||||
1,290,988 | 3.00%, 6/1/29 | 1,317,711 | ||||||
708,253 | 2.50%, 12/1/31 | 707,496 | ||||||
296,795 | 2.50%, 1/1/32 | 296,478 | ||||||
365,954 | 2.50%, 1/1/32 | 365,563 | ||||||
1,300,000 | 3.50%, 1/25/32 | 1,341,817 | ||||||
183,953 | 3.00%, 3/1/32 | 187,607 | ||||||
80,613 | 3.00%, 3/1/32 | 82,215 | ||||||
84,754 | 3.00%, 3/1/32 | 86,606 | ||||||
467,427 | 3.00%, 4/1/32 | 476,352 | ||||||
88,006 | 3.00%, 5/1/32 | 89,863 | ||||||
91,576 | 3.00%, 6/1/32 | 93,581 | ||||||
446,828 | 3.00%, 7/1/32 | 456,881 | ||||||
187,178 | 3.00%, 8/1/32 | 191,760 | ||||||
34,874 | 3.00%, 9/1/32 | 35,640 | ||||||
63,313 | 3.00%, 9/1/32 | 64,575 | ||||||
628,548 | 3.00%, 9/1/32 | 641,071 | ||||||
169,951 | 3.50%, 8/1/33 | 175,692 | ||||||
943,498 | 6.00%, 5/1/36 | 1,071,227 | ||||||
454,803 | 6.00%, 7/1/39 | 504,486 | ||||||
47,624 | 3.50%, 12/1/40 | 49,176 | ||||||
3,614,846 | 5.50%, 9/1/41 | 4,010,847 | ||||||
22,493 | 3.50%, 6/1/42 | 23,219 | ||||||
652,812 | 3.00%, 9/1/42 | 656,340 | ||||||
904,293 | 3.00%, 10/1/42 | 909,180 | ||||||
501,228 | 3.00%, 10/1/42 | 503,936 | ||||||
979,958 | 3.00%, 11/1/42 | 985,253 | ||||||
46,367 | 3.50%, 11/1/42 | 47,920 | ||||||
340,386 | 3.00%, 12/1/42 | 342,225 | ||||||
1,507,519 | 3.00%, 1/1/43 | 1,515,639 | ||||||
19,918 | 3.50%, 3/1/43 | 20,491 | ||||||
23,519 | 3.50%, 3/1/43 | 24,262 | ||||||
68,663 | 3.50%, 7/1/43 | 70,863 | ||||||
89,357 | 3.50%, 11/1/43 | 92,225 | ||||||
1,133,558 | 4.50%, 3/1/44 | 1,206,967 | ||||||
1,009,905 | 4.50%, 7/1/44 | 1,076,061 | ||||||
356,541 | 4.50%, 10/1/44 | 379,876 | ||||||
5,597 | 4.50%, 11/1/44 | 5,959 | ||||||
523,783 | 4.50%, 12/1/44 | 557,703 | ||||||
135,131 | 3.50%, 2/1/45 | 139,468 | ||||||
186,401 | 4.00%, 5/1/45 | 195,037 | ||||||
556,840 | 4.00%, 6/1/45 | 582,753 | ||||||
274,732 | 4.00%, 6/1/45 | 287,445 | ||||||
831,006 | 3.50%, 7/1/45 | 856,070 | ||||||
533,570 | 3.50%, 8/1/45 | 549,663 |
Continued
14
AZL Pyramis® Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal National Mortgage Association, continued | ||||||||
$ | 660,257 | 4.50%, 12/1/45 | $ | 703,015 | ||||
49,210 | 4.50%, 1/1/46 | 52,557 | ||||||
354,311 | 4.00%, 2/1/46 | 370,617 | ||||||
1,999,630 | 4.00%, 4/1/46 | 2,109,740 | ||||||
163,249 | 4.50%, 6/1/46 | 174,472 | ||||||
715,391 | 4.00%, 6/1/46 | 748,326 | ||||||
471,044 | 3.50%, 7/1/46 | 485,307 | ||||||
706,344 | 3.50%, 7/1/46 | 727,724 | ||||||
1,139,048 | 3.00%, 8/1/46 | 1,141,053 | ||||||
372,776 | 3.00%, 8/1/46 | 372,966 | ||||||
31,494 | 3.50%, 8/1/46 | 32,504 | ||||||
1,045,768 | 3.00%, 9/1/46 | 1,047,609 | ||||||
21,085 | 3.50%, 9/1/46 | 21,761 | ||||||
118,878 | 4.00%, 9/1/46 | 124,366 | ||||||
51,325 | 3.50%, 9/1/46 | 52,970 | ||||||
595,018 | 3.00%, 10/1/46 | 596,065 | ||||||
372,160 | 3.50%, 10/1/46 | 382,308 | ||||||
36,282 | 4.00%, 10/1/46 | 37,960 | ||||||
2,005,263 | 3.50%, 10/1/46 | 2,069,598 | ||||||
94,804 | 4.50%, 10/1/46 | 101,551 | ||||||
93,349 | 4.50%, 11/1/46 | 99,993 | ||||||
45,150 | 3.50%, 12/1/46 | 46,599 | ||||||
731,615 | 3.50%, 12/1/46 | 753,783 | ||||||
1,160,156 | 3.50%, 12/1/46 | 1,197,375 | ||||||
488,786 | 3.00%, 12/1/46 | 489,649 | ||||||
281,788 | 3.00%, 12/1/46 | 281,932 | ||||||
94,387 | 3.00%, 12/1/46 | 94,435 | ||||||
146,506 | 4.50%, 12/1/46 | 157,825 | ||||||
129,307 | 4.50%, 1/1/47 | 139,056 | ||||||
442,393 | 3.50%, 1/1/47 | 455,798 | ||||||
27,061 | 3.50%, 1/1/47 | 27,930 | ||||||
520,444 | 3.50%, 1/1/47 | 536,215 | ||||||
450,506 | 3.50%, 1/1/47 | 464,158 | ||||||
117,622 | 4.50%, 1/1/47 | 126,741 | ||||||
1,075,781 | 4.00%, 2/1/47 | 1,135,015 | ||||||
320,636 | 3.50%, 2/1/47 | 330,352 | ||||||
129,436 | 4.50%, 2/1/47 | 139,436 | ||||||
490,140 | 4.50%, 3/1/47 | 525,671 | ||||||
393,294 | 4.50%, 3/1/47 | 420,111 | ||||||
1,722,916 | 3.50%, 7/1/47 | 1,779,991 | ||||||
389,379 | 4.00%, 7/1/47 | 407,555 | ||||||
50,000 | 3.50%, 1/25/48 | 51,336 | ||||||
|
| |||||||
44,573,253 | ||||||||
|
| |||||||
Federal Home Loan Mortgage Corporation (3.1%) | ||||||||
97,457 | 3.00%, 2/1/32 | 99,321 | ||||||
1,771,791 | 3.00%, 3/1/32 | 1,805,716 | ||||||
551,464 | 3.50%, 3/1/32 | 573,945 | ||||||
1,470,230 | 3.50%, 7/1/32 | 1,530,180 | ||||||
1,366,112 | 4.00%, 5/1/37 | 1,443,763 | ||||||
472,994 | 5.00%, 2/1/38 | 512,952 | ||||||
594,160 | 4.00%, 11/1/40 | 624,697 | ||||||
178,897 | 3.50%, 11/1/45 | 184,525 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal Home Loan Mortgage Corporation, continued | ||||||||
$ | 369,618 | 3.50%, 9/1/46 | $ | 381,170 | ||||
3,735,966 | 3.00%, 12/1/46 | 3,739,787 | ||||||
493,072 | 3.00%, 12/1/46 | 493,813 | ||||||
754,745 | 3.00%, 1/1/47 | 755,478 | ||||||
883,085 | 4.00%, 6/1/47 | 931,993 | ||||||
763,598 | 4.00%, 6/1/47 | 798,583 | ||||||
1,036,401 | 4.00%, 7/1/47 | 1,084,531 | ||||||
3,700,000 | 3.50%, 1/15/48 | 3,799,631 | ||||||
|
| |||||||
18,760,085 | ||||||||
|
| |||||||
Government National Mortgage Association (2.4%) | ||||||||
171,573 | 4.00%, 8/15/41 | 179,948 | ||||||
1,996,445 | 4.00%, 1/20/42 | 2,101,315 | ||||||
31,590 | 4.00%, 11/20/42 | 33,297 | ||||||
471,106 | 3.00%, 12/20/42 | 477,898 | ||||||
4,169,155 | 3.50%, 1/20/43 | 4,333,194 | ||||||
70,025 | 3.50%, 3/20/43 | 72,828 | ||||||
305,124 | 3.00%, 3/20/43 | 309,618 | ||||||
125,239 | 3.00%, 3/20/43 | 127,128 | ||||||
73,042 | 3.50%, 4/20/43 | 76,021 | ||||||
27,202 | 3.50%, 4/20/43 | 28,333 | ||||||
200,411 | 4.00%, 4/20/46 | 210,155 | ||||||
788,376 | 3.00%, 7/20/46 | 796,295 | ||||||
932,637 | 3.00%, 9/20/46 | 942,006 | ||||||
187,087 | 3.00%, 11/20/46 | 188,966 | ||||||
1,166,439 | 3.00%, 12/20/46 | 1,178,156 | ||||||
374,905 | 4.00%, 1/15/47 | 391,742 | ||||||
337,668 | 4.00%, 1/15/47 | 353,018 | ||||||
2,379,317 | 3.00%, 1/20/47 | 2,403,218 | ||||||
282,284 | 3.00%, 2/20/47 | 285,120 | ||||||
209,551 | 4.00%, 4/20/47 | 218,881 | ||||||
237,563 | 4.00%, 4/20/47 | 248,123 | ||||||
200,000 | 4.00%, 5/20/47 | 208,628 | ||||||
|
| |||||||
15,163,888 | ||||||||
|
| |||||||
Total U.S. Government Agency Mortgages (Cost $78,889,030) | 78,497,226 | |||||||
|
| |||||||
U.S. Treasury Obligations (21.4%): | ||||||||
U.S. Treasury Inflation Index Bonds (1.6%) | ||||||||
1,430,000 | 1.38%, 2/15/44 | 1,747,216 | ||||||
6,447,000 | 0.75%, 2/15/45^ | 6,786,966 | ||||||
1,150,000 | 1.00%, 2/15/46 | 1,278,897 | ||||||
|
| |||||||
9,813,079 | ||||||||
|
| |||||||
U.S. Treasury Bonds (2.0%) | ||||||||
1,029,000 | 3.00%, 11/15/45 | 1,080,651 | ||||||
10,538,000 | 3.00%, 2/15/47 | 11,082,601 | ||||||
|
| |||||||
12,163,252 | ||||||||
|
| |||||||
U.S. Treasury Notes (15.4%) | ||||||||
11,592,000 | 0.75%, 9/30/18 | 11,509,588 | ||||||
4,655,000 | 1.50%, 5/15/20^ | 4,610,450 | ||||||
11,824,000 | 1.75%, 12/31/20 | 11,741,786 | ||||||
2,851,000 | 1.25%, 3/31/21^ | 2,780,616 | ||||||
910,000 | 1.38%, 4/30/21^ | 890,307 | ||||||
13,364,000 | 1.13%, 9/30/21 | 12,894,694 |
Continued
15
AZL Pyramis® Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
U.S. Treasury Obligations, continued | ||||||||
U.S. Treasury Notes, continued | ||||||||
$ | 4,686,000 | 2.00%, 12/31/21 | $ | 4,662,204 | ||||
14,576,000 | 1.88%, 3/31/22 | 14,411,450 | ||||||
1,431,000 | 1.75%, 6/30/22 | 1,405,119 | ||||||
10,158,000 | 1.88%, 7/31/22 | 10,020,311 | ||||||
5,993,000 | 1.88%, 9/30/22 | 5,906,148 | ||||||
2,625,000 | 2.13%, 7/31/24 | 2,593,828 | ||||||
630,000 | 2.25%, 10/31/24 | 627,096 | ||||||
1,993,000 | 2.13%, 11/30/24 | 1,966,842 | ||||||
4,741,000 | 2.25%, 12/31/24 | 4,715,443 | ||||||
3,900,800 | 1.50%, 8/15/26 | 3,629,268 | ||||||
2,128,000 | 2.00%, 11/15/26 | 2,059,422 | ||||||
|
| |||||||
96,424,572 | ||||||||
|
| |||||||
U.S. Treasury Inflation Index Notes (2.4%) | ||||||||
2,238,000 | 0.25%, 1/15/25^ | 2,310,045 | ||||||
5,000,000 | 0.63%, 1/15/26^ | 5,273,529 | ||||||
3,330,000 | 0.13%, 7/15/26 | 3,348,201 | ||||||
4,250,000 | 0.38%, 7/15/27 | 4,262,712 | ||||||
|
| |||||||
15,194,487 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
U.S. Treasury Obligations, continued | ||||||||
U.S. Treasury Bills (0.0%) | ||||||||
$ | 250,000 | 1.49%, 6/21/18(f) | $ | 248,229 | ||||
|
| |||||||
Total U.S. Treasury Obligations (Cost $135,604,778) | 133,843,619 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (8.9%): | ||||||||
$ | 56,106,287 | AZL Pyramis® Multi-Strategy Fund Securities Lending Collateral Account(g) | 56,106,287 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 56,106,287 | ||||||
|
| |||||||
Unaffiliated Investment Company (2.7%): | ||||||||
16,921,150 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 1.11%(f) | 16,921,150 | ||||||
|
| |||||||
Total Unaffiliated Investment Company | 16,921,150 | |||||||
|
| |||||||
Total Investment Securities (Cost $648,714,969) | 690,574,560 | |||||||
Net other assets (liabilities) — (10.1)% | (63,199,478 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 627,375,082 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
GO—General Obligation
LIBOR—London Interbank Offered Rate
TBA—To Be Announced Security
US0001M—1 Month US Dollar LIBOR
US0003M—3 Month US Dollar LIBOR
USSW5—USD 5 Year Swap Rate
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2017. The total value of securities on loan as of December 31, 2017, was $53,947,032. |
+ | 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, 2017. The total of all such securities represent 0.02% 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 subadviser has deemed these securities to be liquid based on procedures approved by the Board of Trustees. |
(c) | The rate for certain asset-backed and mortgage-backed securities may vary based on factors relating to the pool of assets underlying the security. The rate presented is the rate in effect at December 31, 2017. |
(d) | Rule 144A, Section 4(2) or other security which is restricted to resale to institutional investors. The subadviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2017, these securities represent 0.21% of the net assets of the fund. |
(e) | Defaulted bond. |
(f) | The rate represents the effective yield at December 31, 2017. |
(g) | 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, 2017. |
(h) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Continued
16
AZL Pyramis® Multi-Strategy Fund
Schedule of Portfolio Investments
December 31, 2017
Futures Contracts
Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Unrealized Appreciation/ (Depreciation) | ||||||||||||
S&P 500 Index E-Mini March Futures | 3/16/18 | 30 | $ | 4,014,000 | $ | 39,148 | ||||||||||
|
| |||||||||||||||
$ | 39,148 | |||||||||||||||
|
|
See accompanying notes to the financial statements.
17
AZL Pyramis® Multi-Strategy Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investment securities, at cost | $ | 648,714,969 | |||
|
| ||||
Investment securities, at value* | $ | 690,574,560 | |||
Cash | 3,187 | ||||
Interest and dividends receivable | 3,510,542 | ||||
Receivable for capital shares issued | 3,637 | ||||
Receivable for investments sold | 1,224,845 | ||||
Reclaims receivable | 161,267 | ||||
Prepaid expenses | 3,652 | ||||
|
| ||||
Total Assets | 695,481,690 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 11,103,514 | ||||
Payable for capital shares redeemed | 413,767 | ||||
Payable for collateral received on loaned securities | 56,106,287 | ||||
Payable for variation margin on futures contracts | 14,550 | ||||
Manager fees payable | 282,320 | ||||
Administration fees payable | 19,579 | ||||
Distribution fees payable | 133,255 | ||||
Custodian fees payable | 5,112 | ||||
Administrative and compliance services fees payable | 1,441 | ||||
Transfer agent fees payable | 789 | ||||
Trustee fees payable | 929 | ||||
Other accrued liabilities | 25,065 | ||||
|
| ||||
Total Liabilities | 68,106,608 | ||||
|
| ||||
Net Assets | $ | 627,375,082 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 550,229,708 | |||
Accumulated net investment income/(loss) | 13,491,714 | ||||
Accumulated net realized gains/(losses) from investment transactions | 21,540,711 | ||||
Net unrealized appreciation/(depreciation) on investments | 42,112,949 | ||||
|
| ||||
Net Assets | $ | 627,375,082 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 46,985,454 | ||||
Net Asset Value (offering and redemption price per share) | $ | 13.35 | |||
|
|
* | Includes securities on loan of $53,947,032. |
For the Year Ended December 31, 2017
Investment Income: | |||||
Interest | $ | 11,188,989 | |||
Dividends | 6,391,564 | ||||
Income from securities lending | 187,421 | ||||
Other income | 25,860 | ||||
Foreign withholding tax | (12,798 | ) | |||
|
| ||||
Total Investment Income | 17,781,036 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 4,497,935 | ||||
Administration fees | 203,848 | ||||
Distribution fees | 1,606,400 | ||||
Custodian fees | 27,332 | ||||
Administrative and compliance services fees | 6,037 | ||||
Transfer agent fees | 4,485 | ||||
Trustee fees | 21,629 | ||||
Professional fees | 25,523 | ||||
Shareholder reports | 17,142 | ||||
Other expenses | 13,535 | ||||
|
| ||||
Total expenses before reductions | 6,423,866 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (1,606,400 | ) | |||
Less expense contractually waived/reimbursed by the Manager | (268,430 | ) | |||
|
| ||||
Net expenses | 4,549,036 | ||||
|
| ||||
Net Investment Income/(Loss) | 13,232,000 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions and foreign currencies | 21,229,375 | ||||
Net realized gains/(losses) on futures contracts | 780,588 | ||||
Change in net unrealized appreciation/depreciation on investments and foreign currencies | 32,593,999 | ||||
Change in net unrealized appreciation/depreciation on futures contracts | 68,849 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 54,672,811 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 67,904,811 | |||
|
|
See accompanying notes to the financial statements.
18
AZL Pyramis® Multi-Strategy Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 13,232,000 | $ | 17,020,046 | ||||||
Net realized gains/(losses) on investment transactions | 22,009,963 | 9,805,217 | ||||||||
Change in unrealized appreciation/depreciation on investments | 32,662,848 | 15,349,957 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 67,904,811 | 42,175,220 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | — | (9,919,576 | ) | |||||||
From net realized gains | (21,250,085 | ) | (12,249,273 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (21,250,085 | ) | (22,168,849 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 3,203,380 | 5,635,660 | ||||||||
Proceeds from dividends reinvested | 21,250,085 | 22,168,849 | ||||||||
Value of shares redeemed | (101,460,476 | ) | (125,514,703 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (77,007,011 | ) | (97,710,194 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (30,352,285 | ) | (77,703,823 | ) | ||||||
Net Assets: | ||||||||||
Beginning of period | 657,727,367 | 735,431,190 | ||||||||
|
|
|
| |||||||
End of period | $ | 627,375,082 | $ | 657,727,367 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 13,491,714 | $ | 405,526 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 243,838 | 465,828 | ||||||||
Dividends reinvested | 1,649,851 | 1,814,145 | ||||||||
Shares redeemed | (7,827,925 | ) | (10,357,832 | ) | ||||||
|
|
|
| |||||||
Change in shares | (5,934,236 | ) | (8,077,859 | ) | ||||||
|
|
|
|
See accompanying notes to the financial statements.
19
AZL Pyramis® Multi-Strategy Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 12.43 | $ | 12.06 | $ | 13.72 | $ | 13.86 | $ | 12.01 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.28 | 0.34 | 0.32 | 0.32 | 0.15 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.09 | 0.44 | (1.07 | ) | (0.01 | ) | 2.01 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.37 | 0.78 | (0.75 | ) | 0.31 | 2.16 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | — | (0.18 | ) | (0.56 | ) | (0.22 | ) | (0.22 | ) | ||||||||||||||||
Net Realized Gains | (0.45 | ) | (0.23 | ) | (0.35 | ) | (0.23 | ) | (0.09 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.45 | ) | (0.41 | ) | (0.91 | ) | (0.45 | ) | (0.31 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 13.35 | $ | 12.43 | $ | 12.06 | $ | 13.72 | $ | 13.86 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 11.12 | % | 6.52 | % | (5.46 | )% | 2.14 | % | 18.12 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 627,375 | $ | 657,727 | $ | 735,431 | $ | 795,513 | $ | 711,214 | |||||||||||||||
Net Investment Income/(Loss) | 2.06 | % | 2.48 | % | 2.31 | % | 2.51 | % | 2.10 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.00 | % | 1.04 | % | 1.04 | % | 1.04 | % | 1.05 | % | |||||||||||||||
Expenses Net of Reductions | 0.71 | % | 0.97 | % | 1.04 | % | 1.04 | % | 1.05 | % | |||||||||||||||
Portfolio Turnover Rate | 82 | % | 148 | %(c) | 35 | % | 23 | % | 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) | Effective October 14, 2016, the investment strategy of the Fund changed. Costs of purchases and proceeds from sales of portfolio securities associated with the changes in investment strategy contributed to higher portfolio turnover rate for the period ended December 31, 2016 as compared to prior years. |
See accompanying notes to the financial statements.
20
AZL Pyramis® Multi-Strategy Fund
Notes to the Financial Statements
December 31, 2017
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 (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 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 accrues 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 and Withholding Taxes
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, or from other assets and liabilities, from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
Floating Rate Loans
The Fund may invest in floating rate loans, which usually take the form of loan participations and assignments. These loans are made by banks and other large financial institutions to various companies and are typically senior in the borrowing companies’ capital structure. Coupon rates are 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 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.
21
AZL Pyramis® Multi-Strategy Fund
Notes to the Financial Statements
December 31, 2017
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., reclassification of gain/loss and paydowns, and other permanent adjustments), 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, 2017 are noted on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $71 million for the year ended December 31, 2017.
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 $16,952 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The fund had securities lending transactions of $56,106,287 accounted for as secured borrowings with cash collateral of overnight and continuous maturities as of December 31, 2017.
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, 2017, 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 “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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, 2017, the Fund did not engage in any such transactions under the Rule.
22
AZL Pyramis® Multi-Strategy Fund
Notes to the Financial Statements
December 31, 2017
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, 2017, the Fund used futures contracts to provide market exposure on the Fund’s cash balances. The Fund may enter into futures contracts to manage its exposure to the securities markets or to movements in market conditions or foreign exchange rates. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to segregate liquid assets in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked to market daily and a payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, elements of market risk (generally equity price risk related to stock futures, interest rate risk related to bond futures, and foreign currency risk related to currency futures) and exposure to loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities. The primary risks associated with the use of futures contracts are the imperfect correlation between the change in 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. For the year ended December 31, 2017, the monthly average notional amount for long contracts was $4.2 million. 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, 2017:
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 | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts* | $ | 39,148 | 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, 2017:
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 | ||||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | $ | 780,588 | $ | 68,849 |
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, 2019.
For the year ended December 31, 2017, the annual rate paid 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 | % |
* | The Manager 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. |
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.”
23
AZL Pyramis® Multi-Strategy Fund
Notes to the Financial Statements
December 31, 2017
At December 31, 2017, the contractual reimbursements subject to repayment by the Fund in subsequent years were as follows:
Expires 12/31/2019 | Expires 12/31/2020 | Total | |||||||||||||
AZL Pyramis® Multi-Strategy Fund | $ | 134,642 | $ | 268,430 | $ | 403,072 |
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.”
FIS Investor Services LLC (“FIS”) 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, 2017, $6,916 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, 2017, actual Trustee compensation was $1,116,333 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.
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AZL Pyramis® Multi-Strategy Fund
Notes to the Financial Statements
December 31, 2017
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, 2017, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value. There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Other^ | Total | ||||||||||||||||
Asset Backed Securities | $ | — | $ | 3,644,708 | $ | — | $ | 3,644,708 | ||||||||||||
Collateralized Mortgage Obligations | — | 3,429,358 | — | 3,429,358 | ||||||||||||||||
Common Stocks | ||||||||||||||||||||
Air Freight & Logistics | — | 103,343 | — | 103,343 | ||||||||||||||||
Other Common Stocks+ | 249,155,717 | — | — | 249,155,717 | ||||||||||||||||
Convertible Preferred Stocks+ | — | 25,508 | — | 25,508 | ||||||||||||||||
Corporate Bonds+ | — | 99,668,189 | — | 99,668,189 | ||||||||||||||||
Foreign Bond | — | 46 | — | 46 | ||||||||||||||||
Municipal Bonds | — | 5,881,504 | — | 5,881,504 | ||||||||||||||||
U.S. Government Agency Mortgages | — | 78,497,226 | — | 78,497,226 | ||||||||||||||||
U.S. Treasury Obligations | — | 133,843,619 | — | 133,843,619 | ||||||||||||||||
Yankee Dollars+ | — | 43,297,905 | — | 43,297,905 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | 56,106,287 | 56,106,287 | ||||||||||||||||
Unaffiliated Investment Company | 16,921,150 | — | — | 16,921,150 | ||||||||||||||||
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|
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|
|
|
| |||||||||||||
Total Investment Securities | 266,076,867 | 368,391,406 | 56,106,287 | 690,574,560 | ||||||||||||||||
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|
| |||||||||||||
Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | 39,148 | — | — | 39,148 | ||||||||||||||||
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|
|
|
|
|
| |||||||||||||
Total Investments | $ | 266,116,015 | $ | 368,391,406 | $ | 56,106,287 | $ | 690,613,708 | ||||||||||||
|
|
|
|
|
|
|
|
+ | 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 presented in the financial statements at variation margin. |
^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
5. Security Purchases and Sales
For the year ended December 31, 2017, 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 | $ | 503,427,755 | $ | 561,458,102 |
For the year ended December 31, 2017, purchases and sales of long-term U.S. government securities were as follows:
Purchases | Sales | |||||||||
AZL Pyramis® Multi-Strategy Fund | $ | 239,426,801 | $ | 213,022,336 |
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AZL Pyramis® Multi-Strategy Fund
Notes to the Financial Statements
December 31, 2017
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, 2017 are identified below.
Security | Acquisition Date(a) | Acquisition Cost | Shares or Principal Amount | Fair Value | Percentage of Net Assets | ||||||||||||||||||||
CSMC Trust, Class D, Series 2017-PFHP, 3.73%(US0001M+225bps), 12/15/20 | 12/12/17 | $ | 860,000 | $ | 860,000 | $ | 859,999 | 0.14 | % | ||||||||||||||||
LBC Tank Terminals Holding Netherlands BV, 6.88%, 5/15/23, Callable 5/15/18 @ 103.44 | 6/21/17 | 5,213 | 230,000 | 239,488 | 0.04 | % | |||||||||||||||||||
NSG Holdings LLC/NSG Holdings, Inc., 7.75%, 12/15/25 | 5/3/17 | 185,407 | 164,004 | 179,993 | 0.03 | % | |||||||||||||||||||
Texas Competitive Electric Holdings Co. LLC, 11.50%, 10/1/20 | 10/7/16 | 18,238 | 2,581,000 | 19,358 | 0.00 | % |
(a) | Acquisition date represents the initial purchase date of the security. |
7. Investment Risks
Emerging Markets Risk: Emerging markets may have less developed trading markets and exchanges which may make it more difficult to sell securities at an acceptable price and their prices may be more volatile than securities of companies in more developed markets. Settlements of trades may be subject to greater delays so that the Fund may not receive the proceeds of a sale of a security on a timely basis. Emerging countries may also have less developed legal and accounting systems and investments may be subject to greater risks of government restrictions, nationalization, or confiscation.
Foreign Securities and Currencies Risk: Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those securities.
8. Federal Tax Information
It is the 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, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $649,484,057. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 46,648,383 | ||
Unrealized (depreciation) | (5,557,880 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 41,090,503 | ||
|
|
The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Pyramis® Multi-Strategy Fund | $ | 21,250,085 | $ | — | $ | 21,250,085 |
(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, 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. |
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AZL Pyramis® Multi-Strategy Fund
Notes to the Financial Statements
December 31, 2017
At December 31, 2017, 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 Pyramis® Multi-Strategy Fund | $ | 24,388,280 | $ | 11,452,382 | $ | — | $ | 41,304,712 | $ | 77,145,374 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
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, 2017, the Fund had multiple shareholder accounts which are affiliated with the Investment Adviser representing ownership in excess of 95% of the Fund.
10. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AZL Pyramis Multi-Strategy Fund (the “Fund”) of the Allianz Variable Insurance Products Trust, including the schedule of portfolio investments, as of December 31, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, 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.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and the financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
28
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2017, 24.77% 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, 2017, the Fund declared net short-term capital gain distributions of $21,250,085.
29
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.
30
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
31
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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
32
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in the Funds’ advisory fee rate schedules was acceptable under each Fund’s circumstances.
33
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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
35
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® Pyramis® Total Bond Fund
Annual Report
December 31, 2017
Management Discussion and Analysis
Page 1
Expense Examples and Portfolio Composition
Page 3
Schedule of Portfolio Investments
Page 4
Statement of Assets and Liabilities
Page 17
Page 17
Statements of Changes in Net Assets
Page 18
Page 19
Notes to the Financial Statements
Page 20
Report of Independent Registered Public Accounting Firm
Page 26
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.
|
What factors affected the Fund’s performance during the year ended December 31, 2017?
For the year ended December 31, 2017, the Class 2 shares of the AZL® Pyramis® Total Bond Fund (the “Fund”) returned 4.28%. That compared to a 3.54% total return for its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index1.
Bonds performed well during the year, as intermediate interest rates saw only modest changes, 30-year interest rates declined over 30 basis points (0.30%), and spreads on risk assets decreased. The bond market was buoyed by benign economic conditions, low levels of volatility, progress on U.S. tax reform, modest global growth, and strong performance across risk assets including equities. It also benefited from a broadly accommodative monetary policy, despite some tightening by the Federal Reserve.
The Fund performed well in absolute and relative terms during the 12-month period, benefiting from strong security selection and sector selection. The two largest contributors to the Fund’s absolute return were positions in investment-grade corporate bonds and high-yield bonds. Within investment-grade corporate bonds, the banking, real estate, insurance, communications, and energy sectors all contributed to the Fund’s absolute return. Bonds in the banking sector benefited from generally healthy economic conditions over the year, while the energy sector was helped by improving oil prices. Additionally, emerging markets bonds, and high-yield bonds benefited from higher oil prices.*
The Fund’s relative return was helped by overweight positions in high-yield and investment-grade corporate bonds. Within investment-grade corporate bonds, REITs2, banks, and insurers were meaningful contributors to relative performance. The Fund’s overweight position in taxable municipal bonds also contributed to the positive relative return, as the market gained comfort from improvements in the budget outlook for certain issuers. In addition, the Fund’s underweight position in Treasuries was a positive contributor, as changes in interest rates were relatively modest compared to the spread compression experienced by other components of the benchmark.*
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2017. |
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® 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), | ||
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.
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, 2017
Inception Date | 1 Year | 3 Year | 5 Year | Since Inception | ||||||||||||||||
AZL® Pyramis® Total Bond Fund (Class 1 Shares) | 10/28/16 | 4.55 | % | — | — | 1.82 | % | |||||||||||||
AZL® Pyramis® Total Bond Fund (Class 2 Shares) | 9/5/12 | 4.28 | % | 2.93 | % | 2.36 | % | 2.33 | % | |||||||||||
Bloomberg Barclays U.S. Aggregate Bond Index | 9/5/12 | 3.54 | % | 2.24 | % | 2.10 | % | 2.05 | % |
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® Pyramis® Total Bond Fund (Class 1 Shares) | 0.58 | % | ||
AZL® Pyramis® Total Bond Fund (Class 2 Shares) | 0.83 | % |
Expense Ratios are based on the current Fund prospectus dated May 1, 2017. 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, 2019. Additional information pertaining to the December 31, 2017 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
(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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Pyramis® Total Bond Fund, Class 1 | $ | 1,000.00 | $ | 1,016.30 | $ | 2.85 | 0.56 | % | ||||||||||||
AZL Pyramis® Total Bond Fund, Class 2 | $ | 1,000.00 | $ | 1,014.50 | $ | 4.11 | 0.81 | % |
The Hypothetical Expense table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Beginning Account Value 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Pyramis® Total Bond Fund, Class 1 | $ | 1,000.00 | $ | 1,022.38 | $ | 2.85 | 0.56 | % | ||||||||||||
AZL Pyramis® Total Bond Fund, Class 2 | $ | 1,000.00 | $ | 1,021.12 | $ | 4.13 | 0.81 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
U.S. Treasury Obligations | 33.2 | % | |||
Corporate Bonds | 27.2 | ||||
U.S. Government Agency Mortgages | 20.3 | ||||
Yankee Dollars | 11.3 | ||||
Securities Held as Collateral for Securities on Loan | 5.7 | ||||
Money Markets | 5.4 | ||||
Municipal Bonds | 1.7 | ||||
Collateralized Mortgage Obligations | 1.5 | ||||
Asset Backed Securities | 0.9 | ||||
Warrants | — | ^ | |||
|
| ||||
Total Investment Securities | 107.2 | ||||
Net other assets (liabilities) | (7.2 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL Pyramis® Total Bond Fund
Schedule of Portfolio Investments
December 31, 2017
Principal | Fair Value | |||||||
Asset Backed Securities (0.9%): | ||||||||
$ | 2,542,788 | AASET Trust, Class A, Series 2017-1A, 3.97%, 5/16/42(a) | $ | 2,551,703 | ||||
221,354 | Blackbird Capital Aircraft, Class AA, Series 2016-1A, 2.49%, 12/16/41, Callable 12/15/24 @ 100(a)(b) | 219,300 | ||||||
764,536 | Blackbird Capital Aircraft, Class A, Series 2016-1A, 4.21%, 12/16/41, Callable 12/15/24 @ 100(a)(b) | 792,057 | ||||||
34,049 | Countrywide Asset-Backed Certificates Trust, Class AF5, Series 2004-7, 5.87%, 1/25/35, Callable 1/25/18 @ 100(b) | 34,451 | ||||||
341,000 | DB Master Finance LLC, Class A2I, Series 2017-1A, 3.63%, 11/20/47, Callable 11/20/23 @ 100(a) | 342,044 | ||||||
573,000 | DB Master Finance LLC, Class A2II, Series 2017-1A, 4.03%, 11/20/47, Callable 11/20/23 @ 100(a) | 586,293 | ||||||
600,875 | Thunderbolt Aircraft Lease Ltd., Class A, Series 2017-A, 4.21%, 5/17/32, Callable 4/15/24 @ 100(a)(b) | 617,158 | ||||||
|
| |||||||
Total Asset Backed Securities (Cost $5,081,326) | 5,143,006 | |||||||
|
| |||||||
Collateralized Mortgage Obligations (1.5%): | ||||||||
88,000 | Credit Suisse Mortgage Trust, Class B, Series 2015-TOWN, 3.38%(US0001M+190bps), 3/15/28(a) | 88,000 | ||||||
85,000 | Credit Suisse Mortgage Trust, Class C, Series 2015-TOWN, 3.73%(US0001M+225bps), 3/15/28(a) | 85,000 | ||||||
129,000 | Credit Suisse Mortgage Trust, Class D, Series 2015-TOWN, 4.68%(US0001M+320bps), 3/15/28(a) | 129,080 | ||||||
581,000 | Credit Suisse Mortgage Trust, Class E, Series 2015-TOWN, 5.63%(US0001M+415bps), 3/15/28(a) | 582,085 | ||||||
1,384,000 | CSMC Trust, Class D, Series 2017-PFHP, 3.73%(US0001M+225bps), 12/15/30(c) | 1,383,998 | ||||||
2,000,000 | GAHR Commercial Mortgage Trust, Class BFX, Series 2015-NRF, 3.38%, 12/15/34(a)(b) | 2,023,122 | ||||||
390,000 | GAHR Commercial Mortgage Trust, Class CFX, Series 2015-NRF, 3.38%, 12/15/34(a) | 392,664 | ||||||
2,930,000 | GAHR Commercial Mortgage Trust, Class DFX, Series 2015-NRF, 3.38%, 12/15/34(a)(b) | 2,940,631 | ||||||
667,000 | MSCG Trust, Class A, Series 2016-SNR, 3.35%, 11/15/34(a)(b) | 663,124 | ||||||
235,000 | MSCG Trust, Class B, Series 2016-SNR, 4.18%, 11/15/34(a) | 235,465 | ||||||
165,000 | MSCG Trust, Class C, Series 2016-SNR, 5.21%, 11/15/34(a) | 167,535 | ||||||
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Total Collateralized Mortgage Obligations (Cost $8,734,876) | 8,690,704 | |||||||
|
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Corporate Bonds (27.2%): | ||||||||
Aerospace & Defense (0.1%): | ||||||||
747,000 | KLX, Inc., 5.88%, 12/1/22, Callable 2/5/18 @ 104.41(a) | 782,258 | ||||||
|
| |||||||
Automobiles (0.1%): | ||||||||
493,000 | General Motors Co., 3.50%, 10/2/18 | 498,128 | ||||||
|
| |||||||
Banks (2.5%): | ||||||||
656,000 | Bank of America Corp., 4.20%, 8/26/24 | 690,814 | ||||||
612,000 | Bank of America Corp., Series L, 3.95%, 4/21/25 | 632,880 |
Principal | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Banks, continued | ||||||||
$ | 690,000 | Bank of America Corp., 3.50%, 4/19/26^ | $ | 705,458 | ||||
593,000 | Bank of America Corp., 4.25%, 10/22/26 | 624,924 | ||||||
811,000 | Bank of America Corp., 3.42%(US0003M+104bps), 12/20/28, Callable 12/20/27 @ 100(a) | 811,174 | ||||||
200,000 | Bank of America Corp., 6.10%(US0003M+390bps), 12/29/49, Callable 3/17/25 @ 100^ | 219,500 | ||||||
247,000 | CIT Group, Inc., 5.00%, 8/15/22 | 261,820 | ||||||
1,090,000 | Citigroup, Inc., 4.05%, 7/30/22 | 1,134,473 | ||||||
1,493,000 | Citigroup, Inc., 4.30%, 11/20/26^ | 1,561,261 | ||||||
250,000 | Citizens Bank NA/RI, 2.55%, 5/13/21, Callable 4/13/21 @ 100 | 249,075 | ||||||
253,000 | Citizens Bank of Rhode Island, 2.50%, 3/14/19, Callable 2/14/19 @ 100, MTN | 253,599 | ||||||
2,994,000 | JPMorgan Chase & Co., 3.88%, 9/10/24^ | 3,123,111 | ||||||
759,000 | JPMorgan Chase & Co., 2.95%, 10/1/26, Callable 7/1/26 @ 100 | 745,520 | ||||||
1,109,000 | JPMorgan Chase & Co., 4.13%, 12/15/26 | 1,169,899 | ||||||
240,000 | JPMorgan Chase & Co., 6.75%(US0003M+378bps), 12/31/99, Callable 2/1/24 @ 100^ | 271,800 | ||||||
1,278,000 | Regions Bank, Series BKNT, 7.50%, 5/15/18 | 1,303,591 | ||||||
500,000 | Regions Bank, 6.45%, 6/26/37 | 639,014 | ||||||
260,000 | Regions Financial Corp., 3.20%, 2/8/21, Callable 1/8/21 @ 100 | 264,540 | ||||||
|
| |||||||
14,662,453 | ||||||||
|
| |||||||
Beverages (0.7%): | ||||||||
1,481,000 | Anheuser-Busch InBev NV, 3.30%, 2/1/23, Callable 12/1/22 @ 100 | 1,515,497 | ||||||
1,402,000 | Anheuser-Busch InBev NV, 4.70%, 2/1/36, Callable 8/1/35 @ 100 | 1,567,645 | ||||||
854,000 | Anheuser-Busch InBev NV, 4.90%, 2/1/46, Callable 8/1/45 @ 100 | 989,777 | ||||||
|
| |||||||
4,072,919 | ||||||||
|
| |||||||
Capital Markets (0.7%): | ||||||||
282,000 | Affiliated Managers Group, Inc., 4.25%, 2/15/24 | 297,339 | ||||||
572,000 | Affiliated Managers Group, Inc., 3.50%, 8/1/25 | 578,405 | ||||||
596,000 | Goldman Sachs Group, Inc.(The), 2.88%(US0003M+82bps), 10/31/22, Callable 10/31/21 @ 100 | 594,292 | ||||||
230,000 | IntercontinentalExchange, 2.75%, 12/1/20, Callable 11/1/20 @ 100 | 232,726 | ||||||
464,000 | Lazard Group LLC, 4.25%, 11/14/20 | 483,293 | ||||||
227,000 | Moody’s Corp., 4.88%, 2/15/24, Callable 11/15/23 @ 100 | 249,341 | ||||||
242,000 | Moody’s Corp., 3.25%, 1/15/28, Callable 10/15/27 @ 100(a) | 239,242 | ||||||
781,000 | Morgan Stanley, 4.88%, 11/1/22 | 840,998 | ||||||
220,000 | MSCI, Inc., 4.75%, 8/1/26, Callable 8/1/21 @ 102.38(a) | 231,000 | ||||||
114,000 | Tiaa Asset Management Finance LLC, 2.95%, 11/1/19(a) | 115,090 | ||||||
165,000 | Tiaa Asset Management Finance LLC, 4.13%, 11/1/24(a) | 174,134 | ||||||
|
| |||||||
4,035,860 | ||||||||
|
|
Continued
4
AZL Pyramis® Total Bond Fund
Schedule of Portfolio Investments
December 31, 2017
Principal | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Chemicals (0.5%): | ||||||||
$ | 550,000 | CF Industries Holdings, Inc., 3.45%, 6/1/23^ | $ | 542,438 | ||||
550,000 | CF Industries Holdings, Inc., 4.95%, 6/1/43 | 519,750 | ||||||
395,000 | Chemours Co., 5.38%, 5/15/27, Callable 2/15/27 @ 100 | 408,825 | ||||||
347,000 | Platform Specialty Products, 6.50%, 2/1/22, Callable 2/5/18 @ 103.25^(a) | 358,711 | ||||||
70,000 | Platform Specialty Products Corp., 5.88%, 12/1/25, Callable 12/1/20 @ 102.94^(a) | 69,475 | ||||||
290,000 | TPC Group, Inc., 8.75%, 12/15/20, Callable 2/5/18 @ 102.19(a) | 290,000 | ||||||
140,000 | Tronox Finance LLC, 7.50%, 3/15/22, Callable 3/15/18 @ 103.75(a) | 146,300 | ||||||
200,000 | Valvoline, Inc., 4.38%, 8/15/25, Callable 8/15/20 @ 103.28 | 202,000 | ||||||
260,000 | Venator Finance SARL/Venator Materials Corp., 5.75%, 7/15/25, Callable 7/15/20 @ 104.31^(a) | 274,300 | ||||||
300,000 | W R Grace & Co., 5.63%, 10/1/24(a) | 323,625 | ||||||
|
| |||||||
3,135,424 | ||||||||
|
| |||||||
Commercial Services & Supplies (0.4%): | ||||||||
747,000 | ADT Corp., 6.25%, 10/15/21 | 817,965 | ||||||
180,000 | ADT Corp., 4.88%, 7/15/32(a) | 170,100 | ||||||
140,000 | Covanta Holding Corp., 5.88%, 3/1/24, Callable 3/1/19 @ 102.94^ | 142,100 | ||||||
1,247,000 | Prime Securities Services Borrower/Finance, 9.25%, 5/15/23, Callable 5/15/19 @ 104.63(a) | 1,384,170 | ||||||
|
| |||||||
2,514,335 | ||||||||
|
| |||||||
Communications Equipment (0.1%): | ||||||||
300,000 | Brocade Communications Systems, Inc., 4.63%, 1/15/23, Callable 1/16/18 @ 102.31 | 306,750 | ||||||
|
| |||||||
Construction & Engineering (0.1%): | ||||||||
300,000 | Aecom, 5.13%, 3/15/27, Callable 12/15/26 @ 100 | 305,595 | ||||||
|
| |||||||
Consumer Finance (3.0%): | ||||||||
600,000 | Ally Financial, Inc., 5.75%, 11/20/25, Callable 10/20/25 @ 100^ | 654,000 | ||||||
478,000 | Capital One Financial Co., 2.45%, 4/24/19, Callable 3/24/19 @ 100 | 479,116 | ||||||
797,000 | Capital One NA, Series BNKT, 2.95%, 7/23/21, Callable 6/23/21 @ 100 | 801,747 | ||||||
250,000 | Discover Bank, 7.00%, 4/15/20 | 272,495 | ||||||
644,000 | Discover Bank, Series BKNT, 3.20%, 8/9/21, Callable 7/9/21 @ 100 | 653,298 | ||||||
1,000,000 | Discover Financial Services, 5.20%, 4/27/22 | 1,076,362 | ||||||
457,000 | Discover Financial Services, 4.10%, 2/9/27, Callable 11/9/26 @ 100^ | 468,119 | ||||||
896,000 | Ford Motor Credit Co. LLC, 5.00%, 5/15/18 | 905,120 | ||||||
796,000 | Ford Motor Credit Co. LLC, 2.24%, 6/15/18 | 796,753 | ||||||
896,000 | Ford Motor Credit Co. LLC, 2.88%, 10/1/18 | 901,273 | ||||||
1,493,000 | Ford Motor Credit Co. LLC, 2.60%, 11/4/19 | 1,493,977 | ||||||
1,121,000 | Ford Motor Credit Co. LLC, 5.88%, 8/2/21 | 1,230,977 | ||||||
300,000 | General Motors Acceptance Corp., 8.00%, 11/1/31 | 390,000 | ||||||
572,000 | General Motors Financial Co., 3.50%, 7/10/19 | 580,621 | ||||||
747,000 | General Motors Financial Co., 4.20%, 3/1/21, Callable 2/1/21 @ 100 | 776,846 | ||||||
2,968,000 | General Motors Financial Co., 4.38%, 9/25/21 | 3,122,010 |
Principal | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Consumer Finance, continued | ||||||||
$ | 299,000 | General Motors Financial Co., 4.25%, 5/15/23 | $ | 312,760 | ||||
175,000 | General Motors Financial Co., Inc., 3.25%, 5/15/18 | 175,658 | ||||||
240,000 | Hyundai Capital America, 2.88%, 8/9/18(a) | 240,500 | ||||||
564,000 | Hyundai Capital America, 2.55%, 2/6/19(a) | 563,008 | ||||||
447,000 | Navient Corp., 8.00%, 3/25/20, MTN | 483,319 | ||||||
206,000 | Synchrony Financial, 3.00%, 8/15/19, Callable 7/15/19 @ 100 | 207,433 | ||||||
510,000 | Synchrony Financial, 3.75%, 8/15/21, Callable 6/15/21 @ 100 | 522,959 | ||||||
314,000 | Synchrony Financial, 4.25%, 8/15/24, Callable 5/15/24 @ 100 | 325,573 | ||||||
|
| |||||||
17,433,924 | ||||||||
|
| |||||||
Containers & Packaging (0.1%): | ||||||||
100,000 | Crown Americas LLC, 4.25%, 9/30/26, Callable 3/31/26 @ 100 | 98,500 | ||||||
80,000 | Crown Cork & Seal Co., Inc., 7.38%, 12/15/26 | 93,200 | ||||||
300,000 | Reynolds Group Issuer, Inc., 5.13%, 7/15/23, Callable 7/15/19 @ 102.56(a) | 310,500 | ||||||
|
| |||||||
502,200 | ||||||||
|
| |||||||
Diversified Consumer Services (0.4%): | ||||||||
1,000,000 | APX Group, Inc., 8.75%, 12/1/20, Callable 2/5/18 @ 102.19 | 1,020,000 | ||||||
660,000 | APX Group, Inc., 7.63%, 9/1/23, Callable 9/1/19 @ 105.72^ | 694,650 | ||||||
170,000 | Ascend Learning LLC, 6.88%, 8/1/25, Callable 8/1/20 @ 103.44(a) | 175,525 | ||||||
590,000 | Laureate Education, Inc., 8.25%, 5/1/25, Callable 5/1/20 @ 106.19(a) | 625,400 | ||||||
|
| |||||||
2,515,575 | ||||||||
|
| |||||||
Diversified Financial Services (0.1%): | ||||||||
500,000 | Peachtree Funding Trust, 3.98%, 2/15/25(a) | 514,825 | ||||||
285,000 | Voya Financial, Inc., 3.13%, 7/15/24, Callable 5/15/24 @ 100 | 282,436 | ||||||
|
| |||||||
797,261 | ||||||||
|
| |||||||
Diversified Telecommunication Services (1.1%): | ||||||||
481,000 | AT&T, Inc., 2.45%, 6/30/20, Callable 5/30/20 @ 100^ | 480,474 | ||||||
917,000 | AT&T, Inc., 3.60%, 2/17/23, Callable 12/17/22 @ 100^ | 938,063 | ||||||
300,000 | Level 3 Financing, Inc., 5.38%, 1/15/24, Callable 1/15/19 @ 102.69 | 299,625 | ||||||
300,000 | Level 3 Financing, Inc., 5.38%, 5/1/25, Callable 5/1/20 @ 102.69^ | 299,625 | ||||||
300,000 | Qwest Corp., 6.75%, 12/1/21 | 323,064 | ||||||
200,000 | Qwest Corp., 7.25%, 9/15/25 | 214,674 | ||||||
200,000 | Qwest Corp., 6.88%, 9/15/33, Callable 2/5/18 @ 100.59 | 191,733 | ||||||
600,000 | Radiate Holdco LLC/Radiate Finance, Inc., 6.63%, 2/15/25, Callable 2/15/20 @ 103.31^(a) | 567,000 | ||||||
441,000 | Verizon Communications, Inc., 5.50%, 3/16/47^ | 502,481 | ||||||
900,000 | Verizon Communications, Inc., 5.01%, 4/15/49 | 943,909 | ||||||
889,000 | Verizon Communications, Inc., 5.01%, 8/21/54 | 910,326 | ||||||
747,000 | Zayo Group LLC/Zayo Capital, 6.38%, 5/15/25, Callable 5/15/20 @ 103.19 | 789,953 | ||||||
|
| |||||||
6,460,927 | ||||||||
|
|
Continued
5
AZL Pyramis® Total Bond Fund
Schedule of Portfolio Investments
December 31, 2017
Principal | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Electric Utilities (0.6%): | ||||||||
$ | 164,000 | Emera US Finance LP, 2.15%, 6/15/19 | $ | 163,362 | ||||
163,000 | Emera US Finance LP, 2.70%, 6/15/21, Callable 5/15/21 @ 100 | 162,603 | ||||||
260,000 | Emera US Finance LP, 3.55%, 6/15/26, Callable 3/15/26 @ 100^ | 260,745 | ||||||
455,000 | FirstEnergy Solutions Co., 6.05%, 8/15/21 | 188,825 | ||||||
2,306,000 | FirstEnergy, Inc., Series B, 4.25%, 3/15/23, Callable 12/15/22 @ 100^ | 2,408,518 | ||||||
246,006 | NSG Holdings LLC/NSG Holdings, Inc., 7.75%, 12/15/25(c) | 269,992 | ||||||
175,000 | NV Energy, Inc., 6.25%, 11/15/20 | 192,192 | ||||||
56,000 | PG&E Corp., 2.40%, 3/1/19, Callable 2/1/19 @ 100^ | 56,033 | ||||||
|
| |||||||
3,702,270 | ||||||||
|
| |||||||
Energy Equipment & Services (0.2%): | ||||||||
349,000 | Halliburton Co., 3.80%, 11/15/25, Callable 8/15/25 @ 100 | 362,704 | ||||||
306,000 | Halliburton Co., 4.85%, 11/15/35, Callable 5/15/35 @ 100 | 343,284 | ||||||
170,000 | Nabors Industries, Inc., 5.50%, 1/15/23, Callable 11/15/22 @ 100^ | 164,900 | ||||||
|
| |||||||
870,888 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (3.8%): | ||||||||
82,000 | Alexandria Real Estate Equities, Inc., 2.75%, 1/15/20, Callable 12/15/19 @ 100 | 82,345 | ||||||
152,000 | American Campus Communities, Inc., 3.75%, 4/15/23, Callable 1/15/23 @ 100 | 155,895 | ||||||
747,000 | American Tower Corp., 2.80%, 6/1/20, Callable 5/1/20 @ 100 | 751,654 | ||||||
161,000 | AvalonBay Communities, Inc., 3.63%, 10/1/20, Callable 7/1/20 @ 100 | 165,735 | ||||||
514,000 | BPG Subsidiary, Inc., 3.88%, 8/15/22, Callable 6/15/22 @ 100 | 526,645 | ||||||
394,000 | Brandywine Operating Partners LP, 4.10%, 10/1/24, Callable 7/1/24 @ 100 | 400,486 | ||||||
426,000 | Brandywine Operating Partners LP, 4.55%, 10/1/29, Callable 7/1/29 @ 100 | 435,523 | ||||||
339,000 | Brandywine Operating Partnership LP, 3.95%, 11/15/27, Callable 8/15/27 @ 100 | 336,490 | ||||||
489,000 | Brandywine Realty Trust, 3.95%, 2/15/23, Callable 11/15/22 @ 100 | 498,855 | ||||||
788,000 | Brixmor Operating Partners LP, 3.25%, 9/15/23, Callable 7/15/23 @ 100 | 772,026 | ||||||
134,000 | Camden Property Trust, 2.95%, 12/15/22, Callable 9/15/22 @ 100 | 134,021 | ||||||
381,000 | Corporate Office Properties Trust, 3.70%, 6/15/21, Callable 4/15/21 @ 100 | 388,133 | ||||||
414,000 | Corporate Office Properties Trust, 5.00%, 7/1/25, Callable 4/1/25 @ 100 | 442,214 | ||||||
155,000 | Corrections Corp. of America, 5.00%, 10/15/22, Callable 7/15/22 @ 100 | 161,975 | ||||||
1,114,000 | DDR Corp., 4.63%, 7/15/22, Callable 4/15/22 @ 100^ | 1,174,529 | ||||||
74,000 | DDR Corp., 3.90%, 8/15/24, Callable 6/15/24 @ 100^ | 74,549 |
Principal | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Equity Real Estate Investment Trusts, continued | ||||||||
$ | 458,000 | Digital Realty Trust, Inc., 3.40%, 10/1/20, Callable 9/1/20 @ 100^ | $ | 467,046 | ||||
484,000 | Digital Realty Trust, LP, 3.95%, 7/1/22, Callable 5/1/22 @ 100 | 505,618 | ||||||
491,000 | Digital Realty Trust, LP, 4.75%, 10/1/25, Callable 7/1/25 @ 100 | 533,802 | ||||||
256,000 | Duke Realty LP, 3.88%, 10/15/22, Callable 7/15/22 @ 100^ | 266,349 | ||||||
273,000 | Duke Realty LP, 3.63%, 4/15/23, Callable 1/15/23 @ 100 | 279,651 | ||||||
146,000 | Duke Realty LP, 3.75%, 12/1/24, Callable 9/1/24 @ 100 | 150,773 | ||||||
747,000 | Equinix, Inc., 5.75%, 1/1/25, Callable 1/1/20 @ 102.88 | 792,754 | ||||||
70,000 | Equity Commonwealth, 5.88%, 9/15/20, Callable 3/15/20 @ 100 | 73,949 | ||||||
500,000 | Equity One, Inc., 3.75%, 11/15/22, Callable 8/15/22 @ 100 | 512,227 | ||||||
1,000,000 | Government Properties Income Trust, 3.75%, 8/15/19, Callable 7/15/19 @ 100 | 1,008,404 | ||||||
143,000 | Health Care REIT, Inc., 2.25%, 3/15/18 | 143,055 | ||||||
500,000 | Health Care REIT, Inc., 4.13%, 4/1/19, Callable 1/1/19 @ 100 | 508,908 | ||||||
135,000 | Lexington Realty Trust, 4.40%, 6/15/24, Callable 3/15/24 @ 100 | 136,014 | ||||||
500,000 | Mack-Cali Realty LP, 4.50%, 4/18/22, Callable 1/18/22 @ 100 | 500,977 | ||||||
401,000 | Mack-Cali Realty LP, 3.15%, 5/15/23, Callable 2/15/23 @ 100 | 372,952 | ||||||
300,000 | MPT Operating Partnership LP/MPT Finance Corp., 5.25%, 8/1/26, Callable 8/1/21 @ 102.63 | 310,500 | ||||||
820,000 | OMEGA Healthcare Investors, Inc., 4.38%, 8/1/23, Callable 6/1/23 @ 100 | 831,667 | ||||||
126,000 | OMEGA Healthcare Investors, Inc., 4.95%, 4/1/24, Callable 1/1/24 @ 100 | 131,631 | ||||||
281,000 | OMEGA Healthcare Investors, Inc., 4.50%, 1/15/25, Callable 10/15/24 @ 100^ | 280,801 | ||||||
785,000 | OMEGA Healthcare Investors, Inc., 5.25%, 1/15/26, Callable 10/15/25 @ 100 | 813,470 | ||||||
2,431,000 | OMEGA Healthcare Investors, Inc., 4.50%, 4/1/27, Callable 1/1/27 @ 100^ | 2,378,663 | ||||||
748,000 | OMEGA Healthcare Investors, Inc., 4.75%, 1/15/28, Callable 10/15/27 @ 100^ | 741,466 | ||||||
70,000 | Post Apartment Homes LP, 3.38%, 12/1/22, Callable 9/1/22 @ 100 | 70,963 | ||||||
68,000 | Retail Opportunity Investments Corp., 5.00%, 12/15/23, Callable 9/15/23 @ 100 | 70,887 | ||||||
104,000 | Retail Opportunity Investments Corp., 4.00%, 12/15/24, Callable 9/15/24 @ 100 | 101,947 | ||||||
900,000 | Sabra Health/Capital Corp., 5.50%, 2/1/21, Callable 2/5/18 @ 102.75 | 919,125 | ||||||
161,000 | Tanger Properties LP, 3.88%, 12/1/23, Callable 9/1/23 @ 100 | 164,108 | ||||||
411,000 | Tanger Properties LP, 3.75%, 12/1/24, Callable 9/1/24 @ 100 | 413,141 |
Continued
6
AZL Pyramis® Total Bond Fund
Schedule of Portfolio Investments
December 31, 2017
Principal | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Equity Real Estate Investment Trusts, continued | ||||||||
$ | 342,000 | Tanger Properties LP, 3.13%, 9/1/26, Callable 6/1/26 @ 100 | $ | 325,543 | ||||
111,000 | Ventas Realty LP, 4.00%, 4/30/19, Callable 1/30/19 @ 100 | 113,019 | ||||||
118,000 | Ventas Realty LP, 3.13%, 6/15/23, Callable 3/15/23 @ 100 | 118,050 | ||||||
67,000 | Weingarten Realty Investors, 3.38%, 10/15/22, Callable 7/15/22 @ 100 | 67,543 | ||||||
814,000 | WP Carey, Inc., 4.00%, 2/1/25, Callable 11/1/24 @ 100 | 823,168 | ||||||
|
| |||||||
21,429,246 | ||||||||
|
| |||||||
Food & Staples Retailing (0.2%): | ||||||||
364,000 | CVS Health, 3.50%, 7/20/22, Callable 5/20/22 @ 100 | 370,771 | ||||||
100,000 | US Foods, Inc., 5.88%, 6/15/24, Callable 6/15/19 @ 102.94(a) | 105,000 | ||||||
405,000 | Walgreens Boots Alliance, Inc., 3.30%, 11/18/21, Callable 9/18/21 @ 100 | 411,760 | ||||||
|
| |||||||
887,531 | ||||||||
|
| |||||||
Food Products (0.1%): | ||||||||
205,000 | Lamb Weston HLD, 4.88%, 11/1/26, Callable 11/1/21 @ 102.44(a) | 214,225 | ||||||
300,000 | Post Holding, Inc., 5.00%, 8/15/26, Callable 8/15/21 @ 102.5(a) | 295,125 | ||||||
|
| |||||||
509,350 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (0.0%): | ||||||||
190,000 | Teleflex, Inc., 4.88%, 6/1/26, Callable 6/1/21 @ 102.44 | 196,175 | ||||||
30,000 | Teleflex, Inc., 4.63%, 11/15/27, Callable 11/15/22 @ 102.31 | 30,257 | ||||||
|
| |||||||
226,432 | ||||||||
|
| |||||||
Health Care Providers & Services (1.2%): | ||||||||
443,000 | Community Health System, Inc., 6.88%, 2/1/22, Callable 2/5/18 @ 103.44^ | 254,725 | ||||||
180,000 | Community Health System, Inc., 6.25%, 3/31/23, Callable 3/31/20 @ 103.13 | 162,000 | ||||||
530,000 | HCA, Inc., 3.75%, 3/15/19 | 534,638 | ||||||
2,837,000 | HCA, Inc., 6.50%, 2/15/20 | 3,007,219 | ||||||
37,000 | HCA, Inc., 5.88%, 3/15/22 | 39,590 | ||||||
30,000 | HCA, Inc., 4.75%, 5/1/23 | 30,900 | ||||||
500,000 | HCA, Inc., 5.38%, 2/1/25 | 517,500 | ||||||
480,000 | HCA, Inc., 5.25%, 4/15/25 | 507,600 | ||||||
300,000 | HCA, Inc., 5.25%, 6/15/26, Callable 12/15/25 @ 100 | 318,000 | ||||||
300,000 | Tenet Healthcare Corp., 4.50%, 4/1/21 | 301,500 | ||||||
637,000 | Tenet Healthcare Corp., 8.13%, 4/1/22 | 648,148 | ||||||
200,000 | Vizient, Inc., 10.38%, 3/1/24, Callable 3/1/19 @ 107.78(a) | 224,500 | ||||||
300,000 | WellCare Health Plans, 5.25%, 4/1/25, Callable 4/1/20 @ 103.94 | 316,500 | ||||||
|
| |||||||
6,862,820 | ||||||||
|
| |||||||
Health Care Technology (0.1%): | ||||||||
300,000 | IMS Health, Inc., 5.00%, 10/15/26, Callable 10/15/21 @ 102.5(a) | 307,500 | ||||||
|
|
Principal | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Hotels, Restaurants & Leisure (0.6%): | ||||||||
$ | 300,000 | Aramark Services, Inc., 5.00%, 4/1/25, Callable 4/1/20 @ 103.75(a) | $ | 316,890 | ||||
747,000 | Golden Nugget, Inc., 6.75%, 10/15/24, Callable 10/15/19 @ 103.38(a) | 760,072 | ||||||
135,000 | Golden Nugget, Inc., 8.75%, 10/1/25, Callable 10/1/20 @ 104.38(a) | 141,750 | ||||||
155,000 | Hilton Worldwide Finance LLC, 4.63%, 4/1/25, Callable 4/1/20 @ 102.31^ | 159,263 | ||||||
128,000 | McDonald’s Corp., 2.75%, 12/9/20, Callable 11/9/20 @ 100 | 129,328 | ||||||
339,000 | McDonald’s Corp., 3.70%, 1/30/26, Callable 10/30/25 @ 100 | 353,369 | ||||||
400,000 | MGM Growth Properties LLC, 4.50%, 9/1/26, Callable 6/1/26 @ 100 | 398,000 | ||||||
150,000 | Penn National Gaming, Inc., 5.63%, 1/15/27, Callable 1/15/22 @ 102.81^(a) | 155,625 | ||||||
600,000 | Scientific Games International, Inc., 10.00%, 12/1/22, Callable 12/1/18 @ 105 | 658,500 | ||||||
155,000 | Wynn Las Vegas LLC, 5.50%, 3/1/25, Callable 12/1/24 @ 100^(a) | 159,650 | ||||||
|
| |||||||
3,232,447 | ||||||||
|
| |||||||
Household Products (0.1%): | ||||||||
300,000 | Energizer Holdings, Inc., 5.50%, 6/15/25, Callable 6/15/20 @ 102.75(a) | 312,465 | ||||||
|
| |||||||
Independent Power & Renewable Electricity Producers (0.4%): | ||||||||
300,000 | AES Corp., 5.50%, 3/15/24, Callable 3/15/19 @ 102.75 | 312,000 | ||||||
200,000 | Calpine Corp., 5.38%, 1/15/23, Callable 10/15/18 @ 102.69^ | 194,500 | ||||||
500,000 | Dynegy, Inc., 8.00%, 1/15/25, Callable 1/15/20 @ 104(a) | 541,250 | ||||||
763,000 | IPALCO Enterprises, Inc., 3.45%, 7/15/20, Callable 6/15/20 @ 100 | 770,629 | ||||||
211,000 | IPALCO Enterprises, Inc., 3.70%, 9/1/24, Callable 7/1/24 @ 100(a) | 210,808 | ||||||
45,000 | NextEra Energy Operating Partners LP, 4.25%, 9/15/24, Callable 7/15/24 @ 100(a) | 45,788 | ||||||
391,000 | NRG Energy, 6.25%, 5/1/24, Callable 5/1/19 @ 103.13^ | 409,573 | ||||||
|
| |||||||
2,484,548 | ||||||||
|
| |||||||
Industrial Conglomerates (0.1%): | ||||||||
300,000 | Icahn Enterprises LP, 6.00%, 8/1/20, Callable 2/5/18 @ 103 | 308,528 | ||||||
300,000 | Icahn Enterprises LP, 5.88%, 2/1/22, Callable 2/5/18 @ 102.94 | 303,750 | ||||||
|
| |||||||
612,278 | ||||||||
|
| |||||||
Insurance (1.0%): | ||||||||
100,000 | Acrisure LLC/Finance, Inc., 7.00%, 11/15/25, Callable 11/15/20 @ 103.5(a) | 96,376 | ||||||
326,000 | American International Group, Inc., 3.30%, 3/1/21, Callable 2/1/21 @ 100 | 332,333 | ||||||
1,208,000 | American International Group, Inc., 3.75%, 7/10/25, Callable 4/10/25 @ 100 | 1,245,477 | ||||||
180,000 | Liberty Mutual Group, Inc., 4.25%, 6/15/23(a) | 189,672 |
Continued
7
AZL Pyramis® Total Bond Fund
Schedule of Portfolio Investments
December 31, 2017
Principal | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Insurance, continued | ||||||||
$ | 651,000 | Pacific Lifecorp, 5.13%, 1/30/43(a) | $ | 734,657 | ||||
497,000 | Teachers Insurance & Annuity Association of America, 4.90%, 9/15/44(a) | 568,506 | ||||||
463,000 | Unum Group, 3.88%, 11/5/25 | 474,116 | ||||||
1,556,000 | Unum Group, 5.75%, 8/15/42 | 1,903,982 | ||||||
195,000 | Usis Merger Sub, Inc., 6.88%, 5/1/25, Callable 5/1/20 @ 103.44(a) | 196,950 | ||||||
|
| |||||||
5,742,069 | ||||||||
|
| |||||||
Internet Software & Services (0.3%): | ||||||||
205,000 | Genesys/Greeneden Lux/US, 10.00%, 11/30/24, Callable 11/30/19 @ 107.5(a) | 223,963 | ||||||
1,400,000 | Inception Merger Sub, Inc./Rackspace Hosting, Inc., 8.63%, 11/15/24, Callable 11/15/19 @ 106.47^(a) | 1,494,500 | ||||||
|
| |||||||
1,718,463 | ||||||||
|
| |||||||
IT Services (0.1%): | ||||||||
347,000 | First Data Corp., 5.38%, 8/15/23, Callable 8/15/18 @ 102.69(a) | 361,192 | ||||||
|
| |||||||
Life Sciences Tools & Services (0.0%): | ||||||||
25,000 | Catalent Pharma Solutions, Inc., 4.88%, 1/15/26, Callable 10/15/20 @ 102.44(a) | 25,094 | ||||||
99,000 | Thermo Fisher Scientific, Inc., 2.40%, 2/1/19 | 99,241 | ||||||
|
| |||||||
124,335 | ||||||||
|
| |||||||
Machinery (0.0%): | ||||||||
51,000 | Ingersoll-Rand Global Holding Co., Ltd., 2.88%, 1/15/19 | 51,261 | ||||||
|
| |||||||
Media (2.5%): | ||||||||
390,000 | 21st Century Fox America, 7.75%, 12/1/45 | 618,701 | ||||||
747,000 | Altice US Finance I Corp., 5.38%, 7/15/23, Callable 7/15/18 @ 104.03(a) | 763,808 | ||||||
175,000 | AMC Entertainment, Inc., 5.75%, 6/15/25, Callable 6/15/20 @ 102.88^ | 173,031 | ||||||
747,000 | AMC Networks, Inc., 5.00%, 4/1/24, Callable 4/1/20 @ 102.5^ | 756,338 | ||||||
747,000 | CCO Holdings LLC, 5.88%, 4/1/24, Callable 4/1/19 @ 104.41(a) | 778,748 | ||||||
700,000 | CCO Holdings LLC, 5.88%, 5/1/27, Callable 5/1/21 @ 102.94(a) | 721,000 | ||||||
300,000 | CSC Holdings LLC, 5.50%, 4/15/27, Callable 4/15/22 @ 102.75^(a) | 306,000 | ||||||
300,000 | Dish DBS Corp., 5.88%, 7/15/22 | 301,500 | ||||||
300,000 | Dish DBS Corp., 5.00%, 3/15/23^ | 283,500 | ||||||
650,000 | MHGE Parent LLC/Finance, 8.50%, 8/1/19, Callable 2/5/18 @ 100(a) | 646,555 | ||||||
500,000 | Neptune Finco Corp., 6.63%, 10/15/25, Callable 10/15/20 @ 103.31(a) | 541,240 | ||||||
300,000 | Sirius XM Radio, Inc., 4.63%, 5/15/23, Callable 5/15/18 @ 102.31(a) | 306,375 | ||||||
947,000 | Sirius XM Radio, Inc., 5.38%, 4/15/25, Callable 4/15/20 @ 102.69(a) | 986,064 | ||||||
1,069,000 | Time Warner Cable, Inc., 8.25%, 4/1/19 | 1,142,533 | ||||||
1,493,000 | Time Warner Cable, Inc., 4.13%, 2/15/21, Callable 11/15/20 @ 100^ | 1,537,466 | ||||||
930,000 | Time Warner Cable, Inc., 4.00%, 9/1/21, Callable 6/1/21 @ 100 | 957,843 |
Principal | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Media, continued | ||||||||
$ | 231,000 | Time Warner Cable, Inc., 6.55%, 5/1/37 | $ | 271,673 | ||||
418,000 | Time Warner Cable, Inc., 7.30%, 7/1/38 | 523,948 | ||||||
2,240,000 | Time Warner Cable, Inc., 6.75%, 6/15/39 | 2,687,723 | ||||||
103,000 | Time Warner Cable, Inc., 5.50%, 9/1/41, Callable 3/1/41 @ 100 | 107,356 | ||||||
200,000 | Univision Communications, Inc., 5.13%, 5/15/23, Callable 5/15/18 @ 102.56^(a) | 199,500 | ||||||
|
| |||||||
14,610,902 | ||||||||
|
| |||||||
Metals & Mining (0.1%): | ||||||||
300,000 | Freeport-McMoRan, Inc., 3.55%, 3/1/22, Callable 12/1/21 @ 100 | 296,625 | ||||||
|
| |||||||
Mortgage Real Estate Investment Trusts (0.0%): | ||||||||
65,000 | Starwood Property Trust, Inc., 4.75%, 3/15/25, Callable 9/15/24 @ 100(a) | 64,513 | ||||||
|
| |||||||
Multi-Utilities (0.3%): | ||||||||
1,371,000 | Dominion Resources, Inc., Series 06-B, 3.99%(US0003M+230bps), 9/30/66, Callable 1/26/18 @ 100 | 1,290,454 | ||||||
49,000 | Puget Energy, Inc., 6.00%, 9/1/21 | 54,211 | ||||||
506,000 | Sempra Energy, 6.00%, 10/15/39 | 652,902 | ||||||
|
| |||||||
1,997,567 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (3.1%): | ||||||||
1,195,000 | Access Midstream Partner, 4.88%, 3/15/24, Callable 3/15/19 @ 102.44 | 1,248,774 | ||||||
222,000 | Anadarko Petroleum Corp., 4.85%, 3/15/21, Callable 2/15/21 @ 100 | 234,440 | ||||||
460,000 | Anadarko Petroleum Corp., 5.55%, 3/15/26, Callable 12/15/25 @ 100^ | 516,113 | ||||||
722,000 | Anadarko Petroleum Corp., Series B, 7.50%, 5/1/31 | 926,757 | ||||||
122,000 | Anadarko Petroleum Corp., 6.45%, 9/15/36 | 149,427 | ||||||
612,000 | Anadarko Petroleum Corp., 6.60%, 3/15/46, Callable 9/15/45 @ 100 | 787,202 | ||||||
400,000 | Antero Resources Corp., 5.13%, 12/1/22, Callable 2/5/18 @ 103.84 | 408,000 | ||||||
305,000 | Cheniere Corpus Christi Holdings LLC, 7.00%, 6/30/24, Callable 1/1/24 @ 100 | 347,128 | ||||||
335,000 | Cheniere Energy Partners, 5.25%, 10/1/25, Callable 10/1/20 @ 102.63(a) | 340,863 | ||||||
634,000 | Chesapeake Energy Corp., 8.00%, 12/15/22, Callable 12/15/18 @ 104^(a) | 683,928 | ||||||
170,000 | Chesapeake Energy Corp., 8.00%, 1/15/25, Callable 1/15/20 @ 106^(a) | 171,700 | ||||||
520,000 | Citgo Petroleum Corp., 6.25%, 8/15/22, Callable 2/5/18 @ 104.69(a) | 523,900 | ||||||
131,000 | Columbia Pipeline Group, 2.45%, 6/1/18 | 131,077 | ||||||
434,000 | Columbia Pipeline Group, 3.30%, 6/1/20, Callable 5/1/20 @ 100 | 440,199 | ||||||
197,000 | Columbia Pipeline Group, 4.50%, 6/1/25, Callable 3/1/25 @ 100 | 209,754 | ||||||
170,000 | Continental Resources, Inc., 4.50%, 4/15/23, Callable 1/15/23 @ 100^ | 173,400 | ||||||
150,000 | Crestwood Midstream Partners LP/Crestwood Midstream Finance Corp., 5.75%, 4/1/25, Callable 4/1/20 @ 104.31^ | 154,875 |
Continued
8
AZL Pyramis® Total Bond Fund
Schedule of Portfolio Investments
December 31, 2017
Principal | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
$ | 150,000 | CVR Refining LLC/Coffeyville Finance, Inc., 6.50%, 11/1/22, Callable 2/5/18 @ 103.25 | $ | 154,500 | ||||
163,000 | DCP Midstream Operating LLC, 3.88%, 3/15/23, Callable 12/15/22 @ 100^ | 161,981 | ||||||
600,000 | DCP Midstream Operating LLC, 8.13%, 8/16/30 | 702,000 | ||||||
185,000 | DCP Midstream Operating LLC, 5.60%, 4/1/44, Callable 10/1/43 @ 100 | 183,613 | ||||||
190,000 | Denbury Resources, Inc., 4.63%, 7/15/23, Callable 2/5/18 @ 102.31 | 121,600 | ||||||
175,000 | Enable Midstream Partners LP, 2.40%, 5/15/19, Callable 4/15/19 @ 100 | 173,996 | ||||||
124,000 | Enable Midstream Partners LP, 3.90%, 5/15/24, Callable 2/15/24 @ 100 | 124,752 | ||||||
300,000 | Energy Transfer Equity, 5.88%, 1/15/24, Callable 10/15/23 @ 100 | 315,750 | ||||||
250,000 | Everest Acquisition Finance, Inc., 8.00%, 11/29/24, Callable 11/30/19 @ 106^(a) | 258,125 | ||||||
300,000 | Global Partners LP, 6.25%, 7/15/22, Callable 2/5/18 @ 104.69 | 308,250 | ||||||
90,000 | Hess Infrastructure Partners LP/Finance Corp., 5.63%, 2/15/26, Callable 2/15/21 @ 104.22(a) | 92,925 | ||||||
310,000 | Hilcorp Energy LP, 5.00%, 12/1/24, Callable 6/1/19 @ 102.5(a) | 306,900 | ||||||
95,000 | Jonah Energy LLC/Jonah Energy Finance Corp., 7.25%, 10/15/25, Callable 10/15/20 @ 105.44(a) | 95,713 | ||||||
49,000 | Kinder Morgan (Delaware), Inc., 3.05%, 12/1/19, Callable 11/1/19 @ 100 | 49,429 | ||||||
167,000 | Kinder Morgan (Delaware), Inc., 5.05%, 2/15/46, Callable 8/15/45 @ 100^ | 173,335 | ||||||
63,000 | Kinder Morgan Energy Partners LP, 6.55%, 9/15/40 | 73,655 | ||||||
1,462,000 | Kinder Morgan Energy Partners LP, 5.50%, 3/1/44, Callable 9/1/43 @ 100 | 1,557,310 | ||||||
1,163,000 | Midstates Petroleum Co., Inc., 10.75%, 10/1/20(e)(f) | — | ||||||
300,000 | NuStar Logistics LP, 5.63%, 4/28/27, Callable 1/28/27 @ 100^ | 305,250 | ||||||
300,000 | PBF Holding Co. LLC/PBF Finance Corp., 7.00%, 11/15/23, Callable 11/15/18 @ 105.25^ | 312,000 | ||||||
57,000 | Phillips 66 Partners LP, 2.65%, 2/15/20, Callable 1/15/20 @ 100 | 56,999 | ||||||
300,000 | Range Resources Corp., 5.00%, 8/15/22, Callable 5/15/22 @ 100 | 298,500 | ||||||
300,000 | Rose Rock Midstream LP, 5.63%, 7/15/22, Callable 1/22/18 @ 104.22^ | 296,250 | ||||||
346,000 | Southeast Supply Header LLC, 4.25%, 6/15/24, Callable 3/15/24 @ 100(a) | 357,797 | ||||||
348,000 | Southwestern Energy Co., 6.70%, 1/23/25, Callable 10/23/24 @ 100^ | 361,485 | ||||||
65,000 | Southwestern Energy Co., 7.50%, 4/1/26, Callable 4/1/21 @ 105.63^ | 69,063 | ||||||
300,000 | Summit Midstream Holdings LLC, 5.75%, 4/15/25, Callable 4/15/20 @ 104.31 | 302,517 | ||||||
848,000 | Sunoco Logistics Partners Operations LP, 5.40%, 10/1/47, Callable 4/1/47 @ 100 | 853,727 | ||||||
347,000 | Sunoco LP/Finance Corp., 6.25%, 4/15/21, Callable 4/15/18 @ 103.13 | 360,707 | ||||||
205,000 | Targa Resources Partners LP, 4.25%, 11/15/23, Callable 5/15/18 @ 102.13 | 202,694 |
Principal | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
$ | 574,000 | Western Gas Partners LP, 5.38%, 6/1/21, Callable 3/1/21 @ 100 | $ | 608,664 | ||||
154,000 | Western Gas Partners LP, 4.65%, 7/1/26, Callable 4/1/26 @ 100 | 160,085 | ||||||
222,000 | Williams Partners LP, 4.00%, 11/15/21, Callable 8/15/21 @ 100 | 229,584 | ||||||
357,000 | Williams Partners LP, 3.60%, 3/15/22, Callable 1/15/22 @ 100 | 365,179 | ||||||
242,000 | Williams Partners LP, 4.50%, 11/15/23, Callable 8/15/23 @ 100 | 255,933 | ||||||
426,000 | Williams Partners LP, 4.30%, 3/4/24, Callable 12/4/23 @ 100 | 446,173 | ||||||
|
| |||||||
18,143,978 | ||||||||
|
| |||||||
Professional Services (0.1%): | ||||||||
300,000 | Tempo Finance, Corp., 6.75%, 6/1/25, Callable 6/1/20 @ 103.38(a) | 303,000 | ||||||
|
| |||||||
Real Estate Management & Development (0.5%): | ||||||||
2,426,000 | CBRE Services, Inc., 5.00%, 3/15/23, Callable 3/15/18 @ 102.5 | 2,494,707 | ||||||
300,000 | Howard Hughes Corp. (The), 5.38%, 3/15/25, Callable 3/15/20 @ 104.03(a) | 307,500 | ||||||
|
| |||||||
2,802,207 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (0.1%): | ||||||||
200,000 | Entegris, Inc., 4.63%, 2/10/26, Callable 11/10/20 @ 103.47(a) | 203,000 | ||||||
215,000 | Qorvo, Inc., 7.00%, 12/1/25, Callable 12/1/20 @ 103.5 | 239,994 | ||||||
|
| |||||||
442,994 | ||||||||
|
| |||||||
Software (0.3%): | ||||||||
700,000 | Solera LLC, 10.50%, 3/1/24, Callable 3/1/19 @ 107.88(a) | 787,486 | ||||||
300,000 | Sophia LP/Finance, Inc., 9.00%, 9/30/23, Callable 9/30/18 @ 104.5(a) | 317,250 | ||||||
190,000 | Symantec Corp., 5.00%, 4/15/25, Callable 4/15/20 @ 102.5(a) | 197,600 | ||||||
190,000 | Veritas US, Inc./Veritas Bermuda, Ltd., 10.50%, 2/1/24, Callable 2/1/19 @ 107.88(a) | 197,600 | ||||||
|
| |||||||
1,499,936 | ||||||||
|
| |||||||
Specialty Retail (0.0%): | ||||||||
200,000 | L Brands, Inc., 6.75%, 7/1/36 | 200,000 | ||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (0.0%): | ||||||||
105,000 | HP Enterprise Co., 6.35%, 10/15/45, Callable 4/15/45 @ 100^ | 111,160 | ||||||
|
| |||||||
Thrifts & Mortgage Finance (0.0%): | ||||||||
160,000 | Quicken Loans, Inc., 5.25%, 1/15/28, Callable 1/15/23 @ 102.63(a) | 157,952 | ||||||
|
| |||||||
Tobacco (0.7%): | ||||||||
317,000 | Altria Group, Inc., 4.00%, 1/31/24 | 336,299 | ||||||
140,000 | Reynolds American, Inc., 3.25%, 6/12/20 | 142,253 | ||||||
478,000 | Reynolds American, Inc., 4.00%, 6/12/22 | 499,428 | ||||||
346,000 | Reynolds American, Inc., 4.45%, 6/12/25, Callable 3/12/25 @ 100 | 368,921 | ||||||
179,000 | Reynolds American, Inc., 5.70%, 8/15/35, Callable 2/15/35 @ 100 | 213,366 |
Continued
9
AZL Pyramis® Total Bond Fund
Schedule of Portfolio Investments
December 31, 2017
Principal | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Tobacco, continued | ||||||||
$ | 600,000 | Reynolds American, Inc., 7.25%, 6/15/37 | $ | 832,183 | ||||
478,000 | Reynolds American, Inc., 5.85%, 8/15/45, Callable 2/15/45 @ 100 | 596,912 | ||||||
1,000,000 | Vector Group, Ltd., 6.13%, 2/1/25, Callable 2/1/20 @ 103.06(a) | 1,035,001 | ||||||
|
| |||||||
4,024,363 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.5%): | ||||||||
299,000 | Air Lease Corp., 2.13%, 1/15/18 | 298,980 | ||||||
442,000 | Air Lease Corp., 2.63%, 9/4/18 | 443,303 | ||||||
499,000 | Air Lease Corp., 4.75%, 3/1/20 | 522,168 | ||||||
297,000 | Air Lease Corp., 3.88%, 4/1/21, Callable 3/1/21 @ 100 | 307,625 | ||||||
348,000 | Air Lease Corp., 3.38%, 6/1/21, Callable 5/1/21 @ 100 | 355,479 | ||||||
703,000 | Air Lease Corp., 3.75%, 2/1/22, Callable 12/1/21 @ 100 | 726,361 | ||||||
82,000 | Air Lease Corp., 3.00%, 9/15/23, Callable 7/15/23 @ 100 | 81,365 | ||||||
|
| |||||||
2,735,281 | ||||||||
|
| |||||||
Wireless Telecommunication Services (0.3%): | ||||||||
300,000 | Sprint Communications, Inc., 7.25%, 9/15/21 | 317,625 | ||||||
300,000 | Sprint Communications, Inc., 7.88%, 9/15/23 | 319,500 | ||||||
420,000 | Sprint Communications, Inc., 7.13%, 6/15/24 | 427,350 | ||||||
300,000 | Sprint Communications, Inc., 6.88%, 11/15/28 | 301,875 | ||||||
600,000 | T-Mobile USA, Inc., 5.13%, 4/15/25, Callable 4/15/20 @ 102.56^ | 623,249 | ||||||
|
| |||||||
1,989,599 | ||||||||
|
| |||||||
Total Corporate Bonds (Cost $153,838,020) | 156,838,781 | |||||||
|
| |||||||
Yankee Dollars (11.3%): | ||||||||
Banks (1.7%): | ||||||||
642,000 | Barclays Bank plc, 3.25%, 1/12/21 | 648,165 | ||||||
300,000 | Barclays Bank plc, 7.63%, 11/21/22 | 339,750 | ||||||
874,000 | Barclays Bank plc, 4.38%, 1/12/26 | 909,151 | ||||||
205,000 | HSBC Holdings plc, 4.25%, 3/14/24^ | 214,139 | ||||||
980,000 | Intesa Sanpaolo SpA, 5.71%, 1/15/26^(a) | 1,032,413 | ||||||
791,000 | Rabobank Nederland NY, 4.38%, 8/4/25 | 834,984 | ||||||
200,000 | RBS Citizens Financial Group, Inc., 4.15%, 9/28/22(a) | 207,412 | ||||||
3,808,000 | Royal Bank of Scotland Group plc, 6.13%, 12/15/22 | 4,173,880 | ||||||
675,000 | Royal Bank of Scotland Group plc, 6.10%, 6/10/23 | 743,285 | ||||||
682,000 | Royal Bank of Scotland Group plc, 6.00%, 12/19/23 | 751,170 | ||||||
|
| |||||||
9,854,349 | ||||||||
|
| |||||||
Beverages (0.0%): | ||||||||
125,000 | Cott Corp., 5.50%, 4/1/25, Callable 4/1/20 @ 104.13^(a) | 128,438 | ||||||
|
| |||||||
Capital Markets (1.3%): | ||||||||
720,000 | Credit Suisse Group Fun, Ltd., 2.75%, 3/26/20 | 722,807 | ||||||
1,000,000 | Credit Suisse Group Fun, Ltd., 3.80%, 9/15/22 | 1,031,539 | ||||||
1,175,000 | Credit Suisse Group Fun, Ltd., 3.80%, 6/9/23 | 1,211,771 | ||||||
720,000 | Credit Suisse Group Fun, Ltd., 3.75%, 3/26/25 | 734,679 | ||||||
63,000 | Credit Suisse New York, 6.00%, 2/15/18 | 63,286 | ||||||
263,000 | Deutsche Bank AG, 4.25%, 10/14/21 | 273,616 | ||||||
1,462,000 | Deutsche Bank AG, 4.50%, 4/1/25^ | 1,483,706 |
Principal | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Capital Markets, continued | ||||||||
$ | 1,021,000 | Deutsche Bank NY, 3.30%, 11/16/22 | $ | 1,015,796 | ||||
469,000 | Thomson Reuters Corp., 3.85%, 9/29/24, Callable 6/29/24 @ 100 | 486,175 | ||||||
733,000 | UBS Group AG, 4.13%, 9/24/25(a) | 769,250 | ||||||
|
| |||||||
7,792,625 | ||||||||
|
| |||||||
Chemicals (0.2%): | ||||||||
275,000 | Consolidated Energy Finance SA, 6.88%, 6/15/25, Callable 6/15/20 @ 105.16(a) | 291,500 | ||||||
300,000 | Nova Chemicals Corp., 4.88%, 6/1/24, Callable 3/3/24 @ 100(a) | 299,250 | ||||||
200,000 | Trinseo Materials Operating SCA/Trinseo Materials Finance, Inc., 5.38%, 9/1/25, Callable 9/1/20 @ 102.69(a) | 207,000 | ||||||
|
| |||||||
797,750 | ||||||||
|
| |||||||
Communications Equipment (0.0%): | ||||||||
255,000 | Nokia OYJ, 4.38%, 6/12/27 | 252,068 | ||||||
|
| |||||||
Containers & Packaging (0.1%): | ||||||||
300,000 | Ardagh Packaging Finance plc/Ardagh Holdings USA, Inc., 7.25%, 5/15/24, Callable 5/15/19 @ 105.44(a) | 326,625 | ||||||
105,000 | Ardagh Packaging Finance plc/Ardagh Holdings USA, Inc., 6.00%, 2/15/25, Callable 2/15/20 @ 104.5(a) | 110,513 | ||||||
|
| |||||||
437,138 | ||||||||
|
| |||||||
Diversified Financial Services (0.0%): | ||||||||
180,000 | Camelot Finance SA, 7.88%, 10/15/24, Callable 10/15/19 @ 103.94(a) | 192,150 | ||||||
|
| |||||||
Diversified Telecommunication Services (0.6%): | ||||||||
300,000 | Intelsat Jackson Holdings SA, 9.50%, 9/30/22(a) | 345,750 | ||||||
300,000 | Intelsat Jackson Holdings SA, 8.00%, 2/15/24, Callable 2/15/19 @ 104^(a) | 315,750 | ||||||
300,000 | Sable International Finance, Ltd., 6.88%, 8/1/22, Callable 8/1/18 @ 105.16(a) | 317,625 | ||||||
300,000 | SFR Group SA, 7.38%, 5/1/26, Callable 5/1/21 @ 103.69(a) | 307,875 | ||||||
300,000 | Telecom Italia SpA, 5.30%, 5/30/24(a) | 320,250 | ||||||
300,000 | Telesat Canada, 8.88%, 11/15/24, Callable 11/15/19 @ 106.66(a) | 336,000 | ||||||
300,000 | Ziggo Secured Finance BV, 5.50%, 1/15/27, Callable 1/15/22 @ 102.75(a) | 297,750 | ||||||
|
| |||||||
2,241,000 | ||||||||
|
| |||||||
Electrical Equipment (0.1%): | ||||||||
300,000 | Sensata Technologies BV, 4.88%, 10/15/23(a) | 313,500 | ||||||
|
| |||||||
Energy Equipment & Services (0.0%): | ||||||||
305,000 | Ensco plc, 4.50%, 10/1/24, Callable 7/1/24 @ 100^ | 256,200 | ||||||
300,000 | Noble Holding International, Ltd., 7.75%, 1/15/24, Callable 10/15/23 @ 100 | 258,000 | ||||||
180,000 | Precision Drilling Corp., 7.75%, 12/15/23, Callable 12/15/19 @ 103.88^ | 189,000 | ||||||
|
| |||||||
703,200 | ||||||||
|
| |||||||
Food Products (0.0%): | ||||||||
160,000 | Fage International/Fage USA, 5.63%, 8/15/26, Callable 8/15/21 @ 102.81(a) | 154,400 | ||||||
|
|
Continued
10
AZL Pyramis® Total Bond Fund
Schedule of Portfolio Investments
December 31, 2017
Principal | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Gas Utilities (0.1%): | ||||||||
$ | 340,000 | LBC Tank Terminals Holding Netherlands BV, 6.88%, 5/15/23, Callable 5/15/18 @ 103.44(c) | $ | 354,025 | ||||
|
| |||||||
Hotels, Restaurants & Leisure (0.1%): | ||||||||
175,000 | 1011778 BC ULC New Red Finance, Inc., 4.25%, 5/15/24, Callable 5/15/20 @ 102.13^(a) | 174,563 | ||||||
300,000 | Studio City Co., Ltd., 7.25%, 11/30/21, Callable 11/30/18 @ 103.63(a) | 316,500 | ||||||
|
| |||||||
491,063 | ||||||||
|
| |||||||
Insurance (0.0%): | ||||||||
200,000 | AIA Group, Ltd., 2.25%, 3/11/19(a) | 198,846 | ||||||
|
| |||||||
Machinery (0.0%): | ||||||||
107,000 | Ingersoll-Rand Lux Financial Holding, 2.63%, 5/1/20, Callable 4/1/20 @ 100 | 106,971 | ||||||
|
| |||||||
Media (0.4%): | ||||||||
600,000 | Altice Financing SA, 7.50%, 5/15/26, Callable 5/15/21 @ 103.75(a) | 639,000 | ||||||
300,000 | Altice Finco SA, 8.13%, 1/15/24, Callable 12/15/18 @ 104.06^(a) | 313,500 | ||||||
190,000 | LG Financeco Corp., 5.88%, 11/1/24, Callable 11/1/19 @ 104.41(a) | 200,688 | ||||||
790,000 | MDC Partners, Inc., 6.50%, 5/1/24, Callable 5/1/19 @ 104.88^(a) | 793,950 | ||||||
|
| |||||||
1,947,138 | ||||||||
|
| |||||||
Metals & Mining (0.3%): | ||||||||
400,000 | BHP Billiton Finance USA, Ltd., 6.25%(USSW5+497bps), 10/19/75, Callable 10/19/20 @ 100(a) | 433,000 | ||||||
681,000 | BHP Billiton Finance USA, Ltd., 6.75%(USSW5+509bps), 10/19/75, Callable 10/20/25 @ 100^(a) | 795,129 | ||||||
200,000 | Corp. Nacional del Cobre de Chile, 3.63%, 8/1/27, Callable 5/1/27 @ 100(a) | 200,218 | ||||||
200,000 | Corp. Nacional del Cobre de Chile, 4.50%, 8/1/47, Callable 2/1/47 @ 100(a) | 214,928 | ||||||
300,000 | First Quantum Minerals, Ltd., 7.25%, 5/15/22, Callable 2/5/18 @ 105.44(a) | 314,490 | ||||||
|
| |||||||
1,957,765 | ||||||||
|
| |||||||
Multi-Utilities (0.0%): | ||||||||
215,000 | Intergen NV, 7.00%, 6/30/23, Callable 6/30/18 @ 103.5(a) | 208,013 | ||||||
|
| �� | ||||||
Oil, Gas & Consumable Fuels (3.5%): | ||||||||
164,000 | Canadian Natural Resources, Ltd., 1.75%, 1/15/18 | 163,971 | ||||||
309,000 | Canadian Natural Resources, Ltd., 5.85%, 2/1/35 | 362,239 | ||||||
558,000 | Cenovus Energy, Inc., 4.25%, 4/15/27, Callable 1/15/27 @ 100^ | 556,656 | ||||||
330,000 | Empresa Nacional del Pet, 4.38%, 10/30/24(a) | 345,063 | ||||||
218,000 | Enbridge, Inc., 4.25%, 12/1/26, Callable 9/1/26 @ 100 | 227,948 | ||||||
252,000 | Enbridge, Inc., 5.50%, 12/1/46, Callable 5/29/46 @ 100 | 303,020 | ||||||
1,500,000 | Encana Corp., 6.63%, 8/15/37 | 1,909,564 | ||||||
244,000 | Navios Maritime Holdings/Finance, 7.38%, 1/15/22, Callable 2/5/18 @ 103.69(a) | 195,810 |
Principal | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
$ | 349,000 | Petrobras Global Finance Co., 4.38%, 5/20/23^ | $ | 345,151 | ||||
1,229,000 | Petrobras Global Finance Co., 5.63%, 5/20/43 | 1,098,283 | ||||||
2,677,000 | Petrobras Global Finance Co., 7.25%, 3/17/44 | 2,784,079 | ||||||
1,910,000 | Petrobras International Finance Co., 5.38%, 1/27/21^ | 1,986,400 | ||||||
225,000 | Petroleos Mexicanos, 6.00%, 3/5/20 | 238,725 | ||||||
1,471,000 | Petroleos Mexicanos, 4.88%, 1/18/24^ | 1,523,882 | ||||||
1,036,000 | Petroleos Mexicanos, 4.50%, 1/23/26^ | 1,034,135 | ||||||
480,000 | Petroleos Mexicanos, 6.50%, 3/13/27(a) | 524,640 | ||||||
1,220,000 | Petroleos Mexicanos, 6.50%, 3/13/27(a) | 1,333,460 | ||||||
1,039,000 | Petroleos Mexicanos, 6.50%, 6/2/41 | 1,068,612 | ||||||
841,000 | Petroleos Mexicanos, 5.50%, 6/27/44 | 773,686 | ||||||
1,005,000 | Petroleos Mexicanos, 5.63%, 1/23/46 | 930,128 | ||||||
1,677,000 | Petroleos Mexicanos, 6.75%, 9/21/47 | 1,750,535 | ||||||
510,000 | Petroleos Mexicanos, 6.75%, 9/21/47^(a) | 532,364 | ||||||
222,000 | Teine Energy, Ltd., 6.88%, 9/30/22, Callable 2/5/18 @ 105.16(a) | 229,215 | ||||||
|
| |||||||
20,217,566 | ||||||||
|
| |||||||
Pharmaceuticals (0.9%): | ||||||||
865,000 | Actavis Funding SCS, 2.45%, 6/15/19 | 864,987 | ||||||
624,000 | Actavis Funding SCS, 3.45%, 3/15/22, Callable 1/15/22 @ 100 | 634,018 | ||||||
336,000 | Mylan NV, 2.50%, 6/7/19 | 335,653 | ||||||
685,000 | Mylan NV, 3.15%, 6/15/21, Callable 5/15/21 @ 100 | 688,824 | ||||||
337,000 | Mylan NV, 3.95%, 6/15/26, Callable 3/15/26 @ 100^ | 339,820 | ||||||
400,000 | Perrigo Finance plc, 3.90%, 12/15/24, Callable 9/15/24 @ 100 | 406,702 | ||||||
484,000 | Teva Pharmaceuticals Industries, Ltd., 2.20%, 7/21/21 | 442,120 | ||||||
346,000 | Teva Pharmaceuticals Industries, Ltd., 2.80%, 7/21/23^ | 301,300 | ||||||
412,000 | Teva Pharmaceuticals Industries, Ltd., 3.15%, 10/1/26^ | 340,166 | ||||||
185,000 | Valeant Pharmaceuticals, 5.50%, 3/1/23, Callable 3/1/18 @ 102.75(a) | 169,275 | ||||||
305,000 | Valeant Pharmaceuticals International, Inc., 6.50%, 3/15/22, Callable 3/15/19 @ 103.25(a) | 320,250 | ||||||
230,000 | Valeant Pharmaceuticals International, Inc., 7.00%, 3/15/24, Callable 3/15/20 @ 103.5(a) | 246,100 | ||||||
592,000 | VRX Escrow Corp., 6.13%, 4/15/25, Callable 4/15/20 @ 103.06^(a) | 541,679 | ||||||
|
| |||||||
5,630,894 | ||||||||
|
| |||||||
Professional Services (0.2%): | ||||||||
365,000 | IHS Markit, Ltd., 4.75%, 2/15/25, Callable 11/15/24 @ 100(a) | 385,075 | ||||||
980,000 | Nielsen Co. Luxembourg SARLl (The), 5.00%, 2/1/25, Callable 2/1/20 @ 103.75^(a) | 1,016,750 | ||||||
|
| |||||||
1,401,825 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (0.1%): | ||||||||
300,000 | NXP BV/NXP Funding LLC, 4.63%, 6/1/23(a) | 313,800 | ||||||
|
| |||||||
Software (0.1%): | ||||||||
550,000 | Open Text Corp., 5.63%, 1/15/23, Callable 2/5/18 @ 104.22(a) | 572,688 | ||||||
|
|
Continued
11
AZL Pyramis® Total Bond Fund
Schedule of Portfolio Investments
December 31, 2017
Principal | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Sovereign Bond (0.5%): | ||||||||
$ | 1,344,000 | Dominican Republic, 5.50%, 1/27/25(a) | $ | 1,422,960 | ||||
1,500,000 | Republic of Belarus, 8.95%, 1/26/18(a) | 1,502,850 | ||||||
|
| |||||||
2,925,810 | ||||||||
|
| |||||||
Tobacco (0.3%): | ||||||||
690,000 | Imperial Tobacco Finance, 3.75%, 7/21/22, Callable 5/21/22 @ 100(a) | 713,047 | ||||||
690,000 | Imperial Tobacco Finance, 4.25%, 7/21/25, Callable 4/21/25 @ 100(a) | 723,493 | ||||||
|
| |||||||
1,436,540 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.7%): | ||||||||
1,344,000 | AerCap Ireland Capital, Ltd./AerCap Global Aviation Trust, 5.00%, 10/1/21 | 1,432,685 | ||||||
2,165,000 | AerCap Ireland Capital, Ltd./AerCap Global Aviation Trust, 4.63%, 7/1/22 | 2,293,577 | ||||||
347,000 | FLY Leasing, Ltd., 6.38%, 10/15/21, Callable 2/5/18 @ 104.78^ | 361,748 | ||||||
|
| |||||||
4,088,010 | ||||||||
|
| |||||||
Wireless Telecommunication Services (0.1%): | ||||||||
300,000 | Millicom International Cellular SA, 6.00%, 3/15/25, Callable 3/15/20 @ 103(a) | 318,750 | ||||||
|
| |||||||
Total Yankee Dollars (Cost $63,074,365) | 65,036,322 | |||||||
|
| |||||||
Municipal Bonds (1.7%): | ||||||||
California (0.5%): | ||||||||
460,000 | California State, Build America Bonds, GO, 7.30%, 10/1/39 | 686,256 | ||||||
10,000 | California State, Build America Bonds, GO, 7.35%, 11/1/39 | 15,007 | ||||||
400,000 | California State, Build America Bonds, GO, 7.50%, 4/1/34 | 592,328 | ||||||
965,000 | California State, Build America Bonds, GO, 7.55%, 4/1/39 | 1,518,533 | ||||||
|
| |||||||
2,812,124 | ||||||||
|
| |||||||
Illinois (1.2%): | ||||||||
176,000 | Illinois State, Build America Bonds, GO, 6.20%, 7/1/21 | 184,152 | ||||||
10,000 | Illinois State, Build America Bonds, GO, Series 3, 5.55%, 4/1/19 | 10,266 | ||||||
425,000 | Illinois State, Build America Bonds, GO, Series 3, 6.73%, 4/1/35 | 471,980 | ||||||
1,935,000 | Illinois State, Build America Bonds, GO, 7.35%, 7/1/35 | 2,237,188 | ||||||
420,000 | Illinois State, Build America Bonds, GO, 4.00%, 12/1/20 | 423,066 | ||||||
1,340,000 | Illinois State, Build America Bonds, GO, 5.88%, 3/1/19 | 1,381,754 | ||||||
645,000 | Illinois State, Build America Bonds, GO, 5.67%, 3/1/18 | 648,509 | ||||||
105,000 | Chicago Illinois, Taxable Project, Build America Bonds, GO, Series B, 5.43%, 1/1/42 | 101,116 | ||||||
395,000 | Chicago Illinois, Taxable Project, Build America Bonds, GO, Series C1, 7.78%, 1/1/35 | 473,329 | ||||||
80,000 | Chicago Illinois, Taxable Project, Build America Bonds, GO, Series B, 5.63%, 1/1/22 | 81,242 | ||||||
96,000 | Illinois State, Build America Bonds, GO, 4.35%, 6/1/18 | 96,673 |
Principal | Fair Value | |||||||
Municipal Bonds, continued | ||||||||
Illinois, continued | ||||||||
$ | 315,000 | Illinois State, Build America Bonds, GO, 6.63%, 2/1/35 | $ | 349,562 | ||||
295,000 | Illinois State, Build America Bonds, GO, 5.10%, 6/1/33 | 294,510 | ||||||
125,000 | Illinois State, Build America Bonds, GO, 4.95%, 6/1/23 | 130,443 | ||||||
|
| |||||||
6,883,790 | ||||||||
|
| |||||||
Total Municipal Bonds (Cost $9,324,888) | 9,695,914 | |||||||
|
| |||||||
U.S. Government Agency Mortgages (20.3%): | ||||||||
Federal Home Loan Mortgage Corporation (6.0%) | ||||||||
80,244 | 3.00%, 2/1/31, Pool#G15741 | 81,773 | ||||||
404,386 | 3.00%, 4/1/31, Pool#G15799 | 412,093 | ||||||
22,261 | 3.00%, 5/1/31, Pool#J34616 | 22,694 | ||||||
70,656 | 3.00%, 6/1/31, Pool#J34680 | 72,003 | ||||||
155,240 | 2.50%, 7/1/31, Pool#J34888 | 155,082 | ||||||
194,913 | 3.00%, 2/1/32, Pool#G16076 | 198,642 | ||||||
751,996 | 3.50%, 3/1/32, Pool#C91403 | 782,653 | ||||||
746,017 | 3.00%, 3/1/32, Pool#G16113 | 760,301 | ||||||
2,004,860 | 3.50%, 7/1/32, Pool#C91467 | 2,086,609 | ||||||
369,409 | 4.00%, 6/1/33, Pool#G30718 | 390,465 | ||||||
1,707,641 | 4.00%, 5/1/37, Pool#C91938 | 1,804,705 | ||||||
2,443,792 | 5.00%, 2/1/38, Pool#G60365 | 2,650,243 | ||||||
124,909 | 3.50%, 4/1/40, Pool#V81744 | 128,899 | ||||||
143,053 | 3.50%, 5/1/40, Pool#V81750 | 147,622 | ||||||
242,187 | 3.50%, 6/1/40, Pool #V81792 | 249,922 | ||||||
112,211 | 3.50%, 8/1/40, Pool #V81886 | 115,795 | ||||||
90,620 | 3.50%, 9/1/40, Pool #V81958 | 93,515 | ||||||
933,760 | 4.00%, 1/1/41, Pool #A96413 | 980,359 | ||||||
767,879 | 4.00%, 2/1/41, Pool #A96807 | 806,199 | ||||||
97,481 | 4.50%, 3/1/41, Pool #A97673 | 104,015 | ||||||
155,354 | 4.50%, 4/1/41, Pool #A97942 | 165,759 | ||||||
419,049 | 5.00%, 6/1/41, Pool #G06596 | 459,465 | ||||||
2,080,006 | 4.50%, 1/1/42, Pool #G60517 | 2,219,206 | ||||||
59,527 | 3.50%, 8/1/42, Pool #Q10392 | 61,430 | ||||||
78,995 | 3.50%, 8/1/42, Pool #Q10434 | 81,519 | ||||||
83,977 | 3.50%, 8/1/42, Pool #Q10047 | 86,663 | ||||||
73,307 | 3.50%, 8/1/42, Pool #Q10164 | 75,652 | ||||||
85,226 | 3.50%, 9/1/42, Pool #Q11244 | 87,951 | ||||||
69,548 | 4.00%, 11/1/42, Pool #Q13121 | 73,427 | ||||||
55,545 | 3.50%, 11/1/42, Pool #G07231 | 57,322 | ||||||
173,528 | 3.00%, 12/1/42, Pool #C04320 | 174,484 | ||||||
715,075 | 3.50%, 4/1/43, Pool #G07921 | 737,919 | ||||||
640,481 | 3.50%, 4/1/43, Pool #Q17209 | 660,904 | ||||||
117,967 | 4.00%, 5/1/43, Pool #Q18481 | 124,540 | ||||||
59,157 | 4.00%, 7/1/43, Pool #Q19597 | 62,453 | ||||||
73,985 | 4.00%, 10/1/43, Pool #Q22499 | 78,108 | ||||||
747,788 | 3.00%, 10/1/43, Pool #G08553 | 750,946 | ||||||
143,104 | 4.00%, 1/1/44, Pool #V80950 | 151,071 | ||||||
454,219 | 4.00%, 1/1/45, Pool #Q30720 | 475,135 | ||||||
81,141 | 3.50%, 3/1/45, Pool #Q31974 | 83,693 | ||||||
152,242 | 3.50%, 3/1/45, Pool #Q32008 | 157,031 | ||||||
74,442 | 3.50%, 3/1/45, Pool #Q32328 | 76,783 | ||||||
49,869 | 3.00%, 5/1/45, Pool #Q33468 | 49,967 | ||||||
402,524 | 3.50%, 5/1/45, Pool #Q33547 | 414,549 | ||||||
305,946 | 3.00%, 6/1/45, Pool #Q34156 | 306,546 | ||||||
454,267 | 3.50%, 6/1/45, Pool #Q34164 | 467,872 |
Continued
12
AZL Pyramis® Total Bond Fund
Schedule of Portfolio Investments
December 31, 2017
Principal | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal Home Loan Mortgage Corporation, continued | ||||||||
$ | 75,203 | 3.50%, 6/1/45, Pool #Q33791 | $ | 77,455 | ||||
479,374 | 3.50%, 6/1/45, Pool #Q34311 | 494,453 | ||||||
28,743 | 3.00%, 7/1/45, Pool #Q34979 | 28,851 | ||||||
80,544 | 3.00%, 7/1/45, Pool #Q34759 | 80,811 | ||||||
117,473 | 4.00%, 8/1/45, Pool #Q35845 | 123,064 | ||||||
30,501 | 4.00%, 9/1/45, Pool #Q37853 | 32,124 | ||||||
536,654 | 3.50%, 11/1/45, Pool #Q37467 | 553,536 | ||||||
27,823 | 4.00%, 11/1/45, Pool #Q38812 | 29,096 | ||||||
27,155 | 4.00%, 2/1/46, Pool #Q38782 | 28,602 | ||||||
14,643 | 4.00%, 2/1/46, Pool #Q38879 | 15,384 | ||||||
36,142 | 4.00%, 2/1/46, Pool #Q38783 | 37,795 | ||||||
571,248 | 3.50%, 5/1/46, Pool #G60553 | 590,182 | ||||||
178,674 | 3.50%, 5/1/46, Pool #G60603 | 184,265 | ||||||
554,427 | 3.50%, 9/1/46, Pool #Q43257 | 571,754 | ||||||
927,488 | 3.00%, 10/1/46, Pool #Q43734 | 928,724 | ||||||
3,230,285 | 3.00%, 12/1/46, Pool #G08737 | 3,233,588 | ||||||
51,968 | 3.00%, 12/1/46, Pool #Q44977 | 52,035 | ||||||
2,393,462 | 3.00%, 1/1/47, Pool #G08741 | 2,395,786 | ||||||
1,432,425 | 3.00%, 2/1/47, Pool #G08747 | 1,433,619 | ||||||
2,400,000 | 3.50%, 1/15/48, TBA | 2,464,626 | ||||||
|
| |||||||
33,539,734 | ||||||||
|
| |||||||
Federal National Mortgage Association (9.8%) | ||||||||
96,562 | 3.00%, 10/1/28, Pool #AS0758 | 98,753 | ||||||
70,050 | 2.50%, 10/1/28, Pool #AU2669 | 70,379 | ||||||
111,813 | 3.00%, 1/1/29, Pool #AL4753 | 114,345 | ||||||
27,380 | 3.00%, 8/1/29, Pool #AW9071 | 27,947 | ||||||
496,195 | 3.50%, 9/1/29, Pool #AL5878 | 515,538 | ||||||
1,992,511 | 3.50%, 11/1/30, Pool #AL7688 | 2,066,193 | ||||||
30,766 | 3.00%, 12/1/30, Pool #BC3672 | 31,367 | ||||||
22,351 | 3.00%, 5/1/31, Pool #BA7510 | 22,788 | ||||||
22,835 | 3.00%, 6/1/31, Pool #BD1758 | 23,281 | ||||||
888,469 | 3.00%, 7/1/31, Pool #AS7629 | 905,435 | ||||||
267,205 | 3.00%, 7/1/31, Pool #BC1464 | 272,491 | ||||||
306,573 | 2.50%, 10/1/31, Pool #MA2775 | 306,245 | ||||||
127,130 | 3.00%, 3/1/32, Pool #BM1008 | 129,908 | ||||||
429,224 | 3.00%, 3/1/32, Pool #BM1045 | 437,750 | ||||||
188,096 | 3.00%, 3/1/32, Pool #BM1099 | 191,834 | ||||||
579,583 | 3.00%, 4/1/32, Pool #BE6636 | 590,650 | ||||||
702,328 | 3.00%, 4/1/32, Pool #AS9509 | 715,739 | ||||||
176,012 | 3.00%, 5/1/32, Pool #BM1274 | 179,726 | ||||||
137,365 | 3.00%, 6/1/32, Pool #BM1271 | 140,372 | ||||||
232,091 | 2.50%, 6/1/32, Pool #BE9933 | 231,843 | ||||||
188,773 | 3.00%, 7/1/32, Pool #BH5093 | 192,474 | ||||||
714,925 | 3.00%, 7/1/32, Pool #BM1449 | 731,011 | ||||||
376,320 | 3.00%, 7/1/32, Pool #BH5887 | 383,506 | ||||||
233,678 | 3.00%, 7/1/32, Pool #BH5894 | 238,140 | ||||||
291,167 | 3.00%, 8/1/32, Pool #BM1669 | 298,294 | ||||||
63,313 | 3.00%, 9/1/32, Pool #BH9194 | 64,575 | ||||||
977,742 | 3.00%, 9/1/32, Pool #890789 | 997,222 | ||||||
559,605 | 2.50%, 9/1/32, Pool #BH8766 | 559,007 | ||||||
34,874 | 3.00%, 9/1/32, Pool #BH9193 | 35,640 | ||||||
6,622 | 4.50%, 7/1/33, Pool #720240 | 7,063 | ||||||
8,498 | 4.50%, 7/1/33, Pool #729327 | 9,048 | ||||||
7,870 | 4.50%, 8/1/33, Pool #727029 | 8,424 | ||||||
18,122 | 4.50%, 8/1/33, Pool #726928 | 19,546 | ||||||
20,289 | 4.50%, 8/1/33, Pool #726956 | 21,880 |
Principal | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal National Mortgage Association, continued | ||||||||
$ | 7,880 | 4.50%, 8/1/33, Pool #723124 | $ | 8,401 | ||||
10,763 | 4.50%, 8/1/33, Pool #727160 | 11,610 | ||||||
12,654 | 4.50%, 8/1/33, Pool #729713 | 13,638 | ||||||
54,721 | 4.50%, 8/1/33, Pool #729380 | 59,020 | ||||||
339,902 | 3.50%, 8/1/33, Pool #AL4227 | 351,385 | ||||||
42,873 | 4.50%, 9/1/33, Pool #727147 | 46,244 | ||||||
16,659 | 4.50%, 9/1/33, Pool #734922 | 17,969 | ||||||
50,024 | 4.50%, 12/1/33, Pool #AL5321 | 53,975 | ||||||
124,940 | 3.50%, 1/1/34, Pool #AS1612 | 130,009 | ||||||
56,169 | 3.50%, 1/1/34, Pool #AS1406 | 58,448 | ||||||
180,999 | 3.50%, 1/1/34, Pool #AS1611 | 188,342 | ||||||
24,580 | 3.50%, 1/1/34, Pool #AS1614 | 25,577 | ||||||
45,327 | 6.00%, 10/1/34, Pool #AL2130 | 51,952 | ||||||
274,997 | 5.50%, 11/1/34, Pool #725946 | 305,088 | ||||||
133,059 | 5.50%, 1/1/35, Pool #735141 | 147,602 | ||||||
98,395 | 4.50%, 9/1/35, Pool #AB8198 | 106,100 | ||||||
943,498 | 6.00%, 5/1/36, Pool #745512 | 1,071,227 | ||||||
69,043 | 5.50%, 9/1/36, Pool #AD0500 | 76,615 | ||||||
470,189 | 6.00%, 1/1/37, Pool #932030 | 531,274 | ||||||
89,436 | 6.00%, 3/1/37, Pool #889506 | 101,274 | ||||||
121,284 | 6.00%, 1/1/38, Pool #889371 | 139,377 | ||||||
353,139 | 5.00%, 2/1/38, Pool #310165 | 383,530 | ||||||
41,715 | 6.00%, 3/1/38, Pool #889219 | 47,735 | ||||||
23,372 | 6.00%, 7/1/38, Pool #889733 | 26,827 | ||||||
137,457 | 4.50%, 3/1/39, Pool #AB0051 | 148,259 | ||||||
640,445 | 4.50%, 4/1/39, Pool #AB0043 | 690,755 | ||||||
635,832 | 5.00%, 6/1/39, Pool #AL7521 | 690,355 | ||||||
232,059 | 5.00%, 6/1/39, Pool #AL7550 | 251,956 | ||||||
795,906 | 6.00%, 7/1/39, Pool #BF0030 | 882,851 | ||||||
164,794 | 6.00%, 5/1/40, Pool #AL2129 | 189,954 | ||||||
91,221 | 4.00%, 12/1/40, Pool #AA4757 | 95,832 | ||||||
15,766 | 6.00%, 1/1/42, Pool #AL2128 | 18,072 | ||||||
127,233 | 3.50%, 9/1/42, Pool #AP4100 | 131,352 | ||||||
320,247 | 3.00%, 9/1/42, Pool #AB6126 | 321,978 | ||||||
245,886 | 3.00%, 10/1/42, Pool #AB6509 | 247,214 | ||||||
443,616 | 3.00%, 10/1/42, Pool #AB6504 | 446,013 | ||||||
480,734 | 3.00%, 11/1/42, Pool #AB6976 | 483,332 | ||||||
166,982 | 3.00%, 12/1/42, Pool #AB7282 | 167,884 | ||||||
24,873 | 3.50%, 12/1/42, Pool #AQ9054 | 25,679 | ||||||
739,537 | 3.00%, 1/1/43, Pool #AB7586 | 743,521 | ||||||
153,226 | 3.50%, 1/1/43, Pool #AQ9328 | 158,179 | ||||||
873,934 | 3.00%, 1/1/43, Pool #AL3181 | 879,004 | ||||||
30,943 | 3.50%, 2/1/43, Pool #AR1797 | 31,936 | ||||||
375,571 | 2.50%, 2/1/43, Pool #AB8465 | 364,173 | ||||||
285,949 | 3.00%, 2/1/43, Pool #AB7846 | 287,608 | ||||||
39,253 | 3.50%, 3/1/43, Pool #AR6751 | 40,511 | ||||||
100,324 | 3.50%, 3/1/43, Pool #AL3409 | 103,549 | ||||||
36,529 | 3.50%, 3/1/43, Pool #AR7567 | 37,683 | ||||||
194,178 | 3.50%, 8/1/43, Pool #AL7261 | 200,505 | ||||||
422,341 | 3.00%, 9/1/43, Pool #AL5059 | 424,788 | ||||||
501,611 | 4.50%, 3/1/44, Pool #AL5082 | 534,615 | ||||||
512,067 | 3.00%, 6/1/44, Pool #AL7195 | 515,031 | ||||||
504,988 | 5.00%, 11/1/44, Pool #AL7307 | 548,310 | ||||||
45,447 | 4.00%, 12/1/44, Pool #AW9502 | 47,544 | ||||||
30,232 | 4.00%, 12/1/44, Pool #AY0045 | 31,643 | ||||||
217,176 | 4.00%, 12/1/44, Pool #AX8459 | 229,156 |
Continued
13
AZL Pyramis® Total Bond Fund
Schedule of Portfolio Investments
December 31, 2017
Principal | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal National Mortgage Association, continued | ||||||||
$ | 104,279 | 3.50%, 3/1/45, Pool #AY5352 | $ | 107,603 | ||||
381,633 | 4.00%, 3/1/45, Pool #AL6541 | 402,702 | ||||||
159,402 | 3.50%, 5/1/45, Pool #AY9324 | 164,481 | ||||||
116,485 | 3.50%, 5/1/45, Pool #AY9074 | 120,204 | ||||||
182,370 | 3.50%, 5/1/45, Pool #AY9287 | 187,961 | ||||||
125,009 | 3.50%, 5/1/45, Pool #AZ0727 | 128,998 | ||||||
152,849 | 4.00%, 5/1/45, Pool #AZ1207 | 159,930 | ||||||
71,581 | 4.00%, 5/1/45, Pool #AZ1876 | 75,360 | ||||||
143,824 | 3.50%, 5/1/45, Pool #AZ1192 | 148,408 | ||||||
124,323 | 3.00%, 5/1/45, Pool #AS4972 | 124,652 | ||||||
85,781 | 4.00%, 6/1/45, Pool #AZ2719 | 90,302 | ||||||
1,342,992 | 3.50%, 6/1/45, Pool #AY5622 | 1,385,807 | ||||||
456,609 | 4.00%, 6/1/45, Pool #AY8096 | 477,858 | ||||||
225,281 | 4.00%, 6/1/45, Pool #AY8126 | 235,705 | ||||||
328,597 | 5.00%, 6/1/45, Pool #AZ3448 | 353,734 | ||||||
78,371 | 4.00%, 6/1/45, Pool #AZ3341 | 82,502 | ||||||
223,104 | 3.50%, 7/1/45, Pool #AZ3198 | 230,217 | ||||||
32,974 | 3.50%, 7/1/45, Pool #AS5312 | 33,988 | ||||||
349,337 | 4.00%, 7/1/45, Pool #AZ1783 | 365,486 | ||||||
402,943 | 4.00%, 7/1/45, Pool #AZ0833 | 424,148 | ||||||
866,816 | 3.50%, 7/1/45, Pool #AZ0814 | 892,960 | ||||||
279,709 | 3.00%, 8/1/45, Pool #AS5634 | 280,397 | ||||||
47,313 | 3.00%, 8/1/45, Pool #AZ3728 | 47,429 | ||||||
122,569 | 3.00%, 8/1/45, Pool #AZ8288 | 122,871 | ||||||
240,995 | 3.50%, 8/1/45, Pool #AY8424 | 248,264 | ||||||
181,623 | 4.00%, 10/1/45, Pool #AL7413 | 191,610 | ||||||
943,952 | 4.00%, 10/1/45, Pool #AL7593 | 995,828 | ||||||
82,797 | 4.00%, 11/1/45, Pool #AZ0560 | 86,595 | ||||||
42,405 | 4.00%, 12/1/45, Pool #BC0997 | 44,366 | ||||||
130,539 | 4.00%, 12/1/45, Pool #BA6404 | 136,551 | ||||||
71,493 | 4.00%, 12/1/45, Pool #AS6350 | 75,417 | ||||||
132,858 | 3.50%, 12/1/45, Pool #AL7890 | 137,092 | ||||||
1,679,688 | 4.00%, 2/1/46, Pool #BC1578 | 1,756,988 | ||||||
79,133 | 4.00%, 4/1/46, Pool #BC7809 | 82,789 | ||||||
56,554 | 4.00%, 4/1/46, Pool #BC3920 | 59,164 | ||||||
19,059 | 4.00%, 5/1/46, Pool #BC2276 | 19,935 | ||||||
804,815 | 4.00%, 6/1/46, Pool #AL9282 | 841,867 | ||||||
592,005 | 4.00%, 6/1/46, Pool #BC0960 | 619,298 | ||||||
153,557 | 4.00%, 7/1/46, Pool #BC6148 | 160,641 | ||||||
794,637 | 3.50%, 7/1/46, Pool #AL9515 | 818,689 | ||||||
128,009 | 4.00%, 8/1/46, Pool #BD1451 | 133,919 | ||||||
47,240 | 3.50%, 8/1/46, Pool #BD5247 | 48,755 | ||||||
151,170 | 3.50%, 8/1/46, Pool #AL8970 | 155,817 | ||||||
1,993,343 | 3.00%, 8/1/46, Pool #BC1509 | 1,996,852 | ||||||
283,830 | 3.50%, 8/1/46, Pool #AL8990 | 292,916 | ||||||
143,491 | 4.50%, 8/1/46, Pool #AL9111 | 152,810 | ||||||
1,711,254 | 3.00%, 9/1/46, Pool #AS7844 | 1,714,267 | ||||||
1,565,234 | 3.00%, 9/1/46, Pool #BC2817 | 1,567,990 | ||||||
28,713 | 3.50%, 9/1/46, Pool #BD0711 | 29,634 | ||||||
76,988 | 3.50%, 9/1/46, Pool #BD7792 | 79,456 | ||||||
148,598 | 4.00%, 9/1/46, Pool #BD1489 | 155,458 | ||||||
372,160 | 3.50%, 10/1/46, Pool #AL9285 | 382,308 | ||||||
455,742 | 3.50%, 10/1/46, Pool #BC4760 | 470,364 | ||||||
1,289,195 | 3.00%, 10/1/46, Pool #AL9397 | 1,291,465 | ||||||
45,107 | 4.00%, 10/1/46, Pool #BD7599 | 47,194 | ||||||
183,823 | 3.50%, 11/1/46, Pool #BC9014 | 189,720 |
Principal | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Federal National Mortgage Association, continued | ||||||||
$ | 1,784,856 | 3.50%, 12/1/46, Pool #BD8504 | $ | 1,842,116 | ||||
67,726 | 3.50%, 12/1/46, Pool #BE5877 | 69,899 | ||||||
914,516 | 3.50%, 12/1/46, Pool #BC9077 | 942,226 | ||||||
632,466 | 3.00%, 1/1/47, Pool #MA2863 | 632,787 | ||||||
796,308 | 3.50%, 1/1/47, Pool #AL9776 | 820,438 | ||||||
40,592 | 3.50%, 1/1/47, Pool #BE7834 | 41,895 | ||||||
1,902,011 | 4.50%, 2/1/47, Pool #AL9846 | 2,025,186 | ||||||
3,316,991 | 4.00%, 2/1/47, Pool #AL9779 | 3,499,630 | ||||||
197,047 | 3.50%, 2/1/47, Pool #BE5696 | 203,018 | ||||||
445,582 | 4.50%, 3/1/47, Pool #BE9261 | 477,882 | ||||||
357,540 | 4.50%, 3/1/47, Pool #BE9260 | 381,919 | ||||||
947,604 | 3.50%, 7/1/47, Pool #BM3041 | 978,995 | ||||||
|
| |||||||
58,104,588 | ||||||||
|
| |||||||
Government National Mortgage Association (4.5%) | ||||||||
15,409 | 5.00%, 6/15/34, Pool #629493 | 16,713 | ||||||
12,396 | 5.00%, 3/15/38, Pool #676766 | 13,450 | ||||||
4,628 | 5.00%, 4/15/38, Pool #672672 | 5,000 | ||||||
20,516 | 5.00%, 8/15/38, Pool #687818 | 22,141 | ||||||
142,688 | 5.00%, 1/15/39, Pool #705997 | 154,126 | ||||||
1,929 | 5.00%, 3/15/39, Pool #697946 | 2,092 | ||||||
296,352 | 5.00%, 3/15/39, Pool #646746 | 321,429 | ||||||
316,629 | 4.00%, 10/15/40, Pool #783143 | 332,181 | ||||||
753,493 | 4.50%, 3/20/41, Pool #4978 | 799,190 | ||||||
542,056 | 4.00%, 5/20/41, Pool #5054 | 570,511 | ||||||
268,391 | 4.50%, 5/20/41, Pool #005055 | 284,498 | ||||||
257,681 | 4.50%, 6/15/41, Pool #366975 | 275,383 | ||||||
175,261 | 4.50%, 6/20/41, Pool #005082 | 185,737 | ||||||
619,432 | 4.00%, 10/20/41, Pool #5203 | 651,970 | ||||||
664,949 | 3.50%, 12/20/41, Pool #5258 | 691,108 | ||||||
1,179,723 | 4.00%, 1/20/42, Pool #5280 | 1,241,692 | ||||||
69,499 | 4.00%, 11/20/42, Pool #AB9233 | 73,254 | ||||||
390,056 | 3.00%, 12/20/42, Pool #MA0624 | 395,480 | ||||||
471,106 | 3.00%, 12/20/42, Pool #AA5872 | 477,898 | ||||||
69,608 | 3.00%, 1/20/43, Pool #MA0698 | 70,583 | ||||||
3,806,620 | 3.50%, 1/20/43, Pool #MA0699 | 3,956,393 | ||||||
845,981 | 3.50%, 2/20/43, Pool #MA0783 | 879,267 | ||||||
305,124 | 3.00%, 3/20/43, Pool #AA6146 | 309,618 | ||||||
105,038 | 3.50%, 3/20/43, Pool #AD8884 | 109,243 | ||||||
125,239 | 3.00%, 3/20/43, Pool #AD8812 | 127,128 | ||||||
40,803 | 3.50%, 4/20/43, Pool #AB9891 | 42,498 | ||||||
714,711 | 3.50%, 4/20/43, Pool #783976 | 742,831 | ||||||
109,564 | 3.50%, 4/20/43, Pool #AD9075 | 114,031 | ||||||
487,956 | 4.00%, 4/15/46, Pool #784232 | 510,505 | ||||||
400,829 | 4.00%, 4/20/46, Pool #MA3598 | 420,316 | ||||||
114,070 | 3.00%, 5/20/46, Pool #MA3662 | 115,216 | ||||||
31,832 | 3.50%, 5/20/46, Pool #AR9166 | 33,016 | ||||||
41,446 | 3.50%, 5/20/46, Pool #AR9028 | 42,978 | ||||||
44,294 | 3.50%, 5/20/46, Pool #AS4272 | 45,918 | ||||||
163,859 | 3.50%, 6/20/46, Pool #AT4139 | 169,937 | ||||||
54,536 | 3.50%, 6/20/46, Pool #AS4285 | 56,531 | ||||||
105,104 | 3.00%, 6/20/46, Pool #MA3735 | 106,159 | ||||||
35,899 | 3.50%, 6/20/46, Pool #AT4134 | 37,230 | ||||||
55,941 | 3.50%, 7/20/46, Pool #784391 | 58,041 | ||||||
788,376 | 3.00%, 7/20/46, Pool #MA3802 | 796,295 | ||||||
363,257 | 3.00%, 8/20/46, Pool #MA3873 | 366,906 | ||||||
1,788,672 | 3.00%, 9/20/46, Pool #MA3936 | 1,806,639 | ||||||
54,102 | 3.00%, 10/20/46, Pool #MA4003 | 54,646 |
Continued
14
AZL Pyramis® Total Bond Fund
Schedule of Portfolio Investments
December 31, 2017
Principal | Fair Value | |||||||
U.S. Government Agency Mortgages, continued | ||||||||
Government National Mortgage Association, continued | ||||||||
$ | 327,402 | 3.00%, 11/20/46, Pool #MA4068 | $ | 330,691 | ||||
3,472,819 | 3.00%, 12/20/46, Pool #MA4126 | 3,507,703 | ||||||
515,495 | 4.00%, 1/15/47, Pool #AX5831 | 538,645 | ||||||
464,294 | 4.00%, 1/15/47, Pool #AX5857 | 485,399 | ||||||
848,636 | 3.00%, 1/20/47, Pool #MA4195 | 857,161 | ||||||
470,473 | 3.00%, 2/20/47, Pool #MA4261 | 475,199 | ||||||
461,015 | 4.00%, 4/20/47, Pool #784303 | 481,542 | ||||||
522,638 | 4.00%, 4/20/47, Pool #784304 | 545,869 | ||||||
100,001 | 4.00%, 5/20/47, Pool #MA4452 | 104,315 | ||||||
443,399 | Class JA, Series 2015-H21, 2.50%, 6/20/65, Callable 5/20/21 @ 100 | 444,056 | ||||||
25,256,358 | ||||||||
|
| |||||||
Total U.S. Government Agency Mortgages (Cost $117,520,783) | 116,900,680 | |||||||
|
| |||||||
U.S. Treasury Obligations (33.2%): | ||||||||
U.S. Treasury Bonds (3.1%) | ||||||||
3,535,000 | 2.50%, 2/15/46 | 3,363,912 | ||||||
13,490,000 | 3.00%, 2/15/47 | 14,187,159 | ||||||
|
| |||||||
17,551,071 | ||||||||
|
| |||||||
U.S. Treasury Inflation Index Bonds (3.0%) | ||||||||
4,362,000 | 1.38%, 2/15/44 | 5,329,619 | ||||||
9,627,000 | 0.75%, 2/15/45 | 10,134,654 | ||||||
1,717,000 | 1.00%, 2/15/46 | 1,909,448 | ||||||
|
| |||||||
17,373,721 | ||||||||
|
| |||||||
U.S. Treasury Inflation Index Notes (2.9%) | ||||||||
3,342,000 | 0.25%, 1/15/25 | 3,449,584 | ||||||
7,466,000 | 0.63%, 1/15/26 | 7,874,433 | ||||||
4,972,000 | 0.13%, 7/15/26 | 4,999,175 | ||||||
|
| |||||||
16,323,192 | ||||||||
|
| |||||||
U.S. Treasury Notes (24.2%) | ||||||||
14,000,000 | 0.75%, 10/31/18 | 13,884,609 | ||||||
17,547,000 | 1.25%, 3/31/21 | 17,113,808 |
Shares or Principal | Fair Value | |||||||
U.S. Treasury Obligations, continued | ||||||||
U.S. Treasury Notes, continued | ||||||||
$ | 5,324,000 | 1.38%, 4/30/21 | $ | 5,208,785 | ||||
33,191,000 | 1.88%, 3/31/22 | 32,816,306 | ||||||
5,498,000 | 1.75%, 6/30/22 | 5,398,564 | ||||||
13,923,000 | 1.88%, 7/31/22 | 13,734,278 | ||||||
14,207,000 | 1.88%, 9/30/22 | 14,001,109 | ||||||
8,734,000 | 2.13%, 7/31/24 | 8,630,284 | ||||||
3,247,000 | 2.25%, 10/31/24 | 3,232,033 | ||||||
4,245,000 | 2.13%, 11/30/24 | 4,189,284 | ||||||
10,099,000 | 2.25%, 12/31/24 | 10,044,560 | ||||||
9,226,000 | 1.50%, 8/15/26 | 8,583,784 | ||||||
3,368,000 | 3.00%, 5/15/47 | 3,541,005 | ||||||
|
| |||||||
140,378,409 | ||||||||
|
| |||||||
Total U.S. Treasury Obligations (Cost $192,850,665) | 191,626,393 | |||||||
|
| |||||||
Warrant (0.0%): | ||||||||
Oil, Gas & Consumable Fuels (0.0%): | ||||||||
3,749 | Midstates Petroleum Co., Inc., 4/21/20(d)(e) | 1,875 | ||||||
|
| |||||||
Total Warrant (Cost $8,435) | 1,875 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (5.7%): | ||||||||
33,152,802 | AZL Pyramis® Total Bond Fund Securities Lending Collateral | 33,152,802 | ||||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 33,152,802 | ||||||
|
| |||||||
Unaffiliated Investment Company (5.4%): | ||||||||
31,093,570 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 1.11%(h) | 31,093,570 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $31,093,570) | 31,093,570 | |||||||
|
| |||||||
Total Investment Securities (Cost $614,679,730)(i) — 107.2% | 618,180,047 | |||||||
Net other assets (liabilities) — (7.2)% | (41,425,672 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 576,754,375 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
GO—General Obligation
LIBOR—London Interbank Offered Rate
MTN—Medium Term Note
TBA—To Be Announced Security
US0001M—1 Month US Dollar LIBOR
US0003M—3 Month US Dollar LIBOR
USSW5—USD 5 Year Swap Rate
^ | This security or a partial position of this security was on loan as of December 31, 2017. The total value of securities on loan as of December 31, 2017, was $31,921,979. |
(a) | Rule 144A, Section 4(2) or other security which is restricted to resale to institutional investors. The subadviser has deemed these securities to be liquid based on procedures approved by the Board of Trustees. |
(b) | The rate for certain asset-backed and mortgage-backed securities may vary based on factors relating to the pool of assets underlying the security. The rate presented is the rate in effect at December 31, 2017. |
(c) | Rule 144A, Section 4(2) or other security which is restricted to resale to institutional investors. The subadviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2017, these securities represent 0.35% of the net assets of the fund. |
(d) | The subadviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2017, these securities represent 0.00% of the net assets of the Fund. |
(e) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2017. The total of all such securities represent 0.00% of the net assets of the fund. |
(f) | Defaulted bond. |
(g) | 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, 2017. |
(h) | The rate represents the effective yield at December 31, 2017. |
(i) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Continued
15
AZL Pyramis® Total Bond Fund
Schedule of Portfolio Investments
December 31, 2017
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, 2017: (Unaudited)
Country | Percentage | |||
Australia | 0.2 | % | ||
Belarus | 0.2 | % | ||
Bermuda | 0.1 | % | ||
Canada | 1.4 | % | ||
Cayman Islands | 0.4 | % | ||
Chile | 0.1 | % | ||
Dominican Republic | 0.2 | % | ||
Finland | — | %^ | ||
France | — | %^ | ||
Germany | 0.4 | % | ||
Guernsey | 0.6 | % | ||
Hong Kong | — | %^ | ||
Ireland | 0.7 | % | ||
Italy | 0.2 | % | ||
Jersey | 0.1 | % | ||
Luxembourg | 0.9 | % | ||
Marshall Islands | — | %^ | ||
Mexico | 1.7 | % | ||
Netherlands | 1.5 | % | ||
Switzerland | — | %^ | ||
United Kingdom | 1.7 | % | ||
United States | 89.5 | % | ||
Virgin Islands, British | 0.1 | % | ||
|
| |||
100.0 | % | |||
|
|
^ | Represents less than 0.05%. |
Securities Sold Short (-0.1%):
Security Description | Coupon Rate | Maturity Date | Par Amount | Proceeds Received | Fair Value | Unrealized Appreciation/ Depreciation | ||||||||||||||||||
Federal National Mortgage Association | 2.50 | % | 1/25/32 | $ | (300,000 | ) | $ | (298,500 | ) | $ | (299,531 | ) | $ | (1,031 | ) | |||||||||
|
|
|
|
|
| |||||||||||||||||||
$ | (298,500 | ) | $ | (299,531 | ) | $ | (1,031 | ) | ||||||||||||||||
|
|
|
|
|
|
See accompanying notes to the financial statements.
16
AZL Pyramis® Total Bond Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investment securities, at cost | $ | 614,679,730 | |||
|
| ||||
Investment securities, at value* | $ | 618,180,047 | |||
Interest and dividends receivable | 4,512,584 | ||||
Receivable for capital shares issued | 231,090 | ||||
Receivable for investments sold | 298,500 | ||||
Prepaid expenses | 3,405 | ||||
|
| ||||
Total Assets | 623,225,626 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 12,492,974 | ||||
Payable for capital shares redeemed | 111,167 | ||||
Payable for collateral received on loaned securities | 33,152,802 | ||||
Securities sold short (Proceeds received $298,500) | 299,531 | ||||
Interest payable on securities sold short | 333 | ||||
Manager fees payable | 245,024 | ||||
Administration fees payable | 20,012 | ||||
Distribution fees payable | 117,384 | ||||
Custodian fees payable | 2,189 | ||||
Administrative and compliance services fees payable | 1,393 | ||||
Transfer agent fees payable | 1,496 | ||||
Trustee fees payable | 898 | ||||
Other accrued liabilities | 26,048 | ||||
|
| ||||
Total Liabilities | 46,471,251 | ||||
|
| ||||
Net Assets | $ | 576,754,375 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 566,350,196 | |||
Accumulated net investment income/(loss) | 15,329,584 | ||||
Accumulated net realized gains/(losses) from investment transactions | (8,424,691 | ) | |||
Net unrealized appreciation/(depreciation) on investments | 3,499,286 | ||||
|
| ||||
Net Assets | $ | 576,754,375 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 24,076,701 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 2,416,659 | ||||
Net Asset Value (offering and redemption price per share) | $ | 9.96 | |||
|
| ||||
Class 2 | |||||
Net Assets | $ | 552,677,674 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 54,001,570 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.23 | |||
|
|
* | Includes securities on loan of $31,921,979. |
For the Year Ended December 31, 2017
Investment Income: | |||||
Interest | $ | 16,045,787 | |||
Dividends | 194,259 | ||||
Income from securities lending | 221,237 | ||||
Other income | 28,017 | ||||
Foreign withholding tax | (465 | ) | |||
|
| ||||
Total Investment Income | 16,488,835 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,951,489 | ||||
Administration fees | 245,271 | ||||
Distribution fees — Class 2 | 1,413,464 | ||||
Custodian fees | 17,845 | ||||
Administrative and compliance services fees | 7,689 | ||||
Transfer agent fees | 11,193 | ||||
Trustee fees | 27,407 | ||||
Professional fees | 32,684 | ||||
Shareholder reports | 25,635 | ||||
Other expenses | 14,314 | ||||
|
| ||||
Total expenses | 4,746,991 | ||||
|
| ||||
Net Investment Income/(Loss) | 11,741,844 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 3,659,933 | ||||
Net realized gains/(losses) on securities sold short | (59,995 | ) | |||
Change in net unrealized appreciation/depreciation on investments | 9,598,445 | ||||
Change in net unrealized appreciation/depreciation on securities sold short | 74,204 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 13,272,587 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 25,014,431 | |||
|
|
See accompanying notes to the financial statements.
17
AZL Pyramis® Total Bond Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016* | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 11,741,844 | $ | 13,992,304 | ||||||
Net realized gains/(losses) on investment transactions | 3,599,938 | (8,275,746 | ) | |||||||
Change in unrealized appreciation/depreciation on investments | 9,672,649 | 12,855,018 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 25,014,431 | 18,571,576 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1 | (609,952 | ) | — | |||||||
Class 2 | (13,382,351 | ) | (13,963,456 | ) | ||||||
From net realized gains: | ||||||||||
Class 1 | — | — | ||||||||
Class 2 | — | (291,097 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (13,992,303 | ) | (14,254,553 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Class 1 | ||||||||||
Proceeds from shares issued | 573,881 | 27,626,424 | ||||||||
Proceeds from dividends reinvested | 609,952 | — | ||||||||
Value of shares redeemed | (3,595,755 | ) | (1,019,113 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | (2,411,922 | ) | 26,607,311 | |||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Proceeds from shares issued | 11,883,572 | 247,759,920 | ||||||||
Proceeds from dividends reinvested | 13,382,351 | 14,254,553 | ||||||||
Value of shares redeemed | (51,318,244 | ) | (131,947,402 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | (26,052,321 | ) | 130,067,071 | |||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (28,464,243 | ) | 156,674,382 | |||||||
|
|
|
| |||||||
Change in net assets | (17,442,115 | ) | 160,991,405 | |||||||
Net Assets: | ||||||||||
Beginning of period | 594,196,490 | 433,205,085 | ||||||||
|
|
|
| |||||||
End of period | $ | 576,754,375 | $ | 594,196,490 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 15,329,584 | $ | 13,992,248 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Class 1 | ||||||||||
Shares issued | 57,427 | 2,762,699 | ||||||||
Dividends reinvested | 61,302 | — | ||||||||
Shares redeemed | (360,782 | ) | (103,987 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | (242,053 | ) | 2,658,712 | |||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Shares issued | 1,161,305 | 24,088,225 | ||||||||
Dividends reinvested | 1,309,428 | 1,390,688 | ||||||||
Shares redeemed | (4,993,336 | ) | (12,936,249 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | (2,522,603 | ) | 12,542,664 | |||||||
|
|
|
| |||||||
Change in shares | (2,764,656 | ) | 15,201,376 | |||||||
|
|
|
|
* | Class 1 activity is for the period October 31, 2016 (commencement of operations) to December 31, 2016. |
See accompanying notes to the financial statements.
18
AZL Pyramis® Total Bond Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2017 | 2016* | 2015 | 2014 | 2013 | |||||||||||||||||||||
Class 1 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 9.77 | $ | 10.00 | |||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.23 | 0.24 | |||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.21 | (0.47 | ) | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total from Investment Activities | 0.44 | (0.23 | ) | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.25 | ) | — | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total Dividends | (0.25 | ) | — | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Net Asset Value, End of Period | $ | 9.96 | $ | 9.77 | |||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total Return(a) | 4.55 | % | (2.30 | )%(b) | |||||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 24,077 | $ | 25,981 | |||||||||||||||||||||
Net Investment Income/(Loss)(c) | 2.23 | % | 3.03 | % | |||||||||||||||||||||
Expenses Before Reductions(c)(d) | 0.56 | % | 0.59 | % | |||||||||||||||||||||
Expenses Net of Reductions(c) | 0.56 | % | 0.59 | % | |||||||||||||||||||||
Portfolio Turnover Rate(e) | 81 | % | 119 | % | |||||||||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.05 | $ | 9.85 | $ | 10.14 | $ | 9.78 | $ | 10.06 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.22 | 0.26 | 0.31 | 0.18 | 0.12 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 0.21 | 0.29 | (0.40 | ) | 0.34 | (0.34 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 0.43 | 0.55 | (0.09 | ) | 0.52 | (0.22 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.25 | ) | (0.34 | ) | (0.20 | ) | (0.16 | ) | (0.04 | ) | |||||||||||||||
Net Realized Gains | — | (0.01 | ) | — | — | (0.02 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.25 | ) | (0.35 | ) | (0.20 | ) | (0.16 | ) | (0.06 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 10.23 | $ | 10.05 | $ | 9.85 | $ | 10.14 | $ | 9.78 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 4.28 | % | 5.51 | % | (0.89 | )% | 5.37 | % | (2.20 | )% | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 552,678 | $ | 568,216 | $ | 433,205 | $ | 457,287 | $ | 370,623 | |||||||||||||||
Net Investment Income/(Loss) | 1.98 | % | 3.06 | % | 2.93 | % | 2.11 | % | 1.24 | % | |||||||||||||||
Expenses Before Reductions(d) | 0.81 | % | 0.83 | % | 0.82 | % | 0.81 | % | 0.81 | % | |||||||||||||||
Expenses Net of Reductions | 0.81 | % | 0.83 | % | 0.82 | % | 0.81 | % | 0.81 | % | |||||||||||||||
Portfolio Turnover Rate(e) | 81 | % | 119 | % | 123 | % | 421 | % | 488 | % |
* | Class 1 activity is for the period October 31, 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 for periods less than one year. |
(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. |
See accompanying notes to the financial statements.
19
AZL Pyramis® Total Bond Fund
Notes to the Financial Statements
December 31, 2017
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 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 accrues 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 and Withholding Taxes
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, or from other assets and liabilities, from fluctuations arising from changes in market prices of securities held. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
Securities Purchased on a When-Issued Basis
The Fund may purchase securities on a when-issued basis. When-issued securities are securities purchased for delivery beyond the normal settlement date at a stated price and yield and thereby involve risk that the yield obtained in the transaction will be less than that available in the market when the delivery takes place. A Fund will not pay for such securities or start earning interest on them until they are received. When a Fund agrees to purchase securities on a when-issued basis, the Fund will segregate or designate cash or liquid assets equal to the amount of the commitment. Securities purchased on a when-issued basis are recorded as an asset and are subject to changes in the value based upon changes in the general level of interest rates. A Fund may sell when-issued securities before they are delivered, which may result in a capital gain or loss.
Short Sales
The Fund may engage in short sales against the box (i.e., where the Fund owns or has an unconditional right to acquire at no additional cost a security substantially similar to the security sold short) for hedging purposes to limit exposure to a possible market decline in the value of its portfolio securities. In a short sale, the Fund sells a borrowed security and has a corresponding obligation to the lender to return the identical security. The Fund may also incur an interest expense if a security that has been sold short has an interest payment. When the Fund engages in a short sale, the Fund record a liability for securities sold short and record 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, the Fund also may be required to pay a premium, which would increase the cost of the security sold.
20
AZL Pyramis® Total Bond Fund
Notes to the Financial Statements
December 31, 2017
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., reclassification of gain/loss on paydowns), 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, 2017 are noted on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $38 million for the year ended December 31, 2017.
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 $20,483 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The fund had securities lending transactions of $33,152,802 accounted for as secured borrowings with cash collateral of overnight and continuous maturities as of December 31, 2017.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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, 2017, the Fund did not engage in any such transactions under the Rule.
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, 2017, 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 FIAM LLC (“FIAM”), FIAM 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
21
AZL Pyramis® Total Bond Fund
Notes to the Financial Statements
December 31, 2017
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, 2019.
For the year ended December 31, 2017, the annual rate paid 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, 2017, there were no contractual reimbursements 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, 2017, 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.”
FIS Investor Services LLC (“FIS”) 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 of 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, 2017, $6,313 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Fund of Funds Trust, each non-interested Trustee receives a $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, 2017, actual Trustee compensation was $1,116,333 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.
22
AZL Pyramis® Total Bond Fund
Notes to the Financial Statements
December 31, 2017
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.
There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Other^ | Total | ||||||||||||||||||||
Asset Backed Securities | $ | — | $ | 5,143,006 | $ | — | $ | — | $ | 5,143,006 | |||||||||||||||
Collateralized Mortgage Obligations | — | 8,690,704 | — | — | 8,690,704 | ||||||||||||||||||||
Corporate Bonds+ | — | 156,838,781 | — | ^ | — | 156,838,781 | |||||||||||||||||||
Municipal Bonds | — | 9,695,914 | — | — | 9,695,914 | ||||||||||||||||||||
U.S. Government Agency Mortgages | — | 116,900,680 | — | — | 116,900,680 | ||||||||||||||||||||
U.S. Treasury Obligations | — | 191,626,393 | — | — | 191,626,393 | ||||||||||||||||||||
Warrant | — | 1,875 | — | — | 1,875 | ||||||||||||||||||||
Yankee Dollars+ | — | 65,036,322 | — | — | 65,036,322 | ||||||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | — | 33,152,802 | 33,152,802 | ||||||||||||||||||||
Unaffiliated Investment Company | 31,093,570 | — | — | — | 31,093,570 | ||||||||||||||||||||
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Total Investment Securities | 31,093,570 | 553,933,675 | — | ^ | 33,152,802 | 618,180,047 | |||||||||||||||||||
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Securities Sold Short | — | (299,531 | ) | — | — | (299,531 | ) | ||||||||||||||||||
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Total Investments | $ | 31,093,570 | $ | 553,634,144 | $ | — | ^ | $ | 33,152,802 | $ | 617,880,516 | ||||||||||||||
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^ | Represents the interest in securities that were determined to have a value of zero at December 31, 2017. |
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
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, 2017, 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 | $ | 447,715,311 | $ | 462,096,495 |
For the year ended December 31, 2017, purchases and sales of long-term U.S. government securities were as follows:
Purchases | Sales | |||||||||
AZL Pyramis® Total Bond Fund | $ | 379,472,936 | $ | 324,064,183 |
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AZL Pyramis® Total Bond Fund
Notes to the Financial Statements
December 31, 2017
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, 2017 are identified below.
Security | Acquisition Date(a) | Acquisition Cost | Shares or Principal Amount | Fair Value | Percentage of Net Assets | ||||||||||||||||||||
CSMC Trust, Class D, Series 2017-PFHP, 3.73%(US0001M+225bps), 12/15/20 | 12/12/17 | 1,384,000 | 1,384,000 | 1,383,998 | 0.24 | % | |||||||||||||||||||
LBC Tank Terminals Holding Netherlands BV, 6.88%, 5/15/23, Callable 5/15/18 @ 103.44 | 6/21/17 | 5,213 | 340,000 | 354,025 | 0.06 | % | |||||||||||||||||||
NSG Holdings LLC/NSG Holdings, Inc., 7.75%, 12/15/25 | 11/7/14 | 978,750 | 246,006 | 269,992 | 0.05 | % |
(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, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $615,020,735. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 7,662,500 | ||
Unrealized (depreciation) | (4,504,218 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 3,158,282 | ||
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As of the end of its tax year ended December 31, 2017, 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 | $ | 6,060,284 | $ | 2,023,402 | $ | 8,083,686 |
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AZL Pyramis® Total Bond Fund
Notes to the Financial Statements
December 31, 2017
The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Pyramis® Total Bond Fund | $ | 13,992,303 | $ | — | $ | 13,992,303 |
(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, 2016 were as follows:
Ordinary Income | Net Long-Term Capital Gains | 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. |
At December 31, 2017, 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 | $ | 15,329,584 | $ | — | $ | (8,083,687 | ) | $ | 3,158,282 | $ | 10,404,179 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
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, 2017, the Fund had multiple shareholder accounts which are affiliated with the Investment Adviser representing ownership in excess of 70% of the Fund.
10. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
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, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the periods or years in the five-year period then ended. In our opinion, the financial statements present fairly, in all material respects, the financial position the Fund as of December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the periods or years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
26
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Fund of Funds Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
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Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
28
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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
29
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in 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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
32
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® Russell 1000 Growth Index Fund
Annual Report
December 31, 2017
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
Page 12
Statements of Changes in Net Assets
Page 13
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
Page 23
Approval of Investment Advisory and Subadvisory Agreements
Page 24
Information about the Board of Trustees and Officers
Page 27
This report is submitted for the general information of the shareholder of the Fund. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
AZL® Russell 1000 Growth Index Fund Review (Unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® Russell 1000 Growth Index Fund and BlackRock Investment Management, LLC serves as Subadviser to the Fund. | ||||
What factors affected the Fund’s performance during the year ended December 31, 2017?
For the year ended December 31, 2017, the Class 2 shares of the AZL® Russell 1000 Growth Index Fund (the “Fund”) returned 28.89%†. That compared to a 30.21% 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. It is an unmanaged, market capitalization-weighted index composed of large- and mid-capitalization U.S. equities that exhibit growth characteristics.*
Steady economic growth and a strengthening labor market helped support the U.S. Federal Reserve’s decision to increase the federal funds rate by 25 basis points (0.25%) in March. It marked the second rate hike in the past six months and drove higher performance among more growth-oriented and cyclical assets.
Political risk created a headwind for U.S. equities in the second quarter of 2017. In May, President Trump’s firing of FBI Director James Comey and the subsequent investigation of pre-election correspondence between administration members and Russian officials became an enduring source of negative market sentiment. One of the largest single-day dips of the quarter occurred in the wake of the House Oversight Committee’s request for all documents from meetings between President Trump and Comey on May 17.
The third quarter witnessed investors focused on sustained corporate earnings expansion, a subdued interest rate environment, and a healthy economic backdrop, despite threats from an increasingly hostile North Korea and a damaging hurricane season. As a result, volatility dropped to the lowest levels in recorded history, with the CBOE Volatility index2 averaging a record low of 10.94 in the quarter.
The U.S. economy continued to demonstrate strength throughout the fourth quarter. Unemployment dipped to 4.1%, the lowest level since 2000. Third quarter gross domestic product3 (GDP) surged to 4.1% year over year, and real GDP rose 2.3% year over year, which boosted investor confidence.
The Fund underperformed it’s benchmark for the period. From a sector perspective, the strongest returns in the Russell 1000® Growth Index came from utilities (+70.54%) stocks. Increases were seen across most sectors, including the information technology (+41.37%) and financials (+31.51%) sectors. By comparison, the energy sector (-6.69%) experienced the only negative return for the 12-month period under review.
The Fund held derivatives in the form of futures contracts, which it used to hedge its cash position. The futures had a slight negative impact on relative results.*
Past performance does not guarantee future results.
† | The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes. |
* | 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, 2017. |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
2 | Chicago Board Options Exchange (CBOE) Volatility Index shows the markets expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking, is calculated from both calls and puts, and is a widely used measure of market risk. |
3 | Gross Domestic Product (GDP) is the measure of the market value of the goods and services produced in a period of time. |
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, 2017
Inception | 1 | 3 | 5 | Since | ||||||||||||||||
Date | Year | Year | Year | Inception | ||||||||||||||||
AZL® Russell 1000 Growth Index Fund | 10/14/16 | 29.19 | %† | — | — | 26.34 | % | |||||||||||||
AZL® Russell 1000 Growth Index Fund | 4/30/10 | 28.89 | %† | 12.88 | % | 16.42 | % | 13.98 | % | |||||||||||
Russell 1000® Growth Index | 4/30/10 | 30.21 | % | 13.79 | % | 17.33 | % | 14.89 | % |
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® Russell 1000 Growth Index Fund (Class 1 Shares) | 0.52 | % | ||
AZL® Russell 1000 Growth Index Fund (Class 2 Shares) | 0.77 | % |
Expense Ratios are based on the current Fund prospectus dated May 1, 2017. The Manager voluntarily reduced the management fee to 0.39% 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 0.59% for Class 1 Shares and 0.84% for Class 2 Shares through April 30, 2019. Additional information pertaining to the December 31, 2017 expense ratios can be found in the financial highlights.
† | The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes. |
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
(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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Russell 1000 Growth Index Fund, Class 1 | $ | 1,000.00 | $ | 1,137.10 | $ | 2.32 | 0.43 | % | ||||||||||||
AZL Russell 1000 Growth Index Fund, Class 2 | $ | 1,000.00 | $ | 1,135.90 | $ | 3.66 | 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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Russell 1000 Growth Index Fund, Class 1 | $ | 1,000.00 | $ | 1,023.04 | $ | 2.19 | 0.43 | % | ||||||||||||
AZL Russell 1000 Growth Index Fund, Class 2 | $ | 1,000.00 | $ | 1,021.78 | $ | 3.47 | 0.68 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 37.6 | % | |||
Consumer Discretionary | 17.8 | ||||
Health Care | 12.6 | ||||
Industrials | 12.7 | ||||
Consumer Staples | 6.7 | ||||
Materials | 3.7 | ||||
Financials | 3.1 | ||||
Real Estate | 2.4 | ||||
Telecommunication Services | 1.0 | ||||
Energy | 0.8 | ||||
Utilities | — | ^ | |||
|
| ||||
Total Common Stocks and Preferred Stocks | 98.4 | ||||
Securities Held as Collateral for Securities on Loan | 10.4 | ||||
Money Market | 1.5 | ||||
|
| ||||
Total Investment Securities | 110.3 | ||||
Net other assets (liabilities) | (10.3 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks (98.0%): | ||||||||
Aerospace & Defense (3.0%): | ||||||||
47,006 | Boeing Co. (The) | $ | 13,862,539 | |||||
7,976 | BWX Technologies, Inc. | 482,468 | ||||||
8,894 | General Dynamics Corp. | 1,809,484 | ||||||
2,019 | HEICO Corp. | 190,493 | ||||||
4,227 | HEICO Corp., Class A | 334,144 | ||||||
5,103 | Hexcel Corp.^ | 315,621 | ||||||
3,117 | Huntington Ingalls Industries, Inc. | 734,677 | ||||||
19,030 | Lockheed Martin Corp. | 6,109,582 | ||||||
13,641 | Northrop Grumman Corp. | 4,186,559 | ||||||
9,055 | Raytheon Co. | 1,700,982 | ||||||
13,613 | Rockwell Collins, Inc. | 1,846,195 | ||||||
4,056 | TransDigm Group, Inc.^ | 1,113,859 | ||||||
|
| |||||||
32,686,603 | ||||||||
|
| |||||||
Air Freight & Logistics (1.3%): | ||||||||
11,763 | C.H. Robinson Worldwide, Inc.^ | 1,047,966 | ||||||
10,554 | Expeditors International of Washington, Inc. | 682,738 | ||||||
20,886 | FedEx Corp. | 5,211,892 | ||||||
58,170 | United Parcel Service, Inc., Class B | 6,930,956 | ||||||
7,383 | XPO Logistics, Inc.*^ | 676,209 | ||||||
|
| |||||||
14,549,761 | ||||||||
|
| |||||||
Airlines (0.4%): | ||||||||
8,189 | Alaska Air Group, Inc. | 601,973 | ||||||
15,945 | American Airlines Group, Inc.^ | 829,618 | ||||||
201 | Copa Holdings SA, Class A | 26,946 | ||||||
46,498 | Southwest Airlines Co. | 3,043,295 | ||||||
|
| |||||||
4,501,832 | ||||||||
|
| |||||||
Auto Components (0.3%): | ||||||||
22,476 | Aptiv plc* | 1,906,639 | ||||||
1,843 | BorgWarner, Inc.^ | 94,159 | ||||||
7,675 | Delphi Technologies plc* | 402,707 | ||||||
15,421 | Gentex Corp.^ | 323,070 | ||||||
4,695 | Lear Corp. | 829,419 | ||||||
2,600 | Visteon Corp.*^ | 325,364 | ||||||
|
| |||||||
3,881,358 | ||||||||
|
| |||||||
Automobiles (0.4%): | ||||||||
10,541 | Harley-Davidson, Inc.^ | 536,326 | ||||||
11,224 | Tesla Motors, Inc.*^ | 3,494,592 | ||||||
4,097 | Thor Industries, Inc. | 617,500 | ||||||
|
| |||||||
4,648,418 | ||||||||
|
| |||||||
Banks (0.2%): | ||||||||
4,689 | Bank of the Ozarks, Inc.^ | 227,182 | ||||||
884 | East West Bancorp, Inc. | 53,774 | ||||||
10,887 | First Republic Bank | 943,250 | ||||||
1,768 | Pinnacle Financial Partners, Inc. | 117,218 | ||||||
2,714 | Signature Bank* | 372,524 | ||||||
3,242 | SVB Financial Group* | 757,882 | ||||||
4,612 | Western Alliance Bancorp* | 261,131 | ||||||
|
| |||||||
2,732,961 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Beverages (2.9%): | ||||||||
4,433 | Brown-Forman Corp., Class A^ | $ | 298,075 | |||||
13,864 | Brown-Forman Corp., Class B^ | 952,041 | ||||||
242,637 | Coca-Cola Co. (The) | 11,132,186 | ||||||
13,593 | Constellation Brands, Inc., Class C | 3,106,952 | ||||||
15,206 | Dr Pepper Snapple Group, Inc. | 1,475,894 | ||||||
34,726 | Monster Beverage Corp.* | 2,197,809 | ||||||
104,898 | PepsiCo, Inc. | 12,579,367 | ||||||
|
| |||||||
31,742,324 | ||||||||
|
| |||||||
Biotechnology (4.5%): | ||||||||
134,456 | AbbVie, Inc. | 13,003,239 | ||||||
8,113 | Acadia Pharmaceuticals, Inc.*^ | 244,282 | ||||||
3,139 | Agios Pharmaceuticals, Inc.*^ | 179,457 | ||||||
14,752 | Alexion Pharmaceuticals, Inc.* | 1,764,192 | ||||||
12,698 | Alkermes plc*^ | 694,962 | ||||||
6,291 | Alnylam Pharmaceuticals, Inc.*^ | 799,272 | ||||||
17,833 | Amgen, Inc. | 3,101,159 | ||||||
16,835 | Biogen Idec, Inc.* | 5,363,126 | ||||||
14,659 | BioMarin Pharmaceutical, Inc.*^ | 1,307,143 | ||||||
9,323 | Bioverativ, Inc.*^ | 502,696 | ||||||
65,386 | Celgene Corp.* | 6,823,683 | ||||||
24,047 | Exelixis, Inc.* | 731,029 | ||||||
78,516 | Gilead Sciences, Inc. | 5,624,886 | ||||||
14,666 | Incyte Corp.*^ | 1,389,017 | ||||||
1,562 | Intercept Pharmaceuticals, Inc.*^ | 91,252 | ||||||
3,875 | Intrexon Corp.*^ | 44,640 | ||||||
10,217 | Ionis Pharmaceuticals, Inc.*^ | 513,915 | ||||||
7,225 | Neurocrine Biosciences, Inc.*^ | 560,588 | ||||||
3,854 | OPKO Health, Inc.*^ | 18,885 | ||||||
6,689 | Regeneron Pharmaceuticals, Inc.* | 2,514,796 | ||||||
8,110 | Seattle Genetics, Inc.*^ | 433,885 | ||||||
3,191 | Tesaro, Inc.*^ | 264,438 | ||||||
21,287 | Vertex Pharmaceuticals, Inc.* | 3,190,070 | ||||||
|
| |||||||
49,160,612 | ||||||||
|
| |||||||
Building Products (0.4%): | ||||||||
12,031 | A.O. Smith Corp. | 737,260 | ||||||
7,936 | Allegion plc^ | 631,388 | ||||||
3,867 | Armstrong World Industries, Inc.*^ | 234,147 | ||||||
11,963 | Fortune Brands Home & Security, Inc.^ | 818,748 | ||||||
2,947 | Lennox International, Inc.^ | 613,742 | ||||||
17,312 | Masco Corp. | 760,689 | ||||||
|
| |||||||
3,795,974 | ||||||||
|
| |||||||
Capital Markets (1.9%): | ||||||||
11,191 | Ameriprise Financial, Inc. | 1,896,539 | ||||||
5,397 | BGC Partners, Inc., Class A | 81,549 | ||||||
9,295 | CBOE Holdings, Inc. | 1,158,064 | ||||||
79,623 | Charles Schwab Corp. (The) | 4,090,233 | ||||||
9,511 | Eaton Vance Corp. | 536,325 | ||||||
3,205 | FactSet Research Systems, Inc.^ | 617,796 | ||||||
879 | Federated Investors, Inc., Class B^ | 31,714 | ||||||
23,436 | Intercontinental Exchange, Inc. | 1,653,644 |
Continued
4
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Capital Markets, continued | ||||||||
4,801 | Invesco, Ltd. | $ | 175,429 | |||||
8,853 | Lazard, Ltd., Class A^ | 464,783 | ||||||
1,984 | Legg Mason, Inc.^ | 83,288 | ||||||
7,403 | LPL Financial Holdings, Inc. | 423,007 | ||||||
3,044 | MarketAxess Holdings, Inc.^ | 614,127 | ||||||
13,970 | Moody’s Corp. | 2,062,112 | ||||||
1,565 | Morningstar, Inc.^ | 151,758 | ||||||
7,455 | MSCI, Inc., Class A | 943,356 | ||||||
2,802 | Raymond James Financial, Inc. | 250,219 | ||||||
21,828 | S&P Global, Inc. | 3,697,663 | ||||||
11,198 | SEI Investments Co. | 804,688 | ||||||
1,701 | State Street Corp. | 166,035 | ||||||
3,031 | T. Rowe Price Group, Inc.^ | 318,043 | ||||||
18,971 | TD Ameritrade Holding Corp. | 969,987 | ||||||
|
| |||||||
21,190,359 | ||||||||
|
| |||||||
Chemicals (2.7%): | ||||||||
1,741 | Albemarle Corp.^ | 222,656 | ||||||
17,643 | Axalta Coating Systems, Ltd.*^ | 570,927 | ||||||
6,863 | Celanese Corp., Series A | 734,890 | ||||||
15,428 | Chemours Co. (The) | 772,326 | ||||||
94,054 | DowDuPont, Inc. | 6,698,526 | ||||||
21,567 | Ecolab, Inc. | 2,893,860 | ||||||
11,215 | FMC Corp.^ | 1,061,612 | ||||||
8,202 | Huntsman Corp.^ | 273,045 | ||||||
6,642 | International Flavor & Fragrances, Inc.^ | 1,013,636 | ||||||
11,840 | Lyondellbasell Industries NV | 1,306,189 | ||||||
37,205 | Monsanto Co. | 4,344,800 | ||||||
570 | NewMarket Corp.^ | 226,512 | ||||||
7,902 | Platform Speciality Products Corp.* | 78,388 | ||||||
19,998 | PPG Industries, Inc. | 2,336,166 | ||||||
21,066 | Praxair, Inc. | 3,258,489 | ||||||
9,940 | RPM International, Inc. | 521,055 | ||||||
3,435 | Scotts Miracle-Gro Co. (The)^ | 367,511 | ||||||
6,886 | Sherwin Williams Co. | 2,823,535 | ||||||
5,880 | W.R. Grace & Co. | 412,364 | ||||||
1,505 | Westlake Chemical Corp.^ | 160,328 | ||||||
|
| |||||||
30,076,815 | ||||||||
|
| |||||||
Commercial Services & Supplies (0.5%): | ||||||||
7,228 | Cintas Corp. | 1,126,339 | ||||||
3,213 | Clean Harbors, Inc.*^ | 174,145 | ||||||
16,581 | Copart, Inc.*^ | 716,133 | ||||||
11,346 | KAR Auction Services, Inc. | 573,086 | ||||||
7,985 | Rollins, Inc.^ | 371,542 | ||||||
30,341 | Waste Management, Inc. | 2,618,429 | ||||||
|
| |||||||
5,579,674 | ||||||||
|
| |||||||
Communications Equipment (0.3%): | ||||||||
4,439 | Arista Networks, Inc.* | 1,045,740 | ||||||
8,068 | CommScope Holding Co., Inc.*^ | 305,212 | ||||||
5,322 | F5 Networks, Inc.* | 698,353 | ||||||
2,672 | Harris Corp. | 378,489 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Communications Equipment, continued | ||||||||
1,277 | Motorola Solutions, Inc.^ | $ | 115,364 | |||||
7,462 | Palo Alto Networks, Inc.* | 1,081,542 | ||||||
|
| |||||||
3,624,700 | ||||||||
|
| |||||||
Construction & Engineering (0.0%): | ||||||||
3,457 | Quanta Services, Inc.* | 135,203 | ||||||
|
| |||||||
Construction Materials (0.3%): | ||||||||
3,855 | Eagle Materials, Inc., Class A | 436,772 | ||||||
4,774 | Martin Marietta Materials, Inc. | 1,055,245 | ||||||
10,286 | Vulcan Materials Co. | 1,320,413 | ||||||
|
| |||||||
2,812,430 | ||||||||
|
| |||||||
Consumer Finance (0.0%): | ||||||||
2,447 | Capital One Financial Corp. | 243,672 | ||||||
851 | Credit Acceptance Corp.*^ | 275,282 | ||||||
|
| |||||||
518,954 | ||||||||
|
| |||||||
Containers & Packaging (0.6%): | ||||||||
1,143 | AptarGroup, Inc.^ | 98,618 | ||||||
1,040 | Ardagh Group SA | 21,944 | ||||||
6,985 | Avery Dennison Corp. | 802,297 | ||||||
15,973 | Ball Corp. | 604,578 | ||||||
10,789 | Berry Global Group, Inc.* | 632,991 | ||||||
7,530 | Crown Holdings, Inc.* | 423,563 | ||||||
18,427 | Graphic Packaging Holding Co. | 284,697 | ||||||
31,535 | International Paper Co. | 1,827,137 | ||||||
10,803 | Owens-Illinois, Inc.*^ | 239,503 | ||||||
7,869 | Packaging Corp. of America | 948,608 | ||||||
8,147 | Sealed Air Corp. | 401,647 | ||||||
6,075 | Silgan Holdings, Inc.^ | 178,544 | ||||||
|
| |||||||
6,464,127 | ||||||||
|
| |||||||
Distributors (0.1%): | ||||||||
4,648 | Genuine Parts Co.^ | 441,607 | ||||||
3,929 | LKQ Corp.* | 159,792 | ||||||
3,283 | Pool Corp.^ | 425,641 | ||||||
|
| |||||||
1,027,040 | ||||||||
|
| |||||||
Diversified Consumer Services (0.2%): | ||||||||
4,689 | Bright Horizons Family Solutions, Inc.* | 440,766 | ||||||
2,340 | H&R Block, Inc.^ | 61,355 | ||||||
15,574 | Service Corp. International^ | 581,221 | ||||||
11,107 | ServiceMaster Global Holdings, Inc.* | 569,456 | ||||||
|
| |||||||
1,652,798 | ||||||||
|
| |||||||
Diversified Financial Services (0.0%): | ||||||||
6,742 | Leucadia National Corp. | 178,595 | ||||||
1,048 | Voya Financial, Inc. | 51,845 | ||||||
|
| |||||||
230,440 | ||||||||
|
| |||||||
Diversified Telecommunication Services (0.9%): | ||||||||
172,366 | Verizon Communications, Inc. | 9,123,332 | ||||||
15,362 | Zayo Group Holdings, Inc.* | 565,322 | ||||||
|
| |||||||
9,688,654 | ||||||||
|
|
Continued
5
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electrical Equipment (0.3%): | ||||||||
2,408 | Acuity Brands, Inc.^ | $ | 423,808 | |||||
3,009 | AMETEK, Inc. | 218,062 | ||||||
7,518 | Emerson Electric Co. | 523,929 | ||||||
3,012 | Hubbell, Inc. | 407,644 | ||||||
10,748 | Rockwell Automation, Inc. | 2,110,371 | ||||||
7,387 | Sensata Technologies Holding NV* | 377,550 | ||||||
|
| |||||||
4,061,364 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (0.7%): | ||||||||
25,040 | Amphenol Corp., Class A | 2,198,511 | ||||||
12,830 | CDW Corp. | 891,557 | ||||||
13,901 | Cognex Corp. | 850,185 | ||||||
2,028 | Coherent, Inc.* | 572,342 | ||||||
4,490 | Corning, Inc. | 143,635 | ||||||
6,064 | FLIR Systems, Inc. | 282,704 | ||||||
2,989 | IPG Photonics Corp.*^ | 640,035 | ||||||
7,281 | National Instruments Corp. | 303,108 | ||||||
16,526 | Trimble Navigation, Ltd.* | 671,617 | ||||||
3,534 | Universal Display Corp. | 610,145 | ||||||
4,482 | Zebra Technologies Corp., Class A* | 465,232 | ||||||
|
| |||||||
7,629,071 | ||||||||
|
| |||||||
Energy Equipment & Services (0.2%): | ||||||||
49,387 | Halliburton Co. | 2,413,542 | ||||||
4,490 | RPC, Inc.^ | 114,630 | ||||||
|
| |||||||
2,528,172 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (2.4%): | ||||||||
35,626 | American Tower Corp. | 5,082,761 | ||||||
1,850 | Boston Properties, Inc.^ | 240,556 | ||||||
2,916 | Coresite Realty Corp.^ | 332,132 | ||||||
33,926 | Crown Castle International Corp. | 3,766,125 | ||||||
10,253 | CubeSmart^ | 296,517 | ||||||
6,808 | Cyrusone, Inc.^ | 405,280 | ||||||
13,036 | Digital Realty Trust, Inc.^ | 1,484,800 | ||||||
10,800 | Douglas Emmett, Inc. | 443,448 | ||||||
6,564 | Equinix, Inc. | 2,974,936 | ||||||
6,755 | Equity Lifestyle Properties, Inc. | 601,330 | ||||||
8,609 | Extra Space Storage, Inc.^ | 752,857 | ||||||
2,379 | Federal Realty Investment Trust^ | 315,955 | ||||||
5,211 | Gaming & Leisure Properties, Inc. | 192,807 | ||||||
1,534 | Hudson Pacific Properties, Inc. | 52,540 | ||||||
20,364 | Iron Mountain, Inc.^ | 768,334 | ||||||
6,328 | Lamar Advertising Co., Class A^ | 469,791 | ||||||
1,919 | Outfront Media, Inc.^ | 44,521 | ||||||
12,500 | Public Storage, Inc.^ | 2,612,500 | ||||||
10,073 | SBA Communications Corp.* | 1,645,525 | ||||||
23,748 | Simon Property Group, Inc.^ | 4,078,482 | ||||||
780 | Tanger Factory Outlet Centers, Inc.^ | 20,678 | ||||||
2,608 | Taubman Centers, Inc.^ | 170,641 | ||||||
|
| |||||||
26,752,516 | ||||||||
|
| |||||||
Food & Staples Retailing (1.1%): | ||||||||
36,828 | Costco Wholesale Corp. | 6,854,427 | ||||||
40,624 | Kroger Co. (The) | 1,115,129 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Food & Staples Retailing, continued | ||||||||
36,257 | Rite Aid Corp.*^ | $ | 71,426 | |||||
11,140 | Sprouts Farmers Market, Inc.* | 271,259 | ||||||
40,583 | Sysco Corp. | 2,464,606 | ||||||
13,735 | Walgreens Boots Alliance, Inc. | 997,436 | ||||||
|
| |||||||
11,774,283 | ||||||||
|
| |||||||
Food Products (0.6%): | ||||||||
7,709 | Blue Buffalo Pet Products, Inc.*^ | 252,778 | ||||||
9,620 | Campbell Soup Co.^ | 462,818 | ||||||
34,365 | General Mills, Inc.^ | 2,037,501 | ||||||
10,476 | Hershey Co. (The) | 1,189,131 | ||||||
19,159 | Kellogg Co.^ | 1,302,429 | ||||||
3,045 | Lamb Weston Holding, Inc. | 171,890 | ||||||
10,074 | McCormick & Co. | 1,026,641 | ||||||
3,961 | Pilgrim’s Pride Corp.*^ | 123,029 | ||||||
1,458 | TreeHouse Foods, Inc.*^ | 72,113 | ||||||
|
| |||||||
6,638,330 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (2.4%): | ||||||||
3,412 | ABIOMED, Inc.* | 639,443 | ||||||
6,671 | Align Technology, Inc.* | 1,482,229 | ||||||
3,818 | Baxter International, Inc. | 246,796 | ||||||
22,047 | Becton, Dickinson & Co.^ | 4,719,478 | ||||||
114,959 | Boston Scientific Corp.* | 2,849,834 | ||||||
3,131 | Cooper Cos., Inc. (The) | 682,182 | ||||||
7,160 | Dexcom, Inc.*^ | 410,912 | ||||||
17,557 | Edwards Lifesciences Corp.* | 1,978,849 | ||||||
5,221 | Hill-Rom Holdings, Inc. | 440,078 | ||||||
13,116 | Hologic, Inc.* | 560,709 | ||||||
7,333 | IDEXX Laboratories, Inc.* | 1,146,735 | ||||||
9,431 | Intuitive Surgical, Inc.* | 3,441,749 | ||||||
8,308 | Medtronic plc | 670,871 | ||||||
11,732 | ResMed, Inc.^ | 993,583 | ||||||
28,791 | Stryker Corp. | 4,457,998 | ||||||
628 | Teleflex, Inc. | 156,259 | ||||||
7,710 | Varian Medical Systems, Inc.*^ | 856,967 | ||||||
6,076 | West Pharmaceutical Services, Inc. | 599,519 | ||||||
|
| |||||||
26,334,191 | ||||||||
|
| |||||||
Health Care Providers & Services (2.7%): | ||||||||
8,656 | Aetna, Inc. | 1,561,456 | ||||||
13,341 | AmerisourceBergen Corp. | 1,224,971 | ||||||
1,750 | Centene Corp.* | 176,540 | ||||||
17,731 | Cigna Corp. | 3,600,988 | ||||||
3,201 | Express Scripts Holding Co.* | 238,923 | ||||||
1,652 | HCA Holdings, Inc.* | 145,112 | ||||||
13,253 | Henry Schein, Inc.*^ | 926,120 | ||||||
11,305 | Humana, Inc.^ | 2,804,431 | ||||||
572 | LifePoint Hospitals, Inc.*^ | 28,486 | ||||||
1,849 | McKesson Corp. | 288,352 | ||||||
862 | Patterson Cos., Inc.^ | 31,144 | ||||||
1,223 | Premier, Inc., Class A*^ | 35,699 | ||||||
80,947 | UnitedHealth Group, Inc. | 17,845,575 | ||||||
3,422 | WellCare Health Plans, Inc.* | 688,198 | ||||||
|
| |||||||
29,595,995 | ||||||||
|
|
Continued
6
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Technology (0.2%): | ||||||||
3,356 | athenahealth, Inc.*^ | $ | 446,482 | |||||
24,179 | Cerner Corp.*^ | 1,629,423 | ||||||
8,942 | Veeva Systems, Inc., Class A* | 494,314 | ||||||
|
| |||||||
2,570,219 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure (3.3%): | ||||||||
8,873 | Aramark Holdings Corp. | 379,232 | ||||||
2,107 | Chipotle Mexican Grill, Inc.*^ | 608,986 | ||||||
2,904 | Choice Hotels International, Inc.^ | 225,350 | ||||||
10,426 | Darden Restaurants, Inc. | 1,001,105 | ||||||
3,697 | Domino’s Pizza, Inc.^ | 698,585 | ||||||
7,430 | Dunkin’ Brands Group, Inc.^ | 479,012 | ||||||
9,210 | Extended Stay America, Inc. | 174,990 | ||||||
5,816 | Hilton Grand Vacations* | 243,981 | ||||||
16,188 | Hilton Worldwide Holdings, Inc. | 1,292,774 | ||||||
30,291 | Las Vegas Sands Corp. | 2,104,922 | ||||||
25,731 | Marriott International, Inc., Class A | 3,492,469 | ||||||
67,406 | McDonald’s Corp. | 11,601,921 | ||||||
3,061 | MGM Resorts International | 102,207 | ||||||
5,469 | Six Flags Entertainment Corp.^ | 364,071 | ||||||
119,141 | Starbucks Corp. | 6,842,268 | ||||||
3,315 | Vail Resorts, Inc. | 704,338 | ||||||
15,463 | Wendy’s Co. (The) | 253,902 | ||||||
8,327 | Wyndham Worldwide Corp. | 964,849 | ||||||
6,705 | Wynn Resorts, Ltd. | 1,130,396 | ||||||
26,758 | Yum China Holdings, Inc. | 1,070,855 | ||||||
28,515 | Yum! Brands, Inc. | 2,327,109 | ||||||
|
| |||||||
36,063,322 | ||||||||
|
| |||||||
Household Durables (0.3%): | ||||||||
16,102 | D.R. Horton, Inc. | 822,329 | ||||||
9,185 | Leggett & Platt, Inc.^ | 438,400 | ||||||
289 | Mohawk Industries, Inc.* | 79,735 | ||||||
278 | NVR, Inc.* | 975,285 | ||||||
6,336 | PulteGroup, Inc.^ | 210,672 | ||||||
1,469 | Tempur Sealy International, Inc.*^ | 92,092 | ||||||
5,895 | Toll Brothers, Inc.^ | 283,078 | ||||||
4,270 | Tupperware Brands Corp. | 267,729 | ||||||
454 | Whirlpool Corp. | 76,563 | ||||||
|
| |||||||
3,245,883 | ||||||||
|
| |||||||
Household Products (0.7%): | ||||||||
20,868 | Church & Dwight Co., Inc.^ | 1,046,948 | ||||||
9,234 | Clorox Co. (The)^ | 1,373,465 | ||||||
11,375 | Colgate-Palmolive Co. | 858,244 | ||||||
5,113 | Energizer Holdings, Inc.^ | 245,322 | ||||||
25,511 | Kimberly-Clark Corp.^ | 3,078,157 | ||||||
10,940 | Procter & Gamble Co. (The) | 1,005,167 | ||||||
1,980 | Spectrum Brands Holdings, Inc.^ | 222,552 | ||||||
|
| |||||||
7,829,855 | ||||||||
|
| |||||||
Independent Power & Renewable Electricity Producers (0.0%): | ||||||||
4,911 | NRG Energy, Inc.^ | 139,865 | ||||||
|
| |||||||
Industrial Conglomerates (2.0%): | ||||||||
48,970 | 3M Co., Class C | 11,526,069 | ||||||
126,895 | General Electric Co. | 2,214,318 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Industrial Conglomerates, continued | ||||||||
37,592 | Honeywell International, Inc. | $ | 5,765,109 | |||||
8,006 | Roper Industries, Inc. | 2,073,554 | ||||||
|
| |||||||
21,579,050 | ||||||||
|
| |||||||
Insurance (1.0%): | ||||||||
8,447 | Allstate Corp. (The) | 884,485 | ||||||
8,999 | American International Group, Inc. | 536,160 | ||||||
20,981 | Aon plc | 2,811,454 | ||||||
1,489 | Arch Capital Group, Ltd.* | 135,156 | ||||||
10,213 | Arthur J. Gallagher & Co. | 646,279 | ||||||
1,859 | Aspen Insurance Holdings, Ltd. | 75,475 | ||||||
915 | Assurant, Inc. | 92,269 | ||||||
1,554 | Erie Indemnity Co., Class A^ | 189,339 | ||||||
43,221 | Marsh & McLennan Cos., Inc. | 3,517,758 | ||||||
48,698 | Progressive Corp. (The) | 2,742,671 | ||||||
289 | RenaissanceRe Holdings, Ltd. | 36,296 | ||||||
6,893 | XL Group, Ltd.^ | 242,358 | ||||||
|
| |||||||
11,909,700 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (5.0%): | ||||||||
33,537 | Amazon.com, Inc.* | 39,220,515 | ||||||
10,355 | Expedia, Inc. | 1,240,218 | ||||||
1,049 | Liberty Expedia Holdings, Class A* | 46,502 | ||||||
23,075 | Liberty Interactive Corp., Class A*^ | 563,492 | ||||||
34,625 | Netflix, Inc.*^ | 6,646,615 | ||||||
4,142 | Priceline Group, Inc. (The)* | 7,197,719 | ||||||
4,050 | TripAdvisor, Inc.*^ | 139,563 | ||||||
3,240 | Wayfair, Inc., Class A*^ | 260,075 | ||||||
|
| |||||||
55,314,699 | ||||||||
|
| |||||||
Internet Software & Services (8.4%): | ||||||||
25,100 | Alphabet, Inc., Class A* | 26,440,340 | ||||||
25,545 | Alphabet, Inc., Class C* | 26,730,288 | ||||||
2,970 | CoStar Group, Inc.* | 881,942 | ||||||
197,120 | Facebook, Inc., Class A* | 34,783,795 | ||||||
10,777 | GoDaddy, Inc., Class A* | 541,868 | ||||||
5,833 | IAC/InterActiveCorp* | 713,259 | ||||||
2,744 | LogMeIn, Inc. | 314,188 | ||||||
2,823 | Match Group, Inc.*^ | 88,388 | ||||||
19,216 | Pandora Media, Inc.*^ | 92,621 | ||||||
3,262 | Twitter, Inc.*^ | 78,321 | ||||||
7,262 | VeriSign, Inc.*^ | 831,063 | ||||||
3,122 | Zillow Group, Inc., Class A*^ | 127,190 | ||||||
6,161 | Zillow Group, Inc., Class C*^ | 252,108 | ||||||
|
| |||||||
91,875,371 | ||||||||
|
| |||||||
IT Services (7.3%): | ||||||||
52,335 | Accenture plc, Class C | 8,011,965 | ||||||
4,060 | Alliance Data Systems Corp. | 1,029,129 | ||||||
37,793 | Automatic Data Processing, Inc. | 4,428,962 | ||||||
9,344 | Black Knight, Inc.*^ | 412,538 | ||||||
11,267 | Booz Allen Hamilton Holding Corp. | 429,611 | ||||||
9,818 | Broadridge Financial Solutions, Inc. | 889,314 | ||||||
49,416 | Cognizant Technology Solutions Corp., Class A | 3,509,524 | ||||||
4,360 | CoreLogic, Inc.*^ | 201,476 |
Continued
7
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
IT Services, continued | ||||||||
13,916 | CSRA, Inc. | $ | 416,367 | |||||
386 | DST Systems, Inc. | 23,959 | ||||||
23,762 | DXC Technology Co. | 2,255,014 | ||||||
4,258 | Euronet Worldwide, Inc.*^ | 358,822 | ||||||
15,682 | Fidelity National Information Services, Inc. | 1,475,519 | ||||||
40,125 | First Data Corp., Class A* | 670,489 | ||||||
17,809 | Fiserv, Inc.* | 2,335,294 | ||||||
7,533 | FleetCor Technologies, Inc.* | 1,449,575 | ||||||
7,347 | Gartner, Inc.*^ | 904,783 | ||||||
12,362 | Genpact, Ltd. | 392,370 | ||||||
12,729 | Global Payments, Inc.^ | 1,275,955 | ||||||
49,068 | International Business Machines Corp. | 7,528,012 | ||||||
6,477 | Jack Henry & Associates, Inc. | 757,550 | ||||||
79,582 | MasterCard, Inc., Class A | 12,045,531 | ||||||
26,990 | Paychex, Inc. | 1,837,479 | ||||||
95,655 | PayPal Holdings, Inc.* | 7,042,121 | ||||||
13,555 | Sabre Corp.^ | 277,878 | ||||||
20,337 | Square, Inc., Class A*^ | 705,084 | ||||||
2,579 | Switch, Inc., Class A^ | 46,912 | ||||||
15,217 | Total System Services, Inc. | 1,203,513 | ||||||
13,470 | Vantive, Inc., Class A*^ | 990,719 | ||||||
153,772 | Visa, Inc., Class A | 17,533,082 | ||||||
39,331 | Western Union Co.^ | 747,682 | ||||||
2,659 | WEX, Inc.*^ | 375,531 | ||||||
|
| |||||||
81,561,760 | ||||||||
|
| |||||||
Leisure Products (0.2%): | ||||||||
5,867 | Brunswick Corp. | 323,976 | ||||||
7,168 | Hasbro, Inc.^ | 651,499 | ||||||
5,065 | Mattel, Inc.^ | 77,900 | ||||||
4,908 | Polaris Industries, Inc.^ | 608,543 | ||||||
|
| |||||||
1,661,918 | ||||||||
|
| |||||||
Life Sciences Tools & Services (1.0%): | ||||||||
6,663 | Agilent Technologies, Inc. | 446,221 | ||||||
3,113 | Bio-Techne Corp. | 403,289 | ||||||
3,211 | Bruker Corp. | 110,202 | ||||||
4,021 | Charles River Laboratories International, Inc.* | 440,098 | ||||||
12,237 | Illumina, Inc.* | 2,673,662 | ||||||
8,984 | IQVIA Holdings, Inc.* | 879,534 | ||||||
2,133 | Mettler-Toledo International, Inc.* | 1,321,436 | ||||||
1,726 | PerkinElmer, Inc. | 126,205 | ||||||
6,117 | Qiagen NV* | 189,199 | ||||||
15,147 | Thermo Fisher Scientific, Inc. | 2,876,113 | ||||||
6,422 | Waters Corp.*^ | 1,240,666 | ||||||
|
| |||||||
10,706,625 | ||||||||
|
| |||||||
Machinery (2.5%): | ||||||||
10,442 | Allison Transmission Holdings, Inc.^ | 449,737 | ||||||
43,462 | Caterpillar, Inc. | 6,848,741 | ||||||
4,268 | Cummins, Inc. | 753,900 | ||||||
26,883 | Deere & Co. | 4,207,457 | ||||||
10,423 | Donaldson Co., Inc.^ | 510,206 | ||||||
1,511 | Dover Corp. | 152,596 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Machinery, continued | ||||||||
23,353 | Fortive Corp. | $ | 1,689,590 | |||||
5,586 | Gardner Denver Holdings, Inc.*^ | 189,533 | ||||||
13,722 | Graco, Inc.^ | 620,509 | ||||||
5,951 | IDEX Corp. | 785,353 | ||||||
25,641 | Illinois Tool Works, Inc. | 4,278,200 | ||||||
10,506 | Ingersoll-Rand plc | 937,030 | ||||||
5,000 | Lincoln Electric Holdings, Inc.^ | 457,900 | ||||||
4,696 | Middleby Corp. (The)*^ | 633,725 | ||||||
4,774 | Nordson Corp. | 698,914 | ||||||
9,602 | Parker Hannifin Corp. | 1,916,367 | ||||||
662 | Snap-On, Inc.^ | 115,387 | ||||||
1,382 | Stanley Black & Decker, Inc. | 234,512 | ||||||
8,735 | Toro Co. | 569,784 | ||||||
4,199 | WABCO Holdings, Inc.* | 602,557 | ||||||
2,223 | Wabtec Corp.^ | 181,019 | ||||||
10,564 | Welbilt, Inc.*^ | 248,360 | ||||||
8,024 | Xylem, Inc.^ | 547,237 | ||||||
|
| |||||||
27,628,614 | ||||||||
|
| |||||||
Media (3.1%): | ||||||||
4,063 | AMC Networks, Inc., Class A*^ | 219,727 | ||||||
400 | Cable One, Inc.^ | 281,340 | ||||||
28,023 | CBS Corp., Class B^ | 1,653,357 | ||||||
10,463 | Charter Communications, Inc., Class A* | 3,515,149 | ||||||
362,271 | Comcast Corp., Class A | 14,508,955 | ||||||
14,163 | DISH Network Corp., Class A* | 676,283 | ||||||
27,546 | Interpublic Group of Cos., Inc. (The)^ | 555,327 | ||||||
3,124 | Lions Gate Entertainment Corp., Class A*^ | 105,622 | ||||||
5,156 | Lions Gate Entertainment Corp., Class B* | 163,652 | ||||||
11,359 | Live Nation, Inc.*^ | 483,553 | ||||||
197 | Madison Square Garden Co. (The), Class A* | 41,537 | ||||||
19,366 | Omnicom Group, Inc.^ | 1,410,426 | ||||||
2,903 | Regal Entertainment Group, Class A | 66,798 | ||||||
4,056 | Scripps Networks Interactive, Class C | 346,301 | ||||||
114,943 | Sirius XM Holdings, Inc.^ | 616,094 | ||||||
5,954 | Twenty-First Century Fox, Inc. | 205,592 | ||||||
677 | Twenty-First Century Fox, Inc., Class B | 23,099 | ||||||
88,978 | Walt Disney Co. (The) | 9,566,025 | ||||||
|
| |||||||
34,438,837 | ||||||||
|
| |||||||
Metals & Mining (0.1%): | ||||||||
23,070 | Freeport-McMoRan Copper & Gold, Inc.* | 437,407 | ||||||
1,900 | Royal Gold, Inc. | 156,028 | ||||||
6,145 | Southern Copper Corp.^ | 291,580 | ||||||
2,484 | Steel Dynamics, Inc.^ | 107,135 | ||||||
|
| |||||||
992,150 | ||||||||
|
| |||||||
Multiline Retail (0.3%): | ||||||||
8,794 | Dollar General Corp. | 817,930 | ||||||
18,287 | Dollar Tree, Inc.* | 1,962,378 | ||||||
9,840 | Nordstrom, Inc.^ | 466,219 | ||||||
|
| |||||||
3,246,527 | ||||||||
|
|
Continued
8
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels (0.6%): | ||||||||
9,251 | Antero Resources Corp.*^ | $ | 175,769 | |||||
1,770 | Apache Corp.^ | 74,729 | ||||||
26,989 | Cabot Oil & Gas Corp.^ | 771,885 | ||||||
11,141 | Cheniere Energy, Inc.*^ | 599,831 | ||||||
5,035 | Chesapeake Energy Corp.*^ | 19,939 | ||||||
7,393 | Cimarex Energy Co. | 902,020 | ||||||
3,389 | Continental Resources, Inc.* | 179,515 | ||||||
3,382 | Devon Energy Corp. | 140,015 | ||||||
1,862 | Diamondback Energy, Inc.*^ | 235,078 | ||||||
4,567 | EOG Resources, Inc. | 492,825 | ||||||
2,757 | EQT Corp. | 156,928 | ||||||
1,818 | Gulfport Energy Corp.*^ | 23,198 | ||||||
14,750 | Laredo Petroleum Holdings, Inc.*^ | 156,498 | ||||||
17,073 | Newfield Exploration Co.* | 538,312 | ||||||
30,200 | ONEOK, Inc. | 1,614,190 | ||||||
12,680 | Parsley Energy, Inc., Class A*^ | 373,299 | ||||||
5,418 | RSP Permian, Inc.* | 220,404 | ||||||
9,846 | Williams Cos., Inc. (The) | 300,205 | ||||||
|
| |||||||
6,974,640 | ||||||||
|
| |||||||
Personal Products (0.2%): | ||||||||
18,319 | Estee Lauder Co., Inc. (The), Class A | 2,330,909 | ||||||
5,436 | Herbalife, Ltd.*^ | 368,126 | ||||||
1,299 | Nu Skin Enterprises, Inc., Class A | 88,631 | ||||||
|
| |||||||
2,787,666 | ||||||||
|
| |||||||
Pharmaceuticals (1.8%): | ||||||||
6,967 | Akorn, Inc.*^ | 224,546 | ||||||
68,485 | Bristol-Myers Squibb Co. | 4,196,761 | ||||||
82,550 | Eli Lilly & Co. | 6,972,173 | ||||||
34,904 | Johnson & Johnson Co. | 4,876,787 | ||||||
12,542 | Merck & Co., Inc. | 705,738 | ||||||
41,339 | Zoetis, Inc. | 2,978,062 | ||||||
|
| |||||||
19,954,067 | ||||||||
|
| |||||||
Professional Services (0.6%): | ||||||||
1,303 | Dun & Bradstreet Corp. | 154,288 | ||||||
9,994 | Equifax, Inc.^ | 1,178,492 | ||||||
18,347 | IHS Markit, Ltd.*^ | 828,367 | ||||||
10,198 | Robert Half International, Inc. | 566,397 | ||||||
13,441 | TransUnion* | 738,717 | ||||||
12,728 | Verisk Analytics, Inc.* | 1,221,889 | ||||||
|
| |||||||
4,688,150 | ||||||||
|
| |||||||
Real Estate Management & Development (0.0%): | ||||||||
10,875 | CBRE Group, Inc., Class A* | 470,996 | ||||||
|
| |||||||
Road & Rail (1.2%): | ||||||||
64,612 | CSX Corp. | 3,554,306 | ||||||
7,252 | J.B. Hunt Transport Services, Inc. | 833,835 | ||||||
3,597 | Landstar System, Inc. | 374,448 | ||||||
3,238 | Old Dominion Freight Line, Inc. | 425,959 | ||||||
60,291 | Union Pacific Corp. | 8,085,023 | ||||||
|
| |||||||
13,273,571 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Semiconductors & Semiconductor Equipment (4.7%): | ||||||||
70,993 | Advanced Micro Devices, Inc.*^ | $ | 729,808 | |||||
30,716 | Analog Devices, Inc. | 2,734,645 | ||||||
90,234 | Applied Materials, Inc. | 4,612,762 | ||||||
34,165 | Broadcom, Ltd. | 8,776,989 | ||||||
5,706 | Cavium, Inc.* | 478,334 | ||||||
2,616 | Cypress Semiconductor Corp.^ | 39,868 | ||||||
13,163 | KLA-Tencor Corp. | 1,383,036 | ||||||
13,539 | Lam Research Corp.^ | 2,492,124 | ||||||
23,554 | Maxim Integrated Products, Inc. | 1,231,403 | ||||||
19,101 | Microchip Technology, Inc.^ | 1,678,596 | ||||||
69,650 | Micron Technology, Inc.* | 2,864,008 | ||||||
8,042 | Microsemi Corp.* | 415,369 | ||||||
47,991 | NVIDIA Corp. | 9,286,259 | ||||||
16,258 | NXP Semiconductors NV* | 1,903,648 | ||||||
32,778 | ON Semiconductor Corp.* | 686,371 | ||||||
5,669 | Qorvo, Inc.*^ | 377,555 | ||||||
15,448 | Skyworks Solutions, Inc. | 1,466,788 | ||||||
15,419 | Teradyne, Inc. | 645,594 | ||||||
84,355 | Texas Instruments, Inc. | 8,810,036 | ||||||
670 | Versum Materials, Inc. | 25,360 | ||||||
19,738 | Xilinx, Inc. | 1,330,736 | ||||||
|
| |||||||
51,969,289 | ||||||||
|
| |||||||
Software (9.0%): | ||||||||
62,501 | Activision Blizzard, Inc. | 3,957,563 | ||||||
41,722 | Adobe Systems, Inc.* | 7,311,362 | ||||||
7,159 | ANSYS, Inc.* | 1,056,597 | ||||||
7,796 | Atlassian Corp. plc, Class A*^ | 354,874 | ||||||
14,245 | Autodesk, Inc.* | 1,493,303 | ||||||
23,272 | Cadence Design Systems, Inc.*^ | 973,235 | ||||||
10,889 | CDK Global, Inc. | 776,168 | ||||||
12,665 | Citrix Systems, Inc.* | 1,114,520 | ||||||
17,214 | Dell Technologies, Inc., Class V* | 1,399,154 | ||||||
25,178 | Electronic Arts, Inc.*^ | 2,645,201 | ||||||
12,152 | Fortinet, Inc.* | 530,921 | ||||||
2,397 | Guidewire Software, Inc.*^ | 178,001 | ||||||
20,577 | Intuit, Inc. | 3,246,639 | ||||||
5,878 | Manhattan Associates, Inc.*^ | 291,196 | ||||||
633,153 | Microsoft Corp. | 54,159,907 | ||||||
20,012 | Oracle Corp. | 946,167 | ||||||
9,526 | PTC, Inc.* | 578,895 | ||||||
14,876 | Red Hat, Inc.* | 1,786,608 | ||||||
57,244 | Salesforce.com, Inc.* | 5,852,053 | ||||||
14,035 | ServiceNow, Inc.* | 1,830,024 | ||||||
11,817 | Splunk, Inc.*^ | 978,920 | ||||||
13,123 | SS&C Technologies Holdings, Inc. | 531,219 | ||||||
51,294 | Symantec Corp.^ | 1,439,310 | ||||||
987 | Synopsys, Inc.* | 84,132 | ||||||
5,478 | Tableau Software, Inc., Class A* | 379,078 | ||||||
9,470 | Take-Two Interactive Software, Inc.* | 1,039,617 | ||||||
2,854 | Tyler Technologies, Inc.* | 505,301 | ||||||
2,348 | Ultimate Software Group, Inc. (The)*^ | 512,404 |
Continued
9
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Software, continued | ||||||||
5,958 | VMware, Inc., Class A*^ | $ | 746,657 | |||||
11,336 | Workday, Inc., Class A*^ | 1,153,325 | ||||||
|
| |||||||
97,852,351 | ||||||||
|
| |||||||
Specialty Retail (3.6%): | ||||||||
1,699 | Advance Auto Parts, Inc.^ | 169,373 | ||||||
1,974 | AutoZone, Inc.* | 1,404,244 | ||||||
3,377 | Burlington Stores, Inc.* | 415,472 | ||||||
15,284 | CarMax, Inc.*^ | 980,163 | ||||||
5,706 | Dick’s Sporting Goods, Inc.^ | 163,990 | ||||||
1,963 | Floor & Decor Holdings, Inc., Class A*^ | 95,559 | ||||||
965 | Foot Locker, Inc.^ | 45,239 | ||||||
704 | Gap, Inc. (The) | 23,978 | ||||||
99,482 | Home Depot, Inc. (The) | 18,854,824 | ||||||
3,148 | L Brands, Inc.^ | 189,573 | ||||||
70,261 | Lowe’s Cos., Inc. | 6,530,058 | ||||||
7,686 | Michaels Cos., Inc. (The)*^ | 185,924 | ||||||
7,042 | O’Reilly Automotive, Inc.*^ | 1,693,883 | ||||||
31,849 | Ross Stores, Inc. | 2,555,882 | ||||||
3,545 | Sally Beauty Holdings, Inc.*^ | 66,504 | ||||||
53,629 | TJX Cos., Inc. (The) | 4,100,474 | ||||||
10,745 | Tractor Supply Co.^ | 803,189 | ||||||
4,943 | Ulta Salon, Cosmetics & Fragrance, Inc.*^ | 1,105,551 | ||||||
1,313 | Williams-Sonoma, Inc.^ | 67,882 | ||||||
|
| |||||||
39,451,762 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (6.8%): | ||||||||
433,713 | Apple, Inc. | 73,397,251 | ||||||
10,371 | NCR Corp.*^ | 352,510 | ||||||
19,490 | NetApp, Inc. | 1,078,187 | ||||||
3,522 | Western Digital Corp.^ | 280,105 | ||||||
|
| |||||||
75,108,053 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (1.0%): | ||||||||
4,016 | Carter’s, Inc.^ | 471,840 | ||||||
30,262 | Hanesbrands, Inc.^ | 632,778 | ||||||
7,972 | Lululemon Athletica, Inc.*^ | 626,519 | ||||||
803 | Michael Kors Holdings, Ltd.* | 50,549 | ||||||
110,012 | Nike, Inc., Class C | 6,881,251 | ||||||
4,898 | Skechers U.S.A., Inc., Class A*^ | 185,340 | ||||||
4,194 | Tapestry, Inc. | 185,501 | ||||||
10,514 | Under Armour, Inc., Class A*^ | 151,717 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Common Stocks, continued | ||||||||
Textiles, Apparel & Luxury Goods, continued | ||||||||
11,885 | Under Armour, Inc., Class C*^ | $ | 158,308 | |||||
20,212 | VF Corp.^ | 1,495,688 | ||||||
|
| |||||||
10,839,491 | ||||||||
|
| |||||||
Tobacco (1.2%): | ||||||||
161,187 | Altria Group, Inc. | 11,510,363 | ||||||
11,744 | Philip Morris International, Inc. | 1,240,754 | ||||||
|
| |||||||
12,751,117 | ||||||||
|
| |||||||
Trading Companies & Distributors (0.5%): | ||||||||
729 | Air Lease Corp.^ | 35,058 | ||||||
24,218 | Fastenal Co.^ | 1,324,481 | ||||||
15,767 | HD Supply Holdings, Inc.* | 631,153 | ||||||
1,519 | MSC Industrial Direct Co., Inc., Class A^ | 146,827 | ||||||
7,068 | United Rentals, Inc.* | 1,215,060 | ||||||
8,732 | Univar, Inc.* | 270,343 | ||||||
4,100 | W.W. Grainger, Inc.^ | 968,625 | ||||||
2,600 | Watsco, Inc. | 442,104 | ||||||
|
| |||||||
5,033,651 | ||||||||
|
| |||||||
Wireless Telecommunication Services (0.1%): | ||||||||
15,234 | T-Mobile US, Inc.* | 967,511 | ||||||
|
| |||||||
Total Common Stocks (Cost $787,566,628) | 1,078,901,669 | |||||||
|
| |||||||
Preferred Stock (0.4%): | ||||||||
Software (0.4%): | ||||||||
841,419 | Palantir Technologies, Inc., Series I*(a)(b) | 4,770,846 | ||||||
|
| |||||||
Total Preferred Stock (Cost $5,157,898) | 4,770,846 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (10.4%): | ||||||||
$ | 114,548,295 | AZL Russell 1000 Growth Index Fund Securities Lending Collateral Account(c) | 114,548,295 | |||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 114,548,295 | ||||||
|
| |||||||
Unaffiliated Investment Company (1.5%): | ||||||||
16,396,013 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 1.11%(d) | 16,396,013 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $16,396,013) | 16,396,013 | |||||||
|
| |||||||
Total Investment Securities | 1,214,616,823 | |||||||
Net other assets (liabilities) — (10.3)% | (113,151,654 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 1,101,465,169 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2017. The total value of securities on loan as of December 31, 2017, was $111,131,963. |
(a) | Rule 144A, Section 4(2) or other security which is restricted to resale to institutional investors. The subadviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2017, these securities represent 0.43% 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, 2017. The total of all such securities represent 0.43% 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, 2017. |
(d) | The rate represents the effective yield at December 31, 2017. |
(e) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Continued
10
AZL Russell 1000 Growth Index Fund
Schedule of Portfolio Investments
December 31, 2017
Futures Contracts
Cash of $668,200 has been segregated to cover margin requirements for the following open contracts as of December 31, 2017:
Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Unrealized Appreciation/ (Depreciation) | ||||||||||||
NASDAQ 100 E-Mini March Futures | 3/16/18 | 59 | $ | 7,562,325 | $ | 4,195 | ||||||||||
S&P 500 Index E-Mini March Futures | 3/16/18 | 84 | 11,239,200 | 53,500 | ||||||||||||
|
| |||||||||||||||
$ | 57,695 | |||||||||||||||
|
|
See accompanying notes to the financial statements.
11
AZL Russell 1000 Growth Index Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investment securities, at cost | $ | 923,668,834 | |||
|
| ||||
Investment securities, at value* | $ | 1,214,616,823 | |||
Cash | 66,024 | ||||
Segregated cash for collateral | 668,200 | ||||
Interest and dividends receivable | 677,256 | ||||
Unrealized appreciation on futures contracts | 3,162 | ||||
Receivable for investments sold | 2,028,966 | ||||
Prepaid expenses | 6,314 | ||||
|
| ||||
Total Assets | 1,218,066,745 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 766,922 | ||||
Payable for capital shares redeemed | 438,495 | ||||
Payable for collateral received on loaned securities | 114,548,295 | ||||
Payable for variation margin on futures contracts | 88,517 | ||||
Manager fees payable | 348,107 | ||||
Administration fees payable | 21,842 | ||||
Distribution fees payable | 223,433 | ||||
Custodian fees payable | 5,991 | ||||
Administrative and compliance services fees payable | 2,872 | ||||
Transfer agent fees payable | 1,747 | ||||
Trustee fees payable | 1,851 | ||||
Other accrued liabilities | 153,504 | ||||
|
| ||||
Total Liabilities | 116,601,576 | ||||
|
| ||||
Net Assets | $ | 1,101,465,169 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 727,471,230 | |||
Accumulated net investment income/(loss) | 9,057,124 | ||||
Accumulated net realized gains/(losses) from investment transactions | 73,931,131 | ||||
Net unrealized appreciation/(depreciation) on investments | 291,005,684 | ||||
|
| ||||
Net Assets | $ | 1,101,465,169 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 55,307,498 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 4,711,399 | ||||
Net Asset Value (offering and redemption price per share) | $ | 11.74 | |||
|
| ||||
Class 2 | |||||
Net Assets | $ | 1,046,157,671 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 68,792,542 | ||||
Net Asset Value (offering and redemption price per share) | $ | 15.21 | |||
|
|
* | Includes securities on loan of $111,131,963. |
For the Year Ended December 31, 2017
Investment Income: | |||||
Dividends | $ | 16,488,231 | |||
Interest | 470 | ||||
Income from securities lending | 466,206 | ||||
Other income | 51,832 | ||||
Foreign withholding tax | (44 | ) | |||
|
| ||||
Total Investment Income | 17,006,695 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 5,024,948 | ||||
Administration fees | 284,873 | ||||
Distribution fees — Class 2 | 2,722,524 | ||||
Custodian fees | 37,838 | ||||
Administrative and compliance services fees | 13,392 | ||||
Transfer agent fees | 10,992 | ||||
Trustee fees | 47,852 | ||||
Professional fees | 59,774 | ||||
Shareholder reports | 36,111 | ||||
Other expenses | 242,455 | ||||
|
| ||||
Total expenses before reductions | 8,480,759 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (607,952 | ) | |||
|
| ||||
Net expenses | 7,872,807 | ||||
|
| ||||
Net Investment Income/(Loss) | 9,133,888 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 75,229,368 | ||||
Net realized gains/(losses) on futures contracts | 4,312,937 | ||||
Change in net unrealized appreciation/depreciation on investments | 201,482,468 | ||||
Change in net unrealized appreciation/depreciation on futures contracts | (11,190 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 281,013,583 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 290,147,471 | |||
|
|
See accompanying notes to the financial statements.
12
AZL Russell 1000 Growth Index Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016* | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 9,133,888 | $ | 2,997,334 | ||||||
Net realized gains/(losses) on investment transactions | 79,542,305 | 97,792,406 | ||||||||
Change in unrealized appreciation/depreciation on investments | 201,471,278 | (70,716,720 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 290,147,471 | 30,073,020 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1 | (204,799 | ) | — | |||||||
Class 2 | (2,763,808 | ) | (985,572 | ) | ||||||
From net realized gains: | ||||||||||
Class 1 | (5,906,964 | ) | — | |||||||
Class 2 | (95,070,169 | ) | (19,179,274 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (103,945,740 | ) | (20,164,846 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Class 1 | ||||||||||
Proceeds from shares issued | 252,614 | 49,657,962 | ||||||||
Proceeds from dividends reinvested | 6,111,763 | — | ||||||||
Value of shares redeemed | (7,763,906 | ) | (1,702,381 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | (1,399,529 | ) | 47,955,581 | |||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Proceeds from shares issued | 8,281,857 | 412,589,929 | ||||||||
Proceeds from shares issued in merger | — | 579,445,361 | ||||||||
Proceeds from dividends reinvested | 97,833,977 | 20,164,846 | ||||||||
Value of shares redeemed | (304,071,723 | ) | (56,974,870 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | (197,955,889 | ) | 955,225,266 | |||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (199,355,418 | ) | 1,003,180,847 | |||||||
|
|
|
| |||||||
Change in net assets | (13,153,687 | ) | 1,013,089,021 | |||||||
Net Assets: | ||||||||||
Beginning of period | 1,114,618,856 | 101,529,835 | ||||||||
|
|
|
| |||||||
End of period | $ | 1,101,465,169 | $ | 1,114,618,856 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 9,057,124 | $ | 2,624,252 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Class 1 | ||||||||||
Shares issued | 21,691 | 4,965,790 | ||||||||
Dividends reinvested | 568,008 | — | ||||||||
Shares redeemed | (675,529 | ) | (168,561 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | (85,830 | ) | 4,797,229 | |||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Shares issued | 575,242 | 32,588,598 | ||||||||
Shares issued in merger | — | 45,518,096 | ||||||||
Dividends reinvested | 7,018,219 | 1,601,656 | ||||||||
Shares redeemed | (20,838,277 | ) | (4,298,679 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | (13,244,816 | ) | 75,409,671 | |||||||
|
|
|
| |||||||
Change in shares | (13,330,646 | ) | 80,206,900 | |||||||
|
|
|
|
* | Class 1 activity is 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
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2017 | 2016* | 2015 | 2014 | 2013 | |||||||||||||||||||||
Class 1 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.28 | $ | 10.00 | |||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.14 | 0.03 | |||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 2.73 | 0.25 | |||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total from Investment Activities | 2.87 | 0.28 | |||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.05 | ) | — | ||||||||||||||||||||||
Net Realized Gains | (1.36 | ) | — | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total Dividends | (1.41 | ) | — | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Net Asset Value, End of Period | $ | 11.74 | $ | 10.28 | |||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total Return(a) | 29.19 | % | 2.80 | %(b) | |||||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 55,307 | $ | 49,297 | |||||||||||||||||||||
Net Investment Income/(Loss)(c) | 1.04 | % | 1.26 | % | |||||||||||||||||||||
Expenses Before Reductions(c)(d) | 0.50 | % | 0.50 | % | |||||||||||||||||||||
Expenses Net of Reductions(c) | 0.45 | % | 0.45 | % | |||||||||||||||||||||
Portfolio Turnover Rate(f) | 12 | % | 158 | %(e) | |||||||||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 12.99 | $ | 15.32 | $ | 17.11 | $ | 16.55 | $ | 12.63 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.13 | 0.04 | 0.19 | 0.17 | 0.18 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 3.49 | 0.84 | 0.54 | 1.80 | 3.90 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 3.62 | 0.88 | 0.73 | 1.97 | 4.08 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.04 | ) | (0.16 | ) | (0.19 | ) | (0.17 | ) | (0.16 | ) | |||||||||||||||
Net Realized Gains | (1.36 | ) | (3.05 | ) | (2.33 | ) | (1.24 | ) | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (1.40 | ) | (3.21 | ) | (2.52 | ) | (1.41 | ) | (0.16 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 15.21 | $ | 12.99 | $ | 15.32 | $ | 17.11 | $ | 16.55 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 28.89 | % | 6.43 | % | 4.86 | % | 12.21 | % | 32.48 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 1,046,158 | $ | 1,065,322 | $ | 101,530 | $ | 130,259 | $ | 144,335 | |||||||||||||||
Net Investment Income/(Loss) | 0.79 | % | 0.99 | % | 0.86 | % | 0.83 | % | 0.89 | % | |||||||||||||||
Expenses Before Reductions(d) | 0.75 | % | 0.77 | % | 0.78 | % | 0.78 | % | 0.78 | % | |||||||||||||||
Expenses Net of Reductions | 0.70 | % | 0.72 | % | 0.78 | % | 0.78 | % | 0.78 | % | |||||||||||||||
Portfolio Turnover Rate(f) | 12 | % | 158 | %(e) | 14 | % | 13 | % | 13 | % |
* | Class 1 activity is 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 for periods less than one year. |
(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) | 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%. |
(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.
14
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements
December 31, 2017
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 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 accrues 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 and Withholding Taxes
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, or from other assets and liabilities, from fluctuations arising from changes in market prices of securities held. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains is determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., other permanent adjustments) 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.
15
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017 are noted on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $152 million for the year ended December 31, 2017.
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 $43,649 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The fund had securities lending transactions of $114,548,295 accounted for as secured borrowings with cash collateral of overnight and continuous maturities as of December 31, 2017.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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. For the year ended December 31, 2017, the Fund participated in the following cross-trade transactions:
Purchases | Sales | Realized (Gain/Loss) | |||||||||||||
AZL Russell 1000 Growth Index Fund | $ | — | $ | 296,613 | $ | 43,779 |
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.
Futures Contracts
During the year ended December 31, 2017, 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. For the year ended December 31, 2017, the monthly average notional amount for long contracts was $17.7 million. 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, 2017:
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 | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 57,695 | Payable for variation 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. |
16
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017:
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 | ||||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | $ | 4,312,937 | $ | (11,190 | ) |
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, 2019.
For the year ended December 31, 2017, the annual rate paid to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL Russell 1000 Growth Index Fund Class 1 | 0.44 | % | 0.59 | % | ||||||
AZL Russell 1000 Growth Index Fund Class 2 | 0.44 | % | 0.84 | % |
* | 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, 2017, there were no contractual reimbursements 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.”
FIS Investor Services LLC (“FIS”) 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 of 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, 2017, $12,218 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.
17
AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017, actual Trustee compensation was $1,116,333 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.
There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Other^ | Total | ||||||||||||||||||||
Common Stocks+ | $ | 1,078,901,669 | $ | — | $ | — | $ | — | $ | 1,078,901,669 | |||||||||||||||
Preferred Stock | — | — | 4,770,846 | — | 4,770,846 | ||||||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | — | 114,548,295 | 114,548,295 | ||||||||||||||||||||
Unaffiliated Investment Company | 16,396,013 | — | — | — | 16,396,013 | ||||||||||||||||||||
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| ||||||||||||||||
Total Investment Securities | 1,095,297,682 | — | 4,770,846 | 114,548,295 | 1,214,616,823 | ||||||||||||||||||||
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Other Financial Instruments:* | |||||||||||||||||||||||||
Futures Contracts | 57,695 | — | — | — | 57,695 | ||||||||||||||||||||
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| ||||||||||||||||
Total Investments | $ | 1,095,355,377 | $ | — | $ | 4,770,846 | $ | 114,548,295 | 1,214,674,518 | ||||||||||||||||
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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 presented in the financial statements at variation margin. |
^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
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, 2017, 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 | $ | 137,769,347 | $ | 422,762,537 |
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AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017 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 | $ | 5,157,899 | $ | 841,419 | $ | 4,770,846 | 0.43 | % |
(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.
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, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $927,627,199. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 294,550,603 | ||
Unrealized (depreciation) | (7,560,979 | ) | ||
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| |||
Net unrealized appreciation/(depreciation) | $ | 286,989,624 | ||
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|
The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL Russell 1000 Growth Index Fund | $ | 13,954,599 | $ | 89,991,141 | $ | 103,945,740 |
(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, 2016 were as follows:
Ordinary Income | Net Long-Term Capital Gains | 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. |
At December 31, 2017, the components of accumulated earnings on a tax basis were as follows:
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Unrealized Appreciation/ Depreciation(a) | Total Accumulated Earnings/ (Deficit) | |||||||||||||||||||||
AZL Russell 1000 Growth Index Fund | $ | 18,707,360 | $ | 68,296,955 | $ | — | $ | 286,989,624 | $ | 373,993,939 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
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AZL Russell 1000 Growth Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 65% of the Fund.
10. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
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, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the periods or years in the five-year period then ended. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the periods or years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian, investees, and brokers or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
21
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2017, 26.95% 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, 2017, the Fund declared net short-term capital gain distributions of $10,985,992.
During the year ended December 31, 2017, the Fund declared net long-term capital gain distributions of $89,991,141.
22
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Fund of Funds Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
23
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
24
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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
25
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in 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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
28
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® Russell 1000 Value Index Fund
Annual Report
December 31, 2017
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
Page 13
Statements of Changes in Net Assets
Page 14
Page 15
Notes to the Financial Statements
Page 16
Report of Independent Registered Public Accounting Firm
Page 22
Other Federal Income Tax Information
Page 23
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 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, 2017?
For the year ended December 31, 2017, the Class 2 shares of the AZL® Russell 1000 Value Index Fund (the “Fund”) returned 13.02%. That compared to a 13.66% 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. It is an unmanaged, market capitalization-weighted index composed of large-and mid-capitalization U.S. equities that exhibit value characteristics.*
Steady economic growth and a strengthening labor market helped support the U.S. Federal Reserve’s decision to increase the federal funds rate by 25 basis points (0.25%) in March. It marked the second rate hike in the past six months and drove higher performance among more growth-oriented and cyclical assets.
Political risk created a headwind for U.S. equities in the second quarter of 2017. In May, President Trump’s firing of FBI Director James Comey and the subsequent investigation of pre-election correspondence between administration members and Russian officials became an enduring source of negative market sentiment. One of the largest single-day dips of the quarter occurred in the wake of the House Oversight Committee’s request for all documents from meetings between President Trump and Comey on May 17.
The third quarter witnessed investors focused on sustained corporate earnings expansion, a subdued interest rate environment, and a healthy economic backdrop, despite threats from an increasingly hostile North Korea and a damaging hurricane season. As a result, volatility dropped to the lowest levels in recorded history, with the CBOE Volatility index2 averaging a record low of 10.94 in the quarter.
The U.S. economy continued to demonstrate strength throughout the fourth quarter. Unemployment dipped to 4.1%, the lowest level since 2000. Third quarter gross domestic product3 (GDP) surged to 4.1% year over year, and real GDP rose 2.3% year over year, which boosted investor confidence.
The Fund underperformed it’s benchmark for the period. From a sector perspective, the strongest returns in the Russell 1000® Value Index came from information technology (+28.22%) stocks. Increases were seen across various sectors, with materials (+25.80%) and financials (+20.48%) sectors posting strong gains. In contrast, the telecommunication services (-3.16%) and energy (-1.27%) sectors experienced negative returns for the reporting period.
The Fund held derivatives in the form of futures contracts, which it used to hedge its cash position. The futures had a 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. ’s holdings and weightings are as of December 31, 2017. |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
2 | Chicago Board Options Exchange (CBOE) Volatility Index shows the markets expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking, is calculated from both calls and puts, and is a widely used measure of market risk. |
3 | Gross Domestic Product (GDP) is the measure of the market value of the goods and services produced in a period of time. |
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, 2017
Inception | 1 | 3 | 5 | Since | ||||||||||||||||
Date | Year | Year | Year | Inception | ||||||||||||||||
AZL® Russell 1000 Value Index Fund (Class 1 Shares) | 10/14/16 | 13.38 | % | — | — | 18.07 | % | |||||||||||||
AZL® Russell 1000 Value Index Fund (Class 2 Shares) | 4/30/10 | 13.02 | % | 7.86 | % | 13.19 | % | 11.26 | % | |||||||||||
Russell 1000® Value Index | 4/30/10 | 13.66 | % | 8.65 | % | 14.04 | % | 12.08 | % |
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® 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 May 1, 2017. The Manager voluntarily reduced the management fee to 0.39% 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 0.59% for Class 1 Shares and 0.84% for Class 2 Shares through April 30, 2019. Additional information pertaining to the December 31, 2017 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
(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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Russell 1000 Value Index Fund, Class 1 | $ | 1,000.00 | $ | 1,084.50 | $ | 2.26 | 0.43 | % | ||||||||||||
AZL Russell 1000 Value Index Fund, Class 2 | $ | 1,000.00 | $ | 1,083.30 | $ | 3.57 | 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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Russell 1000 Value Index Fund, Class 1 | $ | 1,000.00 | $ | 1,023.04 | $ | 2.19 | 0.43 | % | ||||||||||||
AZL Russell 1000 Value Index Fund, Class 2 | $ | 1,000.00 | $ | 1,021.78 | $ | 3.47 | 0.68 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Financials | 26.0 | % | |||
Health Care | 13.3 | ||||
Energy | 11.0 | ||||
Consumer Staples | 8.4 | ||||
Information Technology | 8.5 | ||||
Industrials | 7.9 | ||||
Consumer Discretionary | 6.7 | ||||
Utilities | 5.8 | ||||
Real Estate | 4.7 | ||||
Telecommunication Services | 2.9 | ||||
Materials | 2.9 | ||||
|
| ||||
Total Common Stocks | 98.1 | ||||
Securities Held as Collateral for Securities on Loan | 8.3 | ||||
Money Market | 1.8 | ||||
|
| ||||
Total Investment Securities | 108.2 | ||||
Net other assets (liabilities) | (8.2 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
3
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks (98.1%): | ||||||||
Aerospace & Defense (1.9%): | ||||||||
35,723 | Arconic, Inc. | $ | 973,452 | |||||
12,946 | General Dynamics Corp. | 2,633,864 | ||||||
2,533 | Hexcel Corp.^ | 156,666 | ||||||
615 | Huntington Ingalls Industries, Inc. | 144,956 | ||||||
6,512 | L3 Technologies, Inc. | 1,288,399 | ||||||
2,077 | Lockheed Martin Corp. | 666,821 | ||||||
4,905 | Orbital ATK, Inc. | 645,008 | ||||||
15,449 | Raytheon Co. | 2,902,095 | ||||||
9,707 | Spirit AeroSystems Holdings, Inc., Class A | 846,936 | ||||||
2,942 | Teledyne Technologies, Inc.* | 532,943 | ||||||
22,160 | Textron, Inc. | 1,254,034 | ||||||
62,921 | United Technologies Corp. | 8,026,831 | ||||||
|
| |||||||
20,072,005 | ||||||||
|
| |||||||
Air Freight & Logistics (0.0%): | ||||||||
4,460 | Expeditors International of Washington, Inc. | 288,517 | ||||||
2,650 | XPO Logistics, Inc.*^ | 242,714 | ||||||
|
| |||||||
531,231 | ||||||||
|
| |||||||
Airlines (0.6%): | ||||||||
1,702 | Alaska Air Group, Inc. | 125,114 | ||||||
20,578 | American Airlines Group, Inc. | 1,070,673 | ||||||
2,483 | Copa Holdings SA, Class A | 332,871 | ||||||
55,164 | Delta Air Lines, Inc. | 3,089,185 | ||||||
26,874 | JetBlue Airways Corp.* | 600,365 | ||||||
5,962 | Spirit Airlines, Inc.*^ | 267,396 | ||||||
22,581 | United Continental Holdings, Inc.* | 1,521,959 | ||||||
|
| |||||||
7,007,563 | ||||||||
|
| |||||||
Auto Components (0.3%): | ||||||||
8,040 | Adient plc | 632,748 | ||||||
15,816 | BorgWarner, Inc.^ | 808,040 | ||||||
8,672 | Gentex Corp.^ | 181,678 | ||||||
20,615 | Goodyear Tire & Rubber Co.^ | 666,071 | ||||||
941 | Lear Corp. | 166,237 | ||||||
|
| |||||||
2,454,774 | ||||||||
|
| |||||||
Automobiles (0.8%): | ||||||||
327,882 | Ford Motor Co. | 4,095,246 | ||||||
108,616 | General Motors Co. | 4,452,170 | ||||||
3,927 | Harley-Davidson, Inc.^ | 199,806 | ||||||
|
| |||||||
8,747,222 | ||||||||
|
| |||||||
Banks (12.5%): | ||||||||
12,687 | Associated Banc-Corp. | 322,250 | ||||||
817,604 | Bank of America Corp. | 24,135,669 | ||||||
3,641 | Bank of Hawaii Corp.^ | 312,034 | ||||||
5,435 | Bank of the Ozarks, Inc.^ | 263,326 | ||||||
8,738 | BankUnited, Inc.^ | 355,811 | ||||||
66,402 | BB&T Corp. | 3,301,507 | ||||||
2,003 | BOK Financial Corp.^ | 184,917 | ||||||
10,963 | CIT Group, Inc.^ | 539,708 | ||||||
223,025 | Citigroup, Inc. | 16,595,290 | ||||||
41,366 | Citizens Financial Group, Inc. | 1,736,545 | ||||||
14,538 | Comerica, Inc. | 1,262,044 | ||||||
7,727 | Commerce Bancshares, Inc.^ | 431,476 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
4,649 | Cullen/Frost Bankers, Inc.^ | $ | 440,028 | |||||
11,205 | East West Bancorp, Inc. | 681,600 | ||||||
26,641 | F.N.B. Corp.^ | 368,179 | ||||||
59,518 | Fifth Third Bancorp^ | 1,805,776 | ||||||
4,283 | First Hawaiian, Inc.^ | 124,978 | ||||||
23,623 | First Horizon National Corp. | 472,224 | ||||||
2,625 | First Republic Bank | 227,430 | ||||||
90,663 | Huntington Bancshares, Inc. | 1,320,053 | ||||||
291,383 | JPMorgan Chase & Co. | 31,160,497 | ||||||
90,100 | KeyCorp | 1,817,317 | ||||||
11,932 | M&T Bank Corp. | 2,040,253 | ||||||
10,500 | PacWest Bancorp | 529,200 | ||||||
28,719 | People’s United Financial, Inc.^ | 537,045 | ||||||
3,973 | Pinnacle Financial Partners, Inc. | 263,410 | ||||||
40,823 | PNC Financial Services Group, Inc. | 5,890,351 | ||||||
8,609 | Popular, Inc. | 305,533 | ||||||
5,728 | Prosperity Bancshares, Inc.^ | 401,361 | ||||||
97,678 | Regions Financial Corp. | 1,687,876 | ||||||
1,899 | Signature Bank* | 260,657 | ||||||
40,101 | SunTrust Banks, Inc. | 2,590,124 | ||||||
1,166 | SVB Financial Group* | 272,576 | ||||||
9,706 | Synovus Financial Corp. | 465,306 | ||||||
13,454 | TCF Financial Corp. | 275,807 | ||||||
131,672 | U.S. Bancorp | 7,054,986 | ||||||
7,663 | Webster Financial Corp.^ | 430,354 | ||||||
373,302 | Wells Fargo & Co. | 22,648,231 | ||||||
3,579 | Western Alliance Bancorp* | 202,643 | ||||||
16,530 | Zions Bancorp^ | 840,220 | ||||||
|
| |||||||
134,554,592 | ||||||||
|
| |||||||
Beverages (0.6%): | ||||||||
370 | Brown-Forman Corp., Class A | 24,879 | ||||||
816 | Brown-Forman Corp., Class B^ | 56,035 | ||||||
81,858 | Coca-Cola Co. (The) | 3,755,644 | ||||||
14,411 | Molson Coors Brewing Co., Class B | 1,182,711 | ||||||
15,680 | PepsiCo, Inc. | 1,880,346 | ||||||
|
| |||||||
6,899,615 | ||||||||
|
| |||||||
Biotechnology (1.1%): | ||||||||
107 | Agios Pharmaceuticals, Inc.*^ | 6,117 | ||||||
3,605 | Alexion Pharmaceuticals, Inc.* | 431,122 | ||||||
936 | Alnylam Pharmaceuticals, Inc.*^ | 118,919 | ||||||
44,138 | Amgen, Inc. | 7,675,599 | ||||||
1,067 | Biogen Idec, Inc.* | 339,914 | ||||||
31,197 | Gilead Sciences, Inc. | 2,234,953 | ||||||
1,324 | Intrexon Corp.*^ | 15,252 | ||||||
5,931 | Juno Therapeutics, Inc.*^ | 271,106 | ||||||
23,859 | OPKO Health, Inc.*^ | 116,909 | ||||||
3,688 | United Therapeutics Corp.*^ | 545,640 | ||||||
|
| |||||||
11,755,531 | ||||||||
|
| |||||||
Building Products (0.4%): | ||||||||
841 | Fortune Brands Home & Security, Inc. | 57,558 | ||||||
78,790 | Johnson Controls International plc | 3,002,687 |
Continued
4
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Building Products, continued | ||||||||
213 | Lennox International, Inc.^ | $ | 44,359 | |||||
9,077 | Masco Corp. | 398,843 | ||||||
9,233 | Owens Corning, Inc. | 848,882 | ||||||
7,367 | USG Corp.*^ | 284,072 | ||||||
�� |
| |||||||
4,636,401 | ||||||||
|
| |||||||
Capital Markets (4.1%): | ||||||||
4,651 | Affiliated Managers Group, Inc. | 954,618 | ||||||
1,215 | Ameriprise Financial, Inc. | 205,906 | ||||||
83,723 | Bank of New York Mellon Corp. (The) | 4,509,321 | ||||||
14,966 | BGC Partners, Inc., Class A | 226,136 | ||||||
10,491 | BlackRock, Inc., Class A+ | 5,389,332 | ||||||
20,359 | Charles Schwab Corp. (The) | 1,045,842 | ||||||
28,583 | CME Group, Inc. | 4,174,547 | ||||||
22,655 | E*TRADE Financial Corp.* | 1,123,008 | ||||||
6,132 | Federated Investors, Inc., Class B^ | 221,243 | ||||||
28,141 | Franklin Resources, Inc. | 1,219,350 | ||||||
29,634 | Goldman Sachs Group, Inc. (The) | 7,549,557 | ||||||
5,697 | Interactive Brokers Group, Inc., Class A^ | 337,319 | ||||||
25,787 | Intercontinental Exchange, Inc. | 1,819,531 | ||||||
28,702 | Invesco, Ltd. | 1,048,771 | ||||||
1,129 | Lazard, Ltd., Class A | 59,273 | ||||||
5,233 | Legg Mason, Inc.^ | 219,681 | ||||||
108,667 | Morgan Stanley | 5,701,757 | ||||||
110 | Morningstar, Inc. | 10,667 | ||||||
9,461 | NASDAQ OMX Group, Inc. (The) | 726,889 | ||||||
17,591 | Northern Trust Corp. | 1,757,165 | ||||||
7,894 | Raymond James Financial, Inc. | 704,934 | ||||||
29,928 | State Street Corp. | 2,921,272 | ||||||
16,771 | T. Rowe Price Group, Inc.^ | 1,759,781 | ||||||
2,482 | TD Ameritrade Holding Corp. | 126,905 | ||||||
|
| |||||||
43,812,805 | ||||||||
|
| |||||||
Chemicals (1.8%): | ||||||||
18,009 | Air Products & Chemicals, Inc. | 2,954,917 | ||||||
7,497 | Albemarle Corp.^ | 958,791 | ||||||
5,308 | Ashland Global Holdings, Inc. | 377,930 | ||||||
5,172 | Cabot Corp. | 318,543 | ||||||
4,525 | Celanese Corp., Series A | 484,537 | ||||||
19,386 | CF Industries Holdings, Inc.^ | 824,680 | ||||||
102,863 | DowDuPont, Inc. | 7,325,902 | ||||||
12,154 | Eastman Chemical Co. | 1,125,947 | ||||||
8,862 | Huntsman Corp. | 295,016 | ||||||
15,368 | Lyondellbasell Industries NV | 1,695,398 | ||||||
29,177 | Mosaic Co. (The) | 748,682 | ||||||
55 | NewMarket Corp.^ | 21,856 | ||||||
14,089 | Olin Corp. | 501,287 | ||||||
10,477 | Platform Speciality Products Corp.* | 103,932 | ||||||
1,600 | PPG Industries, Inc. | 186,912 | ||||||
2,975 | Praxair, Inc. | 460,173 | ||||||
766 | RPM International, Inc. | 40,154 | ||||||
227 | Scotts Miracle-Gro Co. (The)^ | 24,287 | ||||||
17,514 | Valvoline, Inc.^ | 438,901 | ||||||
1,590 | Westlake Chemical Corp.^ | 169,383 | ||||||
|
| |||||||
19,057,228 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Commercial Services & Supplies (0.2%): | ||||||||
1,284 | Clean Harbors, Inc.*^ | $ | 69,593 | |||||
15,287 | Pitney Bowes, Inc. | 170,909 | ||||||
19,349 | Republic Services, Inc., Class A | 1,308,185 | ||||||
7,081 | Stericycle, Inc.*^ | 481,437 | ||||||
6,342 | Waste Management, Inc. | 547,315 | ||||||
|
| |||||||
2,577,439 | ||||||||
|
| |||||||
Communications Equipment (1.9%): | ||||||||
15,145 | ARRIS International plc* | 389,075 | ||||||
417,848 | Cisco Systems, Inc. | 16,003,578 | ||||||
8,078 | CommScope Holding Co., Inc.*^ | 305,591 | ||||||
4,127 | EchoStar Corp., Class A* | 247,207 | ||||||
7,398 | Harris Corp. | 1,047,927 | ||||||
31,196 | Juniper Networks, Inc. | 889,086 | ||||||
12,414 | Motorola Solutions, Inc. | 1,121,481 | ||||||
|
| |||||||
20,003,945 | ||||||||
|
| |||||||
Construction & Engineering (0.2%): | ||||||||
13,283 | Aecom Technology Corp.* | 493,463 | ||||||
11,545 | Fluor Corp. | 596,299 | ||||||
9,936 | Jacobs Engineering Group, Inc. | 655,380 | ||||||
9,476 | Quanta Services, Inc.* | 370,606 | ||||||
1,817 | Valmont Industries, Inc.^ | 301,349 | ||||||
|
| |||||||
2,417,097 | ||||||||
|
| |||||||
Construction Materials (0.0%): | ||||||||
554 | Martin Marietta Materials, Inc. | 122,456 | ||||||
810 | Vulcan Materials Co. | 103,980 | ||||||
|
| |||||||
226,436 | ||||||||
|
| |||||||
Consumer Finance (1.6%): | ||||||||
37,181 | Ally Financial, Inc.^ | 1,084,198 | ||||||
60,767 | American Express Co. | 6,034,770 | ||||||
37,931 | Capital One Financial Corp. | 3,777,169 | ||||||
94 | Credit Acceptance Corp.*^ | 30,407 | ||||||
30,473 | Discover Financial Services | 2,343,983 | ||||||
21,700 | Navient Corp.^ | 289,044 | ||||||
5,192 | Onemain Holdings, Inc.*^ | 134,940 | ||||||
12,156 | Santander Consumer USA Holdings, Inc.^ | 226,345 | ||||||
36,932 | SLM Corp.* | 417,332 | ||||||
66,014 | Synchrony Financial | 2,548,801 | ||||||
|
| |||||||
16,886,989 | ||||||||
|
| |||||||
Containers & Packaging (0.4%): | ||||||||
3,979 | AptarGroup, Inc.^ | 343,308 | ||||||
1,027 | Ardagh Group SA | 21,670 | ||||||
368 | Avery Dennison Corp. | 42,268 | ||||||
13,171 | Ball Corp.^ | 498,522 | ||||||
7,707 | Bemis Co., Inc.^ | 368,318 | ||||||
2,966 | Crown Holdings, Inc.* | 166,838 | ||||||
8,436 | Graphic Packaging Holding Co. | 130,336 | ||||||
3,158 | International Paper Co. | 182,975 | ||||||
2,924 | Owens-Illinois, Inc.* | 64,825 | ||||||
7,238 | Sealed Air Corp. | 356,833 | ||||||
8,347 | Sonoco Products Co.^ | 443,560 | ||||||
21,188 | WestRock Co. | 1,339,293 | ||||||
|
| |||||||
3,958,746 | ||||||||
|
|
Continued
5
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Distributors (0.1%): | ||||||||
7,446 | Genuine Parts Co. | $ | 707,444 | |||||
22,038 | LKQ Corp.* | 896,286 | ||||||
|
| |||||||
1,603,730 | ||||||||
|
| |||||||
Diversified Consumer Services (0.1%): | ||||||||
355 | Graham Holdings Co., Class B | 198,214 | ||||||
14,941 | H&R Block, Inc.^ | 391,753 | ||||||
|
| |||||||
589,967 | ||||||||
|
| |||||||
Diversified Financial Services (3.1%): | ||||||||
162,225 | Berkshire Hathaway, Inc., Class B*^ | 32,156,240 | ||||||
21,119 | Leucadia National Corp. | 559,442 | ||||||
14,056 | Voya Financial, Inc. | 695,350 | ||||||
|
| |||||||
33,411,032 | ||||||||
|
| |||||||
Diversified Telecommunication Services (2.8%): | ||||||||
518,686 | AT&T, Inc.^ | 20,166,512 | ||||||
80,752 | CenturyLink, Inc.^ | 1,346,943 | ||||||
172,182 | Verizon Communications, Inc. | 9,113,593 | ||||||
|
| |||||||
30,627,048 | ||||||||
|
| |||||||
Electric Utilities (3.4%): | ||||||||
19,527 | Alliant Energy Corp. | 832,045 | ||||||
41,581 | American Electric Power Co., Inc. | 3,059,114 | ||||||
4,868 | Avangrid, Inc.^ | 246,223 | ||||||
59,241 | Duke Energy Corp.^ | 4,982,761 | ||||||
26,723 | Edison International | 1,689,963 | ||||||
15,038 | Entergy Corp. | 1,223,943 | ||||||
26,692 | Eversource Energy | 1,686,401 | ||||||
80,699 | Exelon Corp. | 3,180,348 | ||||||
37,230 | FirstEnergy Corp. | 1,139,983 | ||||||
18,446 | Great Plains Energy, Inc. | 594,699 | ||||||
9,341 | Hawaiian Electric Industries, Inc.^ | 337,677 | ||||||
39,454 | NextEra Energy, Inc. | 6,162,319 | ||||||
17,103 | OGE Energy Corp. | 562,860 | ||||||
43,066 | PG&E Corp. | 1,930,649 | ||||||
9,164 | Pinnacle West Capital Corp. | 780,590 | ||||||
57,639 | PPL Corp. | 1,783,927 | ||||||
83,966 | Southern Co. (The) | 4,037,925 | ||||||
11,743 | Westar Energy, Inc. | 620,030 | ||||||
42,791 | Xcel Energy, Inc. | 2,058,675 | ||||||
|
| |||||||
36,910,132 | ||||||||
|
| |||||||
Electrical Equipment (0.8%): | ||||||||
1,168 | Acuity Brands, Inc.^ | 205,568 | ||||||
15,910 | AMETEK, Inc. | 1,152,998 | ||||||
37,608 | Eaton Corp. plc | 2,971,408 | ||||||
46,475 | Emerson Electric Co. | 3,238,843 | ||||||
1,571 | Hubbell, Inc. | 212,619 | ||||||
3,697 | Regal-Beloit Corp.^ | 283,190 | ||||||
7,141 | Sensata Technologies Holding NV* | 364,977 | ||||||
|
| |||||||
8,429,603 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (0.5%): | ||||||||
7,263 | Arrow Electronics, Inc.* | 584,018 | ||||||
10,005 | Avnet, Inc. | 396,398 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electronic Equipment, Instruments & Components, continued | ||||||||
67,785 | Corning, Inc. | $ | 2,168,442 | |||||
4,785 | Dolby Laboratories, Inc., Class A | 296,670 | ||||||
5,337 | FLIR Systems, Inc. | 248,811 | ||||||
14,200 | Jabil, Inc. | 372,750 | ||||||
15,800 | Keysight Technologies, Inc.* | 657,280 | ||||||
1,849 | National Instruments Corp.^ | 76,974 | ||||||
4,520 | Trimble Navigation, Ltd.* | 183,693 | ||||||
|
| |||||||
4,985,036 | ||||||||
|
| |||||||
Energy Equipment & Services (1.3%): | ||||||||
35,667 | Baker Hughes^ | 1,128,504 | ||||||
23,480 | Halliburton Co. | 1,147,468 | ||||||
9,069 | Helmerich & Payne, Inc. | 586,220 | ||||||
23,991 | Nabors Industries, Ltd.^ | 163,859 | ||||||
31,890 | National-Oilwell Varco, Inc.^ | 1,148,677 | ||||||
7,763 | Oceaneering International, Inc.^ | 164,110 | ||||||
17,655 | Patterson-UTI Energy, Inc. | 406,242 | ||||||
125 | RPC, Inc.^ | 3,191 | ||||||
117,437 | Schlumberger, Ltd. | 7,914,079 | ||||||
33,618 | Transocean, Ltd.* | 359,040 | ||||||
74,270 | Weatherford International plc*^ | 309,706 | ||||||
|
| |||||||
13,331,096 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (4.5%): | ||||||||
7,897 | Alexandria Real Estate Equities, Inc. | 1,031,269 | ||||||
11,427 | American Campus Communities, Inc. | 468,850 | ||||||
20,527 | American Homes 4 Rent, Class A | 448,310 | ||||||
13,334 | Apartment Investment & Management Co., Class A | 582,829 | ||||||
17,788 | Apple Hospitality REIT, Inc.^ | 348,823 | ||||||
11,499 | AvalonBay Communities, Inc. | 2,051,537 | ||||||
10,911 | Boston Properties, Inc. | 1,418,757 | ||||||
14,879 | Brandywine Realty Trust^ | 270,649 | ||||||
26,139 | Brixmor Property Group, Inc. | 487,754 | ||||||
7,757 | Camden Property Trust | 714,109 | ||||||
46,013 | Colony Northstar, Inc.^ | 525,008 | ||||||
10,239 | Columbia Property Trust, Inc. | 234,985 | ||||||
10,323 | Corecivic, Inc. | 232,268 | ||||||
8,472 | Corporate Office Properties Trust^ | 247,382 | ||||||
4,537 | CubeSmart^ | 131,210 | ||||||
957 | Cyrusone, Inc.^ | 56,970 | ||||||
7,860 | DCT Industrial Trust, Inc. | 462,011 | ||||||
26,928 | DDR Corp. | 241,275 | ||||||
4,126 | Digital Realty Trust, Inc.^ | 469,951 | ||||||
2,311 | Douglas Emmett, Inc. | 94,890 | ||||||
29,439 | Duke Realty Corp. | 801,035 | ||||||
11,473 | Empire State Realty Trust, Inc., Class A^ | 235,541 | ||||||
5,339 | EPR Properties^ | 349,491 | ||||||
10,352 | Equity Commonwealth*^ | 315,840 | ||||||
29,850 | Equity Residential Property Trust | 1,903,535 | ||||||
5,453 | Essex Property Trust, Inc. | 1,316,191 | ||||||
1,587 | Extra Space Storage, Inc.^ | 138,783 | ||||||
3,763 | Federal Realty Investment Trust | 499,764 | ||||||
21,565 | Forest City Realty Trust, Inc., Class A^ | 519,717 |
Continued
6
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Equity Real Estate Investment Trusts, continued | ||||||||
11,600 | Gaming & Leisure Properties, Inc. | $ | 429,200 | |||||
51,721 | Ggp US | 1,209,754 | ||||||
39,206 | HCP, Inc. | 1,022,492 | ||||||
16,950 | Healthcare Trust of America, Inc., Class A^ | 509,178 | ||||||
8,694 | Highwoods Properties, Inc. | 442,612 | ||||||
13,892 | Hospitality Properties Trust | 414,676 | ||||||
61,011 | Host Hotels & Resorts, Inc.^ | 1,211,068 | ||||||
11,772 | Hudson Pacific Properties, Inc.^ | 403,191 | ||||||
25,030 | Invitation Homes, Inc.^ | 589,957 | ||||||
2,957 | Iron Mountain, Inc.^ | 111,568 | ||||||
6,905 | JBG SMITH Properties^ | 239,811 | ||||||
8,243 | Kilroy Realty Corp.^ | 615,340 | ||||||
35,336 | Kimco Realty Corp. | 641,348 | ||||||
751 | Lamar Advertising Co., Class A^ | 55,754 | ||||||
12,586 | Liberty Property Trust | 541,324 | ||||||
3,864 | Life Storage, Inc.^ | 344,166 | ||||||
11,372 | Macerich Co. (The)^ | 746,913 | ||||||
30,995 | Medical Properties Trust, Inc.^ | 427,111 | ||||||
9,386 | Mid-America Apartment Communities, Inc. | 943,856 | ||||||
12,699 | National Retail Properties, Inc.^ | 547,708 | ||||||
16,612 | Omega Healthcare Investors, Inc.^ | 457,494 | ||||||
9,818 | Outfront Media, Inc.^ | 227,778 | ||||||
16,769 | Paramount Group, Inc.^ | 265,789 | ||||||
12,339 | Parks Hotels & Resorts, Inc.^ | 354,746 | ||||||
12,433 | Piedmont Office Realty Trust, Inc., Class A^ | 243,811 | ||||||
44,108 | ProLogis, Inc. | 2,845,407 | ||||||
10,912 | Rayonier, Inc. | 345,147 | ||||||
23,721 | Realty Income Corp.^ | 1,352,571 | ||||||
12,305 | Regency Centers Corp. | 851,260 | ||||||
19,895 | Retail Properties of America, Inc., Class A^ | 267,389 | ||||||
20,066 | Senior Housing Properties Trust | 384,264 | ||||||
2,486 | Simon Property Group, Inc.^ | 426,946 | ||||||
8,023 | SL Green Realty Corp.^ | 809,761 | ||||||
37,749 | Spirit Realty Capital, Inc. | 323,886 | ||||||
14,566 | STORE Capital Corp.^ | 379,299 | ||||||
6,529 | Sun Communities, Inc. | 605,761 | ||||||
6,851 | Tanger Factory Outlet Centers, Inc.^ | 181,620 | ||||||
2,340 | Taubman Centers, Inc.^ | 153,106 | ||||||
21,768 | UDR, Inc. | 838,503 | ||||||
14,130 | Uniti Group, Inc.^ | 251,373 | ||||||
29,707 | Ventas, Inc. | 1,782,717 | ||||||
83,685 | VEREIT, Inc. | 651,906 | ||||||
14,360 | Vornado Realty Trust^ | 1,122,665 | ||||||
10,290 | Weingarten Realty Investors | 338,232 | ||||||
30,682 | Welltower, Inc. | 1,956,591 | ||||||
62,543 | Weyerhaeuser Co. | 2,205,266 | ||||||
9,006 | WP Carey, Inc.^ | 620,513 | ||||||
|
| |||||||
48,289,562 | ||||||||
|
| |||||||
Food & Staples Retailing (2.3%): | ||||||||
3,161 | Casey’s General Stores, Inc.^ | 353,842 | ||||||
85,803 | CVS Health Corp. | 6,220,718 | ||||||
34,413 | Kroger Co. (The) | 944,637 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Food & Staples Retailing, continued | ||||||||
52,157 | Rite Aid Corp.*^ | $ | 102,749 | |||||
17,432 | US Foods Holding Corp.* | 556,604 | ||||||
59,939 | Walgreens Boots Alliance, Inc. | 4,352,770 | ||||||
121,088 | Wal-Mart Stores, Inc. | 11,957,440 | ||||||
|
| |||||||
24,488,760 | ||||||||
|
| |||||||
Food Products (2.0%): | ||||||||
46,349 | Archer-Daniels-Midland Co. | 1,857,668 | ||||||
11,679 | Bunge, Ltd. | 783,427 | ||||||
5,259 | Campbell Soup Co.^ | 253,010 | ||||||
32,782 | ConAgra Foods, Inc. | 1,234,898 | ||||||
14,821 | Flowers Foods, Inc.^ | 286,194 | ||||||
13,840 | General Mills, Inc.^ | 820,574 | ||||||
8,498 | Hain Celestial Group, Inc.* | 360,230 | ||||||
1,113 | Hershey Co. (The) | 126,337 | ||||||
22,448 | Hormel Foods Corp.^ | 816,883 | ||||||
5,945 | Ingredion, Inc. | 831,111 | ||||||
9,200 | JM Smucker Co. (The)^ | 1,143,008 | ||||||
1,532 | Kellogg Co.^ | 104,145 | ||||||
50,511 | Kraft Heinz Co. (The) | 3,927,735 | ||||||
9,635 | Lamb Weston Holding, Inc. | 543,896 | ||||||
123,597 | Mondelez International, Inc., Class A | 5,289,951 | ||||||
433 | Pilgrim’s Pride Corp.*^ | 13,449 | ||||||
10,095 | Pinnacle Foods, Inc. | 600,350 | ||||||
5,538 | Post Holdings, Inc.*^ | 438,776 | ||||||
24 | Seaboard Corp.^ | 105,840 | ||||||
3,464 | TreeHouse Foods, Inc.*^ | 171,329 | ||||||
23,444 | Tyson Foods, Inc., Class A | 1,900,605 | ||||||
|
| |||||||
21,609,416 | ||||||||
|
| |||||||
Gas Utilities (0.2%): | ||||||||
8,570 | Atmos Energy Corp. | 736,077 | ||||||
6,834 | National Fuel Gas Co. | 375,255 | ||||||
14,342 | UGI Corp. | 673,357 | ||||||
|
| |||||||
1,784,689 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (2.8%): | ||||||||
142,504 | Abbott Laboratories | 8,132,703 | ||||||
38,182 | Baxter International, Inc. | 2,468,084 | ||||||
867 | Cooper Cos., Inc. (The) | 188,902 | ||||||
51,688 | Danaher Corp. | 4,797,680 | ||||||
18,937 | DENTSPLY SIRONA, Inc.^ | 1,246,623 | ||||||
301 | Hill-Rom Holdings, Inc. | 25,371 | ||||||
10,128 | Hologic, Inc.* | 432,972 | ||||||
106,021 | Medtronic plc | 8,561,196 | ||||||
7,153 | STERIS plc^ | 625,673 | ||||||
3,130 | Teleflex, Inc. | 778,807 | ||||||
16,978 | Zimmer Holdings, Inc. | 2,048,735 | ||||||
|
| |||||||
29,306,746 | ||||||||
|
| |||||||
Health Care Providers & Services (2.4%): | ||||||||
6,306 | Acadia Healthcare Co., Inc.*^ | 205,765 | ||||||
18,204 | Aetna, Inc. | 3,283,820 | ||||||
21,665 | Anthem, Inc. | 4,874,841 | ||||||
16,464 | Brookdale Senior Living, Inc.* | 159,701 |
Continued
7
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Providers & Services, continued | ||||||||
26,570 | Cardinal Health, Inc. | $ | 1,627,944 | |||||
12,465 | Centene Corp.* | 1,257,469 | ||||||
2,486 | Cigna Corp. | 504,882 | ||||||
12,777 | DaVita, Inc.* | 923,138 | ||||||
9,943 | Envision Healthcare Corp.*^ | 343,630 | ||||||
44,469 | Express Scripts Holding Co.* | 3,319,165 | ||||||
22,322 | HCA Holdings, Inc.* | 1,960,764 | ||||||
736 | Humana, Inc.^ | 182,580 | ||||||
8,566 | Laboratory Corp. of America Holdings* | 1,366,363 | ||||||
2,626 | LifePoint Hospitals, Inc.*^ | 130,775 | ||||||
15,988 | McKesson Corp. | 2,493,329 | ||||||
7,620 | MEDNAX, Inc.* | 407,213 | ||||||
6,291 | Patterson Cos., Inc.^ | 227,294 | ||||||
3,430 | Premier, Inc., Class A*^ | 100,122 | ||||||
11,469 | Quest Diagnostics, Inc. | 1,129,582 | ||||||
7,189 | Universal Health Services, Inc., Class B | 814,873 | ||||||
284 | WellCare Health Plans, Inc.* | 57,115 | ||||||
|
| |||||||
25,370,365 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure (0.7%): | ||||||||
11,921 | Aramark Holdings Corp. | 509,504 | ||||||
34,282 | Carnival Corp., Class A | 2,275,296 | ||||||
6,938 | Extended Stay America, Inc. | 131,822 | ||||||
2,267 | Hilton Worldwide Holdings, Inc. | 181,043 | ||||||
3,918 | Hyatt Hotels Corp., Class A*^ | 288,130 | ||||||
9,240 | International Game Technology plc | 244,952 | ||||||
38,750 | MGM Resorts International | 1,293,862 | ||||||
15,472 | Norwegian Cruise Line Holdings, Ltd.* | 823,884 | ||||||
14,418 | Royal Caribbean Cruises, Ltd. | 1,719,779 | ||||||
4,005 | Yum China Holdings, Inc. | 160,280 | ||||||
|
| |||||||
7,628,552 | ||||||||
|
| |||||||
Household Durables (0.7%): | ||||||||
6,682 | CalAtlantic Group, Inc. | 376,798 | ||||||
13,115 | D.R. Horton, Inc. | 669,783 | ||||||
9,981 | Garmin, Ltd.^ | 594,568 | ||||||
2,033 | Leggett & Platt, Inc.^ | 97,035 | ||||||
16,708 | Lennar Corp., Class A | 1,056,614 | ||||||
1,045 | Lennar Corp., Class B | 54,006 | ||||||
4,876 | Mohawk Industries, Inc.* | 1,345,288 | ||||||
41,075 | Newell Rubbermaid, Inc. | 1,269,218 | ||||||
16,244 | PulteGroup, Inc.^ | 540,113 | ||||||
2,403 | Tempur Sealy International, Inc.*^ | 150,644 | ||||||
6,804 | Toll Brothers, Inc.^ | 326,728 | ||||||
5,431 | Whirlpool Corp. | 915,884 | ||||||
|
| |||||||
7,396,679 | ||||||||
|
| |||||||
Household Products (2.2%): | ||||||||
1,556 | Clorox Co. (The) | 231,439 | ||||||
61,149 | Colgate-Palmolive Co. | 4,613,692 | ||||||
4,474 | Kimberly-Clark Corp.^ | 539,833 | ||||||
205,011 | Procter & Gamble Co. (The) | 18,836,411 | ||||||
|
| |||||||
24,221,375 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Independent Power & Renewable Electricity Producers (0.2%): | ||||||||
56,753 | AES Corp. (The) | $ | 614,635 | |||||
30,738 | Calpine Corp.* | 465,066 | ||||||
20,546 | NRG Energy, Inc.^ | 585,150 | ||||||
20,665 | Vistra Energy Corp.*^ | 378,583 | ||||||
|
| |||||||
2,043,434 | ||||||||
|
| |||||||
Industrial Conglomerates (1.4%): | ||||||||
5,099 | Carlisle Cos., Inc. | 579,501 | ||||||
605,236 | General Electric Co. | 10,561,368 | ||||||
26,777 | Honeywell International, Inc. | 4,106,521 | ||||||
471 | Roper Industries, Inc.^ | 121,989 | ||||||
|
| |||||||
15,369,379 | ||||||||
|
| |||||||
Insurance (4.3%): | ||||||||
32,751 | Aflac, Inc. | 2,874,883 | ||||||
1,178 | Alleghany Corp.* | 702,194 | ||||||
22,172 | Allstate Corp. (The) | 2,321,630 | ||||||
5,990 | American Financial Group, Inc. | 650,155 | ||||||
66,725 | American International Group, Inc. | 3,975,475 | ||||||
625 | American National Insurance Co.^ | 80,156 | ||||||
8,867 | Arch Capital Group, Ltd.* | 804,857 | ||||||
4,745 | Arthur J. Gallagher & Co. | 300,264 | ||||||
3,450 | Aspen Insurance Holdings, Ltd. | 140,070 | ||||||
3,500 | Assurant, Inc. | 352,940 | ||||||
10,041 | Assured Guaranty, Ltd. | 340,089 | ||||||
9,170 | Athene Holding, Ltd.*^ | 474,181 | ||||||
7,059 | Axis Capital Holdings, Ltd. | 354,785 | ||||||
7,143 | Brighthouse Financial, Inc.* | 418,866 | ||||||
10,040 | Brown & Brown, Inc. | 516,658 | ||||||
39,182 | Chubb, Ltd. | 5,725,666 | ||||||
12,880 | Cincinnati Financial Corp. | 965,614 | ||||||
2,502 | CNA Financial Corp.^ | 132,731 | ||||||
517 | Erie Indemnity Co., Class A | 62,991 | ||||||
3,374 | Everest Re Group, Ltd. | 746,531 | ||||||
9,212 | First American Financial Corp. | 516,240 | ||||||
21,829 | FNF Group | 856,570 | ||||||
3,643 | Hanover Insurance Group, Inc. (The) | 393,735 | ||||||
29,894 | Hartford Financial Services Group, Inc. (The) | 1,682,434 | ||||||
18,317 | Lincoln National Corp. | 1,408,028 | ||||||
23,366 | Loews Corp. | 1,169,001 | ||||||
1,144 | Markel Corp.*^ | 1,303,165 | ||||||
2,347 | Mercury General Corp.^ | 125,424 | ||||||
76,158 | MetLife, Inc. | 3,850,548 | ||||||
21,028 | Old Republic International Corp.^ | 449,579 | ||||||
22,364 | Principal Financial Group, Inc. | 1,578,004 | ||||||
4,519 | ProAssurance Corp. | 258,261 | ||||||
36,145 | Prudential Financial, Inc. | 4,155,951 | ||||||
5,362 | Reinsurance Group of America, Inc. | 836,097 | ||||||
3,196 | RenaissanceRe Holdings, Ltd. | 401,386 | ||||||
9,649 | Torchmark Corp. | 875,261 | ||||||
23,240 | Travelers Cos., Inc. (The) | 3,152,274 | ||||||
18,898 | UnumProvident Corp. | 1,037,311 | ||||||
6,636 | Validus Holdings, Ltd. | 311,361 | ||||||
7,897 | W.R. Berkley Corp.^ | 565,820 |
Continued
8
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Insurance, continued | ||||||||
302 | White Mountains Insurance Group, Ltd. | $ | 257,087 | |||||
10,602 | Willis Towers Watson plc | 1,597,616 | ||||||
14,697 | XL Group, Ltd.^ | 516,747 | ||||||
|
| |||||||
49,238,636 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (0.1%): | ||||||||
3,855 | Liberty Expedia Holdings, Class A* | 170,892 | ||||||
14,288 | Liberty Interactive Corp., Class A* | 348,913 | ||||||
6,731 | Liberty Ventures, Series A, Class A*^ | 365,090 | ||||||
5,016 | TripAdvisor, Inc.*^ | 172,851 | ||||||
|
| |||||||
1,057,746 | ||||||||
|
| |||||||
Internet Software & Services (0.5%): | ||||||||
13,843 | Akamai Technologies, Inc.*^ | 900,349 | ||||||
82,363 | eBay, Inc.* | 3,108,379 | ||||||
1,599 | LogMeIn, Inc. | 183,086 | ||||||
52,570 | Twitter, Inc.*^ | 1,262,205 | ||||||
1,201 | Zillow Group, Inc., Class A*^ | 48,929 | ||||||
2,937 | Zillow Group, Inc., Class C*^ | 120,182 | ||||||
|
| |||||||
5,623,130 | ||||||||
|
| |||||||
IT Services (0.7%): | ||||||||
12,099 | Amdocs, Ltd. | 792,243 | ||||||
885 | Booz Allen Hamilton Holding Corp.^ | 33,745 | ||||||
15,818 | Conduent, Inc.*^ | 255,619 | ||||||
2,955 | CoreLogic, Inc.* | 136,551 | ||||||
4,575 | DST Systems, Inc. | 283,970 | ||||||
11,865 | Fidelity National Information Services, Inc. | 1,116,378 | ||||||
22,343 | International Business Machines Corp. | 3,427,862 | ||||||
11,805 | Leidos Holdings, Inc. | 762,249 | ||||||
4,189 | Sabre Corp.^ | 85,875 | ||||||
1,297 | Switch, Inc., Class A^ | 23,592 | ||||||
10,084 | Teradata Corp.*^ | 387,831 | ||||||
691 | WEX, Inc.* | 97,590 | ||||||
|
| |||||||
7,403,505 | ||||||||
|
| |||||||
Leisure Products (0.1%): | ||||||||
1,439 | Brunswick Corp. | 79,462 | ||||||
2,324 | Hasbro, Inc. | 211,228 | ||||||
23,054 | Mattel, Inc.^ | 354,570 | ||||||
|
| |||||||
645,260 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.6%): | ||||||||
20,477 | Agilent Technologies, Inc. | 1,371,345 | ||||||
1,791 | Bio-Rad Laboratories, Inc., Class A* | 427,458 | ||||||
5,233 | Bruker Corp.^ | 179,597 | ||||||
4,519 | IQVIA Holdings, Inc.* | 442,410 | ||||||
7,587 | PerkinElmer, Inc. | 554,761 | ||||||
12,973 | Qiagen NV* | 401,255 | ||||||
18,419 | Thermo Fisher Scientific, Inc. | 3,497,399 | ||||||
|
| |||||||
6,874,225 | ||||||||
|
| |||||||
Machinery (1.4%): | ||||||||
5,707 | AGCO Corp. | 407,651 | ||||||
4,572 | Caterpillar, Inc. | 720,456 | ||||||
7,411 | Colfax Corp.* | 293,624 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Machinery, continued | ||||||||
4,216 | Crane Co. | $ | 376,152 | |||||
9,062 | Cummins, Inc. | 1,600,712 | ||||||
680 | Donaldson Co., Inc.^ | 33,286 | ||||||
11,583 | Dover Corp. | 1,169,767 | ||||||
11,177 | Flowserve Corp.^ | 470,887 | ||||||
2,465 | Fortive Corp. | 178,343 | ||||||
394 | IDEX Corp. | 51,996 | ||||||
10,444 | Ingersoll-Rand plc | 931,500 | ||||||
7,467 | ITT, Inc. | 398,514 | ||||||
6,378 | OshKosh Corp. | 579,696 | ||||||
28,842 | PACCAR, Inc. | 2,050,090 | ||||||
1,512 | Parker Hannifin Corp. | 301,765 | ||||||
13,882 | Pentair plc^ | 980,347 | ||||||
4,124 | Snap-On, Inc.^ | 718,813 | ||||||
11,561 | Stanley Black & Decker, Inc. | 1,961,786 | ||||||
6,350 | Terex Corp.^ | 306,197 | ||||||
5,628 | Timken Co. | 276,616 | ||||||
12,879 | Trinity Industries, Inc.^ | 482,447 | ||||||
4,984 | Wabtec Corp.^ | 405,847 | ||||||
7,341 | Xylem, Inc.^ | 500,656 | ||||||
|
| |||||||
15,197,148 | ||||||||
|
| |||||||
Marine (0.0%): | ||||||||
4,512 | Kirby Corp.*^ | 301,402 | ||||||
|
| |||||||
Media (2.2%): | ||||||||
5,062 | Charter Communications, Inc., Class A* | 1,700,630 | ||||||
9,086 | Cinemark Holdings, Inc.^ | 316,375 | ||||||
29,508 | Comcast Corp., Class A | 1,181,795 | ||||||
12,935 | Discovery Communications, Inc., Class A*^ | 289,485 | ||||||
17,499 | Discovery Communications, Inc., Class C* | 370,454 | ||||||
4,034 | DISH Network Corp., Class A* | 192,624 | ||||||
5,076 | Interpublic Group of Cos., Inc. (The)^ | 102,332 | ||||||
3,620 | John Wiley & Sons, Inc., Class A^ | 238,015 | ||||||
2,212 | Liberty Broadband Corp., Class A*^ | 188,131 | ||||||
8,584 | Liberty Broadband Corp., Class C* | 731,013 | ||||||
1,716 | Liberty Media Group, Class A*^ | 56,148 | ||||||
15,693 | Liberty Media Group, Class C*^ | 536,073 | ||||||
7,516 | Liberty SiriusXM Group, Class A* | 298,085 | ||||||
14,994 | Liberty SiriusXM Group, Class C* | 594,662 | ||||||
1,807 | Lions Gate Entertainment Corp., Class A*^ | 61,095 | ||||||
2,954 | Lions Gate Entertainment Corp., Class B* | 93,760 | ||||||
1,473 | Madison Square Garden Co. (The), Class A* | 310,582 | ||||||
32,774 | News Corp., Class A | 531,267 | ||||||
10,001 | News Corp., Class B | 166,017 | ||||||
6,668 | Regal Entertainment Group, Class A | 153,431 | ||||||
3,158 | Scripps Networks Interactive, Class C | 269,630 | ||||||
4,553 | Sirius XM Holdings, Inc.^ | 24,404 | ||||||
17,610 | Tegna, Inc.^ | 247,949 | ||||||
65,391 | Time Warner, Inc. | 5,981,314 | ||||||
6,615 | Tribune Media Co., Class A | 280,939 | ||||||
84,897 | Twenty-First Century Fox, Inc. | 2,931,492 | ||||||
33,561 | Twenty-First Century Fox, Inc., Class B | 1,145,101 | ||||||
871 | Viacom, Inc., Class A | 30,398 |
Continued
9
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Media, continued | ||||||||
29,443 | Viacom, Inc., Class B | $ | 907,139 | |||||
41,351 | Walt Disney Co. (The) | 4,445,645 | ||||||
|
| |||||||
24,375,985 | ||||||||
|
| |||||||
Metals & Mining (0.7%): | ||||||||
15,321 | Alcoa Corp.* | 825,342 | ||||||
91,360 | Freeport-McMoRan Copper & Gold, Inc.* | 1,732,185 | ||||||
45,126 | Newmont Mining Corp. | 1,693,128 | ||||||
26,717 | Nucor Corp.^ | 1,698,667 | ||||||
6,062 | Reliance Steel & Aluminum Co. | 520,059 | ||||||
3,408 | Royal Gold, Inc. | 279,865 | ||||||
614 | Southern Copper Corp.^ | 29,134 | ||||||
16,543 | Steel Dynamics, Inc. | 713,500 | ||||||
25,462 | Tahoe Resources, Inc.^ | 121,963 | ||||||
14,906 | United States Steel Corp. | 524,542 | ||||||
|
| |||||||
8,138,385 | ||||||||
|
| |||||||
Mortgage Real Estate Investment Trusts (0.3%): | ||||||||
32,891 | Agnc Investment Corp.^ | 664,069 | ||||||
97,128 | Annaly Capital Management, Inc. | 1,154,853 | ||||||
15,960 | Chimera Investment Corp. | 294,941 | ||||||
34,482 | MFA Financial, Inc. | 273,097 | ||||||
26,033 | New Residential Investment Corp. | 465,470 | ||||||
20,414 | Starwood Property Trust, Inc.^ | 435,839 | ||||||
15,139 | Two Harbors Investment Corp.^ | 246,160 | ||||||
|
| |||||||
3,534,429 | ||||||||
|
| |||||||
Multiline Retail (0.5%): | ||||||||
14,339 | Dollar General Corp. | 1,333,670 | ||||||
961 | Dollar Tree, Inc.* | 103,125 | ||||||
14,105 | Kohl’s Corp.^ | 764,914 | ||||||
25,291 | Macy’s, Inc.^ | 637,080 | ||||||
46,571 | Target Corp. | 3,038,758 | ||||||
|
| |||||||
5,877,547 | ||||||||
|
| |||||||
Multi-Utilities (1.8%): | ||||||||
20,210 | Ameren Corp. | 1,192,188 | ||||||
35,835 | CenterPoint Energy, Inc. | 1,016,281 | ||||||
23,291 | CMS Energy Corp. | 1,101,664 | ||||||
26,176 | Consolidated Edison, Inc. | 2,223,651 | ||||||
54,076 | Dominion Energy, Inc. | 4,383,400 | ||||||
15,039 | DTE Energy Co. | 1,646,169 | ||||||
16,611 | MDU Resources Group, Inc. | 446,504 | ||||||
27,966 | NiSource, Inc. | 717,887 | ||||||
42,605 | Public Service Enterprise Group, Inc. | 2,194,158 | ||||||
11,247 | SCANA Corp. | 447,406 | ||||||
21,098 | Sempra Energy | 2,255,798 | ||||||
7,108 | Vectren Corp. | 462,162 | ||||||
26,426 | WEC Energy Group, Inc.^ | 1,755,479 | ||||||
|
| |||||||
19,842,747 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (9.7%): | ||||||||
45,985 | Anadarko Petroleum Corp. | 2,466,635 | ||||||
13,105 | Andeavor | 1,498,426 | ||||||
10,250 | Antero Resources Corp.*^ | 194,750 | ||||||
30,297 | Apache Corp.^ | 1,279,139 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels, continued | ||||||||
11,258 | Cabot Oil & Gas Corp. | $ | 321,979 | |||||
10,780 | Centennial Resources Development*^ | 213,444 | ||||||
6,059 | Cheniere Energy, Inc.*^ | 326,217 | ||||||
68,167 | Chesapeake Energy Corp.*^ | 269,941 | ||||||
159,390 | Chevron Corp. | 19,954,033 | ||||||
478 | Cimarex Energy Co. | 58,321 | ||||||
19,083 | CNX Resources Corp.* | 279,184 | ||||||
12,376 | Concho Resources, Inc.*^ | 1,859,123 | ||||||
100,917 | ConocoPhillips Co. | 5,539,334 | ||||||
2,384 | CONSOL Energy, Inc.*^ | 94,192 | ||||||
4,115 | Continental Resources, Inc.*^ | 217,972 | ||||||
40,800 | Devon Energy Corp. | 1,689,120 | ||||||
6,459 | Diamondback Energy, Inc.*^ | 815,449 | ||||||
8,282 | Energen Corp.* | 476,795 | ||||||
44,073 | EOG Resources, Inc. | 4,755,917 | ||||||
17,059 | EQT Corp. | 970,998 | ||||||
10,721 | Extraction Oil & Gas, Inc.*^ | 153,418 | ||||||
357,575 | Exxon Mobil Corp. | 29,907,572 | ||||||
12,884 | Gulfport Energy Corp.*^ | 164,400 | ||||||
23,702 | Hess Corp.^ | 1,125,134 | ||||||
14,683 | HollyFrontier Corp.^ | 752,063 | ||||||
161,397 | Kinder Morgan, Inc. | 2,916,444 | ||||||
18,592 | Kosmos Energy LLC*^ | 127,355 | ||||||
71,186 | Marathon Oil Corp. | 1,205,179 | ||||||
40,794 | Marathon Petroleum Corp. | 2,691,588 | ||||||
13,916 | Murphy Oil Corp.^ | 432,092 | ||||||
40,340 | Noble Energy, Inc.^ | 1,175,508 | ||||||
64,349 | Occidental Petroleum Corp. | 4,739,947 | ||||||
6,979 | Parsley Energy, Inc., Class A* | 205,462 | ||||||
9,038 | PBF Energy, Inc., Class A^ | 320,397 | ||||||
36,848 | Phillips 66 | 3,727,175 | ||||||
14,217 | Pioneer Natural Resources Co. | 2,457,408 | ||||||
21,246 | QEP Resources, Inc.* | 203,324 | ||||||
19,313 | Range Resources Corp.^ | 329,480 | ||||||
5,361 | RSP Permian, Inc.* | 218,085 | ||||||
9,494 | SM Energy Co.^ | 209,628 | ||||||
43,126 | Southwestern Energy Co.*^ | 240,643 | ||||||
17,629 | Targa Resources Corp.^ | 853,596 | ||||||
36,948 | Valero Energy Corp. | 3,395,891 | ||||||
7,442 | Whiting Petroleum Corp.*^ | 197,064 | ||||||
59,140 | Williams Cos., Inc. (The) | 1,803,179 | ||||||
5,370 | World Fuel Services Corp.^ | 151,112 | ||||||
33,838 | WPX Energy, Inc.* | 476,101 | ||||||
|
| |||||||
103,460,214 | ||||||||
|
| |||||||
Paper & Forest Products (0.0%): | ||||||||
5,170 | Domtar Corp.^ | 256,018 | ||||||
|
| |||||||
Personal Products (0.1%): | ||||||||
38,752 | Coty, Inc., Class A^ | 770,777 | ||||||
4,802 | Edgewell Personal Care Co.*^ | 285,191 | ||||||
3,326 | Nu Skin Enterprises, Inc., Class A^ | 226,933 | ||||||
|
| |||||||
1,282,901 | ||||||||
|
|
Continued
10
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Pharmaceuticals (6.4%): | ||||||||
680 | Akorn, Inc.*^ | $ | 21,916 | |||||
28,265 | Allergan plc | 4,623,589 | ||||||
70,525 | Bristol-Myers Squibb Co. | 4,321,772 | ||||||
17,458 | Endo International plc* | 135,300 | ||||||
192,627 | Johnson & Johnson Co. | 26,913,843 | ||||||
8,230 | Mallinckrodt plc*^ | 185,669 | ||||||
218,114 | Merck & Co., Inc. | 12,273,275 | ||||||
44,828 | Mylan NV* | 1,896,673 | ||||||
11,037 | Perrigo Co. plc | 961,984 | ||||||
498,975 | Pfizer, Inc. | 18,072,875 | ||||||
|
| |||||||
69,406,896 | ||||||||
|
| |||||||
Professional Services (0.3%): | ||||||||
1,838 | Dun & Bradstreet Corp. | 217,638 | ||||||
14,128 | IHS Markit, Ltd.* | 637,879 | ||||||
5,556 | Manpower, Inc. | 700,667 | ||||||
29,987 | Nielsen Holdings plc^ | 1,091,527 | ||||||
|
| |||||||
2,647,711 | ||||||||
|
| |||||||
Real Estate Management & Development (0.2%): | ||||||||
14,084 | CBRE Group, Inc., Class A* | 609,978 | ||||||
2,864 | Howard Hughes Corp. (The)* | 375,957 | ||||||
3,858 | Jones Lang LaSalle, Inc. | 574,572 | ||||||
11,487 | Realogy Holdings Corp.^ | 304,406 | ||||||
|
| |||||||
1,864,913 | ||||||||
|
| |||||||
Road & Rail (0.6%): | ||||||||
435 | AMERCO, Inc. | 164,391 | ||||||
7,221 | CSX Corp. | 397,227 | ||||||
5,213 | Genesee & Wyoming, Inc., Class A*^ | 410,419 | ||||||
8,658 | Kansas City Southern^ | 910,995 | ||||||
24,384 | Norfolk Southern Corp. | 3,533,241 | ||||||
1,901 | Old Dominion Freight Line, Inc. | 250,077 | ||||||
4,522 | Ryder System, Inc. | 380,617 | ||||||
6,208 | Union Pacific Corp. | 832,493 | ||||||
|
| |||||||
6,879,460 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (2.9%): | ||||||||
25,788 | Cypress Semiconductor Corp.^ | 393,009 | ||||||
6,969 | First Solar, Inc.* | 470,547 | ||||||
397,341 | Intel Corp. | 18,341,261 | ||||||
33,391 | Marvell Technology Group, Ltd. | 716,905 | ||||||
22,438 | Micron Technology, Inc.* | 922,651 | ||||||
1,874 | Microsemi Corp.* | 96,792 | ||||||
12,446 | NXP Semiconductors NV* | 1,457,302 | ||||||
2,370 | ON Semiconductor Corp.* | 49,628 | ||||||
5,135 | Qorvo, Inc.* | 341,991 | ||||||
124,567 | QUALCOMM, Inc. | 7,974,779 | ||||||
1,060 | Teradyne, Inc. | 44,382 | ||||||
8,277 | Versum Materials, Inc. | 313,284 | ||||||
1,100 | Xilinx, Inc. | 74,162 | ||||||
|
| |||||||
31,196,693 | ||||||||
|
| |||||||
Software (1.3%): | ||||||||
3,228 | Autodesk, Inc.* | 338,391 | ||||||
26,300 | CA, Inc. | 875,264 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Software, continued | ||||||||
14,982 | FireEye, Inc.*^ | $ | 212,744 | |||||
3,840 | Guidewire Software, Inc.*^ | 285,158 | ||||||
24,604 | Nuance Communications, Inc.* | 402,275 | ||||||
225,891 | Oracle Corp. | 10,680,127 | ||||||
959 | SS&C Technologies Holdings, Inc. | 38,820 | ||||||
11,553 | Synopsys, Inc.* | 984,779 | ||||||
66,435 | Zynga, Inc.* | 265,740 | ||||||
|
| |||||||
14,083,298 | ||||||||
|
| |||||||
Specialty Retail (0.7%): | ||||||||
4,452 | Advance Auto Parts, Inc. | 443,820 | ||||||
4,864 | AutoNation, Inc.* | 249,669 | ||||||
327 | AutoZone, Inc.* | 232,618 | ||||||
11,574 | Bed Bath & Beyond, Inc.^ | 254,512 | ||||||
21,663 | Best Buy Co., Inc.^ | 1,483,266 | ||||||
2,428 | Burlington Stores, Inc.* | 298,717 | ||||||
1,211 | Dick’s Sporting Goods, Inc.^ | 34,804 | ||||||
9,636 | Foot Locker, Inc.^ | 451,736 | ||||||
8,839 | GameStop Corp., Class A^ | 158,660 | ||||||
19,268 | Gap, Inc. (The)^ | 656,268 | ||||||
16,886 | L Brands, Inc.^ | 1,016,875 | ||||||
2,320 | Michaels Cos., Inc. (The)*^ | 56,121 | ||||||
2,611 | Murphy U.S.A., Inc.*^ | 209,820 | ||||||
3,135 | Penske Automotive Group, Inc.^ | 150,010 | ||||||
7,200 | Sally Beauty Holdings, Inc.*^ | 135,072 | ||||||
5,068 | Signet Jewelers, Ltd.^ | 286,595 | ||||||
9,012 | Tiffany & Co. | 936,797 | ||||||
7,121 | Urban Outfitters, Inc.*^ | 249,662 | ||||||
5,569 | Williams-Sonoma, Inc.^ | 287,917 | ||||||
|
| |||||||
7,592,939 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (0.7%): | ||||||||
136,251 | Hewlett Packard Enterprise Co. | 1,956,564 | ||||||
140,502 | HP, Inc. | 2,951,947 | ||||||
3,468 | NetApp, Inc. | 191,850 | ||||||
21,384 | Western Digital Corp. | 1,700,670 | ||||||
19,615 | Xerox Corp. | 571,777 | ||||||
|
| |||||||
7,372,808 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (0.4%): | ||||||||
11,019 | Michael Kors Holdings, Ltd.* | 693,646 | ||||||
6,475 | PVH Corp. | 888,436 | ||||||
4,738 | Ralph Lauren Corp.^ | 491,283 | ||||||
6,241 | Skechers U.S.A., Inc., Class A*^ | 236,159 | ||||||
20,028 | Tapestry, Inc. | 885,838 | ||||||
4,674 | Under Armour, Inc., Class A*^ | 67,446 | ||||||
4,889 | Under Armour, Inc., Class C*^ | 65,121 | ||||||
7,237 | VF Corp.^ | 535,538 | ||||||
|
| |||||||
3,863,467 | ||||||||
|
| |||||||
Thrifts & Mortgage Finance (0.1%): | ||||||||
40,934 | New York Community Bancorp, Inc.^ | 532,960 | ||||||
4,788 | TFS Financial Corp. | 71,533 | ||||||
|
| |||||||
604,493 | ||||||||
|
|
Continued
11
AZL Russell 1000 Value Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Tobacco (1.2%): | ||||||||
119,069 | Philip Morris International, Inc. | $ | 12,579,640 | |||||
|
| |||||||
Trading Companies & Distributors (0.1%): | ||||||||
7,765 | Air Lease Corp.^ | 373,419 | ||||||
2,138 | MSC Industrial Direct Co., Inc., Class A | 206,659 | ||||||
292 | W.W. Grainger, Inc.^ | 68,985 | ||||||
4,013 | WESCO International, Inc.*^ | 273,486 | ||||||
|
| |||||||
922,549 | ||||||||
|
| |||||||
Transportation Infrastructure (0.0%): | ||||||||
6,672 | Macquarie Infrastructure Corp. | 428,342 | ||||||
|
| |||||||
Water Utilities (0.2%): | ||||||||
14,984 | American Water Works Co., Inc.^ | 1,370,886 | ||||||
15,286 | Aqua America, Inc.^ | 599,670 | ||||||
|
| |||||||
1,970,556 | ||||||||
|
| |||||||
Wireless Telecommunication Services (0.1%): | ||||||||
53,737 | Sprint Corp.*^ | 316,511 | ||||||
7,820 | Telephone & Data Systems, Inc. | 217,396 | ||||||
9,582 | T-Mobile US, Inc.* | 608,553 | ||||||
1,461 | United States Cellular Corp.*^ | 54,977 | ||||||
|
| |||||||
1,197,437 | ||||||||
|
| |||||||
Total Common Stocks (Cost $863,520,257) | 1,058,716,700 | |||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Securities Held as Collateral for Securities on Loan (8.3%): | ||||||||
$ | 89,963,874 | AZL Russell 1000 Value Index Fund Securities Lending Collateral Account(a) | $ | 89,963,874 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 89,963,874 | ||||||
|
| |||||||
Unaffiliated Investment Company (1.8%): | ||||||||
19,383,323 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 1.11%(b) | 19,383,323 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $19,383,323) | 19,383,323 | |||||||
|
| |||||||
Total Investment Securities | 1,168,063,897 | |||||||
Net other assets (liabilities) — (8.2)% | (88,761,283 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 1,079,302,614 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2017. The total value of securities on loan as of December 31, 2017, was $87,450,492. |
+ | 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, 2017. |
(b) | The rate represents the effective yield at December 31, 2017. |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Futures Contracts
Cash of $732,200 has been segregated to cover margin requirements for the following open contracts as of December 31, 2017:
Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Unrealized Appreciation/ (Depreciation) | ||||||||||||
S&P 500 Index E-Mini March Futures | 3/16/18 | 159 | $ | 21,274,200 | $ | 37,979 | ||||||||||
|
| |||||||||||||||
$ | 37,979 | |||||||||||||||
|
|
See accompanying notes to the financial statements.
12
AZL Russell 1000 Value Index Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investments in non-affiliates, at cost | $ | 969,467,198 | |||
|
| ||||
Investments in affiliates, at cost | 3,400,256 | ||||
|
| ||||
Total Investment securities, at cost | $ | 972,867,454 | |||
|
| ||||
Investments in non-affiliates, at value* | $ | 1,162,674,565 | |||
Investments in affiliates, at value | 5,389,332 | ||||
|
| ||||
Total Investment securities, at value | 1,168,063,897 | ||||
Cash | 4,907 | ||||
Segregated cash for collateral | 732,200 | ||||
Interest and dividends receivable | 1,662,981 | ||||
Receivable for variation margin on futures contracts | 1,292 | ||||
Reclaims receivable | 185,257 | ||||
Prepaid expenses | 5,997 | ||||
|
| ||||
Total Assets | 1,170,656,531 | ||||
|
| ||||
Liabilities: | |||||
Payable for capital shares redeemed | 595,496 | ||||
Payable for collateral received on loaned securities | 89,963,874 | ||||
Payable for variation margin on futures contracts | 78,432 | ||||
Manager fees payable | 339,919 | ||||
Administration fees payable | 25,412 | ||||
Distribution fees payable | 190,194 | ||||
Custodian fees payable | 5,587 | ||||
Administrative and compliance services fees payable | 2,748 | ||||
Transfer agent fees payable | 1,741 | ||||
Trustee fees payable | 1,771 | ||||
Other accrued liabilities | 148,743 | ||||
|
| ||||
Total Liabilities | 91,353,917 | ||||
|
| ||||
Net Assets | $ | 1,079,302,614 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 792,911,689 | |||
Accumulated net investment income/(loss) | 21,010,021 | ||||
Accumulated net realized gains/(losses) from investment transactions | 70,146,347 | ||||
Net unrealized appreciation/(depreciation) on investments | 195,234,557 | ||||
|
| ||||
Net Assets | $ | 1,079,302,614 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 185,902,891 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 17,456,641 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.65 | |||
|
| ||||
Class 2 | |||||
Net Assets | $ | 893,399,723 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 65,864,441 | ||||
Net Asset Value (offering and redemption price per share) | $ | 13.56 | |||
|
|
* | Includes securities on loan of $87,450,492. |
For the Year Ended December 31, 2017
Investment Income: | |||||
Dividends | $ | 28,237,260 | |||
Dividends from affiliates | 119,885 | ||||
Interest | 268 | ||||
Income from securities lending | 376,868 | ||||
Other income | 51,214 | ||||
Foreign withholding tax | (5,573 | ) | |||
|
| ||||
Total Investment Income | 28,779,922 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 5,031,940 | ||||
Administration fees | 286,666 | ||||
Distribution fees — Class 2 | 2,396,150 | ||||
Custodian fees | 35,784 | ||||
Administrative and compliance services fees | 13,776 | ||||
Transfer agent fees | 11,371 | ||||
Trustee fees | 49,853 | ||||
Professional fees | 56,954 | ||||
Shareholder reports | 36,440 | ||||
Other expenses | 249,432 | ||||
|
| ||||
Total expenses before reductions | 8,168,366 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (607,728 | ) | |||
|
| ||||
Net expenses | 7,560,638 | ||||
|
| ||||
Net Investment Income/(Loss) | 21,219,284 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions and foreign currencies | 77,434,157 | ||||
Net realized gains/(losses) on affiliated transactions | 448,094 | ||||
Net realized gains/(losses) on futures contracts | 2,755,590 | ||||
Change in net unrealized appreciation/depreciation on investments and foreign currencies | 39,304,427 | ||||
Change in net unrealized appreciation/depreciation on affiliated transactions | 1,105,292 | ||||
Change in net unrealized appreciation/depreciation on futures contracts | (3,660 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 121,043,900 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 142,263,184 | |||
|
|
See accompanying notes to the financial statements.
13
AZL Russell 1000 Value Index Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016* | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 21,219,284 | $ | 7,701,916 | ||||||
Net realized gains/(losses) on investment transactions | 80,637,841 | 111,938,020 | ||||||||
Change in unrealized appreciation/depreciation on investments | 40,406,059 | (18,283,699 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 142,263,184 | 101,356,237 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1 | (1,632,621 | ) | — | |||||||
Class 2 | (6,305,794 | ) | (3,330,450 | ) | ||||||
From net realized gains: | ||||||||||
Class 1 | (22,052,360 | ) | — | |||||||
Class 2 | (91,526,620 | ) | (16,584,572 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (121,517,395 | ) | (19,915,022 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Class 1 | ||||||||||
Proceeds from shares issued | 83,049 | 179,845,573 | ||||||||
Proceeds from dividends reinvested | 23,684,980 | — | ||||||||
Value of shares redeemed | (24,563,697 | ) | (6,633,985 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | (795,668 | ) | 173,211,588 | |||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Proceeds from shares issued | 8,299,028 | 341,647,288 | ||||||||
Proceeds from shares issued in merger | — | 469,916,200 | ||||||||
Proceeds from dividends reinvested | 97,832,415 | 19,915,022 | ||||||||
Value of shares redeemed | (225,323,862 | ) | (100,680,118 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | (119,192,419 | ) | 730,798,392 | |||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (119,988,087 | ) | 904,009,980 | |||||||
|
|
|
| |||||||
Change in net assets | (99,242,298 | ) | 985,451,195 | |||||||
Net Assets: | ||||||||||
Beginning of period | 1,178,544,912 | 193,093,717 | ||||||||
|
|
|
| |||||||
End of period | $ | 1,079,302,614 | $ | 1,178,544,912 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 21,010,021 | $ | 7,988,610 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Class 1 | ||||||||||
Shares issued | 7,628 | 17,984,628 | ||||||||
Dividends reinvested | 2,354,372 | — | ||||||||
Shares redeemed | (2,251,661 | ) | (638,326 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | 110,339 | 17,346,302 | ||||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Shares issued | 811,790 | 27,252,060 | ||||||||
Shares issued in merger | — | 37,981,927 | ||||||||
Dividends reinvested | 7,625,286 | 1,608,645 | ||||||||
Shares redeemed | (16,595,649 | ) | (7,774,069 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | (8,158,573 | ) | 59,068,563 | |||||||
|
|
|
| |||||||
Change in shares | (8,048,234 | ) | 76,414,865 | |||||||
|
|
|
|
* | Class 1 activity is 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
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2017 | 2016* | 2015 | 2014 | 2013 | |||||||||||||||||||||
Class 1 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 10.79 | $ | 10.00 | |||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.27 | 0.08 | |||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.08 | 0.71 | |||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total from Investment Activities | 1.35 | 0.79 | |||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.10 | ) | — | ||||||||||||||||||||||
Net Realized Gains | (1.39 | ) | — | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total Dividends | (1.49 | ) | — | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Net Asset Value, End of Period | $ | 10.65 | $ | 10.79 | |||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total Return(a) | 13.38 | % | 7.90 | %(b) | |||||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 185,903 | $ | 187,248 | |||||||||||||||||||||
Net Investment Income/(Loss)(c) | 2.07 | % | 2.11 | % | |||||||||||||||||||||
Expenses Before Reductions(c)(d) | 0.50 | % | 0.51 | % | |||||||||||||||||||||
Expenses Net of Reductions(c) | 0.45 | % | 0.46 | % | |||||||||||||||||||||
Portfolio Turnover Rate(e) | 12 | % | 131 | %(f) | |||||||||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 13.39 | $ | 12.91 | $ | 14.82 | $ | 14.70 | $ | 11.84 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.24 | 0.11 | 0.22 | 0.24 | 0.31 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.42 | 1.85 | (0.92 | ) | 1.55 | 3.35 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.66 | 1.96 | (0.70 | ) | 1.79 | 3.66 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Investment Income | (0.10 | ) | (0.25 | ) | (0.23 | ) | (0.23 | ) | (0.29 | ) | |||||||||||||||
Net Realized Gains | (1.39 | ) | (1.23 | ) | (0.98 | ) | (1.44 | ) | (0.51 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (1.49 | ) | (1.48 | ) | (1.21 | ) | (1.67 | ) | (0.80 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 13.56 | $ | 13.39 | $ | 12.91 | $ | 14.82 | $ | 14.70 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 13.02 | % | 16.15 | % | (4.42 | )% | 12.59 | % | 31.52 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 893,400 | $ | 991,296 | $ | 193,094 | $ | 219,158 | $ | 205,807 | |||||||||||||||
Net Investment Income/(Loss) | 1.81 | % | 2.05 | % | 1.54 | % | 1.60 | % | 1.54 | % | |||||||||||||||
Expenses Before Reductions(d) | 0.75 | % | 0.77 | % | 0.77 | % | 0.76 | % | 0.77 | % | |||||||||||||||
Expenses Net of Reductions | 0.70 | % | 0.72 | % | 0.77 | % | 0.76 | % | 0.77 | % | |||||||||||||||
Portfolio Turnover Rate(e) | 12 | % | 131 | %(f) | 16 | % | 16 | % | 11 | % |
* | Class 1 activity is 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, 2017
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 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 accrues 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 and Withholding Taxes
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, or from other assets and liabilities, from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains is determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., reclassification of gain/loss, and other permanent adjustments), 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.
16
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017 are noted on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $137 million for the year ended December 31, 2017.
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 $35,113 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The fund had securities lending transactions of $89,963,874 accounted for as secured borrowings with cash collateral of overnight and continuous maturities as of December 31, 2017.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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. For the year ended December 31, 2017, the Fund participated in the following cross-trade transactions:
Purchases | Sales | Realized (Gain/Loss) | |||||||||||||
AZL Russell 1000 Value Index Fund | $ | 114,461,848 | $ | 86,074,960 | $ | 17,651,314 |
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, 2017, 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. For the year ended December 31, 2017, the monthly average notional amount for long contracts was $18.5 million. 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, 2017:
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 | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 37,979 | Payable for variation 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. |
17
AZL Russell 1000 Value Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017:
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 | ||||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | $ | 2,755,590 | $(3,660) |
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, 2019.
For the year ended December 31, 2017, the annual rate paid 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 | % |
* | 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, 2017, there were no contractual reimbursements 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.
At December 31, 2017, the following investments are noted as Affiliated Securities in the Fund’s Schedule of Portfolio Investments.
Fair Value 12/31/2016 | Purchases at Cost | Proceeds from Sales | Net Realized Gain/(Loss) | Net Change in Unrealized Appreciation/ Depreciation | Fair Value 12/31/2017 | Shares as of 12/31/2017 | Dividend Income | |||||||||||||||||||||||||||||||||
BlackRock Inc., Class A | $ | 4,999,535 | $ | — | $ | (1,163,589 | ) | $ | 448,094 | $ | 1,105,292 | $ | 5,389,332 | 10,491 | $ | 119,885 | ||||||||||||||||||||||||
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$ | 4,999,535 | $ | — | $ | (1,163,589 | ) | $ | 448,094 | $ | 1,105,292 | $ | 5,389,332 | 10,491 | $ | 119,885 | |||||||||||||||||||||||||
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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.”
FIS Investor Services LLC (“FIS”) 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 Russell 1000 Value Index Fund
Notes to the Financial Statements
December 31, 2017
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 of 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, 2017, $12,394 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, 2017, actual Trustee compensation was $1,116,333 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, 2017, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value. There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Other^ | Total | ||||||||||||||||
Common Stocks+ | $ | 1,058,716,700 | $ | — | $ | — | $ | 1,058,716,700 | ||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | 89,963,874 | 89,963,874 | ||||||||||||||||
Unaffiliated Investment Company | 19,383,323 | — | — | 19,383,323 | ||||||||||||||||
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Total Investment Securities | 1,078,100,023 | — | 89,963,874 | 1,168,063,897 | ||||||||||||||||
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Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | 37,979 | — | — | 37,979 | ||||||||||||||||
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Total Investments | $ | 1,078,138,002 | $ | — | $ | 89,963,874 | $ | 1,168,101,876 | ||||||||||||
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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 presented in the financial statements at variation margin. |
^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
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AZL Russell 1000 Value Index Fund
Notes to the Financial Statements
December 31, 2017
5. Security Purchases and Sales
For the year ended December 31, 2017, 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 | $ | 136,549,397 | $ | 350,765,944 |
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, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $980,204,278. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 213,699,266 | ||
Unrealized (depreciation) | (25,839,647 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 187,859,619 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Russell 1000 Value Index Fund | $ | 9,061,367 | $ | 112,456,028 | $ | 121,517,395 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
The tax character of dividends paid to shareholders during the year ended December 31, 2016 were as follows:
Ordinary Income | Net Long-Term | 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. |
At December 31, 2017, 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 | $ | 37,719,314 | $ | 60,811,855 | $ | — | $ | 187,859,756 | $ | 286,390,925 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2017, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 65% of the Fund.
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AZL Russell 1000 Value Index Fund
Notes to the Financial Statements
December 31, 2017
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
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, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the periods or years in the five-year period then ended. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the periods or years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2017, 64.74% 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, 2017, the Fund declared net short-term capital gain distributions of $1,122,953.
During the year ended December 31, 2017, the Fund declared net long-term capital gain distributions of $112,456,028.
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A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
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Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
25
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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
26
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in 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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
29
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® S&P 500 Index Fund
Annual Report
December 31, 2017
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
Page 11
Statements of Changes in Net Assets
Page 12
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
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, 2017?
For the year ended December 31, 2017, the Class 2 shares of the AZL® S&P 500 Index Fund (the “Fund”) returned 21.36%†. That compared to a 21.83% 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. It is an unmanaged, market capitalization-weighted index composed of large-capitalization U.S. equities.*
Steady economic growth and a strengthening labor market helped support the U.S. Federal Reserve’s decision to increase the federal funds rate by 25 basis points (0.25%) in March. It marked the second rate hike in the past six months and drove higher performance among more growth-oriented and cyclical assets.
Political risk created a headwind for U.S. equities in the second quarter of 2017. In May, President Trump’s firing of FBI Director James Comey and the subsequent investigation of pre-election correspondence between administration members and Russian officials became an enduring source of negative market sentiment. One of the largest single-day dips of the quarter occurred in the wake of the House Oversight Committee’s request for all documents from meetings between President Trump and Comey on May 17.
The third quarter witnessed investors focused on sustained corporate earnings expansion, a subdued interest rate environment, and a healthy economic backdrop, despite threats from an increasingly hostile North Korea and a damaging hurricane season. As a result, volatility dropped to the lowest levels in recorded history, with the CBOE Volatility index2 averaging a record low of 10.94 in the quarter.
The U.S. economy continued to demonstrate strength throughout the fourth quarter. Unemployment dipped to 4.1%, the lowest level since 2000. Third quarter gross domestic product3 (GDP) surged to 4.1% year over year, and real GDP rose 2.3% year over year, which boosted investor confidence.
The Fund underperformed it’s benchmark for the period. From a sector perspective, the strongest returns in the S&P 500® Index came from information technology (+38.84%) stocks. Increases were seen across most sectors, including strong returns in the materials (+23.84%) and consumer discretionary (+22.97%) sector. By comparison, the telecommunication services (-1.25%) and energy (-0.99%) sectors experienced negative returns for the reporting period.
The Fund held derivatives in the form of futures contracts, which it used to hedge its cash position. The futures had a slight negative impact on relative results.*
Past performance does not guarantee future results.
† | The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes. |
* | 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, 2017. |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
2 | Chicago Board Options Exchange (CBOE) Volatility Index shows the markets expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking, is calculated from both calls and puts, and is a widely used measure of market risk. |
3 | Gross Domestic Product (GDP) is the measure of the market value of the goods and services produced in a period of time. |
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, 2017
Inception | 1 | 3 | 5 | 10 | ||||||||||||||||
Date | Year | Year | Year | Year | ||||||||||||||||
AZL® S&P 500 Index Fund (Class 1 Shares) | 5/14/07 | 21.60 | %† | 11.20 | % | 15.54 | % | 8.15 | % | |||||||||||
AZL® S&P 500 Index Fund (Class 2 Shares) | 5/1/07 | 21.36 | %† | 10.94 | % | 15.25 | % | 7.88 | % | |||||||||||
S&P 500® Index | 5/1/07 | 21.83 | % | 11.41 | % | 15.79 | % | 8.50 | % |
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 May 1, 2017. 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, 2019. Additional information pertaining to the December 31, 2017 expense ratios can be found in the financial highlights.
† | The recent growth rate in the stock market has helped to produce short-term returns that are not typical and may not continue in the future. Because of ongoing market volatility, Fund performance may be subject to substantial short-term changes. |
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
(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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL S&P 500 Index Fund, Class 1 | $ | 1,000.00 | $ | 1,113.70 | $ | 1.17 | 0.22 | % | ||||||||||||
AZL S&P 500 Index Fund, Class 2 | $ | 1,000.00 | $ | 1,112.30 | $ | 2.50 | 0.47 | % |
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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL S&P 500 Index Fund, Class 1 | $ | 1,000.00 | $ | 1,024.10 | $ | 1.12 | 0.22 | % | ||||||||||||
AZL S&P 500 Index Fund, Class 2 | $ | 1,000.00 | $ | 1,022.84 | $ | 2.40 | 0.47 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Information Technology | 23.5 | % | |||
Financials | 14.5 | ||||
Health Care | 13.5 | ||||
Consumer Discretionary | 12.0 | ||||
Industrials | 10.0 | ||||
Consumer Staples | 8.0 | ||||
Energy | 6.0 | ||||
Materials | 2.9 | ||||
Utilities | 2.9 | ||||
Real Estate | 2.8 | ||||
Telecommunication Services | 2.0 | ||||
|
| ||||
Total Common Stocks | 98.1 | ||||
Securities Held as Collateral for Securities on Loan | 7.1 | ||||
Money Market | 1.8 | ||||
|
| ||||
Total Investment Securities | 107.0 | ||||
Net other assets (liabilities) | (7.0 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
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3
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks (98.1%): | ||||||||
Aerospace & Defense (2.5%): | ||||||||
52,159 | Arconic, Inc. | $ | 1,421,333 | |||||
68,940 | Boeing Co. (The) | 20,331,095 | ||||||
34,194 | General Dynamics Corp. | 6,956,769 | ||||||
9,585 | L3 Technologies, Inc. | 1,896,392 | ||||||
30,719 | Lockheed Martin Corp. | 9,862,335 | ||||||
21,436 | Northrop Grumman Corp. | 6,578,923 | ||||||
35,599 | Raytheon Co. | 6,687,272 | ||||||
20,047 | Rockwell Collins, Inc. | 2,718,774 | ||||||
32,438 | Textron, Inc. | 1,835,666 | ||||||
5,951 | TransDigm Group, Inc.^ | 1,634,264 | ||||||
91,454 | United Technologies Corp. | 11,666,787 | ||||||
|
| |||||||
71,589,610 | ||||||||
|
| |||||||
Air Freight & Logistics (0.7%): | ||||||||
17,167 | C.H. Robinson Worldwide, Inc.^ | 1,529,408 | ||||||
21,823 | Expeditors International of Washington, Inc.^ | 1,411,730 | ||||||
30,379 | FedEx Corp. | 7,580,776 | ||||||
84,606 | United Parcel Service, Inc., Class B | 10,080,804 | ||||||
|
| |||||||
20,602,718 | ||||||||
|
| |||||||
Airlines (0.5%): | ||||||||
15,197 | Alaska Air Group, Inc.^ | 1,117,131 | ||||||
52,442 | American Airlines Group, Inc.^ | 2,728,557 | ||||||
80,773 | Delta Air Lines, Inc. | 4,523,289 | ||||||
67,225 | Southwest Airlines Co. | 4,399,876 | ||||||
31,009 | United Continental Holdings, Inc.* | 2,090,007 | ||||||
|
| |||||||
14,858,860 | ||||||||
|
| |||||||
Auto Components (0.2%): | ||||||||
32,736 | Aptiv plc* | 2,776,995 | ||||||
24,512 | BorgWarner, Inc.^ | 1,252,318 | ||||||
30,333 | Goodyear Tire & Rubber Co.^ | 980,059 | ||||||
|
| |||||||
5,009,372 | ||||||||
|
| |||||||
Automobiles (0.5%): | ||||||||
480,432 | Ford Motor Co. | 6,000,596 | ||||||
157,421 | General Motors Co. | 6,452,687 | ||||||
20,724 | Harley-Davidson, Inc.^ | 1,054,437 | ||||||
|
| |||||||
13,507,720 | ||||||||
|
| |||||||
Banks (6.4%): | ||||||||
1,194,535 | Bank of America Corp. | 35,262,673 | ||||||
97,149 | BB&T Corp. | 4,830,248 | ||||||
325,588 | Citigroup, Inc. | 24,227,003 | ||||||
60,585 | Citizens Financial Group, Inc. | 2,543,358 | ||||||
21,416 | Comerica, Inc. | 1,859,123 | ||||||
86,887 | Fifth Third Bancorp^ | 2,636,152 | ||||||
133,110 | Huntington Bancshares, Inc. | 1,938,082 | ||||||
427,269 | JPMorgan Chase & Co. | 45,692,146 | ||||||
132,427 | KeyCorp | 2,671,053 | ||||||
18,535 | M&T Bank Corp. | 3,169,300 | ||||||
41,326 | People’s United Financial, Inc.^ | 772,796 | ||||||
58,592 | PNC Financial Services Group, Inc. | 8,454,240 | ||||||
142,841 | Regions Financial Corp. | 2,468,292 | ||||||
58,620 | SunTrust Banks, Inc. | 3,786,266 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
194,135 | U.S. Bancorp | $ | 10,401,753 | |||||
545,745 | Wells Fargo & Co. | 33,110,349 | ||||||
24,597 | Zions Bancorp^ | 1,250,266 | ||||||
|
| |||||||
185,073,100 | ||||||||
|
| |||||||
Beverages (1.9%): | ||||||||
24,114 | Brown-Forman Corp., Class B^ | 1,655,908 | ||||||
472,200 | Coca-Cola Co. (The) | 21,664,536 | ||||||
21,214 | Constellation Brands, Inc., Class C | 4,848,884 | ||||||
22,232 | Dr Pepper Snapple Group, Inc. | 2,157,838 | ||||||
22,753 | Molson Coors Brewing Co., Class B | 1,867,339 | ||||||
50,658 | Monster Beverage Corp.* | 3,206,145 | ||||||
175,126 | PepsiCo, Inc. | 21,001,110 | ||||||
|
| |||||||
56,401,760 | ||||||||
|
| |||||||
Biotechnology (2.7%): | ||||||||
196,300 | AbbVie, Inc. | 18,984,173 | ||||||
27,511 | Alexion Pharmaceuticals, Inc.* | 3,290,040 | ||||||
89,390 | Amgen, Inc. | 15,544,921 | ||||||
26,036 | Biogen Idec, Inc.* | 8,294,289 | ||||||
96,952 | Celgene Corp.* | 10,117,911 | ||||||
160,857 | Gilead Sciences, Inc. | 11,523,795 | ||||||
21,363 | Incyte Corp.*^ | 2,023,290 | ||||||
9,486 | Regeneron Pharmaceuticals, Inc.* | 3,566,357 | ||||||
31,284 | Vertex Pharmaceuticals, Inc.* | 4,688,220 | ||||||
|
| |||||||
78,032,996 | ||||||||
|
| |||||||
Building Products (0.3%): | ||||||||
17,956 | A.O. Smith Corp. | 1,100,344 | ||||||
11,697 | Allegion plc^ | 930,613 | ||||||
18,965 | Fortune Brands Home & Security, Inc. | 1,297,965 | ||||||
113,960 | Johnson Controls International plc | 4,343,015 | ||||||
38,736 | Masco Corp. | 1,702,060 | ||||||
|
| |||||||
9,373,997 | ||||||||
|
| |||||||
Capital Markets (3.0%): | ||||||||
6,844 | Affiliated Managers Group, Inc. | 1,404,731 | ||||||
18,216 | Ameriprise Financial, Inc. | 3,087,066 | ||||||
126,100 | Bank of New York Mellon Corp. (The) | 6,791,746 | ||||||
15,215 | BlackRock, Inc., Class A+ | 7,816,098 | ||||||
14,125 | CBOE Holdings, Inc.^ | 1,759,834 | ||||||
146,922 | Charles Schwab Corp. (The) | 7,547,383 | ||||||
41,904 | CME Group, Inc. | 6,120,079 | ||||||
33,333 | E*TRADE Financial Corp.* | 1,652,317 | ||||||
40,244 | Franklin Resources, Inc. | 1,743,773 | ||||||
43,198 | Goldman Sachs Group, Inc. (The) | 11,005,121 | ||||||
72,041 | Intercontinental Exchange, Inc. | 5,083,213 | ||||||
49,809 | Invesco, Ltd.^ | 1,820,021 | ||||||
20,473 | Moody’s Corp. | 3,022,020 | ||||||
171,424 | Morgan Stanley | 8,994,617 | ||||||
13,979 | NASDAQ OMX Group, Inc. (The) | 1,074,007 | ||||||
26,448 | Northern Trust Corp. | 2,641,891 | ||||||
15,826 | Raymond James Financial, Inc. | 1,413,262 | ||||||
31,401 | S&P Global, Inc. | 5,319,329 | ||||||
45,666 | State Street Corp. | 4,457,458 |
Continued
4
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Capital Markets, continued | ||||||||
29,839 | T. Rowe Price Group, Inc.^ | $ | 3,131,006 | |||||
|
| |||||||
85,884,972 | ||||||||
|
| |||||||
Chemicals (2.1%): | ||||||||
26,840 | Air Products & Chemicals, Inc. | 4,403,907 | ||||||
13,594 | Albemarle Corp.^ | 1,738,537 | ||||||
28,496 | CF Industries Holdings, Inc.^ | 1,212,220 | ||||||
288,151 | DowDuPont, Inc. | 20,522,114 | ||||||
17,700 | Eastman Chemical Co.^ | 1,639,728 | ||||||
32,020 | Ecolab, Inc. | 4,296,444 | ||||||
16,646 | FMC Corp.^ | 1,575,710 | ||||||
9,813 | International Flavor & Fragrances, Inc.^ | 1,497,562 | ||||||
39,831 | Lyondellbasell Industries NV | 4,394,156 | ||||||
54,099 | Monsanto Co. | 6,317,681 | ||||||
43,225 | Mosaic Co. (The) | 1,109,154 | ||||||
31,337 | PPG Industries, Inc. | 3,660,788 | ||||||
35,256 | Praxair, Inc. | 5,453,398 | ||||||
10,109 | Sherwin Williams Co. | 4,145,094 | ||||||
|
| |||||||
61,966,493 | ||||||||
|
| |||||||
Commercial Services & Supplies (0.3%): | ||||||||
10,546 | Cintas Corp. | 1,643,383 | ||||||
27,987 | Republic Services, Inc., Class A | 1,892,201 | ||||||
10,669 | Stericycle, Inc.*^ | 725,385 | ||||||
49,193 | Waste Management, Inc. | 4,245,356 | ||||||
|
| |||||||
8,506,325 | ||||||||
|
| |||||||
Communications Equipment (1.0%): | ||||||||
608,768 | Cisco Systems, Inc. | 23,315,814 | ||||||
7,708 | F5 Networks, Inc.* | 1,011,444 | ||||||
14,679 | Harris Corp. | 2,079,280 | ||||||
46,169 | Juniper Networks, Inc. | 1,315,817 | ||||||
19,949 | Motorola Solutions, Inc.^ | 1,802,193 | ||||||
|
| |||||||
29,524,548 | ||||||||
|
| |||||||
Construction & Engineering (0.1%): | ||||||||
17,618 | Fluor Corp. | 909,970 | ||||||
14,834 | Jacobs Engineering Group, Inc. | 978,450 | ||||||
18,789 | Quanta Services, Inc.* | 734,838 | ||||||
|
| |||||||
2,623,258 | ||||||||
|
| |||||||
Construction Materials (0.1%): | ||||||||
7,741 | Martin Marietta Materials, Inc. | 1,711,071 | ||||||
16,289 | Vulcan Materials Co.^ | 2,091,019 | ||||||
|
| |||||||
3,802,090 | ||||||||
|
| |||||||
Consumer Finance (0.8%): | ||||||||
88,716 | American Express Co. | 8,810,386 | ||||||
59,692 | Capital One Financial Corp. | 5,944,129 | ||||||
44,747 | Discover Financial Services | 3,441,939 | ||||||
32,388 | Navient Corp.^ | 431,408 | ||||||
90,588 | Synchrony Financial | 3,497,603 | ||||||
|
| |||||||
22,125,465 | ||||||||
|
| |||||||
Containers & Packaging (0.4%): | ||||||||
10,884 | Avery Dennison Corp. | 1,250,136 | ||||||
43,004 | Ball Corp. | 1,627,701 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Containers & Packaging, continued | ||||||||
50,845 | International Paper Co. | $ | 2,945,959 | |||||
11,650 | Packaging Corp. of America | 1,404,408 | ||||||
22,213 | Sealed Air Corp. | 1,095,101 | ||||||
31,247 | WestRock Co. | 1,975,123 | ||||||
|
| |||||||
10,298,428 | ||||||||
|
| |||||||
Distributors (0.1%): | ||||||||
18,039 | Genuine Parts Co. | 1,713,885 | ||||||
38,056 | LKQ Corp.* | 1,547,738 | ||||||
|
| |||||||
3,261,623 | ||||||||
|
| |||||||
Diversified Consumer Services (0.0%): | ||||||||
25,663 | H&R Block, Inc.^ | 672,884 | ||||||
|
| |||||||
Diversified Financial Services (1.7%): | ||||||||
236,975 | Berkshire Hathaway, Inc., Class B* | 46,973,184 | ||||||
38,608 | Leucadia National Corp. | 1,022,726 | ||||||
|
| |||||||
47,995,910 | ||||||||
|
| |||||||
Diversified Telecommunication Services (2.0%): | ||||||||
756,092 | AT&T, Inc.^ | 29,396,857 | ||||||
119,629 | CenturyLink, Inc.^ | 1,995,412 | ||||||
502,342 | Verizon Communications, Inc. | 26,588,962 | ||||||
|
| |||||||
57,981,231 | ||||||||
|
| |||||||
Electric Utilities (1.7%): | ||||||||
28,108 | Alliant Energy Corp. | 1,197,682 | ||||||
60,566 | American Electric Power Co., Inc. | 4,455,841 | ||||||
86,185 | Duke Energy Corp. | 7,249,019 | ||||||
40,121 | Edison International | 2,537,252 | ||||||
22,118 | Entergy Corp. | 1,800,184 | ||||||
39,022 | Eversource Energy^ | 2,465,410 | ||||||
118,227 | Exelon Corp. | 4,659,326 | ||||||
55,080 | FirstEnergy Corp. | 1,686,550 | ||||||
57,926 | NextEra Energy, Inc. | 9,047,461 | ||||||
63,150 | PG&E Corp. | 2,831,015 | ||||||
13,759 | Pinnacle West Capital Corp. | 1,171,992 | ||||||
84,128 | PPL Corp. | 2,603,762 | ||||||
123,589 | Southern Co. (The) | 5,943,395 | ||||||
62,527 | Xcel Energy, Inc. | 3,008,174 | ||||||
|
| |||||||
50,657,063 | ||||||||
|
| |||||||
Electrical Equipment (0.6%): | ||||||||
5,272 | Acuity Brands, Inc.^ | 927,872 | ||||||
28,389 | AMETEK, Inc. | 2,057,351 | ||||||
54,256 | Eaton Corp. plc | 4,286,767 | ||||||
79,035 | Emerson Electric Co. | 5,507,949 | ||||||
15,824 | Rockwell Automation, Inc. | 3,107,042 | ||||||
|
| |||||||
15,886,981 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (0.4%): | ||||||||
37,600 | Amphenol Corp., Class A | 3,301,280 | ||||||
107,017 | Corning, Inc. | 3,423,474 | ||||||
16,858 | FLIR Systems, Inc. | 785,920 | ||||||
43,301 | TE Connectivity, Ltd. | 4,115,327 | ||||||
|
| |||||||
11,626,001 | ||||||||
|
|
Continued
5
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Energy Equipment & Services (0.8%): | ||||||||
52,726 | Baker Hughes^ | $ | 1,668,251 | |||||
107,446 | Halliburton Co. | 5,250,886 | ||||||
13,228 | Helmerich & Payne, Inc. | 855,058 | ||||||
47,202 | National-Oilwell Varco, Inc.^ | 1,700,216 | ||||||
170,584 | Schlumberger, Ltd. | 11,495,656 | ||||||
53,991 | Technipfmc plc^ | 1,690,458 | ||||||
|
| |||||||
22,660,525 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (2.7%): | ||||||||
11,787 | Alexandria Real Estate Equities, Inc. | 1,539,264 | ||||||
52,810 | American Tower Corp. | 7,534,404 | ||||||
19,027 | Apartment Investment & Management Co., Class A | 831,670 | ||||||
17,004 | AvalonBay Communities, Inc. | 3,033,684 | ||||||
19,003 | Boston Properties, Inc. | 2,470,960 | ||||||
50,029 | Crown Castle International Corp. | 5,553,719 | ||||||
25,299 | Digital Realty Trust, Inc.^ | 2,881,556 | ||||||
43,934 | Duke Realty Corp. | 1,195,444 | ||||||
9,634 | Equinix, Inc. | 4,366,321 | ||||||
45,253 | Equity Residential Property Trust | 2,885,784 | ||||||
8,123 | Essex Property Trust, Inc.^ | 1,960,649 | ||||||
15,555 | Extra Space Storage, Inc.^ | 1,360,285 | ||||||
9,008 | Federal Realty Investment Trust | 1,196,352 | ||||||
76,883 | Ggp US | 1,798,293 | ||||||
57,662 | HCP, Inc.^ | 1,503,825 | ||||||
91,131 | Host Hotels & Resorts, Inc.^ | 1,808,950 | ||||||
32,871 | Iron Mountain, Inc. | 1,240,223 | ||||||
53,682 | Kimco Realty Corp.^ | 974,328 | ||||||
13,348 | Macerich Co. (The)^ | 876,697 | ||||||
14,122 | Mid-America Apartment Communities, Inc. | 1,420,108 | ||||||
65,522 | ProLogis, Inc. | 4,226,824 | ||||||
18,431 | Public Storage, Inc.^ | 3,852,079 | ||||||
34,358 | Realty Income Corp.^ | 1,959,093 | ||||||
18,027 | Regency Centers Corp. | 1,247,108 | ||||||
14,474 | SBA Communications Corp.* | 2,364,473 | ||||||
38,277 | Simon Property Group, Inc.^ | 6,573,692 | ||||||
12,101 | SL Green Realty Corp.^ | 1,221,354 | ||||||
33,079 | UDR, Inc. | 1,274,203 | ||||||
43,857 | Ventas, Inc. | 2,631,859 | ||||||
21,084 | Vornado Realty Trust | 1,648,347 | ||||||
45,607 | Welltower, Inc. | 2,908,358 | ||||||
92,951 | Weyerhaeuser Co. | 3,277,452 | ||||||
|
| |||||||
79,617,358 | ||||||||
|
| |||||||
Food & Staples Retailing (1.8%): | ||||||||
53,812 | Costco Wholesale Corp. | 10,015,489 | ||||||
124,742 | CVS Health Corp. | 9,043,795 | ||||||
109,538 | Kroger Co. (The) | 3,006,818 | ||||||
59,031 | Sysco Corp. | 3,584,953 | ||||||
106,913 | Walgreens Boots Alliance, Inc. | 7,764,022 | ||||||
180,247 | Wal-Mart Stores, Inc. | 17,799,391 | ||||||
|
| |||||||
51,214,468 | ||||||||
|
| |||||||
Food Products (1.2%): | ||||||||
68,867 | Archer-Daniels-Midland Co. | 2,760,189 | ||||||
23,940 | Campbell Soup Co.^ | 1,151,753 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Food Products, continued | ||||||||
50,453 | ConAgra Foods, Inc. | $ | 1,900,565 | |||||
69,986 | General Mills, Inc.^ | 4,149,470 | ||||||
17,258 | Hershey Co. (The) | 1,958,956 | ||||||
33,149 | Hormel Foods Corp.^ | 1,206,292 | ||||||
13,987 | JM Smucker Co. (The)^ | 1,737,745 | ||||||
30,630 | Kellogg Co.^ | 2,082,227 | ||||||
73,522 | Kraft Heinz Co. (The) | 5,717,071 | ||||||
14,745 | McCormick & Co. | 1,502,663 | ||||||
184,022 | Mondelez International, Inc., Class A | 7,876,142 | ||||||
36,647 | Tyson Foods, Inc., Class A | 2,970,972 | ||||||
|
| |||||||
35,014,045 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (2.7%): | ||||||||
214,341 | Abbott Laboratories | 12,232,441 | ||||||
8,886 | Align Technology, Inc.* | 1,974,380 | ||||||
61,315 | Baxter International, Inc. | 3,963,402 | ||||||
32,631 | Becton, Dickinson & Co.^ | 6,985,018 | ||||||
169,098 | Boston Scientific Corp.* | 4,191,939 | ||||||
6,070 | Cooper Cos., Inc. (The) | 1,322,532 | ||||||
75,379 | Danaher Corp. | 6,996,679 | ||||||
28,284 | DENTSPLY SIRONA, Inc.^ | 1,861,936 | ||||||
26,059 | Edwards Lifesciences Corp.* | 2,937,110 | ||||||
33,948 | Hologic, Inc.* | 1,451,277 | ||||||
10,740 | IDEXX Laboratories, Inc.* | 1,679,521 | ||||||
13,798 | Intuitive Surgical, Inc.* | 5,035,442 | ||||||
166,684 | Medtronic plc | 13,459,732 | ||||||
17,566 | ResMed, Inc.^ | 1,487,665 | ||||||
39,633 | Stryker Corp. | 6,136,774 | ||||||
11,347 | Varian Medical Systems, Inc.*^ | 1,261,219 | ||||||
24,933 | Zimmer Holdings, Inc. | 3,008,665 | ||||||
|
| |||||||
75,985,732 | ||||||||
|
| |||||||
Health Care Providers & Services (2.7%): | ||||||||
40,157 | Aetna, Inc. | 7,243,922 | ||||||
19,873 | AmerisourceBergen Corp. | 1,824,739 | ||||||
31,619 | Anthem, Inc. | 7,114,591 | ||||||
38,741 | Cardinal Health, Inc. | 2,373,661 | ||||||
21,239 | Centene Corp.* | 2,142,590 | ||||||
30,361 | Cigna Corp. | 6,166,015 | ||||||
18,642 | DaVita, Inc.*^ | 1,346,885 | ||||||
14,564 | Envision Healthcare Corp.*^ | 503,332 | ||||||
69,744 | Express Scripts Holding Co.* | 5,205,692 | ||||||
34,879 | HCA Holdings, Inc.* | 3,063,771 | ||||||
19,328 | Henry Schein, Inc.*^ | 1,350,641 | ||||||
17,592 | Humana, Inc.^ | 4,364,047 | ||||||
12,536 | Laboratory Corp. of America Holdings* | 1,999,617 | ||||||
25,672 | McKesson Corp. | 4,003,548 | ||||||
9,982 | Patterson Cos., Inc.^ | 360,650 | ||||||
16,784 | Quest Diagnostics, Inc. | 1,653,056 | ||||||
119,333 | UnitedHealth Group, Inc. | 26,308,154 | ||||||
10,791 | Universal Health Services, Inc., Class B^ | 1,223,160 | ||||||
|
| |||||||
78,248,071 | ||||||||
|
| |||||||
Health Care Technology (0.1%): | ||||||||
38,888 | Cerner Corp.*^ | 2,620,662 | ||||||
|
|
Continued
6
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Hotels, Restaurants & Leisure (1.8%): | ||||||||
50,221 | Carnival Corp., Class A | $ | 3,333,168 | |||||
3,059 | Chipotle Mexican Grill, Inc.*^ | 884,143 | ||||||
15,334 | Darden Restaurants, Inc. | 1,472,371 | ||||||
24,897 | Hilton Worldwide Holdings, Inc. | 1,988,274 | ||||||
37,712 | Marriott International, Inc., Class A | 5,118,650 | ||||||
98,167 | McDonald’s Corp. | 16,896,503 | ||||||
62,744 | MGM Resorts International | 2,095,022 | ||||||
21,768 | Norwegian Cruise Line Holdings, Ltd.*^ | 1,159,146 | ||||||
21,074 | Royal Caribbean Cruises, Ltd. | 2,513,707 | ||||||
175,206 | Starbucks Corp. | 10,062,080 | ||||||
12,477 | Wyndham Worldwide Corp. | 1,445,710 | ||||||
9,913 | Wynn Resorts, Ltd. | 1,671,233 | ||||||
41,316 | Yum! Brands, Inc. | 3,371,799 | ||||||
|
| |||||||
52,011,806 | ||||||||
|
| |||||||
Household Durables (0.4%): | ||||||||
42,026 | D.R. Horton, Inc. | 2,146,268 | ||||||
13,665 | Garmin, Ltd.^ | 814,024 | ||||||
16,232 | Leggett & Platt, Inc.^ | 774,753 | ||||||
25,135 | Lennar Corp., Class A | 1,589,537 | ||||||
7,781 | Mohawk Industries, Inc.* | 2,146,779 | ||||||
60,752 | Newell Rubbermaid, Inc. | 1,877,237 | ||||||
33,304 | PulteGroup, Inc.^ | 1,107,358 | ||||||
8,849 | Whirlpool Corp.^ | 1,492,295 | ||||||
|
| |||||||
11,948,251 | ||||||||
|
| |||||||
Household Products (1.6%): | ||||||||
31,015 | Church & Dwight Co., Inc. | 1,556,023 | ||||||
15,878 | Clorox Co. (The)^ | 2,361,694 | ||||||
108,132 | Colgate-Palmolive Co. | 8,158,559 | ||||||
43,316 | Kimberly-Clark Corp.^ | 5,226,509 | ||||||
313,779 | Procter & Gamble Co. (The) | 28,830,014 | ||||||
|
| |||||||
46,132,799 | ||||||||
|
| |||||||
Independent Power & Renewable Electricity Producers (0.1%): | ||||||||
80,772 | AES Corp. (The) | 874,761 | ||||||
37,042 | NRG Energy, Inc.^ | 1,054,956 | ||||||
|
| |||||||
1,929,717 | ||||||||
|
| |||||||
Industrial Conglomerates (1.9%): | ||||||||
73,487 | 3M Co., Class C | 17,296,635 | ||||||
1,067,898 | General Electric Co. | 18,634,821 | ||||||
93,812 | Honeywell International, Inc. | 14,387,008 | ||||||
12,605 | Roper Industries, Inc. | 3,264,695 | ||||||
|
| |||||||
53,583,159 | ||||||||
|
| |||||||
Insurance (2.6%): | ||||||||
48,413 | Aflac, Inc. | 4,249,693 | ||||||
44,187 | Allstate Corp. (The) | 4,626,821 | ||||||
110,452 | American International Group, Inc. | 6,580,730 | ||||||
30,773 | Aon plc | 4,123,582 | ||||||
22,256 | Arthur J. Gallagher & Co. | 1,408,360 | ||||||
6,651 | Assurant, Inc. | 670,687 | ||||||
11,799 | Brighthouse Financial, Inc.* | 691,893 | ||||||
57,165 | Chubb, Ltd. | 8,353,521 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Insurance, continued | ||||||||
18,593 | Cincinnati Financial Corp. | $ | 1,393,917 | |||||
5,057 | Everest Re Group, Ltd. | 1,118,912 | ||||||
43,927 | Hartford Financial Services Group, Inc. (The) | 2,472,212 | ||||||
26,948 | Lincoln National Corp. | 2,071,493 | ||||||
34,386 | Loews Corp. | 1,720,332 | ||||||
62,846 | Marsh & McLennan Cos., Inc. | 5,115,036 | ||||||
129,582 | MetLife, Inc. | 6,551,666 | ||||||
33,069 | Principal Financial Group, Inc. | 2,333,349 | ||||||
71,619 | Progressive Corp. (The) | 4,033,582 | ||||||
52,212 | Prudential Financial, Inc. | 6,003,336 | ||||||
13,221 | Torchmark Corp. | 1,199,277 | ||||||
33,703 | Travelers Cos., Inc. (The) | 4,571,475 | ||||||
27,632 | UnumProvident Corp. | 1,516,720 | ||||||
16,260 | Willis Towers Watson plc^ | 2,450,219 | ||||||
31,526 | XL Group, Ltd.^ | 1,108,454 | ||||||
|
| |||||||
74,365,267 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (2.8%): | ||||||||
49,251 | Amazon.com, Inc.* | 57,597,568 | ||||||
15,268 | Expedia, Inc.^ | 1,828,648 | ||||||
53,287 | Netflix, Inc.*^ | 10,228,973 | ||||||
6,006 | Priceline Group, Inc. (The)* | 10,436,866 | ||||||
13,140 | TripAdvisor, Inc.*^ | 452,804 | ||||||
|
| |||||||
80,544,859 | ||||||||
|
| |||||||
Internet Software & Services (4.8%): | ||||||||
20,830 | Akamai Technologies, Inc.* | 1,354,783 | ||||||
36,702 | Alphabet, Inc., Class A* | 38,661,887 | ||||||
37,172 | Alphabet, Inc., Class C* | 38,896,781 | ||||||
119,626 | eBay, Inc.* | 4,514,685 | ||||||
293,669 | Facebook, Inc., Class A* | 51,820,832 | ||||||
10,439 | VeriSign, Inc.*^ | 1,194,639 | ||||||
|
| |||||||
136,443,607 | ||||||||
|
| |||||||
IT Services (4.0%): | ||||||||
76,100 | Accenture plc, Class C | 11,650,149 | ||||||
5,919 | Alliance Data Systems Corp. | 1,500,348 | ||||||
54,612 | Automatic Data Processing, Inc. | 6,399,980 | ||||||
72,610 | Cognizant Technology Solutions Corp., Class A | 5,156,762 | ||||||
20,168 | CSRA, Inc. | 603,427 | ||||||
35,129 | DXC Technology Co. | 3,333,742 | ||||||
41,113 | Fidelity National Information Services, Inc. | 3,868,322 | ||||||
25,663 | Fiserv, Inc.* | 3,365,189 | ||||||
11,120 | Gartner, Inc.*^ | 1,369,428 | ||||||
19,597 | Global Payments, Inc. | 1,964,403 | ||||||
106,023 | International Business Machines Corp. | 16,266,049 | ||||||
114,375 | MasterCard, Inc., Class A | 17,311,800 | ||||||
39,381 | Paychex, Inc.^ | 2,681,058 | ||||||
139,125 | PayPal Holdings, Inc.* | 10,242,383 | ||||||
20,567 | Total System Services, Inc. | 1,626,644 | ||||||
223,313 | Visa, Inc., Class A^ | 25,462,148 | ||||||
56,558 | Western Union Co.^ | 1,075,168 | ||||||
|
| |||||||
113,877,000 | ||||||||
|
|
Continued
7
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Leisure Products (0.1%): | ||||||||
13,892 | Hasbro, Inc. | $ | 1,262,643 | |||||
43,391 | Mattel, Inc.^ | 667,354 | ||||||
|
| |||||||
1,929,997 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.8%): | ||||||||
39,631 | Agilent Technologies, Inc. | 2,654,088 | ||||||
17,979 | Illumina, Inc.* | 3,928,232 | ||||||
17,928 | IQVIA Holdings, Inc.* | 1,755,151 | ||||||
3,150 | Mettler-Toledo International, Inc.* | 1,951,488 | ||||||
13,455 | PerkinElmer, Inc. | 983,830 | ||||||
49,379 | Thermo Fisher Scientific, Inc. | 9,376,084 | ||||||
9,794 | Waters Corp.*^ | 1,892,103 | ||||||
|
| |||||||
22,540,976 | ||||||||
|
| |||||||
Machinery (1.7%): | ||||||||
73,261 | Caterpillar, Inc. | 11,544,468 | ||||||
19,211 | Cummins, Inc. | 3,393,431 | ||||||
39,388 | Deere & Co. | 6,164,616 | ||||||
19,130 | Dover Corp. | 1,931,939 | ||||||
16,269 | Flowserve Corp.^ | 685,413 | ||||||
37,481 | Fortive Corp. | 2,711,750 | ||||||
37,969 | Illinois Tool Works, Inc. | 6,335,128 | ||||||
30,769 | Ingersoll-Rand plc | 2,744,287 | ||||||
43,298 | PACCAR, Inc. | 3,077,622 | ||||||
16,406 | Parker Hannifin Corp. | 3,274,309 | ||||||
20,336 | Pentair plc^ | 1,436,128 | ||||||
7,103 | Snap-On, Inc.^ | 1,238,053 | ||||||
18,884 | Stanley Black & Decker, Inc. | 3,204,426 | ||||||
22,298 | Xylem, Inc.^ | 1,520,724 | ||||||
|
| |||||||
49,262,294 | ||||||||
|
| |||||||
Media (2.7%): | ||||||||
44,649 | CBS Corp., Class B^ | 2,634,291 | ||||||
23,879 | Charter Communications, Inc., Class A* | 8,022,389 | ||||||
574,375 | Comcast Corp., Class A | 23,003,719 | ||||||
18,092 | Discovery Communications, Inc., Class A*^ | 404,899 | ||||||
25,026 | Discovery Communications, Inc., Class C* | 529,800 | ||||||
28,067 | DISH Network Corp., Class A* | 1,340,199 | ||||||
47,438 | Interpublic Group of Cos., Inc. (The)^ | 956,350 | ||||||
46,709 | News Corp., Class A | 757,153 | ||||||
15,698 | News Corp., Class B | 260,587 | ||||||
28,388 | Omnicom Group, Inc.^ | 2,067,498 | ||||||
12,093 | Scripps Networks Interactive, Class C | 1,032,500 | ||||||
95,878 | Time Warner, Inc. | 8,769,961 | ||||||
129,793 | Twenty-First Century Fox, Inc. | 4,481,752 | ||||||
54,082 | Twenty-First Century Fox, Inc., Class B | 1,845,278 | ||||||
43,448 | Viacom, Inc., Class B | 1,338,633 | ||||||
185,983 | Walt Disney Co. (The) | 19,995,032 | ||||||
|
| |||||||
77,440,041 | ||||||||
|
| |||||||
Metals & Mining (0.3%): | ||||||||
165,583 | Freeport-McMoRan Copper & Gold, Inc.* | 3,139,454 | ||||||
65,676 | Newmont Mining Corp. | 2,464,164 | ||||||
39,149 | Nucor Corp.^ | 2,489,093 | ||||||
|
| |||||||
8,092,711 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Multiline Retail (0.5%): | ||||||||
32,080 | Dollar General Corp. | $ | 2,983,761 | |||||
29,197 | Dollar Tree, Inc.* | 3,133,130 | ||||||
21,018 | Kohl’s Corp.^ | 1,139,806 | ||||||
37,509 | Macy’s, Inc.^ | 944,852 | ||||||
14,300 | Nordstrom, Inc.^ | 677,534 | ||||||
66,937 | Target Corp. | 4,367,639 | ||||||
|
| |||||||
13,246,722 | ||||||||
|
| |||||||
Multi-Utilities (1.0%): | ||||||||
29,875 | Ameren Corp. | 1,762,326 | ||||||
52,690 | CenterPoint Energy, Inc. | 1,494,288 | ||||||
34,994 | CMS Energy Corp. | 1,655,216 | ||||||
38,371 | Consolidated Edison, Inc. | 3,259,616 | ||||||
78,935 | Dominion Energy, Inc. | 6,398,472 | ||||||
22,090 | DTE Energy Co. | 2,417,971 | ||||||
41,473 | NiSource, Inc. | 1,064,612 | ||||||
62,315 | Public Service Enterprise Group, Inc. | 3,209,223 | ||||||
17,527 | SCANA Corp.^ | 697,224 | ||||||
30,918 | Sempra Energy | 3,305,753 | ||||||
38,861 | WEC Energy Group, Inc.^ | 2,581,536 | ||||||
|
| |||||||
27,846,237 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (5.2%): | ||||||||
67,378 | Anadarko Petroleum Corp. | 3,614,156 | ||||||
17,673 | Andeavor | 2,020,731 | ||||||
46,888 | Apache Corp.^ | 1,979,611 | ||||||
56,952 | Cabot Oil & Gas Corp.^ | 1,628,827 | ||||||
111,897 | Chesapeake Energy Corp.*^ | 443,112 | ||||||
233,893 | Chevron Corp. | 29,281,065 | ||||||
11,738 | Cimarex Energy Co. | 1,432,153 | ||||||
18,313 | Concho Resources, Inc.*^ | 2,750,979 | ||||||
147,218 | ConocoPhillips Co. | 8,080,796 | ||||||
64,713 | Devon Energy Corp. | 2,679,118 | ||||||
71,203 | EOG Resources, Inc. | 7,683,516 | ||||||
30,030 | EQT Corp. | 1,709,308 | ||||||
521,785 | Exxon Mobil Corp. | 43,642,098 | ||||||
33,260 | Hess Corp.^ | 1,578,852 | ||||||
236,505 | Kinder Morgan, Inc. | 4,273,645 | ||||||
105,028 | Marathon Oil Corp. | 1,778,124 | ||||||
60,144 | Marathon Petroleum Corp. | 3,968,301 | ||||||
24,489 | Newfield Exploration Co.* | 772,138 | ||||||
59,922 | Noble Energy, Inc.^ | 1,746,127 | ||||||
94,234 | Occidental Petroleum Corp. | 6,941,276 | ||||||
47,217 | ONEOK, Inc. | 2,523,749 | ||||||
52,910 | Phillips 66 | 5,351,847 | ||||||
20,954 | Pioneer Natural Resources Co. | 3,621,899 | ||||||
27,805 | Range Resources Corp.^ | 474,353 | ||||||
53,885 | Valero Energy Corp. | 4,952,570 | ||||||
101,807 | Williams Cos., Inc. (The) | 3,104,095 | ||||||
|
| |||||||
148,032,446 | ||||||||
|
| |||||||
Personal Products (0.2%): | ||||||||
58,145 | Coty, Inc., Class A^ | 1,156,504 | ||||||
27,568 | Estee Lauder Co., Inc. (The), Class A | 3,507,752 | ||||||
|
| |||||||
4,664,256 | ||||||||
|
|
Continued
8
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Pharmaceuticals (4.5%): | ||||||||
40,955 | Allergan plc | $ | 6,699,419 | |||||
201,547 | Bristol-Myers Squibb Co. | 12,350,800 | ||||||
119,309 | Eli Lilly & Co. | 10,076,838 | ||||||
330,823 | Johnson & Johnson Co. | 46,222,589 | ||||||
336,814 | Merck & Co., Inc. | 18,952,524 | ||||||
66,039 | Mylan NV* | 2,794,110 | ||||||
16,129 | Perrigo Co. plc | 1,405,804 | ||||||
734,013 | Pfizer, Inc. | 26,585,951 | ||||||
60,006 | Zoetis, Inc. | 4,322,832 | ||||||
|
| |||||||
129,410,867 | ||||||||
|
| |||||||
Professional Services (0.3%): | ||||||||
14,787 | Equifax, Inc.^ | 1,743,683 | ||||||
44,734 | IHS Markit, Ltd.*^ | 2,019,741 | ||||||
41,691 | Nielsen Holdings plc^ | 1,517,552 | ||||||
15,436 | Robert Half International, Inc. | 857,315 | ||||||
19,067 | Verisk Analytics, Inc.* | 1,830,432 | ||||||
|
| |||||||
7,968,723 | ||||||||
|
| |||||||
Real Estate Management & Development (0.1%): | ||||||||
37,203 | CBRE Group, Inc., Class A* | 1,611,262 | ||||||
|
| |||||||
Road & Rail (0.9%): | ||||||||
110,055 | CSX Corp. | 6,054,126 | ||||||
10,687 | J.B. Hunt Transport Services, Inc. | 1,228,791 | ||||||
12,750 | Kansas City Southern^ | 1,341,555 | ||||||
35,237 | Norfolk Southern Corp. | 5,105,841 | ||||||
96,934 | Union Pacific Corp. | 12,998,850 | ||||||
|
| |||||||
26,729,163 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (3.8%): | ||||||||
100,986 | Advanced Micro Devices, Inc.*^ | 1,038,136 | ||||||
45,395 | Analog Devices, Inc. | 4,041,517 | ||||||
131,329 | Applied Materials, Inc. | 6,713,538 | ||||||
50,069 | Broadcom, Ltd. | 12,862,726 | ||||||
576,305 | Intel Corp. | 26,602,238 | ||||||
19,297 | KLA-Tencor Corp. | 2,027,536 | ||||||
19,942 | Lam Research Corp.^ | 3,670,724 | ||||||
28,804 | Microchip Technology, Inc.^ | 2,531,296 | ||||||
142,014 | Micron Technology, Inc.* | 5,839,616 | ||||||
74,575 | NVIDIA Corp. | 14,430,262 | ||||||
15,672 | Qorvo, Inc.* | 1,043,755 | ||||||
181,532 | QUALCOMM, Inc. | 11,621,679 | ||||||
22,626 | Skyworks Solutions, Inc. | 2,148,339 | ||||||
121,364 | Texas Instruments, Inc. | 12,675,256 | ||||||
31,081 | Xilinx, Inc. | 2,095,481 | ||||||
|
| |||||||
109,342,099 | ||||||||
|
| |||||||
Software (5.3%): | ||||||||
93,108 | Activision Blizzard, Inc. | 5,895,599 | ||||||
60,702 | Adobe Systems, Inc.* | 10,637,418 | ||||||
10,369 | ANSYS, Inc.* | 1,530,361 | ||||||
26,992 | Autodesk, Inc.* | 2,829,571 | ||||||
38,702 | CA, Inc. | 1,288,003 | ||||||
35,093 | Cadence Design Systems, Inc.*^ | 1,467,589 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Software, continued | ||||||||
17,627 | Citrix Systems, Inc.* | $ | 1,551,176 | |||||
37,919 | Electronic Arts, Inc.*^ | 3,983,770 | ||||||
29,907 | Intuit, Inc. | 4,718,726 | ||||||
949,990 | Microsoft Corp. | 81,262,145 | ||||||
375,170 | Oracle Corp. | 17,738,038 | ||||||
21,790 | Red Hat, Inc.* | 2,616,979 | ||||||
84,498 | Salesforce.com, Inc.* | 8,638,231 | ||||||
76,433 | Symantec Corp.^ | 2,144,710 | ||||||
18,501 | Synopsys, Inc.* | 1,577,025 | ||||||
|
| |||||||
147,879,341 | ||||||||
|
| |||||||
Specialty Retail (2.2%): | ||||||||
9,238 | Advance Auto Parts, Inc.^ | 920,936 | ||||||
3,386 | AutoZone, Inc.* | 2,408,699 | ||||||
31,318 | Best Buy Co., Inc. | 2,144,343 | ||||||
22,452 | CarMax, Inc.*^ | 1,439,847 | ||||||
15,269 | Foot Locker, Inc.^ | 715,811 | ||||||
26,529 | Gap, Inc. (The)^ | 903,578 | ||||||
143,799 | Home Depot, Inc. (The) | 27,254,223 | ||||||
30,409 | L Brands, Inc.^ | 1,831,230 | ||||||
102,554 | Lowe’s Cos., Inc. | 9,531,369 | ||||||
10,471 | O’Reilly Automotive, Inc.*^ | 2,518,694 | ||||||
47,483 | Ross Stores, Inc. | 3,810,511 | ||||||
7,572 | Signet Jewelers, Ltd.^ | 428,197 | ||||||
12,573 | Tiffany & Co. | 1,306,963 | ||||||
78,352 | TJX Cos., Inc. (The) | 5,990,794 | ||||||
15,417 | Tractor Supply Co. | 1,152,421 | ||||||
7,136 | Ulta Salon, Cosmetics & Fragrance, Inc.* | 1,596,038 | ||||||
|
| |||||||
63,953,654 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (4.2%): | ||||||||
632,249 | Apple, Inc. | 106,995,497 | ||||||
196,411 | Hewlett Packard Enterprise Co. | 2,820,462 | ||||||
205,678 | HP, Inc. | 4,321,295 | ||||||
33,219 | NetApp, Inc. | 1,837,675 | ||||||
35,627 | Seagate Technology plc^ | 1,490,634 | ||||||
36,301 | Western Digital Corp.^ | 2,887,019 | ||||||
26,758 | Xerox Corp. | 779,996 | ||||||
|
| |||||||
121,132,578 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (0.7%): | ||||||||
44,681 | Hanesbrands, Inc.^ | 934,280 | ||||||
18,727 | Michael Kors Holdings, Ltd.* | 1,178,865 | ||||||
161,802 | Nike, Inc., Class C | 10,120,715 | ||||||
9,645 | PVH Corp. | 1,323,390 | ||||||
6,918 | Ralph Lauren Corp.^ | 717,327 | ||||||
34,896 | Tapestry, Inc.^ | 1,543,450 | ||||||
22,376 | Under Armour, Inc., Class A*^ | 322,886 | ||||||
22,308 | Under Armour, Inc., Class C*^ | 297,143 | ||||||
40,316 | VF Corp.^ | 2,983,384 | ||||||
|
| |||||||
19,421,440 | ||||||||
|
| |||||||
Tobacco (1.3%): | ||||||||
234,978 | Altria Group, Inc. | 16,779,779 | ||||||
191,257 | Philip Morris International, Inc. | 20,206,302 | ||||||
|
| |||||||
36,986,081 | ||||||||
|
|
Continued
9
AZL S&P 500 Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Trading Companies & Distributors (0.2%): | ||||||||
35,390 | Fastenal Co.^ | $ | 1,935,480 | |||||
10,442 | United Rentals, Inc.* | 1,795,084 | ||||||
6,385 | W.W. Grainger, Inc.^ | 1,508,456 | ||||||
|
| |||||||
5,239,020 | ||||||||
|
| |||||||
Water Utilities (0.1%): | ||||||||
21,965 | American Water Works Co., Inc.^ | 2,009,578 | ||||||
|
| |||||||
Total Common Stocks (Cost $1,708,503,907) | 2,808,200,217 | |||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Securities Held as Collateral for Securities on Loan (7.1%): | ||||||||
$ | 204,447,614 | AZL S&P 500 Index Fund Securities Lending Collateral Account(a) | $ | 204,447,614 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 204,447,614 | ||||||
|
| |||||||
Unaffiliated Investment Company (1.8%): | ||||||||
52,641,889 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 1.11%(b) | 52,641,889 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $52,641,889) | 52,641,889 | |||||||
|
| |||||||
Total Investment Securities (Cost $1,965,593,410)(c) — 107.0% | 3,065,289,720 | |||||||
Net other assets (liabilities) — (7.0)% | (200,895,506 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 2,864,394,214 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2017. The total value of securities on loan as of December 31, 2017, was $198,977,069. |
+ | 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, 2017. |
(b) | The rate represents the effective yield at December 31, 2017. |
(c) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Futures Contracts
Cash of $1,909,000 has been segregated to cover margin requirements for the following open contracts as of December 31, 2017:
Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Unrealized Appreciation/ (Depreciation) | ||||||||||||
S&P 500 Index E-Mini March Futures | 3/16/18 | 420 | $ | 56,196,000 | $ | 145,542 | ||||||||||
|
| |||||||||||||||
$ | 145,542 | |||||||||||||||
|
|
See accompanying notes to the financial statements.
10
AZL S&P 500 Index Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investments in non-affiliates, at cost | $ | 1,962,044,418 | |||
Investments in affiliates, at cost | 3,548,992 | ||||
|
| ||||
Total Investment securities, at cost | $ | 1,965,593,410 | |||
|
| ||||
Investments in non-affiliates, at value* | $ | 3,057,473,622 | |||
Investments in affiliates, at value | 7,816,098 | ||||
|
| ||||
Total Investment securities, at value | 3,065,289,720 | ||||
Cash | 104,040 | ||||
Segregated cash for collateral | 1,909,000 | ||||
Interest and dividends receivable | 2,926,514 | ||||
Receivable for investments sold | 2,987,043 | ||||
Reclaims receivable | 1,641 | ||||
Prepaid expenses | 16,400 | ||||
|
| ||||
Total Assets | 3,073,234,358 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 986,023 | ||||
Payable for capital shares redeemed | 1,371,667 | ||||
Payable for collateral received on loaned securities | 204,447,614 | ||||
Payable for variation margin on futures contracts | 203,700 | ||||
Manager fees payable | 414,852 | ||||
Administration fees payable | 63,395 | ||||
Distribution fees payable | 593,892 | ||||
Custodian fees payable | 12,656 | ||||
Administrative and compliance services fees payable | 8,835 | ||||
Transfer agent fees payable | 2,572 | ||||
Trustee fees payable | 5,693 | ||||
Other accrued liabilities | 729,245 | ||||
|
| ||||
Total Liabilities | 208,840,144 | ||||
|
| ||||
Net Assets | $ | 2,864,394,214 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 1,658,614,287 | |||
Accumulated net investment income/(loss) | 42,746,822 | ||||
Accumulated net realized gains/(losses) from investment transactions | 63,191,235 | ||||
Net unrealized appreciation/(depreciation) on investments | 1,099,841,870 | ||||
|
| ||||
Net Assets | $ | 2,864,394,214 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 76,049,112 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 4,680,370 | ||||
Net Asset Value (offering and redemption price per share) | $ | 16.25 | |||
|
| ||||
Class 2 | |||||
Net Assets | $ | 2,788,345,102 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 172,915,110 | ||||
Net Asset Value (offering and redemption price per share) | $ | 16.13 | |||
|
|
* | Includes securities on loan of $198,977,069. |
For the Year Ended December 31, 2017
Investment Income: | |||||
Dividends | $ | 55,810,934 | |||
Dividends from affiliates | 156,362 | ||||
Interest | 4,710 | ||||
Income from securities lending | 476,216 | ||||
Other income | 108,903 | ||||
Foreign withholding tax | (548 | ) | |||
|
| ||||
Total Investment Income | 56,556,577 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 4,668,494 | ||||
Administration fees | 676,963 | ||||
Distribution fees — Class 2 | 6,679,409 | ||||
Custodian fees | 66,703 | ||||
Administrative and compliance services fees | 32,377 | ||||
Transfer agent fees | 13,650 | ||||
Trustee fees | 114,685 | ||||
Professional fees | 140,957 | ||||
Shareholder reports | 59,518 | ||||
Other expenses | 589,345 | ||||
|
| ||||
Total expenses | 13,042,101 | ||||
|
| ||||
Net Investment Income/(Loss) | 43,514,476 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions and foreign currencies | 85,340,437 | ||||
Net realized gains/(losses) on affiliated transactions | 253,587 | ||||
Net realized gains/(losses) on futures contracts | 6,496,637 | ||||
Change in net unrealized appreciation/depreciation on investments and foreign currencies | 394,397,172 | ||||
Change in net unrealized appreciation/depreciation on affiliated transactions | 1,803,381 | ||||
Change in net unrealized appreciation/depreciation on futures contracts | 27,447 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 488,318,661 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 531,833,137 | |||
|
|
See accompanying notes to the financial statements.
11
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 43,514,476 | $ | 26,116,190 | ||||||
Net realized gains/(losses) on investment transactions | 92,090,661 | 118,985,130 | ||||||||
Change in unrealized appreciation/depreciation on investments | 396,228,000 | 59,736,496 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 531,833,137 | 204,837,816 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1 | (777,776 | ) | (437,996 | ) | ||||||
Class 2 | (24,758,127 | ) | (22,169,172 | ) | ||||||
From net realized gains: | ||||||||||
Class 1 | (3,320,977 | ) | (2,013,892 | ) | ||||||
Class 2 | (121,259,871 | ) | (118,029,175 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (150,116,751 | ) | (142,650,235 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Class 1 | ||||||||||
Proceeds from shares issued | 291,055 | 52,913,478 | ||||||||
Proceeds from dividends reinvested | 4,098,753 | 2,451,888 | ||||||||
Value of shares redeemed | (11,407,094 | ) | (5,383,908 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | (7,017,286 | ) | 49,981,458 | |||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Proceeds from shares issued | 39,504,184 | 869,201,268 | ||||||||
Proceeds from shares issued in merger | — | 448,802,807 | ||||||||
Proceeds from dividends reinvested | 146,017,998 | 140,198,347 | ||||||||
Value of shares redeemed | (330,649,414 | ) | (179,136,993 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | (145,127,232 | ) | 1,279,065,429 | |||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (152,144,518 | ) | 1,329,046,887 | |||||||
|
|
|
| |||||||
Change in net assets | 229,571,868 | 1,391,234,468 | ||||||||
Net Assets: | ||||||||||
Beginning of period | 2,634,822,346 | 1,243,587,878 | ||||||||
|
|
|
| |||||||
End of period | $ | 2,864,394,214 | $ | 2,634,822,346 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 42,746,822 | $ | 25,340,250 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Class 2 | ||||||||||
Shares issued | 2,654,250 | 64,967,103 | ||||||||
Shares issued in merger | — | 33,492,747 | ||||||||
Dividends reinvested | 9,734,533 | 10,541,229 | ||||||||
Shares redeemed | (21,667,977 | ) | (12,789,292 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | (9,279,194 | ) | 96,211,787 | |||||||
|
|
|
| |||||||
Class 1 | ||||||||||
Shares issued | 18,260 | 3,930,237 | ||||||||
Dividends reinvested | 271,441 | 183,387 | ||||||||
Shares redeemed | (740,720 | ) | (380,983 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | (451,019 | ) | 3,732,641 | |||||||
|
|
|
| |||||||
Change in shares | (9,730,213 | ) | 99,944,428 | |||||||
|
|
|
|
See accompanying notes to the financial statements.
12
AZL S&P 500 Index Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||||
Class 1 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 14.15 | $ | 14.31 | $ | 14.50 | $ | 12.96 | $ | 9.95 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.28 | (a) | 0.28 | (a) | 0.27 | (a) | 0.24 | (a) | 0.21 | (a) | |||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 2.71 | 1.30 | (0.12 | ) | 1.49 | 2.96 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 2.99 | 1.58 | 0.15 | 1.73 | 3.17 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.17 | ) | (0.31 | ) | (0.34 | ) | (0.19 | ) | (0.16 | ) | |||||||||||||||
Net Realized Gains | (0.72 | ) | (1.43 | ) | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.89 | ) | (1.74 | ) | (0.34 | ) | (0.19 | ) | (0.16 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 16.25 | $ | 14.15 | $ | 14.31 | $ | 14.50 | $ | 12.96 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(b) | 21.60 | % | 11.79 | % | 1.16 | % | 13.41 | % | 32.02 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 76,049 | $ | 72,604 | $ | 20,022 | $ | 21,304 | $ | 19,334 | |||||||||||||||
Net Investment Income/(Loss) | 1.83 | % | 1.98 | % | 1.86 | % | 1.76 | % | 1.81 | % | |||||||||||||||
Expenses Before Reductions(c) | 0.23 | % | 0.24 | % | 0.24 | % | 0.24 | % | 0.24 | % | |||||||||||||||
Expenses Net of Reductions | 0.23 | % | 0.24 | % | 0.24 | % | 0.24 | % | 0.24 | % | |||||||||||||||
Portfolio Turnover Rate(d) | 2 | % | 23 | % | 8 | % | 3 | % | 4 | % | |||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 14.06 | $ | 14.23 | $ | 14.40 | $ | 12.88 | $ | 9.90 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.24 | (a) | 0.24 | (a) | 0.23 | (a) | 0.20 | (a) | 0.18 | (a) | |||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 2.70 | 1.29 | (0.11 | ) | 1.48 | 2.94 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 2.94 | 1.53 | 0.12 | 1.68 | 3.12 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.15 | ) | (0.27 | ) | (0.29 | ) | (0.16 | ) | (0.14 | ) | |||||||||||||||
Net Realized Gains | (0.72 | ) | (1.43 | ) | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.87 | ) | (1.70 | ) | (0.29 | ) | (0.16 | ) | (0.14 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 16.13 | $ | 14.06 | $ | 14.23 | $ | 14.40 | $ | 12.88 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(b) | 21.36 | % | 11.45 | % | 0.95 | % | 13.12 | % | 31.66 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 2,788,345 | $ | 2,562,218 | $ | 1,223,566 | $ | 1,743,919 | $ | 1,547,689 | |||||||||||||||
Net Investment Income/(Loss) | 1.58 | % | 1.75 | % | 1.58 | % | 1.51 | % | 1.56 | % | |||||||||||||||
Expenses Before Reductions(c) | 0.48 | % | 0.49 | % | 0.49 | % | 0.49 | % | 0.49 | % | |||||||||||||||
Expenses Net of Reductions | 0.48 | % | 0.49 | % | 0.49 | % | 0.49 | % | 0.49 | % | |||||||||||||||
Portfolio Turnover Rate(d) | 2 | % | 23 | % | 8 | % | 3 | % | 4 | % |
(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, 2017
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 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 accrues 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 and Withholding Taxes
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, or from other assets and liabilities, from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains is determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., reclassification of gain/loss and other permanent adjustments), 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. Each class of shares bears its pro-rata portion of expenses attributable to its series, except that each class separately bears expenses related specifically to that class, such as distribution fees. Expenses which are attributable to more than one Trust are allocated across the Allianz Variable Insurance Products and Allianz Variable Insurance Products Fund of Funds Trusts based upon relative net assets or another reasonable basis. Allianz Investment Management LLC (the “Manager”), serves as the investment manager for the Trust and the Allianz Variable Insurance Products Fund of Funds Trust.
14
AZL S&P 500 Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017 are noted on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $270 million for the year ended December 31, 2017.
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 $44,511 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The fund had securities lending transactions of $204,447,614 accounted for as secured borrowings with cash collateral of overnight and continuous maturities as of December 31, 2017.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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. For the year ended December 31, 2017, the Fund participated in the following cross-trade transactions:
Purchases | Sales | Realized (Gain/Loss) | |||||||||||||
AZL S&P 500 Index Fund | $ | 15,420,525 | $ | 6,320,447 | $ | (2,060,407 | ) |
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, 2017, 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. For the year ended December 31, 2017, the monthly average notional amount for long contracts was $39.9 million. 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, 2017:
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 | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 145,542 | Payable for variation 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. |
15
AZL S&P 500 Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017:
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 | ||||||||||
Equity Contracts | Net realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | $ | 6,496,637 | $ | 27,447 |
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, 2019.
For the year ended December 31, 2017, the annual rate paid 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, 2017, there were no contractual reimbursements 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, 2017, there were no voluntary waivers.
At December 31, 2017, the following investments are noted as Affiliated Securities in the Fund’s Schedule of Portfolio Investments.
Fair Value 12/31/2016 | Purchases at Cost | Proceeds from Sales | Net Realized Gain/(Loss) | Net Change in Unrealized Appreciation/ Depreciation | Fair Value 12/31/2017 | Shares as of 12/31/2017 | Dividend Income | |||||||||||||||||||||||||||||||||
BlackRock Inc., Class A | $ | 6,185,678 | $ | — | $ | (426,548 | ) | $ | 253,587 | $ | 1,803,381 | $ | 7,816,098 | 15,215 | $ | 156,362 | ||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||
$ | 6,185,678 | $ | — | $ | (426,548 | ) | $ | 253,587 | $ | 1,803,381 | $ | 7,816,098 | 15,215 | $ | 156,362 | |||||||||||||||||||||||||
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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.”
FIS Investor Services LLC (“FIS”) 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.
16
AZL S&P 500 Index Fund
Notes to the Financial Statements
December 31, 2017
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 of 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, 2017, $29,067 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, 2017, actual Trustee compensation was $1,116,333 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, 2017, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value. There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Other^ | Total | ||||||||||||||||
Common Stocks+ | $ | 2,808,200,217 | $ | — | $ | — | $ | 2,808,200,217 | ||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | 204,447,614 | 204,447,614 | ||||||||||||||||
Unaffiliated Investment Company | 52,641,889 | — | — | 52,641,889 | ||||||||||||||||
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Total Investment Securities | 2,860,842,106 | — | 204,447,614 | 3,065,289,720 | ||||||||||||||||
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Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | 145,542 | — | — | 145,542 | ||||||||||||||||
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Total Investments | $ | 2,860,987,648 | $ | — | $ | 204,447,614 | $ | 3,065,435,262 | ||||||||||||
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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 presented in the financial statements at variation margin. |
^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
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AZL S&P 500 Index Fund
Notes to the Financial Statements
December 31, 2017
5. Security Purchases and Sales
For the year ended December 31, 2017, 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 | $ | 60,952,281 | $ | 306,884,254 |
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, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $1,991,524,201. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 1,099,194,831 | ||
Unrealized (depreciation) | (25,429,312 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 1,073,765,519 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL S&P 500 Index Fund | $ | 31,392,251 | $ | 118,724,500 | $ | 150,116,751 |
(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, 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. |
At December 31, 2017, 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 Earnings/ | |||||||||||||||||||||
AZL S&P 500 Index Fund | $ | 46,679,074 | $ | 85,335,317 | $ | — | $ | 1,073,765,536 | $ | 1,205,779,927 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2017, the Fund had multiple shareholder accounts which are affiliated with the Investment Adviser representing ownership in excess of 65% of the Fund.
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AZL S&P 500 Index Fund
Notes to the Financial Statements
December 31, 2017
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
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, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, 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.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
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Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2017, 77.11% 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, 2017, the Fund declared net short-term capital gain distributions of $5,856,348.
During the year ended December 31, 2017, the Fund declared net long-term capital gain distributions of $118,724,500.
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A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
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Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
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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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
24
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in 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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
27
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® Small Cap Stock Index Fund
Annual Report
December 31, 2017
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
Page 12
Statements of Changes in Net Assets
Page 13
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
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, 2017?
For the year ended December 31, 2017, the Class 2 shares of the AZL® Small Cap Stock Index Fund (the “Fund”) returned 12.75%. That compared to a 13.23% 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. It is an unmanaged, market capitalization-weighted index composed of small-capitalization U.S. equities.*
Steady economic growth and a strengthening labor market helped support the U.S. Federal Reserve’s decision to increase the federal funds rate by 25 basis points (0.25%) in March. It marked the second rate hike in the past six months and drove higher performance among more growth-oriented and cyclical assets.
Political risk created a headwind for U.S. equities in the second quarter of 2017. In May, President Trump’s firing of FBI Director James Comey and the subsequent investigation of pre-election correspondence between administration members and Russian officials became an enduring source of negative market sentiment. One of the largest single-day dips of the quarter occurred in the wake of the House Oversight Committee’s request for all documents from meetings between President Trump and Comey on May 17.
The third quarter witnessed investors focused on sustained corporate earnings expansion, a subdued interest rate environment, and a healthy economic backdrop, despite threats from an increasingly hostile North Korea and a damaging hurricane season. As a result, volatility dropped to the lowest levels in recorded history, with the CBOE Volatility index2 averaging a record low of 10.94 in the quarter.
The Fund underperformed it’s benchmark for the period. The U.S. economy continued to demonstrate strength throughout the fourth quarter. Unemployment dipped to 4.1%, the lowest level since 2000. Third quarter gross domestic product3 (GDP) surged to 4.1% year over year, and real GDP rose 2.3% year over year, which boosted investor confidence.
From a sector perspective, the strongest returns in the S&P 600® Index came from health care (+34.74%) stocks. Increases were seen across most sectors, including strong results in the utilities (+19.04%) and industrials (+17.28%) sectors. By comparison, the energy (-34.75%) sector experienced the only negative return for the reporting period.
The Fund held derivatives in the form of futures contracts, which it used to hedge its cash position. The futures had a slight negative 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, 2017. |
1 | For a complete description of the Fund’s performance benchmark please refer to page 2 of this report. |
2 | Chicago Board Options Exchange (CBOE) Volatility Index shows the markets expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking, is calculated from both calls and puts, and is a widely used measure of market risk. |
3 | Gross Domestic Product (GDP) is the measure of the market value of the goods and services produced in a period of time. |
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, 2017
Inception | 1 | 3 | 5 | 10 | Since | |||||||||||||||||
Date | Year | Year | Year | Year | Inception | |||||||||||||||||
AZL® Small Cap Stock Index Fund | 10/14/16 | 12.94 | % | — | — | — | 22.97 | % | ||||||||||||||
AZL® Small Cap Stock Index Fund | 5/1/07 | 12.75 | % | 11.39 | % | 15.38 | % | 9.90 | % | 8.63 | % | |||||||||||
S&P SmallCap 600 Index | 5/1/07 | 13.23 | % | 12.00 | % | 15.99 | % | 10.43 | % | 9.12 | % |
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost. To obtain performance information current to the most recent month end, please visit www.Allianzlife.com.
Expense Ratio | Gross | |||
AZL® Small Cap Stock Index Fund (Class 1 Shares) | 0.33 | % | ||
AZL® Small Cap Stock Index Fund (Class 2 Shares) | 0.58 | % |
Expense Ratios are based on the current Fund prospectus dated May 1, 2017. 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, 2019. Additional information pertaining to the December 31, 2017 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
(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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Small Cap Stock Index Fund, Class 1 | $ | 1,000.00 | $ | 1,099.40 | $ | 1.64 | 0.31 | % | ||||||||||||
AZL Small Cap Stock Index Fund, Class 2 | $ | 1,000.00 | $ | 1,098.90 | $ | 2.96 | 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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense Ratio During Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL Small Cap Stock Index Fund, Class 1 | $ | 1,000.00 | $ | 1,023.65 | $ | 1.58 | 0.31 | % | ||||||||||||
AZL Small Cap Stock Index Fund, Class 2 | $ | 1,000.00 | $ | 1,022.39 | $ | 2.86 | 0.56 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Industrials | 19.3 | % | |||
Consumer Discretionary | 15.7 | ||||
Financials | 15.7 | ||||
Information Technology | 13.8 | ||||
Health Care | 13.1 | ||||
Real Estate | 5.7 | ||||
Materials | 5.5 | ||||
Energy | 3.4 | ||||
Utilities | 2.7 | ||||
Consumer Staples | 2.6 | ||||
Telecommunication Services | 1.1 | ||||
|
| ||||
Total Common Stocks | 98.6 | ||||
Right | — | ^ | |||
Securities Held as Collateral for Securities on Loan | 27.5 | ||||
Money Market | 0.9 | ||||
|
| ||||
Total Investment Securities | 127.0 | ||||
Net other assets (liabilities) | (27.0 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks (98.6%): | ||||||||
Aerospace & Defense (2.0%): | ||||||||
38,625 | AAR Corp.^ | $ | 1,517,576 | |||||
88,755 | Aerojet Rocketdyne Holdings, Inc.*^ | 2,769,156 | ||||||
24,787 | AeroVironment, Inc.*^ | 1,392,038 | ||||||
62,864 | Axon Enterprise, Inc.*^ | 1,665,896 | ||||||
29,745 | Cubic Corp. | 1,753,468 | ||||||
22,288 | Engility Holdings, Inc.*^ | 632,311 | ||||||
56,998 | Mercury Computer Systems, Inc.*^ | 2,926,847 | ||||||
38,199 | Moog, Inc., Class A* | 3,317,583 | ||||||
5,944 | National Presto Industries, Inc.^ | 591,131 | ||||||
58,535 | Triumph Group, Inc.^ | 1,592,152 | ||||||
|
| |||||||
18,158,158 | ||||||||
|
| |||||||
Air Freight & Logistics (0.7%): | ||||||||
29,870 | Atlas Air Worldwide Holdings, Inc.*^ | 1,751,876 | ||||||
31,149 | Echo Global Logistics, Inc.*^ | 872,172 | ||||||
34,211 | Forward Air Corp.^ | 1,965,079 | ||||||
39,635 | Hub Group, Inc.* | 1,898,517 | ||||||
|
| |||||||
6,487,644 | ||||||||
|
| |||||||
Airlines (0.9%): | ||||||||
14,764 | Allegiant Travel Co.^ | 2,284,729 | ||||||
61,598 | Hawaiian Holdings, Inc.^ | 2,454,680 | ||||||
61,330 | SkyWest, Inc.^ | 3,256,623 | ||||||
|
| |||||||
7,996,032 | ||||||||
|
| |||||||
Auto Components (1.7%): | ||||||||
117,475 | American Axle & Manufacturing Holdings, Inc.*^ | 2,000,599 | ||||||
18,623 | Cooper-Standard Holding, Inc.*^ | 2,281,318 | ||||||
35,171 | Dorman Products, Inc.*^ | 2,150,355 | ||||||
43,818 | Fox Factory Holding Corp.*^ | 1,702,329 | ||||||
43,619 | Gentherm, Inc.*^ | 1,384,903 | ||||||
29,431 | LCI Industries^ | 3,826,030 | ||||||
20,578 | Motorcar Parts of America, Inc.*^ | 514,244 | ||||||
23,470 | Standard Motor Products, Inc.^ | 1,054,038 | ||||||
28,978 | Superior Industries International, Inc.^ | 430,323 | ||||||
|
| |||||||
15,344,139 | ||||||||
|
| |||||||
Automobiles (0.2%): | ||||||||
34,318 | Winnebago Industries, Inc.^ | 1,908,081 | ||||||
|
| |||||||
Banks (7.5%): | ||||||||
44,272 | Ameris Bancorp^ | 2,133,910 | ||||||
50,871 | Banc of California, Inc.^ | 1,050,486 | ||||||
39,212 | Banner Corp.^ | 2,161,365 | ||||||
100,940 | Boston Private Financial Holdings, Inc.^ | 1,559,523 | ||||||
92,266 | Brookline Bancorp, Inc. | 1,448,576 | ||||||
35,005 | Central Pacific Financial Corp. | 1,044,199 | ||||||
18,616 | City Holding Co.^ | 1,256,022 | ||||||
86,181 | Columbia Banking System, Inc. | 3,743,704 | ||||||
59,795 | Community Bank System, Inc.^ | 3,213,981 | ||||||
35,152 | Customers Bancorp, Inc.* | 913,600 | ||||||
121,384 | CVB Financial Corp.^ | 2,859,807 | ||||||
27,198 | Fidelity Southern Corp.^ | 592,916 | ||||||
220,434 | First Bancorp* | 1,124,214 | ||||||
116,751 | First Commonwealth Financial Corp. | 1,671,874 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Banks, continued | ||||||||
74,136 | First Financial Bancorp | $ | 1,953,484 | |||||
78,175 | First Financial Bankshares, Inc.^ | 3,521,784 | ||||||
121,671 | First Midwest Bancorp, Inc.^ | 2,921,321 | ||||||
92,172 | Glacier Bancorp, Inc.^ | 3,630,655 | ||||||
69,588 | Great Western Bancorp, Inc. | 2,769,602 | ||||||
39,260 | Hanmi Financial Corp. | 1,191,541 | ||||||
152,448 | Hope BanCorp, Inc. | 2,782,176 | ||||||
32,654 | Independent Bank Corp.^ | 2,280,882 | ||||||
50,308 | LegacyTexas Financial Group, Inc.^ | 2,123,501 | ||||||
31,624 | National Bank Holdings Corp.^ | 1,025,566 | ||||||
51,954 | NBT Bancorp, Inc.^ | 1,911,907 | ||||||
55,858 | OFG Bancorp | 525,065 | ||||||
158,599 | Old National Bancorp^ | 2,767,553 | ||||||
21,253 | Opus Bank*^ | 580,207 | ||||||
46,032 | Pacific Premier Bancorp, Inc.*^ | 1,841,280 | ||||||
41,941 | S & T Bancorp, Inc.^ | 1,669,671 | ||||||
53,594 | ServisFirst Bancshares, Inc.^ | 2,224,151 | ||||||
46,432 | Simmons First National Corp., Class A^ | 2,651,267 | ||||||
32,461 | Southside Bancshares, Inc.^ | 1,093,286 | ||||||
14,954 | Tompkins Financial Corp.^ | 1,216,508 | ||||||
85,345 | United Community Banks, Inc. | 2,401,608 | ||||||
31,436 | Westamerica Bancorp^ | 1,872,014 | ||||||
|
| |||||||
69,729,206 | ||||||||
|
| |||||||
Beverages (0.1%): | ||||||||
5,503 | Coca-Cola Bottling Co. Consolidated^ | 1,184,576 | ||||||
|
| |||||||
Biotechnology (2.0%): | ||||||||
54,584 | Acorda Therapeutics, Inc.*^ | 1,170,827 | ||||||
42,496 | AMAG Pharmaceuticals, Inc.*^ | 563,072 | ||||||
58,155 | Cytokinetics, Inc.*^ | 473,963 | ||||||
9,949 | Eagle Pharmaceuticals, Inc.*^ | 531,476 | ||||||
40,995 | Emergent Biosolutions, Inc.*^ | 1,905,038 | ||||||
16,249 | Enanta Pharmaceuticals, Inc.* | 953,491 | ||||||
24,777 | Ligand Pharmaceuticals, Inc., Class B*^ | 3,392,714 | ||||||
119,482 | Mimedx Group, Inc.*^ | 1,506,668 | ||||||
88,504 | Momenta Pharmaceuticals, Inc.*^ | 1,234,631 | ||||||
80,955 | Myriad Genetics, Inc.*^ | 2,780,399 | ||||||
80,844 | Progenics Pharmaceuticals, Inc.*^ | 481,022 | ||||||
43,728 | Repligen Corp.*^ | 1,586,452 | ||||||
105,594 | Spectrum Pharmaceuticals, Inc.*^ | 2,001,006 | ||||||
|
| |||||||
18,580,759 | ||||||||
|
| |||||||
Building Products (2.3%): | ||||||||
47,192 | AAON, Inc.^ | 1,731,946 | ||||||
16,721 | American Woodmark Corp.* | 2,177,910 | ||||||
33,325 | Apogee Enterprises, Inc.^ | 1,523,952 | ||||||
36,410 | Gibraltar Industries, Inc.*^ | 1,201,530 | ||||||
36,405 | Griffon Corp. | 740,842 | ||||||
20,511 | Insteel Industries, Inc.^ | 580,872 | ||||||
28,335 | Patrick Industries, Inc.*^ | 1,967,866 | ||||||
58,211 | PGT, Inc.* | 980,855 | ||||||
39,872 | Quanex Building Products Corp. | 933,005 | ||||||
49,428 | Simpson Manufacturing Co., Inc.^ | 2,837,661 |
Continued
4
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Building Products, continued | ||||||||
34,702 | Trex Co., Inc.*^ | $ | 3,761,350 | |||||
71,942 | Universal Forest Products, Inc.^ | 2,706,458 | ||||||
|
| |||||||
21,144,247 | ||||||||
|
| |||||||
Capital Markets (1.2%): | ||||||||
41,185 | Donnelley Financial Solutions, Inc.*^ | 802,696 | ||||||
75,204 | Financial Engines, Inc.^ | 2,278,681 | ||||||
30,676 | Greenhill & Co., Inc.^ | 598,182 | ||||||
19,106 | INTL FCStone, Inc.* | 812,578 | ||||||
41,233 | Investment Technology Group, Inc. | 793,735 | ||||||
17,160 | Piper Jaffray Cos., Inc.^ | 1,480,050 | ||||||
8,799 | Virtus Investment Partners, Inc.^ | 1,012,325 | ||||||
71,688 | Waddell & Reed Financial, Inc., Class A^ | 1,601,510 | ||||||
131,150 | WisdomTree Investments, Inc.^ | 1,645,933 | ||||||
|
| |||||||
11,025,690 | ||||||||
|
| |||||||
Chemicals (3.0%): | ||||||||
35,321 | A. Schulman, Inc.^ | 1,315,707 | ||||||
35,806 | Advansix, Inc.* | 1,506,358 | ||||||
30,685 | American Vanguard Corp.^ | 602,960 | ||||||
37,824 | Balchem Corp.^ | 3,048,614 | ||||||
59,364 | Calgon Carbon Corp.^ | 1,264,453 | ||||||
67,273 | Flotek Industries, Inc.*^ | 313,492 | ||||||
27,932 | Futurefuel Corp. | 393,562 | ||||||
59,446 | H.B. Fuller Co.^ | 3,202,356 | ||||||
11,190 | Hawkins, Inc. | 393,888 | ||||||
49,707 | Ingevity Corp.* | 3,502,853 | ||||||
22,880 | Innophos Holdings, Inc. | 1,069,182 | ||||||
28,425 | Innospec, Inc. | 2,006,805 | ||||||
25,130 | Koppers Holdings, Inc.* | 1,279,117 | ||||||
36,617 | Kraton Performance Polymers, Inc.* | 1,763,841 | ||||||
24,964 | LSB Industries, Inc.*^ | 218,685 | ||||||
15,247 | Quaker Chemical Corp.^ | 2,299,095 | ||||||
61,459 | Rayonier Advanced Materials, Inc.^ | 1,256,837 | ||||||
23,314 | Stepan Co. | 1,841,107 | ||||||
31,510 | Tredegar Corp. | 604,992 | ||||||
|
| |||||||
27,883,904 | ||||||||
|
| |||||||
Commercial Services & Supplies (3.0%): | ||||||||
65,767 | ABM Industries, Inc.^ | 2,480,731 | ||||||
56,777 | Brady Corp., Class A | 2,151,848 | ||||||
46,392 | Essendant, Inc.^ | 430,054 | ||||||
86,247 | Healthcare Services Group, Inc.^ | 4,546,943 | ||||||
72,012 | Interface, Inc. | 1,811,102 | ||||||
42,764 | LSC Communications, Inc.^ | 647,875 | ||||||
38,098 | Matthews International Corp., Class A | 2,011,574 | ||||||
52,838 | Mobile Mini, Inc.^ | 1,822,911 | ||||||
16,384 | Multi-Color Corp.^ | 1,226,342 | ||||||
86,013 | RR Donnelley & Sons Co.^ | 799,921 | ||||||
35,169 | Team, Inc.*^ | 524,018 | ||||||
65,936 | Tetra Tech, Inc. | 3,174,818 | ||||||
18,263 | UniFirst Corp.^ | 3,011,569 | ||||||
25,990 | US Ecology, Inc.^ | 1,325,490 | ||||||
24,241 | Viad Corp. | 1,342,951 | ||||||
|
| |||||||
27,308,147 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Communications Equipment (1.5%): | ||||||||
57,317 | ADTRAN, Inc.^ | $ | 1,109,084 | |||||
22,768 | Applied Optoelectronics, Inc.*^ | 861,086 | ||||||
11,577 | Bel Fuse, Inc., Class B^ | 291,451 | ||||||
41,848 | CalAmp Corp.* | 896,803 | ||||||
27,979 | Comtech Telecommunications Corp. | 618,895 | ||||||
32,413 | Digi International, Inc.* | 309,544 | ||||||
95,045 | Harmonic, Inc.*^ | 399,189 | ||||||
72,600 | Lumentum Holdings, Inc.*^ | 3,550,140 | ||||||
37,483 | NETGEAR, Inc.*^ | 2,202,126 | ||||||
200,121 | Oclaro, Inc.*^ | 1,348,816 | ||||||
268,716 | Viavi Solutions, Inc.*^ | 2,348,578 | ||||||
|
| |||||||
13,935,712 | ||||||||
|
| |||||||
Construction & Engineering (0.4%): | ||||||||
37,806 | Aegion Corp.*^ | 961,407 | ||||||
43,160 | Comfort Systems USA, Inc.^ | 1,883,934 | ||||||
19,248 | MYR Group, Inc.*^ | 687,731 | ||||||
33,782 | Orion Marine Group, Inc.* | 264,513 | ||||||
|
| |||||||
3,797,585 | ||||||||
|
| |||||||
Construction Materials (0.2%): | ||||||||
18,482 | U.S. Concrete, Inc.*^ | 1,546,019 | ||||||
|
| |||||||
Consumer Finance (1.3%): | ||||||||
28,630 | Encore Capital Group, Inc.*^ | 1,205,323 | ||||||
42,002 | Enova International, Inc.*^ | 638,430 | ||||||
63,573 | EZCORP, Inc., Class A*^ | 775,591 | ||||||
55,703 | Firstcash, Inc. | 3,757,167 | ||||||
54,080 | Green Dot Corp., Class A*^ | 3,258,861 | ||||||
53,957 | PRA Group, Inc.*^ | 1,791,372 | ||||||
7,472 | World Acceptance Corp.*^ | 603,140 | ||||||
|
| |||||||
12,029,884 | ||||||||
|
| |||||||
Containers & Packaging (0.1%): | ||||||||
26,779 | Myers Industries, Inc. | 522,191 | ||||||
|
| |||||||
Distributors (0.2%): | ||||||||
54,063 | Core Markt Holdngs Co., Inc.^ | 1,707,310 | ||||||
|
| |||||||
Diversified Consumer Services (0.5%): | ||||||||
19,778 | American Public Education, Inc.*^ | 495,439 | ||||||
13,788 | Capella Education Co. | 1,067,191 | ||||||
77,655 | Career Education Corp.* | 938,072 | ||||||
41,792 | Regis Corp.*^ | 641,925 | ||||||
12,615 | Strayer Education, Inc. | 1,130,052 | ||||||
|
| |||||||
4,272,679 | ||||||||
|
| |||||||
Diversified Telecommunication Services (1.1%): | ||||||||
13,512 | ATN International, Inc.^ | 746,673 | ||||||
51,415 | Cincinnati Bell, Inc.* | 1,072,003 | ||||||
49,045 | Cogent Communications Group, Inc.^ | 2,221,739 | ||||||
78,781 | Consolidated Communications Holdings, Inc.^ | 960,340 | ||||||
31,053 | General Communication, Inc., Class A*^ | 1,211,688 | ||||||
100,813 | Iridium Communications, Inc.*^ | 1,189,593 | ||||||
247,259 | Vonage Holdings Corp.* | 2,514,624 | ||||||
|
| |||||||
9,916,660 | ||||||||
|
|
Continued
5
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Electric Utilities (0.8%): | ||||||||
59,894 | ALLETE, Inc.^ | $ | 4,453,718 | |||||
47,369 | El Paso Electric Co. | 2,621,874 | ||||||
|
| |||||||
7,075,592 | ||||||||
|
| |||||||
Electrical Equipment (0.6%): | ||||||||
29,864 | AZZ, Inc.^ | 1,526,050 | ||||||
24,341 | Encore Wire Corp. | 1,184,190 | ||||||
58,347 | General Cable Corp. | 1,727,071 | ||||||
9,240 | Powell Industries, Inc. | 264,726 | ||||||
18,000 | Vicor Corp.*^ | 376,200 | ||||||
|
| |||||||
5,078,237 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (3.9%): | ||||||||
16,171 | Agilysys, Inc.* | 198,580 | ||||||
34,139 | Anixter International, Inc.*^ | 2,594,564 | ||||||
33,425 | Badger Meter, Inc.^ | 1,597,715 | ||||||
58,388 | Benchmark Electronics, Inc.* | 1,699,091 | ||||||
22,632 | Control4 Corp.*^ | 673,528 | ||||||
36,587 | CTS Corp. | 942,115 | ||||||
45,270 | Daktronics, Inc.^ | 413,315 | ||||||
38,016 | Electro Scientific Industries, Inc.*^ | 814,683 | ||||||
16,433 | ePlus, Inc.* | 1,235,762 | ||||||
43,297 | Fabrinet*^ | 1,242,624 | ||||||
19,251 | FARO Technologies, Inc.*^ | 904,797 | ||||||
64,578 | II-VI, Inc.*^ | 3,031,937 | ||||||
41,746 | Insight Enterprises, Inc.* | 1,598,454 | ||||||
39,895 | Itron, Inc.* | 2,720,839 | ||||||
57,067 | KEMET Corp.*^ | 859,429 | ||||||
42,891 | Methode Electronics, Inc., Class A^ | 1,719,929 | ||||||
20,609 | MTS Systems Corp.^ | 1,106,703 | ||||||
20,513 | OSI Systems, Inc.*^ | 1,320,627 | ||||||
19,720 | Park Electrochemical Corp.^ | 387,498 | ||||||
38,449 | Plexus Corp.* | 2,334,623 | ||||||
21,448 | Rogers Corp.*^ | 3,472,860 | ||||||
84,756 | Sanmina Corp.* | 2,796,948 | ||||||
29,312 | ScanSource, Inc.*^ | 1,049,370 | ||||||
107,174 | TTM Technologies, Inc.*^ | 1,679,417 | ||||||
|
| |||||||
36,395,408 | ||||||||
|
| |||||||
Energy Equipment & Services (1.9%): | ||||||||
85,591 | Archrock, Inc. | 898,706 | ||||||
38,557 | Bristow Group, Inc.^ | 519,363 | ||||||
26,077 | CARBO Ceramics, Inc.*^ | 265,464 | ||||||
23,814 | Era Group, Inc.*^ | 256,001 | ||||||
36,546 | Exterran Corp.* | 1,149,006 | ||||||
14,159 | Geospace Technologies Corp.* | 183,642 | ||||||
12,801 | Gulf Island Fabrication, Inc.^ | 171,853 | ||||||
161,438 | Helix Energy Solutions Group, Inc.*^ | 1,217,243 | ||||||
31,129 | Matrix Service Co.* | 554,096 | ||||||
332,578 | McDermott International, Inc.*^ | 2,188,363 | ||||||
100,669 | Newpark Resources, Inc.*^ | 865,753 | ||||||
295,569 | Noble Corp. plc*^ | 1,335,971 | ||||||
57,652 | Oil States International, Inc.*^ | 1,631,552 | ||||||
93,733 | Pioneer Energy Services Corp.* | 285,886 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Energy Equipment & Services, continued | ||||||||
19,541 | SEACOR Holdings, Inc.^ | $ | 903,185 | |||||
138,929 | TETRA Technologies, Inc.* | 593,227 | ||||||
95,333 | U.S. Silica Holdings, Inc.^ | 3,104,041 | ||||||
61,766 | Unit Corp.*^ | 1,358,852 | ||||||
|
| |||||||
17,482,204 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (5.4%): | ||||||||
97,107 | Acadia Realty Trust^ | 2,656,848 | ||||||
34,078 | Agree Realty Corp.^ | 1,752,972 | ||||||
47,628 | American Assets Trust, Inc.^ | 1,821,295 | ||||||
55,378 | Armada Hoffler Properties, Inc.^ | 860,020 | ||||||
89,291 | CareTrust REIT, Inc.^ | 1,496,517 | ||||||
203,398 | CBL & Associates Properties, Inc.^ | 1,151,233 | ||||||
102,172 | Cedar Shopping Centers, Inc.^ | 621,206 | ||||||
54,913 | Chatham Lodging Trust^ | 1,249,820 | ||||||
71,236 | Chesapeake Lodging Trust^ | 1,929,783 | ||||||
19,952 | Community Healthcare Trust, Inc.^ | 560,651 | ||||||
237,658 | DiamondRock Hospitality, Co.^ | 2,683,159 | ||||||
51,989 | Easterly Government Properties, Inc.^ | 1,109,445 | ||||||
40,512 | EastGroup Properties, Inc.^ | 3,580,450 | ||||||
73,158 | Four Corners Property Trust, Inc. | 1,880,161 | ||||||
129,296 | Franklin Street Properties Corp.^ | 1,388,639 | ||||||
37,871 | Getty Realty Corp. | 1,028,576 | ||||||
61,860 | Government Properties Income Trust^ | 1,146,884 | ||||||
48,179 | Hersha Hospitality Trust^ | 838,315 | ||||||
101,884 | Independence Realty Trust, Inc.^ | 1,028,010 | ||||||
99,119 | Kite Realty Group Trust^ | 1,942,732 | ||||||
257,013 | Lexington Realty Trust^ | 2,480,175 | ||||||
45,149 | LTC Properties, Inc. | 1,966,239 | ||||||
57,780 | National Storage Affiliates | 1,575,083 | ||||||
85,680 | Pennsylvania Real Estate Investment Trust^ | 1,018,735 | ||||||
23,522 | PS Business Parks, Inc. | 2,942,367 | ||||||
96,066 | Ramco-Gershenson Properties Trust^ | 1,415,052 | ||||||
130,180 | Retail Opportunity Investments Corp.^ | 2,597,091 | ||||||
14,696 | Saul Centers, Inc. | 907,478 | ||||||
124,192 | Summit Hotel Properties, Inc.^ | 1,891,444 | ||||||
14,372 | Universal Health Realty Income Trust^ | 1,079,481 | ||||||
35,990 | Urstadt Biddle Properties, Inc., Class A | 782,423 | ||||||
48,583 | Whitestone REIT^ | 700,081 | ||||||
|
| |||||||
50,082,365 | ||||||||
|
| |||||||
Food & Staples Retailing (0.3%): | ||||||||
42,880 | SpartanNash Co.^ | 1,144,038 | ||||||
44,858 | SUPERVALU, Inc.*^ | 968,933 | ||||||
30,100 | The Andersons, Inc.^ | 937,615 | ||||||
|
| |||||||
3,050,586 | ||||||||
|
| |||||||
Food Products (1.4%): | ||||||||
78,973 | B&G Foods, Inc.^ | 2,775,901 | ||||||
18,616 | Calavo Growers, Inc.^ | 1,571,190 | ||||||
34,121 | Cal-Maine Foods, Inc.*^ | 1,516,678 | ||||||
194,669 | Darling International, Inc.*^ | 3,529,350 | ||||||
17,721 | J & J Snack Foods Corp.^ | 2,690,579 | ||||||
10,178 | John B Sanfilippo And Son, Inc.^ | 643,759 |
Continued
6
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Food Products, continued | ||||||||
8,004 | Seneca Foods Corp., Class A* | $ | 246,123 | |||||
|
| |||||||
12,973,580 | ||||||||
|
| |||||||
Gas Utilities (1.0%): | ||||||||
32,758 | Northwest Natural Gas Co.^ | 1,954,015 | ||||||
94,074 | South Jersey Industries, Inc. | 2,937,931 | ||||||
56,854 | Spire, Inc.^ | 4,272,578 | ||||||
|
| |||||||
9,164,524 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (4.5%): | ||||||||
25,951 | Abaxis, Inc.^ | 1,285,094 | ||||||
14,074 | Analogic Corp.^ | 1,178,698 | ||||||
40,437 | AngioDynamics, Inc.*^ | 672,467 | ||||||
16,806 | Anika Therapeutics, Inc.*^ | 906,011 | ||||||
42,044 | Cantel Medical Corp. | 4,325,065 | ||||||
28,631 | CONMED Corp.^ | 1,459,322 | ||||||
38,864 | CryoLife, Inc.* | 744,246 | ||||||
16,326 | Cutera, Inc.* | 740,384 | ||||||
62,182 | Haemonetics Corp.* | 3,611,531 | ||||||
17,820 | ICU Medical, Inc.*^ | 3,849,119 | ||||||
20,306 | Inogen, Inc.* | 2,418,038 | ||||||
33,246 | Integer Holdings Corp.* | 1,506,044 | ||||||
75,064 | Integra LifeSciences Holdings Corp.*^ | 3,592,563 | ||||||
38,335 | Invacare Corp.^ | 645,945 | ||||||
34,443 | Lantheus Holdings, Inc.* | 704,359 | ||||||
17,802 | LeMaitre Vascular, Inc.^ | 566,816 | ||||||
49,154 | Meridian Bioscience, Inc.^ | 688,156 | ||||||
58,968 | Merit Medical Systems, Inc.* | 2,547,418 | ||||||
35,963 | Natus Medical, Inc.*^ | 1,373,787 | ||||||
45,118 | Neogen Corp.*^ | 3,709,151 | ||||||
71,061 | OraSure Technologies, Inc.*^ | 1,340,210 | ||||||
20,878 | Orthofix International NV*^ | 1,142,027 | ||||||
15,065 | Surmodics, Inc.* | 421,820 | ||||||
16,403 | Tactile Systems Technology, Inc.*^ | 475,359 | ||||||
44,494 | Varex Imaging Corp.*^ | 1,787,324 | ||||||
|
| |||||||
41,690,954 | ||||||||
|
| |||||||
Health Care Providers & Services (3.1%): | ||||||||
35,717 | Aceto Corp.^ | 368,957 | ||||||
14,764 | Almost Family, Inc.* | 817,187 | ||||||
33,195 | Amedisys, Inc.*^ | 1,749,708 | ||||||
56,298 | AMN Healthcare Services, Inc.*^ | 2,772,677 | ||||||
36,196 | BioTelemetry, Inc.*^ | 1,082,260 | ||||||
18,843 | Chemed Corp.^ | 4,579,226 | ||||||
138,253 | Community Health Systems, Inc.*^ | 588,958 | ||||||
11,322 | CorVel Corp.* | 598,934 | ||||||
44,095 | Cross Country Healthcare, Inc.*^ | 562,652 | ||||||
56,061 | Diplomat Pharmacy, Inc.*^ | 1,125,144 | ||||||
54,923 | Ensign Group, Inc. (The)^ | 1,219,291 | ||||||
60,281 | HealthEquity, Inc.*^ | 2,812,711 | ||||||
102,722 | Kindred Healthcare, Inc. | 996,403 | ||||||
18,842 | LHC Group, Inc.*^ | 1,154,073 | ||||||
28,451 | Magellan Health Services, Inc.* | 2,746,944 | ||||||
13,185 | Providence Service Corp.* | 782,398 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Providers & Services, continued | ||||||||
33,350 | Quorum Health Corp.*^ | $ | 208,104 | |||||
127,380 | Select Medical Holdings Corp.* | 2,248,257 | ||||||
39,740 | Tivity Health, Inc.*^ | 1,452,497 | ||||||
14,260 | U.S. Physical Therapy, Inc.^ | 1,029,572 | ||||||
|
| |||||||
28,895,953 | ||||||||
|
| |||||||
Health Care Technology (0.6%): | ||||||||
13,064 | Computer Programs & Systems, Inc.^ | 392,573 | ||||||
28,900 | HealthStream, Inc.*^ | 669,324 | ||||||
97,914 | HMS Holdings Corp.*^ | 1,659,642 | ||||||
44,160 | Omnicell, Inc.*^ | 2,141,761 | ||||||
54,238 | Quality Systems, Inc.*^ | 736,552 | ||||||
|
| |||||||
5,599,852 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure (3.1%): | ||||||||
97,759 | Belmond, Ltd., Class A*^ | 1,197,548 | ||||||
1,111 | Biglari Holdings, Inc.*^ | 460,398 | ||||||
21,383 | BJ’s Restaurants, Inc. | 778,341 | ||||||
23,352 | Bob Evans Farms, Inc. | 1,840,605 | ||||||
97,114 | Boyd Gaming Corp.^ | 3,403,846 | ||||||
20,023 | Chuy’s Holdings, Inc.*^ | 561,645 | ||||||
48,192 | Dave & Buster’s Entertainment, Inc.*^ | 2,658,753 | ||||||
20,994 | DineEquity, Inc.^ | 1,065,026 | ||||||
26,066 | El Pollo Loco Holdings, Inc.*^ | 258,053 | ||||||
32,679 | Fiesta Restaurant Group, Inc.*^ | 620,901 | ||||||
23,422 | Marcus Corp. | 640,592 | ||||||
27,847 | Marriott Vacations Worldwide Corp.^ | 3,765,192 | ||||||
12,326 | Monarch Casino & Resort, Inc.* | 552,451 | ||||||
98,732 | Penn National Gaming, Inc.*^ | 3,093,274 | ||||||
14,962 | Red Robin Gourmet Burgers*^ | 843,857 | ||||||
33,178 | Ruth’s Hospitality Group, Inc.^ | 718,304 | ||||||
62,232 | Scientific Games Corp., Class A*^ | 3,192,502 | ||||||
21,358 | Shake Shack, Inc., Class A*^ | 922,666 | ||||||
47,161 | Sonic Corp.^ | 1,295,984 | ||||||
33,978 | Wingstop, Inc.^ | 1,324,462 | ||||||
|
| |||||||
29,194,400 | ||||||||
|
| |||||||
Household Durables (2.1%): | ||||||||
9,579 | Cavco Industries, Inc.*^ | 1,461,755 | ||||||
29,253 | Ethan Allen Interiors, Inc.^ | 836,636 | ||||||
24,751 | Installed Building Products, Inc.*^ | 1,879,838 | ||||||
32,465 | iRobot Corp.*^ | 2,490,066 | ||||||
56,686 | La-Z-Boy, Inc. | 1,768,603 | ||||||
20,080 | LGI Homes, Inc.*^ | 1,506,602 | ||||||
52,219 | M.D.C. Holdings, Inc.^ | 1,664,742 | ||||||
31,450 | M/I Homes, Inc.*^ | 1,081,880 | ||||||
44,657 | Meritage Corp.*^ | 2,286,438 | ||||||
41,339 | TopBuild Corp.*^ | 3,131,016 | ||||||
16,443 | Universal Electronics, Inc.*^ | 776,932 | ||||||
32,470 | William Lyon Homes, Class A*^ | 944,228 | ||||||
|
| |||||||
19,828,736 | ||||||||
|
| |||||||
Household Products (0.4%): | ||||||||
11,614 | Central Garden & Pet Co.* | 452,017 | ||||||
41,893 | Central Garden & Pet Co., Class A* | 1,579,785 |
Continued
7
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Household Products, continued | ||||||||
16,222 | WD-40 Co.^ | $ | 1,914,196 | |||||
|
| |||||||
3,945,998 | ||||||||
|
| |||||||
Industrial Conglomerates (0.2%): | ||||||||
41,473 | Raven Industries, Inc.^ | 1,424,598 | ||||||
|
| |||||||
Insurance (3.1%): | ||||||||
50,043 | American Equity Investment Life Holding Co.^ | 1,537,821 | ||||||
22,921 | Amerisafe, Inc.^ | 1,411,934 | ||||||
18,980 | eHealth, Inc.*^ | 329,683 | ||||||
38,749 | Employers Holdings, Inc. | 1,720,456 | ||||||
10,685 | HCI Group, Inc.^ | 319,482 | ||||||
48,447 | Horace Mann Educators Corp.^ | 2,136,513 | ||||||
13,147 | Infinity Property & Casualty Corp. | 1,393,582 | ||||||
86,854 | Maiden Holdings, Ltd.^ | 573,236 | ||||||
26,638 | Navigators Group, Inc. | 1,297,271 | ||||||
63,021 | ProAssurance Corp.^ | 3,601,649 | ||||||
45,990 | RLI Corp.^ | 2,789,753 | ||||||
18,317 | Safety Insurance Group, Inc.^ | 1,472,687 | ||||||
68,841 | Selective Insurance Group, Inc.^ | 4,040,966 | ||||||
28,996 | Stewart Information Services Corp. | 1,226,531 | ||||||
103,143 | Third Point Reinsurance, Ltd.*^ | 1,511,045 | ||||||
25,527 | United Fire Group, Inc. | 1,163,521 | ||||||
26,137 | United Insurance Holdings Co.^ | 450,863 | ||||||
38,854 | Universal Insurance Holdings, Inc.^ | 1,062,657 | ||||||
|
| |||||||
28,039,650 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (0.5%): | ||||||||
21,808 | FTD Cos., Inc.*^ | 156,800 | ||||||
35,387 | Nutri/System, Inc.^ | 1,861,356 | ||||||
24,076 | PetMed Express, Inc.^ | 1,095,458 | ||||||
38,544 | Shutterfly, Inc.*^ | 1,917,564 | ||||||
|
| |||||||
5,031,178 | ||||||||
|
| |||||||
Internet Software & Services (1.2%): | ||||||||
29,111 | Alarm.com Holding, Inc.* | 1,098,940 | ||||||
54,070 | Blucora, Inc.* | 1,194,947 | ||||||
64,417 | DHI Group, Inc.* | 122,392 | ||||||
32,740 | Liquidity Services, Inc.*^ | 158,789 | ||||||
62,775 | LivePerson, Inc.* | 721,913 | ||||||
78,870 | NIC, Inc.^ | 1,309,242 | ||||||
40,771 | QuinStreet, Inc.* | 341,661 | ||||||
22,016 | Shutterstock, Inc.*^ | 947,348 | ||||||
20,220 | SPS Commerce, Inc.* | 982,490 | ||||||
19,053 | Stamps.com, Inc.*^ | 3,581,965 | ||||||
25,701 | XO Group, Inc.* | 474,440 | ||||||
|
| |||||||
10,934,127 | ||||||||
|
| |||||||
IT Services (1.7%): | ||||||||
29,059 | CACI International, Inc., Class A* | 3,845,958 | ||||||
54,601 | Cardtronics plc*^ | 1,011,211 | ||||||
39,862 | CSG Systems International, Inc.^ | 1,746,753 | ||||||
40,333 | Exlservice Holdings, Inc.* | 2,434,097 | ||||||
10,575 | Forrester Research, Inc.^ | 467,415 | ||||||
30,869 | ManTech International Corp., Class A | 1,549,315 | ||||||
41,913 | Perficient, Inc.* | 799,281 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
IT Services, continued | ||||||||
47,874 | Sykes Enterprises, Inc.* | $ | 1,505,637 | |||||
17,331 | TeleTech Holdings, Inc.^ | 697,573 | ||||||
32,171 | Virtusa Corp.* | 1,418,098 | ||||||
|
| |||||||
15,475,338 | ||||||||
|
| |||||||
Leisure Products (0.4%): | ||||||||
110,206 | Callaway Golf Co. | 1,535,169 | ||||||
36,628 | Nautilus Group, Inc.*^ | 488,984 | ||||||
20,148 | Sturm, Ruger & Co., Inc.^ | 1,125,266 | ||||||
66,712 | Vista Outdoor, Inc.*^ | 971,994 | ||||||
|
| |||||||
4,121,413 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.3%): | ||||||||
38,627 | Cambrex Corp.*^ | 1,854,096 | ||||||
46,871 | Luminex Corp.^ | 923,359 | ||||||
|
| |||||||
2,777,455 | ||||||||
|
| |||||||
Machinery (5.6%): | ||||||||
69,993 | Actuant Corp., Class A^ | 1,770,823 | ||||||
10,723 | Alamo Group, Inc. | 1,210,305 | ||||||
32,992 | Albany International Corp., Class A^ | 2,027,358 | ||||||
21,958 | Astec Industries, Inc.^ | 1,284,543 | ||||||
58,194 | Barnes Group, Inc.^ | 3,681,934 | ||||||
49,571 | Briggs & Stratton Corp.^ | 1,257,616 | ||||||
36,153 | Chart Industries, Inc.*^ | 1,694,130 | ||||||
19,275 | CIRCOR International, Inc.^ | 938,307 | ||||||
24,966 | EnPro Industries, Inc. | 2,334,571 | ||||||
29,587 | ESCO Technologies, Inc. | 1,782,617 | ||||||
68,987 | Federal Signal Corp. | 1,385,949 | ||||||
44,908 | Franklin Electric Co., Inc. | 2,061,277 | ||||||
33,856 | Greenbrier Cos, Inc.^ | 1,804,525 | ||||||
94,014 | Harsco Corp.* | 1,753,361 | ||||||
74,510 | Hillenbrand, Inc.^ | 3,330,597 | ||||||
37,295 | John Bean Technologies Corp.^ | 4,132,285 | ||||||
11,906 | Lindsay Corp.^ | 1,050,109 | ||||||
19,521 | Lydall, Inc.* | 990,691 | ||||||
66,596 | Mueller Industries, Inc. | 2,359,496 | ||||||
29,288 | Proto Labs, Inc.*^ | 3,016,664 | ||||||
48,587 | SPX Corp.* | 1,525,146 | ||||||
50,322 | SPX FLOW, Inc.* | 2,392,811 | ||||||
14,456 | Standex International Corp. | 1,472,344 | ||||||
20,523 | Tennant Co.^ | 1,490,996 | ||||||
58,305 | Titan International, Inc.^ | 750,968 | ||||||
69,525 | Wabash National Corp.^ | 1,508,693 | ||||||
32,618 | Watts Water Technologies, Inc., Class A | 2,477,337 | ||||||
|
| |||||||
51,485,453 | ||||||||
|
| |||||||
Marine (0.2%): | ||||||||
50,388 | Matson, Inc.^ | 1,503,578 | ||||||
|
| |||||||
Media (0.9%): | ||||||||
67,481 | E.W. Scripps Co. (The), Class A*^ | 1,054,728 | ||||||
134,433 | Gannett Co., Inc.^ | 1,558,078 | ||||||
64,773 | New Media Investment Group, Inc.^ | 1,086,891 | ||||||
33,484 | Scholastic Corp.^ | 1,343,043 |
Continued
8
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Media, continued | ||||||||
117,760 | Time, Inc. | $ | 2,172,673 | |||||
47,161 | World Wrestling Entertainment, Inc., Class A^ | 1,442,183 | ||||||
|
| |||||||
8,657,596 | ||||||||
|
| |||||||
Metals & Mining (1.0%): | ||||||||
370,544 | AK Steel Holding Corp.*^ | 2,097,279 | ||||||
58,282 | Century Aluminum Co.*^ | 1,144,658 | ||||||
13,612 | Haynes International, Inc.^ | 436,265 | ||||||
19,862 | Kaiser Aluminum Corp.^ | 2,122,255 | ||||||
23,762 | Materion Corp.^ | 1,154,833 | ||||||
11,335 | Olympic Steel, Inc. | 243,589 | ||||||
76,630 | SunCoke Energy, Inc.*^ | 918,794 | ||||||
45,383 | TimkenSteel Corp.*^ | 689,368 | ||||||
|
| |||||||
8,807,041 | ||||||||
|
| |||||||
Mortgage Real Estate Investment Trusts (0.7%): | ||||||||
116,114 | Apollo Commercial Real Estate Finance, Inc.^ | 2,142,303 | ||||||
48,502 | Armour Residential REIT, Inc.^ | 1,247,471 | ||||||
116,983 | Capstead Mortgage Corp.^ | 1,011,903 | ||||||
132,017 | Invesco Mortgage Capital, Inc. | 2,353,864 | ||||||
|
| |||||||
6,755,541 | ||||||||
|
| |||||||
Multiline Retail (0.5%): | ||||||||
40,651 | Fred’s, Inc.^ | 164,637 | ||||||
367,514 | J.C. Penney Co., Inc.*^ | 1,161,344 | ||||||
58,213 | Ollie’s Bargain Outlet Holdings, Inc.*^ | 3,099,842 | ||||||
|
| |||||||
4,425,823 | ||||||||
|
| |||||||
Multi-Utilities (0.4%): | ||||||||
76,007 | Avista Corp.^ | 3,913,600 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (1.5%): | ||||||||
113,469 | Bill Barrett Corp.*^ | 582,096 | ||||||
90,494 | Carrizo Oil & Gas, Inc.*^ | 1,925,712 | ||||||
87,671 | Cloud Peak Energy, Inc.*^ | 390,136 | ||||||
30,083 | CONSOL Energy, Inc.*^ | 1,188,579 | ||||||
473,038 | Denbury Resources, Inc.*^ | 1,045,414 | ||||||
47,661 | Green Plains Renewable Energy, Inc.^ | 803,088 | ||||||
30,772 | Par Pacific Holdings, Inc.* | 593,284 | ||||||
77,474 | PDC Energy, Inc.*^ | 3,993,011 | ||||||
6,599 | REX American Resources Corp.*^ | 546,331 | ||||||
280,293 | SRC Energy, Inc.*^ | 2,390,899 | ||||||
|
| |||||||
13,458,550 | ||||||||
|
| |||||||
Paper & Forest Products (1.2%): | ||||||||
46,086 | Boise Cascade Co.^ | 1,838,831 | ||||||
19,676 | Clearwater Paper Corp.* | 893,290 | ||||||
12,147 | Deltic Timber Corp. | 1,112,058 | ||||||
103,820 | KapStone Paper & Packaging Corp.^ | 2,355,677 | ||||||
19,855 | Neenah Paper, Inc.^ | 1,799,856 | ||||||
53,507 | P.H. Glatfelter Co. | 1,147,190 | ||||||
35,937 | Schweitzer-Mauduit International, Inc. | 1,630,102 | ||||||
|
| |||||||
10,777,004 | ||||||||
|
| |||||||
Personal Products (0.2%): | ||||||||
19,593 | Inter Parfums, Inc. | 851,315 | ||||||
12,071 | Medifast, Inc. | 842,677 | ||||||
|
| |||||||
1,693,992 | ||||||||
|
|
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Pharmaceuticals (2.6%): | ||||||||
40,581 | Amphastar Pharmaceuticals, Inc.*^ | $ | 780,778 | |||||
10,606 | ANI Pharmaceuticals, Inc.* | 683,557 | ||||||
72,179 | Corcept Therapeutics, Inc.*^ | 1,303,553 | ||||||
75,598 | DepoMed, Inc.*^ | 608,564 | ||||||
7,436 | Heska Corp.*^ | 596,442 | ||||||
86,791 | Impax Laboratories, Inc.*^ | 1,445,070 | ||||||
88,795 | Innoviva, Inc.*^ | 1,260,001 | ||||||
36,100 | Lannett Co., Inc.*^ | 837,520 | ||||||
73,967 | Medicines Co. (The)*^ | 2,022,258 | ||||||
184,025 | Nektar Therapeutics*^ | 10,989,972 | ||||||
23,380 | Phibro Animal Health Corp., Class A^ | 783,230 | ||||||
29,708 | Sucampo Pharmaceuticals, Inc., Class A*^ | 533,259 | ||||||
60,019 | Supernus Pharmaceuticals, Inc.*^ | 2,391,757 | ||||||
|
| |||||||
24,235,961 | ||||||||
|
| |||||||
Professional Services (2.2%): | ||||||||
30,224 | Exponent, Inc.^ | 2,148,926 | ||||||
44,655 | FTI Consulting, Inc.*^ | 1,918,379 | ||||||
22,552 | Heidrick & Struggles International, Inc. | 553,652 | ||||||
43,800 | Insperity, Inc. | 2,511,930 | ||||||
36,426 | Kelly Services, Inc., Class A^ | 993,337 | ||||||
66,989 | Korn/Ferry International | 2,772,005 | ||||||
54,729 | Navigant Consulting, Inc.* | 1,062,290 | ||||||
57,748 | On Assignment, Inc.* | 3,711,463 | ||||||
34,405 | Resources Connection, Inc.^ | 531,557 | ||||||
48,947 | Trueblue, Inc.*^ | 1,346,043 | ||||||
47,037 | Wageworks, Inc.*^ | 2,916,294 | ||||||
|
| |||||||
20,465,876 | ||||||||
|
| |||||||
Real Estate Management & Development (0.3%): | ||||||||
43,495 | HFF, Inc., Class A | 2,115,597 | ||||||
20,778 | RE/MAX Holdings, Inc., Class A | 1,007,733 | ||||||
|
| |||||||
3,123,330 | ||||||||
|
| |||||||
Road & Rail (0.6%): | ||||||||
30,517 | ArcBest Corp. | 1,090,983 | ||||||
57,409 | Heartland Express, Inc.^ | 1,339,926 | ||||||
44,727 | Marten Transport, Ltd.^ | 907,958 | ||||||
38,934 | Roadrunner Transportation System, Inc.* | 300,181 | ||||||
30,028 | Saia, Inc.* | 2,124,481 | ||||||
|
| |||||||
5,763,529 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (3.3%): | ||||||||
46,910 | Advanced Energy Industries, Inc.* | 3,165,486 | ||||||
36,611 | Axcelis Technologies, Inc.* | 1,050,736 | ||||||
82,179 | Brooks Automation, Inc. | 1,959,969 | ||||||
29,470 | Cabot Microelectronics Corp. | 2,772,537 | ||||||
25,148 | CEVA, Inc.*^ | 1,160,580 | ||||||
32,255 | Cohu, Inc.^ | 707,997 | ||||||
43,852 | Diodes, Inc.* | 1,257,237 | ||||||
22,853 | DSP Group, Inc.*^ | 285,663 | ||||||
66,804 | Kopin Corp.*^ | 213,773 | ||||||
82,782 | Kulicke & Soffa Industries, Inc.* | 2,014,500 | ||||||
71,133 | MaxLinear, Inc., Class A*^ | 1,879,334 | ||||||
28,806 | Nanometrics, Inc.*^ | 717,846 | ||||||
31,861 | PDF Solutions, Inc.*^ | 500,218 |
Continued
9
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Semiconductors & Semiconductor Equipment, continued | ||||||||
79,911 | Photronics, Inc.*^ | $ | 681,241 | |||||
34,727 | Power Integrations, Inc.^ | 2,554,171 | ||||||
124,831 | Rambus, Inc.*^ | 1,775,097 | ||||||
35,756 | Rudolph Technologies, Inc.* | 854,568 | ||||||
76,995 | Semtech Corp.*^ | 2,633,229 | ||||||
42,727 | Solaredge Technologies, Inc.* | 1,604,399 | ||||||
56,243 | Veeco Instruments, Inc.*^ | 835,209 | ||||||
58,242 | Xperi Corp.^ | 1,421,105 | ||||||
|
| |||||||
30,044,895 | ||||||||
|
| |||||||
Software (1.8%): | ||||||||
106,750 | 8x8, Inc.* | 1,505,175 | ||||||
47,942 | Barracuda Networks, Inc.* | 1,318,405 | ||||||
40,358 | Bottomline Technologies, Inc.*^ | 1,399,615 | ||||||
26,263 | Ebix, Inc.^ | 2,081,343 | ||||||
11,018 | MicroStrategy, Inc., Class A* | 1,446,663 | ||||||
48,530 | Monotype Imaging Holdings, Inc.^ | 1,169,573 | ||||||
55,233 | Progress Software Corp. | 2,351,268 | ||||||
37,937 | Qualys, Inc.*^ | 2,251,561 | ||||||
51,975 | Synchronoss Technologies, Inc.*^ | 464,657 | ||||||
144,091 | TiVo Corp. | 2,247,820 | ||||||
36,070 | VASCO Data Security International, Inc.* | 501,373 | ||||||
|
| |||||||
16,737,453 | ||||||||
|
| |||||||
Specialty Retail (4.2%): | ||||||||
79,812 | Abercrombie & Fitch Co., Class A^ | 1,391,123 | ||||||
21,808 | Asbury Automotive Group, Inc.* | 1,395,712 | ||||||
202,118 | Ascena Retail Group, Inc.*^ | 474,977 | ||||||
45,257 | Barnes & Noble Education, Inc.*^ | 372,918 | ||||||
70,474 | Barnes & Noble, Inc.^ | 472,176 | ||||||
24,200 | Big 5 Sporting Goods Corp.^ | 183,920 | ||||||
50,062 | Caleres, Inc.^ | 1,676,076 | ||||||
27,017 | Cato Corp., Class A^ | 430,111 | ||||||
152,403 | Chico’s FAS, Inc.^ | 1,344,194 | ||||||
20,240 | Children’s Place Retail Stores, Inc. (The)^ | 2,941,884 | ||||||
84,608 | DSW, Inc., Class A^ | 1,811,457 | ||||||
91,956 | Express, Inc.* | 933,353 | ||||||
48,090 | Finish Line, Inc. (The), Class A^ | 698,748 | ||||||
65,060 | Five Below, Inc.*^ | 4,314,779 | ||||||
44,148 | Francesca’s Holdings Corp.*^ | 322,722 | ||||||
23,273 | Genesco, Inc.*^ | 756,373 | ||||||
22,974 | Group 1 Automotive, Inc.^ | 1,630,465 | ||||||
70,048 | Guess?, Inc.^ | 1,182,410 | ||||||
21,702 | Haverty Furniture Cos., Inc.^ | 491,550 | ||||||
24,263 | Hibbett Sports, Inc.*^ | 494,965 | ||||||
19,145 | Kirkland’s, Inc.*^ | 229,070 | ||||||
28,397 | Lithia Motors, Inc., Class A^ | 3,225,615 | ||||||
32,957 | Lumber Liquidators Holdings, Inc.*^ | 1,034,520 | ||||||
27,704 | MarineMax, Inc.* | 523,606 | ||||||
37,894 | Monro Muffler Brake, Inc.^ | 2,158,063 | ||||||
62,302 | Rent-A-Center, Inc.^ | 691,552 | ||||||
21,964 | RH*^ | 1,893,516 | ||||||
12,866 | Shoe Carnival, Inc.^ | 344,166 | ||||||
47,773 | Sleep Number Corp.*^ | 1,795,787 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Specialty Retail, continued | ||||||||
29,847 | Sonic Automotive, Inc., Class A^ | $ | 550,677 | |||||
57,826 | Tailored Brands, Inc.^ | 1,262,342 | ||||||
33,777 | The Buckle, Inc.^ | 802,204 | ||||||
39,470 | The Tile Shop Holdings, Inc.^ | 378,912 | ||||||
24,870 | Vitamin Shoppe, Inc.*^ | 109,428 | ||||||
21,125 | Zumiez, Inc.*^ | 439,928 | ||||||
|
| |||||||
38,759,299 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (0.4%): | ||||||||
47,567 | Cray, Inc.*^ | 1,151,121 | ||||||
53,268 | Electronics for Imaging, Inc.*^ | 1,573,005 | ||||||
45,264 | Super Micro Computer, Inc.*^ | 947,149 | ||||||
|
| |||||||
3,671,275 | ||||||||
|
| |||||||
Textiles, Apparel & Luxury Goods (1.4%): | ||||||||
81,757 | Crocs, Inc.*^ | 1,033,408 | ||||||
52,011 | Fossil Group, Inc.*^ | 404,125 | ||||||
48,556 | G-III Apparel Group, Ltd.*^ | 1,791,231 | ||||||
17,844 | Movado Group, Inc.^ | 574,577 | ||||||
19,476 | Oxford Industries, Inc.^ | 1,464,400 | ||||||
15,030 | Perry Ellis International, Inc.*^ | 376,351 | ||||||
63,129 | Steven Madden, Ltd.*^ | 2,948,125 | ||||||
18,510 | Unifi, Inc.* | 663,954 | ||||||
23,378 | Vera Bradley, Inc.* | 284,744 | ||||||
113,146 | Wolverine World Wide, Inc.^ | 3,607,095 | ||||||
|
| |||||||
13,148,010 | ||||||||
|
| |||||||
Thrifts & Mortgage Finance (1.9%): | ||||||||
52,712 | Bank Mutual Corp. | 561,383 | ||||||
66,753 | BofI Holding, Inc.*^ | 1,995,915 | ||||||
37,631 | Dime Community Bancshares^ | 788,369 | ||||||
32,606 | HomeStreet, Inc.*^ | 943,944 | ||||||
8,961 | LendingTree, Inc.*^ | 3,050,771 | ||||||
10,887 | Meta Financial Group, Inc.^ | 1,008,681 | ||||||
64,212 | NMI Holdings, Inc., Class A*^ | 1,091,604 | ||||||
56,658 | Northfield Bancorp, Inc. | 967,719 | ||||||
122,268 | Northwest Bancshares, Inc.^ | 2,045,544 | ||||||
47,948 | Oritani Financial Corp.^ | 786,347 | ||||||
72,209 | Provident Financial Services, Inc. | 1,947,477 | ||||||
116,959 | TrustCo Bank Corp. | 1,076,023 | ||||||
33,118 | Wawlker & Dunlop, Inc.*^ | 1,573,105 | ||||||
|
| |||||||
17,836,882 | ||||||||
|
| |||||||
Tobacco (0.2%): | ||||||||
29,705 | Universal Corp. | 1,559,513 | ||||||
|
| |||||||
Trading Companies & Distributors (0.6%): | ||||||||
45,966 | Applied Industrial Technologies, Inc. | 3,130,284 | ||||||
18,669 | DXP Enterprises, Inc.*^ | 552,042 | ||||||
31,763 | Kaman Corp., Class A^ | 1,868,935 | ||||||
13,115 | Veritiv Corp.*^ | 379,024 | ||||||
|
| |||||||
5,930,285 | ||||||||
|
| |||||||
Water Utilities (0.5%): | ||||||||
41,939 | American States Water Co. | 2,428,687 | ||||||
55,512 | California Water Service Group^ | 2,517,470 | ||||||
|
| |||||||
4,946,157 | ||||||||
|
|
Continued
10
AZL Small Cap Stock Index Fund
Schedule of Portfolio Investments
December 31, 2017
Shares |
Fair Value | |||||||
Common Stocks, continued | ||||||||
Wireless Telecommunication Services (0.0%): | ||||||||
25,669 | Spok Holdings, Inc.^ | $ | 401,720 | |||||
|
| |||||||
Total Common Stocks (Cost $701,799,463) | 910,843,134 | |||||||
|
| |||||||
Rights (0.0%): | ||||||||
Biotechnology (0.0%): | ||||||||
25,050 | Dyax Corp. CVR, Expires on 12/31/19*(a)(b) | 84,419 | ||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (0.0%): | ||||||||
10,537 | Gerber Scientific, Inc., Expires on 12/31/18*(a) | — | ||||||
|
| |||||||
Total Rights (Cost $ — ) | 84,419 | |||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Securities Held as Collateral for Securities on Loan (27.5%): | ||||||||
$ | 253,468,247 | AZL Small Cap Stock Index Fund Securities Lending Collateral Account(c) | $ | 253,468,247 | ||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 253,468,247 | ||||||
|
| |||||||
Unaffiliated Investment Company (0.9%): | ||||||||
8,201,464 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 1.11%(d) | 8,201,464 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $8,201,464) | 8,201,464 | |||||||
|
| |||||||
| Total Investment Securities | 1,172,597,264 | ||||||
Net other assets (liabilities) — (27.0)% | (249,507,856 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 923,089,408 | ||||||
|
|
Percentages indicated are based on net assets as of December 31, 2017.
CVR—Contingency | Valued Rights |
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2017. The total value of securities on loan as of December 31, 2017, was $245,766,252. |
(a) | Security was valued in good faith pursuant to procedures approved by the Board of Trustees as of December 31, 2017. The total of all such securities represent 0.01% of the net assets of the fund. |
(b) | The subadviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2017, these 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, 2017. |
(d) | The rate represents the effective yield at December 31, 2017. |
(e) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Amounts shown as “—“ are $0 or rounds to less than $1.
Futures Contracts
Cash of $349,600 has been segregated to cover margin requirements for the following open contracts as of December 31, 2017:
Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Unrealized Appreciation/ (Depreciation) | ||||||||||||
Russell 2000 Mini Index March Futures | 3/16/18 | 162 | $ | 12,445,650 | $ | 75,889 | ||||||||||
|
| |||||||||||||||
$ | 75,889 | |||||||||||||||
|
|
See accompanying notes to the financial statements.
11
AZL Small Cap Stock Index Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investment securities, at cost | $ | 963,469,174 | |||
|
| ||||
Investment securities, at value* | $ | 1,172,597,264 | |||
Cash | 77,012 | ||||
Segregated cash for collateral | 349,600 | ||||
Interest and dividends receivable | 1,292,188 | ||||
Receivable for variation margin on futures contracts | 690 | ||||
Receivable for investments sold | 5,014,739 | ||||
Reclaims receivable | 5 | ||||
Prepaid expenses | 5,414 | ||||
|
| ||||
Total Assets | 1,179,336,912 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 1,356,740 | ||||
Payable for capital shares redeemed | 686,177 | ||||
Payable for collateral received on loaned securities | 253,468,247 | ||||
Payable for variation margin on futures contracts | 77,098 | ||||
Manager fees payable | 204,299 | ||||
Administration fees payable | 21,358 | ||||
Distribution fees payable | 185,100 | ||||
Custodian fees payable | 7,167 | ||||
Administrative and compliance services fees payable | 2,843 | ||||
Transfer agent fees payable | 2,022 | ||||
Trustee fees payable | 1,832 | ||||
Other accrued liabilities | 234,621 | ||||
|
| ||||
Total Liabilities | 256,247,504 | ||||
|
| ||||
Net Assets | $ | 923,089,408 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 626,523,794 | |||
Accumulated net investment income/(loss) | 8,539,904 | ||||
Accumulated net realized gains/(losses) from investment transactions | 78,821,731 | ||||
Net unrealized appreciation/(depreciation) on investments | 209,203,979 | ||||
|
| ||||
Net Assets | $ | 923,089,408 | |||
|
| ||||
Class 1 | |||||
Net Assets | $ | 53,319,065 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 4,563,446 | ||||
Net Asset Value (offering and redemption price per share) | $ | 11.68 | |||
|
| ||||
Class 2 | |||||
Net Assets | $ | 869,770,343 | |||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 58,466,798 | ||||
Net Asset Value (offering and redemption price per share) | $ | 14.88 | |||
|
|
* | Includes securities on loan of $245,766,252. |
For the Year Ended December 31, 2017
Investment Income: | |||||
Dividends | $ | 12,304,423 | |||
Interest | 835 | ||||
Income from securities lending | 1,488,269 | ||||
Other income | 34,554 | ||||
Foreign withholding tax | (1,495 | ) | |||
|
| ||||
Total Investment Income | 13,826,586 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 2,342,148 | ||||
Administration fees | 226,452 | ||||
Distribution fees — Class 2 | 2,120,039 | ||||
Custodian fees | 36,350 | ||||
Administrative and compliance services fees | 10,263 | ||||
Transfer agent fees | 10,416 | ||||
Trustee fees | 37,026 | ||||
Professional fees | 44,998 | ||||
Shareholder reports | 32,350 | ||||
Other expenses | 188,230 | ||||
|
| ||||
Total expenses | 5,048,272 | ||||
|
| ||||
Net Investment Income/(Loss) | 8,778,314 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions | 86,067,335 | ||||
Net realized gains/(losses) on futures contracts | 814,912 | ||||
Change in net unrealized appreciation/depreciation on investments | 11,357,731 | ||||
Change in net unrealized appreciation/depreciation on futures contracts | 85,533 | ||||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 98,325,511 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 107,103,825 | |||
|
|
See accompanying notes to the financial statements.
12
AZL Small Cap Stock Index Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016* | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 8,778,314 | $ | 4,770,924 | ||||||
Net realized gains/(losses) on investment transactions | 86,882,247 | 59,741,688 | ||||||||
Change in unrealized appreciation/depreciation on investments | 11,443,264 | 92,843,996 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 107,103,825 | 157,356,608 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income: | ||||||||||
Class 1 | (351,616 | ) | — | |||||||
Class 2 | (4,019,299 | ) | (3,054,147 | ) | ||||||
From net realized gains: | ||||||||||
Class 1 | (4,420,432 | ) | — | |||||||
Class 2 | (55,798,577 | ) | (42,610,276 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (64,589,924 | ) | (45,664,423 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Class 1 | ||||||||||
Proceeds from shares issued | 303,391 | 49,908,811 | ||||||||
Proceeds from dividends reinvested | 4,772,048 | — | ||||||||
Value of shares redeemed | (8,056,628 | ) | (1,979,738 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | (2,981,189 | ) | 47,929,073 | |||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Proceeds from shares issued | 33,009,724 | 214,993,554 | ||||||||
Proceeds from shares issued in merger | — | 334,705,111 | ||||||||
Proceeds from dividends reinvested | 59,817,876 | 45,664,423 | ||||||||
Value of shares redeemed | (173,921,838 | ) | (66,339,645 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | (81,094,238 | ) | 529,023,443 | |||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (84,075,427 | ) | 576,952,516 | |||||||
|
|
|
| |||||||
Change in net assets | (41,561,526 | ) | 688,644,701 | |||||||
Net Assets: | ||||||||||
Beginning of period | 964,650,934 | 276,006,233 | ||||||||
|
|
|
| |||||||
End of period | $ | 923,089,408 | $ | 964,650,934 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 8,539,904 | $ | 4,406,542 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Class 1 | ||||||||||
Shares issued | 25,960 | 4,990,882 | ||||||||
Dividends reinvested | 435,406 | — | ||||||||
Shares redeemed | (702,379 | ) | (186,423 | ) | ||||||
|
|
|
| |||||||
Total Class 1 Shares | (241,013 | ) | 4,804,459 | |||||||
|
|
|
| |||||||
Class 2 | ||||||||||
Shares issued | 2,298,659 | 17,244,601 | ||||||||
Shares issued in merger | — | 27,406,989 | ||||||||
Dividends reinvested | 4,281,881 | 3,661,942 | ||||||||
Shares redeemed | (12,052,900 | ) | (4,841,918 | ) | ||||||
|
|
|
| |||||||
Total Class 2 Shares | (5,472,360 | ) | 43,471,614 | |||||||
|
|
|
| |||||||
Change in shares | (5,713,373 | ) | 48,276,073 | |||||||
|
|
|
|
* | Class 1 activity is 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
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2017 | 2016* | 2015 | 2014 | 2013 | |||||||||||||||||||||
Class 1 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 11.38 | $ | 10.00 | |||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.16 | 0.06 | |||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.24 | 1.32 | |||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total from Investment Activities | 1.40 | 1.38 | |||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Dividends to Shareholders from: | |||||||||||||||||||||||||
Net Investment Income | (0.08 | ) | — | ||||||||||||||||||||||
Net Realized Gains | (1.02 | ) | — | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total Dividends | (1.10 | ) | — | ||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Net Asset Value, End of Period | $ | 11.68 | $ | 11.38 | |||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Total Return(a) | 12.94 | % | 13.80 | %(b) | |||||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 53,319 | $ | 54,672 | |||||||||||||||||||||
Net Investment Income/(Loss)(c) | 1.21 | % | 1.46 | % | |||||||||||||||||||||
Expenses Before Reductions(c)(d) | 0.32 | % | 0.32 | % | |||||||||||||||||||||
Expenses Net of Reductions(c) | 0.32 | % | 0.32 | % | |||||||||||||||||||||
Portfolio Turnover Rate(e) | 16 | % | 86 | %(f) | |||||||||||||||||||||
Class 2 | |||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 14.23 | $ | 13.49 | $ | 15.43 | $ | 15.65 | $ | 11.39 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.15 | 0.07 | 0.19 | 0.12 | 0.09 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 1.59 | 3.06 | (0.58 | ) | 0.65 | 4.50 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 1.74 | 3.13 | (0.39 | ) | 0.77 | 4.59 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders from: | |||||||||||||||||||||||||
Net Investment Income | (0.07 | ) | (0.16 | ) | (0.17 | ) | (0.09 | ) | (0.14 | ) | |||||||||||||||
Net Realized Gains | (1.02 | ) | (2.23 | ) | (1.38 | ) | (0.90 | ) | (0.19 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (1.09 | ) | (2.39 | ) | (1.55 | ) | (0.99 | ) | (0.33 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 14.88 | $ | 14.23 | $ | 13.49 | $ | 15.43 | $ | 15.65 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 12.75 | % | 25.71 | % | (2.49 | )% | 5.23 | % | 40.62 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 869,770 | $ | 909,979 | $ | 276,006 | $ | 381,585 | $ | 383,152 | |||||||||||||||
Net Investment Income/(Loss) | 0.96 | % | 1.19 | % | 0.96 | % | 0.81 | % | 0.71 | % | |||||||||||||||
Expenses Before Reductions(d) | 0.57 | % | 0.58 | % | 0.59 | % | 0.59 | % | 0.59 | % | |||||||||||||||
Expenses Net of Reductions | 0.57 | % | 0.58 | % | 0.59 | % | 0.59 | % | 0.59 | % | |||||||||||||||
Portfolio Turnover Rate(e) | 16 | % | 86 | %(f) | 16 | % | 14 | % | 17 | % |
* | Class 1 activity is 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 for periods less than one year. |
(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.
14
AZL Small Cap Stock Index Fund
Notes to the Financial Statements
December 31, 2017
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 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 accrues 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 and Withholding Taxes
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, or from other assets and liabilities, from fluctuations arising from changes in market prices of securities held. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains is determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., other permanent adjustments) 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.
15
AZL Small Cap Stock Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017 are noted on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $245 million for the year ended December 31, 2017.
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 $135,994 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The fund had securities lending transactions of $253,468,247 accounted for as secured borrowings with cash collateral of overnight and continuous maturities as of December 31, 2017.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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. For the year ended December 31, 2017, the Fund participated in the following cross-trade transactions:
Purchases | Sales | Realized (Gain/Loss) | |||||||||||||
AZL Small Cap Stock Index Fund | $ | 10,047,193 | $ | 39,732,678 | $ | 14,534,403 |
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, 2017, 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. For the year ended December 31, 2017, the monthly average notional amount for long contracts was $9.4 million. 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, 2017:
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 | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 75,889 | Payable for variation 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. |
16
AZL Small Cap Stock Index Fund
Notes to the Financial Statements
December 31, 2017
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, 2017:
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 | ||||||||||
Equity Contracts | Net Realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | $ | 814,912 | $ | 85,533 |
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, 2019.
For the year ended December 31, 2017, the annual rate paid 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, 2017, there were no contractual reimbursements 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, 2017, 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.”
FIS Investor Services LLC (“FIS”) 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 of 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, 2017, $9,801 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, 2017, actual Trustee compensation was $1,116,333 in total for both trusts.
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AZL Small Cap Stock Index Fund
Notes to the Financial Statements
December 31, 2017
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.
There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Other^ | Total | ||||||||||||||||||||
Common Stocks+ | $ | 910,843,134 | $ | — | $ | — | $ | — | $ | 910,843,134 | |||||||||||||||
Rights | — | 84,419 | — | # | — | 84,419 | |||||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | — | 253,468,247 | 253,468,247 | ||||||||||||||||||||
Unaffiliated Investment Company | 8,201,464 | — | — | — | 8,201,464 | ||||||||||||||||||||
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| ||||||||||||||||
Total Investment Securities | 919,044,598 | 84,419 | — | # | 253,468,247 | 1,172,597,264 | |||||||||||||||||||
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Other Financial Instruments:* | |||||||||||||||||||||||||
Futures Contracts | 75,889 | — | — | — | 75,889 | ||||||||||||||||||||
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| ||||||||||||||||
Total Investments | $ | 919,120,487 | $ | 84,419 | $ | — | # | $ | 253,468,247 | $ | 1,172,673,153 | ||||||||||||||
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+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
# | Represents the interest in securities that were determined to have a value of zero at December 31, 2017. |
* | Other Financial Instruments would include any derivative instruments, such as futures contracts. These investments are generally presented in the financial statements at variation margin. |
^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
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.
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AZL Small Cap Stock Index Fund
Notes to the Financial Statements
December 31, 2017
5. Security Purchases and Sales
For the year ended December 31, 2017, 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 | $ | 146,619,223 | $ | 294,690,013 |
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, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $969,735,325. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 236,356,792 | ||
Unrealized (depreciation) | (33,494,853 | ) | ||
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| |||
Net unrealized appreciation/(depreciation) | $ | 202,861,939 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Small Cap Stock Index Fund | $ | 16,810,431 | $ | 47,779,493 | $ | 64,589,924 |
(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, 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. |
At December 31, 2017, 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 | $ | 35,820,152 | $ | 57,883,523 | $ | — | $ | 202,861,939 | $ | 296,565,614 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales. |
8. Ownership and Principal Holders
The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates presumptions of control of the fund, under section 2 (a)(9) of the 1940 Act. As of December 31, 2017, the Fund had an individual shareholder account which is affiliated with the Investment Adviser representing ownership in excess of 65% of the Fund.
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AZL Small Cap Stock Index Fund
Notes to the Financial Statements
December 31, 2017
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
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, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the periods or years in the five-year period then ended. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the periods or years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies 1999.
Columbus, Ohio
February 23, 2018
21
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2017, 17.48% 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, 2017, the Fund declared net short-term capital gain distributions of $12,439,516.
During the year ended December 31, 2017, the Fund declared net long-term capital gain distributions of $47,779,493.
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A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Fund of Funds Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
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Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
24
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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
25
The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in 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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
28
The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
AZL® T. Rowe Price Capital Appreciation Fund
Annual Report
December 31, 2017
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
Page 12
Statements of Changes in Net Assets
Page 13
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
Page 24
Approval of Investment Advisory and Subadvisory Agreements
Page 25
Information about the Board of Trustees and Officers
Page 28
This report is submitted for the general information of the shareholder of the Fund. The report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus, which contains details concerning the sales charges and other pertinent information.
AZL® T. Rowe Price Capital Appreciation Fund (unaudited)
Allianz Investment Management LLC serves as the Manager for the AZL® T. Rowe Price Capital Appreciation Fund and T. Rowe Price Associates, Inc. serves as Subadviser to the Fund.
|
What factors affected the Fund’s performance during the year ended December 31, 2017?
For the year ended December 31, 2017, the AZL® T. Rowe Price Capital Appreciation Fund (the “Fund”) returned 15.04%. That compared to a 21.83%, 3.54% and 14.26% total return for its benchmarks, the S&P 500 Index1, the Bloomberg Barclays U.S. Aggregate Bond Index1, and the Balanced Composite Index1, respectively.
Lifted in part by favorable corporate earnings and economic growth, U.S. stocks posted excellent returns for the 12-month period. Throughout the year, U.S. equities were buoyed by hopes for the new administration’s promise of lower tax rates, reduced regulation and increased infrastructure spending. The Federal Reserve raised short-term interest rates three times in 2017, but the central bank’s moves were widely expected and did not disrupt equity markets.
In the closing weeks of the year, the administration signed tax legislation that reduced tax rates for corporations and closely held businesses, reduced marginal tax rates for individuals at most income levels, and changed the limits for various individual tax deductions. Most major U.S. stock indexes finished the year near record levels amid expectations that the new tax law would accelerate gross domestic product2 growth in 2018.
The Fund outperformed its reference composite benchmark, but underperformed its equity-only benchmark in an environment where equities strongly outperformed fixed income investments.*
The Fund’s equity holdings outperformed the S&P 500 Index for the period. Within equities, stock selection in the health care sector contributed to relative outperformance. An underweight position and stock selection in energy also benefited on a relative basis. By comparison, stock selection and a below-benchmark exposure to information technology stocks detracted, as that sector outperformed.*
The portfolio’s fixed income holdings also posted a positive return during the one-year period. The Fund’s above-benchmark exposure to high-yield securities within its fixed income holdings added to relative performance. Additionally, an underweight exposure to U.S. Treasuries also benefited the Fund, as the 10-year Treasury yield ended the year relatively unchanged.*
The Fund maintained exposure to covered call options —a type of derivative that provided downside protection for the portfolio while offering the benefits of owning a stock, such as dividends and capital appreciation, so long as the stock remains below the option strike price. The Fund’s exposure to equity options detracted from returns, as the Fund wrote call options on some stocks that increased significantly. The Fund held rights at various points during the period to buy stocks at a predetermined price in the future, generating minimal exposure.*
Past performance does not guarantee future results.
* | The Fund’s portfolio composition is subject to change. There is no guarantee that any sectors mentioned will continue to perform well or that securities in such sectors will be held by the Fund in the future. The information contained in this commentary is for informational purposes only and should not be construed as a recommendation to purchase or sell securities in the sector mentioned. The Fund’s holdings and weightings are as of December 31, 2017. |
1 | For a complete description of the Fund’s performance benchmarks please refer to page 2 of this report. |
2 | Gross Domestic Product (GDP) is the measure of the market value of the goods and services produced in a period of time. |
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, 2017
1 | 3 | 5 | 10 | |||||||||||||
Year | Year | Year | Year | |||||||||||||
AZL® T. Rowe Price Capital Appreciation Fund | 15.04 | % | 9.24 | % | 13.62 | % | 6.00 | % | ||||||||
S&P 500 Index | 21.83 | % | 11.41 | % | 15.79 | % | 8.50 | % | ||||||||
Bloomberg Barclays U.S. Aggregate Bond Index | 3.54 | % | 2.24 | % | 2.10 | % | 4.01 | % | ||||||||
Balanced Composite Index | 14.26 | % | 7.76 | % | 10.25 | % | 7.09 | % |
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 | 1.08 | % |
The above expense ratio is based on the current Fund prospectus dated May 1, 2017. 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, 2019. Additional information pertaining to the December 31, 2017 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, as shown in the prospectus, 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 expense ratio would be 1.05%.
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
(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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense RatioDuring Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL T. Rowe Price Capital Appreciation Fund | $ | 1,000.00 | $ | 1,055.60 | $ | 5.13 | 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 7/1/17 | Ending Account Value 12/31/17 | Expenses Paid During Period 7/1/17 - 12/31/17* | Annualized Expense RatioDuring Period 7/1/17 - 12/31/17 | |||||||||||||||||
AZL T. Rowe Price Capital Appreciation Fund | $ | 1,000.00 | $ | 1,020.20 | $ | 5.04 | 0.99 | % |
* | Expenses are equal to the average account value over the period, multiplied by the Fund’s annualized expense ratio, multiplied by 184/365 (to reflect the one half year period). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Common Stocks | 64.8 | % | |||
Corporate Bonds | 17.8 | ||||
Money Markets | 9.5 | ||||
Securities Held as Collateral for Securities on Loan | 7.4 | ||||
U.S. Treasury Obligations | 2.4 | ||||
Yankee Dollars | 1.8 | ||||
Preferred Stocks | 1.8 | ||||
Convertible Preferred Stocks | 1.2 | ||||
Bank Loans | 1.2 | ||||
Asset Backed Securities | 0.1 | ||||
Purchased Options | — | ^ | |||
|
| ||||
Total Investment Securities | 108.0 | ||||
Net other assets (liabilities) | (8.0 | ) | |||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
^ | Represents less than 0.05% |
3
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks (64.9%): | ||||||||
Auto Components (1.4%): | ||||||||
89,208 | Adient plc | $ | 7,020,670 | |||||
167,443 | Magna International, Inc., ADR | 9,488,995 | ||||||
|
| |||||||
16,509,665 | ||||||||
|
| |||||||
Banks (1.8%): | ||||||||
140,471 | PNC Financial Services Group, Inc. | 20,268,561 | ||||||
|
| |||||||
Beverages (2.0%): | ||||||||
180,185 | Dr Pepper Snapple Group, Inc. | 17,488,756 | ||||||
48,633 | PepsiCo, Inc. | 5,832,069 | ||||||
|
| |||||||
23,320,825 | ||||||||
|
| |||||||
Biotechnology (0.9%): | ||||||||
32,925 | Biogen Idec, Inc.* | 10,488,917 | ||||||
1,855 | Bioverativ, Inc.*^ | 100,022 | ||||||
|
| |||||||
10,588,939 | ||||||||
|
| |||||||
Building Products (0.4%): | ||||||||
118,088 | Johnson Controls International plc | 4,500,334 | ||||||
|
| |||||||
Capital Markets (2.0%): | ||||||||
124,134 | Bank of New York Mellon Corp. (The) | 6,685,857 | ||||||
97,971 | Intercontinental Exchange, Inc. | 6,912,834 | ||||||
10,982 | NASDAQ OMX Group, Inc. (The) | 843,747 | ||||||
86,348 | State Street Corp. | 8,428,428 | ||||||
|
| |||||||
22,870,866 | ||||||||
|
| |||||||
Commercial Services & Supplies (0.7%): | ||||||||
116,282 | Waste Connections, Inc. | 8,249,045 | ||||||
|
| |||||||
Containers & Packaging (0.8%): | ||||||||
495,528 | Amcor, Ltd. | 5,952,882 | ||||||
104,047 | Ball Corp.^ | 3,938,179 | ||||||
|
| |||||||
9,891,061 | ||||||||
|
| |||||||
Electric Utilities (1.1%): | ||||||||
73,774 | Eversource Energy | 4,661,041 | ||||||
175,028 | PG&E Corp. | 7,846,506 | ||||||
|
| |||||||
12,507,547 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (0.3%): | ||||||||
24,130 | SBA Communications Corp.* | 3,941,877 | ||||||
|
| |||||||
Food & Staples Retailing (0.4%): | ||||||||
59,300 | CVS Health Corp. | 4,299,250 | ||||||
|
| |||||||
Food Products (2.3%): | ||||||||
184,052 | Kraft Heinz Co. (The) | 14,311,884 | ||||||
136,259 | Mondelez International, Inc., Class A | 5,831,885 | ||||||
70,819 | Tyson Foods, Inc., Class A | 5,741,296 | ||||||
|
| |||||||
25,885,065 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (6.9%): | ||||||||
407,748 | Abbott Laboratories | 23,270,178 | ||||||
118,041 | Becton, Dickinson & Co.^ | 25,267,856 | ||||||
325,959 | Danaher Corp. | 30,255,514 | ||||||
|
| |||||||
78,793,548 | ||||||||
|
| |||||||
Health Care Providers & Services (3.7%): | ||||||||
58,105 | Aetna, Inc. | 10,481,561 | ||||||
37,068 | Anthem, Inc. | 8,340,671 |
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Health Care Providers & Services, continued | ||||||||
20,067 | Cigna Corp. | $ | 4,075,407 | |||||
21,816 | Humana, Inc.^ | 5,411,895 | ||||||
61,682 | UnitedHealth Group, Inc. | 13,598,414 | ||||||
|
| |||||||
41,907,948 | ||||||||
|
| |||||||
Hotels, Restaurants & Leisure (3.2%): | ||||||||
445,228 | Aramark Holdings Corp. | 19,029,045 | ||||||
213,545 | Yum! Brands, Inc. | 17,427,407 | ||||||
|
| |||||||
36,456,452 | ||||||||
|
| |||||||
Household Products (0.3%): | ||||||||
136,190 | Essity AB, Class B* | 3,858,218 | ||||||
|
| |||||||
Industrial Conglomerates (1.6%): | ||||||||
293,057 | General Electric Co. | 5,113,845 | ||||||
52,655 | Roper Industries, Inc.^ | 13,637,645 | ||||||
|
| |||||||
18,751,490 | ||||||||
|
| |||||||
Insurance (3.3%): | ||||||||
412,176 | Marsh & McLennan Cos., Inc. | 33,547,005 | ||||||
577,057 | RSA Insurance Group plc | 4,916,294 | ||||||
|
| |||||||
38,463,299 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (2.7%): | ||||||||
21,392 | Amazon.com, Inc.* | 25,017,302 | ||||||
3,400 | Priceline Group, Inc. (The)* | 5,908,316 | ||||||
|
| |||||||
30,925,618 | ||||||||
|
| |||||||
Internet Software & Services (2.8%): | ||||||||
4,799 | Alphabet, Inc., Class A* | 5,055,267 | ||||||
25,432 | Alphabet, Inc., Class C* | 26,612,044 | ||||||
|
| |||||||
31,667,311 | ||||||||
|
| |||||||
IT Services (9.0%): | ||||||||
244,791 | Fidelity National Information Services, Inc. | 23,032,385 | ||||||
253,994 | Fiserv, Inc.* | 33,306,233 | ||||||
51,585 | MasterCard, Inc., Class A | 7,807,906 | ||||||
339,656 | Visa, Inc., Class A^ | 38,727,576 | ||||||
|
| |||||||
102,874,100 | ||||||||
|
| |||||||
Life Sciences Tools & Services (3.0%): | ||||||||
338,472 | PerkinElmer, Inc.^ | 24,749,073 | ||||||
51,451 | Thermo Fisher Scientific, Inc. | 9,769,516 | ||||||
|
| |||||||
34,518,589 | ||||||||
|
| |||||||
Machinery (1.6%): | ||||||||
172,350 | Fortive Corp. | 12,469,523 | ||||||
40,296 | Middleby Corp. (The)*^ | 5,437,945 | ||||||
|
| |||||||
17,907,468 | ||||||||
|
| |||||||
Media (0.7%): | ||||||||
138,376 | Comcast Corp., Class A | 5,541,959 | ||||||
89,745 | Liberty Global plc, Series C* | 3,036,971 | ||||||
|
| |||||||
8,578,930 | ||||||||
|
| |||||||
Multi-Utilities (0.4%): | ||||||||
38,621 | DTE Energy Co. | 4,227,455 | ||||||
|
|
Continued
4
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2017
Shares | Fair Value | |||||||
Common Stocks, continued | ||||||||
Oil, Gas & Consumable Fuels (1.1%): | ||||||||
147,300 | Canadian Natural Resources, Ltd.^ | $ | 5,261,556 | |||||
172,128 | Enterprise Products Partners LP | 4,563,113 | ||||||
40,630 | Total SA | 2,241,498 | ||||||
|
| |||||||
12,066,167 | ||||||||
|
| |||||||
Pharmaceuticals (1.2%): | ||||||||
35,702 | Perrigo Co. plc | 3,111,786 | ||||||
137,300 | Zoetis, Inc. | 9,891,092 | ||||||
|
| |||||||
13,002,878 | ||||||||
|
| |||||||
Professional Services (1.4%): | ||||||||
81,293 | Equifax, Inc.^ | 9,586,071 | ||||||
271,637 | Reed Elsevier plc | 6,362,617 | ||||||
|
| |||||||
15,948,688 | ||||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (0.5%): | ||||||||
59,544 | Texas Instruments, Inc. | 6,218,775 | ||||||
|
| |||||||
Software (3.0%): | ||||||||
52,278 | Intuit, Inc. | 8,248,423 | ||||||
305,300 | Microsoft Corp. | 26,115,362 | ||||||
|
| |||||||
34,363,785 | ||||||||
|
| |||||||
Specialty Retail (1.2%): | ||||||||
6,951 | AutoZone, Inc.* | 4,944,733 | ||||||
36,138 | O’Reilly Automotive, Inc.*^ | 8,692,634 | ||||||
|
| |||||||
13,637,367 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (0.6%): | ||||||||
42,800 | Apple, Inc. | 7,243,044 | ||||||
|
| |||||||
Tobacco (2.5%): | ||||||||
84,757 | British American Tobacco plc | 5,719,194 | ||||||
221,343 | Philip Morris International, Inc. | 23,384,888 | ||||||
|
| |||||||
29,104,082 | ||||||||
|
| |||||||
Total Common Stocks (Cost $593,563,145) | 743,348,247 | |||||||
|
| |||||||
Preferred Stocks (1.8%): | ||||||||
Banks (0.0%): | ||||||||
7,099 | U.S. Bancorp, Series F, 0.92%^ | 200,334 | ||||||
|
| |||||||
Capital Markets (0.1%): | ||||||||
55,900 | Charles Schwab Corp. (The), Series C, 6.00%^ | 1,502,592 | ||||||
3,600 | Charles Schwab Corp. (The), Series D, 5.95%^ | 97,200 | ||||||
3,456 | State Street Corp., Series E, 6.00%^ | 91,446 | ||||||
|
| |||||||
1,691,238 | ||||||||
|
| |||||||
Electric Utilities (0.4%): | ||||||||
30,000 | Alabama Power Co., 5.00%^ | 797,400 | ||||||
107,700 | SCE Trust IV, Series J, 7.44%^ | 2,778,660 | ||||||
18,000 | SCE Trust V, Series K, 20.62%^ | 475,740 | ||||||
25,000 | SCE Trust VI, 5.00%^ | 600,500 | ||||||
|
| |||||||
4,652,300 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (1.1%): | ||||||||
190,269 | Becton Dickinson And Co., Series A, 6.13%^ | 11,016,575 | ||||||
|
| |||||||
Multi-Utilities (0.2%): | ||||||||
100,000 | DTE Energy Co., Series E, 5.25%^ | 2,570,000 | ||||||
|
| |||||||
Total Preferred Stocks (Cost $18,394,276) | 20,130,447 | |||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Convertible Preferred Stocks (1.2%): | ||||||||
Banks (0.3%): | ||||||||
2,699 | Wells Fargo & Co., Series L, Class A, 7.5% | $ | 3,535,663 | |||||
|
| |||||||
Electric Utilities (0.1%): | ||||||||
19,115 | Nextra Energy, Inc., 6.12%^ | 1,074,263 | ||||||
|
| |||||||
Equity Real Estate Investment Trusts (0.5%): | ||||||||
34,071 | American Tower Corp., 5.50%^ | 4,284,429 | ||||||
934 | Crown Castle International Corp., Series A, 6.88% | 1,054,299 | ||||||
|
| |||||||
5,338,728 | ||||||||
|
| |||||||
Multi-Utilities (0.3%): | ||||||||
74,139 | DTE Energy Co., 6.50%^ | 4,000,540 | ||||||
|
| |||||||
Total Convertible Preferred Stocks (Cost $12,418,101) | 13,949,194 | |||||||
|
| |||||||
Asset Backed Securities (0.1%): | ||||||||
943,063 | Taco Bell Funding LLC, Class A2I, Series 16-1A, 3.83%, 5/25/46(a)(b) | 955,860 | ||||||
|
| |||||||
672,520 | Wendys Funding LLC, Class A2I, Series 2015-1A, 3.37%, 6/15/45(a) | 674,322 | ||||||
|
| |||||||
Total Asset Backed Securities (Cost $1,615,583) | 1,630,182 | |||||||
|
| |||||||
Bank Loans (1.2%): | ||||||||
Chemicals (0.1%): | ||||||||
713,213 | H.B. Fuller Co., 3.61% (US LIBOR ), 10/20/24, Callable 2/4/18 @ 101 | 715,095 | ||||||
|
| |||||||
Insurance (0.6%): | ||||||||
6,350,864 | Hub International, Ltd., 4.41% (US LIBOR ), 10/2/20, Callable 2/4/18 @ 100 | 6,376,966 | ||||||
|
| |||||||
IT Services (0.1%): | ||||||||
853,125 | Global Payments, Inc., 3.10% (US LIBOR ), 5/2/22(c) | 853,125 | ||||||
740,000 | Vantiv LLC, 3.66% (US LIBOR ), 3/31/23 | 742,775 | ||||||
|
| |||||||
1,595,900 | ||||||||
|
| |||||||
Machinery (0.2%): | ||||||||
1,776,282 | Manitowoc Foodservice, Inc., 4.10% (US LIBOR ), 3/3/23, Callable 2/4/18 @ 101 | 1,788,130 | ||||||
|
| |||||||
Media (0.1%): | ||||||||
975,000 | Charter Communications, 3.65%, 12/31/99 | 973,781 | ||||||
265,909 | Kasima LLC, 3.85% (US LIBOR ), 5/17/21, Callable 2/4/18 @ 100 | 268,568 | ||||||
|
| |||||||
1,242,349 | ||||||||
|
| |||||||
Multiline Retail (0.0%): | ||||||||
100,000 | Dollar Tree, Inc., 4.25%, 7/6/22 | 100,625 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.1%): | ||||||||
1,246,875 | BCP Raptor LLC, 5.73% (US LIBOR ), 6/24/24, Callable 2/4/18 @ 101 | 1,250,778 | ||||||
|
| |||||||
Pharmaceuticals (0.0%): | ||||||||
118,917 | Prestige Brands, Inc., 4.10% (US LIBOR ), 1/26/24, Callable 2/4/18 @ 100 | 119,624 | ||||||
|
| |||||||
Professional Services (0.0%): | ||||||||
20,417 | Institutional Shareholder Services, Inc., 5.45% (US LIBOR ), 10/16/24(c) | 20,451 |
Continued
5
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Bank Loans, continued | ||||||||
Professional Services, continued | ||||||||
$ | 224,583 | Institutional Shareholder Services, Inc., 5.45% (US LIBOR ), 10/16/24, Callable 2/4/18 @ 101(c) | $ | 224,958 | ||||
|
| |||||||
245,409 | ||||||||
|
| |||||||
Total Bank Loans (Cost $13,250,312) | 13,434,876 | |||||||
|
| |||||||
Corporate Bonds (17.8%): | ||||||||
Aerospace & Defense (0.7%): | ||||||||
145,000 | Moog, Inc., 5.25%, 12/1/22, Callable 2/5/18 @ 103.94(a) | 150,075 | ||||||
1,730,000 | Northrop Grumman Corp., 2.55%, 10/15/22, Callable 9/15/22 @ 100 | 1,717,673 | ||||||
2,095,000 | Northrop Grumman Corp., 2.93%, 1/15/25, Callable 11/15/24 @ 100^ | 2,082,553 | ||||||
4,503,000 | Northrop Grumman Corp., 3.25%, 1/15/28, Callable 10/15/27 @ 100 | 4,509,578 | ||||||
|
| |||||||
8,459,879 | ||||||||
|
| |||||||
Airlines (0.0%): | ||||||||
311,076 | U.S. Airways 2010-1A PTT, Series A, 6.25%, 10/22/24 | 343,770 | ||||||
|
| |||||||
Automobiles (0.3%): | ||||||||
3,345,000 | Tesla, Inc., 5.30%, 8/15/25, Callable 8/15/20 @ 103.97^(a) | 3,194,475 | ||||||
|
| |||||||
Banks (0.3%): | ||||||||
2,145,000 | PNC Financial Services, Series S, 5.00% (US0003M+330 bps), 12/31/49, Callable 11/1/26 @ 100^ | 2,268,338 | ||||||
875,000 | US BanCorp, 5.30% (US0003M+291 bps), 12/31/49, Callable 4/15/27 @ 100 | 947,231 | ||||||
|
| |||||||
3,215,569 | ||||||||
|
| |||||||
Beverages (0.3%): | ||||||||
720,000 | Anheuser-Busch InBev NV, 1.90%, 2/1/19 | 718,507 | ||||||
440,000 | Anheuser-Busch InBev NV, 2.65%, 2/1/21, Callable 1/1/21 @ 100 | 442,208 | ||||||
930,000 | Anheuser-Busch InBev NV, 2.64% (US0003M+126 bps), 2/1/21 | 959,693 | ||||||
625,000 | Anheuser-Busch InBev NV, 3.30%, 2/1/23, Callable 12/1/22 @ 100 | 639,558 | ||||||
465,000 | PepsiCo, Inc., 1.25%, 4/30/18 | 464,612 | ||||||
|
| |||||||
3,224,578 | ||||||||
|
| |||||||
Building Products (0.0%): | ||||||||
280,000 | Lennox International, Inc., 3.00%, 11/15/23, Callable 9/15/23 @ 100 | 276,482 | ||||||
|
| |||||||
Capital Markets (0.5%): | ||||||||
1,865,000 | Bank of New York Mellon Corp. (The), Series E, 4.95% (US0003M+342 bps), 12/29/49, Callable 6/20/20 @ 100 | 1,930,368 | ||||||
1,060,000 | Bank of New York Mellon Corp. (The), 4.62% (US0003M+313 bps), 12/29/49, Callable 9/20/26 @ 100 | 1,077,225 | ||||||
1,290,000 | MSCI, Inc., 5.25%, 11/15/24, Callable 11/15/19 @ 102.63(a) | 1,359,338 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Capital Markets, continued | ||||||||
$ | 340,000 | MSCI, Inc., 5.75%, 8/15/25, Callable 8/15/20 @ 102.88(a) | $ | 365,075 | ||||
1,355,000 | State Street Corp., Series F, 5.25% (US0003M+360 bps), 12/31/49, Callable 9/15/20 @ 100^ | 1,421,124 | ||||||
|
| |||||||
6,153,130 | ||||||||
|
| |||||||
Chemicals (0.0%): | ||||||||
570,000 | Ecolab, Inc., 2.00%, 1/14/19^ | 569,054 | ||||||
|
| |||||||
Communications Equipment (0.0%): | ||||||||
260,000 | Harris Corp., 2.00%, 4/27/18 | 259,728 | ||||||
|
| |||||||
Consumer Finance (0.5%): | ||||||||
695,000 | Caterpillar Financial Services Corp., 2.25%, 12/1/19, MTN | 696,092 | ||||||
835,000 | Ford Motor Credit Co. LLC, 2.15%, 1/9/18 | 835,017 | ||||||
1,165,000 | Ford Motor Credit Co. LLC, 5.00%, 5/15/18 | 1,176,858 | ||||||
1,420,000 | Ford Motor Credit Co. LLC, 2.38%, 3/12/19 | 1,420,509 | ||||||
1,865,000 | Ford Motor Credit Co. LLC, 2.60%, 11/4/19 | 1,866,221 | ||||||
|
| |||||||
5,994,697 | ||||||||
|
| |||||||
Containers & Packaging (0.6%): | ||||||||
3,304,657 | Beverage Packaging Holdings Luxemberg, 5.75%, 10/15/20, Callable 2/5/18 @ 101.44 | 3,354,227 | ||||||
1,286,549 | Beverage Packaging Holdings Luxemberg, 6.88%, 2/15/21, Callable 2/5/18 @ 102.29 | 1,304,239 | ||||||
1,560,000 | Reynolds Group Issuer, Inc., 4.86% (US0003M+350 bps), 7/15/21, Callable 2/5/18 @ 102^(a) | 1,583,400 | ||||||
800,000 | Reynolds Group Issuer, Inc., 5.13%, 7/15/23, Callable 7/15/19 @ 102.56(a) | 828,000 | ||||||
|
| |||||||
7,069,866 | ||||||||
|
| |||||||
Diversified Consumer Services (0.2%): | ||||||||
200,000 | Service Corp. International, 7.63%, 10/1/18 | 208,250 | ||||||
1,762,000 | Service Corp. International, 5.38%, 5/15/24, Callable 5/15/19 @ 102.69 | 1,856,707 | ||||||
625,000 | Service Corp. International/US, 4.63%, 12/15/27, Callable 12/15/22 @ 102.31 | 634,138 | ||||||
|
| |||||||
2,699,095 | ||||||||
|
| |||||||
Diversified Telecommunication Services (0.4%): | ||||||||
970,000 | Level 3 Communications, Inc., 5.38%, 8/15/22, Callable 2/5/18 @ 102.69 | 982,416 | ||||||
1,310,000 | Level 3 Financing, Inc., 5.63%, 2/1/23, Callable 2/5/18 @ 102.81^ | 1,319,825 | ||||||
1,225,000 | Verizon Communications, 3.13%, 3/16/22 | 1,242,035 | ||||||
1,225,000 | Verizon Communications, 2.60% (US0003M+100 bps), 3/16/22^ | 1,249,116 | ||||||
|
| |||||||
4,793,392 | ||||||||
|
| |||||||
Electric Utilities (0.7%): | ||||||||
1,225,000 | Edison International, 2.13%, 4/15/20 | 1,214,262 | ||||||
750,000 | Eversource Energy, 2.75%, 3/15/22, Callable 2/15/22 @ 100^ | 751,358 | ||||||
500,000 | Eversource Energy, Series L, 2.90%, 10/1/24, Callable 8/1/24 @ 100 | 496,196 | ||||||
1,000,000 | NSTAR Electric Co., 3.20%, 5/15/27, Callable 2/15/27 @ 100 | 1,012,111 |
Continued
6
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Electric Utilities, continued | ||||||||
$ | 1,240,000 | Pacific Gas & Electric, 3.30%, 3/15/27, Callable 12/15/26 @ 100^ | $ | 1,230,600 | ||||
2,130 | SCE Trust II, 0.84%, 12/31/49, Perpetual Bond^ | 51,482 | ||||||
23,272 | SCE Trust III, Series H, 0.85%, 12/31/49, Perpetual Bond | 629,508 | ||||||
1,140,000 | Southern Co., 1.55%, 7/1/18 | 1,137,689 | ||||||
610,000 | Southern Co., 1.85%, 7/1/19 | 606,310 | ||||||
365,000 | Virginia Electric & Power Co., Series A, 3.15%, 1/15/26, Callable 10/15/25 @ 100 | 368,503 | ||||||
855,000 | Virginia Electric & Power Co., Series A, 3.50%, 3/15/27, Callable 12/15/26 @ 100^ | 883,980 | ||||||
|
| |||||||
8,381,999 | ||||||||
|
| |||||||
Electronic Equipment, Instruments & Components (0.1%): | ||||||||
750,000 | Amphenol Corp., 2.20%, 4/1/20 | 746,294 | ||||||
375,000 | Amphenol Corp., 3.20%, 4/1/24, Callable 2/1/24 @ 100 | 377,535 | ||||||
|
| |||||||
1,123,829 | ||||||||
|
| |||||||
Equity Real Estate Investment Trusts (1.8%): | ||||||||
1,420,000 | American Tower Corp., 3.30%, 2/15/21, Callable 1/15/21 @ 100^ | 1,446,037 | ||||||
2,530,000 | Crown Castle International Corp., 4.88%, 4/15/22 | 2,713,080 | ||||||
3,895,000 | Crown Castle International Corp., 5.25%, 1/15/23 | 4,264,813 | ||||||
815,000 | Iron Mountain, Inc., 4.38%, 6/1/21, Callable 6/1/18 @ 102.19(a) | 827,127 | ||||||
430,000 | Iron Mountain, Inc., 6.00%, 8/15/23, Callable 8/15/18 @ 103 | 449,350 | ||||||
1,773,000 | Iron Mountain, Inc., 5.75%, 8/15/24, Callable 2/5/18 @ 102.88^ | 1,795,163 | ||||||
3,770,000 | SBA Communications Corp., 4.88%, 7/15/22, Callable 2/5/18 @ 103.66 | 3,873,675 | ||||||
4,800,000 | SBA Communications Corp., 4.88%, 9/1/24, Callable 9/1/19 @ 103.66 | 4,931,999 | ||||||
|
| |||||||
20,301,244 | ||||||||
|
| |||||||
Food & Staples Retailing (0.0%): | ||||||||
340,000 | Kroger Co. (The), 2.00%, 1/15/19 | 339,391 | ||||||
|
| |||||||
Food Products (0.1%): | ||||||||
645,000 | B&G Foods, Inc., 4.63%, 6/1/21, Callable 2/5/18 @ 102.31 | 654,675 | ||||||
145,000 | TreeHouse Foods, Inc., 6.00%, 2/15/24, Callable 2/15/19 @ 104.5^(a) | 150,800 | ||||||
|
| |||||||
805,475 | ||||||||
|
| |||||||
Gas Utilities (0.1%): | ||||||||
825,000 | Southern Calif Gas Co., 3.20%, 6/15/25, Callable 3/15/25 @ 100 | 843,390 | ||||||
|
| |||||||
Health Care Equipment & Supplies (1.1%): | ||||||||
1,080,000 | Becton Dickinson & Co., 2.54% (US0003M+103 bps), 6/6/22 | 1,085,668 | ||||||
1,105,000 | Becton Dickinson & Co., 3.36%, 6/6/24, Callable 4/6/24 @ 100 | 1,108,087 | ||||||
706,000 | Becton, Dickinson & Co., 2.68%, 12/15/19 | 708,552 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Health Care Equipment & Supplies, continued | ||||||||
$ | 4,860,000 | Hologic, Inc., 5.25%, 7/15/22, Callable 7/15/18 @ 102.63^ | $ | 5,030,099 | ||||
1,340,000 | Hologic, Inc., 4.38%, 10/15/25, Callable 10/15/20 @ 102.19(a) | 1,360,100 | ||||||
1,185,000 | Medtronic plc, 1.50%, 3/15/18 | 1,184,147 | ||||||
1,470,000 | Medtronic plc, 2.50%, 3/15/20 | 1,478,700 | ||||||
270,000 | Teleflex, Inc., 4.88%, 6/1/26, Callable 6/1/21 @ 102.44 | 278,775 | ||||||
250,000 | Teleflex, Inc., 4.63%, 11/15/27, Callable 11/15/22 @ 102.31 | 252,138 | ||||||
|
| |||||||
12,486,266 | ||||||||
|
| |||||||
Health Care Providers & Services (1.4%): | ||||||||
3,695,000 | Centene Corp., 5.63%, 2/15/21, Callable 2/15/18 @ 102.81 | 3,796,612 | ||||||
1,285,000 | Centene Corp., 4.75%, 5/15/22, Callable 5/15/19 @ 102.38 | 1,333,188 | ||||||
2,102,000 | Centene Corp., 6.13%, 2/15/24, Callable 2/15/19 @ 104.59 | 2,222,865 | ||||||
305,000 | Fresenius Medical Care AG & Co. KGaA, 5.75%, 2/15/21(a) | 329,986 | ||||||
900,000 | HCA, Inc., 3.75%, 3/15/19 | 907,875 | ||||||
1,185,000 | HCA, Inc., 4.25%, 10/15/19^ | 1,210,181 | ||||||
5,655,000 | HCA, Inc., 6.50%, 2/15/20 | 5,994,299 | ||||||
150,000 | Universal Health Services, 3.75%, 8/1/19(a) | 152,438 | ||||||
|
| |||||||
15,947,444 | ||||||||
|
| |||||||
Health Care Technology (0.2%): | ||||||||
2,615,238 | Change Healthcare Holdings LLC, 4.10% (US LIBOR ), 3/1/24, Callable 2/4/18 @ 100 | 2,618,847 | ||||||
|
| |||||||
Hotels, Restaurants & Leisure (1.8%): | ||||||||
3,085,000 | Aramark Services, Inc., 5.00%, 4/1/25, Callable 4/1/20 @ 103.75(a) | 3,258,685 | ||||||
1,051,000 | Cedar Fair LP/Canada’s Wonderland Co., 5.38%, 6/1/24, Callable 6/1/19 @ 102.69 | 1,098,295 | ||||||
530,000 | Cedar Fair LP/Canada’s Wonderland Co./Magnum Management Corp/Millennium Op, 5.38%, 4/15/27, Callable 4/15/22 @ 102.69^(a) | 556,500 | ||||||
360,000 | Hilton Domestic Operating Co., Inc., 4.25%, 9/1/24, Callable 9/1/19 @ 102.13 | 363,600 | ||||||
1,075,000 | KFC Holding Co./Pizza Hut Holdings LLC/Taco Bell of America LLC, 5.00%, 6/1/24, Callable 6/1/19 @ 103.75(a) | 1,108,594 | ||||||
1,440,000 | KFC Holding Co./Pizza Hut Holdings LLC/Taco Bell of America LLC, 5.25%, 6/1/26, Callable 6/1/21 @ 102.63(a) | 1,515,600 | ||||||
5,178,000 | KFC Holding Co./Pizza Hut Holdings LLC/Taco Bell of America LLC, 4.75%, 6/1/27, Callable 6/1/22 @ 102.38^(a) | 5,294,504 | ||||||
135,000 | McDonald’s Corp., 2.10%, 12/7/18 | 135,138 | ||||||
900,000 | Yum! Brands, Inc., 6.25%, 3/15/18 | 906,750 | ||||||
535,000 | Yum! Brands, Inc., 5.30%, 9/15/19 | 556,400 | ||||||
1,760,000 | Yum! Brands, Inc., 3.88%, 11/1/20, Callable 8/1/20 @ 100^ | 1,795,200 |
Continued
7
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Hotels, Restaurants & Leisure, continued | ||||||||
$ | 2,934,000 | Yum! Brands, Inc., 3.75%, 11/1/21, Callable 8/1/21 @ 100^ | $ | 2,978,009 | ||||
1,258,000 | Yum! Brands, Inc., 3.88%, 11/1/23, Callable 8/1/23 @ 100^ | 1,265,863 | ||||||
707,000 | Yum! Brands, Inc., 6.88%, 11/15/37 | 775,933 | ||||||
600,000 | Yum! Brands, Inc., 5.35%, 11/1/43, Callable 5/1/43 @ 100 | 579,000 | ||||||
|
| |||||||
22,188,071 | ||||||||
|
| |||||||
Household Products (0.1%): | ||||||||
750,000 | Spectrum Brand, Inc., 6.63%, 11/15/22, Callable 2/5/18 @ 103.31 | 776,250 | ||||||
350,000 | Spectrum Brands, Inc., 6.13%, 12/15/24, Callable 12/15/19 @ 103.06 | 370,563 | ||||||
|
| |||||||
1,146,813 | ||||||||
|
| |||||||
Industrial Conglomerates (0.2%): | ||||||||
980,000 | 3M Co., 2.25%, 3/15/23, Callable 2/15/23 @ 100, MTN | 971,840 | ||||||
1,225,000 | 3M Co., 2.88%, 10/15/27, Callable 7/15/27 @ 100, MTN | 1,218,431 | ||||||
|
| |||||||
2,190,271 | ||||||||
|
| |||||||
Insurance (0.4%): | ||||||||
2,835,000 | Hub International, Ltd., 7.88%, 10/1/21, Callable 2/5/18 @ 103.94(a) | 2,951,944 | ||||||
530,000 | Marsh & McLennan Cos., Inc., 2.35%, 3/6/20, Callable 2/6/20 @ 100 | 529,699 | ||||||
530,000 | Marsh & McLennan Cos., Inc., 2.75%, 1/30/22, Callable 12/30/21 @ 100 | 531,068 | ||||||
200,000 | Marsh & McLennan Cos., Inc., 3.30%, 3/14/23, Callable 1/14/23 @ 100 | 204,972 | ||||||
|
| |||||||
4,217,683 | ||||||||
|
| |||||||
Internet & Direct Marketing Retail (1.1%): | ||||||||
1,800,000 | Amazon.com, Inc., 2.60%, 12/5/19, Callable 11/5/19 @ 100^ | 1,818,367 | ||||||
590,000 | Netflix, Inc., 5.88%, 2/15/25^ | 626,875 | ||||||
4,290,000 | Netflix, Inc., 4.38%, 11/15/26^ | 4,193,475 | ||||||
6,490,000 | Netflix, Inc., 4.88%, 4/15/28(a) | 6,360,200 | ||||||
|
| |||||||
12,998,917 | ||||||||
|
| |||||||
IT Services (0.1%): | ||||||||
171,429 | Fiserv, Inc., 3.95%, 10/25/18(c) | 171,000 | ||||||
1,190,000 | Fiserv, Inc., 2.70%, 6/1/20, Callable 5/1/20 @ 100 | 1,197,434 | ||||||
|
| |||||||
1,368,434 | ||||||||
|
| |||||||
Life Sciences Tools & Services (0.1%): | ||||||||
960,000 | Thermo Fisher Scientific, Inc., 3.20%, 8/15/27, Callable 5/15/27 @ 100^ | 951,500 | ||||||
|
| |||||||
Machinery (0.2%): | ||||||||
1,060,000 | CNH Industrial Capital LLC, 3.63%, 4/15/18^ | 1,065,490 | ||||||
105,000 | Fortive Corp., 1.80%, 6/15/19 | 104,242 | ||||||
350,000 | Manitowoc Foodservice, Inc., 9.50%, 2/15/24, Callable 2/15/19 @ 107.13^ | 398,563 |
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Machinery, continued | ||||||||
$ | 200,000 | Xylem, Inc., 3.25%, 11/1/26, Callable 8/1/26 @ 100 | $ | 198,949 | ||||
|
| |||||||
1,767,244 | ||||||||
|
| |||||||
Media (1.0%): | ||||||||
275,000 | CCO Holdings LLC, 5.25%, 3/15/21, Callable 2/5/18 @ 102.63 | 279,641 | ||||||
2,035,000 | CCO Holdings LLC, 5.25%, 9/30/22, Callable 2/5/18 @ 102.63 | 2,085,874 | ||||||
970,000 | CCO Holdings LLC, 5.75%, 9/1/23, Callable 3/1/18 @ 102.88 | 999,100 | ||||||
875,000 | CCO Holdings LLC, 5.75%, 1/15/24, Callable 7/15/18 @ 102.88 | 899,063 | ||||||
1,834,000 | Cequel Communications Holdings I LLC, 6.38%, 9/15/20, Callable 2/5/18 @ 101.59^(a) | 1,861,510 | ||||||
720,000 | Charter Communications Operating LLC, 3.58%, 7/23/20, Callable 6/23/20 @ 100 | 733,422 | ||||||
360,000 | Dish DBS Corp., 4.25%, 4/1/18 | 361,350 | ||||||
395,000 | Lamar Media Corp., 5.88%, 2/1/22, Callable 2/5/18 @ 101.96 | 403,394 | ||||||
1,850,000 | Sirius XM Radio, Inc., 6.00%, 7/15/24, Callable 7/15/19 @ 103(a) | 1,956,374 | ||||||
1,385,000 | Time Warner Cable LLC, 6.75%, 7/1/18 | 1,415,699 | ||||||
|
| |||||||
10,995,427 | ||||||||
|
| |||||||
Multiline Retail (0.2%): | ||||||||
1,800,000 | Dollar Tree, Inc., 5.75%, 3/1/23, Callable 3/1/18 @ 104.31 | 1,885,500 | ||||||
|
| |||||||
Multi-Utilities (0.7%): | ||||||||
1,020,000 | Berkshire Hathaway Energy Co., 2.40%, 2/1/20, Callable 1/1/20 @ 100 | 1,024,763 | ||||||
107,000 | CMS Energy Corp., 8.75%, 6/15/19 | 116,429 | ||||||
150,000 | Dominion Resources, Inc., 2.96%, 7/1/19 | 151,161 | ||||||
2,625,000 | DTE Energy Co., 3.80%, 3/15/27, Callable 12/15/26 @ 100^ | 2,707,200 | ||||||
1,895,000 | NiSource Finance Corp., 3.49%, 5/15/27, Callable 2/15/27 @ 100 | 1,928,809 | ||||||
1,955,000 | NiSource Finance Corp., 4.38%, 5/15/47, Callable 11/15/46 @ 100 | 2,142,828 | ||||||
|
| |||||||
8,071,190 | ||||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.2%): | ||||||||
1,390,000 | Chevron Corp., 1.37%, 3/2/18 | 1,389,070 | ||||||
100,000 | Enbridge Energy Partners LP, Series B, 6.50%, 4/15/18 | 101,325 | ||||||
305,000 | EQT Corp., 8.13%, 6/1/19 | 328,474 | ||||||
860,000 | Matador Resources Co., 6.88%, 4/15/23, Callable 4/15/18 @ 105.16 | 905,150 | ||||||
|
| |||||||
2,724,019 | ||||||||
|
| |||||||
Pharmaceuticals (0.3%): | ||||||||
705,000 | Eli Lilly & Co., 1.25%, 3/1/18^ | 704,465 | ||||||
2,672,000 | Pfizer, Inc., 1.20%, 6/1/18 | 2,666,150 | ||||||
|
| |||||||
3,370,615 | ||||||||
|
|
Continued
8
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2017
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Corporate Bonds, continued | ||||||||
Real Estate Management & Development (0.1%): | ||||||||
$ | 790,000 | CBRE Services, Inc., 5.00%, 3/15/23, Callable 3/15/18 @ 102.5 | $ | 812,374 | ||||
|
| |||||||
Road & Rail (0.1%): | ||||||||
860,000 | Burlington North Santa Fe, 3.25%, 6/15/27, Callable 3/15/27 @ 100^ | 879,734 | ||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (0.1%): | ||||||||
625,000 | Texas Instruments, Inc., 2.90%, 11/3/27, Callable 8/3/27 @ 100 | 622,936 | ||||||
|
| |||||||
Software (0.8%): | ||||||||
9,250,000 | Microsoft Corp., 3.30%, 2/6/27, Callable 11/6/26 @ 100 | 9,541,385 | ||||||
|
| |||||||
Specialty Retail (0.3%): | ||||||||
130,000 | AutoZone, Inc., 1.63%, 4/21/19 | 128,918 | ||||||
540,000 | AutoZone, Inc., 2.50%, 4/15/21, Callable 3/15/21 @ 100 | 536,235 | ||||||
2,055,000 | L Brands, Inc., 8.50%, 6/15/19 | 2,232,244 | ||||||
|
| |||||||
2,897,397 | ||||||||
|
| |||||||
Technology Hardware, Storage & Peripherals (0.3%): | ||||||||
3,180,000 | Apple, Inc., 1.50%, 9/12/19^ | 3,153,478 | ||||||
|
| |||||||
Tobacco (0.3%): | ||||||||
1,000,000 | Philip Morris International, Inc., 2.00%, 2/21/20 | 993,775 | ||||||
660,000 | Philip Morris International, Inc., 1.86% (US0003M+42 bps), 2/21/20 | 663,191 | ||||||
1,230,000 | Philip Morris International, Inc., 2.63%, 2/18/22, Callable 1/18/22 @ 100 | 1,229,896 | ||||||
|
| |||||||
2,886,862 | ||||||||
|
| |||||||
Wireless Telecommunication Services (0.1%): | ||||||||
625,000 | T-Mobile US, Inc., 6.84%, 4/28/23, Callable 4/28/18 @ 103.42 | 654,688 | ||||||
|
| |||||||
Total Corporate Bonds (Cost $202,410,397) | 204,426,138 | |||||||
|
| |||||||
Yankee Dollars (1.8%): | ||||||||
Diversified Telecommunication Services (0.4%): | ||||||||
1,255,000 | Virgin Media Communications, Ltd., 6.00%, 10/15/24, Callable 10/15/19 @ 103(a) | 1,287,943 | ||||||
810,000 | Virgin Media Secured Finance plc, 5.25%, 1/15/26, Callable 1/15/20 @ 102.63(a) | 818,100 | ||||||
2,740,000 | Ziggo Secured Finance BV, 5.50%, 1/15/27, Callable 1/15/22 @ 102.75(a) | 2,719,450 | ||||||
|
| |||||||
4,825,493 | ||||||||
|
| |||||||
Health Care Equipment & Supplies (0.2%): | ||||||||
1,225,000 | Medtronic Global Holdings, 1.70%, 3/28/19 | 1,219,915 | ||||||
715,000 | Medtronic Global Holdings, 3.35%, 4/1/27, Callable 1/1/27 @ 100^ | 733,640 | ||||||
|
| |||||||
1,953,555 | ||||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Yankee Dollars, continued | ||||||||
Household Products (0.1%): | ||||||||
$ | 1,200,000 | Reckitt Benckiser Treasury Services plc, 2.23% (US0003M+56 bps), 6/24/22(a) | $ | 1,199,572 | ||||
|
| |||||||
Insurance (0.1%): | ||||||||
735,000 | Trinity Acquistion plc, 4.40%, 3/15/26, Callable 12/15/25 @ 100 | 777,328 | ||||||
|
| |||||||
Media (0.2%): | ||||||||
1,690,000 | Unitymedia Kabelbw GMBH, 6.13%, 1/15/25, Callable 1/15/20 @ 103.06(a) | 1,782,950 | ||||||
|
| |||||||
Oil, Gas & Consumable Fuels (0.1%): | ||||||||
260,000 | Canadian Natural Resources, Ltd., 1.75%, 1/15/18 | 259,953 | ||||||
1,650,000 | Shell International Finance BV, 1.86% (US0003M+45 bps), 5/11/20 | 1,665,097 | ||||||
|
| |||||||
1,925,050 | ||||||||
|
| |||||||
Professional Services (0.1%): | ||||||||
1,580,000 | IHS Markit, Ltd., 5.00%, 11/1/22, Callable 8/1/22 @ 100(a) | 1,713,036 | ||||||
|
| |||||||
Semiconductors & Semiconductor Equipment (0.6%): | ||||||||
6,555,000 | NXP Funding BV/NXP Funding LLC, 3.75%, 6/1/18(a) | 6,594,331 | ||||||
200,000 | NXP Funding BV/NXP Funding LLC, 4.13%, 6/15/20(a) | 204,806 | ||||||
|
| |||||||
6,799,137 | ||||||||
|
| |||||||
Total Yankee Dollars (Cost $20,693,690) | 20,976,121 | |||||||
|
| |||||||
U.S. Treasury Obligation (2.4%): | ||||||||
U.S. Treasury Notes (2.4%) | ||||||||
28,012,500 | 2.25%, 11/15/27 | 27,617,480 | ||||||
|
| |||||||
Total U.S. Treasury Obligation (Cost $27,426,267) | 27,617,480 | |||||||
|
| |||||||
Purchased Options (0.0%): | ||||||||
Total Purchased Options (Cost $543,725) | 1,225,719 | |||||||
|
| |||||||
Securities Held as Collateral for Securities on Loan (7.4%): | ||||||||
84,651,983 | AZL T. Rowe Price Capital Appreciation Fund Securities Lending Collateral Account(d) | 84,651,983 | ||||||
|
| |||||||
| Total Securities Held as Collateral for Securities on Loan | 84,651,983 | ||||||
|
| |||||||
Unaffiliated Investment Company (9.5%): | ||||||||
109,204,613 | Dreyfus Treasury Prime Cash Management Fund, Institutional Shares, 1.11%(e) | 109,204,613 | ||||||
|
| |||||||
Total Unaffiliated Investment Company (Cost $109,204,613) | 109,204,613 | |||||||
|
| |||||||
Total Investment Securities (Cost $1,084,172,092)(f) — 108.0% | 1,240,595,000 | |||||||
Net other assets (liabilities) — (8.0)% | (93,620,847 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 1,146,974,153 | ||||||
|
|
Continued
9
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2017
Percentages indicated are based on net assets as of December 31, 2017. |
ADR—American Depositary Receipt
LIBOR—London Interbank Offered Rate
MTN—Medium Term Note
US0003M—3 Month US Dollar LIBOR
* | Non-income producing security. |
^ | This security or a partial position of this security was on loan as of December 31, 2017. The total value of securities on loan as of December 31, 2017, was $82,117,265. |
(a) | Rule 144A, Section 4(2) or other security which is restricted to resale to institutional investors. The subadviser has deemed these securities to be liquid based on procedures approved by the Board of Trustees. |
(b) | The rate for certain asset-backed and mortgage-backed securities may vary based on factors relating to the pool of assets underlying the security. The rate presented is the rate in effect at December 31, 2017. |
(c) | The subadviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of December 31, 2017, these securities represent 0.11% 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, 2017. |
(e) | The rate represents the effective yield at December 31, 2017. |
(f) | See Federal Tax Information listed in the Notes to the Financial Statements. |
Option Contracts
Over-the-counter options purchased as of December 31, 2017 were as follows:
Description | Counterparty | Put/ Call | Strike Price | Expiration Date | Contracts | Notional | Fair Value | |||||||||||||||||||
Altria Group, Inc. | Citibank | Call | 65.00 USD | 3/16/18 | 48 | $ | 3,120 | $ | 34,708 | |||||||||||||||||
Altria Group, Inc. | Citibank | Call | 67.50 USD | 6/15/18 | 48 | 3,240 | 28,996 | |||||||||||||||||||
AT&T, Inc. | Goldman Sachs | Call | 39.00 USD | 4/20/18 | 490 | 19,110 | 67,488 | |||||||||||||||||||
AT&T, Inc. | Goldman Sachs | Call | 40.00 USD | 6/15/18 | 490 | 19,600 | 65,259 | |||||||||||||||||||
Comcast Corp. | Credit Suisse First Boston | Call | 40.00 USD | 6/15/18 | 246 | 9,840 | 64,446 | |||||||||||||||||||
Consumer Discretionary Select Sector SPDR | JPMorgan Chase | Call | 95.00 USD | 3/16/18 | 258 | 24,510 | 126,648 | |||||||||||||||||||
Consumer Discretionary Select Sector SPDR | JPMorgan Chase | Call | 95.00 USD | 6/15/18 | 258 | 24,510 | 157,787 | |||||||||||||||||||
CVS Health Corp. | Citibank | Call | 85.00 USD | 5/18/18 | 48 | 4,080 | 3,689 | |||||||||||||||||||
Dr. Pepper Snapple Group | Citibank | Call | 92.50 USD | 5/18/18 | 49 | 4,533 | 34,517 | |||||||||||||||||||
Dr. Pepper Snapple Group | Citibank | Call | 95.00 USD | 5/18/18 | 49 | 4,655 | 26,587 | |||||||||||||||||||
Financial Select SEC | Goldman Sachs | Call | 26.00 USD | 3/16/18 | 551 | 14,326 | 120,956 | |||||||||||||||||||
Financial Select SEC | Goldman Sachs | Call | 26.00 USD | 6/15/18 | 550 | 14,300 | 138,407 | |||||||||||||||||||
Genuine Parts Co. | Citibank | Call | 90.00 USD | 5/18/18 | 24 | 2,160 | 17,955 | |||||||||||||||||||
Jm Smucker Co. | Credit Suisse First Boston | Call | 115.00 USD | 4/20/18 | 49 | 5,635 | 56,672 | |||||||||||||||||||
Kraft Heinz Co. | Credit Suisse First Boston | Call | 85.00 USD | 4/20/18 | 98 | 8,330 | 6,011 | |||||||||||||||||||
O’Reilly Automotive, Inc. | Credit Suisse First Boston | Call | 220.00 USD | 5/18/18 | 18 | 3,960 | 55,935 | |||||||||||||||||||
Synchrony Financial | Citibank | Call | 31.00 USD | 3/16/18 | 49 | 1,519 | 38,678 | |||||||||||||||||||
Sysco Corp. | Citibank | Call | 55.00 USD | 5/18/18 | 24 | 1,320 | 15,468 | |||||||||||||||||||
Verizon Communication | Citibank | Call | 50.00 USD | 4/20/18 | 141 | 7,050 | 49,283 | |||||||||||||||||||
Verizon Communication | Citibank | Call | 50.00 USD | 6/15/18 | 141 | 7,050 | 54,189 | |||||||||||||||||||
Wells Fargo & Co. | Credit Suisse First Boston | Call | 55.00 USD | 5/20/18 | 46 | 2,530 | 30,861 | |||||||||||||||||||
Wells Fargo & Co. | Credit Suisse First Boston | Call | 55.00 USD | 6/15/18 | 45 | 2,475 | 31,179 | |||||||||||||||||||
|
| |||||||||||||||||||||||||
Total (Cost $543,725) |
| $ | 1,225,719 | |||||||||||||||||||||||
|
|
Over-the-counter options written as of December 31, 2017 were as follows:
Description | Counterparty | Put/ Call | Strike Price | Expiration Date | Contracts | Notional | Fair Value | |||||||||||||||||||
Alphabet, Inc. | Citibank | Call | 840.00 USD | 1/19/18 | 5 | $ | 4,200 | $ | (103,489 | ) | ||||||||||||||||
Alphabet, Inc. | Citibank | Call | 860.00 USD | 1/19/18 | 5 | 4,300 | (93,506 | ) | ||||||||||||||||||
Alphabet, Inc. | Citibank | Call | 880.00 USD | 1/19/18 | 28 | 24,640 | (467,779 | ) | ||||||||||||||||||
Alphabet, Inc. | Deutsche Bank | Call | 900.00 USD | 1/19/18 | 30 | 27,000 | (441,428 | ) | ||||||||||||||||||
Alphabet, Inc. | Citibank | Call | 900.00 USD | 1/19/18 | 17 | 15,300 | (250,142 | ) | ||||||||||||||||||
Alphabet, Inc. | Deutsche Bank | Call | 920.00 USD | 1/19/18 | 17 | 15,640 | (216,347 | ) | ||||||||||||||||||
Alphabet, Inc. | Citibank | Call | 920.00 USD | 1/19/18 | 35 | 32,200 | (445,422 | ) | ||||||||||||||||||
Alphabet, Inc. | Deutsche Bank | Call | 940.00 USD | 1/19/18 | 5 | 4,700 | (53,728 | ) |
Continued
10
AZL T. Rowe Price Capital Appreciation Fund
Schedule of Portfolio Investments
December 31, 2017
Description | Counterparty | Put/ Call | Strike Price | Expiration Date | Contracts | Notional | Fair Value | |||||||||||||||||||
Alphabet, Inc. | Citibank | Call | 940.00 USD | 1/19/18 | 35 | $ | 32,900 | $ | (376,093 | ) | ||||||||||||||||
Alphabet, Inc. | Deutsche Bank | Call | 940.00 USD | 1/19/18 | 12 | 11,280 | (128,946 | ) | ||||||||||||||||||
Alphabet, Inc. | Credit Suisse First Boston | Call | 1200.00 USD | 1/18/19 | 11 | 13,200 | (50,510 | ) | ||||||||||||||||||
Alphabet, Inc. | Credit Suisse First Boston | Call | 1200.00 USD | 1/18/19 | 22 | 26,400 | (91,758 | ) | ||||||||||||||||||
Amazon.com, Inc. | Deutsche Bank | Call | 950.00 USD | 1/19/18 | 50 | 47,500 | (1,105,405 | ) | ||||||||||||||||||
Amazon.com, Inc. | Deutsche Bank | Call | 1000.00 USD | 1/19/18 | 15 | 15,000 | (257,132 | ) | ||||||||||||||||||
Amazon.com, Inc. | Citibank | Call | 1000.00 USD | 1/19/18 | 14 | 14,000 | (239,990 | ) | ||||||||||||||||||
Apple, Inc. | Citibank | Call | 175.00 USD | 1/19/18 | 158 | 27,650 | (11,562 | ) | ||||||||||||||||||
Apple, Inc. | Citibank | Call | 180.00 USD | 1/19/18 | 158 | 28,440 | (3,404 | ) | ||||||||||||||||||
Bank of New York Mellon | Citibank | Call | 55.00 USD | 1/18/19 | 259 | 14,245 | (101,117 | ) | ||||||||||||||||||
Bank of New York Mellon | Credit Suisse First Boston | Call | 60.00 USD | 1/18/19 | 424 | 25,440 | (85,220 | ) | ||||||||||||||||||
Bank of New York Mellon | Citibank | Call | 60.00 USD | 1/18/19 | 259 | 15,540 | (52,056 | ) | ||||||||||||||||||
Biogen Idec, Inc. | Citibank | Call | 350.00 USD | 1/19/18 | 37 | 12,950 | (2,152 | ) | ||||||||||||||||||
Danaher Corp. | Deutsche Bank | Call | 90.00 USD | 1/19/18 | 559 | 50,310 | (181,812 | ) | ||||||||||||||||||
Danaher Corp. | Citibank | Call | 90.00 USD | 1/19/18 | 72 | 6,480 | (23,418 | ) | ||||||||||||||||||
MasterCard, Inc. | Goldman Sachs | Call | 140.00 USD | 1/19/18 | 244 | 34,160 | (283,257 | ) | ||||||||||||||||||
PNC Financial Services Group, Inc. | Credit Suisse First Boston | Call | 135.00 USD | 1/19/18 | 208 | 28,080 | (204,407 | ) | ||||||||||||||||||
PNC Financial Services Group, Inc. | Royal Bank of Canada | Call | 135.00 USD | 1/19/18 | 88 | 11,880 | (86,480 | ) | ||||||||||||||||||
PNC Financial Services Group, Inc. | Credit Suisse First Boston | Call | 140.00 USD | 1/18/19 | 30 | 4,200 | (42,220 | ) | ||||||||||||||||||
PNC Financial Services Group, Inc. | Credit Suisse First Boston | Call | 145.00 USD | 1/18/19 | 29 | 4,205 | (32,904 | ) | ||||||||||||||||||
PNC Financial Services Group, Inc. | Credit Suisse First Boston | Call | 150.00 USD | 1/18/19 | 29 | 4,350 | (26,077 | ) | ||||||||||||||||||
PNC Financial Services Group, Inc. | Credit Suisse First Boston | Call | 155.00 USD | 1/18/19 | 29 | 4,495 | (20,366 | ) | ||||||||||||||||||
Priceline Group, Inc. (The) | Citibank | Call | 1900.00 USD | 1/18/19 | 7 | 13,300 | (91,823 | ) | ||||||||||||||||||
Priceline Group, Inc. (The) | Citibank | Call | 2000.00 USD | 1/18/19 | 7 | 14,000 | (68,539 | ) | ||||||||||||||||||
State Street Corp. | Citibank | Call | 100.00 USD | 1/18/19 | 171 | 17,100 | (135,345 | ) | ||||||||||||||||||
Visa, Inc. | Citibank | Call | 90.00 USD | 1/19/18 | 453 | 40,770 | (1,092,765 | ) | ||||||||||||||||||
Visa, Inc. | Citibank | Call | 95.00 USD | 1/19/18 | 917 | 87,115 | (1,754,773 | ) | ||||||||||||||||||
Visa, Inc. | Citibank | Call | 105.00 USD | 1/19/18 | 272 | 28,560 | (251,658 | ) | ||||||||||||||||||
Visa, Inc. | Citibank | Call | 125.00 USD | 1/18/19 | 156 | 19,500 | (89,422 | ) | ||||||||||||||||||
Visa, Inc. | Citibank | Call | 105.00 USD | 1/18/19 | 57 | 5,985 | (91,897 | ) | ||||||||||||||||||
Visa, Inc. | Citibank | Call | 110.00 USD | 1/18/19 | 57 | 6,270 | (73,397 | ) | ||||||||||||||||||
Visa, Inc. | Citibank | Call | 115.00 USD | 1/18/19 | 57 | 6,555 | (57,237 | ) | ||||||||||||||||||
Visa, Inc. | Citibank | Call | 120.00 USD | 1/18/19 | 158 | 18,960 | (120,907 | ) | ||||||||||||||||||
Zoetis, Inc. | Deutsche Bank | Call | 60.00 USD | 1/19/18 | 469 | 28,140 | (568,910 | ) | ||||||||||||||||||
Zoetis, Inc. | Goldman Sachs | Call | 60.00 USD | 1/19/18 | 227 | 13,620 | (275,357 | ) | ||||||||||||||||||
Zoetis, Inc. | Deutsche Bank | Call | 62.50 USD | 1/19/18 | 225 | 14,063 | (216,875 | ) | ||||||||||||||||||
Zoetis, Inc. | Goldman Sachs | Call | 62.50 USD | 1/19/18 | 227 | 14,188 | (218,803 | ) | ||||||||||||||||||
Zoetis, Inc. | Deutsche Bank | Call | 65.00 USD | 1/19/18 | 225 | 14,625 | (161,097 | ) | ||||||||||||||||||
|
| |||||||||||||||||||||||||
Total (Premiums $3,118,870) |
| $ | (10,746,932 | ) | ||||||||||||||||||||||
|
|
Exchange-traded options written as of December 31, 2017 were as follows:
Description | Put/ Call | Strike Price | Expiration Date | Contracts | Notional Amount(a) | Fair Value | ||||||||||||||||
MasterCard, Inc. | Call | 120.00 USD | 1/19/18 | 16 | $ | 1,920 | $ | (51,120 | ) | |||||||||||||
MasterCard, Inc. | Call | 125.00 USD | 1/19/18 | 7 | 875 | (18,952 | ) | |||||||||||||||
|
| |||||||||||||||||||||
Total (Premiums $10,173) | $ | (70,072 | ) | |||||||||||||||||||
|
|
(a) | Notional amount is expressed as the number of contracts multiplied by the strike price of the underlying asset. |
See accompanying notes to the financial statements.
11
AZL T. Rowe Price Capital Appreciation Fund
Statement of Assets and Liabilities
December 31, 2017
Assets: | |||||
Investment securities, at cost | $ | 1,084,172,092 | |||
|
| ||||
Investment securities, at value* | $ | 1,240,595,000 | |||
Cash | 47,033 | ||||
Interest and dividends receivable | 3,548,912 | ||||
Receivable for capital shares issued | 73,917 | ||||
Receivable for investments sold | 4,025,677 | ||||
Reclaims receivable | 39,423 | ||||
Prepaid expenses | 6,684 | ||||
|
| ||||
Total Assets | 1,248,336,646 | ||||
|
| ||||
Liabilities: | |||||
Payable for investments purchased | 4,591,817 | ||||
Payable for capital shares redeemed | 287,394 | ||||
Payable for collateral received on loaned securities | 84,651,983 | ||||
Written Options (Premium received $3,129,043) | 10,817,004 | ||||
Manager fees payable | 682,683 | ||||
Administration fees payable | 28,739 | ||||
Distribution fees payable | 243,816 | ||||
Custodian fees payable | 8,240 | ||||
Administrative and compliance services fees payable | 2,534 | ||||
Transfer agent fees payable | 857 | ||||
Trustee fees payable | 1,633 | ||||
Other accrued liabilities | 45,793 | ||||
|
| ||||
Total Liabilities | 101,362,493 | ||||
|
| ||||
Net Assets | $ | 1,146,974,153 | |||
|
| ||||
Net Assets Consist of: | |||||
Capital | $ | 928,783,519 | |||
Accumulated net investment income/(loss) | 10,642,504 | ||||
Accumulated net realized gains/(losses) from investment transactions | 58,812,935 | ||||
Net unrealized appreciation/(depreciation) on investments | 148,735,195 | ||||
|
| ||||
Net Assets | $ | 1,146,974,153 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 63,627,108 | ||||
Net Asset Value (offering and redemption price per share) | $ | 18.03 | |||
|
|
* | Includes securities on loan of $82,117,265. |
For the Year Ended December 31, 2017
Investment Income: | |||||
Dividends | $ | 12,181,104 | |||
Interest | 8,994,557 | ||||
Income from securities lending | 259,634 | ||||
Other income | 43,528 | ||||
Foreign withholding tax | (95,494 | ) | |||
|
| ||||
Total Investment Income | 21,383,329 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 8,124,696 | ||||
Administration fees | 293,395 | ||||
Distribution fees | 2,708,232 | ||||
Custodian fees | 53,228 | ||||
Administrative and compliance services fees | 13,762 | ||||
Transfer agent fees | 6,790 | ||||
Trustee fees | 48,423 | ||||
Professional fees | 60,437 | ||||
Shareholder reports | 38,741 | ||||
Other expenses | 29,113 | ||||
|
| ||||
Total expenses before reductions | 11,376,817 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (541,662 | ) | |||
|
| ||||
Net expenses | 10,835,155 | ||||
|
| ||||
Net Investment Income/(Loss) | 10,548,174 | ||||
|
| ||||
Realized and Unrealized Gains/(Losses) on Investments: | |||||
Net realized gains/(losses) on securities transactions and foreign currencies | 59,428,666 | ||||
Net realized gains/(losses) on written options contracts | 3,998,664 | ||||
Change in net unrealized appreciation/depreciation on investments and foreign currencies | 84,146,827 | ||||
Change in net unrealized appreciation/depreciation on written options contracts | (8,057,701 | ) | |||
|
| ||||
Net Realized/Unrealized Gains/(Losses) on Investments | 139,516,456 | ||||
|
| ||||
Change in Net Assets Resulting From Operations | $ | 150,064,630 | |||
|
|
See accompanying notes to the financial statements.
12
AZL T. Rowe Price Capital Appreciation Fund
Statements of Changes in Net Assets
For the Year Ended December 31, 2017 | For the Year Ended December 31, 2016 | |||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 10,548,174 | $ | 13,264,138 | ||||||
Net realized gains/(losses) on investment transactions | 63,427,330 | 38,064,595 | ||||||||
Change in unrealized appreciation/depreciation on investments | 76,089,126 | 37,441,240 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | 150,064,630 | 88,769,973 | ||||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
From net investment income | (14,550,673 | ) | (9,617,172 | ) | ||||||
From net realized gains | (39,584,893 | ) | (53,194,286 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | (54,135,566 | ) | (62,811,458 | ) | ||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 67,203,687 | 198,754,078 | ||||||||
Proceeds from dividends reinvested | 54,135,566 | 62,811,458 | ||||||||
Value of shares redeemed | (67,640,000 | ) | (441,083,789 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | 53,699,253 | (179,518,253 | ) | |||||||
|
|
|
| |||||||
Change in net assets | 149,628,317 | (153,559,738 | ) | |||||||
Net Assets: | ||||||||||
Beginning of period | 997,345,836 | 1,150,905,574 | ||||||||
|
|
|
| |||||||
End of period | $ | 1,146,974,153 | $ | 997,345,836 | ||||||
|
|
|
| |||||||
Accumulated net investment income/(loss) | $ | 10,642,504 | $ | 14,880,613 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 3,823,159 | 12,142,622 | ||||||||
Dividends reinvested | 3,102,325 | 3,877,250 | ||||||||
Shares redeemed | (3,829,923 | ) | (27,237,130 | ) | ||||||
|
|
|
| |||||||
Change in shares | 3,095,561 | (11,217,258 | ) | |||||||
|
|
|
|
See accompanying notes to the financial statements.
13
AZL T. Rowe Price Capital Appreciation Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | |||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 16.48 | $ | 16.04 | $ | 15.90 | $ | 15.84 | $ | 12.29 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Investment Activities: | |||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.17 | 0.21 | 0.11 | 0.11 | 0.07 | ||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | 2.28 | 1.03 | 0.68 | 1.69 | 3.60 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total from Investment Activities | 2.45 | 1.24 | 0.79 | 1.80 | 3.67 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Dividends to Shareholders From: | |||||||||||||||||||||||||
Net Investment Income | (0.24 | ) | (0.12 | ) | (0.10 | ) | (0.06 | ) | (0.12 | ) | |||||||||||||||
Net Realized Gains | (0.66 | ) | (0.68 | ) | (0.55 | ) | (1.68 | ) | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Dividends | (0.90 | ) | (0.80 | ) | (0.65 | ) | (1.74 | ) | (0.12 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net Asset Value, End of Period | $ | 18.03 | $ | 16.48 | $ | 16.04 | $ | 15.90 | $ | 15.84 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total Return(a) | 15.04 | % | 7.84 | % | 5.07 | % | 11.77 | % | 29.94 | % | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 1,146,974 | $ | 997,346 | $ | 1,150,906 | $ | 787,570 | $ | 519,248 | |||||||||||||||
Net Investment Income/(Loss) | 0.97 | % | 1.10 | % | 0.98 | % | 0.93 | % | 0.44 | % | |||||||||||||||
Expenses Before Reductions(b) | 1.05 | % | 1.05 | % | 1.05 | % | 1.05 | % | 1.06 | % | |||||||||||||||
Expenses Net of Reduction | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.01 | % | |||||||||||||||
Expenses Net of Reductions, Excluding Expenses Paid Indirectly | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | %(c) | 1.01 | %(c) | |||||||||||||||
Portfolio Turnover Rate | 65 | % | 89 | % | 73 | % | 72 | % | 122 | % |
(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 remitted a portion of the brokerage commission which were used to pay certain Fund expenses. The Fund ceased participation in the program in June 2014. |
See accompanying notes to the financial statements.
14
AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2017
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 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 accrues 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 and Withholding Taxes
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, or from other assets and liabilities, from fluctuations arising from changes in market prices of securities held. Such fluctuations are included in the net realized and unrealized gain or loss on investments and foreign currencies. Income received by the Fund from sources within foreign countries may be subject to withholding and other income or similar taxes imposed by such countries. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.
Dividends to Shareholders
Dividends to shareholders are recorded on the ex-dividend date. The Fund distributes its dividends from net investment income and net realized capital gains, if any, on an annual basis. The amount of dividends from net investment income and from net realized gains is determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. These “book/tax” differences are either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., reclassification of gain/loss, paydowns, and other permanent adjustments), 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 T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2017
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 Schedule of 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, 2017 are noted on the Fund’s Schedule of Portfolio Investments. The average outstanding amount of securities on loan was $103 million for the year ended December 31, 2017.
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 $22,643 during the year ended December 31, 2017. These fees have been netted against “Income from securities lending” on the Statement of Operations.
The fund had securities lending transactions of $84,651,983 accounted for as secured borrowings with cash collateral of overnight and continuous maturities as of December 31, 2017.
Affiliated Securities Transactions
Pursuant to Rule 17a-7 under the 1940 Act (the “Rule”), the Fund may engage in securities transactions with affiliated investment companies and advisory accounts managed by the Manager and Subadviser. 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, 2017, the Fund did not engage in any such transactions under the Rule.
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, 2017, 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 options that expire are treated as realized losses. When a put 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.
For the year ended December 31, 2017, the monthly average notional amount for written options contracts was $6.0 million. Realized gains and losses are reported as “Net realized gains/(losses) on options contracts” on the Statement of Operations.
16
AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2017
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, 2017:
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 | ||||||||||||
Equity Contracts | Written Options | $ | 10,817,004 |
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, 2017:
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 | ||||||||||
Equity Contracts | Net realized gains/(losses) on written options contracts/ Change in net unrealized appreciation/depreciation on written options contracts | $ | 3,998,664 | $ | (8,057,701 | ) |
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, 2017. 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, 2017.
As of December 31, 2017, the Fund’s derivative assets and liabilities by type were as follows:
Assets | Liabilities | |||||||||
Derivative Financial Instruments: | ||||||||||
Written option contracts | $ | — | $ | 10,817,004 | ||||||
|
|
|
| |||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | — | 10,817,004 | ||||||||
Derivatives not subject to a master netting agreement or similar agreement (“MNA”) | (70,072 | ) | ||||||||
|
|
|
| |||||||
Total assets and liabilities subject to a MNA | $ | — | $ | 10,746,932 | ||||||
|
|
|
|
The following table presents the Fund’s derivative liabilities by counterparty net of amounts available for offset under MNA and net of the related collateral received by the Fund as of December 31, 2017:
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 | $ | 5,997,893 | $ | — | $ | — | $ | — | $ | 5,997,893 | |||||||||||||||
Credit Suisse | 553,462 | — | — | — | 553,462 | ||||||||||||||||||||
Deutsche Bank | 3,331,680 | — | — | — | 3,331,680 | ||||||||||||||||||||
Goldman Sachs | 777,417 | — | — | — | 777,417 | ||||||||||||||||||||
Royal Bank of Canada | 86,480 | — | — | — | 86,480 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Total | $ | 10,746,932 | $ | — | $ | — | $ | — | $ | 10,746,932 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
* | 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. 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, 2019.
17
AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2017
For the year ended December 31, 2017, the annual rate paid 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, 2017, there were no contractual reimbursements 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.”
FIS Investor Services LLC (“FIS”) 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, 2017, $11,349 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, 2017, actual Trustee compensation was $1,116,333 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.
18
AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2017
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. Exchange-traded written options are generally considered as Level 1 and Over-the-counter options purchased and options written are generally considered 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, 2017, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value. There were no significant transfers between Levels 1 and 2 as of December 31, 2017, based on levels assigned to securities on December 31, 2016.
The following is a summary of the valuation inputs used as of December 31, 2017 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Other^ | Total | ||||||||||||||||
Asset Backed Securities | $ | — | $ | 1,630,182 | $ | — | $ | 1,630,182 | ||||||||||||
Bank Loans | — | 13,434,876 | — | 13,434,876 | ||||||||||||||||
Common Stocks | ||||||||||||||||||||
Containers & Packaging | 3,938,179 | 5,952,882 | — | 9,891,061 | ||||||||||||||||
Household Products | — | 3,858,218 | — | 3,858,218 | ||||||||||||||||
Insurance | 33,547,005 | 4,916,294 | — | 38,463,299 | ||||||||||||||||
Oil, Gas & Consumable Fuels | 9,824,669 | 2,241,498 | — | 12,066,167 | ||||||||||||||||
Professional Services | 9,586,071 | 6,362,617 | — | 15,948,688 | ||||||||||||||||
Tobacco | 23,384,888 | 5,719,194 | — | 29,104,082 | ||||||||||||||||
All Other Common Stocks+ | 634,016,732 | — | — | 634,016,732 | ||||||||||||||||
Convertible Preferred Stocks | ||||||||||||||||||||
Banks | — | 3,535,663 | — | 3,535,663 | ||||||||||||||||
Electric Utilities | 1,074,263 | — | — | 1,074,263 | ||||||||||||||||
Equity Real Estate Investment Trusts | 4,284,429 | 1,054,299 | — | 5,338,728 | ||||||||||||||||
Multi-Utilities | — | 4,000,540 | — | 4,000,540 | ||||||||||||||||
Corporate Bonds | ||||||||||||||||||||
Electric Utilities | 680,990 | 7,701,009 | — | 8,381,999 | ||||||||||||||||
All Other Corporate Bonds+ | — | 196,044,139 | — | 196,044,139 | ||||||||||||||||
Preferred Stocks | 20,130,447 | — | — | 20,130,447 | ||||||||||||||||
U.S. Treasury Obligation | — | 27,617,480 | — | 27,617,480 | ||||||||||||||||
Yankee Dollars+ | — | 20,976,121 | — | 20,976,121 | ||||||||||||||||
Securities Held as Collateral for Securities on Loan | — | — | 84,651,983 | 84,651,983 | ||||||||||||||||
Unaffiliated Investment Company | 109,204,613 | — | — | 109,204,613 | ||||||||||||||||
Purchased Call Options | — | 1,225,719 | — | 1,225,719 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investment Securities | 849,672,286 | 306,270,731 | 84,651,983 | 1,240,595,000 | ||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||
Other Financial Instruments:* | ||||||||||||||||||||
Written Options | (70,072 | ) | (10,746,932 | ) | — | (10,817,004 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investments | $ | 849,602,214 | $ | 295,523,799 | $ | 84,651,983 | $ | 1,229,777,996 | ||||||||||||
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|
|
|
|
|
|
+ | For detailed industry descriptions, see the accompanying Schedule of Portfolio Investments. |
* | Other Financial Instruments would include any derivative instruments, such as written options. |
^ | Investments categorized as Securities Held as Collateral for Securities on Loan in the Schedule of Portfolio Investments, are measured at fair value using the NAV per share practical expedient. These investments are not classified within the fair value hierarchy, and are reflected as “Other” in the above table. Although there can be no assurance, in general, the fair value of investments measured using the NAV per share practical expedient represents the amount the owner of such investments might reasonably expect to receive in an orderly sale. |
19
AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2017
5. Security Purchases and Sales
For the year ended December 31, 2017, 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 | $ | 613,180,758 | $ | 627,741,505 |
For the year ended December 31, 2017, purchases and sales of long-term U.S. government securities were as follows:
Purchases | Sales | |||||||||
AZL T. Rowe Price Capital Appreciation Fund | $ | 27,425,405 | $ | — |
6. 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.
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, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2017 is $1,085,513,479. The gross unrealized appreciation/(depreciation) on a tax basis is as follows:
Unrealized appreciation | $ | 158,367,100 | ||
Unrealized (depreciation) | (14,102,583 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 144,264,517 | ||
|
|
The tax character of dividends paid to shareholders during the year ended December 31, 2017 were as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL T. Rowe Price Capital Appreciation Fund | $ | 14,550,673 | $ | 39,584,893 | $ | 54,135,566 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends are recognized when actually paid for tax purposes. |
20
AZL T. Rowe Price Capital Appreciation Fund
Notes to the Financial Statements
December 31, 2017
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. |
At December 31, 2017, 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 | $ | 26,818,707 | $ | 47,124,664 | $ | — | $ | 144,264,765 | $ | 218,208,136 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation is attributable primarily to tax deferral of losses on wash sales and straddles. |
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, 2017, the Fund had multiple shareholder accounts which are affiliated with the Investment Adviser representing ownership in excess of 98% of the Fund.
9. Investment Company Reporting Modernization
In October 2016, the SEC released its Final Rule 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 to Regulation S-X became effective for filings made with the SEC after August 1, 2017. The compliance date for filing Form N-PORT and Form N-CEN will vary based on the reporting entity’s size and, in the case of the Fund, is expected to be April 30, 2019. The Fund’s adoption of these amendments, as applicable for the financial statements prepared as of December 31, 2017, had no effect on the Fund’s 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.
21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
Allianz Variable Insurance Products Trust:
Opinion on the Financial Statements
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, 2017, 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 related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, 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.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Allianz Variable Insurance Products investment companies since 1999.
Columbus, Ohio
February 23, 2018
22
Other Federal Income Tax Information (Unaudited)
For the year ended December 31, 2017, 67.30% 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, 2017, the Fund declared net long-term capital gain distributions of $39,584,893.
23
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request, by visiting the Securities and Exchange Commission’s (‘‘Commission’’) website at www.sec.gov, or by calling 800-624-0197.
Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available (i) without charge, upon request, by calling 800-624-0197; (ii) on the Allianz Variable Insurance Products Fund of Funds Trust’s website at https://www.allianzlife.com; and (iii) on the Commission’s website at http://www.sec.gov.
The Fund files complete Schedules of Portfolio Holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. Schedules of Portfolio Holdings for the Fund in this report are available without charge on the Commission’s website at http://www.sec.gov, or may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
24
Approval of Investment Advisory and Subadvisory Agreements (Unaudited)
Subject to the general supervision of the Board of Trustees (the “Board”) and in accordance with the investment objectives and restrictions of each separate series (together, the “Funds”) of the Allianz Variable Insurance Products Trust (the “Trust”), investment advisory services are provided to the Funds by Allianz Investment Management LLC (the “Manager”). As used in this section, “Fund” refers to any of the Funds other than the AZL Moderate Index Strategy Fund. The Manager manages each Fund pursuant to an investment management agreement (the “Management Agreement”) with the Trust in respect of each such Fund. The Management Agreement provides that the Manager, subject to the supervision and approval of the Board, is responsible for the management of each Fund. For management services, each Fund pays the Manager an investment advisory fee based upon each Fund’s average daily net assets. The Manager has contractually agreed to limit the expenses of each Fund by reimbursing the Fund if and when total Fund operating expenses exceed certain amounts until at least May 1, 2019 (the “Expense Limitation Agreement”).
Each Fund is a manager-of-managers fund. That means that the Manager is responsible for monitoring the various Subadvisers that have day-to-day responsibility for the decisions made for each Fund. The Manager also 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 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 (“Allianz Life”) and its subsidiary, Allianz Life Insurance Company of New York (“Allianz of New York”). Currently, the Funds are offered only through Allianz Life and Allianz of New York variable products.
The 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 Board reviews and considers the information provided by the Manager in deciding which investment advisers to select as a Subadviser. 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 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 Board. Funds which are on the watch list are subject to additional scrutiny by the Manager and the Board. 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 have been on the watch list, the Manager has recommended the retention of a new Subadviser, and the Board has subsequently approved retention of the new Subadviser.
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 (the “1940 Act”), the Board has reviewed and approved the Management Agreement with the Manager 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 considered many factors, among the most material of which are: the Fund’s investment objectives and long-term performance; the Advisory Organizations’ management philosophy, personnel, processes and investment performance, 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 considered 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 Services 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 received (along with its affiliated persons) any payments made by the 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 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; the profitability of acting as adviser to the fund; and the extent to which the independent Board members, who are not “interested persons” of a fund as defined by the 1940 Act, are fully informed about all facts bearing on the adviser’s services and fees. The Board is aware of these factors and takes them into account in its review of the Management Agreement and Subadvisory Agreements (collectively, the “Agreements”).
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 independent 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 investment 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 the Expense Limitation Agreement and additional 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 the 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 Agreements were most recently considered at Board meetings held in the fall of 2017. Information relevant to the approval of such Agreements was considered at a telephonic Board meeting on October 18, 2017, and at an “in person” Board meeting held October 23, 2017. The Agreements were approved at the Board meeting of October 23, 2017. At such meeting the Board also approved the Expense Limitation Agreement between the Manager and the Trust for the period ending April 30, 2019. 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
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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 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 Board considered all factors it 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, administers each Fund’s business and other affairs. Under the Management 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 each Fund is a manager of managers fund, the Manager is authorized, under the Management 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 for selection as a Subadviser. The Board was 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, 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 Board 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 Board 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 and certain compliance staff, the Manager pays all of the compensation of Trustees and officers of the Trust who are employees of the Manager or its affiliates.
The Board 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 Board 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 Board 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 Board 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 meeting and the fall 2017 contract review process, the Board receives extensive information on the performance results of each of the Funds. This includes performance information on the Funds for the previous quarter, and previous one-, three- and five-year periods. (For Funds which have been in existence for less than five years, the Board receives performance information on shorter time periods to the extent available.) 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 meeting held October 23, 2017, the Manager reported that for the one-year period ended June 30, 2017, seven Funds were in the top 40%, seven were in the middle 20%, and six were in the bottom 40%, and for the three-year period ended June 30, 2017, eight Funds were in the top 40%, three were in the middle 20% and three were in the bottom 40%. The Manager also reported that for the five-year period ended June 30, 2017, four Funds were in the top 40%, four were in the middle 20%, and four were in the bottom 40%. For Funds which are index funds, the Board receives each quarter information on the extent, if any, that such Funds deviate from their particular benchmark index.
Only two Funds, the AZL Morgan Stanley Global Real Estate Fund and the AZL Government Money Market Fund, were in the bottom 40% for all of the one-, three- and five-year periods. The Board met with the lead portfolio manager of the AZL Morgan Stanley Global Real Estate Fund on October 24, 2017, to review the Fund’s current investment strategy and outlook. The portfolio manager, whose team manages over $10 billion using this investment strategy, explained the reasons for the Fund’s under-performance relative to its peers and why he expected the Fund’s relative performance to improve. The Board understood that the Fund’s performance was a consequence of its long-term investment strategy and not a reflection of the nature, extent or quality of services being provided by its Subadviser.
The Board found that the relative performance of the AZL Government Money Market Fund was attributable to the unprecedented period of low short-term interest rates and the Fund’s reimbursement of expenses waived by the Manager during period. Two of the Funds in the bottom 40% for the one-year period did not have longer performance records, and the remaining Funds in the bottom 40% for the three- and five-year periods had shown improved relative performance in later periods. Thus, the Board 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 pertaining to the level of investment advisory fees to which the Funds are subject. The Manager has agreed to temporarily limit Fund expenses at certain levels, and information is provided to the Board setting forth “contractual” advisory fees and “actual” fees after taking expense limits and any temporary fee waivers 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 22 Funds reviewed by the Board in the fall of 2017, 17 Funds paid “actual” advisory fees in a percentage amount within the 65th percentile or lower for each Fund’s applicable category. (A lower percentile reflects lower fund fees and is better for fund shareholders.) The Board 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 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 limit Fund expenses at certain levels. Based upon the information provided, the overall total expense ratio ranking in 2017 for the 22 Funds was as follows: (1) 14 of the Funds had total expense rankings at or below the 65th percentile (with 10 Funds at or below the 50th percentile); (2) for the AZL Morgan Stanley Global Real Estate Fund, AZL MSCI Emerging Markets Equity Index Fund, AZL Enhanced Bond Index Fund, AZL International Index Fund, and AZL MSCI Global Equity Index Fund, it was determined that there was poor (or no) peer group comparability; (3) for the AZL Government Money Market Fund, it was determined that the Fund is recovering previously waived expenses; (4) for the AZL BlackRock Global Allocation Fund, it was determined that such Fund was not at scale; and (5) for the AZL Russell 1000 Value Index Fund and the AZL Russell 1000 Growth Fund, the Manager recommended increasing a temporary management fee waiver by two more basis points (for a total temporary fee reduction of seven basis points).
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 Board concluded therefore that the expense ratios of the Funds were not unreasonable.
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The Manager provided information concerning the profitability of the Manager’s investment advisory activities for the period from 2014 through June 30, 2017. The Board 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 Board considered the possible effect of certain fall-out benefits to the Manager and its affiliates. The Board focused on profitability of the Manager’s relationships with the Funds before taxes and distribution expenses. The Board recognized that the Manager should 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, endeavored to obtain information on the profitability of each Subadviser in connection with its relationship with the Fund or Funds which it subadvised. The Manager was unable to obtain consistent profitability information from some of the Subadvisers that would allow the Board to determine the profits derived from the Subadviser’s relationship to the Fund or Funds, rather than its overall level of profitability. The Board recognized the difficulty of allocating costs to multiple advisory accounts and products of a large advisory organization. The Manager assured the Board, however, that the Agreements with the Subadvisers, all of which currently are not affiliated with the Manager, were negotiated on an “arm’s length” basis, which should not result in excessive profits for the Subadvisers. Based upon the information provided, the Board determined that there was no evidence that the level of such profitability attributable to subadvising the Funds was excessive.
(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 Board noted that 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 Board 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. The Board found that there was no uniform methodology for establishing breakpoints that give effect to Fund-specific services provided by the Manager. The Board 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 Board 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 Board also noted that the total assets in all of the Funds, as of June 30, 2017, were approximately $17.0 billion, and that no single Fund had assets in excess of $2.7 billion.
The Board noted that the Manager has agreed to temporarily limit Fund expenses under the Expense Limitation Agreement, 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 expense limits and/or advisory fee breakpoints as the Funds grow larger. As noted above, the Manager has agreed to increase the fee waivers for two Funds based, in part, on the increase in their assets during the period. The Board receives quarterly reports on the level of Fund assets. The Board expects to continue to consider: (a) the extent to which economies of scale have been realized, and (b) whether the advisory fee should be modified, either in connection with the next renewal of the Agreements or by modifying the Expense Limitation Agreement, to reflect such economies of scale, if any.
Having taken these factors into account, the Board concluded that the absence of breakpoints in 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, one of whom is an “interested person” of the Trust within the meaning of that term under the 1940 Act. The Trustees and Officers of the Trust, and their addresses, ages, positions held with the Trust, terms of office with the Trust and length of time served, principal occupation(s) during the past five years, the number of portfolios in the Trust they oversee, and other directorships held during the past five years are as follows:
Non-Interested Trustees(1)
Name, Address, and Year of Birth | 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 | |||||
Peter R. Burnim (1947) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/07 | Consultant/Chair, various companies: Chairman, Emrys Analytics and subsidiaries, July 2015 to present; Chairman, Argus Investment Strategies Fund Ltd., February 2013 to 2017; Managing Director, iQ Venture Advisors, LLC, 2005 to present; Chairman, Northstar Group Holdings Ltd. Bermuda, 2011 to present; Chairman Sterling Bank & Trust (Bahamas) Ltd., 2016 to present, and Expert Witness, Massachusetts Department of Revenue, 2011 to 2016. | 35 | Argus Group Holdings and Subsidiaries; Northstar Group Holdings; Sterling Trust (Cayman) Ltd.; Sterling Bank & Trust Limited (Bahamas); Emrys Analytics; EGB Insurance. | |||||
Peggy L. Ettestad (1957) 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 | |||||
Tamara Lynn Fagely (1958) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Retired; Chief Operations Officer, Hartford Funds, March 2012 to December 2013 | 35 | Diamond Hill Funds (13 funds) | |||||
Richard H. Forde (1953) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 12/17 | Member of the Board and Chairman of the Finance and Investment Committee, Connecticut Water Service, Inc., October 2013 to present; Senior Vice President and Chief Investment Officer, CIGNA, 2004 to 2012 | 35 | Connecticut Water Service, Inc. | |||||
Claire R. Leonardi (1955) 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 | |||||
Dickson W. Lewis (1948) 5701 Golden Hills Drive Minneapolis, MN 55416 | Trustee | Since 2/04 | Retired; Vice President/General Manager, Yearbooks & Canada-Lifetouch National School Studios, 2006 to 2014; 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 (1944) 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 Year of Birth | 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 | |||||
Brian Muench (1970) 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 |
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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 (1970) 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 (1945) 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 (1963) 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 (1968) 5701 Golden Hills Drive Minneapolis, MN 55416 | Chief Compliance Officer(4) and Anti-MoneyLaundering 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. |
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The Allianz VIP Funds are distributed by Allianz Life Financial Services, LLC. These Funds are not FDIC Insured. | ANNRPT1217 2/18 |
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. |
2017 | 2016 | |||||
(a) | Audit Fees | $339,500 | $357,000 | |||
(b) | Audit-Related Fees | $6,000 | $42,000 | |||
2017 | 2016 | |||||
(c) | Tax Fees | $79,500 | $168,300 | |||
2017 | 2016 | |||||
(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 |
2017 | 2016 | |||||
4(g) | ||||||
$85,500 | $210,300 |
4(h) | Not applicable |
Item 5. | Audit Committee of Listed Registrants. |
Not applicable. |
Item 6. | Investments. |
(a) | The Schedule of Investments as of the close of the reporting period are included as part of the report to shareholders filed under Item 1 of the Form N-CSR. |
(b) | Not applicable. |
Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Not applicable. |
Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
Not applicable. |
Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not applicable. |
Item 10. | Submission of Matters to a Vote of Security Holders. |
Not applicable. |
Item 11. | Controls and Procedures. |
(a) | The registrant’s principal executive officer and principal financial officer have concluded, based on their evaluation of the registrant’s disclosure controls and procedures as conducted within 90 days of the filing date of this report, that these disclosure controls and procedures are adequately designed and are operating effectively to ensure that information required to be disclosed by the registrant on Form N-CSR is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. |
(b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that occurred during the 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. | Disclosure of Securities Lending Activities for Closed-End Management Investment Companies. |
(a)(1) Not applicable.
(a)(2) Not applicable.
(a)(3) Not applicable.
(a)(4) Not applicable.
(b) Not applicable
Item 13. | 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. |
(a)(4) | 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 23, 2018
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 23, 2018
By (Signature and Title) | /s/ Bashir C. Asad | |
Bashir C. Asad, Principal Financial Officer & Principal Accounting Officer |
Date February 23, 2018