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 811-21624
Allianz Variable Insurance Products Fund of Funds 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: June 30, 2020
Item 1. | Reports to Stockholders. |
AZL® Balanced Index Strategy Fund
Semi-Annual Report
June 30, 2020
(Unaudited)
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 Balanced Index Strategy Fund
(Unaudited)
As a shareholder of the AZL Balanced 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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL Balanced Index Strategy Fund | $ | 1,000.00 | $ | 996.40 | $ | 0.45 | 0.09 | % |
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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL Balanced Index Strategy Fund | $ | 1,000.00 | $ | 1,024.42 | $ | 0.45 | 0.09 | % |
* | Expenses are equal to the average account value multiplied by the Fund’s annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Fixed Income Funds | 49.7 | % | |||
Domestic Equity Funds | 37.8 | ||||
International Equity Funds | 12.5 | ||||
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Total Investment Securities | 100.0 | ||||
Net other assets (liabilities) | — | † | |||
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Net Assets | 100.0 | % | |||
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† | Represents less than 0.05%. |
1
AZL Balanced Index Strategy Fund
Schedule of Portfolio Investments
June 30, 2020 (Unaudited)
Shares | Fair Value | |||||||
Affiliated Investment Companies (100.0%): | ||||||||
Domestic Equity Funds (37.8%): | ||||||||
1,512,717 | AZL Mid Cap Index Fund, Class 2 | $ | 28,787,003 | |||||
5,636,604 | AZL S&P 500 Index Fund, Class 2 | 99,147,872 | ||||||
1,449,292 | AZL Small Cap Stock Index Fund, Class 2 | 15,710,323 | ||||||
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143,645,198 | ||||||||
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Fixed Income Funds (49.7%): | ||||||||
15,887,793 | AZL Enhanced Bond Index Fund | 188,588,106 | ||||||
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International Equity Funds (12.5%): | ||||||||
3,194,594 | AZL International Index Fund, Class 2 | 47,503,614 | ||||||
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Total Affiliated Investment Companies (Cost $289,579,300) | 379,736,918 | |||||||
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Total Investment Securities (Cost $289,579,300) — 100.0% | 379,736,918 | |||||||
Net other assets (liabilities) — 0.0%† | 59,472 | |||||||
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Net Assets — 100.0% | $ | 379,796,390 | ||||||
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Percentages indicated are based on net assets as of June 30, 2020.
† | Represents less than 0.05%. |
See accompanying notes to the financial statements.
2
AZL Balanced Index Strategy Fund
Statement of Assets and Liabilities
June 30, 2020
(Unaudited)
Assets: | |||||
Investments in affiliates, at cost | $ | 289,579,300 | |||
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Investments in affiliates, at value | $ | 379,736,918 | |||
Interest and dividends receivable | 13 | ||||
Receivable for capital shares issued | 105,684 | ||||
Receivable for affiliated investments sold | 154,289 | ||||
Prepaid expenses | 670 | ||||
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Total Assets | 379,997,574 | ||||
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Liabilities: | |||||
Cash overdraft | 154,289 | ||||
Payable for capital shares redeemed | 6,209 | ||||
Manager fees payable | 15,535 | ||||
Administration fees payable | 7,385 | ||||
Custodian fees payable | 607 | ||||
Administrative and compliance services fees payable | 655 | ||||
Transfer agent fees payable | 779 | ||||
Trustee fees payable | 3,890 | ||||
Other accrued liabilities | 11,835 | ||||
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Total Liabilities | 201,184 | ||||
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Net Assets | $ | 379,796,390 | |||
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Net Assets Consist of: | |||||
Paid in capital | $ | 259,479,593 | |||
Total distributable earnings | 120,316,797 | ||||
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Net Assets | $ | 379,796,390 | |||
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Shares of beneficial interest (unlimited number of shares authorized, no par value) | 23,160,598 | ||||
Net Asset Value (offering and redemption price per share) | $ | 16.40 | |||
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For the Six Months Ended June 30, 2020
(Unaudited)
Investment Income: | |||||
Dividends from non-affiliates | $ | 132 | |||
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Total Investment Income | 132 | ||||
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Expenses: | |||||
Manager fees | 93,018 | ||||
Administration fees | 32,452 | ||||
Custodian fees | 1,779 | ||||
Administrative and compliance services fees | 3,250 | ||||
Transfer agent fees | 2,495 | ||||
Trustee fees | 10,335 | ||||
Professional fees | 8,624 | ||||
Shareholder reports | 7,415 | ||||
Other expenses | 2,186 | ||||
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Total expenses | 161,554 | ||||
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Net Investment Income/(Loss) | (161,422 | ) | |||
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Net realized and Change in net unrealized gains/losses on investments | |||||
Net realized gains/(losses) on affiliated underlying funds | 10,450,817 | ||||
Change in net unrealized appreciation/depreciation on affiliated underlying funds | (12,383,850 | ) | |||
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Net realized and Change in net unrealized gains/losses on investments | (1,933,033 | ) | |||
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Change in Net Assets Resulting From Operations | $ | (2,094,455 | ) | ||
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See accompanying notes to the financial statements.
3
AZL Balanced Index Strategy Fund
Statements of Changes in Net Assets
For the Six Months Ended June 30, 2020 | For the Year Ended December 31, 2019 | |||||||||
(Unaudited) | ||||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | (161,422 | ) | $ | 7,423,891 | |||||
Net realized gains/(losses) on investments | 10,450,817 | 13,949,206 | ||||||||
Change in unrealized appreciation/depreciation on investments | (12,383,850 | ) | 41,704,814 | |||||||
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Change in net assets resulting from operations | (2,094,455 | ) | 63,077,911 | |||||||
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Distributions to Shareholders: | ||||||||||
Distributions | — | (22,295,760 | ) | |||||||
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Change in net assets resulting from distributions to shareholders | — | (22,295,760 | ) | |||||||
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Capital Transactions: | ||||||||||
Proceeds from shares issued | 8,670,220 | 8,205,982 | ||||||||
Proceeds from dividends reinvested | — | 22,295,760 | ||||||||
Value of shares redeemed | (24,181,735 | ) | (60,070,127 | ) | ||||||
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Change in net assets resulting from capital transactions | (15,511,515 | ) | (29,568,385 | ) | ||||||
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Change in net assets | (17,605,970 | ) | 11,213,766 | |||||||
Net Assets: | ||||||||||
Beginning of period | 397,402,360 | 386,188,594 | ||||||||
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End of period | $ | 379,796,390 | $ | 397,402,360 | ||||||
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Share Transactions: | ||||||||||
Shares issued | 551,703 | 508,792 | ||||||||
Dividends reinvested | — | 1,421,017 | ||||||||
Shares redeemed | (1,535,366 | ) | (3,724,340 | ) | ||||||
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Change in shares | (983,663 | ) | (1,794,531 | ) | ||||||
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See accompanying notes to the financial statements.
4
AZL Balanced Index Strategy Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Six Months Ended June 30, 2020 | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2016 | Year Ended December 31, 2015 | |||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 16.46 | $ | 14.89 | $ | 16.34 | $ | 15.75 | $ | 15.44 | $ | 15.91 | ||||||||||||||||||
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Investment Activities: | ||||||||||||||||||||||||||||||
Net Investment Income/(Loss) | (0.01 | )(a) | 0.30 | (a) | 0.31 | 0.15 | 0.30 | 0.34 | ||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (0.05 | ) | 2.22 | (0.99 | ) | 1.62 | 0.73 | (0.34 | ) | |||||||||||||||||||||
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Total from Investment Activities | (0.06 | ) | 2.52 | (0.68 | ) | 1.77 | 1.03 | — | (b) | |||||||||||||||||||||
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Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Net Investment Income | — | (0.38 | ) | (0.16 | ) | (0.38 | ) | (0.43 | ) | (0.17 | ) | |||||||||||||||||||
Net Realized Gains | — | (0.57 | ) | (0.61 | ) | (0.80 | ) | (0.29 | ) | (0.30 | ) | |||||||||||||||||||
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Total Dividends | — | (0.95 | ) | (0.77 | ) | (1.18 | ) | (0.72 | ) | (0.47 | ) | |||||||||||||||||||
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Net Asset Value, End of Period | $ | 16.40 | $ | 16.46 | $ | 14.89 | $ | 16.34 | $ | 15.75 | $ | 15.44 | ||||||||||||||||||
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Total Return(c) | (0.36 | )%(d) | 17.24 | % | (4.36 | )% | 11.50 | % | 6.75 | % | 0.01 | % | ||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 379,796 | $ | 397,402 | $ | 386,189 | $ | 448,381 | $ | 438,300 | $ | 432,536 | ||||||||||||||||||
Net Investment Income/(Loss)(e) | (0.09 | )% | 1.87 | % | 1.82 | % | 0.78 | % | 1.83 | % | 2.14 | % | ||||||||||||||||||
Expenses Before Reductions*(e)(f) | 0.09 | % | 0.09 | % | 0.08 | % | 0.08 | % | 0.08 | % | 0.08 | % | ||||||||||||||||||
Expenses Net of Reductions*(e) | 0.09 | % | 0.09 | % | 0.08 | % | 0.08 | % | 0.08 | % | 0.08 | % | ||||||||||||||||||
Portfolio Turnover Rate | 14 | %(d) | 5 | % | 5 | % | 6 | % | 12 | % | 11 | % |
* | The expense ratios exclude the impact of fees/expenses paid by each underlying fund. |
(a) | Calculated using the average shares method. |
(b) | Represents less than $0.005. |
(c) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. |
(d) | Not annualized for periods less than one year. |
(e) | Annualized for periods less than one year. |
(f) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
See accompanying notes to the financial statements.
5
AZL Balanced Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
1. Organization
The Allianz Variable Insurance Products Fund of Funds Trust (the “Trust”) was organized as a Delaware statutory trust on June 16, 2004. 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 12 separate investment portfolios (collectively, the “Funds”), of which one is included in this report, the AZL Balanced Index Strategy Fund (the “Fund”), and 11 are presented in separate reports.
The Fund is a “fund of funds”, which means that the Fund invests primarily in other mutual funds (the “Underlying 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 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 that 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.
Distributions to Shareholders
Distributions 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 distributions 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. Distributions 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 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 period ended June 30, 2020, the Fund did not engage in any Rule 17a-7 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 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, 2021. Expenses incurred for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.”
6
AZL Balanced Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
For the period ended June 30, 2020, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL Balanced Index Strategy Fund | 0.05 | % | 0.20 | % |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At June 30, 2020, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations. During the period ended June 30, 2020, there were no voluntary waivers.
The Manager or an affiliate of the Manager serves as the investment adviser of certain underlying funds in which the Fund invests. At June 30, 2020, 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 period ended June 30, 2020 is as follows:
Fair Value 12/31/2019 | Purchases at Cost | Proceeds from Sales | Net Realized Gains(Losses) | Change in Net Unrealized Appreciation/ Depreciation | Fair Value 6/30/2020 | Shares as of 6/30/2020 | Dividend Income | Net Realized Gains Distributions from Affiliated Underlying Funds | |||||||||||||||||||||||||||||||||||||
AZL Enhanced Bond Index Fund | $ | 196,849,569 | $ | 19,740,835 | $ | (38,779,430 | ) | $ | 2,268,776 | $ | 8,508,356 | $ | 188,588,106 | 15,887,793 | $ | — | $ | — | |||||||||||||||||||||||||||
AZL International Index Fund, Class 2 | 50,217,390 | 7,715,383 | (5,592,828 | ) | 314,672 | (5,151,003 | ) | 47,503,614 | 3,194,594 | — | — | ||||||||||||||||||||||||||||||||||
AZL Mid Cap Index Fund, Class 2 | 30,252,069 | 6,059,065 | (4,505,762 | ) | 373,540 | (3,391,909 | ) | 28,787,003 | 1,512,717 | — | — | ||||||||||||||||||||||||||||||||||
AZL S&P 500 Index Fund, Class 2 | 104,024,862 | 13,753,906 | (16,251,339 | ) | 8,122,850 | (10,502,407 | ) | 99,147,872 | 5,636,604 | — | — | ||||||||||||||||||||||||||||||||||
AZL Small Cap Stock Index Fund, Class 2 | 16,208,268 | 3,615,653 | (1,637,690 | ) | (629,021 | ) | (1,846,887 | ) | 15,710,323 | 1,449,292 | — | — | |||||||||||||||||||||||||||||||||
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$ | 397,552,158 | $ | 50,884,842 | $ | (66,767,049 | ) | $ | 10,450,817 | $ | (12,383,850 | ) | $ | 379,736,918 | 27,681,000 | $ | — | $ | — | |||||||||||||||||||||||||||
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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 SEC. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the 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 fee, accrued daily and paid monthly. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair values 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 Trust-wide annual fee of $7,500, 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 period ended June 30, 2020, $2,109 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 Trust, each non-interested Trustee receives a $182,500 annual Board retainer, the Lead Director receives an additional $45,625, the Chair of the Nominating and Corporate Governance Committee receives an additional $9,125 annually and the Chair of the Audit Committee receives an additional $9,125 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 Trust in proportion to the assets under management of each trust. During the period ended June 30, 2020, actual Trustee compensation was $579,438 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) |
7
AZL Balanced Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. 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.
The following is a summary of the valuation inputs used as of June 30, 2020 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 | $ | 379,736,918 | $ | — | $ | — | $ | 379,736,918 | ||||||||||||
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Total Investments | $ | 379,736,918 | $ | — | $ | — | $ | 379,736,918 | ||||||||||||
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5. Security Purchases and Sales
For the period ended June 30, 2020, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL Balanced Index Strategy Fund | $ | 50,884,842 | $ | 66,767,047 |
6. Investment Risks
The risks below are presented in an order intended to facilitate readability. Their order does not imply that the realization of one risk is more likely to occur more frequently than another risk, nor does it imply that the realization of one risk is likely to have a greater adverse impact than another risk.
Derivatives Risk: The Fund may invest directly or through affiliated or unaffiliated mutual funds or unregistered investment pools in derivative instruments such as futures, options, and options on futures. 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 other party to a derivatives contract could default. During the year ended June 30, 2020, the Fund did not directly invest in derivatives.
Fund of Fund 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.
Market Risk: The market price of securities owned by the underlying funds may go up or down, sometimes rapidly and unpredictably. Securities may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of a security may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment, as well as natural disasters, and outbreaks of infectious illnesses or other widespread public health issues.
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, 2019 was $296,367,198. The gross unrealized appreciation/(depreciation) on a tax basis was as follows:
Unrealized appreciation | $ | 101,184,960 | ||
Unrealized (depreciation) | — | |||
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Net unrealized appreciation/(depreciation) | $ | 101,184,960 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2019 was as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL Balanced Index Strategy Fund | $ | 8,970,236 | $ | 13,325,524 | $ | 22,295,760 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends were recognized when actually paid for tax purposes. |
8
AZL Balanced Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
At December 31, 2019, 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 Balanced Index Strategy Fund | $ | 7,606,113 | $ | 13,620,179 | $ | — | $ | 101,184,960 | $ | 122,411,252 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation was 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 June 30, 2020, the Fund had an individual shareholder account which is affiliated with the Manager representing ownership in excess of 90% of the Fund. Investment activities of these shareholders could have a material impact to the Fund.
9. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
9
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-PORT. 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.
10
Statement Regarding the Trust’s Liquidity Risk Management Program (Unaudited)
Each series (each such series a “Fund” and, together, the “Funds”) of the Allianz Variable Insurance Products Trust, but not the AZL Government Money Market Fund, and of the Allianz Variable Insurance Products Fund of Funds Trust (each such trust a “Trust” and, together, the “Trusts”) has adopted and implemented a written liquidity risk management program (the “Program”) pursuant to Rule 22e-4 under the Investment Company Act of 1940 (the “Liquidity Rule”). The Program includes policies and procedures reasonably designed to assess and manage each Fund’s liquidity risk (the “risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund”) and to comply with the requirements of the Liquidity Rule, including: (i) assessment, management and periodic review of liquidity risk; (ii) classification of portfolio holdings; (iii) establishment of a highly liquid investment minimum (“HLIM”); (iv) limitation of illiquid investments; and (v) redemptions in-kind.
The Board of Trustees of each Fund (together, the “Board”) approved the designation of the individual officers of the Trusts who serve as the administrators of the Program (the “Program Administrators”). The Program Administrators oversee the monitoring of liquidity and liquidity risk for each Fund on an ongoing basis.
At a meeting of the Board held on February 18, 2020, the Program Administrators provided a written report (the “Report”) to the Board addressing the operation of the Program and assessing its adequacy and effectiveness of implementation for the annual period from January 1, 2019 through December 31, 2019 (the “Reporting Period”). This Report included an overview of the Program and conclusions with respect to the adequacy of the policies and procedures of the Program and the effectiveness of Program implementation. The Report took into account the following factors enumerated in the Liquidity Rule and identified in the Program, as applicable:
1) Each Fund’s investment strategy and liquidity of portfolio investments during both normal and reasonably foreseeable stressed conditions, including: (i) whether the Fund’s investment strategy is appropriate for an open-end fund; (ii) the extent to which the Fund’s strategy involves a relatively concentrated portfolio or large positions in particular issuers; and, as applicable, (iii) the Fund’s use of borrowings for investment purposes; and (iv) the Fund’s use of derivatives;
2) Short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions; and
3) Holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources.
Based on the information considered, the Report concluded that each Fund continues to have an investment strategy that is appropriate for an open-end fund, and that each Fund is reasonably likely to be able to meet redemption requests without significant dilution of remaining shareholders’ interests in the Fund.
In accordance with the Program, each Fund’s portfolio investments were classified into one of four liquidity categories as provided in the Liquidity Rule as applicable during the Reporting Period. Liquidity classification determinations take into account a variety of factors including market, trading and investment-specific considerations, as well as market depth in accordance with the requirements of the Liquidity Rule and as specified in the Program, and generally incorporate analysis from a third-party data vendor.
Pursuant to the Liquidity Rule, no Fund may acquire any illiquid investment if, after the acquisition, the Fund would have invested more than 15% of its assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with the 15% limit on illiquid investments. During the Reporting Period, no Fund breached the 15% limit on illiquid investments.
During the Reporting Period, each Fund maintained a designated HLIM. The Program Administrators reviewed each Fund’s HLIM and concluded that no changes were recommended. During the Reporting Period, no Fund fell below its approved HLIM. The Program includes provisions reasonably designed to comply with the HLIM for each Fund.
On the basis of the review, the Report concluded that: (i) the Program remains reasonably designed to manage each Fund’s liquidity risk; (ii) the Program was implemented and operated effectively to achieve the goal of assessing and managing each Fund’s liquidity risk during the Reporting Period; and (iii) each Fund was able to meet requests for redemption without significant dilution of remaining investors in the Fund during the Reporting Period. The Program Administrators did not recommend any material changes to the Program.
11
The Allianz VIP Fund of Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | SARRPT0620 08/20 |
AZL® DFA Multi-Strategy Fund
Semi-Annual Report
June 30, 2020
(Unaudited)
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 Multi-Strategy Fund
(Unaudited)
As a shareholder of the 0 (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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL DFA Multi-Strategy Fund | $ | 1,000.00 | $ | 952.60 | $ | 0.39 | 0.08 | % |
The Hypothetical Expense table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Beginning Account Value 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL DFA Multi-Strategy Fund | $ | 1,000.00 | $ | 1,024.47 | $ | 0.40 | 0.08 | % |
* | Expenses are equal to the average account value multiplied by the Fund’s annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Domestic Equity Funds | 48.6 | % | |||
Fixed Income Funds | 39.4 | ||||
International Equity Funds | 12.0 | ||||
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Total Investment Securities | 100.0 | ||||
Net other assets (liabilities) | — | † | |||
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Net Assets | 100.0 | % | |||
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† | Represents less than 0.05%. |
1
AZL DFA Multi-Strategy Fund
Schedule of Portfolio Investments
June 30, 2020 (Unaudited)
Shares | Fair Value | |||||||
Affiliated Investment Companies (100.0%): | ||||||||
Domestic Equity Funds (48.6%): | ||||||||
26,506,975 | AZL DFA U.S. Core Equity Fund | $ | 334,518,029 | |||||
9,352,986 | AZL DFA U.S. Small Cap Fund | 89,882,199 | ||||||
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424,400,228 | ||||||||
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Fixed Income Funds (39.4%): | ||||||||
34,896,380 | AZL DFA Five-Year Global Fixed Income Fund | 344,078,304 | ||||||
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International Equity Funds (12.0%): | ||||||||
11,534,127 | AZL DFA International Core Equity Fund | 104,845,213 | ||||||
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Total Affiliated Investment Companies (Cost $818,833,651) | 873,323,745 | |||||||
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Total Investment Securities (Cost $818,833,651) — | 873,323,745 | |||||||
Net other assets (liabilities) — (0.0†)% | (216,358 | ) | ||||||
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Net Assets — 100.0% | $ | 873,107,387 | ||||||
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Percentages indicated are based on net assets as of June 30, 2020.
† | Represents less than 0.05%. |
See accompanying notes to the financial statements.
2
AZL DFA Multi-Strategy Fund
Statement of Assets and Liabilities
June 30, 2020
(Unaudited)
Assets: | |||||
Investments in affiliates, at cost | $ | 818,833,651 | |||
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Investments in affiliates, at value | $ | 873,323,745 | |||
Receivable for affiliated investments sold | 129,201 | ||||
Prepaid expenses | 1,705 | ||||
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Total Assets | 873,454,651 | ||||
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Liabilities: | |||||
Cash overdraft | 129,201 | ||||
Payable for capital shares redeemed | 131,122 | ||||
Manager fees payable | 36,099 | ||||
Administration fees payable | 7,316 | ||||
Custodian fees payable | 1,561 | ||||
Administrative and compliance services fees payable | 1,584 | ||||
Transfer agent fees payable | 877 | ||||
Trustee fees payable | 9,619 | ||||
Other accrued liabilities | 29,885 | ||||
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Total Liabilities | 347,264 | ||||
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Net Assets | $ | 873,107,387 | |||
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Net Assets Consist of: | |||||
Paid in capital | $ | 736,224,710 | |||
Total distributable earnings | 136,882,677 | ||||
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Net Assets | $ | 873,107,387 | |||
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Shares of beneficial interest (unlimited number of shares authorized, no par value) | 63,801,914 | ||||
Net Asset Value (offering and redemption price per share) | $ | 13.68 | |||
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For the Six Months Ended June 30, 2020
(Unaudited)
Investment Income: | |||||
Total Investment Income | $ | — | |||
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Expenses: | |||||
Manager fees | 219,759 | ||||
Administration fees | 32,351 | ||||
Custodian fees | 4,296 | ||||
Administrative and compliance services fees | 7,852 | ||||
Transfer agent fees | 2,666 | ||||
Trustee fees | 24,967 | ||||
Professional fees | 20,636 | ||||
Shareholder reports | 17,530 | ||||
Other expenses | 5,576 | ||||
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Total expenses | 335,633 | ||||
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Net Investment Income/(Loss) | (335,633 | ) | |||
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Net realized and Change in net unrealized gains/losses on investments | |||||
Net realized gains/(losses) on affiliated underlying funds | 5,954,123 | ||||
Change in net unrealized appreciation/depreciation on affiliated underlying funds | (52,700,071 | ) | |||
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Net realized and Change in net unrealized gains/losses on investments | (46,745,948 | ) | |||
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Change in Net Assets Resulting From Operations | $ | (47,081,581 | ) | ||
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Amounts shown as “—” are either $0 or rounds to less than $1.
See accompanying notes to the financial statements.
3
AZL DFA Multi-Strategy Fund
Statements of Changes in Net Assets
For the Six Months Ended June 30, 2020 | For the Year Ended December 31, 2019 | |||||||||
(Unaudited) | ||||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | (335,633 | ) | $ | 27,275,132 | |||||
Net realized gains/(losses) on investments | 5,954,123 | 49,843,489 | ||||||||
Change in unrealized appreciation/depreciation on investments | (52,700,071 | ) | 75,033,441 | |||||||
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Change in net assets resulting from operations | (47,081,581 | ) | 152,152,062 | |||||||
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Distributions to Shareholders: | ||||||||||
Distributions | — | (49,373,639 | ) | |||||||
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Change in net assets resulting from distributions to shareholders | — | (49,373,639 | ) | |||||||
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Capital Transactions: | ||||||||||
Proceeds from shares issued | 1,758,200 | 1,926,260 | ||||||||
Proceeds from dividends reinvested | — | 49,373,639 | ||||||||
Value of shares redeemed | (64,846,476 | ) | (142,934,643 | ) | ||||||
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Change in net assets resulting from capital transactions | (63,088,276 | ) | (91,634,744 | ) | ||||||
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Change in net assets | (110,169,857 | ) | 11,143,679 | |||||||
Net Assets: | ||||||||||
Beginning of period | 983,277,244 | 972,133,565 | ||||||||
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End of period | $ | 873,107,387 | $ | 983,277,244 | ||||||
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Share Transactions: | ||||||||||
Shares issued | 140,103 | 139,166 | ||||||||
Dividends reinvested | — | 3,662,733 | ||||||||
Shares redeemed | (4,831,086 | ) | (10,161,420 | ) | ||||||
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Change in shares | (4,690,983 | ) | (6,359,521 | ) | ||||||
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Amounts shown as “—” are either $0 or rounds to less than $1.
See accompanying notes to the financial statements.
4
AZL DFA Multi-Strategy Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Six Months Ended June 30, 2020 | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2016 | Year Ended December 31, 2015 | |||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 14.36 | $ | 12.99 | $ | 14.19 | $ | 12.69 | $ | 18.08 | $ | 18.71 | ||||||||||||||||||
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Investment Activities: | ||||||||||||||||||||||||||||||
Net Investment Income/(Loss) | (0.01 | )(a) | 0.38 | (a) | 0.15 | 0.15 | 0.10 | 0.01 | ||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (0.67 | ) | 1.73 | (0.97 | ) | 1.46 | 1.32 | (0.14 | ) | |||||||||||||||||||||
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Total from Investment Activities | (0.68 | ) | 2.11 | (0.82 | ) | 1.61 | 1.42 | (0.13 | ) | |||||||||||||||||||||
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Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Net Investment Income | — | (0.16 | ) | (0.17 | ) | (0.11 | ) | — | (0.24 | ) | ||||||||||||||||||||
Net Realized Gains | — | (0.58 | ) | (0.21 | ) | — | (6.81 | ) | (0.26 | ) | ||||||||||||||||||||
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Total Dividends | — | (0.74 | ) | (0.38 | ) | (0.11 | ) | (6.81 | ) | (0.50 | ) | |||||||||||||||||||
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Net Asset Value, End of Period | $ | 13.68 | $ | 14.36 | $ | 12.99 | $ | 14.19 | $ | 12.69 | $ | 18.08 | ||||||||||||||||||
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Total Return(b) | (4.74 | )%(c) | 16.57 | % | (5.91 | )% | 12.69 | % | 9.32 | % | (0.67 | )% | ||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 873,107 | $ | 983,277 | $ | 972,134 | $ | 1,204,197 | $ | 1,194,169 | $ | 1,257,794 | ||||||||||||||||||
Net Investment Income/(Loss)(d) | (0.08 | )% | 2.74 | % | 0.84 | % | 1.02 | % | 0.75 | % | (0.07 | )% | ||||||||||||||||||
Expenses Before Reductions*(d)(e) | 0.08 | % | 0.07 | % | 0.07 | % | 0.07 | % | 0.07 | % | 0.07 | % | ||||||||||||||||||
Expenses Net of Reductions*(d) | 0.08 | % | 0.07 | % | 0.07 | % | 0.07 | % | 0.07 | % | 0.07 | % | ||||||||||||||||||
Portfolio Turnover Rate | 12 | %(c) | 6 | % | 7 | % | 2 | % | 2 | % | 114 | %(f) |
* | The expense ratios exclude the impact of fees/expenses paid by each underlying fund. |
(a) | Calculated using the average shares method. |
(b) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. |
(c) | Not annualized for periods less than one year. |
(d) | Annualized for periods less than one year. |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
(f) | Effective April 27, 2015, 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, 2015 as compared to prior years. |
See accompanying notes to the financial statements.
5
AZL DFA Multi-Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
1. Organization
The Allianz Variable Insurance Products Fund of Funds Trust (the “Trust”) was organized as a Delaware statutory trust on June 16, 2004. 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 12 separate investment portfolios (collectively, the “Funds”), of which one is included in this report, the AZL DFA Multi-Strategy Fund (the “Fund”), and 11 are presented in separate reports.
The Fund is a “fund of funds”, which means that the Fund invests primarily in other mutual funds (the “Underlying 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 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 that 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.
Distributions to Shareholders
Distributions 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 distributions 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. Distributions 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 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 period ended June 30, 2020, the Fund did not engage in any Rule 17a-7 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 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, 2021. Expenses incurred for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.”
6
AZL DFA Multi-Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
For the period ended June 30, 2020, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL DFA Multi-Strategy Fund | 0.05 | % | 0.20 | % |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At June 30, 2020, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations. During the period ended June 30, 2020, there were no voluntary waivers.
The Manager or an affiliate of the Manager serves as the investment adviser of certain underlying funds in which the Fund invests. At June 30, 2020, 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 period ended June 30, 2020 is as follows:
Fair Value 12/31/2019 | Purchases at Cost | Proceeds from Sales | Net Realized | Change in Net Unrealized Appreciation/ Depreciation | Fair Value 6/30/2020 | Shares as of 6/30/2020 | Dividend Income | Net Realized Gains Distributions from Affiliated Underlying Funds | |||||||||||||||||||||||||||||||||||||
AZL DFA Five-Year Global Fixed Income Fund | $ | 382,593,259 | $ | 39,463,651 | $ | (79,685,478 | ) | $ | (1,103,546 | ) | $ | 2,810,418 | $ | 344,078,304 | 34,896,380 | $ | — | $ | — | ||||||||||||||||||||||||||
AZL DFA International Core Equity Fund | 121,559,005 | 13,188,307 | (14,926,880 | ) | (1,914,679 | ) | (13,060,540 | ) | 104,845,213 | 11,534,127 | — | — | |||||||||||||||||||||||||||||||||
AZL DFA U.S. Core Equity Fund | 378,094,216 | 36,649,786 | (59,646,235 | ) | 10,475,204 | (31,054,942 | ) | 334,518,029 | 26,506,975 | — | — | ||||||||||||||||||||||||||||||||||
AZL DFA U.S. Small Cap Fund | 101,886,226 | 15,016,330 | (14,122,494 | ) | (1,502,856 | ) | (11,395,007 | ) | 89,882,199 | 9,352,986 | — | — | |||||||||||||||||||||||||||||||||
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$ | 984,132,706 | $ | 104,318,074 | $ | (168,381,087 | ) | $ | 5,954,123 | $ | (52,700,071 | ) | $ | 873,323,745 | 82,290,468 | $ | — | $ | — | |||||||||||||||||||||||||||
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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 SEC. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the 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 fee, accrued daily and paid monthly. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair values 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 Trust-wide annual fee of $7,500, 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 period ended June 30, 2020, $5,021 was paid from the Fund relating to these fees and expenses.
Certain Officers and Trustees of the Trust are affiliated with the Manager or the Administrator. Such Officers (except for the Trust’s CCO as noted above) and Trustees receive no compensation from the Trust for serving in their respective roles. For their service to the Trust and to the Allianz Variable Insurance Products Trust, each non-interested Trustee receives a $182,500 annual Board retainer, the Lead Director receives an additional $45,625, the Chair of the Nominating and Corporate Governance Committee receives an additional $9,125 annually and the Chair of the Audit Committee receives an additional $9,125 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 Trust in proportion to the assets under management of each trust. During the period ended June 30, 2020, actual Trustee compensation was $579,438 in total for both trusts.
7
AZL DFA Multi-Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
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 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.
The following is a summary of the valuation inputs used as of June 30, 2020 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 | $ | 873,323,745 | $ | — | $ | — | $ | 873,323,745 | ||||||||||||
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Total Investments | $ | 873,323,745 | $ | — | $ | — | $ | 873,323,745 | ||||||||||||
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5. Security Purchases and Sales
For the period ended June 30, 2020, 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 Multi-Strategy Fund | $ | 104,318,073 | $ | 168,381,086 |
6. Investment Risks
The risks below are presented in an order intended to facilitate readability. Their order does not imply that the realization of one risk is more likely to occur more frequently than another risk, nor does it imply that the realization of one risk is likely to have a greater adverse impact than another risk.
Derivatives Risk: The Fund may invest directly or through affiliated or unaffiliated mutual funds or unregistered investment pools in derivative instruments such as futures, options, and options on futures. 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 other party to a derivatives contract could default.
Fund of Fund 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.
Market Risk: The market price of securities owned by the underlying funds may go up or down, sometimes rapidly and unpredictably. Securities may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of a security may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment, as well as natural disasters, and outbreaks of infectious illnesses or other widespread public health issues.
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, 2019 was $877,449,600. The gross unrealized appreciation/(depreciation) on a tax basis was as follows:
Unrealized appreciation | $ | 113,205,186 | ||
Unrealized (depreciation) | (6,522,080 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 106,683,106 | ||
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8
AZL DFA Multi-Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
The tax character of dividends paid to shareholders during the year ended December 31, 2019 was as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL DFA Multi-Strategy Fund | $ | 10,447,529 | $ | 38,926,110 | $ | 49,373,639 |
(a) Total distributions paid may differ from the Statements of Changes in Net Assets because dividends were recognized when actually paid for tax purposes.
At December 31, 2019, 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 DFA Multi-Strategy Fund | $ | 27,763,344 | $ | 49,517,808 | $ | — | $ | 106,683,106 | $ | 183,964,258 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation was 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 June 30, 2020, the Fund had an individual shareholder account which is affiliated with the Manager representing ownership in excess of 90% of the Fund. As of June 30, 2020, the Fund had a controlling interest in excess of 50% in the AZL DFA Five-Year Global Fixed Income Fund, AZL DFA U.S. Core Equity Fund, and AZL DFA U.S. Small Cap Fund, which are affiliated with the Manager. Investment activities of these shareholders could have a material impact to the Fund.
9. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
9
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-PORT. 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.
10
Statement Regarding the Trust’s Liquidity Risk Management Program (Unaudited)
Each series (each such series a “Fund” and, together, the “Funds”) of the Allianz Variable Insurance Products Trust, but not the AZL Government Money Market Fund, and of the Allianz Variable Insurance Products Fund of Funds Trust (each such trust a “Trust” and, together, the “Trusts”) has adopted and implemented a written liquidity risk management program (the “Program”) pursuant to Rule 22e-4 under the Investment Company Act of 1940 (the “Liquidity Rule”). The Program includes policies and procedures reasonably designed to assess and manage each Fund’s liquidity risk (the “risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund”) and to comply with the requirements of the Liquidity Rule, including: (i) assessment, management and periodic review of liquidity risk; (ii) classification of portfolio holdings; (iii) establishment of a highly liquid investment minimum (“HLIM”); (iv) limitation of illiquid investments; and (v) redemptions in-kind.
The Board of Trustees of each Fund (together, the “Board”) approved the designation of the individual officers of the Trusts who serve as the administrators of the Program (the “Program Administrators”). The Program Administrators oversee the monitoring of liquidity and liquidity risk for each Fund on an ongoing basis.
At a meeting of the Board held on February 18, 2020, the Program Administrators provided a written report (the “Report”) to the Board addressing the operation of the Program and assessing its adequacy and effectiveness of implementation for the annual period from January 1, 2019 through December 31, 2019 (the “Reporting Period”). This Report included an overview of the Program and conclusions with respect to the adequacy of the policies and procedures of the Program and the effectiveness of Program implementation. The Report took into account the following factors enumerated in the Liquidity Rule and identified in the Program, as applicable:
1) Each Fund’s investment strategy and liquidity of portfolio investments during both normal and reasonably foreseeable stressed conditions, including: (i) whether the Fund’s investment strategy is appropriate for an open-end fund; (ii) the extent to which the Fund’s strategy involves a relatively concentrated portfolio or large positions in particular issuers; and, as applicable, (iii) the Fund’s use of borrowings for investment purposes; and (iv) the Fund’s use of derivatives;
2) Short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions; and
3) Holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources.
Based on the information considered, the Report concluded that each Fund continues to have an investment strategy that is appropriate for an open-end fund, and that each Fund is reasonably likely to be able to meet redemption requests without significant dilution of remaining shareholders’ interests in the Fund.
In accordance with the Program, each Fund’s portfolio investments were classified into one of four liquidity categories as provided in the Liquidity Rule as applicable during the Reporting Period. Liquidity classification determinations take into account a variety of factors including market, trading and investment-specific considerations, as well as market depth in accordance with the requirements of the Liquidity Rule and as specified in the Program, and generally incorporate analysis from a third-party data vendor.
Pursuant to the Liquidity Rule, no Fund may acquire any illiquid investment if, after the acquisition, the Fund would have invested more than 15% of its assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with the 15% limit on illiquid investments. During the Reporting Period, no Fund breached the 15% limit on illiquid investments.
During the Reporting Period, each Fund maintained a designated HLIM. The Program Administrators reviewed each Fund’s HLIM and concluded that no changes were recommended. During the Reporting Period, no Fund fell below its approved HLIM. The Program includes provisions reasonably designed to comply with the HLIM for each Fund.
On the basis of the review, the Report concluded that: (i) the Program remains reasonably designed to manage each Fund’s liquidity risk; (ii) the Program was implemented and operated effectively to achieve the goal of assessing and managing each Fund’s liquidity risk during the Reporting Period; and (iii) each Fund was able to meet requests for redemption without significant dilution of remaining investors in the Fund during the Reporting Period. The Program Administrators did not recommend any material changes to the Program.
11
The Allianz VIP Fund of Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | SARRPT0620 08/20 |
AZL® MVP Balanced Index Strategy Fund
Semi-Annual Report
June 30, 2020
(Unaudited)
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 MVP Balanced Index Strategy Fund
(Unaudited)
As a shareholder of the AZL MVP Balanced 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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP Balanced Index Strategy Fund | $ | 1,000.00 | $ | 947.50 | $ | 0.68 | 0.14 | % |
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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP Balanced Index Strategy Fund | $ | 1,000.00 | $ | 1,024.17 | $ | 0.70 | 0.14 | % |
* | Expenses are equal to the average account value multiplied by the Fund’s annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Fixed Income Funds | 47.5 | % | |||
Domestic Equity Funds | 34.9 | ||||
International Equity Funds | 12.4 | ||||
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Total Investment Securities | 94.8 | ||||
Net other assets (liabilities) | 5.2 | ||||
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Net Assets | 100.0 | % | |||
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1
AZL MVP Balanced Index Strategy Fund
Schedule of Portfolio Investments
June 30, 2020 (Unaudited)
Shares | Fair Value | |||||||
Affiliated Investment Companies (94.8%): | ||||||||
Domestic Equity Funds (34.9%): | ||||||||
1,155,841 | AZL Mid Cap Index Fund, Class 2 | $ | 21,995,647 | |||||
3,976,377 | AZL S&P 500 Index Fund, Class 2 | 69,944,473 | ||||||
1,107,436 | AZL Small Cap Stock Index Fund, Class 2 | 12,004,609 | ||||||
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103,944,729 | ||||||||
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Fixed Income Funds (47.5%): | ||||||||
11,916,087 | AZL Enhanced Bond Index Fund | 141,443,948 | ||||||
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International Equity Funds (12.4%): | ||||||||
2,488,053 | AZL International Index Fund, Class 2 | 36,997,351 | ||||||
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Total Affiliated Investment Companies (Cost $243,494,929) | 282,386,028 | |||||||
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Total Investment Securities (Cost $243,494,929) — 94.8% | 282,386,028 | |||||||
Net other assets (liabilities) — 5.2% | 15,540,758 | |||||||
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Net Assets — 100.0% | $ | 297,926,786 | ||||||
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Percentages indicated are based on net assets as of June 30, 2020.
See accompanying notes to the financial statements.
2
AZL MVP Balanced Index Strategy Fund
Schedule of Portfolio Investments
June 30, 2020 (Unaudited)
Futures Contracts
Cash of $15,586,549 has been segregated to cover margin requirements for the following open contracts as of June 30, 2020:
Short Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
S&P 500 Index E-Mini September Futures (U.S. Dollar) | 9/18/20 | 299 | $ | (46,198,490 | ) | $ | 1,055,932 | |||||||||
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$ | 1,055,932 | |||||||||||||||
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Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
U.S. Treasury 10-Year Note September Futures (U.S. Dollar) | 9/21/20 | 58 | $ | 8,071,969 | $ | 27,254 | ||||||||||
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$ | 27,254 | |||||||||||||||
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Total Net Futures Contracts | $ | 1,083,186 | ||||||||||||||
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See accompanying notes to the financial statements.
3
AZL MVP Balanced Index Strategy Fund
Statement of Assets and Liabilities
June 30, 2020
(Unaudited)
Assets: | |||||
Investments in affiliates, at cost | $ | 243,494,929 | |||
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Investments in affiliates, at value | $ | 282,386,028 | |||
Cash | 4,611 | ||||
Segregated cash for collateral for futures contracts | 15,586,549 | ||||
Interest and dividends receivable | 1,376 | ||||
Receivable for capital shares issued | 17,766 | ||||
Prepaid expenses | 568 | ||||
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Total Assets | 297,996,898 | ||||
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Liabilities: | |||||
Payable for affiliated investments purchased | 4,611 | ||||
Payable for variation margin on futures contracts | 19,344 | ||||
Manager fees payable | 24,457 | ||||
Administration fees payable | 6,616 | ||||
Custodian fees payable | 716 | ||||
Administrative and compliance services fees payable | 507 | ||||
Transfer agent fees payable | 801 | ||||
Trustee fees payable | 3,118 | ||||
Other accrued liabilities | 9,942 | ||||
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Total Liabilities | 70,112 | ||||
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Net Assets | $ | 297,926,786 | |||
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Net Assets Consist of: | |||||
Paid in capital | $ | 259,669,280 | |||
Total distributable earnings | 38,257,506 | ||||
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Net Assets | $ | 297,926,786 | |||
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Shares of beneficial interest (unlimited number of shares authorized, no par value) | 22,618,673 | ||||
Net Asset Value (offering and redemption price per share) | $ | 13.17 | |||
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For the Six Months Ended June 30, 2020
(Unaudited)
Investment Income: | |||||
Interest | $ | 47,950 | |||
Dividends from non-affiliates | 133 | ||||
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Total Investment Income | 48,083 | ||||
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Expenses: | |||||
Manager fees | 152,663 | ||||
Administration fees | 30,793 | ||||
Custodian fees | 2,122 | ||||
Administrative and compliance services fees | 2,737 | ||||
Transfer agent fees | 2,592 | ||||
Trustee fees | 8,660 | ||||
Professional fees | 7,202 | ||||
Shareholder reports | 6,585 | ||||
Other expenses | 1,805 | ||||
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Total expenses | 215,159 | ||||
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Net Investment Income/(Loss) | (167,076 | ) | |||
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Net realized and Change in net unrealized gains/losses on investments | |||||
Net realized gains/(losses) on affiliated underlying funds | 1,588,365 | ||||
Net realized gains/(losses) on futures contracts | (14,395,213 | ) | |||
Change in net unrealized appreciation/depreciation on affiliated underlying funds | (5,794,168 | ) | |||
Change in net unrealized appreciation/depreciation on futures contracts | 934,614 | ||||
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Net realized and Change in net unrealized gains/losses on investments | (17,666,402 | ) | |||
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Change in Net Assets Resulting From Operations | $ | (17,833,478 | ) | ||
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See accompanying notes to the financial statements.
4
AZL MVP Balanced Index Strategy Fund
Statements of Changes in Net Assets
For the Six Months Ended June 30, 2020 | For the Year Ended December 31, 2019 | |||||||||
(Unaudited) | ||||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | (167,076 | ) | $ | 5,922,305 | |||||
Net realized gains/(losses) on investments | (12,806,848 | ) | 8,272,394 | |||||||
Change in unrealized appreciation/depreciation on investments | (4,859,554 | ) | 35,546,107 | |||||||
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Change in net assets resulting from operations | (17,833,478 | ) | 49,740,806 | |||||||
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Distributions to Shareholders: | ||||||||||
Distributions | — | (12,489,733 | ) | |||||||
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Change in net assets resulting from distributions to shareholders | — | (12,489,733 | ) | |||||||
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Capital Transactions: | ||||||||||
Proceeds from shares issued | 6,598,543 | 18,443,274 | ||||||||
Proceeds from dividends reinvested | — | 12,489,733 | ||||||||
Value of shares redeemed | (22,354,733 | ) | (38,601,482 | ) | ||||||
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Change in net assets resulting from capital transactions | (15,756,190 | ) | (7,668,475 | ) | ||||||
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Change in net assets | (33,589,668 | ) | 29,582,598 | |||||||
Net Assets: | ||||||||||
Beginning of period | 331,516,454 | 301,933,856 | ||||||||
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End of period | $ | 297,926,786 | $ | 331,516,454 | ||||||
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Share Transactions: | ||||||||||
Shares issued | 496,306 | 1,365,980 | ||||||||
Dividends reinvested | — | 942,621 | ||||||||
Shares redeemed | (1,725,283 | ) | (2,864,543 | ) | ||||||
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Change in shares | (1,228,977 | ) | (555,942 | ) | ||||||
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Amounts | shown as “—” are either $0 or rounds to less than $1. |
See accompanying notes to the financial statements.
5
AZL MVP Balanced Index Strategy Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Six Months Ended June 30, 2020 | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2016 | Year Ended December 31, 2015 | |||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 13.90 | $ | 12.37 | $ | 13.38 | $ | 12.74 | $ | 12.30 | $ | 12.56 | ||||||||||||||||||
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Investment Activities: | ||||||||||||||||||||||||||||||
Net Investment Income/(Loss) | (0.01 | )(a) | 0.25 | (a) | 0.24 | 0.11 | 0.17 | 0.22 | ||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (0.72 | ) | 1.82 | (0.82 | ) | 1.32 | 0.64 | (0.25 | ) | |||||||||||||||||||||
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Total from Investment Activities | (0.73 | ) | 2.07 | (0.58 | ) | 1.43 | 0.81 | (0.03 | ) | |||||||||||||||||||||
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Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Net Investment Income | — | (0.29 | ) | (0.11 | ) | (0.26 | ) | (0.28 | ) | (0.10 | ) | |||||||||||||||||||
Net Realized Gains | — | (0.25 | ) | (0.32 | ) | (0.53 | ) | (0.09 | ) | (0.13 | ) | |||||||||||||||||||
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Total Dividends | — | (0.54 | ) | (0.43 | ) | (0.79 | ) | (0.37 | ) | (0.23 | ) | |||||||||||||||||||
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Net Asset Value, End of Period | $ | 13.17 | $ | 13.90 | $ | 12.37 | $ | 13.38 | $ | 12.74 | $ | 12.30 | ||||||||||||||||||
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Total Return(b) | (5.25 | )%(c) | 16.92 | % | (4.44 | )% | 11.40 | % | 6.61 | % | (0.22 | )% | ||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 297,927 | $ | 331,516 | $ | 301,934 | $ | 322,231 | $ | 312,745 | $ | 255,129 | ||||||||||||||||||
Net Investment Income/(Loss)(d) | (0.11 | )% | 1.84 | % | 1.79 | % | 0.72 | % | 1.69 | % | 2.08 | % | ||||||||||||||||||
Expenses Before Reductions*(d)(e) | 0.14 | % | 0.14 | % | 0.13 | % | 0.13 | % | 0.14 | % | 0.14 | % | ||||||||||||||||||
Expenses Net of Reductions*(d) | 0.14 | % | 0.14 | % | 0.13 | % | 0.13 | % | 0.14 | % | 0.14 | % | ||||||||||||||||||
Portfolio Turnover Rate | 9 | %(c) | 9 | % | 7 | % | 9 | % | 11 | % | 5 | % |
* | The expense ratios exclude the impact of fees/expenses paid by each underlying fund. |
(a) | Calculated using the average shares method. |
(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.
6
AZL MVP Balanced Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
1. Organization
The Allianz Variable Insurance Products Fund of Funds Trust (the “Trust”) was organized as a Delaware statutory trust on June 16, 2004. 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 12 separate investment portfolios (collectively, the “Funds”), of which one is included in this report, the AZL MVP Balanced Index Strategy Fund (the “Fund”), and 11 are presented in separate reports.
The Fund is a “fund of funds”, which means that the Fund invests primarily in other mutual funds (the “Underlying 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 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 that 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.
Distributions to Shareholders
Distributions 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 distributions 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. Distributions 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 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 period ended June 30, 2020, the Fund did not engage in any Rule 17a-7 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. The Fund’s allocation to the MVP (Managed Volatility Portfolio) risk management process may include (a) derivatives such as index futures, other futures contracts, options, and other similar securities and (b) cash, money market equivalents, short-term debt instruments,
7
AZL MVP Balanced Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
money market funds, and short-term debt funds to satisfy all applicable margin requirements and to provide additional portfolio liquidity to satisfy large redemptions and any margin calls. Due to the leverage provided by derivatives, the notional value of the Fund’s derivative positions could exceed 20% of the Fund’s value. The Fund may also use futures to gain equity exposure and may hold cash as a buffer in the event of market shocks.
Futures Contracts
During the period ended June 30, 2020, the Fund invested in futures contracts to reduce volatility and limit the need to decrease or increase allocations to underlying funds. 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 period ended June 30, 2020, the monthly average notional amount for long contracts was $11.6 million, the monthly average notional amount for short contracts was $47.7 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 June 30, 2020:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value* | Statement of Assets and Liabilities Location | Total Fair Value* | ||||||||
Equity Risk | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 1,055,932 | Payable for variation margin on futures contracts | $ | — | ||||||
Interest Rate Risk | ||||||||||||
Interest Rate Contracts | Receivable for variation margin on futures contracts | 27,254 | Payable for variation margin on futures contracts | — |
* | For futures contracts, the amounts represent the cumulative appreciation/depreciation of these futures contracts as reported in the Schedule of Portfolio Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities as variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the period ended June 30, 2020:
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 | $ | (14,945,624 | ) | $ | 838,544 | ||||
Interest Rate Risk | ||||||||||
Interest Rate Contracts | Net realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | 550,411 | 96,070 |
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, 2021. Expenses incurred for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.”
For the period ended June 30, 2020, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL MVP Balanced Index Strategy Fund | 0.10 | % | 0.20 | % |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At June 30, 2020, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations. During the period ended June 30, 2020, there were no voluntary waivers.
8
AZL MVP Balanced Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
The Manager or an affiliate of the Manager serves as the investment adviser of certain underlying funds in which the Fund invests. At June 30, 2020, 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 period ended June 30, 2020 is as follows:
Fair Value 12/31/2019 | Purchases at Cost | Proceeds from Sales | Net Realized | Change in Net Unrealized Appreciation/ Depreciation | Fair Value 6/30/2020 | Shares as of 6/30/2020 | Dividend Income | Net Realized Gains Distributions from Affiliated Underlying Funds | |||||||||||||||||||||||||||||||||||||
AZL Enhanced Bond Index Fund | $ | 154,927,261 | $ | 7,046,793 | $ | (28,787,157 | ) | $ | 1,050,064 | $ | 7,206,987 | $ | 141,443,948 | 11,916,087 | $ | — | $ | — | |||||||||||||||||||||||||||
AZL International Index Fund, Class 2 | 42,130,469 | 4,719,778 | (5,289,116 | ) | (488,789 | ) | (4,074,991 | ) | 36,997,351 | 2,488,053 | — | — | |||||||||||||||||||||||||||||||||
AZL Mid Cap Index Fund, Class 2 | 25,477,192 | 3,780,582 | (4,417,160 | ) | (647,065 | ) | (2,197,902 | ) | 21,995,647 | 1,155,841 | — | — | |||||||||||||||||||||||||||||||||
AZL S&P 500 Index Fund, Class 2 | 78,662,058 | 8,883,781 | (14,729,127 | ) | 2,096,502 | (4,968,741 | ) | 69,944,473 | 3,976,377 | — | — | ||||||||||||||||||||||||||||||||||
AZL Small Cap Stock Index Fund, Class 2 | 13,818,155 | 2,070,914 | (1,702,592 | ) | (422,347 | ) | (1,759,521 | ) | 12,004,609 | 1,107,436 | — | — | |||||||||||||||||||||||||||||||||
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$ | 315,015,135 | $ | 26,501,848 | $ | (54,925,152 | ) | $ | 1,588,365 | $ | (5,794,168 | ) | $ | 282,386,028 | 20,643,794 | $ | — | $ | — | |||||||||||||||||||||||||||
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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 SEC. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the 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 fee, accrued daily and paid monthly. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair values 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 Trust-wide annual fee of $7,500, 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 period ended June 30, 2020, $1,751 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 Trust, each non-interested Trustee receives a $182,500 annual Board retainer, the Lead Director receives an additional $45,625, the Chair of the Nominating and Corporate Governance Committee receives an additional $9,125 annually and the Chair of the Audit Committee receives an additional $9,125 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 Trust in proportion to the assets under management of each trust. During the period ended June 30, 2020, actual Trustee compensation was $579,438 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 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.
9
AZL MVP Balanced Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
The following is a summary of the valuation inputs used as of June 30, 2020 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 | $ | 282,386,028 | $ | — | $ | — | $ | 282,386,028 | ||||||||||||
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Total Investment Securities | 282,386,028 | — | — | 282,386,028 | ||||||||||||||||
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Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | 1,083,186 | — | — | 1,083,186 | ||||||||||||||||
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Total Investments | $ | 283,469,214 | $ | — | $ | — | $ | 283,469,214 | ||||||||||||
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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. |
5. Security Purchases and Sales
For the period ended June 30, 2020, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL MVP Balanced Index Strategy Fund | $ | 26,501,848 | $ | 54,925,154 |
6. Investment Risks
The risks below are presented in an order intended to facilitate readability. Their order does not imply that the realization of one risk is more likely to occur more frequently than another risk, nor does it imply that the realization of one risk is likely to have a greater adverse impact than another risk.
Derivatives Risk: The Fund may invest directly or through affiliated or unaffiliated mutual funds or unregistered investment pools in derivative instruments such as futures, options, and options on futures. 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 other party to a derivatives contract could default.
Fund of Fund 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.
Market Risk: The market price of securities owned by the underlying funds may go up or down, sometimes rapidly and unpredictably. Securities may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of a security may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment, as well as natural disasters, and outbreaks of infectious illnesses or other widespread public health issues.
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, 2019 was $273,201,526. The gross unrealized appreciation/(depreciation) on a tax basis was as follows:
Unrealized appreciation | $ | 41,813,609 | ||
Unrealized (depreciation) | — | |||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 41,813,609 | ||
|
|
The tax character of dividends paid to shareholders during the year ended December 31, 2019 was as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL MVP Balanced Index Strategy Fund | $ | 7,504,381 | $ | 4,985,352 | $ | 12,489,733 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends were recognized when actually paid for tax purposes. |
10
AZL MVP Balanced Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
At December 31, 2019, 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 MVP Balanced Index Strategy Fund | $ | 7,804,852 | $ | 6,551,668 | $ | — | $ | 41,813,609 | $ | 56,170,129 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation was attributable primarily to tax deferral of losses on wash sales, straddles and mark-to-market of futures contracts. |
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 June 30, 2020, the Fund had an individual shareholder account which is affiliated with the Manager representing ownership in excess of 85% of the Fund. Investment activities of these shareholders could have a material impact to the Fund.
9. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
11
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-PORT. 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.
12
Statement Regarding the Trust’s Liquidity Risk Management Program (Unaudited)
Each series (each such series a “Fund” and, together, the “Funds”) of the Allianz Variable Insurance Products Trust, but not the AZL Government Money Market Fund, and of the Allianz Variable Insurance Products Fund of Funds Trust (each such trust a “Trust” and, together, the “Trusts”) has adopted and implemented a written liquidity risk management program (the “Program”) pursuant to Rule 22e-4 under the Investment Company Act of 1940 (the “Liquidity Rule”). The Program includes policies and procedures reasonably designed to assess and manage each Fund’s liquidity risk (the “risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund”) and to comply with the requirements of the Liquidity Rule, including: (i) assessment, management and periodic review of liquidity risk; (ii) classification of portfolio holdings; (iii) establishment of a highly liquid investment minimum (“HLIM”); (iv) limitation of illiquid investments; and (v) redemptions in-kind.
The Board of Trustees of each Fund (together, the “Board”) approved the designation of the individual officers of the Trusts who serve as the administrators of the Program (the “Program Administrators”). The Program Administrators oversee the monitoring of liquidity and liquidity risk for each Fund on an ongoing basis.
At a meeting of the Board held on February 18, 2020, the Program Administrators provided a written report (the “Report”) to the Board addressing the operation of the Program and assessing its adequacy and effectiveness of implementation for the annual period from January 1, 2019 through December 31, 2019 (the “Reporting Period”). This Report included an overview of the Program and conclusions with respect to the adequacy of the policies and procedures of the Program and the effectiveness of Program implementation. The Report took into account the following factors enumerated in the Liquidity Rule and identified in the Program, as applicable:
1) Each Fund’s investment strategy and liquidity of portfolio investments during both normal and reasonably foreseeable stressed conditions, including: (i) whether the Fund’s investment strategy is appropriate for an open-end fund; (ii) the extent to which the Fund’s strategy involves a relatively concentrated portfolio or large positions in particular issuers; and, as applicable, (iii) the Fund’s use of borrowings for investment purposes; and (iv) the Fund’s use of derivatives;
2) Short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions; and
3) Holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources.
Based on the information considered, the Report concluded that each Fund continues to have an investment strategy that is appropriate for an open-end fund, and that each Fund is reasonably likely to be able to meet redemption requests without significant dilution of remaining shareholders’ interests in the Fund.
In accordance with the Program, each Fund’s portfolio investments were classified into one of four liquidity categories as provided in the Liquidity Rule as applicable during the Reporting Period. Liquidity classification determinations take into account a variety of factors including market, trading and investment-specific considerations, as well as market depth in accordance with the requirements of the Liquidity Rule and as specified in the Program, and generally incorporate analysis from a third-party data vendor.
Pursuant to the Liquidity Rule, no Fund may acquire any illiquid investment if, after the acquisition, the Fund would have invested more than 15% of its assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with the 15% limit on illiquid investments. During the Reporting Period, no Fund breached the 15% limit on illiquid investments.
During the Reporting Period, each Fund maintained a designated HLIM. The Program Administrators reviewed each Fund’s HLIM and concluded that no changes were recommended. During the Reporting Period, no Fund fell below its approved HLIM. The Program includes provisions reasonably designed to comply with the HLIM for each Fund.
On the basis of the review, the Report concluded that: (i) the Program remains reasonably designed to manage each Fund’s liquidity risk; (ii) the Program was implemented and operated effectively to achieve the goal of assessing and managing each Fund’s liquidity risk during the Reporting Period; and (iii) each Fund was able to meet requests for redemption without significant dilution of remaining investors in the Fund during the Reporting Period. The Program Administrators did not recommend any material changes to the Program.
13
The Allianz VIP Fund of Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | SARRPT0620 08/20 |
AZL® MVP DFA Multi-Strategy Fund
Semi-Annual Report
June 30, 2020
(Unaudited)
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 MVP DFA Multi-Strategy Fund
(Unaudited)
As a shareholder of the AZL MVP DFA 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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP DFA Multi-Strategy Fund | $ | 1,000.00 | $ | 907.70 | $ | 0.71 | 0.15 | % |
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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP DFA Multi-Strategy Fund | $ | 1,000.00 | $ | 1,024.12 | $ | 0.75 | 0.15 | % |
* | Expenses are equal to the average account value multiplied by the Fund’s annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year). |
Portfolio Composition
(Unaudited)
Investments | Percent of net assets | ||||
Domestic Equity Funds | 44.5 | % | |||
Fixed Income Funds | 36.3 | ||||
International Equity Funds | 12.1 | ||||
|
| ||||
Total Investment Securities | 92.9 | ||||
Net other assets (liabilities) | 7.1 | ||||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
1
AZL MVP DFA Multi-Strategy Fund
Schedule of Portfolio Investments
June 30, 2020 (Unaudited)
Shares | Fair Value | |||||||
Affiliated Investment Companies (92.9%): | ||||||||
Domestic Equity Funds (44.5%): | ||||||||
2,376,628 | AZL DFA U.S. Core Equity Fund | $ | 29,993,044 | |||||
904,989 | AZL DFA U.S. Small Cap Fund | 8,696,940 | ||||||
|
| |||||||
38,689,984 | ||||||||
|
| |||||||
Fixed Income Funds (36.3%): | ||||||||
3,196,299 | AZL DFA Five-Year Global Fixed Income Fund | 31,515,512 | ||||||
|
| |||||||
International Equity Funds (12.1%): | ||||||||
1,158,512 | AZL DFA International Core Equity Fund | 10,530,871 | ||||||
|
| |||||||
Total Affiliated Investment Companies (Cost $75,725,306) | 80,736,367 | |||||||
|
| |||||||
Total Investment Securities (Cost $75,725,306) — 92.9% | 80,736,367 | |||||||
Net other assets (liabilities) — 7.1% | 6,144,761 | |||||||
|
| |||||||
Net Assets — 100.0% | $ | 86,881,128 | ||||||
|
|
Percentages indicated are based on net assets as of June 30, 2020.
Futures Contracts
Cash of $6,175,979 has been segregated to cover margin requirements for the following open contracts as of June 30, 2020:
Short Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
S&P 500 Index E-Mini September Futures (U.S. Dollar) | 9/18/20 | 158 | $ | (24,412,580 | ) | $ | 630,177 | |||||||||
|
| |||||||||||||||
$ | 630,177 | |||||||||||||||
|
|
Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
U.S. Treasury 10-Year Note September Futures (U.S. Dollar) | 9/21/20 | 18 | $ | 2,505,094 | $ | 10,274 | ||||||||||
|
| |||||||||||||||
$ | 10,274 | |||||||||||||||
|
| |||||||||||||||
Total Net Futures Contracts | $ | 640,451 | ||||||||||||||
|
|
See accompanying notes to the financial statements.
2
AZL MVP DFA Multi-Strategy Fund
Statement of Assets and Liabilities
June 30, 2020
(Unaudited)
Assets: | |||||
Investments in affiliates, at cost | $ | 75,725,306 | |||
|
| ||||
Investments in affiliates, at value | $ | 80,736,367 | |||
Cash | 1,491 | ||||
Segregated cash for collateral for futures contracts | 6,175,979 | ||||
Interest and dividends receivable | 529 | ||||
Prepaid expenses | 167 | ||||
|
| ||||
Total Assets | 86,914,533 | ||||
|
| ||||
Liabilities: | |||||
Payable for affiliated investments purchased | 1,491 | ||||
Payable for capital shares redeemed | 8,316 | ||||
Payable for variation margin on futures contracts | 10,769 | ||||
Manager fees payable | 2,786 | ||||
Administration fees payable | 5,574 | ||||
Custodian fees payable | 347 | ||||
Administrative and compliance services fees payable | 131 | ||||
Transfer agent fees payable | 678 | ||||
Trustee fees payable | 788 | ||||
Other accrued liabilities | 2,525 | ||||
|
| ||||
Total Liabilities | 33,405 | ||||
|
| ||||
Net Assets | $ | 86,881,128 | |||
|
| ||||
Net Assets Consist of: | |||||
Paid in capital | $ | 82,166,718 | |||
Total distributable earnings | 4,714,410 | ||||
|
| ||||
Net Assets | $ | 86,881,128 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 7,958,982 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.92 | |||
|
|
For the Six Months Ended June 30, 2020
(Unaudited)
Investment Income: | |||||
Interest | $ | 13,946 | |||
Dividends from non-affiliates | 94 | ||||
|
| ||||
Total Investment Income | 14,040 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 87,956 | ||||
Administration fees | 30,460 | ||||
Custodian fees | 1,216 | ||||
Administrative and compliance services fees | 805 | ||||
Transfer agent fees | 2,582 | ||||
Trustee fees | 2,562 | ||||
Professional fees | 2,130 | ||||
Shareholder reports | 2,005 | ||||
Other expenses | 569 | ||||
|
| ||||
Total expenses before reductions | 130,285 | ||||
Less expenses voluntarily waived/reimbursed by the Manager | (43,977 | ) | |||
Less expense contractually waived/reimbursed by the Manager | (20,341 | ) | |||
|
| ||||
Net expenses | 65,967 | ||||
|
| ||||
Net Investment Income/(Loss) | (51,927 | ) | |||
|
| ||||
Net realized and Change in net unrealized gains/losses on investments | |||||
Net realized gains/(losses) on affiliated underlying funds | (1,334,973 | ) | |||
Net realized gains/(losses) on futures contracts | (4,876,400 | ) | |||
Change in net unrealized appreciation/depreciation on affiliated underlying funds | (3,179,571 | ) | |||
Change in net unrealized appreciation/depreciation on futures contracts | 580,928 | ||||
|
| ||||
Net realized and Change in net unrealized gains/losses on investments | (8,810,016 | ) | |||
|
| ||||
Change in Net Assets Resulting From Operations | $ | (8,861,943 | ) | ||
|
|
See accompanying notes to the financial statements.
3
AZL MVP DFA Multi-Strategy Fund
Statements of Changes in Net Assets
For the Six Months Ended June 30, 2020 | For the Year Ended December 31, 2019 | |||||||||
(Unaudited) | ||||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | (51,927 | ) | $ | 2,534,018 | |||||
Net realized gains/(losses) on investments | (6,211,373 | ) | 2,966,132 | |||||||
Change in unrealized appreciation/depreciation on investments | (2,598,643 | ) | 8,112,138 | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | (8,861,943 | ) | 13,612,288 | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
Distributions | — | (2,271,722 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | — | (2,271,722 | ) | |||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 3,723,542 | 6,142,438 | ||||||||
Proceeds from dividends reinvested | — | 2,271,723 | ||||||||
Value of shares redeemed | (3,939,512 | ) | (10,396,269 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (215,970 | ) | (1,982,108 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (9,077,913 | ) | 9,358,458 | |||||||
Net Assets: | ||||||||||
Beginning of period | 95,959,041 | 86,600,583 | ||||||||
|
|
|
| |||||||
End of period | $ | 86,881,128 | $ | 95,959,041 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 342,234 | 538,178 | ||||||||
Dividends reinvested | — | 200,682 | ||||||||
Shares redeemed | (357,167 | ) | (896,500 | ) | ||||||
|
|
|
| |||||||
Change in shares | (14,933 | ) | (157,640 | ) | ||||||
|
|
|
|
Amounts shown as “—” are either $0 or rounds to less than $1.
See accompanying notes to the financial statements.
4
AZL MVP DFA Multi-Strategy Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Six Months Ended June 30, 2020 | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2016 | April 24, 2015 to December 31, 2015(a) | |||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 12.03 | $ | 10.65 | $ | 11.60 | $ | 10.36 | $ | 9.50 | $ | 10.00 | ||||||||||||||||||
|
|
|
|
|
|
|
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|
|
|
| |||||||||||||||||||
Investment Activities: | ||||||||||||||||||||||||||||||
Net Investment Income/(Loss) | (0.01 | )(a) | 0.31 | (b) | 0.08 | 0.09 | 0.05 | (0.01 | ) | |||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (1.10 | ) | 1.36 | (0.79 | ) | 1.21 | 0.81 | (0.49 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total from Investment Activities | (1.11 | ) | 1.67 | (0.71 | ) | 1.30 | 0.86 | (0.50 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Net Investment Income | — | (0.11 | ) | (0.08 | ) | (0.05 | ) | — | — | |||||||||||||||||||||
Net Realized Gains | — | (0.18 | ) | (0.16 | ) | (0.01 | ) | — | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total Dividends | — | (0.29 | ) | (0.24 | ) | (0.06 | ) | — | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Net Asset Value, End of Period | $ | 10.92 | $ | 12.03 | $ | 10.65 | $ | 11.60 | $ | 10.36 | $ | 9.50 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total Return(c) | (9.23 | )%(d) | 15.81 | % | (6.22 | )% | 12.55 | % | 9.05 | % | (5.00 | )%(d) | ||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 86,881 | $ | 95,959 | $ | 86,601 | $ | 77,757 | $ | 53,326 | $ | 26,087 | ||||||||||||||||||
Net Investment Income/(Loss)(e) | (0.12 | )% | 2.71 | % | 0.91 | % | 0.96 | % | 0.71 | % | (0.14 | )% | ||||||||||||||||||
Expenses Before Reductions*(e)(f) | 0.30 | % | 0.29 | % | 0.29 | % | 0.30 | % | 0.36 | % | 0.52 | % | ||||||||||||||||||
Expenses Net of Reductions*(e) | 0.15 | % | 0.15 | % | 0.15 | % | 0.15 | % | 0.15 | % | 0.14 | % | ||||||||||||||||||
Portfolio Turnover Rate | 11 | %(d) | 10 | % | 16 | % | 15 | % | 15 | % | 2 | %(d) |
* | The expense ratios exclude the impact of fees/expenses paid by each underlying fund. |
(a) | For the period April 27, 2015 (commencement of share class) to December 31, 2015. |
(b) | Calculated using the average shares method. |
(c) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. |
(d) | Not annualized for periods less than one year. |
(e) | Annualized for periods less than one year. |
(f) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
See accompanying notes to the financial statements.
5
AZL MVP DFA Multi-Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
1. Organization
The Allianz Variable Insurance Products Fund of Funds Trust (the “Trust”) was organized as a Delaware statutory trust on June 16, 2004. 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 12 separate investment portfolios (collectively, the “Funds”), of which one is included in this report, the AZL MVP DFA Multi-Strategy Fund (the “Fund”), and 11 are presented in separate reports.
The Fund is a “fund of funds”, which means that the Fund invests primarily in other mutual funds (the “Underlying 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 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 that 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.
Distributions to Shareholders
Distributions 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 distributions 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. Distributions 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 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 period ended June 30, 2020, the Fund did not engage in any Rule 17a-7 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. The Fund’s allocation to the MVP (Managed Volatility Portfolio) risk management process may include (a) derivatives such as index futures, other futures contracts, options, and other similar securities and (b) cash, money market equivalents, short-term debt instruments,
6
AZL MVP DFA Multi-Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
money market funds, and short-term debt funds to satisfy all applicable margin requirements and to provide additional portfolio liquidity to satisfy large redemptions and any margin calls. Due to the leverage provided by derivatives, the notional value of the Fund’s derivative positions could exceed 20% of the Fund’s value. The Fund may also use futures to gain equity exposure and may hold cash as a buffer in the event of market shocks.
Futures Contracts
During the period ended June 30, 2020, the Fund invested in futures contracts to reduce volatility and limit the need to decrease or increase allocations to underlying funds. 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 period ended June 30, 2020, the monthly average notional amount for long contracts was $2.3 million, the monthly average notional amount for short contracts was $18.9 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 June 30, 2020:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value* | Statement of Assets and Liabilities Location | Total Fair Value* | ||||||||
Equity Risk | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 630,177 | Payable for variation margin on futures contracts | $ | — | ||||||
Interest Rate Risk | ||||||||||||
Interest Rate Contracts | Receivable for variation margin on futures contracts | 10,274 | Payable for variation margin on futures contracts | — |
* | For futures contracts, the amounts represent the cumulative appreciation/depreciation of these futures contracts as reported in the Schedule of Portfolio Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities as variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the period ended June 30, 2020:
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 | $ | (4,998,234 | ) | $ | 557,714 | ||||
Interest Rate Risk | ||||||||||
Interest Rate Contracts | Net realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | 121,834 | 23,214 |
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, 2021. Expenses incurred for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.”
For the period ended June 30, 2020, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate* | Annual Expense Limit | |||||||||
AZL MVP DFA Multi-Strategy Fund | 0.20 | % | 0.15 | % |
* | The Manager voluntarily reduced the management fee to 0.10% 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 period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.”
7
AZL MVP DFA Multi-Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
At June 30, 2020, the contractual reimbursements subject to repayment by the Fund in subsequent years were as follows:
Expires 12/31/2020 | Expires 12/31/2021 | Expires 12/31/2022 | Expires 12/31/2023 | Total | |||||||||||||||||||||
AZL MVP DFA Multi-Strategy Fund | $ | 30,855 | $ | 32,488 | $ | 34,113 | $ | 20,341 | $ | 117,797 |
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 June 30, 2020, 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 period ended June 30, 2020 is as follows:
Fair Value 12/31/2019 | Purchases at Cost | Proceeds from Sales | Net Realized Gains(Losses) | Change in Net Unrealized Appreciation/ Depreciation | Fair Value 6/30/2020 | Shares as of 6/30/2020 | Dividend Income | Net Realized Gains Distributions from Affiliated Underlying Funds | |||||||||||||||||||||||||||||||||||||
AZL DFA Five-Year Global Fixed Income Fund | $ | 36,123,575 | $ | 1,454,015 | $ | (6,214,655 | ) | $ | (113,906 | ) | $ | 266,483 | $ | 31,515,512 | 3,196,299 | $ | — | $ | — | ||||||||||||||||||||||||||
AZL DFA International Core Equity Fund | 11,692,720 | 1,518,409 | (1,176,980 | ) | (255,609 | ) | (1,247,669 | ) | 10,530,871 | 1,158,512 | — | — | |||||||||||||||||||||||||||||||||
AZL DFA U.S. Core Equity Fund | 33,800,127 | 4,354,938 | (6,247,166 | ) | (471,928 | ) | (1,442,927 | ) | 29,993,044 | 2,376,628 | — | — | |||||||||||||||||||||||||||||||||
AZL DFA U.S. Small Cap Fund | 9,717,203 | 1,643,709 | (1,414,984 | ) | (493,530 | ) | (755,458 | ) | 8,696,940 | 904,989 | — | — | |||||||||||||||||||||||||||||||||
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$ | 91,333,625 | $ | 8,971,071 | $ | (15,053,785 | ) | $ | (1,334,973 | ) | $ | (3,179,571 | ) | $ | 80,736,367 | 7,636,428 | $ | — | $ | — | ||||||||||||||||||||||||||
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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 SEC. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the 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 fee, accrued daily and paid monthly. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair values 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 Trust-wide annual fee of $7,500, 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 period ended June 30, 2020, $502 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 Trust, each non-interested Trustee receives a $182,500 annual Board retainer, the Lead Director receives an additional $45,625, the Chair of the Nominating and Corporate Governance Committee receives an additional $9,125 annually and the Chair of the Audit Committee receives an additional $9,125 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 Trust in proportion to the assets under management of each trust. During the period ended June 30, 2020, actual Trustee compensation was $579,438 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) |
8
AZL MVP DFA Multi-Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. 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.
The following is a summary of the valuation inputs used as of June 30, 2020 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 | $ | 80,736,367 | $ | — | $ | — | $ | 80,736,367 | ||||||||||||
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Total Investment Securities | 80,736,367 | — | — | 80,736,367 | ||||||||||||||||
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Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | 640,451 | — | — | 640,451 | ||||||||||||||||
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Total Investments | $ | 81,376,818 | $ | — | $ | — | $ | 81,376,818 | ||||||||||||
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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. |
5. Security Purchases and Sales
For the period ended June 30, 2020, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL MVP DFA Multi-Strategy Fund | $ | 8,971,073 | $ | 15,053,789 |
6. Investment Risks
The risks below are presented in an order intended to facilitate readability. Their order does not imply that the realization of one risk is more likely to occur more frequently than another risk, nor does it imply that the realization of one risk is likely to have a greater adverse impact than another risk.
Derivatives Risk: The Fund may invest directly or through affiliated or unaffiliated mutual funds or unregistered investment pools in derivative instruments such as futures, options, and options on futures. 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 other party to a derivatives contract could default.
Fund of Fund 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.
Market Risk: The market price of securities owned by the underlying funds may go up or down, sometimes rapidly and unpredictably. Securities may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of a security may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment, as well as natural disasters, and outbreaks of infectious illnesses or other widespread public health issues.
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, 2019 was $83,600,037. The gross unrealized appreciation/(depreciation) on a tax basis was as follows:
Unrealized appreciation | $ | 8,305,147 | ||
Unrealized (depreciation) | (571,559 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 7,733,588 | ||
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9
AZL MVP DFA Multi-Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
The tax character of dividends paid to shareholders during the year ended December 31, 2019 was as follows:
Ordinary Income | Net Long-Term Capital Gains | Total Distributions(a) | |||||||||||||
AZL MVP DFA Multi-Strategy Fund | $ | 874,736 | $ | 1,396,986 | $ | 2,271,722 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends were recognized when actually paid for tax purposes. |
At December 31, 2019, 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 MVP DFA Multi-Strategy Fund | $ | 2,866,504 | $ | 3,417,854 | $ | — | $ | 7,733,588 | $ | 14,017,946 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation was attributable primarily to tax deferral of losses on wash sales, straddles and mark-to-market of futures contracts. |
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 June 30, 2020, the Fund had an individual shareholder account which is affiliated with the Manager representing ownership in excess of 90% of the Fund. Investment activities of these shareholders could have a material impact to the Fund.
9. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
10
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-PORT. 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.
11
Statement Regarding the Trust’s Liquidity Risk Management Program (Unaudited)
Each series (each such series a “Fund” and, together, the “Funds”) of the Allianz Variable Insurance Products Trust, but not the AZL Government Money Market Fund, and of the Allianz Variable Insurance Products Fund of Funds Trust (each such trust a “Trust” and, together, the “Trusts”) has adopted and implemented a written liquidity risk management program (the “Program”) pursuant to Rule 22e-4 under the Investment Company Act of 1940 (the “Liquidity Rule”). The Program includes policies and procedures reasonably designed to assess and manage each Fund’s liquidity risk (the “risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund”) and to comply with the requirements of the Liquidity Rule, including: (i) assessment, management and periodic review of liquidity risk; (ii) classification of portfolio holdings; (iii) establishment of a highly liquid investment minimum (“HLIM”); (iv) limitation of illiquid investments; and (v) redemptions in-kind.
The Board of Trustees of each Fund (together, the “Board”) approved the designation of the individual officers of the Trusts who serve as the administrators of the Program (the “Program Administrators”). The Program Administrators oversee the monitoring of liquidity and liquidity risk for each Fund on an ongoing basis.
At a meeting of the Board held on February 18, 2020, the Program Administrators provided a written report (the “Report”) to the Board addressing the operation of the Program and assessing its adequacy and effectiveness of implementation for the annual period from January 1, 2019 through December 31, 2019 (the “Reporting Period”). This Report included an overview of the Program and conclusions with respect to the adequacy of the policies and procedures of the Program and the effectiveness of Program implementation. The Report took into account the following factors enumerated in the Liquidity Rule and identified in the Program, as applicable:
1) Each Fund’s investment strategy and liquidity of portfolio investments during both normal and reasonably foreseeable stressed conditions, including: (i) whether the Fund’s investment strategy is appropriate for an open-end fund; (ii) the extent to which the Fund’s strategy involves a relatively concentrated portfolio or large positions in particular issuers; and, as applicable, (iii) the Fund’s use of borrowings for investment purposes; and (iv) the Fund’s use of derivatives;
2) Short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions; and
3) Holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources.
Based on the information considered, the Report concluded that each Fund continues to have an investment strategy that is appropriate for an open-end fund, and that each Fund is reasonably likely to be able to meet redemption requests without significant dilution of remaining shareholders’ interests in the Fund.
In accordance with the Program, each Fund’s portfolio investments were classified into one of four liquidity categories as provided in the Liquidity Rule as applicable during the Reporting Period. Liquidity classification determinations take into account a variety of factors including market, trading and investment-specific considerations, as well as market depth in accordance with the requirements of the Liquidity Rule and as specified in the Program, and generally incorporate analysis from a third-party data vendor.
Pursuant to the Liquidity Rule, no Fund may acquire any illiquid investment if, after the acquisition, the Fund would have invested more than 15% of its assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with the 15% limit on illiquid investments. During the Reporting Period, no Fund breached the 15% limit on illiquid investments.
During the Reporting Period, each Fund maintained a designated HLIM. The Program Administrators reviewed each Fund’s HLIM and concluded that no changes were recommended. During the Reporting Period, no Fund fell below its approved HLIM. The Program includes provisions reasonably designed to comply with the HLIM for each Fund.
On the basis of the review, the Report concluded that: (i) the Program remains reasonably designed to manage each Fund’s liquidity risk; (ii) the Program was implemented and operated effectively to achieve the goal of assessing and managing each Fund’s liquidity risk during the Reporting Period; and (iii) each Fund was able to meet requests for redemption without significant dilution of remaining investors in the Fund during the Reporting Period. The Program Administrators did not recommend any material changes to the Program.
12
The Allianz VIP Fund of Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | SARRPT0620 08/20 |
AZL® MVP FIAM Multi-Strategy Fund
Semi-Annual Report
June 30, 2020
(Unaudited)
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 MVP FIAM Multi-Strategy Fund
(Unaudited)
As a shareholder of the AZL MVP FIAM 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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP FIAM Multi-Strategy Fund | $ | 1,000.00 | $ | 979.20 | $ | 0.74 | 0.15 | % |
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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP FIAM Multi-Strategy Fund | $ | 1,000.00 | $ | 1,024.12 | $ | 0.75 | 0.15 | % |
* | Expenses are equal to the average account value multiplied by the Fund’s annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Balanced Funds | 95.4 | % | |||
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Total Investment Securities | 95.4 | ||||
Net other assets (liabilities) | 4.6 | ||||
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Net Assets | 100.0 | % | |||
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1
AZL MVP FIAM Multi-Strategy Fund
Schedule of Portfolio Investments
June 30, 2020 (Unaudited)
Shares | Fair Value | |||||||
Affiliated Investment Companies (95.4%): | ||||||||
Balanced Funds (95.4%): | ||||||||
16,824,878 | AZL Fidelity Institutional Asset Management Multi-Strategy Fund | $ | 230,837,331 | |||||
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Total Affiliated Investment Companies (Cost $209,599,513) | 230,837,331 | |||||||
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Total Investment Securities (Cost $209,599,513) — 95.4% | 230,837,331 | |||||||
Net other assets (liabilities) — 4.6% | 11,101,125 | |||||||
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Net Assets — 100.0% | $ | 241,938,456 | ||||||
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Percentages indicated are based on net assets as of June 30, 2020.
Futures Contracts
Cash of $11,188,238 has been segregated to cover margin requirements for the following open contracts as of June 30, 2020:
Short Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
S&P 500 Index E-Mini September Futures (U.S. Dollar) | 9/18/20 | 172 | $ | (26,575,720 | ) | $ | 197,296 | |||||||||
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$ | 197,296 | |||||||||||||||
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Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
U.S. Treasury 10-Year Note September Futures (U.S. Dollar) | 9/21/20 | 48 | $ | 6,680,250 | $ | 24,174 | ||||||||||
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$ | 24,174 | |||||||||||||||
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Total Net Futures Contracts | $ | 221,470 | ||||||||||||||
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See accompanying notes to the financial statements.
2
AZL MVP FIAM Multi-Strategy Fund
Statement of Assets and Liabilities
June 30, 2020
(Unaudited)
Assets: | |||||
Investments in affiliates, at cost | $ | 209,599,513 | |||
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Investments in affiliates, at value | $ | 230,837,331 | |||
Cash | 256,327 | ||||
Segregated cash for collateral for futures contracts | 11,188,238 | ||||
Interest and dividends receivable | 995 | ||||
Prepaid expenses | 596 | ||||
|
| ||||
Total Assets | 242,283,487 | ||||
|
| ||||
Liabilities: | |||||
Payable for affiliated investments purchased | 256,327 | ||||
Payable for capital shares redeemed | 43,502 | ||||
Payable for variation margin on futures contracts | 6,179 | ||||
Manager fees payable | 19,359 | ||||
Administration fees payable | 6,306 | ||||
Custodian fees payable | 589 | ||||
Administrative and compliance services fees payable | 400 | ||||
Transfer agent fees payable | 764 | ||||
Trustee fees payable | 2,452 | ||||
Other accrued liabilities | 9,153 | ||||
|
| ||||
Total Liabilities | 345,031 | ||||
|
| ||||
Net Assets | $ | 241,938,456 | |||
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| ||||
Net Assets Consist of: | |||||
Paid in capital | $ | 231,560,187 | |||
Total distributable earnings | 10,378,269 | ||||
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| ||||
Net Assets | $ | 241,938,456 | |||
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| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 19,809,604 | ||||
Net Asset Value (offering and redemption price per share) | $ | 12.21 | |||
|
|
For the Six Months Ended June 30, 2020
(Unaudited)
Investment Income: | |||||
Interest | $ | 38,367 | |||
Dividends from non-affiliates | 58 | ||||
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| ||||
Total Investment Income | 38,425 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 124,224 | ||||
Administration fees | 30,272 | ||||
Custodian fees | 1,805 | ||||
Administrative and compliance services fees | 2,201 | ||||
Transfer agent fees | 2,550 | ||||
Trustee fees | 6,957 | ||||
Professional fees | 5,804 | ||||
Shareholder reports | 5,767 | ||||
Other expenses | 1,577 | ||||
|
| ||||
Total expenses | 181,157 | ||||
|
| ||||
Net Investment Income/(Loss) | (142,732 | ) | |||
|
| ||||
Net realized and Change in net unrealized gains/losses on investments | |||||
Net realized gains/(losses) on affiliated underlying funds | (1,157,459 | ) | |||
Net realized gains/(losses) on futures contracts | (8,991,238 | ) | |||
Change in net unrealized appreciation/depreciation on affiliated underlying funds | 4,327,054 | ||||
Change in net unrealized appreciation/depreciation on futures contracts | 149,054 | ||||
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| ||||
Net realized and Change in net unrealized gains/losses on investments | (5,672,589 | ) | |||
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| ||||
Change in Net Assets Resulting From Operations | $ | (5,815,321 | ) | ||
|
|
See accompanying notes to the financial statements.
3
AZL MVP FIAM Multi-Strategy Fund
Statements of Changes in Net Assets
For the Six Months Ended June 30, 2020 | For the Year Ended December 31, 2019 | |||||||||
(Unaudited) | ||||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | (142,732 | ) | $ | 5,800,268 | |||||
Net realized gains/(losses) on investments | (10,148,697 | ) | 8,867,151 | |||||||
Change in unrealized appreciation/depreciation on investments | 4,476,108 | 24,098,066 | ||||||||
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| |||||||
Change in net assets resulting from operations | (5,815,321 | ) | 38,765,485 | |||||||
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| |||||||
Distributions to Shareholders: | ||||||||||
Distributions | — | (10,251,946 | ) | |||||||
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| |||||||
Change in net assets resulting from distributions to shareholders | — | (10,251,946 | ) | |||||||
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| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 2,933,528 | 5,726,042 | ||||||||
Proceeds from dividends reinvested | — | 10,251,946 | ||||||||
Value of shares redeemed | (20,542,587 | ) | (25,065,091 | ) | ||||||
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| |||||||
Change in net assets resulting from capital transactions | (17,609,059 | ) | (9,087,103 | ) | ||||||
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| |||||||
Change in net assets | (23,424,380 | ) | 19,426,436 | |||||||
Net Assets: | ||||||||||
Beginning of period | 265,362,836 | 245,936,400 | ||||||||
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| |||||||
End of period | $ | 241,938,456 | $ | 265,362,836 | ||||||
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| |||||||
Share Transactions: | ||||||||||
Shares issued | 236,166 | 473,992 | ||||||||
Dividends reinvested | — | 860,062 | ||||||||
Shares redeemed | (1,711,784 | ) | (2,070,600 | ) | ||||||
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| |||||||
Change in shares | (1,475,618 | ) | (736,546 | ) | ||||||
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Amounts | shown as “—” are either $0 or rounds to less than $1. |
See accompanying notes to the financial statements.
4
AZL MVP FIAM Multi-Strategy Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Six Months Ended June 30, 2020 | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2016 | Year Ended December 31, 2015 | |||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 12.47 | $ | 11.17 | $ | 11.81 | $ | 10.79 | $ | 11.33 | $ | 12.49 | ||||||||||||||||||
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Investment Activities: | ||||||||||||||||||||||||||||||
Net Investment Income/(Loss) | (0.01 | )(a) | 0.27 | (a) | 0.28 | — | (b) | 0.15 | 0.43 | |||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (0.25 | ) | 1.52 | (0.52 | ) | 1.17 | (0.07 | ) | (1.20 | ) | ||||||||||||||||||||
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| |||||||||||||||||||
Total from Investment Activities | (0.26 | ) | 1.79 | (0.24 | ) | 1.17 | 0.08 | (0.77 | ) | |||||||||||||||||||||
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Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Net Investment Income | — | (0.49 | ) | (0.40 | ) | (0.15 | ) | (0.45 | ) | (0.18 | ) | |||||||||||||||||||
Net Realized Gains | — | — | — | — | (0.17 | ) | (0.21 | ) | ||||||||||||||||||||||
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Total Dividends | — | (0.49 | ) | (0.40 | ) | (0.15 | ) | (0.62 | ) | (0.39 | ) | |||||||||||||||||||
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Net Asset Value, End of Period | $ | 12.21 | $ | 12.47 | $ | 11.17 | $ | 11.81 | $ | 10.79 | $ | 11.33 | ||||||||||||||||||
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| |||||||||||||||||||
Total Return(c) | (2.08 | )%(d) | 16.25 | % | (2.14 | )% | 10.93 | % | 0.82 | % | (6.21 | )% | ||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 241,938 | $ | 265,363 | $ | 245,936 | $ | 274,843 | $ | 287,156 | $ | 307,668 | ||||||||||||||||||
Net Investment Income/(Loss)(e) | (0.11 | )% | 2.24 | % | 2.12 | % | (0.09 | )% | 1.25 | % | 3.85 | % | ||||||||||||||||||
Expenses Before Reductions*(e)(f) | 0.15 | % | 0.14 | % | 0.14 | % | 0.13 | % | 0.13 | % | 0.15 | % | ||||||||||||||||||
Expenses Net of Reductions*(e) | 0.15 | % | 0.14 | % | 0.14 | % | 0.13 | % | 0.13 | % | 0.15 | % | ||||||||||||||||||
Portfolio Turnover Rate | 1 | %(d) | 7 | % | 7 | % | 4 | % | 4 | % | 4 | % |
* | The expense ratios exclude the impact of fees/expenses paid by each underlying fund. |
(a) | Calculated using the average shares method. |
(b) | Represents less than $0.005. |
(c) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. |
(d) | Not annualized for periods less than one year. |
(e) | Annualized for periods less than one year. |
(f) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
See accompanying notes to the financial statements.
5
AZL MVP FIAM Multi-Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
1. Organization
The Allianz Variable Insurance Products Fund of Funds Trust (the “Trust”) was organized as a Delaware statutory trust on June 16, 2004. 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 12 separate investment portfolios (collectively, the “Funds”), of which one is included in this report, the AZL MVP FIAM Multi-Strategy Fund (the “Fund”), and 11 are presented in separate reports.
The Fund is a “fund of funds”, which means that the Fund invests primarily in other mutual funds (the “Underlying 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 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 that 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.
Distributions to Shareholders
Distributions 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 distributions 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. Distributions 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 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 period ended June 30, 2020, the Fund did not engage in any Rule 17a-7 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. The Fund’s allocation to the MVP (Managed Volatility Portfolio) risk management process may include (a) derivatives such as index futures, other futures contracts, options, and other similar securities and (b) cash, money market equivalents, short-term debt instruments,
6
AZL MVP FIAM Multi-Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
money market funds, and short-term debt funds to satisfy all applicable margin requirements and to provide additional portfolio liquidity to satisfy large redemptions and any margin calls. Due to the leverage provided by derivatives, the notional value of the Fund’s derivative positions could exceed 20% of the Fund’s value. The Fund may also use futures to gain equity exposure and may hold cash as a buffer in the event of market shocks.
Futures Contracts
During the period ended June 30, 2020, the Fund invested in futures contracts to reduce volatility and limit the need to decrease or increase allocations to underlying funds. 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 period ended June 30, 2020, the monthly average notional amount for long contracts was $9.9 million, the monthly average notional amount for short contracts was $34.5 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 June 30, 2020:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value* | Statement of Assets and Liabilities Location | Total Fair Value* | ||||||||
Equity Risk | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 197,296 | Payable for variation margin on futures contracts | $ | — | ||||||
Interest Rate Risk | ||||||||||||
Interest Rate Contracts | Receivable for variation margin on futures contracts | 24,174 | Payable for variation margin on futures contracts | — |
* | For futures contracts, the amounts represent the cumulative appreciation/depreciation of these futures contracts as reported in the Schedule of Portfolio Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities as variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the period ended June 30, 2020:
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 | $ | (9,515,293 | ) | $ | 60,896 | ||||
Interest Rate Risk | ||||||||||
Interest Rate Contracts | Net realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | 524,055 | 88,158 |
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, 2021. Expenses incurred for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.”
For the period ended June 30, 2020, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL MVP FIAM Multi-Strategy Fund | 0.10 | % | 0.15 | % |
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 period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At June 30, 2020, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations. During the period ended June 30, 2020, there were no voluntary waivers.
7
AZL MVP FIAM Multi-Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
The Manager or an affiliate of the Manager serves as the investment adviser of certain underlying funds in which the Fund invests. At June 30, 2020, 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 period ended June 30, 2020 is as follows:
Fair Value 12/31/2019 | Purchases at Cost | Proceeds from Sales | Net Gains(Losses) | Change in Net Unrealized Appreciation/ Depreciation | Fair Value 6/30/2020 | Shares as of 6/30/2020 | Dividend Income | Net Realized Gains Distributions from Affiliated Underlying Funds | |||||||||||||||||||||||||||||||||||||
AZL FIAM Multi-Strategy Fund | $ | 252,177,078 | $ | 1,784,464 | $ | (26,293,806 | ) | $ | (1,157,459 | ) | $ | 4,327,054 | $ | 230,837,331 | 16,824,878 | $ | — | $ | — | ||||||||||||||||||||||||||
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$ | 252,177,078 | $ | 1,784,464 | $ | (26,293,806 | ) | $ | (1,157,459 | ) | $ | 4,327,054 | $ | 230,837,331 | 16,824,878 | $ | — | $ | — | |||||||||||||||||||||||||||
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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 SEC. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the 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 fee, accrued daily and paid monthly. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair values 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 Trust-wide annual fee of $7,500, 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 period ended June 30, 2020, $1,425 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 Trust, each non-interested Trustee receives a $182,500 annual Board retainer, the Lead Director receives an additional $45,625, the Chair of the Nominating and Corporate Governance Committee receives an additional $9,125 annually and the Chair of the Audit Committee receives an additional $9,125 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 Trust in proportion to the assets under management of each trust. During the period ended June 30, 2020, actual Trustee compensation was $579,438 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 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.
8
AZL MVP FIAM Multi-Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
The following is a summary of the valuation inputs used as of June 30, 2020 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 | $ | 230,837,331 | $ | $ | — | $ | 230,837,331 | |||||||||||||
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Total Investment Securities | 230,837,331 | — | — | 230,837,331 | ||||||||||||||||
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Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | 221,470 | — | — | 221,470 | ||||||||||||||||
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Total Investments | $ | 231,058,801 | $ | — | $ | — | $ | 231,058,801 | ||||||||||||
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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. |
5. Security Purchases and Sales
For the period ended June 30, 2020, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL MVP FIAM Multi-Strategy Fund | $ | 1,784,464 | $ | 26,293,806 |
6. Investment Risks
The risks below are presented in an order intended to facilitate readability. Their order does not imply that the realization of one risk is more likely to occur more frequently than another risk, nor does it imply that the realization of one risk is likely to have a greater adverse impact than another risk.
Derivatives Risk: The Fund may invest directly or through affiliated or unaffiliated mutual funds or unregistered investment pools in derivative instruments such as futures, options, and options on futures. 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 other party to a derivatives contract could default.
Fund of Fund 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.
Market Risk: The market price of securities owned by the underlying funds may go up or down, sometimes rapidly and unpredictably. Securities may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of a security may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment, as well as natural disasters, and outbreaks of infectious illnesses or other widespread public health issues.
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, 2019 was $238,312,819. The gross unrealized appreciation/(depreciation) on a tax basis was as follows:
Unrealized appreciation | $ | 13,864,259 | ||
Unrealized (depreciation) | — | |||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 13,864,259 | ||
|
|
As of the end of its tax year ended December 31, 2019, the Fund had capital loss carry forwards (“CLCFs”) as summarized in the table below. The Board does not intend to authorize a distribution of any realized gain for the Fund until any applicable CLCF has been offset.
During the year ended December 31, 2019, the Fund utilized $8,477,151 in CLCFs to offset capital gains.
CLCF’s not subject to expiration:
Short-Term Amount | Long-Term Amount | Total Amount | |||||||||||||
AZL MVP FIAM Multi-Strategy Fund | $ | 4,375,900 | $ | — | $ | 4,375,900 |
9
AZL MVP FIAM Multi-Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
The tax character of dividends paid to shareholders during the year ended December 31, 2019 was as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL MVP FIAM Multi-Strategy Fund | $ | 10,251,946 | $ | — | $ | 10,251,946 |
(a) Total distributions paid may differ from the Statements of Changes in Net Assets because dividends were recognized when actually paid for tax purposes.
At December 31, 2019, 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 MVP FIAM Multi-Strategy Fund | $ | 6,705,231 | $ | — | $ | (4,375,900 | ) | $ | 13,864,259 | $ | 16,193,590 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation was attributable primarily to tax deferral of losses on wash sales and mark-to-market of futures contracts. |
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 June 30, 2020, the Fund had an individual shareholder account which is affiliated with the Manager representing ownership in excess of 85% of the Fund. Investment activities of these shareholders could have a material impact to the Fund.
9. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
10
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-PORT. 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.
11
Statement Regarding the Trust’s Liquidity Risk Management Program (Unaudited)
Each series (each such series a “Fund” and, together, the “Funds”) of the Allianz Variable Insurance Products Trust, but not the AZL Government Money Market Fund, and of the Allianz Variable Insurance Products Fund of Funds Trust (each such trust a “Trust” and, together, the “Trusts”) has adopted and implemented a written liquidity risk management program (the “Program”) pursuant to Rule 22e-4 under the Investment Company Act of 1940 (the “Liquidity Rule”). The Program includes policies and procedures reasonably designed to assess and manage each Fund’s liquidity risk (the “risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund”) and to comply with the requirements of the Liquidity Rule, including: (i) assessment, management and periodic review of liquidity risk; (ii) classification of portfolio holdings; (iii) establishment of a highly liquid investment minimum (“HLIM”); (iv) limitation of illiquid investments; and (v) redemptions in-kind.
The Board of Trustees of each Fund (together, the “Board”) approved the designation of the individual officers of the Trusts who serve as the administrators of the Program (the “Program Administrators”). The Program Administrators oversee the monitoring of liquidity and liquidity risk for each Fund on an ongoing basis.
At a meeting of the Board held on February 18, 2020, the Program Administrators provided a written report (the “Report”) to the Board addressing the operation of the Program and assessing its adequacy and effectiveness of implementation for the annual period from January 1, 2019 through December 31, 2019 (the “Reporting Period”). This Report included an overview of the Program and conclusions with respect to the adequacy of the policies and procedures of the Program and the effectiveness of Program implementation. The Report took into account the following factors enumerated in the Liquidity Rule and identified in the Program, as applicable:
1) Each Fund’s investment strategy and liquidity of portfolio investments during both normal and reasonably foreseeable stressed conditions, including: (i) whether the Fund’s investment strategy is appropriate for an open-end fund; (ii) the extent to which the Fund’s strategy involves a relatively concentrated portfolio or large positions in particular issuers; and, as applicable, (iii) the Fund’s use of borrowings for investment purposes; and (iv) the Fund’s use of derivatives;
2) Short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions; and
3) Holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources.
Based on the information considered, the Report concluded that each Fund continues to have an investment strategy that is appropriate for an open-end fund, and that each Fund is reasonably likely to be able to meet redemption requests without significant dilution of remaining shareholders’ interests in the Fund.
In accordance with the Program, each Fund’s portfolio investments were classified into one of four liquidity categories as provided in the Liquidity Rule as applicable during the Reporting Period. Liquidity classification determinations take into account a variety of factors including market, trading and investment-specific considerations, as well as market depth in accordance with the requirements of the Liquidity Rule and as specified in the Program, and generally incorporate analysis from a third-party data vendor.
Pursuant to the Liquidity Rule, no Fund may acquire any illiquid investment if, after the acquisition, the Fund would have invested more than 15% of its assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with the 15% limit on illiquid investments. During the Reporting Period, no Fund breached the 15% limit on illiquid investments.
During the Reporting Period, each Fund maintained a designated HLIM. The Program Administrators reviewed each Fund’s HLIM and concluded that no changes were recommended. During the Reporting Period, no Fund fell below its approved HLIM. The Program includes provisions reasonably designed to comply with the HLIM for each Fund.
On the basis of the review, the Report concluded that: (i) the Program remains reasonably designed to manage each Fund’s liquidity risk; (ii) the Program was implemented and operated effectively to achieve the goal of assessing and managing each Fund’s liquidity risk during the Reporting Period; and (iii) each Fund was able to meet requests for redemption without significant dilution of remaining investors in the Fund during the Reporting Period. The Program Administrators did not recommend any material changes to the Program.
12
The Allianz VIP Fund of Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | SARRPT0620 08/20 |
AZL® MVP Fusion Dynamic Balanced
Semi-Annual Report
June 30, 2020
(Unaudited)
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 MVP Fusion Dynamic Balanced Fund
(Unaudited)
As a shareholder of the AZL MVP Fusion Dynamic Balanced 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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP Fusion Dynamic Balanced Fund | $ | 1,000.00 | $ | 919.90 | $ | 1.10 | 0.23 | % |
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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP Fusion Dynamic Balanced Fund | $ | 1,000.00 | $ | 1,023.72 | $ | 1.16 | 0.23 | % |
* | Expenses are equal to the average account value multiplied by the Fund’s annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Fixed Income Funds | 47.5 | % | |||
Domestic Equity Funds | 32.1 | ||||
International Equity Funds | 15.1 | ||||
|
| ||||
Total Investment Securities | 94.7 | ||||
Net other assets (liabilities) | 5.3 | ||||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
1
AZL MVP Fusion Dynamic Balanced Fund
Schedule of Portfolio Investments
June 30, 2020 (Unaudited)
Shares | Fair Value | |||||||
Affiliated Investment Companies (94.7%): | ||||||||
Domestic Equity Funds (32.1%): | ||||||||
1,897,243 | AZL DFA U.S. Core Equity Fund | $ | 23,943,212 | |||||
1,256,758 | AZL DFA U.S. Small Cap Fund | 12,077,442 | ||||||
1,240,707 | AZL Gateway Fund | 16,662,696 | ||||||
1,609,796 | AZL Mid Cap Index Fund, Class 2 | 30,634,419 | ||||||
4,135,455 | AZL Russell 1000 Growth Index Fund, Class 2 | 72,742,651 | ||||||
7,789,666 | AZL Russell 1000 Value Index Fund, Class 2 | 85,218,947 | ||||||
1,108,986 | AZL Small Cap Stock Index Fund, Class 2 | 12,021,403 | ||||||
|
| |||||||
253,300,770 | ||||||||
|
| |||||||
Fixed Income Funds (47.5%): | ||||||||
4,991,876 | AZL Enhanced Bond Index Fund | 59,253,573 | ||||||
7,240,105 | AZL Fidelity Institutional Asset Management Total Bond Fund, Class 2 | 79,279,153 | ||||||
7,122,617 | AZL MetWest Total Return Bond Fund | 79,559,631 | ||||||
3,676,426 | PIMCO VIT Income Portfolio | 38,308,362 | ||||||
3,744,690 | PIMCO VIT Low Duration Portfolio | 38,682,643 |
Shares | Fair Value | |||||||
Affiliated Investment Companies, continued | ||||||||
Fixed Income Funds, continued | ||||||||
6,966,946 | PIMCO VIT Total Return Portfolio | $ | 79,632,198 | |||||
|
| |||||||
374,715,560 | ||||||||
|
| |||||||
International Equity Funds (15.1%): | ||||||||
3,065,323 | AZL DFA International Core Equity Fund | 27,863,782 | ||||||
4,490,907 | AZL International Index Fund, Class 2 | 66,779,794 | ||||||
3,488,727 | AZL MSCI Emerging Markets Equity Index Fund, Class 2 | 24,595,529 | ||||||
|
| |||||||
119,239,105 | ||||||||
|
| |||||||
Total Affiliated Investment Companies (Cost $693,779,800) | 747,255,435 | |||||||
|
| |||||||
Total Investment Securities (Cost $693,779,800) — 94.7% | 747,255,435 | |||||||
Net other assets (liabilities) — 5.3% | 41,679,927 | |||||||
|
| |||||||
Net Assets — 100.0% | $ | 788,935,362 | ||||||
|
|
Percentages indicated are based on net assets as of June 30, 2020.
Futures Contracts
Cash of $41,974,976 has been segregated to cover margin requirements for the following open contracts as of June 30, 2020:
Short Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
S&P 500 Index E-Mini September Futures (U.S. Dollar) | 9/18/20 | 794 | $ | (122,680,940 | ) | $ | 2,793,479 | |||||||||
|
| |||||||||||||||
$ | 2,793,479 | |||||||||||||||
|
|
Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
U.S. Treasury 10-Year Note September Futures (U.S. Dollar) | 9/21/20 | 156 | $ | 21,710,813 | $ | 77,802 | ||||||||||
|
| |||||||||||||||
$ | 77,802 | |||||||||||||||
|
| |||||||||||||||
Total Net Futures Contracts | $ | 2,871,281 | ||||||||||||||
|
|
See accompanying notes to the financial statements.
2
AZL MVP Fusion Dynamic Balanced Fund
Statement of Assets and Liabilities
June 30, 2020
(Unaudited)
Assets: | |||||
Investments in affiliates, at cost | $ | 693,779,800 | |||
|
| ||||
Investments in affiliates, at value | $ | 747,255,435 | |||
Cash | 13,906 | ||||
Segregated cash for collateral for futures contracts | 41,974,976 | ||||
Interest and dividends receivable | 237,219 | ||||
Receivable for capital shares issued | 1,977 | ||||
Prepaid expenses | 1,724 | ||||
|
| ||||
Total Assets | 789,485,237 | ||||
|
| ||||
Liabilities: | |||||
Payable for affiliated investments purchased | 247,245 | ||||
Payable for capital shares redeemed | 89,533 | ||||
Payable for variation margin on futures contracts | 37,679 | ||||
Manager fees payable | 129,725 | ||||
Administration fees payable | 6,988 | ||||
Custodian fees payable | 2,214 | ||||
Administrative and compliance services fees payable | 1,291 | ||||
Transfer agent fees payable | 845 | ||||
Trustee fees payable | 8,184 | ||||
Other accrued liabilities | 26,171 | ||||
|
| ||||
Total Liabilities | 549,875 | ||||
|
| ||||
Net Assets | $ | 788,935,362 | |||
|
| ||||
Net Assets Consist of: | |||||
Paid in capital | $ | 750,280,098 | |||
Total distributable earnings | 38,655,264 | ||||
|
| ||||
Net Assets | $ | 788,935,362 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 76,312,507 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.34 | |||
|
|
For the Six Months Ended June 30, 2020
(Unaudited)
Investment Income: | |||||
Dividends from affiliates | $ | 2,545,661 | |||
Interest | 131,340 | ||||
Dividends from non-affiliates | 1,179 | ||||
|
| ||||
Total Investment Income | 2,678,180 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 821,422 | ||||
Administration fees | 31,712 | ||||
Custodian fees | 6,231 | ||||
Administrative and compliance services fees | 7,124 | ||||
Transfer agent fees | 2,625 | ||||
Trustee fees | 22,531 | ||||
Professional fees | 18,553 | ||||
Shareholder reports | 16,000 | ||||
Other expenses | 5,129 | ||||
|
| ||||
Total expenses | 931,327 | ||||
|
| ||||
Net Investment Income/(Loss) | 1,746,853 | ||||
|
| ||||
Net realized and Change in net unrealized gains/losses on investments | |||||
Net realized gains/(losses) on affiliated underlying funds | (14,708,030 | ) | |||
Net realized gains distributions from affiliated underlying funds | 1,018,230 | ||||
Net realized gains/(losses) on futures contracts | (47,575,867 | ) | |||
Change in net unrealized appreciation/depreciation on affiliated underlying funds | (15,242,520 | ) | |||
Change in net unrealized appreciation/depreciation on futures contracts | 2,455,868 | ||||
|
| ||||
Net realized and Change in net unrealized gains/losses on investments | (74,052,319 | ) | |||
|
| ||||
Change in Net Assets Resulting From Operations | $ | (72,305,466 | ) | ||
|
|
See accompanying notes to the financial statements.
3
AZL MVP Fusion Dynamic Balanced Fund
Statements of Changes in Net Assets
For the Six Months Ended June 30, 2020 | For the Year Ended December 31, 2019 | |||||||||
(Unaudited) | ||||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 1,746,853 | $ | 18,411,057 | ||||||
Net realized gains/(losses) on investments | (61,265,667 | ) | 26,582,490 | |||||||
Change in unrealized appreciation/depreciation on investments | (12,786,652 | ) | 92,728,634 | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | (72,305,466 | ) | 137,722,181 | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
Distributions | — | (64,799,704 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | — | (64,799,704 | ) | |||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 6,541,142 | 8,302,232 | ||||||||
Proceeds from dividends reinvested | — | 64,799,703 | ||||||||
Value of shares redeemed | (69,019,476 | ) | (141,510,927 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (62,478,334 | ) | (68,408,992 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (134,783,800 | ) | 4,513,485 | |||||||
Net Assets: | ||||||||||
Beginning of period | 923,719,162 | 919,205,677 | ||||||||
|
|
|
| |||||||
End of period | $ | 788,935,362 | $ | 923,719,162 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 634,377 | 741,146 | ||||||||
Dividends reinvested | — | 6,056,047 | ||||||||
Shares redeemed | (6,533,364 | ) | (12,633,958 | ) | ||||||
|
|
|
| |||||||
Change in shares | (5,898,987 | ) | (5,836,765 | ) | ||||||
|
|
|
|
Amounts shown as “—” are either $0 or rounds to less than $1.
See accompanying notes to the financial statements.
4
AZL MVP Fusion Dynamic Balanced Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Six Months Ended June 30, 2020 | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2016 | Year Ended December 31, 2015 | |||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 11.24 | $ | 10.44 | $ | 11.91 | $ | 11.88 | $ | 12.15 | $ | 13.03 | ||||||||||||||||||
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|
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|
|
|
|
|
|
|
|
| |||||||||||||||||||
Investment Activities: | ||||||||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.02 | (a) | 0.22 | (a) | 0.22 | 0.14 | 0.20 | 0.24 | ||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (0.92 | ) | 1.38 | (0.83 | ) | 1.27 | 0.44 | (0.42 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total from Investment Activities | (0.90 | ) | 1.60 | (0.61 | ) | 1.41 | 0.64 | (0.18 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Net Investment Income | — | (0.29 | ) | (0.15 | ) | (0.22 | ) | (0.29 | ) | (0.17 | ) | |||||||||||||||||||
Net Realized Gains | — | (0.51 | ) | (0.71 | ) | (1.16 | ) | (0.62 | ) | (0.53 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total Dividends | — | (0.80 | ) | (0.86 | ) | (1.38 | ) | (0.91 | ) | (0.70 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Net Asset Value, End of Period | $ | 10.34 | $ | 11.24 | $ | 10.44 | $ | 11.91 | $ | 11.88 | $ | 12.15 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total Return(b) | (8.01 | )%(c) | 15.76 | % | (5.40 | )% | 12.23 | % | 5.40 | % | (1.27 | )% | ||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 788,935 | $ | 923,719 | $ | 919,206 | $ | 1,099,494 | $ | 1,102,124 | $ | 1,171,370 | ||||||||||||||||||
Net Investment Income/(Loss)(d) | 0.43 | % | 1.95 | % | 1.74 | % | 1.00 | % | 1.48 | % | 1.80 | % | ||||||||||||||||||
Expenses Before Reductions*(d)(e) | 0.23 | % | 0.23 | % | 0.22 | % | 0.22 | % | 0.22 | % | 0.22 | % | ||||||||||||||||||
Expenses Net of Reductions*(d) | 0.23 | % | 0.23 | % | 0.22 | % | 0.22 | % | 0.22 | % | 0.22 | % | ||||||||||||||||||
Portfolio Turnover Rate | 13 | %(c) | 12 | % | 15 | % | 17 | % | 52 | % | 11 | % |
* | The expense ratios exclude the impact of fees/expenses paid by each underlying fund. |
(a) | Calculated using the average shares method. |
(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.
5
AZL MVP Fusion Dynamic Balanced Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
1. Organization
The Allianz Variable Insurance Products Fund of Funds Trust (the “Trust”) was organized as a Delaware statutory trust on June 16, 2004. 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 12 separate investment portfolios (collectively, the “Funds”), of which one is included in this report, the AZL MVP Fusion Dynamic Balanced Fund (the “Fund”), and 11 are presented in separate reports.
The Fund is a “fund of funds”, which means that the Fund invests primarily in other mutual funds (the “Underlying 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 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 that 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.
Distributions to Shareholders
Distributions 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 distributions 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. Distributions 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 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 period ended June 30, 2020, the Fund did not engage in any Rule 17a-7 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. The Fund’s allocation to the MVP (Managed Volatility Portfolio) risk management process may include (a) derivatives such as index futures, other futures contracts, options, and other similar securities and (b) cash, money market equivalents, short-term debt instruments,
6
AZL MVP Fusion Dynamic Balanced Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
money market funds, and short-term debt funds to satisfy all applicable margin requirements and to provide additional portfolio liquidity to satisfy large redemptions and any margin calls. Due to the leverage provided by derivatives, the notional value of the Fund’s derivative positions could exceed 20% of the Fund’s value. The Fund may also use futures to gain equity exposure and may hold cash as a buffer in the event of market shocks.
Futures Contracts
During the period ended June 30, 2020, the Fund invested in futures contracts to reduce volatility and limit the need to decrease or increase allocations to underlying funds. 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 period ended June 30, 2020, the monthly average notional amount for long contracts was $32.4 million, the monthly average notional amount for short contracts was $133.4 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 June 30, 2020:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value* | Statement of Assets and Liabilities Location | Total Fair Value* | ||||||||
Equity Risk | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 2,793,479 | Payable for variation margin on futures contracts | $ | — | ||||||
Interest Rate Risk | ||||||||||||
Interest Rate Contracts | Receivable for variation margin on futures contracts | 77,802 | Payable for variation margin on futures contracts | — |
* | For futures contracts, the amounts represent the cumulative appreciation/depreciation of these futures contracts as reported in the Schedule of Portfolio Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities as variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the period ended June 30, 2020:
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 | $ | (49,147,793 | ) | $ | 2,187,839 | ||||
Interest Rate Risk | ||||||||||
Interest Rate Contracts | Net realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | 1,571,926 | 268,029 |
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, 2021. Expenses incurred for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.”
For the period ended June 30, 2020, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL MVP Fusion Dynamic Balanced Fund | 0.20 | % | 0.30 | % |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At June 30, 2020, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations. During the period ended June 30, 2020, there were no voluntary waivers.
7
AZL MVP Fusion Dynamic Balanced Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
The Manager or an affiliate of the Manager serves as the investment adviser of certain underlying funds in which the Fund invests. At June 30, 2020, 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 period ended June 30, 2020 is as follows:
Fair Value 12/31/2019 | Purchases at Cost | Proceeds from Sales | Net Realized Gains(Losses) | Change in Net Unrealized Appreciation/ Depreciation | Fair Value 6/30/2020 | Shares as of 6/30/2020 | Dividend Income | Net Realized Gains Distributions from Affiliated Underlying Funds | |||||||||||||||||||||||||||||||||||||
AZL DFA International Core Equity Fund | $ | 32,503,268 | $ | 3,734,328 | $ | (4,033,543 | ) | $ | (261,337 | ) | $ | (4,078,934 | ) | $ | 27,863,782 | 3,065,323 | $ | — | $ | — | |||||||||||||||||||||||||
AZL DFA U.S. Core Equity Fund | 27,746,863 | 2,223,502 | (4,181,440 | ) | 609,830 | (2,455,543 | ) | 23,943,212 | 1,897,243 | — | — | ||||||||||||||||||||||||||||||||||
AZL DFA U.S. Small Cap Fund | 13,829,105 | 1,830,659 | (1,754,582 | ) | (76,736 | ) | (1,751,004 | ) | 12,077,442 | 1,256,758 | — | — | |||||||||||||||||||||||||||||||||
AZL Enhanced Bond Index Fund | 69,240,091 | 2,869,388 | (16,402,666 | ) | 777,834 | 2,768,926 | 59,253,573 | 4,991,876 | — | — | |||||||||||||||||||||||||||||||||||
AZL FIAM Total Bond Fund, Class 2 | 92,289,921 | 2,984,931 | (19,148,052 | ) | 973,812 | 2,178,541 | 79,279,153 | 7,240,105 | — | — | |||||||||||||||||||||||||||||||||||
AZL Gateway Fund | 18,476,933 | 2,047,070 | (3,176,310 | ) | (54,302 | ) | (630,695 | ) | 16,662,696 | 1,240,707 | — | — | |||||||||||||||||||||||||||||||||
AZL International Index Fund, Class 2 | 90,184,558 | 8,047,778 | (20,434,411 | ) | (1,710,775 | ) | (9,307,356 | ) | 66,779,794 | 4,490,907 | — | — | |||||||||||||||||||||||||||||||||
AZL MetWest Total Return Bond Fund | 92,290,422 | 4,499,751 | (21,919,219 | ) | 1,603,614 | 3,085,063 | 79,559,631 | 7,122,617 | — | — | |||||||||||||||||||||||||||||||||||
AZL Mid Cap Index Fund, Class 2 | 50,794,287 | 7,293,892 | (20,377,723 | ) | (7,150,336 | ) | 74,299 | 30,634,419 | 1,609,796 | — | — | ||||||||||||||||||||||||||||||||||
AZL MSCI Emerging Markets Equity Index Fund, Class 2 | 39,303,075 | 2,300,751 | (11,875,601 | ) | (1,495,822 | ) | (3,636,874 | ) | 24,595,529 | 3,488,727 | — | — | |||||||||||||||||||||||||||||||||
AZL Russell 1000 Growth Index Fund, Class 2 | 57,697,744 | 23,666,090 | (15,040,269 | ) | 906,923 | 5,512,163 | 72,742,651 | 4,135,455 | — | — | |||||||||||||||||||||||||||||||||||
AZL Russell 1000 Value Index Fund, Class 2 | 85,557,963 | 28,671,493 | (16,501,030 | ) | (4,180,677 | ) | (8,328,802 | ) | 85,218,947 | 7,789,666 | — | — | |||||||||||||||||||||||||||||||||
AZL Small Cap Stock Index Fund, Class 2 | 23,050,878 | 3,260,554 | (9,569,687 | ) | (6,093,990 | ) | 1,373,648 | 12,021,403 | 1,108,986 | — | — | ||||||||||||||||||||||||||||||||||
PIMCO VIT Income Portfolio | 46,342,785 | 1,355,254 | (7,364,935 | ) | 145,156 | (2,169,898 | ) | 38,308,362 | 3,676,426 | 1,234,253 | 121,003 | ||||||||||||||||||||||||||||||||||
PIMCO VIT Low Duration Portfolio | 46,312,486 | 1,924,187 | (10,019,001 | ) | (44,109 | ) | 509,080 | 38,682,643 | 3,744,690 | 341,133 | — | ||||||||||||||||||||||||||||||||||
PIMCO VIT Total Return Portfolio | 92,433,727 | 6,418,839 | (22,178,119 | ) | 1,342,885 | 1,614,866 | 79,632,198 | 6,966,946 | 970,275 | 897,227 | |||||||||||||||||||||||||||||||||||
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$ | 878,054,106 | $ | 103,128,467 | $ | (203,976,588 | ) | $ | (14,708,030 | ) | $ | (15,242,520 | ) | $ | 747,255,435 | 63,826,228 | $ | 2,545,661 | $ | 1,018,230 | ||||||||||||||||||||||||||
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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 SEC. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the 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 fee, accrued daily and paid monthly. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair values 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 Trust-wide annual fee of $7,500, 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 period ended June 30, 2020, $4,761 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 Trust, each non-interested Trustee receives a $182,500 annual Board retainer, the Lead Director receives an additional $45,625, the Chair of the Nominating and Corporate Governance Committee receives an additional $9,125 annually and the Chair of the Audit Committee receives an additional $9,125 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 Trust in proportion to the assets under management of each trust. During the period ended June 30, 2020, actual Trustee compensation was $579,438 in total for both trusts.
8
AZL MVP Fusion Dynamic Balanced Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
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 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.
The following is a summary of the valuation inputs used as of June 30, 2020 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 | $ | 747,255,435 | $ | — | $ | — | $ | 747,255,435 | ||||||||||||
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Total Investment Securities | 747,255,435 | — | — | 747,255,435 | ||||||||||||||||
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Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | 2,871,281 | — | — | 2,871,281 | ||||||||||||||||
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Total Investments | $ | 750,126,716 | $ | — | $ | — | $ | 750,126,716 | ||||||||||||
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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. |
5. Security Purchases and Sales
For the period ended June 30, 2020, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL MVP Fusion Dynamic Balanced Fund | $ | 103,128,471 | $ | 203,976,590 |
6. Investment Risks
The risks below are presented in an order intended to facilitate readability. Their order does not imply that the realization of one risk is more likely to occur more frequently than another risk, nor does it imply that the realization of one risk is likely to have a greater adverse impact than another risk.
Derivatives Risk: The Fund may invest directly or through affiliated or unaffiliated mutual funds or unregistered investment pools in derivative instruments such as futures, options, and options on futures. 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 other party to a derivatives contract could default.
Fund of Fund 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.
Market Risk: The market price of securities owned by the underlying funds may go up or down, sometimes rapidly and unpredictably. Securities may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of a security may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment, as well as natural disasters, and outbreaks of infectious illnesses or other widespread public health issues.
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.
9
AZL MVP Fusion Dynamic Balanced Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
Cost of securities, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2019 was $812,357,375. The gross unrealized appreciation/(depreciation) on a tax basis was as follows:
Unrealized appreciation | $ | 69,281,861 | ||
Unrealized (depreciation) | (3,585,130 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 65,696,731 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2019 was as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL MVP Fusion Dynamic Balanced Fund | $ | 23,611,101 | $ | 41,188,603 | $ | 64,799,704 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends were recognized when actually paid for tax purposes. |
At December 31, 2019, 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 MVP Fusion Dynamic Balanced Fund | $ | 21,984,454 | $ | 23,279,545 | $ | — | $ | 65,696,731 | $ | 110,960,730 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation was attributable primarily to tax deferral of losses on wash sales and mark-to-market of futures contracts. |
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 June 30, 2020, the Fund had an individual shareholder account which is affiliated with the Manager representing ownership in excess of 90% of the Fund. Investment activities of these shareholders could have a material impact to the Fund.
9. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
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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-PORT. 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.
11
Statement Regarding the Trust’s Liquidity Risk Management Program (Unaudited)
Each series (each such series a “Fund” and, together, the “Funds”) of the Allianz Variable Insurance Products Trust, but not the AZL Government Money Market Fund, and of the Allianz Variable Insurance Products Fund of Funds Trust (each such trust a “Trust” and, together, the “Trusts”) has adopted and implemented a written liquidity risk management program (the “Program”) pursuant to Rule 22e-4 under the Investment Company Act of 1940 (the “Liquidity Rule”). The Program includes policies and procedures reasonably designed to assess and manage each Fund’s liquidity risk (the “risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund”) and to comply with the requirements of the Liquidity Rule, including: (i) assessment, management and periodic review of liquidity risk; (ii) classification of portfolio holdings; (iii) establishment of a highly liquid investment minimum (“HLIM”); (iv) limitation of illiquid investments; and (v) redemptions in-kind.
The Board of Trustees of each Fund (together, the “Board”) approved the designation of the individual officers of the Trusts who serve as the administrators of the Program (the “Program Administrators”). The Program Administrators oversee the monitoring of liquidity and liquidity risk for each Fund on an ongoing basis.
At a meeting of the Board held on February 18, 2020, the Program Administrators provided a written report (the “Report”) to the Board addressing the operation of the Program and assessing its adequacy and effectiveness of implementation for the annual period from January 1, 2019 through December 31, 2019 (the “Reporting Period”). This Report included an overview of the Program and conclusions with respect to the adequacy of the policies and procedures of the Program and the effectiveness of Program implementation. The Report took into account the following factors enumerated in the Liquidity Rule and identified in the Program, as applicable:
1) Each Fund’s investment strategy and liquidity of portfolio investments during both normal and reasonably foreseeable stressed conditions, including: (i) whether the Fund’s investment strategy is appropriate for an open-end fund; (ii) the extent to which the Fund’s strategy involves a relatively concentrated portfolio or large positions in particular issuers; and, as applicable, (iii) the Fund’s use of borrowings for investment purposes; and (iv) the Fund’s use of derivatives;
2) Short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions; and
3) Holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources.
Based on the information considered, the Report concluded that each Fund continues to have an investment strategy that is appropriate for an open-end fund, and that each Fund is reasonably likely to be able to meet redemption requests without significant dilution of remaining shareholders’ interests in the Fund.
In accordance with the Program, each Fund’s portfolio investments were classified into one of four liquidity categories as provided in the Liquidity Rule as applicable during the Reporting Period. Liquidity classification determinations take into account a variety of factors including market, trading and investment-specific considerations, as well as market depth in accordance with the requirements of the Liquidity Rule and as specified in the Program, and generally incorporate analysis from a third-party data vendor.
Pursuant to the Liquidity Rule, no Fund may acquire any illiquid investment if, after the acquisition, the Fund would have invested more than 15% of its assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with the 15% limit on illiquid investments. During the Reporting Period, no Fund breached the 15% limit on illiquid investments.
During the Reporting Period, each Fund maintained a designated HLIM. The Program Administrators reviewed each Fund’s HLIM and concluded that no changes were recommended. During the Reporting Period, no Fund fell below its approved HLIM. The Program includes provisions reasonably designed to comply with the HLIM for each Fund.
On the basis of the review, the Report concluded that: (i) the Program remains reasonably designed to manage each Fund’s liquidity risk; (ii) the Program was implemented and operated effectively to achieve the goal of assessing and managing each Fund’s liquidity risk during the Reporting Period; and (iii) each Fund was able to meet requests for redemption without significant dilution of remaining investors in the Fund during the Reporting Period. The Program Administrators did not recommend any material changes to the Program.
12
The Allianz VIP Fund of Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | SARRPT0620 08/20 |
AZL® MVP Fusion Dynamic Conservative Fund
Semi-Annual Report
June 30, 2020
(Unaudited)
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 MVP Fusion Dynamic Conservative Fund
(Unaudited)
As a shareholder of the AZL MVP Fusion Dynamic Conservative 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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP Fusion Dynamic Conservative Fund | $ | 1,000.00 | $ | 954.80 | $ | 1.22 | 0.25 | % |
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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP Fusion Dynamic Conservative Fund | $ | 1,000.00 | $ | 1,023.62 | $ | 1.26 | 0.25 | % |
* | Expenses are equal to the average account value multiplied by the Fund’s annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Fixed Income Funds | 61.3 | % | |||
Domestic Equity Funds | 24.3 | ||||
International Equity Funds | 9.9 | ||||
|
| ||||
Total Investment Securities | 95.5 | ||||
Net other assets (liabilities) | 4.5 | ||||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
1
AZL MVP Fusion Dynamic Conservative Fund
Schedule of Portfolio Investments
June 30, 2020 (Unaudited)
Shares | Fair Value | |||||||
Affiliated Investment Companies (95.5%): | ||||||||
Domestic Equity Funds (24.3%): | ||||||||
300,315 | AZL DFA U.S. Core Equity Fund | $ | 3,789,981 | |||||
269,933 | AZL DFA U.S. Small Cap Fund | 2,594,053 | ||||||
269,526 | AZL Gateway Fund | 3,619,730 | ||||||
387,101 | AZL Mid Cap Index Fund, Class 2 | 7,366,537 | ||||||
917,736 | AZL Russell 1000 Growth Index Fund, Class 2 | 16,142,982 | ||||||
1,803,990 | AZL Russell 1000 Value Index Fund, Class 2 | 19,735,647 | ||||||
355,268 | AZL Small Cap Stock Index Fund, Class 2 | 3,851,100 | ||||||
|
| |||||||
57,100,030 | ||||||||
|
| |||||||
Fixed Income Funds (61.3%): | ||||||||
1,903,374 | AZL Enhanced Bond Index Fund | 22,593,050 | ||||||
2,800,176 | AZL Fidelity Institutional Asset Management Total Bond Fund, Class 2 | 30,661,924 | ||||||
2,698,573 | AZL MetWest Total Return Bond Fund | 30,143,063 | ||||||
1,363,377 | PIMCO VIT Income Portfolio | 14,206,390 |
Shares | Fair Value | |||||||
Affiliated Investment Companies, continued | ||||||||
Fixed Income Funds, continued | ||||||||
1,549,774 | PIMCO VIT Low Duration Portfolio | $ | 16,009,161 | |||||
2,649,359 | PIMCO VIT Total Return Portfolio | 30,282,173 | ||||||
|
| |||||||
143,895,761 | ||||||||
|
| |||||||
International Equity Funds (9.9%): | ||||||||
676,999 | AZL DFA International Core Equity Fund | 6,153,917 | ||||||
885,578 | AZL International Index Fund, Class 2 | 13,168,545 | ||||||
537,928 | AZL MSCI Emerging Markets Equity Index Fund, Class 2 | 3,792,395 | ||||||
|
| |||||||
23,114,857 | ||||||||
|
| |||||||
Total Affiliated Investment Companies (Cost $209,131,797) | 224,110,648 | |||||||
|
| |||||||
Total Investment Securities (Cost $209,131,797) — 95.5% | 224,110,648 | |||||||
Net other assets (liabilities) — 4.5% | 10,535,858 | |||||||
|
| |||||||
Net Assets — 100.0% | $ | 234,646,506 | ||||||
|
|
Percentages indicated are based on net assets as of June 30, 2020.
Futures Contracts
Cash of $10,625,658 has been segregated to cover margin requirements for the following open contracts as of June 30, 2020:
Short Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
S&P 500 Index E-Mini September Futures (U.S. Dollar) | 9/18/20 | 139 | $ | (21,476,890 | ) | $ | 358,819 | |||||||||
|
| |||||||||||||||
$ | 358,819 | |||||||||||||||
|
|
Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
U.S. Treasury 10-Year Note September Futures (U.S. Dollar) | 9/21/20 | 50 | $ | 6,958,594 | $ | 25,140 | ||||||||||
|
| |||||||||||||||
$ | 25,140 | |||||||||||||||
|
| |||||||||||||||
Total Net Futures Contracts | $ | 383,959 | ||||||||||||||
|
|
See accompanying notes to the financial statements.
2
AZL MVP Fusion Dynamic Conservative Fund
Statement of Assets and Liabilities
June 30, 2020
(Unaudited)
Assets: | |||||
Investments in affiliates, at cost | $ | 209,131,797 | |||
|
| ||||
Investments in affiliates, at value | $ | 224,110,648 | |||
Segregated cash for collateral for futures contracts | 10,625,658 | ||||
Interest and dividends receivable | 91,098 | ||||
Receivable for affiliated investments sold | 149,471 | ||||
Prepaid expenses | 435 | ||||
|
| ||||
Total Assets | 234,977,310 | ||||
|
| ||||
Liabilities: | |||||
Cash overdraft | 149,468 | ||||
Payable for affiliated investments purchased | 90,135 | ||||
Payable for capital shares redeemed | 27,922 | ||||
Payable for variation margin on futures contracts | 6,179 | ||||
Manager fees payable | 38,600 | ||||
Administration fees payable | 6,509 | ||||
Custodian fees payable | 722 | ||||
Administrative and compliance services fees payable | 425 | ||||
Transfer agent fees payable | 788 | ||||
Trustee fees payable | 2,505 | ||||
Other accrued liabilities | 7,551 | ||||
|
| ||||
Total Liabilities | 330,804 | ||||
|
| ||||
Net Assets | $ | 234,646,506 | |||
|
| ||||
Net Assets Consist of: | |||||
Paid in capital | $ | 223,091,480 | |||
Total distributable earnings | 11,555,026 | ||||
|
| ||||
Net Assets | $ | 234,646,506 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 20,547,119 | ||||
Net Asset Value (offering and redemption price per share) | $ | 11.42 | |||
|
|
For the Six Months Ended June 30, 2020
(Unaudited)
Investment Income: | |||||
Dividends from affiliates | $ | 944,348 | |||
Interest | 34,956 | ||||
Dividends from non-affiliates | 482 | ||||
|
| ||||
Total Investment Income | 979,786 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 236,355 | ||||
Administration fees | 30,795 | ||||
Custodian fees | 2,185 | ||||
Administrative and compliance services fees | 2,149 | ||||
Transfer agent fees | 2,597 | ||||
Trustee fees | 6,843 | ||||
Professional fees | 5,729 | ||||
Shareholder reports | 4,874 | ||||
Other expenses | 1,454 | ||||
|
| ||||
Total expenses | 292,981 | ||||
|
| ||||
Net Investment Income/(Loss) | 686,805 | ||||
|
| ||||
Net realized and Change in net unrealized gains/losses on investments | |||||
Net realized gains/(losses) on affiliated underlying funds | (2,875,031 | ) | |||
Net realized gains distributions from affiliated underlying funds | 385,047 | ||||
Net realized gains/(losses) on futures contracts | (10,827,299 | ) | |||
Change in net unrealized appreciation/depreciation on affiliated underlying funds | 1,524,486 | ||||
Change in net unrealized appreciation/depreciation on futures contracts | 338,315 | ||||
|
| ||||
Net realized and Change in net unrealized gains/losses on investments | (11,454,482 | ) | |||
|
| ||||
Change in Net Assets Resulting From Operations | $ | (10,767,677 | ) | ||
|
|
See accompanying notes to the financial statements.
3
AZL MVP Fusion Dynamic Conservative Fund
Statements of Changes in Net Assets
For the Six Months Ended June 30, 2020 | For the Year Ended December 31, 2019 | |||||||||
(Unaudited) | ||||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 686,805 | $ | 5,176,436 | ||||||
Net realized gains/(losses) on investments | (13,317,283 | ) | 5,403,518 | |||||||
Change in unrealized appreciation/depreciation on investments | 1,862,801 | 20,522,837 | ||||||||
|
|
|
| |||||||
Change in net assets resulting from operations | (10,767,677 | ) | 31,102,791 | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
Distributions | — | (13,666,182 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | — | (13,666,182 | ) | |||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 14,735,949 | 27,590,839 | ||||||||
Proceeds from dividends reinvested | — | 13,666,182 | ||||||||
Value of shares redeemed | (18,414,599 | ) | (44,730,111 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (3,678,650 | ) | (3,473,090 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (14,446,327 | ) | 13,963,519 | |||||||
Net Assets: | ||||||||||
Beginning of period | 249,092,833 | 235,129,314 | ||||||||
|
|
|
| |||||||
End of period | $ | 234,646,506 | $ | 249,092,833 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 1,329,410 | 2,320,012 | ||||||||
Dividends reinvested | — | 1,183,219 | ||||||||
Shares redeemed | (1,605,550 | ) | (3,744,846 | ) | ||||||
|
|
|
| |||||||
Change in shares | (276,140 | ) | (241,615 | ) | ||||||
|
|
|
|
Amounts shown as “—” are either $0 or rounds to less than $1.
See accompanying notes to the financial statements.
4
AZL MVP Fusion Dynamic Conservative Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Six Months Ended June 30, 2020 | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2016 | Year Ended December 31, 2015 | |||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 11.96 | $ | 11.16 | $ | 12.23 | $ | 11.89 | $ | 11.93 | $ | 12.63 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Investment Activities: | ||||||||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.03 | (a) | 0.25 | (a) | 0.23 | 0.16 | 0.19 | 0.25 | ||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (0.57 | ) | 1.24 | (0.67 | ) | 0.93 | 0.44 | (0.35 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total from Investment Activities | (0.54 | ) | 1.49 | (0.44 | ) | 1.09 | 0.63 | (0.10 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Net Investment Income | — | (0.30 | ) | (0.17 | ) | (0.23 | ) | (0.28 | ) | (0.17 | ) | |||||||||||||||||||
Net Realized Gains | — | (0.39 | ) | (0.46 | ) | (0.52 | ) | (0.39 | ) | (0.43 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total Dividends | — | (0.69 | ) | (0.63 | ) | (0.75 | ) | (0.67 | ) | (0.60 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Net Asset Value, End of Period | $ | 11.42 | $ | 11.96 | $ | 11.16 | $ | 12.23 | $ | 11.89 | $ | 11.93 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total Return(b) | (4.52 | )%(c) | 13.54 | % | (3.75 | )% | 9.31 | % | 5.32 | % | (0.77 | )% | ||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 234,647 | $ | 249,093 | $ | 235,129 | $ | 268,572 | $ | 277,889 | $ | 268,335 | ||||||||||||||||||
Net Investment Income/(Loss)(d) | 0.58 | % | 2.11 | % | 1.83 | % | 1.14 | % | 1.63 | % | 2.09 | % | ||||||||||||||||||
Expenses Before Reductions*(d)(e) | 0.25 | % | 0.25 | % | 0.24 | % | 0.23 | % | 0.24 | % | 0.24 | % | ||||||||||||||||||
Expenses Net of Reductions*(d) | 0.25 | % | 0.25 | % | 0.24 | % | 0.23 | % | 0.24 | % | 0.24 | % | ||||||||||||||||||
Portfolio Turnover Rate | 12 | %(c) | 21 | % | 16 | % | 18 | % | 62 | % | 16 | % |
* | The expense ratios exclude the impact of fees/expenses paid by each underlying fund. |
(a) | Calculated using the average shares method. |
(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.
5
AZL MVP Fusion Dynamic Conservative Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
1. Organization
The Allianz Variable Insurance Products Fund of Funds Trust (the “Trust”) was organized as a Delaware statutory trust on June 16, 2004. 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 12 separate investment portfolios (collectively, the “Funds”), of which one is included in this report, the AZL MVP Fusion Dynamic Conservative Fund (the “Fund”), and 11 are presented in separate reports.
The Fund is a “fund of funds”, which means that the Fund invests primarily in other mutual funds (the “Underlying 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 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 that 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.
Distributions to Shareholders
Distributions 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 distributions 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. Distributions 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 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 period ended June 30, 2020, the Fund did not engage in any Rule 17a-7 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. The Fund’s allocation to the MVP (Managed Volatility Portfolio) risk management process may include (a) derivatives such as index futures, other futures contracts, options, and other similar securities and (b) cash, money market equivalents, short-term debt instruments,
6
AZL MVP Fusion Dynamic Conservative Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
money market funds, and short-term debt funds to satisfy all applicable margin requirements and to provide additional portfolio liquidity to satisfy large redemptions and any margin calls. Due to the leverage provided by derivatives, the notional value of the Fund’s derivative positions could exceed 20% of the Fund’s value. The Fund may also use futures to gain equity exposure and may hold cash as a buffer in the event of market shocks.
Futures Contracts
During the period ended June 30, 2020, the Fund invested in futures contracts to reduce volatility and limit the need to decrease or increase allocations to underlying funds. 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 period ended June 30, 2020, the monthly average notional amount for long contracts was $9.3 million, the monthly average notional amount for short contracts was $29.2 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 June 30, 2020:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value* | Statement of Assets and Liabilities Location | Total Fair Value* | ||||||||
Equity Risk | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 358,819 | Payable for variation margin on futures contracts | $ | — | ||||||
Interest Rate Risk | ||||||||||||
Interest Rate Contracts | Receivable for variation margin on futures contracts | 25,140 | Payable for variation margin on futures contracts | — |
* | For futures contracts, the amounts represent the cumulative appreciation/depreciation of these futures contracts as reported in the Schedule of Portfolio Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities as variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the period ended June 30, 2020:
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 | $ | (11,361,459 | ) | $ | 247,628 | ||||
Interest Rate Risk | ||||||||||
Interest Rate Contracts | Net realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | 534,160 | 90,687 |
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, 2021. Expenses incurred for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.”
For the period ended June 30, 2020, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL MVP Fusion Dynamic Conservative Fund | 0.20 | % | 0.35 | % |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At June 30, 2020, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations. During the period ended June 30, 2020, there were no voluntary waivers.
7
AZL MVP Fusion Dynamic Conservative Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
The Manager or an affiliate of the Manager serves as the investment adviser of certain underlying funds in which the Fund invests. At June 30, 2020, 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 period ended June 30, 2020 is as follows:
Fair Value 12/31/2019 | Purchases at Cost | Proceeds from Sales | Net Realized Gains(Losses) | Change in Net Unrealized Appreciation/ Depreciation | Fair Value 6/30/2020 | Shares as of 6/30/2020 | Dividend Income | Net Realized Gains Distributions from Affiliated Underlying Funds | |||||||||||||||||||||||||||||||||||||
AZL DFA International Core Equity Fund | $ | 6,291,065 | $ | 1,516,157 | $ | (929,836 | ) | $ | (116,166 | ) | $ | (607,303 | ) | $ | 6,153,917 | 676,999 | $ | — | $ | — | |||||||||||||||||||||||||
AZL DFA U.S. Core Equity Fund | 3,789,126 | 681,732 | (519,884 | ) | 40,621 | (201,614 | ) | 3,789,981 | 300,315 | — | — | ||||||||||||||||||||||||||||||||||
AZL DFA U.S. Small Cap Fund | 2,537,725 | 704,321 | (366,479 | ) | (80,981 | ) | (200,533 | ) | 2,594,053 | 269,933 | — | — | |||||||||||||||||||||||||||||||||
AZL Enhanced Bond Index Fund | 24,194,111 | 135,555 | (3,068,953 | ) | 136,902 | 1,195,435 | 22,593,050 | 1,903,374 | — | — | |||||||||||||||||||||||||||||||||||
AZL FIAM Total Bond Fund, Class 2 | 32,290,578 | 139,361 | (3,055,331 | ) | 174,741 | 1,112,575 | 30,661,924 | 2,800,176 | — | — | |||||||||||||||||||||||||||||||||||
AZL Gateway Fund | 3,738,001 | 127,914 | (157,219 | ) | 1,929 | (90,895 | ) | 3,619,730 | 269,526 | — | — | ||||||||||||||||||||||||||||||||||
AZL International Index Fund, Class 2 | 15,619,754 | 3,199,736 | (3,929,533 | ) | (433,448 | ) | (1,287,964 | ) | 13,168,545 | 885,578 | — | — | |||||||||||||||||||||||||||||||||
AZL MetWest Total Return Bond Fund | 32,260,188 | 230,656 | (4,120,217 | ) | 304,315 | 1,468,121 | 30,143,063 | 2,698,573 | — | — | |||||||||||||||||||||||||||||||||||
AZL Mid Cap Index Fund, Class 2 | 10,014,886 | 2,862,656 | (4,298,531 | ) | (1,463,532 | ) | 251,058 | 7,366,537 | 387,101 | — | — | ||||||||||||||||||||||||||||||||||
AZL MSCI Emerging Markets Equity Index Fund, Class 2 | 5,644,874 | 1,079,882 | (2,269,205 | ) | (232,402 | ) | (430,754 | ) | 3,792,395 | 537,928 | — | — | |||||||||||||||||||||||||||||||||
AZL Russell 1000 Growth Index Fund, Class 2 | 12,780,957 | 5,360,977 | (3,669,224 | ) | 489,507 | 1,180,765 | 16,142,982 | 917,736 | — | — | |||||||||||||||||||||||||||||||||||
AZL Russell 1000 Value Index Fund, Class 2 | 17,803,080 | 8,001,929 | (3,633,540 | ) | (645,343 | ) | (1,790,479 | ) | 19,735,647 | 1,803,990 | — | — | |||||||||||||||||||||||||||||||||
AZL Small Cap Stock Index Fund, Class 2 | 5,032,735 | 1,522,085 | (1,842,349 | ) | (1,156,760 | ) | 295,389 | 3,851,100 | 355,268 | — | — | ||||||||||||||||||||||||||||||||||
PIMCO VIT Income Portfolio | 14,990,316 | 527,357 | (695,939 | ) | 11,846 | (627,190 | ) | 14,206,390 | 1,363,377 | 443,513 | 44,873 | ||||||||||||||||||||||||||||||||||
PIMCO VIT Low Duration Portfolio | 17,390,196 | 278,301 | (1,862,432 | ) | (4,924 | ) | 208,020 | 16,009,161 | 1,549,774 | 137,053 | — | ||||||||||||||||||||||||||||||||||
PIMCO VIT Total Return Portfolio | 32,334,687 | 965,891 | (4,166,924 | ) | 98,664 | 1,049,855 | 30,282,173 | 2,649,359 | 363,782 | 340,174 | |||||||||||||||||||||||||||||||||||
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$ | 236,712,279 | $ | 27,334,510 | $ | (38,585,596 | ) | $ | (2,875,031 | ) | $ | 1,524,486 | $ | 224,110,648 | 19,369,007 | $ | 944,348 | $ | 385,047 | |||||||||||||||||||||||||||
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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 SEC. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the 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 fee, accrued daily and paid monthly. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair values 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 Trust-wide annual fee of $7,500, 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 period ended June 30, 2020, $1,344 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 Trust, each non-interested Trustee receives a $182,500 annual Board retainer, the Lead Director receives an additional $45,625, the Chair of the Nominating and Corporate Governance Committee receives an additional $9,125 annually and the Chair of the Audit Committee receives an additional $9,125 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 Trust in proportion to the assets under management of each trust. During the period ended June 30, 2020, actual Trustee compensation was $579,438 in total for both trusts.
8
AZL MVP Fusion Dynamic Conservative Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
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 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.
The following is a summary of the valuation inputs used as of June 30, 2020 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 | $ | 224,110,648 | $ | — | $ | — | $ | 224,110,648 | ||||||||||||
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Total Investment Securities | 224,110,648 | — | — | 224,110,648 | ||||||||||||||||
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Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | 383,959 | — | — | 383,959 | ||||||||||||||||
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Total Investments | $ | 224,494,607 | $ | — | $ | — | $ | 224,494,607 | ||||||||||||
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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. |
5. Security Purchases and Sales
For the period ended June 30, 2020, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL MVP Fusion Dynamic Conservative Fund | $ | 27,334,512 | $ | 38,585,596 |
6. Investment Risks
The risks below are presented in an order intended to facilitate readability. Their order does not imply that the realization of one risk is more likely to occur more frequently than another risk, nor does it imply that the realization of one risk is likely to have a greater adverse impact than another risk.
Derivatives Risk: The Fund may invest directly or through affiliated or unaffiliated mutual funds or unregistered investment pools in derivative instruments such as futures, options, and options on futures. 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 other party to a derivatives contract could default.
Fund of Fund 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.
Market Risk: The market price of securities owned by the underlying funds may go up or down, sometimes rapidly and unpredictably. Securities may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of a security may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment, as well as natural disasters, and outbreaks of infectious illnesses or other widespread public health issues.
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.
9
AZL MVP Fusion Dynamic Conservative Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
Cost of securities, including derivatives and short positions as applicable, for federal income tax purposes at December 31, 2019 was $225,704,598. The gross unrealized appreciation/(depreciation) on a tax basis was as follows:
Unrealized appreciation | $ | 11,426,003 | ||
Unrealized (depreciation) | (418,322 | ) | ||
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Net unrealized appreciation/(depreciation) | $ | 11,007,681 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2019 was as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL MVP Fusion Dynamic Conservative Fund | $ | 5,951,891 | $ | 7,714,291 | $ | 13,666,182 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends were recognized when actually paid for tax purposes. |
At December 31, 2019, 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 MVP Fusion Dynamic Conservative Fund | $ | 5,946,270 | $ | 5,368,752 | $ | — | $ | 11,007,681 | $ | 22,322,703 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation was attributable primarily to tax deferral of losses on wash sales and mark-to-market of futures contracts. |
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 June 30, 2020, the Fund had an individual shareholder account which is affiliated with the Manager representing ownership in excess of 90% of the Fund. Investment activities of these shareholders could have a material impact to the Fund.
9. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
10
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-PORT. 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.
11
Statement Regarding the Trust’s Liquidity Risk Management Program (Unaudited)
Each series (each such series a “Fund” and, together, the “Funds”) of the Allianz Variable Insurance Products Trust, but not the AZL Government Money Market Fund, and of the Allianz Variable Insurance Products Fund of Funds Trust (each such trust a “Trust” and, together, the “Trusts”) has adopted and implemented a written liquidity risk management program (the “Program”) pursuant to Rule 22e-4 under the Investment Company Act of 1940 (the “Liquidity Rule”). The Program includes policies and procedures reasonably designed to assess and manage each Fund’s liquidity risk (the “risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund”) and to comply with the requirements of the Liquidity Rule, including: (i) assessment, management and periodic review of liquidity risk; (ii) classification of portfolio holdings; (iii) establishment of a highly liquid investment minimum (“HLIM”); (iv) limitation of illiquid investments; and (v) redemptions in-kind.
The Board of Trustees of each Fund (together, the “Board”) approved the designation of the individual officers of the Trusts who serve as the administrators of the Program (the “Program Administrators”). The Program Administrators oversee the monitoring of liquidity and liquidity risk for each Fund on an ongoing basis.
At a meeting of the Board held on February 18, 2020, the Program Administrators provided a written report (the “Report”) to the Board addressing the operation of the Program and assessing its adequacy and effectiveness of implementation for the annual period from January 1, 2019 through December 31, 2019 (the “Reporting Period”). This Report included an overview of the Program and conclusions with respect to the adequacy of the policies and procedures of the Program and the effectiveness of Program implementation. The Report took into account the following factors enumerated in the Liquidity Rule and identified in the Program, as applicable:
1) Each Fund’s investment strategy and liquidity of portfolio investments during both normal and reasonably foreseeable stressed conditions, including: (i) whether the Fund’s investment strategy is appropriate for an open-end fund; (ii) the extent to which the Fund’s strategy involves a relatively concentrated portfolio or large positions in particular issuers; and, as applicable, (iii) the Fund’s use of borrowings for investment purposes; and (iv) the Fund’s use of derivatives;
2) Short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions; and
3) Holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources.
Based on the information considered, the Report concluded that each Fund continues to have an investment strategy that is appropriate for an open-end fund, and that each Fund is reasonably likely to be able to meet redemption requests without significant dilution of remaining shareholders’ interests in the Fund.
In accordance with the Program, each Fund’s portfolio investments were classified into one of four liquidity categories as provided in the Liquidity Rule as applicable during the Reporting Period. Liquidity classification determinations take into account a variety of factors including market, trading and investment-specific considerations, as well as market depth in accordance with the requirements of the Liquidity Rule and as specified in the Program, and generally incorporate analysis from a third-party data vendor.
Pursuant to the Liquidity Rule, no Fund may acquire any illiquid investment if, after the acquisition, the Fund would have invested more than 15% of its assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with the 15% limit on illiquid investments. During the Reporting Period, no Fund breached the 15% limit on illiquid investments.
During the Reporting Period, each Fund maintained a designated HLIM. The Program Administrators reviewed each Fund’s HLIM and concluded that no changes were recommended. During the Reporting Period, no Fund fell below its approved HLIM. The Program includes provisions reasonably designed to comply with the HLIM for each Fund.
On the basis of the review, the Report concluded that: (i) the Program remains reasonably designed to manage each Fund’s liquidity risk; (ii) the Program was implemented and operated effectively to achieve the goal of assessing and managing each Fund’s liquidity risk during the Reporting Period; and (iii) each Fund was able to meet requests for redemption without significant dilution of remaining investors in the Fund during the Reporting Period. The Program Administrators did not recommend any material changes to the Program.
12
The Allianz VIP Fund of Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | SARRPT0620 08/20 |
AZL® MVP Fusion Dynamic Moderate Fund
Semi-Annual Report
June 30, 2020
(Unaudited)
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 MVP Fusion Dynamic Moderate Fund
(Unaudited)
As a shareholder of the AZL MVP Fusion Dynamic Moderate 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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP Fusion Dynamic Moderate Fund | $ | 1,000.00 | $ | 909.50 | $ | 1.04 | 0.22 | % |
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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP Fusion Dynamic Moderate Fund | $ | 1,000.00 | $ | 1,023.77 | $ | 1.11 | 0.22 | % |
* | Expenses are equal to the average account value multiplied by the Fund’s annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Fixed Income Funds | 37.8 | % | |||
Domestic Equity Funds | 37.4 | ||||
International Equity Funds | 19.1 | ||||
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Total Investment Securities | 94.3 | ||||
Net other assets (liabilities) | 5.7 | ||||
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Net Assets | 100.0 | % | |||
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1
AZL MVP Fusion Dynamic Moderate Fund
Schedule of Portfolio Investments
June 30, 2020 (Unaudited)
Shares | Fair Value | |||||||
Affiliated Investment Companies (94.3%): | ||||||||
Domestic Equity Funds (37.4%): | ||||||||
3,552,113 | AZL DFA U.S. Core Equity Fund | $ | 44,827,662 | |||||
3,650,958 | AZL DFA U.S. Small Cap Fund | 35,085,702 | ||||||
3,422,707 | AZL Gateway Fund | 45,966,953 | ||||||
4,449,244 | AZL Mid Cap Index Fund, Class 2 | 84,669,110 | ||||||
10,657,697 | AZL Russell 1000 Growth Index Fund, Class 2 | 187,468,886 | ||||||
20,325,824 | AZL Russell 1000 Value Index Fund, Class 2 | 222,364,515 | ||||||
3,218,618 | AZL Small Cap Stock Index Fund, Class 2 | 34,889,818 | ||||||
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655,272,646 | ||||||||
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Fixed Income Funds (37.8%): | ||||||||
9,199,884 | AZL Enhanced Bond Index Fund | 109,202,620 | ||||||
13,228,479 | AZL Fidelity Institutional Asset Management Total Bond Fund, Class 2 | 144,851,850 | ||||||
13,012,110 | AZL MetWest Total Return Bond Fund | 145,345,271 | ||||||
6,466,079 | PIMCO VIT Income Portfolio | 67,376,548 | ||||||
4,835,575 | PIMCO VIT Low Duration Portfolio | 49,951,493 | ||||||
12,723,413 | PIMCO VIT Total Return Portfolio | 145,428,610 | ||||||
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662,156,392 | ||||||||
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Shares | Fair Value | |||||||
Affiliated Investment Companies, continued | ||||||||
International Equity Funds (19.1%): | ||||||||
9,634,501 | AZL DFA International Core Equity Fund | $ | 87,577,614 | |||||
11,734,386 | AZL International Index Fund, Class 2 | 174,490,325 | ||||||
10,186,928 | AZL MSCI Emerging Markets Equity Index Fund, Class 2 | 71,817,840 | ||||||
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333,885,779 | ||||||||
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Total Affiliated Investment Companies (Cost $1,537,721,251) | 1,651,314,817 | |||||||
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Total Investment Securities (Cost $1,537,721,251) — 94.3% | 1,651,314,817 | |||||||
Net other assets (liabilities) — 5.7% | 100,286,731 | |||||||
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Net Assets — 100.0% | $ | 1,751,601,548 | ||||||
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Percentages indicated are based on net assets as of June 30, 2020.
Futures Contracts
Cash of $100,866,740 has been segregated to cover margin requirements for the following open contracts as of June 30, 2020:
Short Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
S&P 500 Index E-Mini September Futures (U.S. Dollar) | 9/18/20 | 2,035 | $ | (314,427,850 | ) | $ | 7,138,561 | |||||||||
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$ | 7,138,561 | |||||||||||||||
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Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
U.S. Treasury 10-Year Note September Futures (U.S. Dollar) | 9/21/20 | 301 | $ | 41,890,734 | $ | 149,711 | ||||||||||
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$ | 149,711 | |||||||||||||||
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Total Net Futures Contracts | $ | 7,288,272 | ||||||||||||||
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See accompanying notes to the financial statements.
2
AZL MVP Fusion Dynamic Moderate Fund
Statement of Assets and Liabilities
June 30, 2020
(Unaudited)
Assets: | |||||
Investments in affiliates, at cost | $ | 1,537,721,251 | |||
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| ||||
Investments in affiliates, at value | $ | 1,651,314,817 | |||
Segregated cash for collateral for futures contracts | 100,866,740 | ||||
Interest and dividends receivable | 410,916 | ||||
Receivable for affiliated investments sold | 292,043 | ||||
Prepaid expenses | 3,717 | ||||
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| ||||
Total Assets | 1,752,888,233 | ||||
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| ||||
Liabilities: | |||||
Cash overdraft | 292,043 | ||||
Payable for affiliated investments purchased | 401,725 | ||||
Payable for capital shares redeemed | 105,911 | ||||
Payable for variation margin on futures contracts | 102,699 | ||||
Manager fees payable | 288,297 | ||||
Administration fees payable | 8,012 | ||||
Custodian fees payable | 3,205 | ||||
Administrative and compliance services fees payable | 3,095 | ||||
Transfer agent fees payable | 960 | ||||
Trustee fees payable | 19,648 | ||||
Other accrued liabilities | 61,090 | ||||
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| ||||
Total Liabilities | 1,286,685 | ||||
|
| ||||
Net Assets | $ | 1,751,601,548 | |||
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| ||||
Net Assets Consist of: | |||||
Paid in capital | $ | 1,671,125,256 | |||
Total distributable earnings | 80,476,292 | ||||
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| ||||
Net Assets | $ | 1,751,601,548 | |||
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| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 172,587,939 | ||||
Net Asset Value (offering and redemption price per share) | $ | 10.15 | |||
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For the Six Months Ended June 30, 2020
(Unaudited)
Investment Income: | |||||
Dividends from affiliates | $ | 4,350,975 | |||
Interest | 293,675 | ||||
Dividends from non-affiliates | 116 | ||||
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| ||||
Total Investment Income | 4,644,766 | ||||
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| ||||
Expenses: | |||||
Manager fees | 1,810,260 | ||||
Administration fees | 36,182 | ||||
Custodian fees | 8,628 | ||||
Administrative and compliance services fees | 16,202 | ||||
Transfer agent fees | 2,910 | ||||
Trustee fees | 51,119 | ||||
Professional fees | 42,218 | ||||
Shareholder reports | 34,670 | ||||
Other expenses | 11,491 | ||||
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| ||||
Total expenses | 2,013,680 | ||||
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| ||||
Net Investment Income/(Loss) | 2,631,086 | ||||
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| ||||
Net realized and Change in net unrealized gains/losses on investments | |||||
Net realized gains/(losses) on affiliated underlying funds | (45,182,674 | ) | |||
Net realized gains distributions from affiliated underlying funds | 1,852,138 | ||||
Net realized gains/(losses) on futures contracts | (98,973,770 | ) | |||
Change in net unrealized appreciation/depreciation on affiliated underlying funds | (48,264,451 | ) | |||
Change in net unrealized appreciation/depreciation on futures contracts | 6,019,022 | ||||
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| ||||
Net realized and Change in net unrealized gains/losses on investments | (184,549,735 | ) | |||
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Change in Net Assets Resulting From Operations | $ | (181,918,649 | ) | ||
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See accompanying notes to the financial statements.
3
AZL MVP Fusion Dynamic Moderate Fund
Statements of Changes in Net Assets
For the Six Months Ended June 30, 2020 | For the Year Ended December 31, 2019 | |||||||||
(Unaudited) | ||||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | 2,631,086 | $ | 36,657,521 | ||||||
Net realized gains/(losses) on investments | (142,304,306 | ) | 67,995,002 | |||||||
Change in unrealized appreciation/depreciation on investments | (42,245,429 | ) | 216,503,602 | |||||||
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Change in net assets resulting from operations | (181,918,649 | ) | 321,156,125 | |||||||
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Distributions to Shareholders: | ||||||||||
Distributions | — | (151,907,604 | ) | |||||||
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Change in net assets resulting from distributions to shareholders | — | (151,907,604 | ) | |||||||
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Capital Transactions: | ||||||||||
Proceeds from shares issued | 11,498,954 | 3,564,659 | ||||||||
Proceeds from dividends reinvested | — | 151,907,604 | ||||||||
Value of shares redeemed | (110,748,565 | ) | (245,681,448 | ) | ||||||
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Change in net assets resulting from capital transactions | (99,249,611 | ) | (90,209,185 | ) | ||||||
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Change in net assets | (281,168,260 | ) | 79,039,336 | |||||||
Net Assets: | ||||||||||
Beginning of period | 2,032,769,808 | 1,953,730,472 | ||||||||
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End of period | $ | 1,751,601,548 | $ | 2,032,769,808 | ||||||
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Share Transactions: | ||||||||||
Shares issued | 1,131,480 | 323,892 | ||||||||
Dividends reinvested | — | 14,426,173 | ||||||||
Shares redeemed | (10,744,527 | ) | (22,048,837 | ) | ||||||
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Change in shares | (9,613,047 | ) | (7,298,772 | ) | ||||||
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Amounts shown as “—” are either $0 or rounds to less than $1.
See accompanying notes to the financial statements.
4
AZL MVP Fusion Dynamic Moderate Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Six Months Ended June 30, 2020 | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2016 | Year Ended December 31, 2015 | |||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 11.16 | $ | 10.31 | $ | 11.97 | $ | 11.60 | $ | 12.15 | $ | 13.05 | ||||||||||||||||||
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Investment Activities: | ||||||||||||||||||||||||||||||
Net Investment Income/(Loss) | 0.01 | (a) | 0.20 | (a) | 0.21 | 0.12 | 0.18 | 0.22 | ||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (1.02 | ) | 1.53 | (0.93 | ) | 1.46 | 0.32 | (0.45 | ) | |||||||||||||||||||||
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Total from Investment Activities | (1.01 | ) | 1.73 | (0.72 | ) | 1.58 | 0.50 | (0.23 | ) | |||||||||||||||||||||
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Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Net Investment Income | — | (0.29 | ) | (0.14 | ) | (0.20 | ) | (0.27 | ) | (0.17 | ) | |||||||||||||||||||
Net Realized Gains | — | (0.59 | ) | (0.80 | ) | (1.01 | ) | (0.78 | ) | (0.50 | ) | |||||||||||||||||||
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Total Dividends | — | (0.88 | ) | (0.94 | ) | (1.21 | ) | (1.05 | ) | (0.67 | ) | |||||||||||||||||||
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Net Asset Value, End of Period | $ | 10.15 | $ | 11.16 | $ | 10.31 | $ | 11.97 | $ | 11.60 | $ | 12.15 | ||||||||||||||||||
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Total Return(b) | (9.05 | )%(c) | 17.31 | % | (6.46 | )% | 13.98 | % | 4.29 | % | (1.71 | )% | ||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 1,751,602 | $ | 2,032,770 | $ | 1,953,730 | $ | 2,361,486 | $ | 2,336,333 | $ | 2,466,434 | ||||||||||||||||||
Net Investment Income/(Loss)(d) | 0.29 | % | 1.81 | % | 1.66 | % | 0.90 | % | 1.38 | % | 1.61 | % | ||||||||||||||||||
Expenses Before Reductions*(d)(e) | 0.22 | % | 0.22 | % | 0.22 | % | 0.22 | % | 0.22 | % | 0.22 | % | ||||||||||||||||||
Expenses Net of Reductions*(d) | 0.22 | % | 0.22 | % | 0.22 | % | 0.22 | % | 0.22 | % | 0.22 | % | ||||||||||||||||||
Portfolio Turnover Rate | 14 | %(c) | 12 | % | 18 | % | 17 | % | 58 | % | 13 | % |
* | The expense ratios exclude the impact of fees/expenses paid by each underlying fund. |
(a) | Calculated using the average shares method. |
(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.
5
AZL MVP Fusion Dynamic Moderate Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
1. Organization
The Allianz Variable Insurance Products Fund of Funds Trust (the “Trust”) was organized as a Delaware statutory trust on June 16, 2004. 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 12 separate investment portfolios (collectively, the “Funds”), of which one is included in this report, the AZL MVP Fusion Dynamic Moderate Fund (the “Fund”), and 11 are presented in separate reports.
The Fund is a “fund of funds”, which means that the Fund invests primarily in other mutual funds (the “Underlying 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 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 that 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.
Distributions to Shareholders
Distributions 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 distributions 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. Distributions 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 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 period ended June 30, 2020, the Fund did not engage in any Rule 17a-7 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. The Fund’s allocation to the MVP (Managed Volatility Portfolio) risk management process may include (a) derivatives such as index futures, other futures contracts, options, and other similar securities and (b) cash, money market equivalents, short-term debt instruments, money
6
AZL MVP Fusion Dynamic Moderate Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
market funds, and short-term debt funds to satisfy all applicable margin requirements and to provide additional portfolio liquidity to satisfy large redemptions and any margin calls. Due to the leverage provided by derivatives, the notional value of the Fund’s derivative positions could exceed 20% of the Fund’s value. The Fund may also use futures to gain equity exposure and may hold cash as a buffer in the event of market shocks.
Futures Contracts
During the period ended June 30, 2020, the Fund invested in futures contracts to reduce volatility and limit the need to decrease or increase allocations to underlying funds. 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 period ended June 30, 2020, the monthly average notional amount for long contracts was $65.6 million, the monthly average notional amount for short contracts was $318.3 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 June 30, 2020:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value* | Statement of Assets and Liabilities Location | Total Fair Value* | ||||||||
Equity Risk | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 7,138,561 | Payable for variation margin on futures contracts | $ | — | ||||||
Interest Rate Risk | ||||||||||||
Interest Rate Contracts | Receivable for variation margin on futures contracts | 149,711 | Payable for variation margin on futures contracts | — |
* | For futures contracts, the amounts represent the cumulative appreciation/depreciation of these futures contracts as reported in the Schedule of Portfolio Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities as variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the period ended June 30, 2020:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives | 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 | $ | (101,726,419 | ) | $ | 5,535,130 | ||||
Interest Rate Risk | ||||||||||
Interest Rate Contracts | Net realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | 2,752,649 | 483,892 |
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, 2021. Expenses incurred for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.”
For the period ended June 30, 2020, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL MVP Fusion Dynamic Moderate Fund | 0.20 | % | 0.30 | % |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At June 30, 2020, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations. During the period ended June 30, 2020, there were no voluntary waivers.
7
AZL MVP Fusion Dynamic Moderate Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
The Manager or an affiliate of the Manager serves as the investment adviser of certain underlying funds in which the Fund invests. At June 30, 2020, 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 period ended June 30, 2020 is as follows:
Fair Value 12/31/2019 | Purchases at Cost | Proceeds from Sales | Net Realized Gains(Losses) | Change in Net Unrealized | Fair Value 6/30/2020 | Shares as of 6/30/2020 | Dividend Income | Net Realized Gains Distributions from Affiliated Underlying Funds | |||||||||||||||||||||||||||||||||||||
AZL DFA International Core Equity Fund | $ | 103,959,527 | $ | 8,503,405 | $ | (10,777,737 | ) | $ | (1,594,914 | ) | $ | (12,512,667 | ) | $ | 87,577,614 | 9,634,501 | $ | — | $ | — | |||||||||||||||||||||||||
AZL DFA U.S. Core Equity Fund | 52,895,531 | 3,102,295 | (7,634,061 | ) | 1,110,233 | (4,646,336 | ) | 44,827,662 | 3,552,113 | — | — | ||||||||||||||||||||||||||||||||||
AZL DFA U.S. Small Cap Fund | 42,367,271 | 5,424,536 | (6,931,751 | ) | (1,000,809 | ) | (4,773,545 | ) | 35,085,702 | 3,650,958 | — | — | |||||||||||||||||||||||||||||||||
AZL Enhanced Bond Index Fund | 123,582,972 | 7,149,966 | (27,992,071 | ) | 1,425,123 | 5,036,630 | 109,202,620 | 9,199,884 | — | — | |||||||||||||||||||||||||||||||||||
AZL FIAM Total Bond Fund, Class 2 | 163,943,769 | 7,600,272 | (32,359,743 | ) | 1,636,101 | 4,031,451 | 144,851,850 | 13,228,479 | — | — | |||||||||||||||||||||||||||||||||||
AZL Gateway Fund | 51,329,735 | 5,919,207 | (9,337,091 | ) | (162,548 | ) | (1,782,350 | ) | 45,966,953 | 3,422,707 | — | — | |||||||||||||||||||||||||||||||||
AZL International Index Fund, Class 2 | 225,217,977 | 14,298,106 | (37,787,086 | ) | (4,007,650 | ) | (23,231,022 | ) | 174,490,325 | 11,734,386 | — | — | |||||||||||||||||||||||||||||||||
AZL MetWest Total Return Bond Fund | 162,706,692 | 10,167,583 | (35,980,408 | ) | 2,708,451 | 5,742,953 | 145,345,271 | 13,012,110 | — | — | |||||||||||||||||||||||||||||||||||
AZL Mid Cap Index Fund, Class 2 | 144,714,820 | 19,090,762 | (59,083,076 | ) | (20,302,545 | ) | 249,149 | 84,669,110 | 4,449,244 | — | — | ||||||||||||||||||||||||||||||||||
AZL MSCI Emerging Markets Equity Index Fund, Class 2 | 114,057,804 | 4,853,143 | (32,440,146 | ) | (3,776,342 | ) | (10,876,619 | ) | 71,817,840 | 10,186,928 | — | — | |||||||||||||||||||||||||||||||||
AZL Russell 1000 Growth Index Fund, Class 2 | 154,775,150 | 55,915,404 | (39,577,924 | ) | 2,463,476 | 13,892,780 | 187,468,886 | 10,657,697 | — | — | |||||||||||||||||||||||||||||||||||
AZL Russell 1000 Value Index Fund, Class 2 | 226,347,328 | 66,363,546 | (37,010,827 | ) | (10,333,982 | ) | (23,001,550 | ) | 222,364,515 | 20,325,824 | — | — | |||||||||||||||||||||||||||||||||
AZL Small Cap Stock Index Fund, Class 2 | 62,786,012 | 8,389,013 | (24,210,571 | ) | (14,879,291 | ) | 2,804,655 | 34,889,818 | 3,218,618 | — | — | ||||||||||||||||||||||||||||||||||
PIMCO VIT Income Portfolio | 81,312,237 | 3,446,319 | (13,827,879 | ) | 283,541 | (3,837,670 | ) | 67,376,548 | 6,466,079 | 2,163,948 | 212,821 | ||||||||||||||||||||||||||||||||||
PIMCO VIT Low Duration Portfolio | 59,993,262 | 2,702,107 | (13,348,488 | ) | (52,275 | ) | 656,887 | 49,951,493 | 4,835,575 | 443,990 | — | ||||||||||||||||||||||||||||||||||
PIMCO VIT Total Return Portfolio | 162,049,512 | 13,645,456 | (35,549,918 | ) | 1,300,757 | 3,982,803 | 145,428,610 | 12,723,413 | 1,743,037 | 1,639,317 | |||||||||||||||||||||||||||||||||||
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$ | 1,932,039,599 | $ | 236,571,120 | $ | (423,848,777 | ) | $ | (45,182,674 | ) | $ | (48,264,451 | ) | $ | 1,651,314,817 | 140,298,516 | $ | 4,350,975 | $ | 1,852,138 | ||||||||||||||||||||||||||
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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 SEC. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the 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 fee, accrued daily and paid monthly. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair values 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 Trust-wide annual fee of $7,500, 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 period ended June 30, 2020, $10,442 was paid from the Fund relating to these fees and expenses.
8
AZL MVP Fusion Dynamic Moderate Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
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 Trust, each non-interested Trustee receives a $182,500 annual Board retainer, the Lead Director receives an additional $45,625, the Chair of the Nominating and Corporate Governance Committee receives an additional $9,125 annually and the Chair of the Audit Committee receives an additional $9,125 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 Trust in proportion to the assets under management of each trust. During the period ended June 30, 2020, actual Trustee compensation was $579,438 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 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.
The following is a summary of the valuation inputs used as of June 30, 2020 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 | $ | 1,651,314,817 | $ | — | $ | — | $ | 1,651,314,817 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investment Securities | 1,651,314,817 | — | — | 1,651,314,817 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | 7,288,272 | — | �� | — | 7,288,272 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investments | $ | 1,658,603,089 | $ | — | $ | — | $ | 1,658,603,089 | ||||||||||||
|
|
|
|
|
|
|
|
* | Other Financial Instruments would include any derivative instruments, such as futures contracts. These investments are generally presented in the financial statements at variation margin. |
5. Security Purchases and Sales
For the period ended June 30, 2020, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL MVP Fusion Dynamic Moderate Fund | $ | 236,571,122 | $ | 423,848,779 |
6. Investment Risks
The risks below are presented in an order intended to facilitate readability. Their order does not imply that the realization of one risk is more likely to occur more frequently than another risk, nor does it imply that the realization of one risk is likely to have a greater adverse impact than another risk.
Derivatives Risk: The Fund may invest directly or through affiliated or unaffiliated mutual funds or unregistered investment pools in derivative instruments such as futures, options, and options on futures. 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 other party to a derivatives contract could default.
Fund of Fund 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.
Market Risk: The market price of securities owned by the underlying funds may go up or down, sometimes rapidly and unpredictably. Securities may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of a security may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment, as well as natural disasters, and outbreaks of infectious illnesses or other widespread public health issues.
9
AZL MVP Fusion Dynamic Moderate Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
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, 2019 was $1,776,091,313. The gross unrealized appreciation/(depreciation) on a tax basis was as follows:
Unrealized appreciation | $ | 165,752,137 | ||
Unrealized (depreciation) | (9,803,851 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 155,948,286 | ||
|
|
The tax character of dividends paid to shareholders during the year ended December 31, 2019 was as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL MVP Fusion Dynamic Moderate Fund | $ | 50,630,469 | $ | 101,277,135 | $ | 151,907,604 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends were recognized when actually paid for tax purposes. |
At December 31, 2019, 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 MVP Fusion Dynamic Moderate Fund | $ | 45,116,889 | $ | 61,329,766 | $ | — | $ | 155,948,286 | $ | 262,394,941 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation was attributable primarily to tax deferral of losses on wash sales and mark-to-market of futures contracts. |
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 June 30, 2020, the Fund had an individual shareholder account which is affiliated with the Manager representing ownership in excess of 85% of the Fund. Investment activities of these shareholders could have a material impact to the Fund.
9. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
10
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-PORT. 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.
11
Statement Regarding the Trust’s Liquidity Risk Management Program (Unaudited)
Each series (each such series a “Fund” and, together, the “Funds”) of the Allianz Variable Insurance Products Trust, but not the AZL Government Money Market Fund, and of the Allianz Variable Insurance Products Fund of Funds Trust (each such trust a “Trust” and, together, the “Trusts”) has adopted and implemented a written liquidity risk management program (the “Program”) pursuant to Rule 22e-4 under the Investment Company Act of 1940 (the “Liquidity Rule”). The Program includes policies and procedures reasonably designed to assess and manage each Fund’s liquidity risk (the “risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund”) and to comply with the requirements of the Liquidity Rule, including: (i) assessment, management and periodic review of liquidity risk; (ii) classification of portfolio holdings; (iii) establishment of a highly liquid investment minimum (“HLIM”); (iv) limitation of illiquid investments; and (v) redemptions in-kind.
The Board of Trustees of each Fund (together, the “Board”) approved the designation of the individual officers of the Trusts who serve as the administrators of the Program (the “Program Administrators”). The Program Administrators oversee the monitoring of liquidity and liquidity risk for each Fund on an ongoing basis.
At a meeting of the Board held on February 18, 2020, the Program Administrators provided a written report (the “Report”) to the Board addressing the operation of the Program and assessing its adequacy and effectiveness of implementation for the annual period from January 1, 2019 through December 31, 2019 (the “Reporting Period”). This Report included an overview of the Program and conclusions with respect to the adequacy of the policies and procedures of the Program and the effectiveness of Program implementation. The Report took into account the following factors enumerated in the Liquidity Rule and identified in the Program, as applicable:
1) Each Fund’s investment strategy and liquidity of portfolio investments during both normal and reasonably foreseeable stressed conditions, including: (i) whether the Fund’s investment strategy is appropriate for an open-end fund; (ii) the extent to which the Fund’s strategy involves a relatively concentrated portfolio or large positions in particular issuers; and, as applicable, (iii) the Fund’s use of borrowings for investment purposes; and (iv) the Fund’s use of derivatives;
2) Short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions; and
3) Holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources.
Based on the information considered, the Report concluded that each Fund continues to have an investment strategy that is appropriate for an open-end fund, and that each Fund is reasonably likely to be able to meet redemption requests without significant dilution of remaining shareholders’ interests in the Fund.
In accordance with the Program, each Fund’s portfolio investments were classified into one of four liquidity categories as provided in the Liquidity Rule as applicable during the Reporting Period. Liquidity classification determinations take into account a variety of factors including market, trading and investment-specific considerations, as well as market depth in accordance with the requirements of the Liquidity Rule and as specified in the Program, and generally incorporate analysis from a third-party data vendor.
Pursuant to the Liquidity Rule, no Fund may acquire any illiquid investment if, after the acquisition, the Fund would have invested more than 15% of its assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with the 15% limit on illiquid investments. During the Reporting Period, no Fund breached the 15% limit on illiquid investments.
During the Reporting Period, each Fund maintained a designated HLIM. The Program Administrators reviewed each Fund’s HLIM and concluded that no changes were recommended. During the Reporting Period, no Fund fell below its approved HLIM. The Program includes provisions reasonably designed to comply with the HLIM for each Fund.
On the basis of the review, the Report concluded that: (i) the Program remains reasonably designed to manage each Fund’s liquidity risk; (ii) the Program was implemented and operated effectively to achieve the goal of assessing and managing each Fund’s liquidity risk during the Reporting Period; and (iii) each Fund was able to meet requests for redemption without significant dilution of remaining investors in the Fund during the Reporting Period. The Program Administrators did not recommend any material changes to the Program.
12
The Allianz VIP Fund of Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | SARRPT0620 08/20 |
AZL® MVP Global Balanced Index Strategy Fund
Semi-Annual Report
June 30, 2020
(Unaudited)
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 MVP Global Balanced Index Strategy Fund
(Unaudited)
As a shareholder of the AZL MVP Global Balanced 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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP Global Balanced Index Strategy Fund | $ | 1,000.00 | $ | 962.30 | $ | 0.63 | 0.13 | % |
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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP Global Balanced Index Strategy Fund | $ | 1,000.00 | $ | 1,024.22 | $ | 0.65 | 0.13 | % |
* | Expenses are equal to the average account value multiplied by the Fund’s annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Common Stocks | — | † | |||
Preferred Stocks | 0.1 | % | |||
Private Placements | 0.2 | ||||
Convertible Bond | — | † | |||
Yankee Dollars | 0.1 | ||||
Fixed Income Funds | 46.1 | ||||
International Equity Funds | 49.1 | ||||
|
| ||||
Total Investment Securities | 95.6 | ||||
Net other assets (liabilities) | 4.4 | ||||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
† | Represents less than 0.05%. |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
United States | 95.5 | % | |||
Australia | 0.1 | ||||
India | — | † | |||
|
| ||||
Total Investment Securities | 95.6 | ||||
Net other assets (liabilities) | 4.4 | ||||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
† | Represents less than 0.05%. |
1
AZL MVP Global Balanced Index Strategy Fund
Schedule of Portfolio Investments
June 30, 2020 (Unaudited)
Contracts, | Fair Value | |||||||
Common Stocks (0.0%†): | ||||||||
Oil, Gas & Consumable Fuels (0.0%†): | ||||||||
3,485 | Fieldwood Energy LLC(a) | $ | 3 | |||||
|
| |||||||
Paper & Forest Products (0.0%†): | ||||||||
386,370 | Quintis Pty, Ltd.(a)(b) | 205,248 | ||||||
|
| |||||||
Total Common Stocks (Cost $344,279) | 205,251 | |||||||
|
| |||||||
Preferred Stock (0.1%): | ||||||||
Health Care Providers & Services (0.1%): | ||||||||
143,925 | Grand Rounds, Inc., Series C(a)(b) | 533,962 | ||||||
|
| |||||||
Total Preferred Stock (Cost $400,112) | 533,962 | |||||||
|
| |||||||
Private Placements (0.2%): | ||||||||
Household Durables (0.0%†): | ||||||||
23,389 | Jawbone, 0.00%(a)(b) | — | ||||||
|
| |||||||
Internet Software & Services (0.1%): | ||||||||
5,547 | Lookout, Inc., 0.00%(a)(b) | 27,014 | ||||||
63,925 | Lookout, Inc. Preferred Shares, Series F, 0.00%(a)(b) | 712,764 | ||||||
|
| |||||||
739,778 | ||||||||
|
| |||||||
Software (0.1%): | ||||||||
116,157 | Palantir Technologies, Inc., Series I, 0.00%*(a)(b) | 797,998 | ||||||
|
| |||||||
Total Private Placements (Cost $1,173,028) | 1,537,776 | |||||||
|
| |||||||
Convertible Bond (0.0%†): | ||||||||
Food Products (0.0%†): | ||||||||
400,000 | REI Agro, Ltd., Registered Shares, 5.50%, 12/8/19(a)(b)(c) | — | ||||||
|
| |||||||
Total Convertible Bond (Cost $—) | — | |||||||
|
|
Contracts, Shares, Notional Amount or Principal Amount | Fair Value | |||||||
Yankee Dollars (0.1%): | ||||||||
Paper & Forest Products (0.1%): | ||||||||
44,735 | Quintis Pty, Ltd., 7.50%, 10/1/26, Callable 10/1/21 @ 105.63(a)(b) | $ | 44,735 | |||||
730,672 | Quintis Pty, Ltd., 0.00%, 10/1/28, Callable 8/7/20 @ 92(a)(b) | 730,672 | ||||||
|
| |||||||
Total Yankee Dollars (Cost $775,407) | 775,407 | |||||||
|
| |||||||
Affiliated Investment Companies (95.2%): | ||||||||
Fixed Income Funds (46.1%): | ||||||||
26,318,754 | AZL Enhanced Bond Index Fund | 312,403,614 | ||||||
|
| |||||||
International Equity Funds (49.1%): | ||||||||
5,205,739 | AZL MSCI Emerging Markets Equity Index Fund, Class 2 | 36,700,457 | ||||||
25,204,833 | AZL MSCI Global Equity Index Fund | 297,164,983 | ||||||
|
| |||||||
333,865,440 | ||||||||
|
| |||||||
Total Affiliated Investment Companies (Cost $607,566,703) | 646,269,054 | |||||||
|
| |||||||
Total Investment Securities (Cost $610,259,529) —95.6% | 649,321,450 | |||||||
Net other assets (liabilities) — 4.4% | 30,097,900 | |||||||
|
| |||||||
Net Assets — 100.0% | $ | 679,419,350 | ||||||
|
|
Percentages indicated are based on net assets as of June 30, 2020.
† | Represents less than 0.05%. |
* | Non-income producing security. |
(a) | Rule 144A, Section 4(2) or other security which is restricted to resale to institutional investors. The sub-adviser has deemed these securities to be illiquid based on procedures approved by the Board of Trustees. As of June 30, 2020, these securities represent 0.45% of the net assets of the fund. |
(b) | Security was valued using unobservable inputs in good faith pursuant to procedures approved by the Board of Trustees as of June 30, 2020. The total of all such securities represent 0.45% of the net assets of the fund. |
(c) | Defaulted bond. |
Amounts shown as “—” are either $0 or rounds to less than $1.
Futures Contracts
Cash of $30,040,160 has been segregated to cover margin requirements for the following open contracts as of June 30, 2020:
Short Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
S&P 500 Index E-Mini September Futures (U.S. Dollar) | 9/18/20 | 373 | $ | (57,632,230 | ) | $ | 121,004 | |||||||||
|
| |||||||||||||||
$ | 121,004 | |||||||||||||||
|
|
See accompanying notes to the financial statements.
2
AZL MVP Global Balanced Index Strategy Fund
Schedule of Portfolio Investments
June 30, 2020 (Unaudited)
Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
U.S. Treasury 10-Year Note September Futures (U.S. Dollar) | 9/21/20 | 110 | $ | 15,308,906 | $ | 53,564 | ||||||||||
|
| |||||||||||||||
$ | 53,564 | |||||||||||||||
|
| |||||||||||||||
Total Net Futures Contracts | $ | 174,568 | ||||||||||||||
|
|
See accompanying notes to the financial statements.
3
AZL MVP Global Balanced Index Strategy Fund
Statement of Assets and Liabilities
June 30, 2020
(Unaudited)
Assets: | |||||
Investment in non-affiliates, at cost | $ | 2,692,826 | |||
Investments in affiliates, at cost | 607,566,703 | ||||
|
| ||||
Investment in non-affiliates, at value | $ | 3,052,396 | |||
Investments in affiliates, at value | 646,269,054 | ||||
Segregated cash for collateral for futures contracts | 30,040,160 | ||||
Interest and dividends receivable | 3,608 | ||||
Receivable for investments sold | 290,262 | ||||
Reclaims receivable | 137,483 | ||||
Prepaid expenses | 1,732 | ||||
|
| ||||
Total Assets | 679,794,695 | ||||
|
| ||||
Liabilities: | |||||
Cash overdraft | 56,944 | ||||
Payable for capital shares redeemed | 206,578 | ||||
Payable for variation margin on futures contracts | 27,919 | ||||
Manager fees payable | 55,834 | ||||
Administration fees payable | 4,574 | ||||
Custodian fees payable | 787 | ||||
Administrative and compliance services fees payable | 772 | ||||
Transfer agent fees payable | 552 | ||||
Trustee fees payable | 4,766 | ||||
Other accrued liabilities | 16,619 | ||||
|
| ||||
Total Liabilities | 375,345 | ||||
|
| ||||
Net Assets | $ | 679,419,350 | |||
|
| ||||
Net Assets Consist of: | |||||
Paid in capital | $ | 572,803,308 | |||
Total distributable earnings | 106,616,042 | ||||
|
| ||||
Net Assets | $ | 679,419,350 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 54,361,302 | ||||
Net Asset Value (offering and redemption price per share) | $ | 12.50 | |||
|
|
For the Six Months Ended June 30, 2020
(Unaudited)
Investment Income: | |||||
Dividends from non-affiliates | $ | 2,004 | |||
Interest | 109,897 | ||||
Foreign tax reclaims received | 50,692 | ||||
|
| ||||
Total Investment Income | 162,593 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 349,637 | ||||
Administration fees | 33,208 | ||||
Custodian fees | 3,573 | ||||
Administrative and compliance services fees | 6,447 | ||||
Transfer agent fees | 2,758 | ||||
Trustee fees | 20,405 | ||||
Professional fees | 16,943 | ||||
Shareholder reports | 18,548 | ||||
Other expenses | 4,930 | ||||
|
| ||||
Total expenses | 456,449 | ||||
|
| ||||
Net Investment Income/(Loss) | (293,856 | ) | |||
|
| ||||
Net realized and Change in net unrealized gains/losses on investments | |||||
Net realized gains/(losses) on securities and foreign currencies | 30,510 | ||||
Net realized gains/(losses) on affiliated underlying funds | 11,913,011 | ||||
Net realized gains/(losses) on futures contracts | (27,251,955 | ) | |||
Change in net unrealized appreciation/depreciation on securities and foreign currencies | 355,212 | ||||
Change in net unrealized appreciation/depreciation on affiliated underlying funds | (13,726,901 | ) | |||
Change in net unrealized appreciation/depreciation on futures contracts | (169,849 | ) | |||
|
| ||||
Net realized and Change in net unrealized gains/losses on investments | (28,849,972 | ) | |||
|
| ||||
Change in Net Assets Resulting From Operations | $ | (29,143,828 | ) | ||
|
|
See accompanying notes to the financial statements.
4
AZL MVP Global Balanced Index Strategy Fund
Statements of Changes in Net Assets
For the Six Months Ended June 30, 2020 | For the Year Ended December 31, 2019* | |||||||||
(Unaudited) | ||||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | (293,856 | ) | $ | 10,659,343 | |||||
Net realized gains/(losses) on investments | (15,308,434 | ) | 56,024,122 | |||||||
Change in unrealized appreciation/depreciation on investments | (13,541,538 | ) | 46,721,913 | |||||||
Accumulated Deconsolidation Impact (See Note 2 — Consolidation of Subsidiaries) | — | (13,242,308 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | (29,143,828 | ) | 100,163,070 | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
Distributions | — | (28,337,333 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | — | (28,337,333 | ) | |||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 282,544 | 2,490,030 | ||||||||
Proceeds from dividends reinvested | — | 28,337,333 | ||||||||
Value of shares redeemed | (55,424,844 | ) | (87,679,100 | ) | ||||||
Accumulated Deconsolidation Impact (See Note 2 – Consolidation of Subsidiaries) | — | 13,242,308 | ||||||||
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Change in net assets resulting from capital transactions | (55,142,300 | ) | (43,609,429 | ) | ||||||
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| |||||||
Change in net assets | (84,286,128 | ) | 28,216,308 | |||||||
Net Assets: | ||||||||||
Beginning of period | 763,705,478 | 735,489,170 | ||||||||
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End of period | $ | 679,419,350 | $ | 763,705,478 | ||||||
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Share Transactions: | ||||||||||
Shares issued | 20,029 | 186,561 | ||||||||
Dividends reinvested | — | 2,287,113 | ||||||||
Shares redeemed | (4,461,388 | ) | (6,959,356 | ) | ||||||
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| |||||||
Change in shares | (4,441,359 | ) | (4,485,682 | ) | ||||||
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* | Amounts are consolidated through December 6, 2019. (See Note 2 — Consolidation of Subsidiaries.) |
Amounts | shown as “—” are either $0 or rounds to less than $1. |
See accompanying notes to the financial statements.
5
AZL MVP Global Balanced Index Strategy Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Six Months Ended June 30, 2020 | Year Ended December 31, 2019† | Year Ended December 31, 2018 | �� | Year Ended December 31, 2017 | Year Ended December 31, 2016 | Year Ended December 31, 2015 | ||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 12.99 | $ | 11.62 | $ | 12.59 | $ | 11.33 | $ | 11.69 | $ | 12.22 | ||||||||||||||||||
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Investment Activities: | ||||||||||||||||||||||||||||||
Net Investment Income/(Loss) | (0.01 | )(a) | 0.18 | (a) | 0.18 | 0.11 | 0.10 | 0.07 | ||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (0.48 | ) | 1.68 | (0.90 | ) | 1.20 | 0.27 | (0.26 | ) | |||||||||||||||||||||
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Total from Investment Activities | (0.49 | ) | 1.86 | (0.72 | ) | 1.31 | 0.37 | (0.19 | ) | |||||||||||||||||||||
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Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Net Investment Income | — | (0.23 | ) | (0.18 | ) | (0.05 | ) | (0.31 | ) | (0.14 | ) | |||||||||||||||||||
Net Realized Gains | — | (0.26 | ) | (0.07 | ) | — | (0.42 | ) | (0.20 | ) | ||||||||||||||||||||
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Total Dividends | — | (0.49 | ) | (0.25 | ) | (0.05 | ) | (0.73 | ) | (0.34 | ) | |||||||||||||||||||
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Net Asset Value, End of Period | $ | 12.50 | $ | 12.99 | $ | 11.62 | $ | 12.59 | $ | 11.33 | $ | 11.69 | ||||||||||||||||||
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Total Return(b) | (3.77 | )%(c) | 16.20 | % | (5.77 | )% | 11.54 | % | 3.34 | % | (1.57 | )% | ||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 679,419 | $ | 763,705 | $ | 735,489 | $ | 834,164 | $ | 814,519 | $ | 830,363 | ||||||||||||||||||
Net Investment Income/(Loss)(d) | (0.08 | )% | 1.40 | % | 1.43 | % | 0.97 | % | 0.85 | % | 0.67 | % | ||||||||||||||||||
Expenses Before Reductions*(d)(e) | 0.13 | % | 0.66 | % | 0.69 | % | 0.71 | % | 1.11 | % | 1.18 | % | ||||||||||||||||||
Expenses Net of Reductions*(d) | 0.13 | % | 0.66 | % | 0.69 | % | 0.71 | % | 1.11 | % | 1.18 | % | ||||||||||||||||||
Portfolio Turnover Rate | 6 | %(c) | 103 | %(f) | 39 | % | 40 | % | 91 | % | 64 | % |
* | The expense ratios exclude the impact of fees/expenses paid by each underlying fund. |
† | The amounts shown, where applicable, are consolidated through December 6, 2019. (See Note 2—Consolidation of Subsidiaries.) |
(a) | Calculated using the average shares method. |
(b) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. |
(c) | Not annualized for periods less than one year. |
(d) | Annualized for periods less than one year. |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
(f) | Portfolio turnover increased significantly during the year due to change in investment strategy of the Fund. |
See accompanying notes to the financial statements.
6
AZL MVP Global Balanced Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
1. Organization
The Allianz Variable Insurance Products Fund of Funds Trust (the “Trust”) was organized as a Delaware statutory trust on June 16, 2004. 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 12 separate investment portfolios (collectively, the “Funds”), of which one is included in this report, the AZL MVP Global Balanced Index Strategy Fund (the “Fund”), and 11 are presented in separate reports.
The Fund is a “fund of funds”, which means that the Fund invests primarily in other mutual funds (the “Underlying 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 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 that 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.
Consolidation of Subsidiaries
Prior to December 6, 2019, the Fund primarily invested in shares of another mutual fund managed by the Manager, the AZL BlackRock Global Allocation Fund (the “VIP Subsidiary”), a wholly-owned and controlled subsidiary of the Fund. Effective December 6, 2019, the VIP Subsidiary was liquidated. The Fund’s Statements of Changes in Net Assets and Financial Highlights are consolidated to include the activity of the VIP Subsidiary through the period ended December 6, 2019. All intercompany transactions during this period have been eliminated. The accumulated deconsolidation impact related to income and gain/loss recorded in connection with the deconsolidation is disclosed on the Fund’s Consolidated Statements of Change in Net Assets.
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 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 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.
Distributions to Shareholders
Distributions 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 distributions 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. Distributions to shareholders that exceed net investment income and net realized gains for tax purposes are reported as distributions of capital.
7
AZL MVP Global Balanced Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
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 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 period ended June 30, 2020, the Fund did not engage in any Rule 17a-7 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. The Fund’s allocation to the MVP (Managed Volatility Portfolio) risk management process may include (a) derivatives such as index futures, other futures contracts, options, and other similar securities and (b) cash, money market equivalents, short-term debt instruments, money market funds, and short-term debt funds to satisfy all applicable margin requirements and to provide additional portfolio liquidity to satisfy large redemptions and any margin calls. Due to the leverage provided by derivatives, the notional value of the Fund’s derivative positions could exceed 20% of the Fund’s value. The Fund may also use futures to gain equity exposure and may hold cash as a buffer in the event of market shocks.
Futures Contracts
During the period ended June 30, 2020, the Fund invested in futures contracts to reduce volatility and limit the need to decrease or increase allocations to underlying funds. 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 period ended June 30, 2020, the monthly average notional amount for long contracts was $24.9 million, the monthly average notional amount for short contracts was $83.0 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 June 30, 2020:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value* | Statement of Assets and Liabilities Location | Total Fair Value* | ||||||||
Equity Risk | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 121,004 | Payable for variation margin on futures contracts | $ | — | ||||||
Interest Rate Risk | ||||||||||||
Interest Rate Contracts | Receivable for variation margin on futures contracts | 53,564 | Payable for variation margin on futures contracts | — |
* | For futures contracts, the amounts represent the cumulative appreciation/depreciation of these futures contracts as reported in the Schedule of Portfolio Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities as variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the period ended June 30, 2020:
Primary Risk Exposure | Location of Gains/(Losses) on Derivatives Recognized | Realized Gains/(Losses) on Derivatives | 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 | $ | (28,530,858 | ) | $ | (377,709 | ) | |||
Interest Rate Risk | ||||||||||
Interest Rate Contracts | Net realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | 1,278,903 | 207,860 |
8
AZL MVP Global Balanced Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
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, 2021. Expenses incurred for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.”
For the period ended June 30, 2020, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL MVP Global Balanced Index Strategy Fund | 0.10 | % | 0.15 | % |
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 period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At June 30, 2020, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations. During the period ended June 30, 2020, there were no voluntary waivers.
The Manager or an affiliate of the Manager serves as the investment adviser of certain underlying funds in which the Fund invests. At June 30, 2020, 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 period ended June 30, 2020 is as follows:
Fair Value 12/31/2019 | Purchases at Cost | Proceeds from Sales | Net Realized Gains(Losses) | Change in Net Unrealized Appreciation/ Depreciation | Fair Value 6/30/2020 | Shares as of 6/30/2020 | Dividend Income | Net Realized Gains Distributions from Affiliated Underlying Funds | |||||||||||||||||||||||||||||||||||||
AZL Enhanced Bond Index Fund | $ | 357,164,200 | $ | — | $ | (63,806,054 | ) | $ | 3,282,403 | $ | 15,763,065 | $ | 312,403,614 | 26,318,754 | $ | — | $ | — | |||||||||||||||||||||||||||
AZL MSCI Global Equity Index Fund | 325,303,945 | 37,547,236 | (48,565,363 | ) | 8,771,663 | (25,892,498 | ) | 297,164,983 | 25,204,833 | — | — | ||||||||||||||||||||||||||||||||||
AZL MSCI Emerging Markets Equity Index Fund, Class 2 | 39,560,951 | 2,662,179 | (1,784,150 | ) | (141,055 | ) | (3,597,468 | ) | 36,700,457 | 5,205,739 | — | — | |||||||||||||||||||||||||||||||||
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$ | 722,029,096 | $ | 40,209,415 | $ | (114,155,567 | ) | $ | 11,913,011 | $ | (13,726,901 | ) | $ | 646,269,054 | 56,729,326 | $ | — | $ | — | |||||||||||||||||||||||||||
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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 SEC. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the 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 fee, accrued daily and paid monthly. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair values 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 Trust-wide annual fee of $7,500, 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 period ended June 30, 2020, $4,014 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 Trust, each non-interested Trustee receives a $182,500 annual Board retainer, the Lead Director receives an additional $45,625, the Chair of the Nominating and Corporate Governance Committee receives an additional $9,125 annually and the Chair of the Audit Committee receives an additional $9,125 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 Trust in proportion to the assets under management of each trust. During the period ended June 30, 2020, actual Trustee compensation was $579,438 in total for both trusts.
9
AZL MVP Global Balanced Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
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 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.
Debt and other fixed income securities are generally valued at an evaluated bid price provided by an independent pricing source approved by the Trustees. To value debt securities, pricing services may use various pricing techniques which take into account appropriate factors such as market activity, yield, quality, coupon rate, maturity, type of issue, trading characteristics, call features, credit ratings and other data, as well as broker quotes. Short-term securities of sufficient credit quality with sixty days or less remaining until maturity may be valued at amortized cost, which approximates fair value. In each of these situations, valuations are typically categorized as Level 2 in the fair value hierarchy.
Other assets and securities for which market quotations are not readily available, or are deemed unreliable are valued at fair value as determined in good faith by the Trustees or persons acting on the behalf of the Trustees. Fair value pricing may be used for significant events such as securities whose trading has been suspended, whose price has become stale or for which there is no currently available price at the close of the NYSE. Depending on the source and relative significance of valuation inputs, these instruments may be classified as Level 2 or Level 3 in the fair value hierarchy. The Fund utilizes a pricing service to assist in determining the fair value of securities when certain significant events occur that may affect the value of foreign securities.
In accordance with procedures adopted by the Trustees, fair value pricing may be used if events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Fund’s net asset value is calculated. Management identifies possible fluctuation in international securities by monitoring the increase or decrease in the value of a designated benchmark index. In the event of an increase or decrease greater than predetermined levels, the Fund may use a systematic valuation model provided by an independent third party to fair value its international equity securities which are then typically categorized as Level 2 in the fair value hierarchy.
The following is a summary of the valuation inputs used as of June 30, 2020 in valuing the Fund’s investments based upon the three levels defined above:
Investment Securities: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Common Stocks+ | $ | — | $ | 3 | $ | 205,248 | $ | 205,251 | ||||||||||||
Preferred Stocks+ | — | — | 533,962 | 533,962 | ||||||||||||||||
Private Placements+ | — | — | 1,537,776 | 1,537,776 | ||||||||||||||||
Convertible Bond+ | — | — | — | # | — | |||||||||||||||
Yankee Dollars+ | — | — | 775,407 | 775,407 | ||||||||||||||||
Affiliated Investment Companies | 646,269,054 | — | — | 646,269,054 | ||||||||||||||||
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Total Investment Securities | 646,269,054 | 3 | 3,052,393 | 649,321,450 | ||||||||||||||||
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Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | 174,568 | — | — | 174,568 | ||||||||||||||||
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Total Investments | $ | 646,443,622 | $ | 3 | $ | 3,052,393 | $ | 649,496,018 | ||||||||||||
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# | Represents the interest in securities that were determined to have a value of zero at June 30, 2020. |
* | Other Financial Instruments would include any derivative instruments, such as futures contracts. These investments are generally presented in the financial statements at variation margin. |
5. Security Purchases and Sales
For the period ended June 30, 2020, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL MVP Global Balanced Index Strategy Fund | $ | 40,211,135 | $ | 114,155,565 |
10
AZL MVP Global Balanced Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
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 June 30, 2020 are identified below:
Security | Acquisition Date(a) | Acquisition Cost | Shares or Principal Amount | Fair Value | Percentage of Net Assets | ||||||||||||||||||||
Fieldwood Energy LLC | 3/13/18 | $ | 81,305 | $ | 3,485 | $ | 3 | 0.00 | % | ||||||||||||||||
Grand Rounds, Inc., Series C | 3/31/15 | 399,608 | 143,925 | 533,962 | 0.08 | % | |||||||||||||||||||
Jawbone | 1/24/17 | — | 23,389 | — | 0.00 | % | |||||||||||||||||||
Lookout, Inc. | 3/4/15 | 63,364 | 5,547 | 27,014 | 0.00 | % | |||||||||||||||||||
Lookout, Inc. Preferred Shares, Series F | 9/19/14 | 730,222 | 63,925 | 712,764 | 0.11 | % | |||||||||||||||||||
Palantir Technologies, Inc., Series I | 3/27/14 | 712,042 | 116,157 | 797,998 | 0.11 | % | |||||||||||||||||||
Quintis Pty, Ltd. | 10/25/18 | 316,328 | 386,370 | 205,248 | 0.03 | % | |||||||||||||||||||
Quintis Pty, Ltd., 7.50%, 10/1/26, Callable 10/1/21 @ 105.63 | 10/25/18 | 43,878 | 44,735 | 44,735 | 0.01 | % | |||||||||||||||||||
Quintis Pty, Ltd., 10/1/28, Callable 8/7/20 @ 92.00 | 10/25/18 | 753,320 | 730,672 | 730,672 | 0.11 | % | |||||||||||||||||||
REI Agro, Ltd., Registered Shares, 5.50%, 12/8/19 | 2/7/12 | 300,000 | 400,000 | — | 0.00 | % |
(a) | Acquisition date represents the initial purchase date of the security. |
7. Investment Risks
The risks below are presented in an order intended to facilitate readability. Their order does not imply that the realization of one risk is more likely to occur more frequently than another risk, nor does it imply that the realization of one risk is likely to have a greater adverse impact than another risk.
Derivatives Risk: The Fund may invest directly or through affiliated or unaffiliated mutual funds or unregistered investment pools in derivative instruments such as futures, options, and options on futures. 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 other party to a derivatives contract could default.
Fund of Fund 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.
Market Risk: The market price of securities owned by the underlying funds may go up or down, sometimes rapidly and unpredictably. Securities may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of a security may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment, as well as natural disasters, and outbreaks of infectious illnesses or other widespread public health issues.
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, 2019 was $672,615,026. The gross unrealized appreciation/(depreciation) on a tax basis was as follows:
Unrealized appreciation | $ | 52,167,194 | ||
Unrealized (depreciation) | (50,381 | ) | ||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 52,116,813 | ||
|
|
11
AZL MVP Global Balanced Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
The tax character of dividends paid to shareholders during the year ended December 31, 2019 was as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL MVP Global Balanced Index Strategy Fund | $ | 13,128,660 | $ | 15,208,673 | $ | 28,337,333 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends were recognized when actually paid for tax purposes. |
At December 31, 2019, 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 MVP Global Balanced Index Strategy Fund | $ | 66,118,824 | $ | 17,499,504 | $ | — | $ | 52,141,542 | $ | 135,759,870 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation was 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 June 30, 2020, the Fund had an individual shareholder account which is affiliated with the Manager representing ownership in excess of 85% of the Fund. As of June 30, 2020, the Fund had a controlling interest in excess of 50% in the AZL MSCI Global Equity Index Fund, which is affiliated with the Manager. Investment activities of these shareholders could have a material impact to the Fund.
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.
12
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-PORT. 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.
13
Statement Regarding the Trust’s Liquidity Risk Management Program (Unaudited)
Each series (each such series a “Fund” and, together, the “Funds”) of the Allianz Variable Insurance Products Trust, but not the AZL Government Money Market Fund, and of the Allianz Variable Insurance Products Fund of Funds Trust (each such trust a “Trust” and, together, the “Trusts”) has adopted and implemented a written liquidity risk management program (the “Program”) pursuant to Rule 22e-4 under the Investment Company Act of 1940 (the “Liquidity Rule”). The Program includes policies and procedures reasonably designed to assess and manage each Fund’s liquidity risk (the “risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund”) and to comply with the requirements of the Liquidity Rule, including: (i) assessment, management and periodic review of liquidity risk; (ii) classification of portfolio holdings; (iii) establishment of a highly liquid investment minimum (“HLIM”); (iv) limitation of illiquid investments; and (v) redemptions in-kind.
The Board of Trustees of each Fund (together, the “Board”) approved the designation of the individual officers of the Trusts who serve as the administrators of the Program (the “Program Administrators”). The Program Administrators oversee the monitoring of liquidity and liquidity risk for each Fund on an ongoing basis.
At a meeting of the Board held on February 18, 2020, the Program Administrators provided a written report (the “Report”) to the Board addressing the operation of the Program and assessing its adequacy and effectiveness of implementation for the annual period from January 1, 2019 through December 31, 2019 (the “Reporting Period”). This Report included an overview of the Program and conclusions with respect to the adequacy of the policies and procedures of the Program and the effectiveness of Program implementation. The Report took into account the following factors enumerated in the Liquidity Rule and identified in the Program, as applicable:
1) Each Fund’s investment strategy and liquidity of portfolio investments during both normal and reasonably foreseeable stressed conditions, including: (i) whether the Fund’s investment strategy is appropriate for an open-end fund; (ii) the extent to which the Fund’s strategy involves a relatively concentrated portfolio or large positions in particular issuers; and, as applicable, (iii) the Fund’s use of borrowings for investment purposes; and (iv) the Fund’s use of derivatives;
2) Short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions; and
3) Holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources.
Based on the information considered, the Report concluded that each Fund continues to have an investment strategy that is appropriate for an open-end fund, and that each Fund is reasonably likely to be able to meet redemption requests without significant dilution of remaining shareholders’ interests in the Fund.
In accordance with the Program, each Fund’s portfolio investments were classified into one of four liquidity categories as provided in the Liquidity Rule as applicable during the Reporting Period. Liquidity classification determinations take into account a variety of factors including market, trading and investment-specific considerations, as well as market depth in accordance with the requirements of the Liquidity Rule and as specified in the Program, and generally incorporate analysis from a third-party data vendor.
Pursuant to the Liquidity Rule, no Fund may acquire any illiquid investment if, after the acquisition, the Fund would have invested more than 15% of its assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with the 15% limit on illiquid investments. During the Reporting Period, no Fund breached the 15% limit on illiquid investments.
During the Reporting Period, each Fund maintained a designated HLIM. The Program Administrators reviewed each Fund’s HLIM and concluded that no changes were recommended. During the Reporting Period, no Fund fell below its approved HLIM. The Program includes provisions reasonably designed to comply with the HLIM for each Fund.
On the basis of the review, the Report concluded that: (i) the Program remains reasonably designed to manage each Fund’s liquidity risk; (ii) the Program was implemented and operated effectively to achieve the goal of assessing and managing each Fund’s liquidity risk during the Reporting Period; and (iii) each Fund was able to meet requests for redemption without significant dilution of remaining investors in the Fund during the Reporting Period. The Program Administrators did not recommend any material changes to the Program.
14
The Allianz VIP Fund of Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | SARRPT0620 08/20 |
AZL® MVP Growth Index Strategy Fund
Semi-Annual Report
June 30, 2020
(Unaudited)
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 MVP Growth Index Strategy Fund
(Unaudited)
As a shareholder of the AZL MVP Growth 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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP Growth Index Strategy Fund | $ | 1,000.00 | $ | 907.00 | $ | 0.57 | 0.12 | % |
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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP Growth Index Strategy Fund | $ | 1,000.00 | $ | 1,024.27 | $ | 0.60 | 0.12 | % |
* | Expenses are equal to the average account value multiplied by the Fund’s annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Domestic Equity Funds | 50.9 | % | |||
Fixed Income Funds | 23.0 | ||||
International Equity Funds | 18.5 | ||||
|
| ||||
Total Investment Securities | 92.4 | ||||
Net other assets (liabilities) | 7.6 | ||||
|
| ||||
Net Assets | 100.0 | % | |||
|
|
1
AZL MVP Growth Index Strategy Fund
Schedule of Portfolio Investments
June 30, 2020 (Unaudited)
Shares | Fair Value | |||||||
Affiliated Investment Companies (92.4%): | ||||||||
Domestic Equity Funds (50.9%): | ||||||||
13,196,250 | AZL Mid Cap Index Fund, Class 2 | $ | 251,124,646 | |||||
46,974,837 | AZL S&P 500 Index Fund, Class 2 | 826,287,384 | ||||||
11,782,437 | AZL Small Cap Stock Index Fund, Class 2 | 127,721,613 | ||||||
|
| |||||||
1,205,133,643 | ||||||||
|
| |||||||
Fixed Income Funds (23.0%): | ||||||||
45,773,999 | AZL Enhanced Bond Index Fund | 543,337,369 | ||||||
|
| |||||||
International Equity Funds (18.5%): | ||||||||
29,355,645 | AZL International Index Fund, Class 2 | 436,518,445 | ||||||
|
| |||||||
Total Affiliated Investment Companies (Cost $1,877,801,499) | 2,184,989,457 | |||||||
|
| |||||||
Total Investment Securities (Cost $1,877,801,499) — 92.4% | 2,184,989,457 | |||||||
Net other assets (liabilities) — 7.6% | 180,844,679 | |||||||
|
| |||||||
Net Assets — 100.0% | $ | 2,365,834,136 | ||||||
|
|
Percentages indicated are based on net assets as of June 30, 2020.
Futures Contracts
Cash of $181,711,035 has been segregated to cover margin requirements for the following open contracts as of June 30, 2020:
Short Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
S&P 500 Index E-Mini September Futures (U.S. Dollar) | 9/18/20 | 4,647 | $ | (718,007,970 | ) | $ | 17,876,310 | |||||||||
|
| |||||||||||||||
$ | 17,876,310 | |||||||||||||||
|
|
Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
U.S. Treasury 10-Year Note September Futures (U.S. Dollar) | 9/21/20 | 341 | 47,457,609 | $ | 174,426 | |||||||||||
|
| |||||||||||||||
$ | 174,426 | |||||||||||||||
|
| |||||||||||||||
Total Net Futures Contracts | $ | 18,050,736 | ||||||||||||||
|
|
See accompanying notes to the financial statements.
2
AZL MVP Growth Index Strategy Fund
Statement of Assets and Liabilities
June 30, 2020
(Unaudited)
Assets: | |||||
Investments in affiliates, at cost | $ | 1,877,801,499 | |||
|
| ||||
Investments in affiliates, at value | $ | 2,184,989,457 | |||
Cash | 987,962 | ||||
Segregated cash for collateral for futures contracts | 181,711,035 | ||||
Interest and dividends receivable | 15,736 | ||||
Prepaid expenses | 4,959 | ||||
|
| ||||
Total Assets | 2,367,709,149 | ||||
|
| ||||
Liabilities: | |||||
Payable for affiliated investments purchased | 987,962 | ||||
Payable for capital shares redeemed | 335,786 | ||||
Payable for variation margin on futures contracts | 235,538 | ||||
Manager fees payable | 194,789 | ||||
Administration fees payable | 8,145 | ||||
Custodian fees payable | 3,272 | ||||
Administrative and compliance services fees payable | 4,132 | ||||
Transfer agent fees payable | 969 | ||||
Trustee fees payable | 26,052 | ||||
Other accrued liabilities | 78,368 | ||||
|
| ||||
Total Liabilities | 1,875,013 | ||||
|
| ||||
Net Assets | $ | 2,365,834,136 | |||
|
| ||||
Net Assets Consist of: | |||||
Paid in capital | $ | 2,101,807,561 | |||
Total distributable earnings | 264,026,575 | ||||
|
| ||||
Net Assets | $ | 2,365,834,136 | |||
|
| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 162,871,551 | ||||
Net Asset Value (offering and redemption price per share) | $ | 14.53 | |||
|
|
For the Six Months Ended June 30, 2020
(Unaudited)
Investment Income: | |||||
Interest | $ | 405,570 | |||
Dividends from non-affiliates | 119 | ||||
|
| ||||
Total Investment Income | 405,689 | ||||
|
| ||||
Expenses: | |||||
Manager fees | 1,216,872 | ||||
Administration fees | 38,071 | ||||
Custodian fees | 8,932 | ||||
Administrative and compliance services fees | 21,632 | ||||
Transfer agent fees | 3,010 | ||||
Trustee fees | 68,298 | ||||
Professional fees | 56,432 | ||||
Shareholder reports | 43,159 | ||||
Other expenses | 15,362 | ||||
|
| ||||
Total expenses | 1,471,768 | ||||
|
| ||||
Net Investment Income/(Loss) | (1,066,079 | ) | |||
|
| ||||
Net realized and Change in net unrealized gains/losses on investments | |||||
Net realized gains/(losses) on affiliated underlying funds | (6,916,418 | ) | |||
Net realized gains/(losses) on futures contracts | (134,024,410 | ) | |||
Change in net unrealized appreciation/depreciation on affiliated underlying funds | (124,319,048 | ) | |||
Change in net unrealized appreciation/depreciation on futures contracts | 15,642,818 | ||||
|
| ||||
Net realized and Change in net unrealized gains/losses on investments | (249,617,058 | ) | |||
|
| ||||
Change in Net Assets Resulting From Operations | $ | (250,683,137 | ) | ||
|
|
See accompanying notes to the financial statements.
3
AZL MVP Growth Index Strategy Fund
Statements of Changes in Net Assets
For the Six Months Ended June 30, 2020 | For the Year Ended December 31, 2019 | |||||||||
(Unaudited) | ||||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | (1,066,079 | ) | $ | 43,761,411 | |||||
Net realized gains/(losses) on investments | (140,940,828 | ) | 63,811,463 | |||||||
Change in unrealized appreciation/depreciation on investments | (108,676,230 | ) | 376,389,485 | |||||||
|
|
|
| |||||||
Change in net assets resulting from operations | (250,683,137 | ) | 483,962,359 | |||||||
|
|
|
| |||||||
Distributions to Shareholders: | ||||||||||
Distributions | — | (128,984,110 | ) | |||||||
|
|
|
| |||||||
Change in net assets resulting from distributions to shareholders | — | (128,984,110 | ) | |||||||
|
|
|
| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 23,221,782 | 57,035,761 | ||||||||
Proceeds from dividends reinvested | — | 128,984,110 | ||||||||
Value of shares redeemed | (129,052,091 | ) | (241,815,849 | ) | ||||||
|
|
|
| |||||||
Change in net assets resulting from capital transactions | (105,830,309 | ) | (55,795,978 | ) | ||||||
|
|
|
| |||||||
Change in net assets | (356,513,446 | ) | 299,182,271 | |||||||
Net Assets: | ||||||||||
Beginning of period | 2,722,347,582 | 2,423,165,311 | ||||||||
|
|
|
| |||||||
End of period | $ | 2,365,834,136 | $ | 2,722,347,582 | ||||||
|
|
|
| |||||||
Share Transactions: | ||||||||||
Shares issued | 1,633,354 | 3,724,766 | ||||||||
Dividends reinvested | — | 8,645,048 | ||||||||
Shares redeemed | (8,660,870 | ) | (15,692,012 | ) | ||||||
|
|
|
| |||||||
Change in shares | (7,027,516 | ) | (3,322,198 | ) | ||||||
|
|
|
|
Amounts shown as “—” are either $0 or rounds to less than $1.
See accompanying notes to the financial statements.
4
AZL MVP Growth Index Strategy Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Six Months Ended June 30, 2020 | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2016 | Year Ended December 31, 2015 | |||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 16.02 | $ | 13.99 | $ | 15.56 | $ | 14.08 | $ | 13.55 | $ | 13.90 | ||||||||||||||||||
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|
|
|
|
|
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|
|
| |||||||||||||||||||
Investment Activities: | ||||||||||||||||||||||||||||||
Net Investment Income/(Loss) | (0.01 | )(a) | 0.26 | (a) | 0.26 | 0.11 | 0.14 | 0.25 | ||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (1.48 | ) | 2.55 | (1.22 | ) | 2.10 | 0.77 | (0.36 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total from Investment Activities | (1.49 | ) | 2.81 | (0.96 | ) | 2.21 | 0.91 | (0.11 | ) | |||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Net Investment Income | — | (0.35 | ) | (0.13 | ) | (0.18 | ) | (0.30 | ) | (0.12 | ) | |||||||||||||||||||
Net Realized Gains | — | (0.43 | ) | (0.48 | ) | (0.55 | ) | (0.08 | ) | (0.12 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total Dividends | — | (0.78 | ) | (0.61 | ) | (0.73 | ) | (0.38 | ) | (0.24 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Net Asset Value, End of Period | $ | 14.53 | $ | 16.02 | $ | 13.99 | $ | 15.56 | $ | 14.08 | $ | 13.55 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Total Return(b) | (9.30 | )%(c) | 20.52 | % | (6.45 | )% | 15.96 | % | 6.80 | % | (0.80 | )% | ||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 2,365,834 | $ | 2,722,348 | $ | 2,423,165 | $ | 2,634,555 | $ | 2,243,373 | $ | 1,392,460 | ||||||||||||||||||
Net Investment Income/(Loss)(d) | (0.09 | )% | 1.67 | % | 1.71 | % | 0.74 | % | 1.55 | % | 2.17 | % | ||||||||||||||||||
Expenses Before Reductions*(d)(e) | 0.12 | % | 0.12 | % | 0.12 | % | 0.11 | % | 0.12 | % | 0.12 | % | ||||||||||||||||||
Expenses Net of Reductions*(d) | 0.12 | % | 0.12 | % | 0.12 | % | 0.11 | % | 0.12 | % | 0.12 | % | ||||||||||||||||||
Portfolio Turnover Rate | 8 | %(c) | 5 | % | 4 | % | 4 | % | 4 | %(f) | 1 | % |
* | The expense ratios exclude the impact of fees/expenses paid by each underlying fund. |
(a) | Calculated using the average shares method. |
(b) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. |
(c) | Not annualized for periods less than one year. |
(d) | Annualized for periods less than one year. |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
(f) | 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 4%. |
See accompanying notes to the financial statements.
5
AZL MVP Growth Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
1. Organization
The Allianz Variable Insurance Products Fund of Funds Trust (the “Trust”) was organized as a Delaware statutory trust on June 16, 2004. 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 12 separate investment portfolios (collectively, the “Funds”), of which one is included in this report, the AZL MVP Growth Index Strategy Fund (the “Fund”), and 11 are presented in separate reports.
The Fund is a “fund of funds”, which means that the Fund invests primarily in other mutual funds (the “Underlying 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 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 that 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.
Distributions to Shareholders
Distributions 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 distributions 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. Distributions 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 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 period ended June 30, 2020, the Fund did not engage in any Rule 17a-7 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. The Fund’s allocation to the MVP (Managed Volatility Portfolio) risk management process may
6
AZL MVP Growth Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
include (a) derivatives such as index futures, other futures contracts, options, and other similar securities and (b) cash, money market equivalents, short-term debt instruments, money market funds, and short-term debt funds to satisfy all applicable margin requirements and to provide additional portfolio liquidity to satisfy large redemptions and any margin calls. Due to the leverage provided by derivatives, the notional value of the Fund’s derivative positions could exceed 20% of the Fund’s value. The Fund may also use futures to gain equity exposure and may hold cash as a buffer in the event of market shocks.
Futures Contracts
During the period ended June 30, 2020, the Fund invested in futures contracts to reduce volatility and limit the need to decrease or increase allocations to underlying funds. 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 period ended June 30, 2020, the monthly average notional amount for long contracts was $78.1 million, the monthly average notional amount for short contracts was $596.4 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 June 30, 2020:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value* | Statement of Assets and Liabilities Location | Total Fair Value* | ||||||||
Equity Risk | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 17,876,310 | Payable for variation margin on futures contracts | $ | — | ||||||
Interest Rate Risk | ||||||||||||
Interest Rate Contracts | Receivable for variation margin on futures contracts | 174,426 | Payable for variation margin on futures contracts | — |
* | For futures contracts, the amounts represent the cumulative appreciation/depreciation of these futures contracts as reported in the Schedule of Portfolio Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities as variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the period ended June 30, 2020:
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 | $ | (136,118,228 | ) | $ | 15,189,838 | ||||
Interest Rate Risk | ||||||||||
Interest Rate Contracts | Net realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | 2,093,818 | 452,980 |
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, 2021. Expenses incurred for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.”
For the period ended June 30, 2020, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL MVP Growth Index Strategy Fund | 0.10 | % | 0.20 | % |
Any amounts contractually waived or reimbursed by the Manager in a particular fiscal year will be subject to repayment by the Fund to the Manager to the extent that from time to time through the next three fiscal years the repayment will not cause the Fund’s expenses to exceed the lesser of the stated limit at the time of the waiver or the current stated limit. Any amounts recouped by the Manager during the period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At June 30, 2020, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
7
AZL MVP Growth Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations. During the period ended June 30, 2020, there were no voluntary waivers.
The Manager or an affiliate of the Manager serves as the investment adviser of certain underlying funds in which the Fund invests. At June 30, 2020, 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 period ended June 30, 2020 is as follows:
Fair Value 12/31/2019 | Purchases at Cost | Proceeds from Sales | Net Realized | Change in Net Unrealized Appreciation/ Depreciation | Fair Value 6/30/2020 | Shares as of 6/30/2020 | Dividend Income | Net Realized Gains Distributions from Affiliated Underlying Funds | |||||||||||||||||||||||||||||||||||||
AZL Enhanced Bond Index Fund | $ | 614,311,517 | $ | 39,266,074 | $ | (142,395,553 | ) | $ | 5,830,068 | $ | 26,325,263 | $ | 543,337,369 | 45,773,999 | $ | — | $ | — | |||||||||||||||||||||||||||
AZL International Index Fund, Class 2 | 526,184,819 | 19,191,821 | (47,131,034 | ) | (9,878,045 | ) | (51,849,116 | ) | 436,518,445 | 29,355,645 | — | — | |||||||||||||||||||||||||||||||||
AZL Mid Cap Index Fund, Class 2 | 308,959,052 | 38,874,416 | (61,382,403 | ) | (15,583,174 | ) | (19,743,245 | ) | 251,124,646 | 13,196,250 | — | — | |||||||||||||||||||||||||||||||||
AZL S&P 500 Index Fund, Class 2 | 984,919,467 | 60,613,495 | (177,614,838 | ) | 21,831,532 | (63,462,272 | ) | 826,287,384 | 46,974,837 | — | — | ||||||||||||||||||||||||||||||||||
AZL Small Cap Stock Index Fund, Class 2 | 153,092,844 | 21,091,536 | (21,756,290 | ) | (9,116,799 | ) | (15,589,678 | ) | 127,721,613 | 11,782,437 | — | — | |||||||||||||||||||||||||||||||||
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$ | 2,587,467,699 | $ | 179,037,342 | $ | (450,280,118 | ) | $ | (6,916,418 | ) | $ | (124,319,048 | ) | $ | 2,184,989,457 | 147,083,168 | $ | — | $ | — | ||||||||||||||||||||||||||
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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 SEC. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the 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 fee, accrued daily and paid monthly. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair values 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 Trust-wide annual fee of $7,500, 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 period ended June 30, 2020, $13,985 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 Trust, each non-interested Trustee receives a $182,500 annual Board retainer, the Lead Director receives an additional $45,625, the Chair of the Nominating and Corporate Governance Committee receives an additional $9,125 annually and the Chair of the Audit Committee receives an additional $9,125 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 Trust in proportion to the assets under management of each trust. During the period ended June 30, 2020, actual Trustee compensation was $579,438 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 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.
8
AZL MVP Growth Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
The following is a summary of the valuation inputs used as of June 30, 2020 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 | $ | 2,184,989,457 | $ | — | $ | — | $ | 2,184,989,457 | ||||||||||||
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Total Investment Securities | 2,184,989,457 | — | — | 2,184,989,457 | ||||||||||||||||
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Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | 18,050,736 | — | — | 18,050,736 | ||||||||||||||||
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Total Investments | $ | 2,203,040,193 | $ | — | $ | — | $ | 2,203,040,193 | ||||||||||||
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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. |
5. Security Purchases and Sales
For the period ended June 30, 2020, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL MVP Growth Index Strategy Fund | $ | 179,037,344 | $ | 450,280,120 |
6. Investment Risks
The risks below are presented in an order intended to facilitate readability. Their order does not imply that the realization of one risk is more likely to occur more frequently than another risk, nor does it imply that the realization of one risk is likely to have a greater adverse impact than another risk.
Derivatives Risk: The Fund may invest directly or through affiliated or unaffiliated mutual funds or unregistered investment pools in derivative instruments such as futures, options, and options on futures. 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 other party to a derivatives contract could default.
Fund of Fund 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.
Market Risk: The market price of securities owned by the underlying funds may go up or down, sometimes rapidly and unpredictably. Securities may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of a security may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment, as well as natural disasters, and outbreaks of infectious illnesses or other widespread public health issues.
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, 2019 was $2,163,076,382. The gross unrealized appreciation/(depreciation) on a tax basis was as follows:
Unrealized appreciation | $ | 424,391,317 | ||
Unrealized (depreciation) | — | |||
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Net unrealized appreciation/(depreciation) | $ | 424,391,317 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2019 was as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL MVP Growth Index Strategy Fund | $ | 65,147,980 | $ | 63,836,130 | $ | 128,984,110 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends were recognized when actually paid for tax purposes. |
9
AZL MVP Growth Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
At December 31, 2019, 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 MVP Growth Index Strategy Fund | $ | 70,129,410 | $ | 76,454,811 | $ | — | $ | 424,391,317 | $ | 570,975,538 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation was attributable primarily to tax deferral of losses on wash sales, mark-to-market of futures contracts 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 June 30, 2020, the Fund had an individual shareholder account which is affiliated with the Manager representing ownership in excess of 85% of the Fund. Investment activities of these shareholders could have a material impact to the Fund.
9. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
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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-PORT. 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.
11
Statement Regarding the Trust’s Liquidity Risk Management Program (Unaudited)
Each series (each such series a “Fund” and, together, the “Funds”) of the Allianz Variable Insurance Products Trust, but not the AZL Government Money Market Fund, and of the Allianz Variable Insurance Products Fund of Funds Trust (each such trust a “Trust” and, together, the “Trusts”) has adopted and implemented a written liquidity risk management program (the “Program”) pursuant to Rule 22e-4 under the Investment Company Act of 1940 (the “Liquidity Rule”). The Program includes policies and procedures reasonably designed to assess and manage each Fund’s liquidity risk (the “risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund”) and to comply with the requirements of the Liquidity Rule, including: (i) assessment, management and periodic review of liquidity risk; (ii) classification of portfolio holdings; (iii) establishment of a highly liquid investment minimum (“HLIM”); (iv) limitation of illiquid investments; and (v) redemptions in-kind.
The Board of Trustees of each Fund (together, the “Board”) approved the designation of the individual officers of the Trusts who serve as the administrators of the Program (the “Program Administrators”). The Program Administrators oversee the monitoring of liquidity and liquidity risk for each Fund on an ongoing basis.
At a meeting of the Board held on February 18, 2020, the Program Administrators provided a written report (the “Report”) to the Board addressing the operation of the Program and assessing its adequacy and effectiveness of implementation for the annual period from January 1, 2019 through December 31, 2019 (the “Reporting Period”). This Report included an overview of the Program and conclusions with respect to the adequacy of the policies and procedures of the Program and the effectiveness of Program implementation. The Report took into account the following factors enumerated in the Liquidity Rule and identified in the Program, as applicable:
1) Each Fund’s investment strategy and liquidity of portfolio investments during both normal and reasonably foreseeable stressed conditions, including: (i) whether the Fund’s investment strategy is appropriate for an open-end fund; (ii) the extent to which the Fund’s strategy involves a relatively concentrated portfolio or large positions in particular issuers; and, as applicable, (iii) the Fund’s use of borrowings for investment purposes; and (iv) the Fund’s use of derivatives;
2) Short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions; and
3) Holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources.
Based on the information considered, the Report concluded that each Fund continues to have an investment strategy that is appropriate for an open-end fund, and that each Fund is reasonably likely to be able to meet redemption requests without significant dilution of remaining shareholders’ interests in the Fund.
In accordance with the Program, each Fund’s portfolio investments were classified into one of four liquidity categories as provided in the Liquidity Rule as applicable during the Reporting Period. Liquidity classification determinations take into account a variety of factors including market, trading and investment-specific considerations, as well as market depth in accordance with the requirements of the Liquidity Rule and as specified in the Program, and generally incorporate analysis from a third-party data vendor.
Pursuant to the Liquidity Rule, no Fund may acquire any illiquid investment if, after the acquisition, the Fund would have invested more than 15% of its assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with the 15% limit on illiquid investments. During the Reporting Period, no Fund breached the 15% limit on illiquid investments.
During the Reporting Period, each Fund maintained a designated HLIM. The Program Administrators reviewed each Fund’s HLIM and concluded that no changes were recommended. During the Reporting Period, no Fund fell below its approved HLIM. The Program includes provisions reasonably designed to comply with the HLIM for each Fund.
On the basis of the review, the Report concluded that: (i) the Program remains reasonably designed to manage each Fund’s liquidity risk; (ii) the Program was implemented and operated effectively to achieve the goal of assessing and managing each Fund’s liquidity risk during the Reporting Period; and (iii) each Fund was able to meet requests for redemption without significant dilution of remaining investors in the Fund during the Reporting Period. The Program Administrators did not recommend any material changes to the Program.
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The Allianz VIP Fund of Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | SARRPT0620 08/20 |
AZL® MVP Moderate Index Strategy Fund
Semi-Annual Report
June 30, 2020
(Unaudited)
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 MVP Moderate Index Strategy Fund
(Unaudited)
As a shareholder of the AZL MVP 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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP Moderate Index Strategy Fund | $ | 1,000.00 | $ | 933.80 | $ | 0.63 | 0.13 | % |
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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP Moderate Index Strategy Fund | $ | 1,000.00 | $ | 1,024.22 | $ | 0.65 | 0.13 | % |
* | Expenses are equal to the average account value multiplied by the Fund’s annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Domestic Equity Funds | 41.7 | % | |||
Fixed Income Funds | 37.9 | ||||
International Equity Funds | 14.8 | ||||
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Total Investment Securities | 94.4 | ||||
Net other assets (liabilities) | 5.6 | ||||
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Net Assets | 100.0 | % | |||
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1
AZL MVP Moderate Index Strategy Fund
Schedule of Portfolio Investments
June 30, 2020 (Unaudited)
Shares | Fair Value | |||||||
Affiliated Investment Companies (94.4%): | ||||||||
Domestic Equity Funds (41.7%): | ||||||||
2,321,327 | AZL Mid Cap Index Fund, Class 2 | $ | 44,174,853 | |||||
8,093,985 | AZL S&P 500 Index Fund, Class 2 | 142,373,195 | ||||||
2,093,435 | AZL Small Cap Stock Index Fund, Class 2 | 22,692,839 | ||||||
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209,240,887 | ||||||||
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Fixed Income Funds (37.9%): | ||||||||
15,981,863 | AZL Enhanced Bond Index Fund | 189,704,712 | ||||||
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International Equity Funds (14.8%): | ||||||||
5,001,111 | AZL International Index Fund, Class 2 | 74,366,513 | ||||||
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| |||||||
Total Affiliated Investment Companies (Cost $423,552,541) | 473,312,112 | |||||||
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Total Investment Securities (Cost $423,552,541) — 94.4% | 473,312,112 | |||||||
Net other assets (liabilities) — 5.6% | 28,125,885 | |||||||
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Net Assets — 100.0% | $ | 501,437,997 | ||||||
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Percentages indicated are based on net assets as of June 30, 2020.
Futures Contracts
Cash of $28,342,973 has been segregated to cover margin requirements for the following open contracts as of June 30, 2020:
Short Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
S&P 500 Index E-Mini September Futures (U.S. Dollar) | 9/18/20 | 601 | $ | (92,860,510 | ) | $ | 1,961,377 | |||||||||
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$ | 1,961,377 | |||||||||||||||
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Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
U.S. Treasury 10-Year Note September Futures (U.S. Dollar) | 9/21/20 | 84 | 11,690,438 | $ | 40,346 | |||||||||||
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$ | 40,346 | |||||||||||||||
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Total Net Futures Contracts | $ | 2,001,723 | ||||||||||||||
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See accompanying notes to the financial statements.
2
AZL MVP Moderate Index Strategy Fund
Statement of Assets and Liabilities
June 30, 2020
(Unaudited)
Assets: | |||||
Investments in affiliates, at cost | $ | 423,552,541 | |||
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| ||||
Investments in affiliates, at value | $ | 473,312,112 | |||
Cash | 244,178 | ||||
Segregated cash for collateral for futures contracts | 28,342,973 | ||||
Interest and dividends receivable | 2,572 | ||||
Prepaid expenses | 1,177 | ||||
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Total Assets | 501,903,012 | ||||
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Liabilities: | |||||
Payable for affiliated investments purchased | 244,178 | ||||
Payable for capital shares redeemed | 108,089 | ||||
Payable for variation margin on futures contracts | 38,891 | ||||
Manager fees payable | 41,258 | ||||
Administration fees payable | 6,957 | ||||
Custodian fees payable | 931 | ||||
Administrative and compliance services fees payable | 933 | ||||
Transfer agent fees payable | 836 | ||||
Trustee fees payable | 5,525 | ||||
Other accrued liabilities | 17,417 | ||||
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Total Liabilities | 465,015 | ||||
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| ||||
Net Assets | $ | 501,437,997 | |||
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Net Assets Consist of: | |||||
Paid in capital | $ | 444,522,473 | |||
Total distributable earnings | 56,915,524 | ||||
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Net Assets | $ | 501,437,997 | |||
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Shares of beneficial interest (unlimited number of shares authorized, no par value) | 35,891,409 | ||||
Net Asset Value (offering and redemption price per share) | $ | 13.97 | |||
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For the Six Months Ended June 30, 2020
(Unaudited)
Investment Income: | |||||
Interest | $ | 78,185 | |||
Dividends from non-affiliates | 405 | ||||
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Total Investment Income | 78,590 | ||||
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Expenses: | |||||
Manager fees | 248,378 | ||||
Administration fees | 31,171 | ||||
Custodian fees | 2,643 | ||||
Administrative and compliance services fees | 4,483 | ||||
Transfer agent fees | 2,602 | ||||
Trustee fees | 14,273 | ||||
Professional fees | 11,898 | ||||
Shareholder reports | 11,034 | ||||
Other expenses | 3,405 | ||||
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Total expenses | 329,887 | ||||
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Net Investment Income/(Loss) | (251,297 | ) | |||
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Net realized and Change in net unrealized gains/losses on investments | |||||
Net realized gains/(losses) on affiliated underlying funds | 4,369,364 | ||||
Net realized gains/(losses) on futures contracts | (24,117,378 | ) | |||
Change in net unrealized appreciation/depreciation on affiliated underlying funds | (15,572,293 | ) | |||
Change in net unrealized appreciation/depreciation on futures contracts | 1,671,363 | ||||
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Net realized and Change in net unrealized gains/losses on investments | (33,648,944 | ) | |||
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Change in Net Assets Resulting From Operations | $ | (33,900,241 | ) | ||
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See accompanying notes to the financial statements.
3
AZL MVP Moderate Index Strategy Fund
Statements of Changes in Net Assets
For the Six Months Ended June 30, 2020 | For the Year Ended December 31, 2019 | |||||||||
(Unaudited) | ||||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | (251,297 | ) | $ | 9,212,494 | |||||
Net realized gains/(losses) on investments | (19,748,014 | ) | 16,500,521 | |||||||
Change in unrealized appreciation/depreciation on investments | (13,900,930 | ) | 62,707,708 | |||||||
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Change in net assets resulting from operations | (33,900,241 | ) | 88,420,723 | |||||||
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Distributions to Shareholders: | ||||||||||
Distributions | — | (26,005,266 | ) | |||||||
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Change in net assets resulting from distributions to shareholders | — | (26,005,266 | ) | |||||||
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Capital Transactions: | ||||||||||
Proceeds from shares issued | 30,110,412 | 8,104,019 | ||||||||
Proceeds from dividends reinvested | — | 26,005,266 | ||||||||
Value of shares redeemed | (29,069,827 | ) | (51,299,275 | ) | ||||||
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Change in net assets resulting from capital transactions | 1,040,585 | (17,189,990 | ) | |||||||
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Change in net assets | (32,859,656 | ) | 45,225,467 | |||||||
Net Assets: | ||||||||||
Beginning of period | 534,297,653 | 489,072,186 | ||||||||
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End of period | $ | 501,437,997 | $ | 534,297,653 | ||||||
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Share Transactions: | ||||||||||
Shares issued | 2,226,676 | 565,141 | ||||||||
Dividends reinvested | — | 1,840,429 | ||||||||
Shares redeemed | (2,046,784 | ) | (3,522,526 | ) | ||||||
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Change in shares | 179,892 | (1,116,956 | ) | |||||||
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Amounts shown as “—” are either $0 or rounds to less than $1.
See accompanying notes to the financial statements.
4
AZL MVP Moderate Index Strategy Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Six Months Ended June 30, 2020 | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2016 | Year Ended December 31, 2015 | |||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 14.96 | $ | 13.28 | $ | 14.68 | $ | 13.50 | $ | 13.49 | $ | 14.37 | ||||||||||||||||||
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Investment Activities: | ||||||||||||||||||||||||||||||
Net Investment Income/(Loss) | (0.01 | )(a) | 0.26 | (a) | 0.26 | 0.12 | 0.23 | 0.25 | ||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (0.98 | ) | 2.17 | (1.00 | ) | 1.64 | 0.48 | (0.71 | ) | |||||||||||||||||||||
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Total from Investment Activities | (0.99 | ) | 2.43 | (0.74 | ) | 1.76 | 0.71 | (0.46 | ) | |||||||||||||||||||||
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Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Net Investment Income | — | (0.32 | ) | (0.13 | ) | (0.24 | ) | (0.30 | ) | (0.07 | ) | |||||||||||||||||||
Net Realized Gains | — | (0.43 | ) | (0.53 | ) | (0.34 | ) | (0.40 | ) | (0.35 | ) | |||||||||||||||||||
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Total Dividends | — | (0.75 | ) | (0.66 | ) | (0.58 | ) | (0.70 | ) | (0.42 | ) | |||||||||||||||||||
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Net Asset Value, End of Period | $ | 13.97 | $ | 14.96 | $ | 13.28 | $ | 14.68 | $ | 13.50 | $ | 13.49 | ||||||||||||||||||
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Total Return(b) | (6.62 | )%(c) | 18.64 | % | (5.26 | )% | 13.21 | % | 5.43 | % | (3.21 | )% | ||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 501,438 | $ | 534,298 | $ | 489,072 | $ | 551,868 | $ | 520,112 | $ | 520,844 | ||||||||||||||||||
Net Investment Income/(Loss)(d) | (0.10 | )% | 1.77 | % | 1.73 | % | 0.73 | % | 1.71 | % | 1.97 | % | ||||||||||||||||||
Expenses Before Reductions*(d)(e) | 0.13 | % | 0.13 | % | 0.13 | % | 0.12 | % | 0.13 | % | 0.13 | % | ||||||||||||||||||
Expenses Net of Reductions*(d) | 0.13 | % | 0.13 | % | 0.13 | % | 0.12 | % | 0.13 | % | 0.13 | % | ||||||||||||||||||
Portfolio Turnover Rate | 14 | %(c) | 5 | % | 5 | % | 5 | % | 108 | %(f) | 2 | % |
* | The expense ratios exclude the impact of fees/expenses paid by each underlying fund. |
(a) | Calculated using the average shares method. |
(b) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. |
(c) | Not annualized for periods less than one year. |
(d) | Annualized for periods less than one year. |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
(f) | 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.
5
AZL MVP Moderate Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
1. Organization
The Allianz Variable Insurance Products Fund of Funds Trust (the “Trust”) was organized as a Delaware statutory trust on June 16, 2004. 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 12 separate investment portfolios (collectively, the “Funds”), of which one is included in this report, the AZL MVP Moderate Index Strategy Fund (the “Fund”), and 11 are presented in separate reports.
The Fund is a “fund of funds”, which means that the Fund invests primarily in other mutual funds (the “Underlying 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 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 that 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.
Distributions to Shareholders
Distributions 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 distributions 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. Distributions 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 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 period ended June 30, 2020, the Fund did not engage in any Rule 17a-7 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. The Fund’s allocation to the MVP (Managed Volatility Portfolio) risk management process may
6
AZL MVP Moderate Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
include (a) derivatives such as index futures, other futures contracts, options, and other similar securities and (b) cash, money market equivalents, short-term debt instruments, money market funds, and short-term debt funds to satisfy all applicable margin requirements and to provide additional portfolio liquidity to satisfy large redemptions and any margin calls. Due to the leverage provided by derivatives, the notional value of the Fund’s derivative positions could exceed 20% of the Fund’s value. The Fund may also use futures to gain equity exposure and may hold cash as a buffer in the event of market shocks.
Futures Contracts
During the period ended June 30, 2020, the Fund invested in futures contracts to reduce volatility and limit the need to decrease or increase allocations to underlying funds. 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 period ended June 30, 2020, the monthly average notional amount for long contracts was $17.7 million, the monthly average notional amount for short contracts was $88.9 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 June 30, 2020:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value* | Statement of Assets and Liabilities Location | Total Fair Value* | ||||||||
Equity Risk | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 1,961,377 | Payable for variation margin on futures contracts | $ | — | ||||||
Interest Rate Risk | ||||||||||||
Interest Rate Contracts | Receivable for variation margin on futures contracts | 40,346 | Payable for variation margin on futures contracts | — |
* | For futures contracts, the amounts represent the cumulative appreciation/depreciation of these futures contracts as reported in the Schedule of Portfolio Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities as variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the period ended June 30, 2020:
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 | $ | (24,824,424 | ) | $ | 1,543,536 | ||||
Interest Rate Risk | ||||||||||
Interest Rate Contracts | Net realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | 707,046 | 127,827 |
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, 2021. Expenses incurred for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.”
For the period ended June 30, 2020, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL MVP Moderate Index Strategy Fund | 0.10 | % | 0.15 | % |
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 period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At June 30, 2020, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations. During the period ended June 30, 2020, there were no voluntary waivers.
7
AZL MVP Moderate Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
The Manager or an affiliate of the Manager serves as the investment adviser of certain underlying funds in which the Fund invests. At June 30, 2020, 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 period ended June 30, 2020 is as follows:
Fair Value 12/31/2019 | Purchases at Cost | Proceeds from Sales | Net Realized Gains(Losses) | Change in Net Unrealized Appreciation/ Depreciation | Fair Value 6/30/2020 | Shares as of 6/30/2020 | Dividend Income | Net Realized Gains Distributions from Affiliated Underlying Funds | |||||||||||||||||||||||||||||||||||||
AZL Enhanced Bond Index Fund | $ | 196,620,710 | $ | 23,137,771 | $ | (40,857,107 | ) | $ | 2,197,325 | $ | 8,606,013 | $ | 189,704,712 | 15,981,863 | $ | — | $ | — | |||||||||||||||||||||||||||
AZL International Index Fund, Class 2 | 81,893,343 | 10,148,177 | (9,170,049 | ) | (30,940 | ) | (8,474,018 | ) | 74,366,513 | 5,001,111 | — | — | |||||||||||||||||||||||||||||||||
AZL Mid Cap Index Fund, Class 2 | 49,829,456 | 8,765,376 | (9,235,021 | ) | (1,067,685 | ) | (4,117,273 | ) | 44,174,853 | 2,321,327 | — | — | |||||||||||||||||||||||||||||||||
AZL S&P 500 Index Fund, Class 2 | 154,346,918 | 20,852,669 | (28,271,518 | ) | 4,283,176 | (8,838,050 | ) | 142,373,195 | 8,093,985 | — | — | ||||||||||||||||||||||||||||||||||
AZL Small Cap Stock Index Fund, Class 2 | 25,075,328 | 5,012,973 | (3,633,985 | ) | (1,012,512 | ) | (2,748,965 | ) | 22,692,839 | 2,093,435 | — | — | |||||||||||||||||||||||||||||||||
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$ | 507,765,755 | $ | 67,916,966 | $ | (91,167,680 | ) | $ | 4,369,364 | $ | (15,572,293 | ) | $ | 473,312,112 | 33,491,721 | $ | — | $ | — | |||||||||||||||||||||||||||
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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 SEC. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the 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 fee, accrued daily and paid monthly. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair values 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 Trust-wide annual fee of $7,500, 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 period ended June 30, 2020, $2,818 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 Trust, each non-interested Trustee receives a $182,500 annual Board retainer, the Lead Director receives an additional $45,625, the Chair of the Nominating and Corporate Governance Committee receives an additional $9,125 annually and the Chair of the Audit Committee receives an additional $9,125 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 Trust in proportion to the assets under management of each trust. During the period ended June 30, 2020, actual Trustee compensation was $579,438 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 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.
8
AZL MVP Moderate Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
The following is a summary of the valuation inputs used as of June 30, 2020 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 | $ | 473,312,112 | $ | — | $ | — | $ | 473,312,112 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investment Securities | 473,312,112 | — | — | 473,312,112 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | 2,001,723 | — | — | 2,001,723 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Investments | $ | 475,313,835 | $ | — | $ | — | $ | 475,313,835 | ||||||||||||
|
|
|
|
|
|
|
|
* | Other Financial Instruments would include any derivative instruments, such as futures contracts. These investments are generally presented in the financial statements at variation margin. |
5. Security Purchases and Sales
For the period ended June 30, 2020, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL MVP Moderate Index Strategy Fund | $ | 67,916,966 | $ | 91,167,679 |
6. Investment Risks
The risks below are presented in an order intended to facilitate readability. Their order does not imply that the realization of one risk is more likely to occur more frequently than another risk, nor does it imply that the realization of one risk is likely to have a greater adverse impact than another risk.
Derivatives Risk: The Fund may invest directly or through affiliated or unaffiliated mutual funds or unregistered investment pools in derivative instruments such as futures, options, and options on futures. 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 other party to a derivatives contract could default.
Fund of Fund 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.
Market Risk: The market price of securities owned by the underlying funds may go up or down, sometimes rapidly and unpredictably. Securities may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of a security may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment, as well as natural disasters, and outbreaks of infectious illnesses or other widespread public health issues.
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, 2019 was $442,678,357. The gross unrealized appreciation/(depreciation) on a tax basis was as follows:
Unrealized appreciation | $ | 65,087,398 | ||
Unrealized (depreciation) | — | |||
|
| |||
Net unrealized appreciation/(depreciation) | $ | 65,087,398 | ||
|
|
The tax character of dividends paid to shareholders during the year ended December 31, 2019 was as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL MVP Moderate Index Strategy Fund | $ | 14,774,955 | $ | 11,230,311 | $ | 26,005,266 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends were recognized when actually paid for tax purposes. |
9
AZL MVP Moderate Index Strategy Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
At December 31, 2019, 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 MVP Moderate Index Strategy Fund | $ | 13,525,202 | $ | 12,697,345 | $ | — | $ | 65,087,398 | $ | 91,309,945 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation was attributable primarily to tax deferral of losses on wash sales, mark-to-market of futures contracts 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 June 30, 2020, the Fund had an individual shareholder account which is affiliated with the Manager representing ownership in excess of 85% of the Fund. Investment activities of these shareholders could have a material impact to the Fund.
9. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
10
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-PORT. 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.
11
Statement Regarding the Trust’s Liquidity Risk Management Program (Unaudited)
Each series (each such series a “Fund” and, together, the “Funds”) of the Allianz Variable Insurance Products Trust, but not the AZL Government Money Market Fund, and of the Allianz Variable Insurance Products Fund of Funds Trust (each such trust a “Trust” and, together, the “Trusts”) has adopted and implemented a written liquidity risk management program (the “Program”) pursuant to Rule 22e-4 under the Investment Company Act of 1940 (the “Liquidity Rule”). The Program includes policies and procedures reasonably designed to assess and manage each Fund’s liquidity risk (the “risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund”) and to comply with the requirements of the Liquidity Rule, including: (i) assessment, management and periodic review of liquidity risk; (ii) classification of portfolio holdings; (iii) establishment of a highly liquid investment minimum (“HLIM”); (iv) limitation of illiquid investments; and (v) redemptions in-kind.
The Board of Trustees of each Fund (together, the “Board”) approved the designation of the individual officers of the Trusts who serve as the administrators of the Program (the “Program Administrators”). The Program Administrators oversee the monitoring of liquidity and liquidity risk for each Fund on an ongoing basis.
At a meeting of the Board held on February 18, 2020, the Program Administrators provided a written report (the “Report”) to the Board addressing the operation of the Program and assessing its adequacy and effectiveness of implementation for the annual period from January 1, 2019 through December 31, 2019 (the “Reporting Period”). This Report included an overview of the Program and conclusions with respect to the adequacy of the policies and procedures of the Program and the effectiveness of Program implementation. The Report took into account the following factors enumerated in the Liquidity Rule and identified in the Program, as applicable:
1) Each Fund’s investment strategy and liquidity of portfolio investments during both normal and reasonably foreseeable stressed conditions, including: (i) whether the Fund’s investment strategy is appropriate for an open-end fund; (ii) the extent to which the Fund’s strategy involves a relatively concentrated portfolio or large positions in particular issuers; and, as applicable, (iii) the Fund’s use of borrowings for investment purposes; and (iv) the Fund’s use of derivatives;
2) Short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions; and
3) Holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources.
Based on the information considered, the Report concluded that each Fund continues to have an investment strategy that is appropriate for an open-end fund, and that each Fund is reasonably likely to be able to meet redemption requests without significant dilution of remaining shareholders’ interests in the Fund.
In accordance with the Program, each Fund’s portfolio investments were classified into one of four liquidity categories as provided in the Liquidity Rule as applicable during the Reporting Period. Liquidity classification determinations take into account a variety of factors including market, trading and investment-specific considerations, as well as market depth in accordance with the requirements of the Liquidity Rule and as specified in the Program, and generally incorporate analysis from a third-party data vendor.
Pursuant to the Liquidity Rule, no Fund may acquire any illiquid investment if, after the acquisition, the Fund would have invested more than 15% of its assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with the 15% limit on illiquid investments. During the Reporting Period, no Fund breached the 15% limit on illiquid investments.
During the Reporting Period, each Fund maintained a designated HLIM. The Program Administrators reviewed each Fund’s HLIM and concluded that no changes were recommended. During the Reporting Period, no Fund fell below its approved HLIM. The Program includes provisions reasonably designed to comply with the HLIM for each Fund.
On the basis of the review, the Report concluded that: (i) the Program remains reasonably designed to manage each Fund’s liquidity risk; (ii) the Program was implemented and operated effectively to achieve the goal of assessing and managing each Fund’s liquidity risk during the Reporting Period; and (iii) each Fund was able to meet requests for redemption without significant dilution of remaining investors in the Fund during the Reporting Period. The Program Administrators did not recommend any material changes to the Program.
12
The Allianz VIP Fund of Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | SARRPT0620 08/20 |
AZL® MVP T. Rowe Price Capital Appreciation Plus Fund
Semi-Annual Report
June 30, 2020
(Unaudited)
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 MVP T. Rowe Price Capital Appreciation Plus Fund
(Unaudited)
As a shareholder of the AZL MVP T. Rowe Price Capital Appreciation Plus Fund (the “Fund”), you incur ongoing costs, including management fees, distribution fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Please note that the expenses shown in each table do not reflect expenses that apply to the subaccount or the insurance contract. If the expenses that apply to the subaccount of the insurance contract were included, your costs would have been higher.
These examples are based on an investment of $1,000 invested at the beginning of the period and held for the periods presented below.
The Actual Expense table below provides information about actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Beginning Account Value 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP T. Rowe Price Capital Appreciation Plus Fund | $ | 1,000.00 | $ | 948.00 | $ | 0.58 | 0.12 | % |
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 1/1/20 | Ending Account Value 6/30/20 | Expenses Paid During Period 1/1/20 - 6/30/20* | Annualized Expense Ratio During Period 1/1/20 - 6/30/20 | |||||||||||||||||
AZL MVP T. Rowe Price Capital Appreciation Plus Fund | $ | 1,000.00 | $ | 1,024.27 | $ | 0.60 | 0.12 | % |
* | Expenses are equal to the average account value multiplied by the Fund’s annualized expense ratio multiplied by 182/366 (the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year). |
Portfolio Composition
(Unaudited)
Investments | Percent of Net Assets | ||||
Domestic Equity Funds | 76.8 | % | |||
Fixed Income Funds | 16.5 | ||||
|
| ||||
Total Investment Securities | 93.3 | ||||
Net other assets (liabilities) | 6.7 | ||||
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| ||||
Net Assets | 100.0 | % | |||
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1
AZL MVP T. Rowe Price Capital Appreciation Plus Fund
Schedule of Portfolio Investments
June 30, 2020 (Unaudited)
Shares | Fair Value | |||||||
Affiliated Investment Companies (93.3%): | ||||||||
Domestic Equity Funds (76.8%): | ||||||||
19,071,098 | AZL S&P 500 Index Fund, Class 2 | $ | 335,460,607 | |||||
30,610,210 | AZL T. Rowe Price Capital Appreciation Fund | 599,654,007 | ||||||
|
| |||||||
935,114,614 | ||||||||
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| |||||||
Fixed Income Funds (16.5%): | ||||||||
16,901,373 | AZL Enhanced Bond Index Fund | 200,619,294 | ||||||
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| |||||||
Total Affiliated Investment Companies (Cost $941,041,609) | 1,135,733,908 | |||||||
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| |||||||
Total Investment Securities (Cost $941,041,609) — 93.3% | 1,135,733,908 | |||||||
Net other assets (liabilities) — 6.7% | 81,515,796 | |||||||
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| |||||||
Net Assets — 100.0% | $ | 1,217,249,704 | ||||||
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|
Percentages indicated are based on net assets as of June 30, 2020.
Futures Contracts
Cash of $82,060,158 has been segregated to cover margin requirements for the following open contracts as of June 30, 2020:
Short Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
S&P 500 Index E-Mini September Futures (U.S. Dollar) | 9/18/20 | 1,361 | $ | (210,288,110 | ) | $ | 2,446,455 | |||||||||
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| |||||||||||||||
$ | 2,446,455 | |||||||||||||||
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Long Futures
Description | Expiration Date | Number of Contracts | Notional Amount | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
U.S. Treasury 10-Year Note September Futures (U.S. Dollar) | 9/21/20 | 245 | $ | 34,097,109 | $ | 116,423 | ||||||||||
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$ | 116,423 | |||||||||||||||
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| |||||||||||||||
Total Net Futures Contracts | $ | 2,562,878 | ||||||||||||||
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See accompanying notes to the financial statements.
2
AZL MVP T. Rowe Price Capital Appreciation Plus Fund
Statement of Assets and Liabilities
June 30, 2020
(Unaudited)
Assets: | |||||
Investments in affiliates, at cost | $ | 941,041,609 | |||
|
| ||||
Investments in affiliates, at value | $ | 1,135,733,908 | |||
Segregated cash for collateral for futures contracts | 82,060,158 | ||||
Interest and dividends receivable | 7,676 | ||||
Receivable for affiliated investments sold | 679,542 | ||||
Prepaid expenses | 2,372 | ||||
|
| ||||
Total Assets | 1,218,483,656 | ||||
|
| ||||
Liabilities: | |||||
Cash overdraft | 679,527 | ||||
Payable for capital shares redeemed | 282,107 | ||||
Payable for variation margin on futures contracts | 105,701 | ||||
Manager fees payable | 100,412 | ||||
Administration fees payable | 7,416 | ||||
Custodian fees payable | 1,700 | ||||
Administrative and compliance services fees payable | 2,238 | ||||
Transfer agent fees payable | 883 | ||||
Trustee fees payable | 13,607 | ||||
Other accrued liabilities | 40,361 | ||||
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| ||||
Total Liabilities | 1,233,952 | ||||
|
| ||||
Net Assets | $ | 1,217,249,704 | |||
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| ||||
Net Assets Consist of: | |||||
Paid in capital | $ | 1,022,888,527 | |||
Total distributable earnings | 194,361,177 | ||||
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| ||||
Net Assets | $ | 1,217,249,704 | |||
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| ||||
Shares of beneficial interest (unlimited number of shares authorized, no par value) | 92,673,955 | ||||
Net Asset Value (offering and redemption price per share) | $ | 13.13 | |||
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For the Six Months Ended June 30, 2020
(Unaudited)
Investment Income: | |||||
Interest | $ | 201,561 | |||
Dividends from non-affiliates | 217 | ||||
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| ||||
Total Investment Income | 201,778 | ||||
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| ||||
Expenses: | |||||
Manager fees | 619,006 | ||||
Administration fees | 33,423 | ||||
Custodian fees | 4,714 | ||||
Administrative and compliance services fees | 10,952 | ||||
Transfer agent fees | 2,724 | ||||
Trustee fees | 34,659 | ||||
Professional fees | 28,911 | ||||
Shareholder reports | 22,876 | ||||
Other expenses | 7,746 | ||||
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| ||||
Total expenses | 765,011 | ||||
|
| ||||
Net Investment Income/(Loss) | (563,233 | ) | |||
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| ||||
Net realized and Change in net unrealized gains/losses on investments | |||||
Net realized gains/(losses) on affiliated underlying funds | 3,660,780 | ||||
Net realized gains/(losses) on futures contracts | (61,603,099 | ) | |||
Change in net unrealized appreciation/depreciation on affiliated underlying funds | (11,182,165 | ) | |||
Change in net unrealized appreciation/depreciation on futures contracts | 1,735,377 | ||||
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| ||||
Net realized and Change in net unrealized gains/losses on investments | (67,389,107 | ) | |||
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| ||||
Change in Net Assets Resulting From Operations | $ | (67,952,340 | ) | ||
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See accompanying notes to the financial statements.
3
AZL MVP T. Rowe Price Capital Appreciation Plus Fund
Statements of Changes in Net Assets
For the Six Months Ended June 30, 2020 | For the Year Ended December 31, 2019 | |||||||||
(Unaudited) | ||||||||||
Change In Net Assets: | ||||||||||
Operations: | ||||||||||
Net investment income/(loss) | $ | (563,233 | ) | $ | 23,300,169 | |||||
Net realized gains/(losses) on investments | (57,942,319 | ) | 34,511,793 | |||||||
Change in unrealized appreciation/depreciation on investments | (9,446,788 | ) | 175,442,088 | |||||||
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| |||||||
Change in net assets resulting from operations | (67,952,340 | ) | 233,254,050 | |||||||
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| |||||||
Distributions to Shareholders: | ||||||||||
Distributions | — | (57,822,009 | ) | |||||||
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| |||||||
Change in net assets resulting from distributions to shareholders | — | (57,822,009 | ) | |||||||
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| |||||||
Capital Transactions: | ||||||||||
Proceeds from shares issued | 20,991,728 | 82,071,615 | ||||||||
Proceeds from dividends reinvested | — | 57,822,009 | ||||||||
Value of shares redeemed | (61,451,129 | ) | (73,039,258 | ) | ||||||
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| |||||||
Change in net assets resulting from capital transactions | (40,459,401 | ) | 66,854,366 | |||||||
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| |||||||
Change in net assets | (108,411,741 | ) | 242,286,407 | |||||||
Net Assets: | ||||||||||
Beginning of period | 1,325,661,445 | 1,083,375,038 | ||||||||
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| |||||||
End of period | $ | 1,217,249,704 | $ | 1,325,661,445 | ||||||
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| |||||||
Share Transactions: | ||||||||||
Shares issued | 1,610,356 | 6,205,768 | ||||||||
Dividends reinvested | — | 4,441,014 | ||||||||
Shares redeemed | (4,654,361 | ) | (5,493,356 | ) | ||||||
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| |||||||
Change in shares | (3,044,005 | ) | 5,153,426 | |||||||
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|
Amounts | shown as “—” are either $0 or rounds to less than $1. |
See accompanying notes to the financial statements.
4
AZL MVP T. Rowe Price Capital Appreciation Plus Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Six Months Ended June 30, 2020 | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2016 | Year Ended December 31, 2015 | |||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 13.85 | $ | 11.96 | $ | 12.71 | $ | 11.47 | $ | 10.88 | $ | 10.45 | ||||||||||||||||||
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Investment Activities: | ||||||||||||||||||||||||||||||
Net Investment Income/(Loss) | (0.01 | )(a) | 0.25 | (a) | 0.16 | 0.11 | 0.03 | 0.04 | ||||||||||||||||||||||
Net Realized and Unrealized Gains/(Losses) on Investments | (0.71 | ) | 2.27 | (0.34 | ) | 1.50 | 0.79 | 0.39 | ||||||||||||||||||||||
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| |||||||||||||||||||
Total from Investment Activities | (0.72 | ) | 2.52 | (0.18 | ) | 1.61 | 0.82 | 0.43 | ||||||||||||||||||||||
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Distributions to Shareholders From: | ||||||||||||||||||||||||||||||
Net Investment Income | — | (0.25 | ) | (0.13 | ) | (0.15 | ) | (0.17 | ) | — | ||||||||||||||||||||
Net Realized Gains | — | (0.38 | ) | (0.44 | ) | (0.22 | ) | (0.06 | ) | — | (b) | |||||||||||||||||||
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Total Dividends | — | (0.63 | ) | (0.57 | ) | (0.37 | ) | (0.23 | ) | — | (b) | |||||||||||||||||||
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Net Asset Value, End of Period | $ | 13.13 | $ | 13.85 | $ | 11.96 | $ | 12.71 | $ | 11.47 | $ | 10.88 | ||||||||||||||||||
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Total Return(c) | (5.20 | )%(d) | 21.39 | % | (1.67 | )% | 14.21 | % | 7.62 | % | 4.15 | % | ||||||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | ||||||||||||||||||||||||||||||
Net Assets, End of Period (000’s) | $ | 1,217,250 | $ | 1,325,661 | $ | 1,083,375 | $ | 1,096,093 | $ | 899,716 | $ | 664,399 | ||||||||||||||||||
Net Investment Income/(Loss)(e) | (0.09 | )% | 1.90 | % | 1.27 | % | 1.03 | % | 0.61 | % | 0.49 | % | ||||||||||||||||||
Expenses Before Reductions*(e)(f) | 0.12 | % | 0.12 | % | 0.12 | % | 0.12 | % | 0.12 | % | 0.13 | % | ||||||||||||||||||
Expenses Net of Reductions*(e) | 0.12 | % | 0.12 | % | 0.12 | % | 0.12 | % | 0.12 | % | 0.13 | % | ||||||||||||||||||
Portfolio Turnover Rate | 3 | %(d) | 5 | % | 5 | % | 3 | % | 52 | %(g) | 1 | % |
* | The expense ratios exclude the impact of fees/expenses paid by each underlying fund. |
(a) | Calculated using the average shares method. |
(b) | Represents less than $0.005. |
(c) | The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were included, the returns would have been lower. |
(d) | Not annualized for periods less than one year. |
(e) | Annualized for periods less than one year. |
(f) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
(g) | 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.
5
AZL MVP T. Rowe Price Capital Appreciation Plus Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
1. Organization
The Allianz Variable Insurance Products Fund of Funds Trust (the “Trust”) was organized as a Delaware statutory trust on June 16, 2004. 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 12 separate investment portfolios (collectively, the “Funds”), of which one is included in this report, the AZL MVP T. Rowe Price Capital Appreciation Plus Fund (the “Fund”), and 11 are presented in separate reports.
The Fund is a “fund of funds”, which means that the Fund invests primarily in other mutual funds (the “Underlying 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 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 that 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.
Distributions to Shareholders
Distributions 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 distributions 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. Distributions 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 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 period ended June 30, 2020, the Fund did not engage in any Rule 17a-7 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. The Fund’s allocation to the MVP (Managed Volatility Portfolio) risk management process may
6
AZL MVP T. Rowe Price Capital Appreciation Plus Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
include (a) derivatives such as index futures, other futures contracts, options, and other similar securities and (b) cash, money market equivalents, short-term debt instruments, money market funds, and short-term debt funds to satisfy all applicable margin requirements and to provide additional portfolio liquidity to satisfy large redemptions and any margin calls. Due to the leverage provided by derivatives, the notional value of the Fund’s derivative positions could exceed 20% of the Fund’s value. The Fund may also use futures to gain equity exposure and may hold cash as a buffer in the event of market shocks.
Futures Contracts
During the period ended June 30, 2020, the Fund invested in futures contracts to reduce volatility and limit the need to decrease or increase allocations to underlying funds. 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 period ended June 30, 2020, the monthly average notional amount for long contracts was $48.7 million, the monthly average notional amount for short contracts was $248.9 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 June 30, 2020:
Asset Derivative | Liability Derivative | |||||||||||
Primary Risk Exposure | Statement of Assets and Liabilities Location | Total Fair Value* | Statement of Assets and Liabilities Location | Total Fair Value* | ||||||||
Equity Risk | ||||||||||||
Equity Contracts | Receivable for variation margin on futures contracts | $ | 2,446,455 | Payable for variation margin on futures contracts | $ | — | ||||||
Interest Rate Risk | ||||||||||||
Interest Rate Contracts | Receivable for variation margin on futures contracts | 116,423 | Payable for variation margin on futures contracts | — |
* | For futures contracts, the amounts represent the cumulative appreciation/depreciation of these futures contracts as reported in the Schedule of Portfolio Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities as variation margin on futures contracts. |
The following is a summary of the effect of derivative instruments on the Statement of Operations, categorized by risk exposure, for the period ended June 30, 2020:
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 | $ | (63,445,084 | ) | $ | 1,401,411 | ||||
Interest Rate Risk | ||||||||||
Interest Rate Contracts | Net realized gains/(losses) on futures contracts/ Change in net unrealized appreciation/depreciation on futures contracts | 1,841,985 | 333,966 |
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, 2021. Expenses incurred for investment advisory and management services are reflected on the Statement of Operations as “Manager fees.”
For the period ended June 30, 2020, the annual rate due to the Manager and the annual expense limit were as follows:
Annual Rate | Annual Expense Limit | |||||||||
AZL MVP T. Rowe Price Capital Appreciation Plus Fund | 0.10 | % | 0.15 | % |
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 period are reflected on the Statement of Operations as “Recoupment of prior expenses reimbursed by the Manager.” At June 30, 2020, there were no remaining contractual reimbursements that are subject to repayment by the Fund in subsequent years.
7
AZL MVP T. Rowe Price Capital Appreciation Plus Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
In addition, the Manager may voluntarily waive or reimburse additional fees in order to maintain more competitive expense ratios. Any voluntary waivers or reimbursements are not subject to repayment in subsequent years. Information on the total amount waived/reimbursed by the Manager or repaid to the Manager by the Fund during the year can be found on the Statement of Operations. During the period ended June 30, 2020, there were no voluntary waivers.
The Manager or an affiliate of the Manager serves as the investment adviser of certain underlying funds in which the Fund invests. At June 30, 2020, 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 period ended June 30, 2020 is as follows:
Fair Value 12/31/2019 | Purchases at Cost | Proceeds from Sales | Net Realized Gains(Losses) | Change in Net Unrealized Appreciation/ Depreciation | Fair Value 6/30/2020 | Shares as of 6/30/2020 | Dividend Income | Net Realized Gains Distributions from Affiliated Underlying Funds | |||||||||||||||||||||||||||||||||||||
AZL Enhanced Bond Index Fund | $ | 230,857,319 | $ | 1,666,835 | $ | (43,895,857 | ) | $ | 2,056,773 | $ | 9,934,224 | $ | 200,619,294 | 16,901,373 | $ | — | $ | — | |||||||||||||||||||||||||||
AZL S&P 500 Index Fund, Class 2 | 363,698,015 | 19,313,954 | (36,115,451 | ) | 2,135,223 | (13,571,134 | ) | 335,460,607 | 19,071,098 | — | — | ||||||||||||||||||||||||||||||||||
AZL T. Rowe Price Capital Appreciation Fund | 666,813,781 | 9,284,960 | (68,368,263 | ) | (531,216 | ) | (7,545,255 | ) | 599,654,007 | 30,610,210 | — | — | |||||||||||||||||||||||||||||||||
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$ | 1,261,369,115 | $ | 30,265,749 | $ | (148,379,571 | ) | $ | 3,660,780 | $ | (11,182,165 | ) | $ | 1,135,733,908 | 66,582,681 | $ | — | $ | — | |||||||||||||||||||||||||||
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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 SEC. The fees are paid to the Manager on a quarterly basis. The total expenses incurred by the Fund for these services are reflected on the 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 fee, accrued daily and paid monthly. The Administrator is entitled to an annual fee for each additional class of shares of any Fund, certain annual fees in supporting fair values 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 Trust-wide annual fee of $7,500, 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 period ended June 30, 2020, $7,062 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 Trust, each non-interested Trustee receives a $182,500 annual Board retainer, the Lead Director receives an additional $45,625, the Chair of the Nominating and Corporate Governance Committee receives an additional $9,125 annually and the Chair of the Audit Committee receives an additional $9,125 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 Trust in proportion to the assets under management of each trust. During the period ended June 30, 2020, actual Trustee compensation was $579,438 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 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.
8
AZL MVP T. Rowe Price Capital Appreciation Plus Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
The following is a summary of the valuation inputs used as of June 30, 2020 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 | $ | 1,135,733,908 | $ | — | $ | — | $ | 1,135,733,908 | ||||||||||||
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Total Investment Securities | 1,135,733,908 | — | — | 1,135,733,908 | ||||||||||||||||
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Other Financial Instruments:* | ||||||||||||||||||||
Futures Contracts | 2,562,878 | — | — | 2,562,878 | ||||||||||||||||
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Total Investments | $ | 1,138,296,786 | $ | — | $ | — | $ | 1,138,296,786 | ||||||||||||
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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. |
5. Security Purchases and Sales
For the period ended June 30, 2020, cost of purchases and proceeds from sales of securities (excluding securities maturing less than one year from acquisition) were as follows:
Purchases | Sales | |||||||||
AZL MVP T. Rowe Price Capital Appreciation Plus Fund | $ | 30,265,749 | $ | 148,379,571 |
6. Investment Risks
The risks below are presented in an order intended to facilitate readability. Their order does not imply that the realization of one risk is more likely to occur more frequently than another risk, nor does it imply that the realization of one risk is likely to have a greater adverse impact than another risk.
Derivatives Risk: The Fund may invest directly or through affiliated or unaffiliated mutual funds or unregistered investment pools in derivative instruments such as futures, options, and options on futures. 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 other party to a derivatives contract could default.
Fund of Fund 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.
Market Risk: The market price of securities owned by the underlying funds may go up or down, sometimes rapidly and unpredictably. Securities may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of a security may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment, as well as natural disasters, and outbreaks of infectious illnesses or other widespread public health issues.
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, 2019 was $1,056,717,862. The gross unrealized appreciation/(depreciation) on a tax basis was as follows:
Unrealized appreciation | $ | 204,651,253 | ||
Unrealized (depreciation) | — | |||
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Net unrealized appreciation/(depreciation) | $ | 204,651,253 | ||
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The tax character of dividends paid to shareholders during the year ended December 31, 2019 was as follows:
Ordinary Income | Net Long-Term | Total Distributions(a) | |||||||||||||
AZL MVP T. Rowe Price Capital Appreciation Plus Fund | $ | 25,425,285 | $ | 32,396,724 | $ | 57,822,009 |
(a) | Total distributions paid may differ from the Statements of Changes in Net Assets because dividends were recognized when actually paid for tax purposes. |
9
AZL MVP T. Rowe Price Capital Appreciation Plus Fund
Notes to the Financial Statements
June 30, 2020 (Unaudited)
At December 31, 2019, 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 MVP T. Rowe Price Capital Appreciation Plus Fund | $ | 42,542,527 | $ | 34,317,535 | $ | — | $ | 204,651,253 | $ | 281,511,315 |
(a) | The difference between book-basis and tax-basis unrealized appreciation/depreciation was attributable primarily to tax deferral of losses on wash sales, mark-to-market of futures contracts 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 June 30, 2020, the Fund had an individual shareholder account which is affiliated with the Manager representing ownership in excess of 85% of the Fund. As of June 30, 2020, the Fund had a controlling interest in excess of 50% in the AZL T. Rowe Price Capital Appreciation Fund, which is affiliated with the Manager. Investment activities of these shareholders could have a material impact to the Fund.
9. Subsequent Events
Management of the Fund has evaluated the need for additional disclosures or adjustments resulting from events through the date the financial statements were issued. Based on this evaluation, there were no subsequent events to report that would have material impact on the Fund’s financial statements.
10
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-PORT. 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.
11
Statement Regarding the Trust’s Liquidity Risk Management Program (Unaudited)
Each series (each such series a “Fund” and, together, the “Funds”) of the Allianz Variable Insurance Products Trust, but not the AZL Government Money Market Fund, and of the Allianz Variable Insurance Products Fund of Funds Trust (each such trust a “Trust” and, together, the “Trusts”) has adopted and implemented a written liquidity risk management program (the “Program”) pursuant to Rule 22e-4 under the Investment Company Act of 1940 (the “Liquidity Rule”). The Program includes policies and procedures reasonably designed to assess and manage each Fund’s liquidity risk (the “risk that a fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests in the fund”) and to comply with the requirements of the Liquidity Rule, including: (i) assessment, management and periodic review of liquidity risk; (ii) classification of portfolio holdings; (iii) establishment of a highly liquid investment minimum (“HLIM”); (iv) limitation of illiquid investments; and (v) redemptions in-kind.
The Board of Trustees of each Fund (together, the “Board”) approved the designation of the individual officers of the Trusts who serve as the administrators of the Program (the “Program Administrators”). The Program Administrators oversee the monitoring of liquidity and liquidity risk for each Fund on an ongoing basis.
At a meeting of the Board held on February 18, 2020, the Program Administrators provided a written report (the “Report”) to the Board addressing the operation of the Program and assessing its adequacy and effectiveness of implementation for the annual period from January 1, 2019 through December 31, 2019 (the “Reporting Period”). This Report included an overview of the Program and conclusions with respect to the adequacy of the policies and procedures of the Program and the effectiveness of Program implementation. The Report took into account the following factors enumerated in the Liquidity Rule and identified in the Program, as applicable:
1) Each Fund’s investment strategy and liquidity of portfolio investments during both normal and reasonably foreseeable stressed conditions, including: (i) whether the Fund’s investment strategy is appropriate for an open-end fund; (ii) the extent to which the Fund’s strategy involves a relatively concentrated portfolio or large positions in particular issuers; and, as applicable, (iii) the Fund’s use of borrowings for investment purposes; and (iv) the Fund’s use of derivatives;
2) Short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions; and
3) Holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources.
Based on the information considered, the Report concluded that each Fund continues to have an investment strategy that is appropriate for an open-end fund, and that each Fund is reasonably likely to be able to meet redemption requests without significant dilution of remaining shareholders’ interests in the Fund.
In accordance with the Program, each Fund’s portfolio investments were classified into one of four liquidity categories as provided in the Liquidity Rule as applicable during the Reporting Period. Liquidity classification determinations take into account a variety of factors including market, trading and investment-specific considerations, as well as market depth in accordance with the requirements of the Liquidity Rule and as specified in the Program, and generally incorporate analysis from a third-party data vendor.
Pursuant to the Liquidity Rule, no Fund may acquire any illiquid investment if, after the acquisition, the Fund would have invested more than 15% of its assets in illiquid investments that are assets. The Program includes provisions reasonably designed to comply with the 15% limit on illiquid investments. During the Reporting Period, no Fund breached the 15% limit on illiquid investments.
During the Reporting Period, each Fund maintained a designated HLIM. The Program Administrators reviewed each Fund’s HLIM and concluded that no changes were recommended. During the Reporting Period, no Fund fell below its approved HLIM. The Program includes provisions reasonably designed to comply with the HLIM for each Fund.
On the basis of the review, the Report concluded that: (i) the Program remains reasonably designed to manage each Fund’s liquidity risk; (ii) the Program was implemented and operated effectively to achieve the goal of assessing and managing each Fund’s liquidity risk during the Reporting Period; and (iii) each Fund was able to meet requests for redemption without significant dilution of remaining investors in the Fund during the Reporting Period. The Program Administrators did not recommend any material changes to the Program.
12
The Allianz VIP Fund of Funds are distributed by Allianz Life Financial Services, LLC. | ||
These Funds are not FDIC Insured. | SARRPT0620 08/20 |
Item 2. | Code of Ethics. |
Not applicable __ only for annual reports.
Item 3. | Audit Committee Financial Expert. |
Not applicable __ only for annual reports.
Item 4. | Principal Accountant Fees and Services. |
Not applicable __ only for annual reports.
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. |
Not applicable.
Item 13. | Exhibits. |
(a)(1) | Not applicable __ only for annual reports. |
(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 Fund of Funds Trust
By (Signature and Title) | /s/ Brian Muench | |
Brian Muench, Principal Executive Officer | ||
Date August 31, 2020 |
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 August 31, 2020 |
By (Signature and Title) | /s/ Bashir C. Asad | |
Bashir C. Asad, Principal Financial Officer & Principal Accounting Officer | ||
Date August 31, 2020 |