FILE NOS: 333-_____
811-21624
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. ______ [ ] Post-Effective Amendment No. _____
(Check appropriate box or boxes)
Exact Name of Registrant as Specified in Charter: Allianz Variable Insurance Products Fund of Funds Trust | Area Code and Telephone Number: 763-765-6500 |
Address of Principal Executive Offices: (Number, Street, City, State, Zip Code) 5701 Golden Hills Drive, Minneapolis, MN 55416-1297 | |
Name and Address of Agent for Service: Erik T. Nelson 5701 Golden Hills Drive Minneapolis, MN 55416-1297 With a copy to: Michael J. Radmer, Esq. Dorsey & Whitney LLP 50 South Sixth Street Minneapolis, MN 55402 | Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of the Registration Statement. |
(Number and Street) (City) (State) (Zip Code) |
Calculation of Registration Fee under the Securities Act of 1933:
Title of Securities Being Registered | Amount Being Registered | Proposed Maximum Offering Price per Unit | Proposed Maximum Aggregate Offering Price | Amount of Registration Fee |
Shares of Beneficial Interest | No filing fee is due because of reliance on Section 24(f) of the Investment Company Act of 1940 |
It is proposed that this filing will become effective on August 17, 2016 pursuant to Rule 488.
PART A:
PROXY STATEMENT/PROSPECTUS
ALLIANZ VARIABLE INSURANCE PRODUCTS FUND OF FUNDS TRUST
AZL MVP Fusion Growth Fund
5701 Golden Hills Drive
Minneapolis, MN 55416-1297
Dear Allianz Life or Allianz Life of New York Variable Annuity Contract Owner:
The Board of Trustees of the Allianz Variable Insurance Products Fund of Funds Trust (the "Trust") is pleased to submit a proposal to reorganize a series of the Trust into another series of the Trust, as follows:
Acquired Fund | Acquiring Fund |
AZL MVP Fusion Growth Fund | AZL MVP Growth Index Strategy Fund |
As the owner of a variable annuity contract issued by Allianz Life Insurance Company of North America or Allianz Life Insurance Company of New York (together, "Allianz Life"), your contract is funded by shares of the Acquired Fund. Accordingly, we ask that you indicate whether you approve or disapprove of the proposed reorganization with respect to your Fund by submitting instructions on how to vote your beneficial shares by phone, internet, or mail.
The proposed reorganization is being recommended primarily because Allianz Life is expected no longer to offer the Acquired Fund as an investment option in its variable annuity contracts. As a result, the Acquired Fund is expected to lose assets and shrink in size, which, over time, may be expected to result in the Fund's fixed costs being spread over an ever smaller asset base, meaning that the expenses of the Acquired Fund may increase as a percentage of assets. The overall fees and expenses of the Acquiring Fund are lower than the fees and expenses of the Acquired Fund; and the reorganization is expected to result in a larger Fund that is better able to achieve economies of scale by spreading certain fixed costs over a larger, and increasing, asset base.
THE BOARD OF TRUSTEES OF THE TRUST BELIEVES THAT THE TRANSACTION IS IN THE BEST INTERESTS OF THE ACQUIRED FUND AND ITS SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL.
The Board considered various factors in reviewing the proposed reorganization on behalf of the Acquired Fund's shareholders, including, but not limited to, the following:
● | The similarity in investment objectives and strategies between the Acquiring Fund and the Acquired Fund; |
● | The expectation that the reorganization will reduce overall expenses for shareholders of the Acquired Fund; and |
● | The expectation that the reorganization will have no federal income tax consequences for contract owners. |
If the proposal is approved, the Acquiring Fund will acquire all of the assets and assume all of the liabilities of the Acquired Fund in exchange for newly issued shares of the Acquiring Fund. These Acquiring Fund shares in turn will be distributed proportionately to the shareholders of the Acquired Fund in complete liquidation of the Acquired Fund. To accomplish the proposed reorganization, the Board of Trustees of the Acquired Fund submits for your approval an Agreement and Plan of Reorganization with respect to the Acquired Fund. The shareholders meeting to consider the proposals will take place at 10:00 a.m., central time, on October 12, 2016, and the transactions, if approved, are expected to close within approximately four weeks thereafter.
Whether or not you plan to attend the meeting, please review the enclosed voting instruction form. You may submit your instructions on voting the shares that fund your contract by phone, internet, or mail. Following this letter is a Q&A summarizing the reorganization and information on how to vote your shares. Please read the proxy statement/prospectus carefully before you vote.
Thank you for your prompt attention to this important matter.
Sincerely,
![](https://capedge.com/proxy/N-14/0001301708-16-000015/image00002.jpg)
Brian Muench
Chairman and President
Allianz Variable Insurance Products Fund of Funds Trust
Chairman and President
Allianz Variable Insurance Products Fund of Funds Trust
ALLIANZ VARIABLE INSURANCE PRODUCTS FUND OF FUNDS TRUST
PROXY STATEMENT/PROSPECTUS Q&A
THE FOLLOWING IS A BRIEF OVERVIEW OF THE CHANGES BEING RECOMMENDED FOR THE FOLLOWING ACQUIRED FUND. WE ENCOURAGE YOU TO READ THE FULL TEXT OF THE ENCLOSED PROXY STATEMENT/PROSPECTUS.
Acquired Fund | Acquiring Fund |
AZL MVP Fusion Growth Fund | AZL MVP Growth Index Strategy Fund |
Q: Why is the reorganization being proposed?
The reorganization is being proposed primarily because Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York (together, "Allianz Life") are expected no longer to offer the Acquired Fund as an investment options in their variable annuity contracts. As a result, the Acquired Fund is expected to lose assets and shrink in size, which, over time, may be expected to result in the Fund's fixed costs being spread over an ever smaller asset base, meaning that the expenses of the Acquired Fund may increase as a percentage of assets. The overall fees and expenses of the Acquiring Fund are lower than the fees and expenses of the Acquired Fund; and the reorganization is expected to result in a larger Fund that is better able to achieve economies of scale by spreading certain fixed costs over a larger, and increasing, asset base. The Board of Trustees of the Trust has determined that the reorganizations are in the best interests of the Acquired Fund's shareholders and recommends that you vote FOR the reorganization with respect to the Fund. |
Q: Will the expenses of the Fund increase as a result of the reorganization?
The management fees paid by the Acquiring Fund are lower than those paid by the Acquired Fund, and the total expense ratio for the Acquiring Fund following the reorganization is lower than the total expense ratio for the Acquired Fund prior to the reorganization. Therefore, as shown in the pro forma fee table on page [9] of the enclosed proxy statement/prospectus, the expenses of the Acquired Fund are expected to decrease as a result of the reorganization. |
Q: Who is paying the costs of the shareholder meeting and this proxy solicitation?
Costs related to each proxy solicitation, shareholder meeting and merger will be shared equally between Allianz Investment Management LLC, the Funds' investment manager, and the Acquired Fund, except that the expenses borne by the Acquired Fund will not exceed $178,000. |
Q: Will I incur taxes as a result of the reorganization?
No. For U.S. federal income tax purposes, the reorganization is not expected to be a taxable event for contract owners. |
Please see the section entitled "Tax Consequences" in the enclosed proxy statement/prospectus for additional information. A portion of the assets of the Acquired Fund may be sold in connection with its reorganization. Any such sales will cause the Acquired Fund to incur transaction costs, and may require it to make distributions in order to meet the distribution requirement applicable to it as a regulated investment company ("RIC") and to avoid a fund-level tax. |
Q: If approved, when will the reorganization happen?
If shareholders approve the reorganization, they will take place shortly after the shareholder meeting. |
Q: Is there anything I need to do to convert my shares?
No. Upon shareholder approval of the reorganization, the Acquired Fund shares that serve as a funding vehicle for benefits under your variable annuity contract automatically will be exchanged for shares of the Acquiring Fund. The total value of the Acquiring Fund shares that a shareholder receives in the reorganization will be the same as the total value of the Acquired Fund shares held by the shareholder immediately before the reorganization. |
Q: How does the Board recommend that I vote?
After careful consideration, the Board recommends that you vote FOR the reorganization of the Fund. |
Q: How and when do I vote?
You can vote in one of four ways: |
- By mail with the enclosed voting instruction form
- By telephone
- By web site
- In person at the meeting
Please refer to the enclosed voting instruction form for the telephone number and internet address. Please vote as soon as possible by following the instructions on the voting instruction form. |
Q: Whom should I call if I have questions?
If you have questions about any of the proposals described in the proxy statement/prospectus or about voting procedures, please call toll free at 1-800-624-0197. |
ALLIANZ VARIABLE INSURANCE PRODUCTS FUND OF FUNDS TRUST
5701 Golden Hills Drive
Minneapolis, Minnesota 55416-1297
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 12, 2016
AZL MVP Fusion Growth Fund
A special meeting of the shareholders of the AZL MVP Fusion Growth Fund (the "Acquired Fund,") will be held at 10:00 a.m. Central Time on October 12, 2016, at the offices of Allianz Life Insurance Company of North America, 5701 Golden Hills Drive, Minneapolis, Minnesota. At the meeting, shareholders of the Acquired Fund will consider the following proposals:
- | To approve an Agreement and Plan of Reorganization (the "Plan") between the Acquired Fund and the AZL MVP Growth Index Strategy Fund (the "Acquiring Fund"). Both Funds are series of the Allianz Variable Insurance Products Fund of Funds Trust. Under the Plan, the Acquiring Fund would acquire all of the assets and assume all of the liabilities of the Acquired Fund in exchange for shares of the Acquiring Fund, which would be distributed proportionately to the shareholders of the Acquired Fund in complete liquidation of the Acquired Fund, and the assumption of the Acquired Fund's liabilities; and |
- | Such other business as may properly come before the meeting, or any adjournment of the meeting. |
The Acquired Fund issues and sells shares to certain accounts of Allianz Life Insurance Company of North America ("Allianz Life") and Allianz Life Insurance Company of New York ("Allianz Life of NY"). The separate accounts hold shares of mutual funds, including the Acquired Fund, which serve as a funding vehicle for benefits under variable annuity contracts issued by Allianz Life and Allianz Life of NY. As the owners of the assets held in the separate accounts, Allianz Life and Allianz Life of NY are the shareholders of the Acquired Fund and are entitled to vote the shares of the Acquired Fund. However, Allianz Life and Allianz Life of NY will vote outstanding shares of the Acquired Fund in accordance with instructions given by the owners of variable annuity contracts for which the Fund serves as a funding vehicle. This Notice is being delivered to owners of variable annuity contracts whose contracts were funded by shares of the Acquired Fund on the record date, so that they may instruct Allianz Life and Allianz Life of NY how to vote the shares of the Acquired Fund underlying their contracts.
Shareholders of record at the close of business on July 22, 2016, are entitled to vote at the meeting.
By Order of the Board of Trustees
![](https://capedge.com/proxy/N-14/0001301708-16-000015/image00003.jpg)
Michael J. Radmer
Secretary
[August 31], 2016
YOU CAN VOTE QUICKLY AND EASILY.
PLEASE FOLLOW THE INSTRUCTIONS ON THE ENCLOSED VOTING INSTRUCTION FORM.
PROXY STATEMENT/PROSPECTUS — [AUGUST 31], 2016
Acquired Fund | Acquiring Fund |
AZL MVP Fusion Growth Fund ("Fusion Fund") | AZL MVP Growth Index Strategy Fund ("Index Strategy Fund") |
This proxy statement/prospectus describes a proposed Agreement and Plan of Reorganization (the "Plan") pursuant to which the outstanding shares of the Acquired Fund above, which serves as a funding vehicle for your variable annuity contract, would be exchanged for shares of the Acquiring Fund. Each of the Acquiring Fund and the Acquired Fund (each a "Fund" and together the "Funds") are series of the Allianz Variable Insurance Products Fund of Funds Trust (the "Trust"). The address of the Funds is 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. The phone number of the Funds is 1-800-624-0197.
THE BOARD OF TRUSTEES OF THE TRUST UNANIMOUSLY RECOMMENDS APPROVAL OF THE PLAN.
These securities are not deposits or obligations of, or guaranteed by, any bank or an affiliate of any bank, nor are they insured by the Federal Deposit Insurance Corporation (FDIC), or any other agency of the United States, or any bank or an affiliate of any bank; and are subject to investment risks including possible loss of value.
As with all mutual funds, the Securities and Exchange Commission (the "SEC") has not approved or disapproved these securities or passed on the adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Each of the Funds is subject to the information requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940 (the "1940 Act") and files reports, proxy materials, and other information with the SEC (Investment Company Act file no. 811-21624). These reports, proxy materials, and other information can be inspected and copied at the Public Reference Room maintained by the SEC. Copies may be obtained, after paying a duplicating fee, by electronic request e-mailed to publicinfo@sec.gov, or by writing to the Public Reference Branch, Office of Consumer Affairs and Information Services, Securities and Exchange Commission, Washington, D.C. 20549-0102. In addition, copies of these documents may be viewed on-line or downloaded from the SEC's Web site at http://www.sec.gov.
You should retain this proxy statement/prospectus for future reference. It sets forth concisely the information about the Acquiring Fund that a prospective investor should know before investing. Additional information is set forth in the Statement of Additional Information, dated the same date as this proxy statement/prospectus, relating to this proxy statement/prospectus.
This proxy statement/prospectus was first mailed to contract owners on or about [August 31], 2016.
WHERE TO GET MORE INFORMATION
The following documents have been filed with the SEC and are incorporated by reference into this combined proxy statement/prospectus:
• | The Statement of Additional Information, dated the same date as this proxy statement/prospectus, relating to the Reorganization; |
• | the prospectus of the Acquired Fund (SEC file nos. 333-119867 and 811-21624), dated April 25, 2016, as supplemented to date; |
• | the Statement of Additional Information of the Acquired Fund, dated April 25, 2016, as supplemented to date; and |
• | the reports of the Independent Registered Public Accounting Firm and the audited financial statements included in the Annual Report to Shareholders of the Acquired Fund for the year ended December 31, 2015. |
For a free copy of any of the documents listed above and/or to ask questions about this combined proxy statement/prospectus, please call toll-free 1-800-624-0197 or write to Allianz Variable Insurance Products Fund of Funds Trust, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297.
ABOUT THE ACQUIRED AND ACQUIRING FUND
The Acquired Fund issues and sells shares to separate accounts of Allianz Life Insurance Company of North America ("Allianz Life") and Allianz Life Insurance Company of New York ("Allianz Life of NY"). These separate accounts hold shares of mutual funds, including the Acquired Fund, which serves as funding vehicles for benefits under variable annuity contracts issued by Allianz Life and Allianz Life of NY (the "Contracts"). Each separate account has subaccounts that
2
invest in the Acquired Fund and certain other mutual funds. Owners of the Contracts ("Contract Owners") allocate the value of their Contracts among these subaccounts. As the owners of the assets held in the separate accounts, Allianz Life and Allianz Life of NY are the shareholders of the Acquired Fund and are entitled to vote the shares of the Acquired Fund. However, Allianz Life and Allianz Life of NY will vote outstanding shares of the Acquired Fund in accordance with instructions given by the Contract Owners who are eligible to vote at the meeting, and will vote shares as to which they have received no instructions for or against the proposal in the same proportion as the shares for which they receive instructions.
The Funds are open-end management investment companies. If the Plan is approved, the shares of the Acquiring Fund will be distributed proportionately by the Acquired Fund to the holders of its shares in complete liquidation of the Acquired Fund. Each Acquired Fund shareholder would become the owner of Acquiring Fund shares having a total net asset value equal to the total net asset value of that shareholder's holdings in the Acquired Fund.
The following information summarizes the proposed reorganization of the Acquired Fund into the Acquiring Fund (the "Reorganization"). The shareholders of the Acquired Fund will vote whether to approve the Reorganization affecting their Fund
HOW THE REORGANIZATION WILL WORK
The Acquired Fund will transfer all of its assets to the Acquiring Fund. The Acquiring Fund will assume all of the Acquired Fund's liabilities.
The Acquiring Fund will issue shares of beneficial interest to the Acquired Fund in an amount equal to the value of the assets that it receives from the Acquired Fund, less the liabilities it assumes. These shares will be distributed to the Acquired Fund's shareholders (the separate accounts) in proportion to their holdings in the Acquired Fund. The value of your interest in the subaccount investing in the Acquiring Fund received in connection with the Reorganization will equal the value of your interest in the subaccounts that were invested in the Acquired Fund immediately before the Reorganization. You will not pay any sales charge in connection with this distribution of shares. If you already have an Acquiring Fund account, shares distributed in the Reorganization will be added to that account.
FUND INVESTMENT OBJECTIVES
The investment objective for both Funds is to seek long-term capital appreciation. The investment objective of each Fund may be changed by the Board of Trustees without shareholder approval.
3
TABLE OF CONTENTS
SECTION A -- PROPOSAL | 5 |
PROPOSAL: Approve or Reject the Agreement and Plan of Reorganization | 5 |
SUMMARY | 5 |
How The Reorganization Will Work | 5 |
Comparison of the Acquired Funds and the Acquiring Funds | 5 |
Comparison of Investment Objectives | 5 |
Comparison of Investment Strategies | 5 |
Comparison of Investment Policies | 8 |
Risk Factors | 8 |
Fees & Expenses | 9 |
Performance | 10 |
Tax Consequences | 12 |
THE REORGANIZATION | 15 |
Terms of the Reorganization | 15 |
Conditions to Closing the Reorganization | 16 |
Termination of the Plan | 16 |
Tax Status of Each Reorganization | 16 |
Certain Tax Consequences | 17 |
Reasons for the Proposed Reorganization and Board Deliberations | 18 |
Board's Determinations | 19 |
Recommendation and Vote Required | 20 |
SECTION B — Proxy Voting and Shareholder Meeting Information | 21 |
SECTION C — Capitalization, Ownership of Fund Shares and Other Fund Information | 23 |
Financial Highlights | 24 |
EXHIBIT A — ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUND | A-1 |
4
SECTION A -- PROPOSAL
PROPOSAL: APPROVE OR REJECT THE AGREEMENT AND PLAN OF REORGANIZATION
SUMMARY
This proxy statement/prospectus is being used by the Acquired Fund to solicit voting instructions for the proposal to approve the Plan providing for the Reorganization of the Acquired Fund into the Acquiring Fund.
Acquired Fund | Acquiring Fund |
AZL MVP Fusion Growth Fund ("Fusion Fund") | AZL MVP Growth Index Strategy Fund ("Index Strategy Fund") |
The following is a summary. More complete information appears later in this proxy statement/prospectus. You should read the entire proxy statement/prospectus, exhibits and accompanying materials because they contain details that are not in this summary.
HOW THE REORGANIZATION WILL WORK
The Acquired Fund will transfer all of its assets to the Acquiring Fund, and the Acquiring Fund will assume all of the Acquired Fund's liabilities.
The Acquiring Fund will issue shares of beneficial interest in an amount equal to the value of the assets that it receives from the Acquired Fund, less the liabilities it assumes. These shares will be distributed to the Acquired Fund's shareholders (the separate accounts) in proportion to their holdings in the Acquired Fund. The value of your interest in the subaccount investing in the Acquiring Fund received in connection with the Reorganization will equal the value of your interest in the subaccounts that were invested in the Acquired Fund immediately before the Reorganization.
As part of the Reorganization, systematic transactions (such as the automatic investment plan, dollar-cost average program, or flexible rebalancing program) currently set up for your Acquired Fund account will be transferred to your new Acquiring Fund account. If you do not want your systematic transactions to continue, please contact your financial representative to make changes.
Neither the Acquired Fund nor the Contract Owners whose contract values are allocated to subaccounts investing in the Acquired Fund will pay any sales charge in connection with the Reorganization.
After the Reorganization has been completed, contract values that were allocated to subaccounts investing in the Acquired Fund will be allocated to subaccounts investing in the Acquiring Fund. The Acquired Fund will be terminated.
COMPARISON OF THE ACQUIRED FUNDS AND THE ACQUIRING FUNDS
The Acquired Fund and the Acquiring Fund:
• | Are outstanding series of an open-end management investment company organized as a Delaware statutory trust. |
• | Have Allianz Investment Management LLC (the "Manager") as their investment adviser. |
• | Have the same policies for buying and selling shares and the same exchange rights. |
• | Have the same distribution policies. |
• | Are available only to Contract Owners who allocate contract value to a subaccount that invests in the Funds. |
COMPARISON OF INVESTMENT OBJECTIVES
The investment objective for both Funds is to seek long-term capital appreciation. The investment objective of each Fund may be changed by the Board of Trustees without shareholder approval.
TAX CONSEQUENCES
Provided that the Contracts qualify to be treated as life insurance contracts under Section 7702(a) of the Internal Revenue Code of 1986, as amended (the "Code") or annuity contracts under Section 72 of the Code, the Reorganization will not be a taxable event for U.S. federal income tax purposes for Contract Owners who have a portion of their Contract allocated to a Fund, regardless of the tax status of the Reorganization, and any dividend declared in connection with the Reorganization
5
will not be taxable to Contract Owners. Contract Owners should consult the prospectus or other information provided by the insurance company regarding their Contracts as to the specific consequences to them of the Reorganization, including the applicability and effect of any possible state, local, non-U.S. and other tax consequences of the Reorganization.
As a condition to the closing of the Reorganization, each Fund will receive an opinion from Ropes & Gray LLP substantially to the effect that, as described in more detail in the section entitled "Tax Status of the Reorganization," it is more likely than not that the Reorganization will qualify as a tax-free reorganization for U.S. federal income tax purposes and that accordingly no gain or loss is expected to be recognized by the Acquired Fund or its shareholders (i.e., the separate accounts of Allianz Life and Allianz Life of NY) as a result of the Reorganization, all as described in more detail in the section entitled "Tax Status of the Reorganization."
For more information about the U.S. federal income tax consequences of the Reorganization, see the section entitled "Tax Status of the Reorganization."
COMPARISON OF PRINCIPAL INVESTMENT STRATEGIES
The Funds have similar principal investment strategies insofar as each of the Funds is a fund of funds, which pursues its investment objective by investing primarily in the shares of other mutual funds managed by affiliates of the Manager. Both Funds also employ the MVP (Managed Volatility Portfolio) risk management process described below. The primary difference among the Funds is that the Acquiring Fund invests in five underlying funds which are index funds, whereas the Acquired Fund invests in a wider variety of underlying funds, many of which are actively managed by an investment manager. The Acquired Fund also allocates a slightly higher proportion of its assets (approximately 5%) to equity funds, versus fixed income funds.
Principal Investment Strategies of each Fund
Fusion Fund (Acquired Fund)
The Fund is a fund of funds that invests primarily in the shares of other mutual funds managed by affiliates of the Manager that represent different asset classes in the Fund's asset allocation. The Fund is designed to provide a diversified portfolio consisting of funds in equity and fixed income asset classes, combined with the MVP (Managed Volatility Portfolio) risk management process intended to adjust the risk of the portfolio based on quantitative indicators of market risk, such as the current level of fund, underlying fund and market volatility.
Under normal market conditions, the Manager will allocate approximately 80% - 100% of the Fund's assets to underlying funds. Of this underlying fund allocation, approximately 70% - 90% will be allocated to equity funds and approximately 10% - 30% will be allocated to fixed income funds. The Manager may allocate the Fund's assets outside of the target ranges specified here when the Manager believes that doing so would better enable the Fund to pursue its investment objective or is necessary for temporary defensive purposes.
The Fund is designed to provide diversification across several major asset classes, and the Fund is not restricted in its investments in any particular asset class. The Manager monitors the Fund's holdings and cash flow and periodically adjusts the Fund's asset allocation. The Manager utilizes a strategic asset allocation model to help determine appropriate asset allocations for the Fund among the underlying investments.
Up to 20% of the Fund's assets may be allocated to the Fund's MVP risk management process, which is intended to manage the risk of the Fund and its allocation to equities and to other, relatively more volatile asset classes, such as high-yield bonds. This process could cause the equity exposure of the Fund to fluctuate but equity exposure generally will not be lower than 10%. Generally, the MVP risk management process would not reduce equity exposure during periods of moderate and low market volatility. During periods of extreme market volatility, the MVP process could result in equity exposure that is much lower than 10%.
The Manager will implement the Fund's MVP risk management process using futures. Futures provide the Manager an effective method to reduce volatility of the Fund and limit the need to decrease or increase allocations to underlying funds. The process is intended to limit market exposure during periods of high volatility, although the process may not always be successful. In some market conditions exhibiting high volatility, the process may result in the Fund underperforming the market during rising markets, and outperforming the market during declining markets. The Manager seeks to maintain an annualized volatility level for the Fund at or below 14% over a typical business cycle (i.e., over a period of a year or more). The actual or realized volatility for short-term or long-term periods of time will be dependent on the market environment
6
and may be significantly higher in the event that the strategy is unsuccessful. The MVP process is employed when normal market conditions, as defined by the Manager, do not exist.
Index Strategy Fund (Acquiring Fund)
The Fund is a fund of funds that invests primarily in a combination of five underlying index funds (the "Index Strategy Underlying Funds"):
AZL Enhanced Bond Index Fund
AZL S&P 500 Index Fund
AZL Mid Cap Index Fund
AZL Small Cap Stock Index Fund
AZL International Index Fund
The Fund is designed to provide a diversified portfolio consisting of index funds in equity and fixed income asset classes, combined with the MVP (Managed Volatility Portfolio) risk management process intended to adjust the risk of the portfolio based on quantitative indicators of market risk, such as the current level of fund and market volatility.
Under normal market conditions, the Manager will allocate approximately 80% - 100% of the Fund's assets to the Index Strategy Underlying Funds. Of this allocation, approximately 65% - 85% will be allocated to the equity index funds and approximately 15% - 35% will be allocated to the bond index fund. The AZL Enhanced Bond Index Fund is a bond index fund; the other four Index Strategy Underlying Funds are equity index funds. The Manager may allocate the Fund's assets outside of the target ranges specified here when the Manager believes that doing so would better enable the Fund to pursue its investment objective or is necessary for temporary defensive purposes.
Up to 20% of the Fund's assets may be allocated to the Fund's MVP risk management process, which is intended to manage the risk of the Fund and its allocation to equities. This process could cause the equity exposure of the Fund to fluctuate, but equity exposure generally will not be lower than 10%. Generally, the MVP risk management process would not reduce equity exposure during periods of moderate and low market volatility. During periods of extreme market volatility, the MVP process could result in equity exposure that is much lower than 10%.
The Manager will implement the Fund's MVP risk management process using futures. Futures provide the Manager an effective method to reduce volatility of the Fund and limit the need to decrease or increase allocations to underlying funds. The process is intended to limit market exposure during periods of high volatility, although the process may not always be successful. In some market conditions exhibiting high volatility, the process may result in the Fund underperforming the market during rising markets, and outperforming the market during declining markets. The Manager seeks to maintain an annualized volatility level for the Fund at or below 13% over a typical business cycle (i.e., over a period of a year or more). The actual or realized volatility for short-term or long-term periods of time will be dependent on the market environment and may be significantly higher in the event that the strategy is unsuccessful. The MVP process is employed when normal market conditions, as defined by the Manager, do not exist.
COMPARISON OF INVESTMENT POLICIES
If shareholders of the Acquired Funds approve the Reorganization, they will be subject to the investment policies of the Acquiring Fund. Other than as described herein, the Manager does not believe that the differences between the investment policies result in any material difference in the way the Funds are managed.
RISK FACTORS
The principal risks of investing in the Funds are shown in the table below. A description of each principal risk follows the table. Depending upon its assessment of changing market conditions, the Manager at any time may change a Fund's emphasis on particular investments or asset classes, which may change the risks associated with the Fund. The fact that a risk is not identified as a principal risk for a particular Fund does not mean that the Fund may not be subject to that risk.
The principal risks associated with investments in the Funds are similar because the Funds have the same investment objective and similar principal investment strategies and investment policies, except as described herein. The actual risks of investing in each Fund depend on the securities held in each Fund's portfolio and on market conditions, both of which change over time.
7
The price per share of the Funds will fluctuate with changes in the value of the investments held by the Funds. You may lose money by investing in the Funds. An investment in the Funds is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. There is no guarantee that the Funds will achieve their objectives.
Risk | Fusion Fund (Acquired Fund) | Index Strategy Fund (Acquiring Fund) |
Allocation Risk | X | X |
Market Risk | X | X |
Interest Rate Risk | X | X |
Credit Risk | X | X |
Income Risk | X | X |
Call Risk (Prepayment Risk) | X | X |
Extension Risk | X | X |
Issuer Risk | X | X |
Futures Risk (Derivatives Risk) | X | X |
Foreign Risk | X | |
Index Fund Risk | X |
All of the Funds are funds of funds and are subject to the general risk associated with the allocation of their assets to particular underlying investments. In addition, separate from possible investments in derivatives by the Funds' various underlying funds, all of the Funds are permitted to invest in derivatives or in investment pools that invest in derivatives. The risks listed below are generally applicable to all the Funds.
Allocation Risk - The risk that the Manager allocates assets in a manner which results in the Fund underperforming other funds with similar investment objectives. For those Funds where the Manager has limited discretion to allocate Fund assets among various underlying investments, the Fund's allocation structure may cause the Fund to underperform other funds of funds with similar investment objectives. For those Funds where the Manager has discretion to allocate Fund assets among various underlying investments which represent different asset classes, each underlying investment is subject to different levels and combinations of risk, depending on the Fund's exact asset allocation.
Market Risk - The market price of securities owned by the underlying fund 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. They may also decline due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. During a general downturn in the securities markets, multiple asset classes may decline in value simultaneously. The value of the underlying fund's portfolio may fluctuate to a greater or lesser degree than fluctuations of the general stock market. For those underlying funds that invest in stocks of foreign companies, the value of the underlying fund's portfolio will be affected by changes in foreign stock markets and the special economic and other factors that might primarily affect stock markets in particular foreign countries and regions. Equity securities generally have greater price volatility than fixed income securities.
Interest Rate Risk - As nominal interest rates rise, the value of fixed income securities held by an underlying fund is likely to decrease. Securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. A nominal interest rate can be described as the sum of a real interest rate and an expected inflation rate. Inflation-indexed securities, including Treasury Inflation-Protected Securities ("TIPS"), decline in value when real interest rates rise. In certain interest rate environments, such as when real interest rates are rising faster than nominal interest rates, inflation-indexed securities may experience greater losses than other fixed income securities with similar durations. Interest rates in the U.S. and other countries are at, or near, historic lows, which may increase the Fund's exposure to risks related to rising rates.
Credit Risk - Credit risk is the chance that the issuer of a debt security will fail to repay interest and principal in a timely manner, reducing the fund's return. Also, an issuer may suffer adverse changes in financial condition that could lower the credit quality and liquidity of a security, leading to greater volatility in the price of the security and of the fund's shares.
8
Income Risk - Income risk is the chance that falling interest rates will cause the underlying fund's income to decline. Income risk is generally higher for short-term bonds.
Call Risk (Prepayment Risk) - If interest rates fall, it is possible that issuers of callable securities held by the underlying fund will call or prepay their securities before their maturity dates. In this event, the proceeds from the called securities would most likely be reinvested by the underlying fund in securities bearing the new, lower interest rates, resulting in a possible decline in the underlying fund's income and distributions to shareholders and termination of any conversion option on convertible securities.
Extension Risk - When interest rates rise, certain bond obligations will be paid in full by the issuer more slowly than anticipated, causing the value of the securities to fall.
Issuer Risk - The value of a security may decline for a number of reasons that directly relate to the issuer, such as management performance, financial leverage, and reduced demand for the issuer's products or services.
Futures Risk (Derivatives Risk) - The Funds may invest 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. Funds typically use derivatives as a substitute for taking a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or currency risk. Funds may also use derivatives for leverage, in which case their use would involve leveraging 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.
Foreign Risk - Because the fund invests in securities of foreign issuers, it may be subject to risks not usually associated with owning securities of U.S. issuers. These risks include, among others, adverse fluctuations in foreign currency values as well as adverse political, social and economic developments affecting a foreign country, including the risk of nationalization, expropriation or confiscatory taxation. In addition, foreign investing involves less publicly available information, and more volatile or less liquid securities markets. Investments in foreign countries could be affected by factors not present in the U.S., such as restrictions on receiving the investment proceeds from a foreign country, confiscatory foreign tax laws, and potential difficulties in enforcing contractual obligations. Transactions in foreign securities may be subject to less efficient settlement practices, including extended clearance and settlement periods. Foreign accounting may be less revealing than U.S. accounting practices. Foreign regulation may be inadequate or irregular. Owning foreign securities could cause the fund's performance to fluctuate more than if it held only U.S. securities.
Index Fund Risk - The underlying fund uses an indexing strategy. It does not attempt to manage market volatility, use defensive strategies, or reduce the effects of any long-term periods of poor stock performance. The correlation between the performance of the underlying fund and the performance of the index may be affected by the underlying fund's expenses, changes in securities markets, changes in the composition of the index, and the timing of purchases and redemptions of underlying fund shares.
FEES & EXPENSES
The following table describes the fees and expenses that you may pay if you buy and hold shares of each Fund. The Funds are offered exclusively as an investment option for certain Contracts. The table below reflects only Fund expenses and does not reflect Contract fees and expenses. If Contract fees and expenses were included, the fees and expenses in the following table would be higher. Please refer to the Contract prospectus for a description of those fees and expenses. The table also shows estimated pro forma expenses of the Acquiring Fund assuming either or both of the proposed Reorganizations had been effective during the most recent fiscal year. The table below excludes the costs of the Reorganization. See "Reasons for the Proposed Reorganization and Board Deliberations" for additional information concerning the allocation of the costs of the Reorganization.
9
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
Fusion Fund (Acquired Fund) | Index Strategy Fund (Acquiring Fund) | Index Strategy Fund – Pro Forma with Fusion Fund | |
Management Fee | 0.20% | 0.10% | 0.10% |
Other Expenses | 0.02% | 0.02% | 0.02% |
Acquired Fund Fees and Expenses(1) | 0.99% | 0.57% | 0.57% |
Total Annual Fund Operating Expenses | 1.21% | 0.69% | 0.69% |
(1) Because Acquired Fund Fees and Expenses are not included in the Fund's Financial Highlights, the Fund's total annual fund operating expenses do not correlate to the ratios of expenses to average net assets shown in the Financial Highlights table of the prospectus.
Example
This example is intended to help you compare the cost of investing in each Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated. The example also assumes that your investment has a 5% return each year, that the Fund's operating expenses remain the same, and that you reinvest all dividends and distributions. It does not reflect any Contract fees. If Contract fees were included, the costs shown would be higher. This example also shows pro forma expenses of the Acquiring Fund assuming the proposed Reorganization had been in effect for the periods shown. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
Fund | 1 year | 3 years | 5 years | 10 years |
Fusion Fund (Acquired Fund) | $123 | $384 | $665 | $1,466 |
Index Strategy Fund (Acquiring Fund) | $70 | $221 | $384 | $859 |
Acquiring Fund – Pro Forma with Acquired Fund | $70 | $221 | $384 | $859 |
Portfolio Turnover
Each Fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund's performance. During the most recent fiscal year, each Fund's portfolio turnover rate, as a percentage of the average value of its portfolio, was as follows:
Fund | Portfolio Turnover Rate |
Fusion Fund | 15% |
Index Strategy Fund | <1% |
PERFORMANCE INFORMATION
Fusion Fund (Acquired Fund)
The following bar chart and table provide an indication of the risks of an investment in the Fund by showing changes in its performance from year to year and by showing how the Fund's average annual returns for one year, five years, and ten years compare with those of a broad-based measure of market performance, the S&P 500 Index. The Fund's performance also is compared to the Barclays U.S. Aggregate Bond Index, which shows how the Fund's performance compares with the returns of a broad index of investment-grade fixed-rate debt issues, and to a Growth Composite Index, which shows how the Fund's performance compares with a composite index composed of the S&P 500® Index (80%) and the Barclays U.S. Aggregate Bond Index (20%) in proportions similar to the equity to fixed income allocation of the Fund.
Both the bar chart and the table assume reinvestment of dividends and distributions.
The performance of the Fund will vary from year to year. The Fund's performance does not reflect the cost of insurance and separate account charges which are imposed under your Contract. If they were included, performance would be reduced. Past performance does not indicate how the Fund will perform in the future.
10
Performance Bar Chart and Table
![](https://capedge.com/proxy/N-14/0001301708-16-000015/image2.jpg)
Highest and Lowest Quarter Returns (for periods shown in the bar chart)
Highest (Q2, 2009) | 17.05% |
Lowest (Q4, 2008) | -22.98% |
Average Annual Total Returns
One Year Ended December 31, 2015 | Five Years Ended December 31, 2015 | Ten Years Ended December 31, 2015 | |
AZL MVP FusionSM Growth Fund | -2.07% | 5.68% | 3.61% |
S&P 500 Index* | 1.38% | 12.57% | 7.31% |
Barclays U.S. Aggregate Bond Index* | 0.55% | 3.25% | 4.51% |
Growth Composite Index* | 1.31% | 10.83% | 7.02% |
* Reflects no deduction for fees, expenses, or taxes.
Index Strategy Fund (Acquiring Fund)
The following bar chart and table provide an indication of the risks of an investment in the Fund by showing changes in its performance from year to year and by showing how the Fund's average annual returns for one year and since its inception compare with those of a broad-based measure of market performance, the S&P 500 Index. The Fund's performance also is compared to the Barclays U.S. Aggregate Bond Index, which shows how the Fund's performance compares with the returns of a broad index of investment-grade fixed-rate debt issues, and to a Growth Composite Index, which shows how the Fund's performance compares with a composite index composed of the S&P 500 Index (75%) and the Barclays U.S. Aggregate Bond Index (25%) in proportions similar to the equity to fixed income allocation of the Fund.
Both the bar chart and the table assume reinvestment of dividends and distributions.
The performance of the Fund will vary from year to year. The Fund's performance does not reflect the cost of insurance and separate account charges which are imposed under your Contract. If they were included, performance would be reduced. Past performance does not indicate how the Fund will perform in the future.
11
Performance Bar Chart and Table
![](https://capedge.com/proxy/N-14/0001301708-16-000015/image3.jpg)
Highest and Lowest Quarter Returns (for periods shown in the bar chart)
Highest (Q1, 2013) | 6.85% |
Lowest (Q3, 2015) | -5.34% |
Average Annual Total Returns
One Year Ended December 31, 2015 | Since Inception (1/10/2012) | |
AZL® MVP Growth Index Strategy Fund | -0.80% | 9.15% |
S&P 500 Index* | 1.38% | 14.66% |
Barclays U.S. Aggregate Bond Index* | 0.55% | 2.16% |
Growth Composite Index* | 1.29% | 11.54% |
* Reflects no deduction for fees, expenses, or taxes.
THE REORGANIZATION
TERMS OF THE REORGANIZATION
The Board of Trustees of the Funds has approved the Plan with respect to the Reorganization. While shareholders are encouraged to review the Plan, which has been filed with the SEC as an exhibit to the registration statement of which this combined proxy statement/prospectus is a part, the following is a summary of certain terms of the Plan:
The Reorganization is scheduled to occur on the second day that the New York Stock Exchange is open for business following shareholder approval and receipt of any necessary regulatory approvals, but may occur on any later date agreed to by the Funds.
The Acquired Fund will transfer all of its assets to the Acquiring Fund and, in exchange, the Acquiring Fund will assume the Acquired Fund's liabilities.
The Acquiring Fund will issue shares to the Acquired Fund in an amount equal to the value of the assets that it receives from the Acquired Fund, less the liabilities assumed by the Acquiring Fund in the transaction. These shares will immediately be distributed by the Acquired Fund to its shareholders (the separate accounts) in proportion to their holdings in the Acquired Fund. As a result, shareholders (the separate accounts) of the Acquired Fund will become shareholders of the Acquiring
12
Fund. Contract values that were allocated to subaccounts invested in the Acquired Fund will be allocated to subaccounts investing in the Acquiring Fund.
Neither the Acquired Fund nor any Contract Owners whose contract values are allocated to subaccounts investing in the Acquired Fund will pay any sales charge in connection with the Reorganization.
The net asset value of the Acquired Fund and the Acquiring Fund will be computed as of 3:00 p.m. Central time, on the closing date.
After the Reorganization, the Acquired Fund will be terminated.
CONDITIONS TO CLOSING THE REORGANIZATION
The completion of the Reorganization is subject to certain conditions described in the Plan, including:
The Acquired Fund will have declared and paid a dividend that will distribute all of the Fund's taxable income, if any, to the shareholders (the separate accounts) of the Fund for the taxable years ending at or prior to the closing.
The Funds will have received any approvals, consents, or exemptions from the SEC or any regulatory body necessary to carry out the Reorganization.
An effective registration statement on Form N-14 will be on file with the SEC.
The Contract Owners of the Acquired Fund who are eligible to provide voting instructions for the meeting will have approved the Plan.
The Acquired Fund will receive an opinion of tax counsel that it is more likely than not that the proposed Reorganization will be tax-free for federal income tax purposes for the Acquired Fund and the Acquiring Fund and for the separate accounts that are the shareholders of the Acquired Fund.
TERMINATION OF THE PLAN
The Plan and the transaction contemplated by it may be terminated and abandoned by resolutions of the Board of Trustees of the Acquired Fund or the Acquiring Fund at any time prior to closing. In the event of a termination, there will be no liability for damages on the part of either the Acquired Fund or the Acquiring Fund, or the trustees, officers, or shareholders of the Acquired Fund or the Acquiring Fund.
TAX STATUS OF EACH REORGANIZATION
The Reorganization is intended to qualify for U.S. federal income tax purposes as a tax-free reorganization under Section 368(a) (1) of the Internal Revenue Code of 1986, as amended (the "Code"). As a condition to the closing of each Reorganization, the Acquired Fund and the Acquiring Fund will receive an opinion of Ropes & Gray LLP substantially to the effect that, as further described below, on the basis of existing provisions of the Code, U.S. Treasury regulations promulgated thereunder, current administrative rules, pronouncements and court decisions, for U.S. federal income tax purposes, it is more likely than not that, with respect to Reorganization:
a) The Reorganization will constitute a "reorganization" within the meaning of Section 368(a)(1) of the Code, and the Acquiring Fund and the Acquired Fund each will each be "a party to a reorganization" within the meaning of Section 368(b) of the Code;
b) Under Section 1032 of the Code, the Acquiring Fund will not recognize gain or loss upon the receipt of the assets of the Acquired Fund in exchange for Acquiring Fund shares and the assumption by the Acquiring Fund of all the liabilities of the Acquired Fund;
c) Under Section 362(b) of the Code, the Acquiring Fund's tax basis in the assets of the Acquired Fund transferred to the Acquiring Fund in the Reorganization will be the same as the Acquired Fund's tax basis immediately prior to the transfer, adjusted for any gain or loss required to be recognized as described in (e) below;
d) Under Section 1223(2) of the Code, the Acquiring Fund's holding periods in the assets received from the Acquired Fund in the Reorganization, other than certain assets with respect to which gain or loss is required to be recognized as described in (e) below, will include the periods during which such assets were held or treated for U.S. federal income tax purposes as being held by the Acquired Fund;
13
e) Under Sections 361 and 357 of the Code, the Acquired Fund will recognize no gain or loss upon the transfer of all of its assets to the Acquiring Fund in exchange for Acquiring Fund shares and the assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund, or upon the distribution of Acquiring Fund shares by the Acquired Fund to its shareholders in liquidation, except for (A) any gain or loss recognized on (1) "Section 1256 contracts" as defined in Section 1256(b) of the Code or (2) stock in a "passive foreign investment company" as defined in Section 1297(a) of the Code, and (B) any other gain or loss required to be recognized by reason of the Reorganization (1) as a result of the closing of the tax year of the Acquired Fund, (2) upon the termination of a position, or (3) upon the transfer of such asset regardless of whether such a transfer would otherwise be a nontaxable transaction under the Code;
f) Under Section 354 of the Code, the shareholders of the Acquired Fund will not recognize gain or loss upon the exchange of their Acquired Fund shares for Acquiring Fund shares;
g) Under Section 358 of the Code, the aggregate tax basis of Acquiring Fund shares that an Acquired Fund shareholder receives in the Reorganization will be the same as the aggregate tax basis of the Acquired Fund shares exchanged therefor;
h) Under Section 1223(1) of the Code, an Acquired Fund shareholder's holding period for Acquiring Fund shares received in the Reorganization will include the shareholder's holding period for the Acquired Fund shares exchanged therefor, provided that the shareholder held those Acquired Fund shares as capital assets; and
i) The Acquiring Fund will succeed to and take into account the items of the Acquired Fund described in Section 381(c) of the Code, subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code and the regulations thereunder.
The opinion will be based on certain factual certifications made by officers of the Acquired Fund and of the Acquiring Fund and will also be based on customary assumptions. The opinion will note and distinguish certain published precedent. It is possible that the Internal Revenue Service (the "IRS") could disagree with Ropes & Gray LLP's opinion, which therefore cannot be free from doubt. Opinions of counsel are not binding upon the IRS or the courts.
Although it is not expected to affect Contract Owners, each Fund participating in the Reorganization may, as a result of the Reorganization, lose the benefit of certain tax losses that could have been used to offset or defer future gains of the combined Fund, and the combined Fund will have tax attributes that reflect a blending of the tax attributes of each Fund at the time of the Reorganization.
CERTAIN TAX CONSEQUENCES
Provided that the Contracts qualify to be treated as life insurance contracts under Section 7702(a) of the Internal Revenue Code of 1986, as amended (the "Code") or annuity contracts under Section 72 of the Code, the Reorganization will not be a taxable event for U.S. federal income tax purposes for Contract Owners who have a portion of their Contract allocated to a Fund, regardless of the tax status of the Reorganization, and any dividend declared in connection with the Reorganization will not be taxable to Contract Owners. Contract Owners who choose to redeem or exchange their investments by surrendering their contracts or initiating a partial withdrawal, however, may be subject to taxes and a 10% tax penalty. Contract Owners should consult the prospectus or other information provided by the insurance company regarding their Contracts as to the specific consequences to them of the Reorganization, including the applicability and effect of any possible state, local, non-U.S. and other tax laws.
Prior to the closing of the Reorganization, the Acquired Fund will, and the Acquiring Fund may, declare a dividend to their respective separate accounts as shareholders, which together with all previous distributions, will have the effect of distributing to shareholders all of such Fund's investment company taxable income (computed without regard to the deduction for dividends paid) and net realized capital gains, if any, through the closing of the Reorganization.
A portion of the securities held by the Acquired Fund may be disposed of in connection with the Reorganization. This could result in additional transaction costs to the Acquired Fund and increased distributions to the shareholders (the separate accounts and certain funds-of-funds managed by the Manager) of one or both Funds.
This description of the U.S. federal income tax consequences of the Reorganization is made without regard to the particular facts and circumstances of any shareholder or Contract Owner. Shareholders and Contract Owners are urged to consult their own tax advisors as to the specific consequences to them of the Reorganization in light of their individual circumstances, and as to the applicability and effect of state, local, non-U.S. and other tax laws with respect to the Reorganization.
14
REASONS FOR THE PROPOSED REORGANIZATION AND BOARD DELIBERATIONS
The Reorganization was reviewed by the Board of Trustees with respect to the Acquired Fund, with the advice and assistance of Fund counsel and independent legal counsel to the independent trustees. In telephonic meetings held May 26 and June 8, 2016, and at "in-person" meetings held June 13 and 14, 2016, the Board considered background materials, analyses and other information provided by the Manager or its affiliates regarding, among other things, the topics discussed below, including responses to specific requests by the Board prior to the various meetings. In addition, the Manager also was present and responded to questions raised by the Trustees during those meetings.
After the Board reviewed, evaluated and discussed the materials, analyses and information provided to it that the Board considered relevant to its deliberations, the Board, including the independent trustees, unanimously approved the Reorganization of the Acquired Fund. The Board, including the independent trustees, also unanimously determined that participation by the Acquired Fund in the Reorganization was in the best interests of the Acquired Fund and that the interests of existing shareholders of the Acquired Fund would not be diluted as a result of the Reorganization.
The Board of Trustees believes that the proposed Reorganization will be advantageous to shareholders of the Acquired Fund based on its consideration of various factors, described below. In its deliberations, the Board did not identify any single factor that was paramount or controlling and individual Board members may have attributed different weights to various factors.
Terms and Conditions of the Reorganization. The Board considered the terms and conditions of the Reorganization as described in the previous paragraphs.
Tax Consequences. The Board considered the U.S. federal income tax consequences of each Reorganization for Contract Owners and for the Funds, as set forth in the sections entitled "Tax Status of the Reorganization" and "Certain Tax Consequences," above.
Continuity of Investment. The Board considered the compatibility of the Acquired Fund with the Acquiring Fund and the degree of similarity between the investment objectives and the principal investment strategies for each Fund. The Board considered the fact that each Fund has the same investment objective and, except as described in this proxy statement/prospectus, investment strategies and policies that are similar. The Board also took note of the fact that following the Reorganization, shareholders of the Acquired Fund will be invested in a Fund holding a portfolio the characteristics of which are similar to those of the portfolio currently held by the Acquired Fund, except as described in this proxy statement/prospectus.
Expense Ratios. The Board considered the relative expenses of the Funds, noting that the Management Fee and the Total Annual Fund Operating Expenses for the Acquiring Fund are lower, respectively, than the Management Fee and the Total Annual Fund Operating Expenses for the Acquired Fund, as of the end of the most recent fiscal year. The Board noted that the Funds do not have Management Fee breakpoints. The Board considered that, in sum, shareholders of the Acquired Fund are expected to incur expenses which are lower following the Reorganization.
The Board also noted that each Fund is subject to an expense limitation agreement, in place through at least April 30, 2017, which limits operating expenses (excluding certain Fund expenses such as Acquired Fund Fees and Expenses) to 0.30% for the Acquired Fund, and to 0.20% for the Index Strategy Fund. The Board also noted that the Total Annual Fund Operating Expenses for each Fund is below its respective expense limit. The Board also considered the fact that the Manager and the Acquired Fund will be equally responsible to pay for the expenses associated with the Reorganization (see, Costs, below).
Economies of Scale. The Board also received information from the Manager and its affiliates that Allianz Life and Allianz Life of NY are not expected to continue to offer the Acquired Fund as an investment option in the variable annuity contracts. By contrast, the Manager informed the Board that the Acquiring Fund is expected to remain an available investment option in the Allianz Life and Allianz Life of NY variable annuity contracts.
As a result, the Board considered that, in the absence of the Reorganization, the Acquired Fund may be expected to lose assets over time and shrink in size, which would result in the fixed costs of operating the Acquired Fund being spread over an ever smaller asset base. This would mean that the expenses of the Acquired Fund may be expected to increase over time as a percentage of net assets. The Board also considered that the Acquiring Fund may be expected to gain assets and increase in size, due both to the influx of assets from the Reorganizations and the possibility of continued net cash inflows from the variable annuity contracts. Higher aggregate net assets may result in the Acquiring Fund being better able to achieve economies of scale by spreading certain fixed costs over a larger, and increasing, asset base, which would mean that
15
the expenses of the Acquiring Fund may be expected to decrease as a percentage of assets. In sum, the Board believes that the combined Fund, following the Reorganization, should have a better opportunity to take advantage of economies of scale and better prospects for growth than either Fund standing alone. A larger fund should have an enhanced ability to effect portfolio transactions on more favorable terms and should have greater investment flexibility, and fixed expenses, such as audit expenses and accounting expenses that are charged on a per fund basis may be reduced as a percentage of net assets.
Costs. The Board noted that the Manager and the Acquired Fund will bear equally the costs associated with each respective Reorganization, including expenses associated with printing and mailing communications to Contract Owners and other expenses of the Reorganization, including accounting, legal, and custodial expenses, and any transaction costs related to repositioning of the portfolios in connection with the Reorganization. Subsequent to the meeting, the Manager agreed that the expenses borne by the Acquired Fund will not exceed $178,000.
Dilution. The Board considered the fact that the Reorganization will not dilute the interests of the current Contract Owners with contract values allocated to subaccounts investing in the Acquired Fund because it would be effected on the basis of the relative net asset value per share of the Acquired Fund and the Acquiring Fund. Thus, subaccounts holding shares of the Acquired Fund will receive shares of the Acquiring Fund equal in value to their shares in the Acquired Fund.
Performance and Other Factors. The Board considered the relative performance records of the Funds for various periods. The Board noted that the performance history of the Acquired Fund during the periods reviewed was better than the performance for the Acquiring Fund. However, the Board also was cognizant of the fact that a Fund's past performance is no guarantee of similar future results. The Board concluded that consideration of the relative performance histories of the Funds supported the Reorganization.
Potential Effects on the Manager and its Affiliates. The Board considered the potential benefits from the Reorganization that could be realized by the Manager and its affiliates. The Board recognized that the potential benefits to the Manager consist principally of economies of scale and the elimination of expenses incurred in duplicative efforts to administer separate funds. The Board noted that the Management Fees received by the Manager from the Acquiring Fund would be lower than the Management Fees received by the Manager from the Acquired Fund. The Board also considered the potential benefits from the Reorganization that could be realized by Allianz Life and Allianz Life of NY, which are affiliates of the Manager. Specifically, the Board was aware that the Reorganization potentially will benefit Allianz Life and Allianz Life of NY by lowering the expected costs and risks to Allianz Life and Allianz Life of NY associated with providing certain contract guarantees to contract owners with contract value allocated to the Funds. The Board was informed that contract values allocated to the Acquiring Fund would be expected to present lower costs and lower risks to Allianz Life and Allianz Life of NY than similar contract value allocated to the Acquired Fund.
Each Trustee carefully considered the factors described above and evaluated the merits of the Reorganization in accordance with his or her own experience and business judgment. Although each Trustee independently formed his or her own judgment on the proposed Reorganization, the Board accepted the Manager's analysis of the matters discussed above, and in particular regarding the decisions by Allianz Life and Allianz Life of NY and the impact that such decisions would have on Fund cash flows and economies of scale. In addition, the Board agreed with the Manager that the shareholders of the Acquired Fund would benefit from the Reorganizations due to lower overall fund expenses of the Acquiring Fund following the Reorganization. The Board also accepted the Manager's analysis that the shareholders of the Acquiring Fund would not be harmed by the Reorganization.
BOARD'S DETERMINATIONS
After considering the factors described above and other relevant information at the telephonic meetings on May 26 and June 8, 2016, and at the "in-person" meetings on June 13 and 14, 2016, the Board of Trustees of the Acquired Fund, including the independent Board members, unanimously found that participation in the Reorganization is in the best interests of the Acquired Fund and that the interests of shareholders in the Acquired Fund and existing Contract Owners with contract values allocated to subaccounts investing in the Acquired Fund would not be diluted as a result of the Reorganization.
The Board of Trustees of the Fund approved the Plan at the "in-person" meeting held on June 14, 2016. Among other factors, the Board members considered the terms of the Plan, the provisions intended to avoid the dilution of Contract Owners' interests, and the anticipated tax consequences of the Reorganization. The Board found that participation in the Reorganization is in the best interests of the Acquiring Fund and that the interests of shareholders in the Acquiring Fund and existing Contract Owners with contract values allocated to subaccounts investing in the Acquiring Fund will not be diluted as a result of the Reorganization.
16
RECOMMENDATION AND VOTE REQUIRED
The Board recommends that Contract Owners who are entitled to vote at the meeting approve the proposed Plan. Approval of the Plan requires the affirmative vote, in person or by proxy, of a majority of the voting power of the outstanding shares of the Acquired Fund as of the "Record Date," July 22, 2016. Each share is entitled to one vote for each dollar, and a fractional vote for each fraction of a dollar, of net asset value per share held by a shareholder on the record date.
If shareholder approval is obtained, the Reorganization is scheduled to occur within approximately four weeks following the meeting, but may occur on any later date agreed to by the Funds.
17
SECTION B — PROXY VOTING AND SHAREHOLDER MEETING INFORMATION
A special meeting of shareholders of the Acquired Fund will be held as specified in the Notice of Special Meeting that accompanies this proxy statement/prospectus. At the meeting, shareholders (the separate accounts) will vote their shares of the Acquired Fund. You have the right to instruct Allianz Life and Allianz Life of NY (together, "Allianz") on how to vote the shares of the Acquired Fund held under your Contract. Unless you plan to attend the Meeting and vote in person, your voting instructions must be received (by mail, phone or Internet) no later than 4:00 p.m. Central time on the day prior to the Meeting.
The number of Fund shares for which you may provide instructions will be based on the dollar amount of Fund shares that fund your Contract through the subaccount accumulation units and/or annuity units in your Contract on the Record Date. Each accumulation unit or annuity unit represents a specified dollar value and a specified number of Fund shares. For each dollar of value allocated to the Acquired Fund, the Contract Owner is permitted to provide voting instructions with respect to one Fund share. If you execute and return your voting instruction form, but do not provide voting instructions, Allianz will vote the shares underlying your Contract in favor of the proposal described above. Allianz will vote any shares for which it does not receive a voting instruction form, and any shares which it or its affiliates hold for their own account, in proportionately the same manner as shares for which it has received voting instructions. Allianz will not require voting instructions for a minimum number of shares, and therefore a small number of Contract Owners could determine the outcome of any proposal.
For the Meeting to proceed, there must be a quorum. This means that at least 25% of a Fund's shares must be represented at the Meeting either in person or by proxy. Because Allianz is the only shareholder of the Funds, its presence at the Meeting in person or by proxy will meet the quorum requirement.
You may revoke your voting instructions up until 4:00 p.m. Central time on the day prior to the Meeting by giving written notice to Allianz prior to that time by mail to Allianz Variable Insurance Products Fund of Funds Trust, c/o Advisory Management, A 3-825, 5701 Golden Hills Drive, Minneapolis, Minnesota 55416-1297, or by executing and returning to Allianz a voting instruction form with a later date. You may also attend the Meeting and vote in person. If you need a new voting instruction form, please call the Fund at 1-800-624-0197, and a new voting instruction form will be sent to you. If you return an executed form without voting instructions, your shares will be voted "FOR" the proposal.
The Manager and the Acquired Fund are responsible equally to pay all costs of solicitation, as well as the proportionate cost of preparing and mailing the Notice of a Special Meeting of shareholders and this proxy statement/prospectus to Contract Owners. Representatives of the Manager also may solicit voting instructions from Contract Owners by means of mail, telephone, or personal calls; the costs of such solicitation also would be borne equally between the Manager and the Acquired Fund. Nothwithstanding the foregoing, the expenses borne by the Acquired Fund will not exceed $178,000.
Dissenters' Rights of Appraisal. There are no appraisal or dissenters' rights for shareholders of the Acquired Fund. Delaware law does not grant beneficiaries of statutory trusts who dissent from approval of the Reorganization the right to demand an appraisal for their interests and payment of their fair cash value. As a result, shareholders who object to the Reorganization do not have a right to demand a different payment for their shares of beneficial interest.
Other Matters. Management of the Funds knows of no other matters that may properly be, or that are likely to be, brought before the Meeting. However, if any other business shall properly come before the Meeting, the persons named on the voting instruction form intend to vote thereon in accordance with their best judgment.
Adjournment. In the event that voting instructions received by the time scheduled for the meeting are not sufficient to approve the Reorganization, representatives of Allianz may move for one or more adjournments of the meeting for a period of not more than 120 days in the aggregate to allow further solicitation of voting instructions on the proposals. Any adjournment requires the affirmative vote of a majority of the voting power of the shares present at the meeting. Representatives of Allianz will vote in favor of adjournment. The Manager is responsible to pay the costs of any additional solicitation and of any adjourned meeting. A shareholder vote may be taken on one or more of the items in this proxy statement/prospectus prior to adjournment if sufficient voting instructions have been received.
Householding. To reduce expenses, only one copy of the Notice of a Special Meeting of shareholders and this proxy statement/prospectus or the Trust's annual report and semi-annual report, if available, may be mailed to households, even if more than one person in a household is a shareholder. To request additional copies of the Notice of a Special Meeting of shareholders, this proxy statement/prospectus or the annual report or semi-annual report, or if you have received multiple
18
copies but prefer to receive only one copy per household, please call the Trust at the above telephone number. If you do not want the mailing of these documents to be combined with those for other members of your household in the future, please contact the Trust at the above address or phone number.
19
SECTION C — CAPITALIZATION, OWNERSHIP OF FUND SHARES AND OTHER FUND INFORMATION
In this section reference to the "Fund" is a reference to the Acquiring Fund and the Acquired Fund.
This section contains the following information about the Funds:
Table Content (all information is shown for the fiscal year ended December 31, 2015, unless noted otherwise)
C-1 Actual and pro forma capitalization of the Acquired Fund and the Acquiring Fund
C-2 Actual and pro forma ownership of Fund shares
CAPITALIZATION
The following table shows the capitalization of the Funds at December 31, 2015, and on a pro forma basis, assuming the proposed Reorganization had taken place.
TABLE C-1. Actual and Pro Forma Capitalization of the Acquired Fund and the Acquiring Fund
Fund | Net Assets | Net Asset Value per Share | Shares Outstanding |
Fusion Fund (Acquired Fund) (1) | $729,010,735 | $12.42 | 58,691,597 |
Index Strategy Fund (Acquiring Fund) | $1,392,460,446 | $13.55 | 102,773,543 |
Adjustments (2) | $(178,000) | (4,903,203) | |
Index Strategy Fund – Pro Forma with Acquired Fund | $2,121,293,181 | $13.55 | 156,561,937 |
(1) | The number of Fund shares for which you may provide instructions will be based on the dollar amount of Acquired Fund shares that fund your Contract through the subaccount accumulation units and/or annuity units in your Contract on the record date. |
(2) | The adjustment to shares outstanding represents the impact as a result of the shares being issued by the Acquiring Fund to the Acquired Fund shareholders. The adjustment to net assets represents the impact of the Acquired Fund bearing costs related to the Reorganization. |
20
OWNERSHIP OF FUND SHARES
The following table provides information on shareholders who owned more than 5% of each Fund's outstanding shares at the record date. At the record date, officers and directors of the Fund as a group owned less than 1% of the outstanding shares of the Fund.
TABLE C-2. Actual and Pro Forma Ownership of Fund Shares
Fund | 5% Owners | Percent of Shares Held | Percent of Shares Held Following the Reorganization |
Fusion Fund (Acquired Fund) | [Allianz Life Variable Account B] | ||
[Allianz Life Variable Account C] | |||
Index Strategy Fund (Acquiring Fund) | [Allianz Life Variable Account B] | ||
[Allianz Life Variable Account C] |
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the financial performance of the Acquiring Fund for the periods shown. Certain information reflects financial results for a single Fund share. The total returns in the tables represent returns that you would have earned (or lost) on an investment in the indicated Fund (assuming reinvestment of all dividends and distributions). The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If insurance contract charges were included, the return would be reduced.
This information has been derived from information audited by KPMG LLP, independent registered public accounting firm, whose reports, along with the Fund's financial statements, are included in the Annual Report to Shareholders and incorporated by reference into the Statement of Additional Information. This should be read in conjunction with those financial statements. When available, copies of the Annual Report will be available without charge upon written request from the Fund at 3435 Stelzer Road, Columbus, Ohio 43219, or by calling toll free 1-877-833-7113.
AZL MVP Growth Index Strategy Fund
(Selected data for a share of beneficial interest outstanding throughout the periods indicated)
Year Ended December 31, | January 10, 2012 to December 31, 2012(a) | |||
2015 | 2014 | 2013 | ||
Net Asset Value, Beginning of Period | $13.90 | $13.23 | $10.95 | $10.00 |
Investment Activities: | ||||
Net Investment Income/(Loss) | 0.25 | 0.10 | 0.10 | 0.09 |
Net Realized and Unrealized Gains/(Losses) on Investments | (0.36) | 0.75 | 2.18 | 1.01 |
Total from Investment Activities | (0.11) | 0.85 | 2.28 | 1.10 |
Dividends to Shareholders From: | ||||
Net Investment Income | (0.12) | (0.10) | — | (0.12) |
Net Realized Gains | (0.12) | (0.08) | —(b) | (0.03) |
Total Dividends | (0.24) | (0.18) | —(b) | (0.15) |
Net Asset Value, End of Period | $13.55 | $13.90 | $13.23 | $10.95 |
Total Return(c) | (0.80)% | 6.47% | 20.85% | 10.98%(d) |
Ratios to Average Net Assets/Supplemental Data: | ||||
Net Assets, End of Period (000's) | $1,392,460 | $1,118,257 | $768,606 | $261,143 |
Net Investment Income/(Loss) | 2.17% | 1.05% | 1.25% | 1.47% |
Expenses Before Reductions*(e) | 0.12% | 0.12% | 0.13% | 0.22% |
Expenses Net of Reductions* | 0.12% | 0.12% | 0.13% | 0.15% |
Portfolio Turnover Rate | 1% | 1% | —(f) | 11%(d) |
* | The expense ratios exclude the impact of fees/expenses paid by each underlying fund. |
(a) | Period from commencement of operations. During the period from January 10, 2012 to December 10, 2012, the Fund's primary vehicle for gaining exposure to derivatives is through investments in its wholly-owned and controlled subsidiary, the AZL MVP GIS Investments Trust (the "Subsidiary"). The Subsidiary was liquidated on December 10, 2012 at its net asset value on such date. The Subsidiary's operations have been consolidated with the operations of the Fund through its liquidation on December 10, 2012. |
(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. |
21
(d) | Not annualized. |
(e) | Excludes fee reductions. If such fee reductions had not occurred, the ratios would have been as indicated. |
(f) | Represents less than 0.5%. |
22
EXHIBIT A — ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUND
Management
Allianz Investment Management LLC serves as the Manager for the Fund. The Manager's address is 5701 Golden Hills Drive, Minneapolis, Minnesota 55416. The Manager performs an analysis of possible investments for the Fund and selects underlying investments. The Manager maintains the list of underlying funds, and reviews and adjusts, in its discretion, the allocations of assets to the underlying funds. As of December 31, 2015, the Manager had aggregate assets under management of $120.14 billion. Currently, the Manager's only clients are the Trust, the VIP Trust, and certain other entities affiliated with Allianz Life Insurance Company of North America.
Brian Muench has been a portfolio manager of the Fund since November, 2010. Mr. Muench joined Allianz Life Insurance Company of North America (Allianz Life), the parent of the Manager, in 1998. Mr. Muench served as vice president of the Manager from 2005 until he was elected president in 2010. Mr. Muench is also a vice president of Allianz Life Insurance Company of North America and the president, a trustee and chair of the Trust and the Allianz Variable Insurance Products Trust (the "VIP Trust").
Darin Egbert has been a portfolio manager of the Fund since April 2013. Mr. Egbert joined Allianz Life Insurance Company of North America (Allianz Life), the parent of the Manager, in 2003. Mr. Egbert served as Senior Investment Analyst from 2003 until he was promoted to Principal in 2006.
Mark Glad has been a portfolio manager of the Fund since April 2013. Mr. Glad joined Allianz Life Insurance Company of North America (Allianz Life), the parent of the Manager, in 2011. Prior to joining Allianz Life, Mr. Glad served as a Consultant for General Mills from June 2010 until October 2010, an Analyst for Exeact from April 2009 until November 2009 and a Customer Operations Manager to 3M from October 2006 until January 2009.
The Manager has signed subadvisory agreements or portfolio management agreements ("Subadvisory Agreements") with various subadvisers, some of which are affiliates of the Manager, for certain underlying funds. The subadvisers manage the portfolio securities of the underlying funds and provide additional services including research, selection of brokers, and similar services. The Manager compensates the subadvisers for their services as provided in the Subadvisory Agreements. There are no subadvisors providing investment subadvisory services to the Fund.
The Manager was established as an investment adviser by Allianz Life Insurance Company of North America in April 2001. The Manager determines which funds should be underlying funds, and determines allocations to underlying funds, all subject to the oversight of the Board of Trustees. The Manager currently acts as Manager of all of the Funds of the Trust. A discussion of the Board of Trustees' basis for approving the Fund's Investment Management Agreement with the Manager is available in the Fund's Annual Reports for the year ended December 31, 2015.
The Manager is a subsidiary of Allianz SE, one of the world's largest insurance and financial services companies. Allianz SE is headquartered in Munich, Germany, and has operations in more than 70 countries. As of December 31, 2015, Allianz SE had third-party assets under management of $1.92 trillion. In North America, Allianz SE subsidiaries are engaged in the life insurance, property/casualty insurance, broker-dealer, investment adviser, and mutual fund businesses.
Within the scope of an investment program approved by the Board of Trustees, the Manager oversees the Fund, and advises on the Fund's investment policies. The Manager is also responsible for selecting underlying funds, the allocation of assets to each underlying fund, and the allocation of the Fund's assets to other investment strategies or asset classes in which the Fund is permitted to invest under its investment policies and restrictions and applicable regulations. The Manager continuously monitors the performance of various investment management organizations, including the subadvisers of the underlying funds, and generally oversees the services provided to the Fund by the administrator, the custodian, and other service providers.
The Fund paid the Manager a fee for advisory services (including subadvisory fees) during 2015 at the annual rate of 0.10%. There were no fee waivers.
Tax Information
Shares of the Acquiring Fund are sold exclusively to the separate accounts of certain insurance companies in connection with particular variable annuity and variable life insurance contracts (the "Contracts"). Provided that the Fund and a separate account investing in the Fund satisfy applicable tax requirements, any distributions from the Fund to the separate
account will be exempt from current federal income taxation to the extent that such distributions accumulate in the Contract. You should refer to your Contract prospectus for further information regarding the tax treatment of the Contract and the separate accounts in which the Contract is invested.
Financial Intermediary Compensation
Shares of the Acquiring Fund are sold exclusively to certain insurance companies in connection with particular Contracts. The Trust and its related companies may pay such insurance companies (or their related companies) for the sale of shares of the Fund and related services. Such insurance companies (or their related companies) may pay broker-dealers or other financial intermediaries (such as banks) that sell the Contracts for the sale of shares of the Fund and related services. When received by an insurance company, such payments may be a factor that the insurance companies consider in including the Fund as an investment option in the Contracts. The prospectus or other disclosures relating to a Contract may contain additional information about these payments. When received by a broker-dealer or other intermediary, such payments may create a conflict of interest by influencing the broker-dealer or other intermediary and salespersons to recommend the Fund over other mutual funds available as investment options in the Contracts. Ask the salesperson or visit the financial intermediary's website for more information.
Legal Proceedings
The Manager is not aware of any material pending legal proceedings, other than routine litigation incidental to the conduct of their respective businesses, to which the Fund, the Manager or the principal underwriter is a party.
MORE ABOUT THE FUND
THE AZL® INDEX STRATEGY
AZL® MVP Growth Index Strategy Fund
General
The Fund is distinguished primarily on the basis of relative allocations among equity, fixed income and derivative securities. The term "Growth" is commonly used describing the risk profile and equity allocation of the Fund. The Growth Index Strategy Fund features a higher allocation to equity investments (65% - 85%). The Fund utilizes the MVP (Managed Volatility Fund) risk management process as described in the section "More about the Funds – The AZL MVP Funds", later in this prospectus.
In selecting a Fund, investors should consider their personal objectives, investment time horizons, risk tolerances and financial circumstances.
Investment Strategies
The Manager's principal investment strategies for the AZL Index Strategy may also include the following:
For temporary defensive purposes, the Fund may invest up to 100% of net assets in short-term U.S. Government securities, bank certificates of deposit, prime commercial paper, money market funds, and other high quality short-term fixed-income securities and repurchase agreements with respect to those securities. If the Fund invests substantially in such instruments, it may not be pursuing its principal investment strategies and may not achieve its investment objective. The Manager also may allocate the Fund's assets outside of the target ranges specified in this Prospectus when the Manager believes that doing so would better enable the Fund to pursue its investment objective or is necessary for temporary defensive purposes.
Information About the Index Strategy Underlying Funds
The following briefly describes the investment goals and strategies of the Index Strategy Underlying Funds. The Manager may recommend additional or different underlying funds for investment, without seeking the approval of shareholders.
AZL Enhanced Bond Index Fund
The AZL Enhanced Bond Index Fund seeks to exceed the total return of the Barclays U.S. Aggregate Bond Index (the "Index"). The fund generally invests in a combination of securities with an overall weighting close to the capitalization weights of the Index; however, the fund's investments may not replicate the portfolio weights of the Index at all times. Instead, the subadviser may overweight or underweight securities in the fund (relative to their weightings in the Index) in order to emphasize securities which have quantitative characteristics (such as above-average yield or below-average valuation) the subadviser believes may enhance performance. The fund may not invest in all of the bonds in the Index, or in the same weightings as in the Index. Because the Index typically includes securities not readily available in the market, the fund may invest in bonds that are not included in the Index but that are selected to reflect as closely as practicable
characteristics, such as maturity, duration, or credit quality, of bonds in the Index. This may result in different levels of interest rate, credit or other risks from the levels of risks on the securities included in the Index. The fund may trade securities to the extent necessary to maintain the duration of certain segments of the portfolio close to the duration of corresponding segments of the Index.
The fund usually will invest a portion of its assets in mortgage-backed securities. Most mortgage-backed securities are issued by Federal government agencies, such as the Government National Mortgage Association ("Ginnie Mae"), or government sponsored enterprises, such as the Federal Home Loan Mortgage Corporation ("Freddie Mac") or the Federal National Mortgage Association ("Fannie Mae"). Principal and interest payments on mortgage-backed securities issued by the Federal government agencies may be guaranteed by either the Federal government or the government agency, but not all such securities issued by certain government agencies and by government sponsored enterprises are guaranteed by the U.S. government or backed by the full faith and credit of the United States.
The fund also may invest in U.S. Treasury bills, notes and bonds and other "full faith and credit" obligations of the U.S. Government. The fund may also invest in U.S. Government agency securities, which are debt obligations issued or guaranteed by agencies or instrumentalities of the U.S. Government. "Agency" securities may not be backed by the "full faith and credit" of the U.S. Government. U.S. Government agencies may include the Federal Farm Credit Bank, the Resolution Trust Corporation and the Government National Mortgage Association. "Agency" obligations are not explicitly guaranteed by the U.S. Government and so are perceived as somewhat riskier than comparable Treasury bonds.
Eligible investments for the fund also include:
• | Agency and non-agency mortgage-backed securities back by loans secured by residential, multifamily, and commercial properties; |
• | Obligations of U.S. and foreign corporations; |
• | Obligations of foreign governments and supranational entities, such as the World Bank; |
• | Asset-backed securities; |
• | Municipal bonds, both taxable and tax-exempt; |
• | Preferred stock, including non-convertible preferred stock ; and |
• | Cash equivalent securities (any security that has an effective duration under one year, a weighted average life of less than one year, and spread duration less than one year). |
Securities must be rated investment grade or better at the time of purchase. The fund will have a targeted duration within a band of ±10% around the duration of the Index. Except for Treasury or agency debentures, pass through securities, or REMICs (real estate mortgage investment conduits), no more than 3% of the fund's assets may be invested in the securities of a single issuer.
The fund may use futures, options, and/or swaps to manage duration and other characteristics of its portfolio. The fund is permitted to purchase securities in private placements or Rule 144A transactions and to purchase securities on a when-issued basis or for forward delivery. The fund may also enter into repurchase agreements and covered dollar rolls on mortgage securities.
The fund is subadvised by BlackRock Financial Management, LLC.
AZL S&P 500 Index Fund
The investment objective of the AZL S&P 500 Index Fund is to match the total return of the Standard & Poor's 500 Composite Stock Price Index (S&P 500®). The fund normally invests in all 500 stocks in the S&P 500® in proportion to their weighting in the index. The fund attempts to have a correlation between its performance and that of the S&P 500® Index of at least 0.95 before expenses. A correlation of 1.00 would mean that the Fund and the index were perfectly correlated. The S&P 500® is an unmanaged index of 500 common stocks chosen to reflect the industries of the U.S. economy and is often considered a proxy for the stock market in general. Standard & Poor's adjusts each company's stock weighting in the index by the number of available float shares (those shares available to public investors) divided by the company's total shares outstanding, which means larger companies with more available float shares have greater representation in the index than smaller ones. In seeking to match the performance of the index, the fund uses a passive management approach and purchases all or a representative sample of the stocks comprising the benchmark index. The fund also may use stock index futures as a substitute for the sale or purchase of securities. Because the fund has expenses, performance will tend to be slightly lower than that of the target benchmark
The fund is subadvised by BlackRock Investment Management, LLC.
AZL Mid Cap Index Fund
The investment objective of the AZL Mid Cap Index Fund is to match the performance of the Standard & Poor's MidCap 400® Index ("S&P 400 Index") as closely as possible before the deduction of fund expenses. The fund seeks to achieve its investment objective by employing a passive management approach. Under normal circumstances the fund invests at least 80% of its net assets in a statistically selected sampling of equity securities of companies included in the S&P 400 Index and in derivative instruments linked to the index, primarily futures contracts. The S&P 400 Index is a market-weighted index composed of 400 common stocks of medium-sized U.S. companies in a wide range of businesses chosen by Standard & Poor's based on a number of factors, including industry representation, market value, economic sector, and operating/financial condition. As of December 31, 2014, the market capitalizations of companies in the S&P 400 Index ranged from $800 million to $3 billion. The fund does not necessarily invest in all of the securities in the S&P 400 Index or in the same weightings that the securities have in the index. The fund's subadviser chooses investments so that the market capitalizations, industry weightings, and other fundamental characteristics of the securities chosen are similar to the S&P 400 Index as a whole.
The fund is subadvised by BlackRock Investment Management, LLC.
AZL Small Cap Stock Index Fund
The AZL Small Cap Stock Index Fund seeks to match the performance of the Standard & Poor's (S&P) SmallCap 600® Index. The subadviser normally invests in all of the stocks in the S&P SmallCap 600® Index in proportion to their weighting in the index. The subadviser attempts to have a correlation between the fund's performance and that of the index of at least 0.95 before expenses. A correlation of 1.00 would mean that the fund and the index were perfectly correlated.
The S&P SmallCap 600® Index is an unmanaged index composed of 600 domestic stocks with market capitalizations ranging between approximately $300 million and $2.0 billion, depending on index composition. S&P adjusts each company's stock weighting in the index by the number of available float shares (those shares available to public investors) divided by the total shares outstanding of the company, which means larger companies with more available float shares have greater representation in the index than smaller ones.
In seeking to match the performance of the index, the subadviser uses a passive management approach and generally purchases all of the stocks comprising the benchmark index. However, in certain circumstances the subadviser may find it advantageous to purchase a representative sample of the stocks comprising the index. The subadviser also may use stock index futures as a substitute for the sale or purchase of securities.
The fund is subadvised by BlackRock Investment Management, LLC.
AZL International Index Fund
The investment objective of the AZL International Index Fund is to match the performance of the Morgan Stanly Capital International Europe, Australasia and Far East Index ("MSCI EAFE Index") as closely as possible before the deduction of fund expenses. The fund seeks to achieve its investment objective by employing a passive management approach. Under normal circumstances the fund invests at least 80% of its net assets in a statistically selected sampling of equity securities included in the MSCI EAFE Index and in derivative instruments linked to the index, primarily futures contracts. The MSCI EAFE Index is a market-weighted index composed primarily of common stocks of companies from various industrial sectors whose primary trading markets are located outside the United States. Companies included in the MSCI EAFE Index are selected from among the larger-capitalization companies in these markets. The weighting of the MSCI EAFE Index is based on the relative market capitalization of each of the countries in the index. The fund does not necessarily invest in all of the securities in the index or in the same weightings that the securities have in the index. The fund's subadviser chooses investments so that the market capitalizations, industry weightings, and other fundamental characteristics of the securities chosen are similar to the index as a whole.
The fund is subadvised by BlackRock Investment Management, LLC.
THE AZL® MVP FUND
AZL® MVP Growth Index Strategy Fund
The AZL MVP Fund utilizes the MVP (Managed Volatility Portfolio) risk management process (which may be referred to as the MVP risk management overlay), which is intended to manage the risk of the Fund and its allocation to equities and to other, relatively more volatile asset classes. This process could cause the equity exposure of the Fund to fluctuate, but equity exposure generally will not be lower than 10%. Generally, the MVP risk management process would not reduce equity
exposure during periods of moderate and low market volatility. During periods of extreme market volatility, the MVP process could result in equity exposure that is much lower than 10%.
The Manager will implement the Fund's MVP risk management process using futures. The Fund normally will gain exposure to futures by investing directly, but the Fund also may gain exposure to futures indirectly through underlying investments.
Derivative securities such as futures provide the Manager an effective method to reduce volatility of the Fund and limits the need to decrease or increase allocations to underlying funds. The process is intended to limit market exposure during periods of high volatility, although the process may not always be successful. In some market conditions exhibiting high volatility, the process may result in the Fund underperforming the market during rising markets, and outperforming the market during declining markets.
Pursuant to the MVP risk management process, the AZL MVP Fund may allocate up to 20% of its respective net assets to futures, or to 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. The 20% limit on assets allocated to the derivatives positions (generally, futures) within the MVP risk management process relates to the collateral and margin supporting the derivatives positions. The Manager is permitted to use other derivative securities, such as options, when the Manager believes that it is necessary to achieve the volatility reduction goals of the MVP Process and is in the best interest of the Fund. The risk management process is more likely to be implemented in the Fund having a greater allocation to equities and other more volatile asset classes.
Generally, the MVP risk management process will not reduce equity exposure during periods of moderate and low market volatility. However, during such conditions, the AZL MVP Fund may allocate a portion of its assets to derivative securities, primarily index futures, for the purpose of gaining broad equity and fixed income exposure. This feature is intended to reduce the potential drag of the AZL MVP Fund's cash position on portfolio performance during periods of moderate and low market volatility, and is not intended to provide leverage.
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
The price of each Fund share is based on its net asset value ("NAV"). The NAV is the current value of a share in a mutual fund. It is the Fund's assets minus liabilities divided by the number of outstanding shares. The NAV for each Fund is determined at the close of regular trading on the New York Stock Exchange (the "NYSE"), normally at 4:00 p.m. Eastern Time, on days the NYSE is open. Shares will not be priced on the days on which the NYSE is closed for trading.
The assets of each Fund consist primarily of shares of underlying funds and may also include other securities. Shares of underlying funds are valued at their respective NAVs. Other securities are valued using market quotations or independent pricing services that use prices provided by market makers or estimates of market values. After the pricing of a security has been established, if an event occurs which would likely cause the value to change, the value of the security may be priced at fair value as determined in good faith by or at the direction of the Board of Trustees of the Trust.
The securities, other than short-term debt securities, held by a Fund's underlying funds or other underlying investments (collectively, the "Permitted Underlying Investment") are generally valued at current market prices. If market quotations are not available, prices will be based on fair value as determined in good faith by or at the direction of the directors or trustees of the underlying funds. The effect of using fair value pricing is that a Fund's NAV will be subject to the judgment respectively of (1) the Board of Trustees of the Trust, or (2) the directors or trustees of the underlying funds or unaffiliated mutual funds, or their respective designees instead of being determined by the market. In addition, foreign securities acquired by a Permitted Underlying Investment may be valued in foreign markets on days when the Permitted Underlying Investment's NAV is not calculated. In such cases, the NAV of an Underlying Investment, or a Fund, through an Underlying Investment, may be significantly affected on days when investors cannot buy or sell shares. For additional information on fair value pricing, see the prospectuses for the underlying funds in which a Fund may have invested.
Options purchased and held by the Funds generally are valued at the average of the closing bid and ask quotations on the principal exchange on which the option is traded, as of the close of the NYSE. If market quotations are not available, the value of an option may be priced at fair value as determined in good faith by or at the direction of the Funds' Trustees.
PURCHASE AND REDEMPTION OF SHARES
Investors may not purchase or redeem shares of the Funds directly, but only through the variable annuity contracts and variable life insurance policies offered through the separate accounts of participating insurance companies. You should
refer to the prospectus of the participating insurance company's variable products for information on how to purchase a variable annuity contract or variable life insurance policy, how to select specific Allianz VIP Funds as investment options for your contract or policy and how to redeem monies from the Funds.
Orders for the purchase and redemption of shares of a Fund received before the NYSE closes are effected at the net asset value per share determined as of the close of trading on the NYSE (generally 4:00 p.m. Eastern Time) that day. Orders received after the NYSE closes are effected at the next calculated net asset value. Payment for redemption will be made by the Funds within 7 days after the request is received.
The Funds may suspend the right of redemption under certain extraordinary circumstances in accordance with the rules of the Securities and Exchange Commission. The Funds do not assess any fees when they sell or redeem their shares.
The right of purchase of Fund shares may also be restricted, and purchase orders may be rejected, in accordance with the market timing policy of the Trust as described under the "Market Timing" section below, and the market timing policy of the separate accounts of participating insurance companies. Please refer to your contract prospectus for the market timing policy of the separate account for your contract.
Each Fund reserves the right to make payment in securities rather than cash, known as "redemption in kind." This could occur under extraordinary circumstances, such as a large redemption that could affect Fund operations (for example, more than 1% of the Fund's net assets). If the Fund deems it advisable for the benefit of all shareholders, redemption in kind will consist of securities equal in market value to the accumulation unit value allocated under your variable contract to the subaccount that invests in the Fund. When these securities are converted to cash, the associated brokerage charges will be deducted from the assets of the subaccount. Any securities redeemed in kind will remain subject to market risk until sold.
MARKET TIMING
The Board of Trustees has adopted a policy that the Funds will not knowingly permit market timing or other abusive short-term trading practices. Market timing is frequent or short-term trading activity by certain investors in a fund intending to profit at the expense of other investors in the same fund by taking advantage of pricing inefficiencies that can prevent a fund's share price from accurately reflecting the value of its portfolio securities. For example, investors may engage in short-term trading in funds that invest in securities which trade on overseas securities markets to take advantage of the difference between the close of the overseas markets and the close of the U.S. markets. This type of short-term trading is sometimes referred to as "time-zone arbitrage." Funds that invest in other securities which are less liquid, or are traded less often, may be vulnerable to similar pricing inefficiencies.
Market timing and other abusive short-term trading practices may adversely impact a fund's performance by preventing portfolio managers from fully investing the assets of the fund, diluting the value of shares, or increasing the fund's transaction costs. To the extent that certain of the Funds have significant holdings in foreign securities (including emerging markets securities), small-cap stocks, or high-yield bonds, or any combination thereof, the risks of market timing may be greater for those Funds than for other Funds. The Funds are offered only through variable annuity contracts and life insurance policies, and shares of the Funds are held in subaccounts of affiliated insurance companies. Because Fund transactions are processed by those insurance companies, rather than by the Trust, the Board of Trustees has not adopted procedures to monitor market timing activity at the Fund level, but rather has approved monitoring procedures designed to detect and deter market timing activities at the contract or policy level.
As required by SEC rules, the Funds have entered into agreements with their financial intermediaries, including the affiliated insurance companies, whereby the Funds or their agents may require the financial intermediaries to provide individual account level information about you and your trading activities in the Funds. If the Funds detect market timing activities either at the omnibus or individual account level, the Funds may require the financial intermediaries to take actions to curtail the activity, which may include restricting your trading activity in the Funds.
Your variable annuity or variable life insurance prospectus contains a description of the market timing detection and deterrence policy at the contract or policy level. Please refer to your annuity contract or life insurance policy prospectus for specific details on transfers between accounts.
The procedures that are designed to detect and deter market timing activities at the contract or policy level cannot provide a guarantee that all market timing activity will be identified and restricted. In addition, state law and the terms of some contracts and policies may prevent or restrict the effectiveness of the market timing procedures from stopping certain market timing activity. Market timing activity that is not identified, prevented, or restricted may adversely impact the performance of a Fund.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
Any income a Fund receives is paid out, less expenses, in the form of dividends to its shareholders. Shares begin accruing dividends on the day they are purchased. Income dividends are usually paid annually. Capital gains for all Funds are distributed at least annually.
All dividends and capital gain distributions will be automatically reinvested in additional shares of a Fund at the net asset value of such shares on the payment date.
Each Fund is treated as a separate corporate entity for tax purposes. Each Fund intends to elect to be treated as a regulated investment company and each Fund intends to qualify for such treatment for each taxable year under Subchapter M of the Internal Revenue Code of 1986, as amended. In addition, each Fund will diversify its investments so that on the last day of each quarter of a calendar year, no more than 55% of the value of its total assets is represented by any one investment, no more than 70% is represented by any two investments, no more than 80% is represented by any three investments, and no more than 90% is represented by any four investments. For this purpose, securities of a given issuer generally are treated as one investment and each U.S. Government agency or instrumentality is treated as a separate issuer. Any security issued, guaranteed, or insured (to the extent so guaranteed or insured) by the U.S. Government or an agency or instrumentality of the U.S. Government is treated as a security issued by the U.S. Government or its agency or instrumentality, whichever is applicable. If a Fund fails to meet this diversification requirement, income with respect to variable insurance contracts invested in the Fund at any time during the calendar quarter in which the failure occurred could become currently taxable to the owners of the contracts. Similarly, income for prior periods with respect to such contracts also could be taxable, most likely in the year of the failure to achieve the required diversification. Provided that a Fund and a separate account investing in the Fund satisfy applicable tax requirements, any distributions from the Fund to the separate account will be exempt from current federal income taxation to the extent that such distributions accumulate in a variable annuity contract or a variable life insurance policy.
Persons investing in variable annuity contracts or variable life insurance policies should refer to the prospectuses with respect to such contracts or policies for further information regarding the tax treatment of the contracts or policies and the separate accounts in which the contracts or policies are invested.
PART B:
STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF ADDITIONAL INFORMATION
[August 31], 2016
Acquired Fund | Acquiring Fund |
AZL MVP Fusion Growth Fund | AZL MVP Growth Index Strategy Fund |
This Statement of Additional Information ("SAI") relates to the proposed Reorganization of the Acquired Fund identified above with and into the Acquiring Fund. Each Fund is a series of the Allianz Variable Insurance Products Fund of Funds Trust (the "Trust"). This SAI contains information which may be of interest to shareholders of the Acquired Fund but which is not included in the combined Proxy Statement/Prospectus dated [August 31], 2016 (the "Proxy Statement/Prospectus") which relates to the Reorganization. As described in the Proxy Statement/Prospectus, the Reorganization would involve the transfer of all the assets of the Acquired Fund in exchange for shares of the Acquiring Fund and the assumption of all the liabilities of the Acquired Fund by the Acquiring Fund. The Acquired Fund would distribute the Acquiring Fund shares it receives to its shareholders in complete liquidation of the Acquired Fund. This SAI is not a prospectus and should be read in conjunction with the Proxy Statement/Prospectus. The Proxy Statement/Prospectus has been filed with the Securities and Exchange Commission and is available upon request and without charge by writing to the Funds at 3-825, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297, or by calling, toll free, 1-800-624-0197.
TABLE OF CONTENTSPAGE
Additional Information About the Acquiring Fund 2
Independent Registered Public Accounting Firm 2
Financial Statements 2
Exhibit I – Statement of Additional Information of the Acquired Fund 3
Exhibit II – Pro Forma Financial Statements 71
1
Additional Information About the Acquiring Fund
Attached hereto as Appendix A is the Statement of Additional Information of the Acquiring Fund dated April 25, 2016, as supplemented to date.
Independent Registered Public Accounting Firm
KPMG LLP ("KPMG"), 191 West Nationwide Boulevard, Suite 500, Columbus, OH 43215, is the independent registered public accounting firm for the Trust. KPMG provides financial auditing services as well as certain tax return preparation services for the Trust.
The Report of Independent Registered Public Accounting Firm, Financial Highlights and Financial Statements included in the Acquiring Fund's Annual Report to Shareholders for the fiscal year ended December 31, 2015 are incorporated by reference into this SAI.
The audited financial statements for the Acquiring Fund included in its Annual Reports to Shareholders and incorporated by reference into this SAI, and the audited financial statements for the Acquired Fund incorporated by reference to the Proxy Statement/Prospectus have been so included and incorporated in reliance upon the reports of KPMG, given on their authority as experts in auditing and accounting.
Financial Statements
Pro forma financial statements of the Acquired Fund for the Reorganization are attached hereto as Exhibit II.
2
EXHIBIT II – PRO FORMA FINANCIAL STATEMENTS
Pro Forma Financial Information
The following unaudited pro forma financial information gives effect to the proposed reorganization (referred to as the "Reorganization"), accounted as if the Reorganization had occurred as of January 1, 2015. In addition, the pro forma Financial Information has been prepared based upon the proposed fee and expense structure after the Reorganization, as discussed in the combined Proxy Statement/Prospectus.
The pro forma financial information has been estimated in good faith based upon information regarding the AZL MVP Fusion Growth Fund ("MVPFGF" or "Acquired Fund") and the AZL MVP Growth Index Strategy Fund ("MVPGISF" or the "Acquiring Fund"), each a series of the Allianz Variable Insurance Products Fund of Funds Trust (the "Trust"), for the twelve month period ended December 31, 2015. The pro forma financial information should be read in conjunction with the historical financial statements and notes thereto of the Acquired Fund and the Acquiring Fund, which are available in their respective annual and semi–annual shareholder reports.
Narrative Description of the Pro Forma Effects of the Reorganization
1. BASIS OF COMBINATION
The unaudited pro forma financial information has been prepared to give effect to the proposed Reorganization of the Acquired Fund into the Acquiring Fund pursuant to a Plan of Reorganization as of the beginning of the period as indicated below in the table.
Acquired Fund | Acquiring Fund | 12 Month Period Ended | |||||
MVPFGF | MVPGISF | December 31, 2015 |
The Reorganization will be accounted for as a tax-free reorganization of investment companies; therefore, no gain or loss will be recognized by the Acquiring Fund, the Acquired Fund, or the Funds' shareholders as a result of the Reorganization. The Reorganization will be accomplished by the acquisition of substantially all of the Acquired Fund's assets and the assumption of substantially all of the liabilities by the Acquiring Fund in exchange for shares of the Acquiring Fund and the distribution of such shares to Acquired Fund shareholders in complete liquidation of the Acquired Fund. The table below shows the shares that the Acquired Fund's shareholders would have received if the Reorganization were to have taken place on December 31, 2015.
Acquiring Fund Shares Issued | ||
MVPFGF | 53,788,394 |
2. NET ASSETS
The table below shows the net assets of the Acquired Fund, adjusted for the effect of reorganization costs (see Note 4), and the Acquiring Fund and pro forma combined net assets (the "Combined Fund"), assuming the Reorganization was completed as of December 31, 2015. The actual net assets at the closing date will differ.
Acquired Fund | Acquiring Fund | Combined Fund Pro Forma |
$728,832,735 | $1,392,460,446 | $2,121,293,181 |
70
3. PRO FORMA ADJUSTMENTS
The table below reflects estimated adjustments to expenses needed to the pro forma Combined Fund as if the Reorganization had taken place on January 1, 2015, excluding reorganization costs. The pro forma financial information has been derived from the books and records used in calculating daily net asset values of the Acquired Fund and the Acquiring Fund and has been prepared in accordance with accounting principles generally accepted in the United States of America which requires management to make estimates and assumptions that affect this information. Actual results could differ from those estimates. No other significant pro forma effects are expected to result from the Reorganization.
Increase (decrease) | ||
Expense Category | in expense | |
Manager fees (1) | $(810,843) | |
Custodian fees (2) | (1,500) | |
Professional fees (3) | (9,086) | |
Shareholder reports (4) | (10,119) | |
Other expenses (5) | (3,463) |
(1) | The Manager fees of MVPFGF and MVPGISF are 0.20% and 0.10% (of average daily net assets), respectively (highest tier rate is shown, as applicable). The adjustment reflects the impact of applying the Acquiring Fund's fee rate following the Reorganization to the Combined Fund's average net assets. |
(2) | Custodian fees were reduced to eliminate the effects of duplicative fees. |
(3) | Professional fees were reduced to eliminate the effects of duplicative fees for audit and legal services. |
(4) | Separate shareholder reports for the Acquired Fund will no longer be required. |
(5) | Other expenses were reduced to eliminate the effects of duplicative fees for such services. |
No significant accounting policies will change as a result of the Reorganization, specifically policies regarding security valuation or compliance with applicable tax regulations. No significant changes to any existing contracts of the Acquiring Fund are expected as a result of the Reorganization.
4. REORGANIZATION COSTS
The reorganization costs (whether or not the Reorganization is consummated) will be borne by the Manager and the Acquired Fund equally, provided, however, that the expenses borne by the Acquired Fund shall not exceed $178,000. The total amount of such expenses for the Reorganization is estimated to be $356,000.
5. ACCOUNTING SURVIVOR
The Acquiring Fund will be the accounting survivor. The surviving fund will have the lead portfolio manager, portfolio composition, investment objective and strategy, expense structure and policies/restrictions of the Acquiring Fund.
The Acquiring Fund is a fund of funds which invests primarily in five underlying passively-managed index funds. As such, any securities owned by the Acquired Fund which are not one of the five underlying passively-managed index funds included in the Acquiring Fund's strategy will be sold in connection with the reorganization. The Acquiring Fund, in turn, is expected to invest the proceeds of the sales of such Acquired Fund assets in securities which are included in the Acquiring Fund's strategy.
71
6. FEDERAL TAX INFORMATION
It is the Acquiring Fund's policy to continue to comply with the requirements of the Internal Revenue Code under Subchapter M, applicable to regulated investment companies, and to distribute all of its taxable income, including any net realized gains on investments, to its shareholders. At December 31, 2015, the Acquired Fund's capital loss carryovers were $45,026,030, and the Acquiring Fund did not have any capital loss carryovers. The Acquiring Fund's ability to use the capital loss carryovers of the Acquired Fund to offset gains of the Acquiring Fund may be limited by loss limitation rules under Federal tax law.
72
PART C:
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
The Trust's Agreement and Declaration of Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust, except if it is determined in the manner specified in the Agreement and Declaration of Trust that they have not acted in good faith in the reasonable belief that their actions were in or not opposed to the best interests of the Trust or that such indemnification would relieve any officer or Trustee of any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties or, in a criminal proceeding, such Trustee or officers had reasonable cause to believe their conduct was unlawful. The Trust, at its expense, provides liability insurance for the benefit of its Trustees and officers.
Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
ITEM 16. EXHIBITS
All exhibits included below and incorporated by reference refer to registration amendments to form N-1A unless otherwise specified.
Exhibit Number | Description of Exhibit | |
(1) | Agreement and Declaration of Trust, of the Allianz Variable Insurance Products Fund of Funds Trust, dated June 16, 2004 as amended May 1, 2006, filed on October 15, 2013 as Exhibit (a) to Registrant's Post-effective Amendment No. 18, is incorporated by reference. | |
(2) | By-laws, of the Allianz Variable Insurance Products Fund of Funds Trust, dated June 16, 2004 as amended May 1, 2006, filed on October 15, 2013 as Exhibit (b) to Registrant's Post-effective Amendment No. 18, is incorporated by reference. | |
(3) | Not Applicable | |
(4)* | Agreement and Plan of Reorganization, filed herewith. | |
(5) | See (1) and (2) above. | |
(6)(a) | Investment Management Agreement, dated December 2, 2004, between USAllianz Advisers, LLC and USAllianz Variable Insurance Products Fund of Funds Trust, filed on December 30, 2004 as Exhibit (d)(1) to Registrant's Pre-effective Amendment No. 2, is incorporated by reference. | |
73
(6)(a)(i) | Revised Schedule A dated November 1, 2015, to the Investment Management Agreement, dated December 2, 2004, between USAllianz Advisers, LLC and USAllianz Variable Insurance Products Fund of Funds Trust, filed on April 18, 2016 as Exhibit (d)(1)(i) to Registrant's Post-Effective Amendment No. 28, is incorporated by reference. | |
(6)(a)(ii) | Revised Attachment 1, dated January 1, 2013, to Schedule A of the Investment Management Agreement, dated December 2, 2004, between USAllianz Advisers, LLC and USAllianz Variable Insurance Products Fund of Funds Trust, filed on April 24, 2013 as Exhibit (d)(1)(ii) to Registrant's Post-Effective Amendment No. 16, is incorporated by reference. | |
(7)(a) | Distribution Agreement, dated August 28, 2007, between Allianz Variable Insurance Products Trust, Allianz Variable Insurance Products Fund of Funds Trust and Allianz Life Financial Services, LLC, filed on April 29, 2008 to Registrant's Post-Effective Amendment No. 3, is incorporated by reference. | |
(7)(a)(i) | Revised Schedule I dated April 28, 2014, to the Distribution Agreement, dated August 28, 2007, between Allianz Variable Insurance Products Trust, Allianz Variable Insurance Products Fund of Funds Trust and Allianz Life Financial Services, LLC, filed on February 5, 2015 as Exhibit (e)(1)(i) to Registrant's Post-Effective Amendment No. 23, is incorporated by reference. | |
(7)(a)(ii) | Fee Agreement Letter dated August 28, 2007, to the Distribution Agreement between Allianz Variable Insurance Products Trust, Allianz Variable Insurance Products Fund of Funds Trust and Allianz Life Financial Services, LLC, filed on February 2, 2009 as Exhibit (e)(1)(ii) to Registrant's Post-Effective Amendment No. 4, is incorporated by reference. | |
(7)(b) | Amended and Restated Participation Agreement, dated November 1, 2015, between Allianz Variable Insurance Products Fund of Funds Trust, Allianz Life Insurance Company of North America, and Allianz Life Financial Services, LLC, filed on April 18, 2016 as Exhibit (e)(2) to Registrant's Post-Effective Amendment No. 28, is incorporated by reference. | |
(7)(c) | Amended and Restated Participation Agreement, dated November 1, 2015, between Allianz Variable Insurance Products Fund of Funds Trust, Allianz Life Insurance Company of New York, and Allianz Life Financial Services, LLC, filed on April 18, 2016 as Exhibit (e)(3) to Registrant's Post-Effective Amendment No. 28, is incorporated by reference. | |
(8) | Not Applicable | |
(9) | Mutual Fund Custody and Services Agreement, dated November 26, 2008, between Allianz Variable Insurance Products Trust, Allianz Variable Insurance Products Fund of Funds Trust and The Bank of New York Mellon, filed on February 2, 2009 as Exhibit (g) to Registrant's Post-Effective Amendment No. 4, is incorporated by reference. | |
(9)(a)(i) | Amendments dated ; May 2, 2011, July 16, 2010, April 22, 2010, and October 26,2009 to the Mutual Fund Custody and Services Agreement, dated November 26, 2008, between Allianz Variable Insurance Products Trust, Allianz Variable Insurance Products Fund of Funds Trust and The Bank of New York Mellon, filed on December 13, 2011 as Exhibit (g)(1)(i) to Registrant's Post-Effective Amendment No. 11, is incorporated by reference. |
(9)(a)(ii) | Custody and Securities Lending Fee Schedule dated October 1, 2011, between Allianz Life Variable Insurance Products Trust, Allianz Variable Insurance Products Fund of Funds Trust and The Bank of New York Mellon, filed on December 13, 2011 as Exhibit (g)(1)(ii) to Registrant's Post-Effective Amendment No. 11, is incorporated by reference. | ||
(9)(a)(iii) | Amendment dated October 31, 2013 to the Mutual Fund Custody and Services Agreement, dated November 26, 2008, between Allianz Variable Insurance Products Trust, Allianz Variable Insurance Products Fund of Funds Trust and The Bank of New York Mellon, filed on April 23, 2014 as Exhibit (g)(1)(iii) to Registrant's Post-Effective Amendment No. 21, is incorporated by reference. | ||
(9)(a)(iv) | Amendments dated January 10, 2014 and April 28, 2014 to the Mutual Fund Custody and Services Agreement, dated November 26, 2008, between Allianz Variable Insurance Products Trust, Allianz Variable Insurance Products Fund of Funds Trust and The Bank of New York Mellon, filed on February 5, 2015 as Exhibit (g)(1)(iv) to Registrant's Post-Effective Amendment No. 23, is incorporated by reference. | ||
(9)(a)(v) | Amendments dated October 27, 2014 and April 27, 2015, to the Mutual Fund Custody and Services Agreement, dated November 26, 2008, between Allianz Variable Insurance Products Trust, Allianz Variable Insurance Products Fund of Funds Trust and The Bank of New York Mellon, filed on April 21, 2015 as Exhibit (g)(1)(v) to Registrant's Post-Effective Amendment No. 24, is incorporated by reference. | ||
(9)(a)(vi) | Fourteenth Amendment dated October 30, 2015, to the Mutual Fund Custody and Services Agreement, dated November 26, 2008, between Allianz Variable Insurance Products Trust, Allianz Variable Insurance Products Fund of Funds Trust and The Bank of New York Mellon, filed on April 18, 2016 as Exhibit (g)(1)(vi) to Registrant's Post-Effective Amendment No. 28, is incorporated by reference. | ||
(10) | Not Applicable | ||
(11)** | Opinion and consent of Dorsey & Whitney LLP with respect to the legality of the securities being registered, to be filed by amendment. | ||
(12)** | Opinion and consent of Ropes & Gray LLP with respect to tax matters, to be filed by amendment. | ||
(13)(a) | Services Agreement dated January 1, 2015, between Allianz Variable Insurance Products Fund of Funds Trust and Citi Fund Services Ohio, Inc., filed on February 5, 2015 as Exhibit (h)(1) to Registrant's Post-Effective Amendment No. 23, is incorporated by reference. | ||
(13)(a)(i) | Amendment dated, April 1, 2015, to the Services Agreement dated January 1, 2015, between Allianz Variable Insurance Products Trust and Citi Fund Services Ohio, Inc., filed on April 21, 2015 as Exhibit (h)(1)(i) to Registrant's Post-Effective Amendment No. 24, is incorporated by reference. | ||
(13)(a)(ii) | Transfer Agency Agreement dated April 1, 2015, between Allianz Variable Insurance Products Fund of Funds Trust and Citi Fund Services Ohio, Inc., filed on April 21, 2015 as Exhibit (d)(1)(i) to Registrant's Post-Effective Amendment No. 24, is incorporated by reference. |
(13)(b) | PFO Services Agreement dated January 1, 2015, between Allianz Variable Insurance Products Fund of Funds Trust and Citi Fund Services Ohio, Inc., filed on February 5, 2015 as Exhibit (h)(2) to Registrant's Post-Effective Amendment No. 23, is incorporated by reference. | |
(13)(c) | Amended and Restated Administrative Services Agreement, dated November 1, 2014, by and among Allianz Variable Insurance Products Trust, Allianz Variable Insurance Products Fund of Funds Trust, and Allianz Investment Management LLC, filed on February 5, 2015 as Exhibit (h)(3) to Registrant's Post-Effective Amendment No. 23, is incorporated by reference. | |
(13)(d) | Amended and Restated Compliance Services Agreement, dated July 1, 2014, by and among Allianz Variable Insurance Products Trust, Allianz Variable Insurance Products Fund of Funds Trust, and Allianz Life Investment Management LLC, filed on February 5, 2015 as Exhibit (h)(4) to Registrant's Post-Effective Amendment No. 23, is incorporated by reference. | |
(13)(e) | Amended Expense Limitation Agreement, dated May 1, 2007, between Allianz Life Advisers LLC and Allianz Variable Insurance Products Fund of Funds Trust, filed on February 2, 2009 as Exhibit (h)(2) to Registrant's Post-Effective Amendment No. 4, is incorporated by reference. | |
(13)(e)(i) | Revised Exhibit A dated April 27, 2015, to the Amended Expense Limitation Agreement dated May 1, 2007, between Allianz Life Advisers LLC and Allianz Variable Insurance Products Fund of Funds Trust, filed on April 18, 2016 as Exhibit (h)(5)(i) to Registrant's Post-Effective Amendment No. 28, is incorporated by reference. | |
(13)(e)(ii) | Amendment No. 1 dated January 23, 2012 to the Amended Expense Limitation Agreement dated May 1, 2007, between Allianz Life Advisers LLC and Allianz Variable Insurance Products Fund of Funds Trust, filed on April 26, 2012 as Exhibit (h)(2)(ii) to Registrant's Post-Effective Amendment No. 14, is incorporated by reference. | |
(13)(f) | Joint Insured Agreement dated November 3, 2010 between Allianz Variable Insurance Products Trust, Allianz Variable Insurance Products Fund of Funds Trust, and Allianz Investment Management LLC, filed on April 28, 2011, as Exhibit (h)(6) to Registrant's Post-Effective Amendment No. 8, is incorporated by reference. | |
(14)* | Consent of KPMG LLP with respect to financial statements of the Registrant, filed herewith. | |
(15) | Not Applicable | |
(16)* | Powers of Attorney, filed herewith. | |
(17)(a)* | Form of contract holder voting instructions, filed herewith. | |
(17)(b) | Prospectus of the acquired fund dated April 25, 2016 for shares of the Allianz Variable Insurance Products Fund of Funds trust, filed on April 18, 2016 as part of Registrants Post-Effective Amendment No. 28, is incorporated by reference. | |
(17)(c) | Annual report of the acquired fund, as of December 31, 2015, for the Allianz Variable Insurance Products Fund of Funds trust, filed by Registrant on March 9, 2016 under form N-CSR, is incorporated by reference. |
*filed herewith
**to be filed by amendment
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act [17 CFR 230.145c], the reoffering prospectus will contain the information called for by the applicable registration form for re-offerings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the Registration Statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them.
(3) The undersigned Registrant agrees to file, by post-effective amendment, an opinion of counsel or a copy of a ruling of the Internal Revenue Service supporting the tax consequences of the proposed reorganization within a reasonable time after receipt of such opinion or ruling.
SIGNATURES
As required by the Securities Act of 1933, this registration statement has been signed on behalf of the registrant, in the City of Golden Valley, and the State of Minnesota, on the 15th day of July, 2016.
ALLIANZ VARIABLE INSURANCE
PRODUCTS FUND OF FUNDS TRUST
By: /s/ Brian Muench
__________________________________________
Brian Muench, President
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement of Allianz Variable Insurance Products Fund of Funds Trust has been signed below by the following persons in the capacities indicated on July 15, 2016.
Signature | Title | |
/s/ Peter R. Burnim* | Trustee | |
Peter R. Burnim | ||
/s/ Peggy L. Ettestad* | Trustee | |
Peggy L. Ettestad | ||
/s/ Roger Gelfenbien* | Trustee | |
Roger A. Gelfenbien | ||
/s/ Dickson W. Lewis* | Trustee | |
Dickson W. Lewis | ||
/s/ Claire R. Leonardi* | Trustee | |
Claire R. Leonardi | ||
/s/ Peter W. McClean* | Trustee | |
Peter W. McClean | ||
/s/ Arthur C. Reeds III* | Trustee | |
Arthur C. Reeds III | ||
/s/ Bashir Asad | Treasurer (principal financial and accounting officer) | |
Bashir Asad | ||
/s/ Robert DeChellis* | Trustee | |
Robert DeChellis |
By: /s/ Brian Muench
______________________________________
Brian Muench, President
*Pursuant to powers of attorney filed as Exhibit (q) to this Registration Statement
EXHIBITS
TO
FORM N-14
ALLIANZ VARIABLE INSURANCE PRODUCTS FUND OF FUNDS TRUST
INDEX TO EXHIBITS
Exhibit | Description of Exhibit |
(4) | Agreement and Plan of Reorganization |
(14) | Consent of KPMG LLP with respect to financial statements of the Registrant |
(16) | Powers of Attorney |
(17)(a) | Form of contract holder voting instructions |