0001091439-10-000012.txt : 20110408
0001091439-10-000012.hdr.sgml : 20110408
20100427182209
ACCESSION NUMBER: 0001091439-10-000012
CONFORMED SUBMISSION TYPE: 485BPOS
PUBLIC DOCUMENT COUNT: 17
FILED AS OF DATE: 20100428
DATE AS OF CHANGE: 20100427
EFFECTIVENESS DATE: 20100430
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
CENTRAL INDEX KEY: 0001091439
IRS NUMBER: 000000000
STATE OF INCORPORATION: MN
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 485BPOS
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-83423
FILM NUMBER: 10774676
BUSINESS ADDRESS:
STREET 1: 5701 GOLDEN HILLS DRIVE
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55416
BUSINESS PHONE: 763-765-6551
MAIL ADDRESS:
STREET 1: 5701 GOLDEN HILLS DRIVE
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55416
FORMER COMPANY:
FORMER CONFORMED NAME: USALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
DATE OF NAME CHANGE: 19990721
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
CENTRAL INDEX KEY: 0001091439
IRS NUMBER: 000000000
STATE OF INCORPORATION: MN
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 485BPOS
SEC ACT: 1940 Act
SEC FILE NUMBER: 811-09491
FILM NUMBER: 10774677
BUSINESS ADDRESS:
STREET 1: 5701 GOLDEN HILLS DRIVE
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55416
BUSINESS PHONE: 763-765-6551
MAIL ADDRESS:
STREET 1: 5701 GOLDEN HILLS DRIVE
CITY: MINNEAPOLIS
STATE: MN
ZIP: 55416
FORMER COMPANY:
FORMER CONFORMED NAME: USALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
DATE OF NAME CHANGE: 19990721
0001091439
S000009943
AZL Money Market Fund
C000027523
AZL Money Market Fund
0001091439
S000009944
AZL Columbia Mid Cap Value Fund
C000027524
AZL Columbia Mid Cap Value Fund
0001091439
S000009945
AZL Schroder Emerging Markets Equity Fund
C000027525
AZL Schroder Emerging Markets Equity Fund Class 2
C000048321
AZL Schroder Emerging Markets Equity Fund Class 1
0001091439
S000009946
AZL OCC Opportunity Fund
C000027526
AZL OCC Opportunity Fund
0001091439
S000009950
AZL JPMorgan U.S. Equity Fund
C000027531
AZL JPMorgan U.S. Equity Fund Class 1
C000027532
AZL JPMorgan U.S. Equity Fund Class 2
0001091439
S000009952
AZL AIM International Equity Fund
C000027534
AZL AIM International Equity Fund
0001091439
S000009956
AZL Turner Quantitative Small Cap Growth Fund
C000027538
AZL Turner Quantitative Small Cap Growth Fund
0001091439
S000009958
AZL Eaton Vance Large Cap Value Fund
C000027540
AZL Eaton Vance Large Cap Value Fund
0001091439
S000009960
AZL Van Kampen Equity and Income Fund
C000027542
AZL Van Kampen Equity and Income Fund
0001091439
S000009961
AZL Van Kampen International Equity Fund
C000027543
AZL Van Kampen International Equity Fund
0001091439
S000009962
AZL Van Kampen Global Real Estate Fund
C000027544
AZL Van Kampen Global Real Estate Fund
0001091439
S000009963
AZL Davis NY Venture Fund
C000027545
AZL Davis NY Venture Fund Class 1
C000027546
AZL Davis NY Venture Fund Class 2
0001091439
S000009964
AZL Van Kampen Growth and Income Fund
C000027547
AZL Van Kampen Growth and Income Fund
0001091439
S000009965
AZL Van Kampen Mid Cap Growth Fund
C000027548
AZL Van Kampen Mid Cap Growth Fund
0001091439
S000009966
AZL Dreyfus Equity Growth Fund
C000027549
AZL Dreyfus Equity Growth Fund
0001091439
S000009967
AZL Columbia Small Cap Value Fund
C000027550
AZL Columbia Small Cap Value Fund Class 1
C000027551
AZL Columbia Small Cap Value Fund Class 2
0001091439
S000009968
AZL Franklin Small Cap Value Fund
C000027552
AZL Franklin Small Cap Value Fund
0001091439
S000009969
AZL MFS Investors Trust Fund
C000027553
AZL MFS Investors Trust Fund
0001091439
S000009970
AZL BlackRock Capital Appreciation Fund
C000027554
AZL BlackRock Capital Appreciation Fund
0001091439
S000017464
AZL Small Cap Stock Index Fund
C000048313
AZL Small Cap Stock Index Fund
0001091439
S000017470
AZL S&P 500 Index Fund
C000048319
AZL S&P 500 Index Fund Class 1
C000048320
AZL S&P 500 Index Fund Class 2
0001091439
S000025364
AZL Enhanced Bond Index Fund
C000075764
AZL Enhanced Bond Index Fund
0001091439
S000025365
AZL Franklin Templeton Founding Strategy Plus Fund
C000075765
AZL Franklin Templeton Founding Strategy Plus Fund
0001091439
S000025366
AZL International Index Fund
C000075766
AZL International Index Fund
0001091439
S000025367
AZL Mid Cap Index Fund
C000075767
AZL Mid Cap Index Fund
0001091439
S000025368
AZL NACM International Growth Fund
C000075768
AZL NACM International Growth Fund
0001091439
S000025369
AZL NFJ International Value Fund
C000075769
AZL NFJ International Value Fund
0001091439
S000025370
AZL OCC Growth Fund
C000075770
AZL OCC Growth Fund
0001091439
S000028739
AZL Gateway Fund
C000087884
AZL Gateway Fund
0001091439
S000028740
AZL Russell 1000 Growth Index Fund
C000087885
AZL Russell 1000 Growth Index Fund
0001091439
S000028741
AZL Russell 1000 Value Index Fund
C000087886
AZL Russell 1000 Value Index Fund
485BPOS
1
file001.txt
ALLIANZ VIP TRUST 485B 4-27-2010
FILE NOS.
333-83423
811-9491
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 28
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 29
-------------------------------
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
5701 Golden Hills Drive
Minneapolis, MN 55416
(763) 765-7330
-----------------------------
NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS:
H. Bernt von Ohlen
Allianz Investment Management LLC
5701 Golden Hills Drive
Minneapolis, MN 55416
COPIES OF COMMUNICATIONS TO:
Michael J. Radmer
DORSEY & WHITNEY LLP
50 SOUTH SIXTH STREET, SUITE 1500
MINNEAPOLIS, MN 55402
Approximate Date of Proposed Public Offering: April 30, 2010
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on (April 30, 2010) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
PART A - PROSPECTUS
_____________________
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST
AZL[R] BLACKROCK CAPITAL APPRECIATION FUND
AZL[R] COLUMBIA MID CAP VALUE FUND
AZL[R] COLUMBIA SMALL CAP VALUE FUND, CLASS 2
AZL[R] DAVIS NY VENTURE FUND, CLASS 2
AZL[R] DREYFUS EQUITY GROWTH FUND
(FORMERLY AZL[R] DREYFUS FOUNDERS EQUITY GROWTH FUND)
AZL[R] EATON VANCE LARGE CAP VALUE FUND
(FORMERLY AZL[R ]VAN KAMPEN COMSTOCK FUND)
AZL[R] ENHANCED BOND INDEX FUND
AZL[R] FRANKLIN SMALL CAP VALUE FUND
AZL[R] FRANKLIN TEMPLETON FOUNDING STRATEGY PLUS FUND
AZL[R] GATEWAY FUND
AZL[R] INTERNATIONAL INDEX FUND
AZL[R] INVESCO INTERNATIONAL EQUITY FUND
(FORMERLY AZL[R] AIM INTERNATIONAL EQUITY FUND)
AZL[R] JPMORGAN U.S. EQUITY FUND, CLASS 2
AZL[R] MFS INVESTORS TRUST FUND
(FORMERLY AZL[R] JENNISON 20/20 FOCUS FUND)
AZL[R] MID CAP INDEX FUND
AZL[R] MONEY MARKET FUND
AZL[R] NACM INTERNATIONAL GROWTH FUND
AZL[R] NFJ INTERNATIONAL VALUE FUND
AZL[R] OCC GROWTH FUND
AZL[R] OCC OPPORTUNITY FUND
AZL[R] RUSSELL 1000 GROWTH INDEX FUND
AZL[R] RUSSELL 1000 VALUE INDEX FUND
AZL[R] S&P 500 INDEX FUND, CLASS 1 AND CLASS 2
AZL[R] SCHRODER EMERGING MARKETS EQUITY FUND, CLASS 1 AND CLASS 2
AZL[R] SMALL CAP STOCK INDEX FUND
AZL[R] TURNER QUANTITATIVE SMALL CAP GROWTH FUND
AZL[R] VAN KAMPEN EQUITY AND INCOME FUND
AZL[R] VAN KAMPEN GLOBAL REAL ESTATE FUND
AZL[R] VAN KAMPEN GROWTH AND INCOME FUND
AZL[R] VAN KAMPEN INTERNATIONAL EQUITY FUND
(FORMERLY AZL[R]VAN KAMPEN GLOBAL FRANCHISE FUND)
AZL[R] VAN KAMPEN MID CAP GROWTH FUND
PROSPECTUS DATED APRIL 30, 2010
ALLIANZ INVESTMENT MANAGEMENT LLC (THE "MANAGER")
Shares of each Fund are sold exclusively to certain insurance companies in
connection with particular variable annuity contracts and/or variable life
insurance policies (each a "Contact" and collectively the "Contacts") they
issue. The insurance companies invest in shares of the Funds in accordance with
instructions received from owners of the applicable Contracts.
This Prospectus must be accompanied or preceded by a current prospectus for the
Contracts that invest in the Funds.
QUESTIONS?
CALL TOLL FREE AT 1-877-833-7113 OR CONTACT YOUR INVESTMENT REPRESENTATIVE.
The Securities and Exchange Commission has not approved or disapproved the
shares described in this Prospectus or determined whether this Prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
This prospectus may contain information on Funds not available under your
Contract. Please refer to your Contract prospectus for information regarding the
investment options available to you.
AZL[R] is a registered service mark of Allianz SE. Allianz SE is
the ultimate owner of the Manager.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
TABLE OF CONTENTS ALLIANZ VIP FUNDS
TABLE OF CONTENTS
AZL[R] BlackRock Capital Appreciation Fund........................3
AZL[R] Columbia Mid Cap Value Fund................................6
AZL[R] Columbia Small Cap Value Fund, Class 2 ....................9
AZL[R] Davis NY Venture Fund, Class 2............................12
AZL[R] Dreyfus Equity Growth Fund................................15
AZL[R] Eaton Vance Large Cap Value Fund..........................18
AZL[R] Enhanced Bond Index Fund..................................22
AZL[R] Franklin Small Cap Value Fund.............................25
AZL[R] Franklin Templeton Founding Strategy Plus Fund............29
AZL[R] Gateway Fund..............................................33
AZL[R] International Index Fund..................................36
AZL[R] Invesco International Equity Fund.........................38
AZL[R] JPMorgan U.S. Equity Fund, Class 2........................41
AZL[R] MFS Investors Trust Fund..................................45
AZL[R] Mid Cap Index Fund........................................48
AZL[R] Money Market Fund.........................................50
AZL[R] NACM International Growth Fund............................53
AZL[R] NFJ International Value Fund..............................55
AZL[R] OCC Growth Fund...........................................58
AZL[R] OCC Opportunity Fund......................................61
AZL Russell 1000 Growth Index Fund...............................65
AZL Russell 1000 Value Index Fund................................67
AZL[R] S&P 500 Index Fund, Class 1 and Class 2...................69
AZL[R] Schroder Emerging Markets Equity Fund, Class 1 and Class
2 ................72
AZL[R] Small Cap Stock Index Fund................................76
AZL[R] Turner Quantitative Small Cap Growth Fund.................79
AZL[R] Van Kampen Equity and Income Fund.........................82
AZL[R] Van Kampen Global Real Estate Fund........................86
AZL[R] Van Kampen Growth and Income Fund.........................89
AZL[R] Van Kampen International Equity Fund......................92
AZL[R] Van Kampen Mid Cap Growth Fund............................95
TAX INFORMATION....................................................99
FINANCIAL INTERMEDIARY COMPENSATION99
MORE ABOUT THE FUNDS..............................................100
Overview........................................................100
Investment Strategies...........................................105
Investment Risks................................................108
FUND MANAGEMENT...................................................122
The Manager.....................................................122
The subadvisers of the Funds....................................122
The Portfolio Managers of the Funds.............................126
More Information About Fund Management..........................135
Duties of the Manager and subadvisers...........................135
Payments to Affiliated Insurance Companies......................136
Transfer Supported Features of Certain Annuity Contracts........136
Management Fees.................................................137
Legal Proceedings...............................................138
The Administrator...............................................143
The Distributor.................................................143
The Custodian...................................................143
Licensing Arrangements..........................................143
Disclosure of Portfolio Holdings................................144
SHAREHOLDER INFORMATION...........................................145
Pricing of Fund Shares..........................................145
Money Market Fund...............................................145
Purchase and Redemption of Shares...............................145
Market Timing...................................................146
Distribution (12b-1) Fees.......................................147
Dividends, Distributions, and Taxes.............................147
FINANCIAL HIGHLIGHTS..............................................148
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
2
FUND SUMMARIES AZL[R] BLACKROCK CAPITAL APPRECIATION FUND
AZL[R] BLACKROCK CAPITAL APPRECIATION FUND
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.80%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.10%
Total Annual Fund Operating Expenses 1.15%
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$117 $365 $633 $1,398
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was
80.26% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
Under normal market conditions, the Fund invests at least 80% of total assets in
common and preferred stock and securities convertible into common and preferred
stock. The Fund generally invests in mid- and large-size companies.
The Fund seeks to invest in fundamentally sound companies that, in the
subadviser's opinion, have strong management, superior earnings growth
prospects, and attractive relative valuations. The disciplined investment
process uses bottom-up stock selection as the primary driver of returns. The
Fund emphasizes large companies that exhibit stable growth and accelerated
earnings.
While the Fund generally invests across a broad range of industries, the
subadviser may favor companies in those industries that appear to offer higher
potential for long-term growth.
Although the subadviser does not expect to make such investments as a matter of
course, the Fund is permitted to invest up to 20% of total assets in other
securities, such as, bonds and small-size company stocks.
The Fund generally will sell a stock when, in the subadviser's opinion, the
stock reaches its price target, or when the company's future growth prospects
deteriorate, the company becomes unable to sustain earnings momentum, the
stock's
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
3
FUND SUMMARIES AZL[R] BLACKROCK CAPITAL APPRECIATION FUND
valuation becomes less attractive, a significant price change occurs, or when
the subadviser identifies more compelling investment opportunities elsewhere.
The Fund may, but is not required to, use derivatives by buying or selling
options or futures on a security or an index of securities. The primary purpose
of using derivatives is to attempt to reduce risk to the Fund as a whole by
hedging, but the subadviser may also use derivatives to maintain liquidity and
commit cash pending investment. The subadviser also may use derivatives for
speculation to increase returns, but under normal market conditions generally
does not expect to do so.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
* GROWTH STOCKS RISK Returns on growth stocks may not move in tandem with
returns on other categories of stocks or the market as a whole. Growth stocks
may be susceptible to rapid price swings or to adverse developments in certain
sectors of the market.
* LEVERAGING RISK The Fund may engage in certain kinds of transactions,
including the use of derivatives, that may give rise to a form of leverage.
The use of leverage may require the Fund to liquidate a portfolio position at
a disadvantageous time or may exaggerate the effect of any increase or
decrease in the value of the Fund's portfolio securities.
* CAPITALIZATION RISK Investing in small to midsized companies creates risk
because smaller companies may have unpredictable or limited earnings, and
their securities may be less liquid or experience more volatile prices than
those of large companies.
* CREDIT RISK The failure of the issuer of a debt security to pay interest or
repay principal in a timely manner may have an adverse impact on the Fund's
earnings.
* CONVERTIBLE SECURITIES RISK The value of convertible securities may be
affected by interest rates, default by the issuer on principal or interest
payments, and the value of the underlying stock into which the securities may
be converted.
* INTEREST RATE RISK Debt securities held by the Fund may decline in value due
to rising interest rates.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Seeking capital growth over the long term
* Investing for long-term goals, such as retirement
PERFORMANCE INFORMATION
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 measure of market performance.
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 variable annuity contract or variable life insurance policy.
If
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
4
FUND SUMMARIES AZL[R] BLACKROCK CAPITAL APPRECIATION FUND
they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future.
PERFORMANCE BAR CHART AND TABLE
[BAR CHART GRAPHIC - 2006: 1.57%, 2007: 10.92%, 2008: -36.37%, 2009: 35.46%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q3, 2009) 16.20%
Lowest (Q4, 2008) -19.81%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED DECEMBER 31, SINCE INCEPTION
2009 (4/29/2005)
AZL BlackRock Capital Appreciation Fund 35.46% 3.47%
Russell 1000 Growth Index (reflects no deduction for fees, expenses, or 37.21% 3.09%
taxes)
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
BlackRock Capital Management, Inc. serves as the subadviser to the Fund.
The Fund's portfolio managers are: Jeffrey R. Lindsey, CFA, Managing Director,
since inception, and Edward P. Dowd, Managing Director, since 2006.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
5
FUND SUMMARIES AZL[R] COLUMBIA MID CAP VALUE FUND
AZL[R] COLUMBIA MID CAP VALUE FUND
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.75%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.13%
Acquired Fund Fees and Expenses[(1)] 0.02%
Total Annual Fund Operating Expenses 1.15%
(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.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$117 $365 $633 $1,398
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was
67.46% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
Under normal circumstances, the Fund invests at least 80% of net assets in
equity securities of companies that have market capitalizations in the range of
the companies in the Russell Midcap[R] Value Index[ ]at the time
of purchase that the Fund's subadviser believes are undervalued and have the
potential for long-term growth. The Fund may invest up to 20% of total assets in
foreign securities. The Fund also may invest in real estate investment trusts.
The Fund's subadviser combines fundamental and quantitative analysis with risk
management in identifying value opportunities and constructing the Fund's
portfolio. The Fund's subadviser considers, among other factors:
* Businesses that are believed to be fundamentally sound and undervalued due
to investor indifference, investor misperception of company prospects, or
other factors.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
6
FUND SUMMARIES AZL[R] COLUMBIA MID CAP VALUE FUND
* Various measures of valuation, including price-to-cash flow, price-to-
earnings, price-to-sales, and price-to-book value. The Fund's subadviser
believes that companies with lower valuations are generally more likely to
provide opportunities for capital appreciation.
* A company's current operating margins relative to its historic range and
future potential.
* Potential indicators of stock price appreciation, such as anticipated
earnings growth, company restructuring, changes in management, business
model changes, new product opportunities, or anticipated improvements in
macroeconomic factors.
The Fund's subadviser may sell a security when the security's price reaches a
target set by the subadviser, if the subadviser believes that there has been
deterioration in the issuer's financial circumstances or fundamental prospects,
or that other investments are more attractive, or for other reasons.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* CAPITALIZATION RISK Investing in small to midsized companies creates risk
because smaller companies may have unpredictable or limited earnings, and
their securities may be less liquid or experience more volatile prices than
those of large companies.
* VALUE STOCKS RISK Value investing emphasizes stocks of undervalued companies
whose characteristics may lead to improved valuations. Value stocks may lose
favor with investors, or their valuations may not improve as anticipated.
* SELECTION RISK Because this fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a number
of risks, such as fluctuations in currency values, adverse political, social
or economic developments, and differences in social and economic developments
or policies.
* REAL ESTATE INVESTMENTS RISK The performance of investments in real estate
depends on the overall strength of the real estate market, the management of
real estate investments trusts (REITs), and property management, all of which
can be affected by a variety of factors, including national and regional
economic conditions.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Seeking to add a mid-cap value stock component to your portfolio
* Able to withstand the risks associated with investing in mid-cap value stocks
* Looking for a fund that emphasizes the value style of investing
PERFORMANCE INFORMATION
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 measure of market performance.
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 variable annuity contract or variable life insurance policy.
If they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
7
FUND SUMMARIES AZL[R] COLUMBIA MID CAP VALUE FUND
PERFORMANCE BAR CHART AND TABLE
[BAR CHART GRAPHIC - 2007: 3.85%, 2008: -52.15%, 2009: 32.30%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q3, 2009) 20.85%
Lowest (Q4, 2008) -35.44%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED DECEMBER SINCE INCEPTION
31, 2009 (5/1/2006)
AZL Columbia Mid Cap Value Fund 32.30% -10.39%
Russell Midcap Value[R] Index (reflects no deduction for fees, expenses, 34.21% -2.74%
or taxes)
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
Columbia Management Investment Advisers, LLC, serves as the subadviser to the
Fund.
The Fund's portfoilio managers since inception are: David I. Hoffman, Managing
Director; Diane L. Sobin, CFA, Managing Director; Lori J. Ensinger, CFA,
Managing Director; and Noah J. Petrucci, CFA, Vice President.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
8
FUND SUMMARIES AZL[R] COLUMBIA SMALL CAP VALUE FUND, CLASS 2
AZL[R] COLUMBIA SMALL CAP VALUE FUND, CLASS 2
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.90%
Distribution (12b-1) Fees 0.25%
Other Expenses[(1)] 0.25%
Total Annual Fund Operating Expenses 1.40%
Expense Reimbursement[(2)] -0.05%
Total Annual Fund Operating Expenses After Expense Reimbursement[(2)] 1.35%
(1)Other Expenses includes reimbursements paid to the Manager for management
fees previously waived and/or the cost of expenses previously paid by the
Manager pursuant to a written contract between the Fund and the Manager
limiting operating expenses.
(2)The Manager and the Fund have entered into a written contract limiting
operating expenses, excluding certain expenses (such as interest expense), to
1.35% through April 30, 2011. After April 30, 2011, the Manager may terminate
the contract for any reason on 30 days written notice to the Fund.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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 reflects the expense reimbursement arrangement for the first
year. It does not reflect any Contract fees. If Contract fees were included, the
costs shown would be higher. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$137 $438 $761 $1,675
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was
45.74% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
Under normal circumstances, the Fund invests at least 80% of net assets in
equity securities of companies that have market capitalizations in the range of
the companies in the Russell 2000 Value Index[R ]at the time of
purchase that the Fund's subadviser believes are undervalued. The Fund may
invest up to 20% of total assets in foreign securities.
The Fund's subadviser combines fundamental and quantitative analysis with risk
management in identifying value opportunities and constructing the Fund's
portfolio. The Fund's subadviser considers, among other factors:
* Businesses that are believed to be fundamentally sound and undervalued due
to investor indifference, investor misperception of company prospects, or
other factors.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
9
FUND SUMMARIES AZL[R] COLUMBIA SMALL CAP VALUE FUND, CLASS 2
* Various measures of valuation, including price-to-cash flow, price-to-
earnings, price-to-sales, and price-to-book value. The Fund's subadviser
believes that companies with lower valuations are generally more likely to
provide opportunities for capital appreciation.
* A company's current operating margins relative to its historic range and
future potential.
* Potential indicators of stock price appreciation, such as anticipated
earnings growth, company restructuring, changes in management, business
model changes, new product opportunities, or anticipated improvements in
macroeconomic factors.
The Fund's subadviser may sell a security when the security's price reaches a
target set by the subadviser, if the subadviser believes that there has been
deterioration in the issuer's financial circumstances or fundamental prospects,
or that other investments are more attractive, or for other reasons.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
* VALUE STOCKS RISK Value investing emphasizes stocks of undervalued companies
whose characteristics may lead to improved valuations. Value stocks may lose
favor with investors, or their valuations may not improve as anticipated.
* CAPITALIZATION RISK Investing in small to midsized companies creates risk
because smaller companies may have unpredictable or limited earnings, and
their securities may be less liquid or experience more volatile prices than
those of large companies.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a number
of risks, such as fluctuations in currency values, adverse political, social
or economic developments, and differences in social and economic developments
or policies.
* INDUSTRY SECTOR RISK Investing in a single industry or sector, or
concentrating investments in a limited number of industries or sectors, tends
to increase the risk that economic, political, or regulatory developments
affecting certain industries or sectors will have a large impact on the value
of the Fund's portfolio.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Investing for long-term goals, such as retirement
* Seeking long-term growth of capital
* Willing to accept the risk associated with investing in undervalued smaller-
capitalization stocks for the potential reward of greater capital appreciation
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
10
FUND SUMMARIES AZL[R] COLUMBIA SMALL CAP VALUE FUND, CLASS 2
PERFORMANCE INFORMATION
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 since its inception compare with those of a broad measure of market
performance.
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 variable annuity contract or variable life insurance policy.
If they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future.
PERFORMANCE BAR CHART AND TABLE
[BAR CHART GRAPHIC - 2005: 3.39%, 2006: 13.40%, 2007: -8.24%, 2008: -32.09%,
2009: 24.69%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q3, 2009) 20.52%
Lowest (Q4, 2008) -23.24%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED FIVE YEARS ENDED SINCE
DECEMBER 31, DECEMBER 31, INCEPTION (5/3/2004)
2009 2009
AZL Columbia Small Cap Value Fund 24.69% -1.84% 1.84%
Russell 2000 Value Index (reflects no deduction for fees, expenses, or 20.58% -0.01% 3.35%
taxes)
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
Columbia Management Investment Advisers, LLC serves as the subadviser to the
Fund.
The Fund's portfolio managers since inception are: Stephen D. Barbaro, CFA,
Managing Director, and Jeremy Javidi, CFA, Vice President.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
11
FUND SUMMARIES AZL[R] DAVIS NY VENTURE FUND, CLASS 2
AZL[R] DAVIS NY VENTURE FUND, CLASS 2
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.75%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.11%
Acquired Fund Fees and Expenses[(1)] 0.01%
Total Annual Fund Operating Expenses 1.12%
(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.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$114 $356 $617 $1,363
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was
23.29% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
Under normal circumstances, the Fund invests the majority of its assets in
equity securities issued by large companies with market capitalizations of at
least $10 billion. The subadviser tries to identify businesses that possess
characteristics it believes foster the creation of long-term value, such as
proven management, a durable franchise and business model, and sustainable
competitive advantages. The subadviser aims to invest in such businesses when
they are trading at a discount to their intrinsic worth.
The subadviser selects companies with the intention of owning their stocks for
the long term. The Fund has the ability to invest a limited portion of its
assets in companies of any size, to invest in foreign securities, and to invest
in non-equity securities. The subadviser considers selling securities if it
believes the stock's market price exceeds the subadviser's estimates of
intrinsic value, or if the ratio of the risks and rewards of continuing to own
the company is no longer attractive.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
12
FUND SUMMARIES AZL[R] DAVIS NY VENTURE FUND, CLASS 2
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
* VALUE STOCKS RISK Value investing emphasizes stocks of undervalued companies
whose characteristics may lead to improved valuations. Value stocks may lose
favor with investors, or their valuations may not improve as anticipated.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a number
of risks, such as fluctuations in currency values, adverse political, social
or economic developments, and differences in social and economic developments
or policies.
* EMERGING MARKETS RISK Emerging markets may have less developed or more
volatile trading markets, less developed legal and accounting systems, and
greater likelihood of government restrictions, nationalization, or
confiscation than developed countries.
* HEADLINE RISK The value of a company's securities may decline in value if
the company is the subject of adverse media attention.
* INDUSTRY SECTOR RISK Investing in a single industry or sector, or
concentrating investments in a limited number of industries or sectors, tends
to increase the risk that economic, political, or regulatory developments
affecting certain industries or sectors will have a large impact on the value
of the Fund's portfolio.
* CURRENCY RISK Investing in securities that trade in and receive revenues in
foreign currencies creates risk because foreign currencies may decline
relative to the U.S. dollar, resulting in a potential loss to the Fund. In
the case of hedging positions, the U.S. dollar may decline in value relative
to the currency that has been hedged.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Seeking long-term growth of capital
* More comfortable with established, well-known companies
* Investing for the long term
PERFORMANCE INFORMATION
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 since its inception compare with those of a broad measure of market
performance.
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 variable annuity contract or variable life insurance policy.
If they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
13
FUND SUMMARIES AZL[R] DAVIS NY VENTURE FUND, CLASS 2
PERFORMANCE BAR CHART AND TABLE
[BAR CHART GRAPHIC - 2002: -24.18, 2003: 29.43%, 2004: 10.56%, 2005: 9.68%,
2006: 13.91%, 2007: 4.15%, 2008: -40.50%, 2009: 31.83%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q2, 2009) 20.68%
Lowest (Q4, 2008) -25.23%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED FIVE YEARS ENDED SINCE
DECEMBER 31, DECEMBER 31, INCEPTION (11/5/2001)
2009 2009
AZL Davis NY Venture Fund 31.83% 0.41% 1.83%
Russell 1000 Value Index (reflects no deduction for fees, expenses, or 19.69% -0.25% 3.53%
taxes)
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
Davis Selected Advisors, L.P. serves as the subadviser to the Fund.
The portfolio managers of the Fund since inception are: Christopher C. Davis,
Chairman, and Kenneth C. Feinberg, Vice President.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
14
FUND SUMMARIES AZL[R] DREYFUS EQUITY GROWTH FUND
AZL[R] DREYFUS EQUITY GROWTH FUND
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital and income.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.78%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.09%
Total Annual Fund Operating Expenses 1.12%
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$114 $356 $617 $1,363
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was
164.97% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
To pursue this goal, the Fund invests primarily in common stocks of large, well-
established and mature companies. The Fund normally invests at least 80% of its
net assets, plus any borrowings for investment purposes, in stocks that are
included in a widely recognized index of stock market performance. While a
significant portion of these stocks normally would be expected to pay regular
dividends, the Fund may invest in non-dividend paying companies if they offer
better prospects for capital appreciation. The Fund defines large capitalization
as companies with market capitalizations within the range of the Russell 1000
Growth Index, which is the large cap Russell index used by the Fund for
comparative purposes. At times, the Fund may overweight or underweight certain
industry sectors relative to its benchmark index. The Fund may also invest up to
30% of its total assets in foreign securities. The Fund will not invest more
than 5% of its net assets in bonds, debentures, convertible securities, and
corporate obligations rated below investment grade.
The subadviser manages the Fund using a "growth style" of investing, searching
for companies whose fundamental strengths suggest the potential to provide
superior earnings growth over time. The subadviser uses a consistent, bottom-up
approach to build equity portfolios which emphasizes individual stock selection.
The subadviser goes beyond Wall Street analysis and performs intensive
qualitative and quantitative in-house research to determine whether companies
meet its investment criteria.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
15
FUND SUMMARIES AZL[R] DREYFUS EQUITY GROWTH FUND
The subadviser continually monitors the securities in the Fund's portfolio, and
will consider selling a security if its business momentum deteriorates or
valuation becomes excessive. The subadviser also may sell a security if an event
occurs that contradicts the subadviser's rationale for owning it, such as a
deterioration in the company's financial fundamentals. In addition, the
subadviser may sell a security if better investment opportunities emerge
elsewhere. The subadviser also may liquidate a security if the subadviser
changes the Fund's industry or sector weightings.
The Fund may, but is not required to, use derivatives, such as futures, options
and forward contracts, as a substitute for taking a position in an underlying
asset, to increase returns, to manage interest rate risk, or as part of a
hedging strategy.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
* GROWTH STOCKS RISK Returns on growth stocks may not move in tandem with
returns on other categories of stocks or the market as a whole. Growth stocks
may be susceptible to rapid price swings or to adverse developments in certain
sectors of the market.
* INDUSTRY SECTOR RISK Investing in a single industry or sector, or
concentrating investments in a limited number of industries or sectors, tends
to increase the risk that economic, political, or regulatory developments
affecting certain industries or sectors will have a large impact on the value
of the Fund's portfolio.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a number
of risks, such as fluctuations in currency values, adverse political, social
or economic developments, and differences in social and economic developments
or policies.
* DIVIDEND RISK Stocks that are expected to pay dividends may pay lower
dividends or no dividends at all. Distributions on debt securities with
variable or floating interest rates will vary with fluctuations in market
interest rates.
* CURRENCY RISK Investing in securities that trade in and receive revenues in
foreign currencies creates risk because foreign currencies may decline
relative to the U.S. dollar, resulting in a potential loss to the Fund. In
the case of hedging positions, the U.S. dollar may decline in value relative
to the currency that has been hedged.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
* PORTFOLIO TURNOVER The Fund may trade its portfolio securities frequently,
which could result in higher transaction costs and could adversely affect the
Fund's performance.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Investing for long-term goals, such as retirement
* Seeking income and growth of capital
* Seeking to add a large capitalization component to your portfolio
PERFORMANCE INFORMATION
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 since its inception compare with those of a broad measure of market
performance.
Both the bar chart and the table assume reinvestment of dividends and
distributions.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
16
FUND SUMMARIES AZL[R] DREYFUS EQUITY GROWTH FUND
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 variable annuity contract or variable life insurance policy.
If they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future.
PERFORMANCE BAR CHART AND TABLE
[BAR CHART GRAPHIC - 2002: -30.70%, 2003: 24.25%, 2004: 7.72%, 2005: 4.56%,
2006: 12.93%, 2007: 8.75%, 2008: -41.63%, 2009: 34.76%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q3, 2009) 16.29%
Lowest (Q4, 2008) -24.68%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS SINCE INCEPTION
ENDEDDECEMBER 31, ENDEDDECEMBER 31, 2009 (11/5/2001)
2009
AZL Dreyfus Equity Growth Fund 34.76% 0.20% -0.14%
Russell 1000 Growth Index (reflects no deduction for fees, expenses, 37.21% 1.63% 1.48%
or taxes)
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
The Dreyfus Corporation serves as the subadviser to the Fund.
Elizabeth Slover, Senior Vice President, has been the portfolio manager of the
Fund since January 2009.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
17
FUND SUMMARIES AZL[R] EATON VANCE LARGE CAP VALUE FUND
AZL[R] EATON VANCE LARGE CAP VALUE FUND
INVESTMENT OBJECTIVE
The Fund seeks total return.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.75%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.10%
Acquired Fund Fees and Expenses[(1)] 0.01%
Total Annual Fund Operating Expenses 1.11%
(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.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$113 $353 $612 $1,352
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was
118.17% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
Under normal market conditions, the Fund invests primarily in value stocks of
large-cap companies. Value stocks are common stocks that, in the opinion of the
subadviser, are inexpensive or undervalued relative to the overall stock market.
The portfolio manager generally considers large-cap companies to be those
companies having market capitalizations equal to or greater than the median
capitalization of companies included in the Russell 1000 Value Index. The Fund
normally invests at least 80% of its net assets in equity securities of large-
cap companies. The Fund primarily invests in dividend-paying stocks.
The Fund also may invest in convertible debt securities of any credit quality
(including securities rated below investment grade), in real estate investment
trusts, and in nonincome producing stocks. The Fund's holdings will represent a
number of different sectors and industries, and less than 25% of the Fund's
total assets will be invested in any one industry. The Fund may consider a
company's dividend prospects and estimates of a company's net value when
selecting securities. The portfolio manager may sell a security when the
subadviser's price objective for the security is reached, the
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
18
FUND SUMMARIES AZL[R] EATON VANCE LARGE CAP VALUE FUND
fundamentals of the company deteriorate, a security's price falls below
acquisition cost, or to pursue more attractive investment options.
Investment decisions for the Fund are made primarily on the basis of fundamental
research conducted by the subadviser's research staff. In selecting stocks, the
portfolio managers consider (among other factors) a company's earnings or cash
flow capabilities, financial strength, growth potential, the strength of the
company's business franchises and management team, sustainability of the
company's competitiveness, and estimates of the company's net value. Many of
these considerations are subjective.
The Fund may invest up to 25% of its total assets in foreign securities, some of
which may be located in emerging market countries. As an alternative to holding
foreign stocks directly, the Fund may invest in dollar-denominated securities of
foreign companies that trade on U.S. exchanges or in the over-the-counter market
(including depositary receipts which evidence ownership in underlying foreign
stocks). Such investments are not subject to the 25% limitation on investing in
foreign securities.
The Fund may at times engage in derivatives transactions to protect against
stock price, interest rate or currency rate declines ("hedging"), to enhance
returns, or as a substitute for the purchase or sale of securities or
currencies.
The Fund may invest not more than 15% of its net assets in illiquid securities.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
o MARKET RISK The market value of portfolio securities may go up or
down, sometimes rapidly and unpredictably.
o ISSUER RISK The value of a security may decline for a number of
reasons directly related to the issuer of the security.
o SELECTION RISK Because this Fund is actively managed, there can be
no guarantee that investment decisions made for the fund will produce the
desired results.
o VALUE STOCKS RISK Value investing emphasizes stocks of undervalued
companies whose characteristics may lead to improved valuations. Value
stocks may lose favor with investors, or their valuations may not improve
as anticipated.
o DIVIDEND RISK Stocks that are expected to pay dividends may pay
lower dividends or no dividends at all. Distributions on debt securities
with variable or floating interest rates will vary with fluctuations in
market interest rates.
o FOREIGN RISK Investing in the securities of non-U.S. issuers
involves a number of risks, such as fluctuations in currency values,
adverse political, social or economic developments, and differences in
social and economic developments or policies.
o EMERGING MARKETS RISK Emerging markets may have less developed or
more volatile trading markets, less developed legal and accounting
systems, and greater likelihood of government restrictions,
nationalization, or confiscation than developed countries.
o DERIVATIVES RISK Investing in derivative instruments involves risks
that may be different from or greater than the risks associated with
investing directly in securities or other traditional investments.
o LEVERAGING RISK The Fund may engage in certain kinds of
transactions, including the use of derivatives, that may give rise to a
form of leverage. The use of leverage may require the Fund to liquidate a
portfolio position at a disadvantageous time or may exaggerate the effect
of any increase or decrease in the value of the Fund's portfolio
securities.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
19
FUND SUMMARIES AZL[R] EATON VANCE LARGE CAP VALUE FUND
o CREDIT RISK The failure of the issuer of a debt security to pay
interest or repay principal in a timely manner may have an adverse impact
on the Fund's earnings.
o LIQUIDITY RISK An investment that is difficult to purchase or sell
may have an adverse affect on the Fund's returns.
o CONVERTIBLE SECURITIES RISK The value of convertible securities may
be affected by interest rates, default by the issuer on principal or
interest payments, and the value of the underlying stock into which the
securities may be converted.
o INTEREST RATE RISK Debt securities held by the Fund may decline in
value due to rising interest rates.
o SECURITY QUALITY RISK The Fund may invest in high yield, high risk
debt securities, which may be subject to higher levels of credit and
liquidity risk than higher quality debt securities. Security quality risk
is sometimes known as "high yield risk" or "junk bond risk."
o REAL ESTATE INVESTMENTS RISK The performance of investments in real
estate depends on the overall strength of the real estate market, the
management of real estate investments trusts (REITs), and property
management, all of which can be affected by a variety of factors,
including national and regional economic conditions.
o PORTFOLIO TURNOVER The Fund may trade its portfolio securities
frequently, which could result in higher transaction costs and could
adversely affect the Fund's performance.
o CURRENCY RISK Investing in securities that trade in and receive
revenues in foreign currencies creates risk because foreign currencies may
decline relative to the U.S. dollar, resulting in a potential loss to the
Fund. In the case of hedging positions, the U.S. dollar may decline in
value relative to the currency that has been hedged.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Seeking capital growth over the long term
* Investing for long-term goals, such as retirement
* Seeking to add a value stock component to your portfolio
* Can withstand volatility in the value of your investment
PERFORMANCE INFORMATION
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 since its inception compare with those of a broad measure of market
performance.
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 variable annuity contract or variable life insurance policy.
If they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future. Prior to October 26, 2009, the
Fund was subadvised by Van Kampen Asset Management and was known as the AZL Van
Kampen Comstock Fund.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
20
FUND SUMMARIES AZL[R] EATON VANCE LARGE CAP VALUE FUND
PERFORMANCE BAR CHART AND TABLE
[BAR CHART GRAPHIC - 2002: -19.87, 2003: 30.53%, 2004: 17.12%, 2005: 3.92%,
2006: 15.76%, 2007: -2.22%, 2008: -36.18%, 2009: 26.53%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q3, 2009) 18.83%
Lowest (Q4, 2008) -23.07%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED FIVE YEARS ENDED SINCE INCEPTION
DECEMBER 31, 2009 DECEMBER 31, 2009 (5/1/2001)
AZL Eaton Vance Large Cap Value Fund 26.53% -1.02% 1.08%
Russell 1000 Value Index (reflects no deduction for fees, expenses, 19.69% -0.25% 2.20%
or taxes)
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
Eaton Vance Management ("Eaton vance") serves as the subadviser to the Fund.
The Fund is managed by a team led by Michael R. Mach, CFA.
The portfolio managers of the Fund since October 2009 are: Michael R. Mach,
Matthew F. Beaudry, John D. Crowley, and Stephen J. Kaszynski, CFA. Each is a
Vice President of Eaton Vance.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
21
FUND SUMMMARIES AZL[R] ENHANCED BOND INDEX FUND
AZL[R] ENHANCED BOND INDEX FUND
INVESTMENT OBJECTIVE
The Fund seeks to exceed the total return of the Barclays Capital U.S. Aggregate
Bond Index ("Barclays Aggregate Index").
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.35%
Distribution (12b-1) Fees 0.25%
Other Expenses[(1)] 0.10%
Acquired Fund Fees and Expenses[(2)] 0.08%
Total Annual Fund Operating Expenses 0.78%
(1)Other Expenses are based on estimated amounts for the current fiscal year.
(2)Acquired Fund Fees and Expenses are based on estimated amounts for the
current fiscal year. Because these fees and expenses are not included in the
Fund's Financial Highlights, the Fund's total annual fund operating expenses
do not correlate to the ratios of expenses to average net assets shown in the
Financial Highlights table.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS
$80 $249
PORTFOLIO TURNOVER
The 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.
From July 10, 2009 through December 31, 2009, the Fund's portfolio turnover rate
was 365.51% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
The Fund generally invests in a combination of corporate and asset-backed
securities in an amount that is within 40% of the weightings of the Barclays
Aggregate Index, in government securities in an amount that is within 30% of the
weightings of the Index, and in mortgage securities in an amount that is within
30% of the weightings of the Index. Eligible investments for the Fund include
the following:
* U.S. Treasury and agency securities;
* Agency and non-agency mortgage-backed securities back by loans secured by
residential, multifamily, and commercial properties;
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
22
FUND SUMMMARIES AZL[R] ENHANCED BOND INDEX FUND
* 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 ;
* 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 {plus-minus}10% around the
duration of the Barclays Aggregate 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.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in the value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* INDEX FUND RISK The Fund does not attempt to manage market volatility or
reduce the effects of poor stock performance. In addition, factors such as
Fund expenses, selection of a representative portfolio, changes in the
composition of the index, or the timing of purchases or redemptions of Fund
shares may affect the correlation between the performance of the index and the
Fund's performance.
* INTEREST RATE RISK Debt securities held by the Fund may decline in value due
to rising interest rates.
* CREDIT RISK The failure of the issuer of a debt security to pay interest or
repay principal in a timely manner may have an adverse impact on the Fund's
earnings.
* CALL RISK If interest rates fall, issuers of callable debt securities are more
likely to prepay prior to the maturity date. The Fund may not be able to
reinvest the proceeds from the prepayment in investments that will generate
the same level of income.
* EXTENSION RISK If interest rates rise, debt securities may be paid in full
more slowly than anticipated.
* LIQUIDITY RISK An investment that is difficult to purchase or sell may have an
adverse affect on the Fund's returns.
* MORTGAGE-RELATED AND OTHER ASSET-BACKED RISK Investing in mortgage-related or
other asset-backed securities involves a variety of risks associated with the
credit markets, such as rising or falling interest rates, increases in the
rate of defaults or prepayments, and the quality of the pool of mortgages
(subprime risk) or other assets that backs the security.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a number
of risks, such as fluctuations in currency values, adverse political, social
or economic developments, and differences in social and economic developments
or policies.
PERFORMANCE INFORMATION
The performance information is not presented because the Fund has not had a full
calendar year of operations.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
23
FUND SUMMMARIES AZL[R] ENHANCED BOND INDEX FUND
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
BlackRock Financial Management, Inc. serves as the subadviser to the Fund.
The portfolio managers of the Fund, since inception, are: Curtis Arledge,
Managing Director and Chief Investment Officer of Fixed Income, Fundamental
Portfolios; and Matthew Marra, Managing Director.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
24
FUND SUMMARIES AZL[R] FRANKLIN SMALL CAP VALUE FUND
AZL[R] FRANKLIN SMALL CAP VALUE FUND
INVESTMENT OBJECTIVE
The Fund seeks long-term total return.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.75%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.12%
Total Annual Fund Operating Expenses 1.12%
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$114 $356 $617 $1,363
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was 9.98%
of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
Under normal market conditions, the Fund invests at least 80% of its net assets,
plus any borrowings for investment purposes, in investments of small
capitalization companies. Small capitalization companies are companies with
market capitalizations (the total market value of a company's outstanding stock)
at the time of purchase included in the Russell 2500{TM} Index.
The Fund generally invests in equity securities that the subadviser believes are
currently undervalued and have the potential for capital appreciation. Common
stocks, preferred stocks, and convertible securities (generally, debt securities
or preferred stock that may be converted into common stock after certain time
periods or under certain circumstances) are examples of equity securities. In
choosing investments that are undervalued, the Fund's subadviser focuses on
companies that have one or more of the following characteristics:
* Stock prices that are low relative to current, or historical or future
earnings, book value, cash flow, or sales - all relative to the market, a
company's industry or a company's earnings history;
* Recent sharp price declines but with the potential for good long-term earnings
prospects, in the subadviser's opinion;
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
25
FUND SUMMARIES AZL[R] FRANKLIN SMALL CAP VALUE FUND
* Valuable intangibles not reflected in the stock price such as franchises,
distribution networks or market share for particular products or services,
underused or understated assets or cash, or patents and trademarks.
A stock price is undervalued, or is a "value," when it is less than the price at
which the subadviser believes it would trade if the market reflected all factors
relating to the company's worth. The subadviser may consider a company to be
undervalued in the marketplace relative to its underlying asset values because
of overreaction by investors to unfavorable news about a company, an industry or
the stock market in general, or as a result of a market decline, poor economic
conditions, tax-loss selling, or actual or anticipated unfavorable developments
affecting a company. The types of companies the Fund may invest in include those
that are attempting to recover from business setbacks or adverse events
(turnarounds) or cyclical downturns.
In addition to price, the Fund, in choosing an investment, may consider a
variety of other factors that may identify the issuer as a potential turnaround
candidate or takeover target, such as ownership of valuable franchises,
trademarks or trade names, control of distribution networks and market share for
particular products. Purchase decisions may also be influenced by income,
company buy-backs, and insider purchases and sales.
The Fund may invest a significant portion of its assets in the securities of
companies involved in the financial services sector. The Fund may invest up to
25% of its total assets in foreign securities.
The Fund employs a bottom-up stock selection process and the manager invests in
securities without regard to benchmark comparisons.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
* VALUE STOCKS RISK Value investing emphasizes stocks of undervalued companies
whose characteristics may lead to improved valuations. Value stocks may lose
favor with investors, or their valuations may not improve as anticipated.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a number
of risks, such as fluctuations in currency values, adverse political, social
or economic developments, and differences in social and economic developments
or policies.
* EMERGING MARKETS RISK Emerging markets may have less developed or more
volatile trading markets, less developed legal and accounting systems, and
greater likelihood of government restrictions, nationalization, or
confiscation than developed countries.
* CAPITALIZATION RISK Investing in small to midsized companies creates risk
because smaller companies may have unpredictable or limited earnings, and
their securities may be less liquid or experience more volatile prices than
those of large companies.
* INDUSTRY SECTOR RISK Investing in a single industry or sector, or
concentrating investments in a limited number of industries or sectors, tends
to increase the risk that economic, political, or regulatory developments
affecting certain industries or sectors will have a large impact on the value
of the Fund's portfolio.
* LIQUIDITY RISK An investment that is difficult to purchase or sell may have an
adverse affect on the Fund's returns.
* CURRENCY RISK Investing in securities that trade in and receive revenues in
foreign currencies creates risk because foreign currencies may decline
relative to the U.S. dollar, resulting in a potential loss to the Fund. In
the case of hedging positions, the U.S. dollar may decline in value relative
to the currency that has been hedged.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
26
FUND SUMMARIES AZL[R] FRANKLIN SMALL CAP VALUE FUND
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Investing for long-term goals, such as retirement
* Seeking long-term growth of capital
* Willing to accept the additional risk associated with investing in undervalued
small capitalization securities for the potential reward of greater capital
appreciation
PERFORMANCE INFORMATION
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 since its inception compare with those of a broad measure of market
performance.
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 variable annuity contract or variable life insurance policy.
If they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future.
PERFORMANCE BAR CHART AND TABLE
[BAR CHART GRAPHIC - 2004: 23.10%, 2005: 7.03%, 2006: 15.41%, 2007: -4.37%,
2008: -33.73%, 2009: 30.61%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q3, 2009) 24.52%
Lowest (Q4, 2008) -28.55%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED FIVE YEARS ENDED SINCE
DECEMBER 31, 2009 DECEMBER 31, 2009 INCEPTION (5/1/2003)
AZL Franklin Small Cap Value Fund 30.61% 0.45% 7.46%
Russell 2000 Value Index (reflects no deduction for fees, 20.58% -0.01% 8.45%
expenses, or taxes)
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
27
FUND SUMMARIES AZL[R] FRANKLIN SMALL CAP VALUE FUND
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
Franklin Advisory Services LLC serves as the subadviser to the Fund.
The Fund's portfolio managers, since inception, are: William J. Lippman,
President; Y. Dogan Sahin, CFA, Research Analyst; Bruce Baughman, CPA, senior
vice president; Margaret McGee, vice president; and Don Taylor, CPA, senior vice
president.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
28
FUND SUMMARIES AZL[R] FRANKLIN SMALL CAP VALUE FUND
AZL[R] FRANKLIN TEMPLETON FOUNDING STRATEGY PLUS FUND
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation, with income as a secondary goal.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.70%
Distribution (12b-1) Fees 0.25%
Other Expenses[(1)] 0.25%
Acquired Fund Fees and Expenses[(2)] 0.05%
Total Annual Fund Operating Expenses 1.25%
(1)Other Expenses are based on estimated amounts for the current fiscal year.
(2)Acquired Fund Fees and Expenses are based upon estimated amounts for the
current fiscal year. Because these fees and expenses are not included in the
Fund's Financial Highlights, the Fund's total annual fund operating expenses
do not correlate to the ratios of expenses to average net assets shown in the
Financial Highlights table.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS
$127 $397
PORTFOLIO TURNOVER
The 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.
From October 26, 2009 through December 31, 2009, the Fund's portfolio turnover
rate was 1.99% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
The Fund seeks to achieve its goal by investing in a combination of
subportfolios, or strategies, each of which is managed by an asset manager that
is part of Franklin Templeton. Two of the strategies invest primarily in U.S.
and foreign equity securities and the other two invest in U.S. and foreign
fixed-income securities. The Fund generally makes equal allocations
(approximately 25%) of its assets to each of the following four strategies:
* Mutual Shares Strategy
* Templeton Growth Strategy
* Franklin Income Strategy
* Templeton Global Bond Strategy
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
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FUND SUMMARIES AZL[R] FRANKLIN SMALL CAP VALUE FUND
The investment results of the individual strategies will vary. As a result, the
percentage allocations to the strategies will be monitored daily by the Manager.
The allocations to each strategy will generally not exceed plus or minus 3% of
the pre-determined fixed allocation percentages. The Manager may recommend
additional or different strategies for investment, without seeking the approval
of shareholders.
Each of the strategies may use various derivative strategies seeking to protect
assets, implement cash or tax management strategies or enhance returns.
The Fund may also allocate up to 5% of its net assets (which amount will reduce
the aggregate amount of its assets allocated to the four strategies) to (a)
index futures, other futures contracts, options, and other similar securities
and (b) cash, money market equivalents, short-term debt instruments, money
market funds, and short-term debt funds to satisfy all applicable margin
requirements and to provide additional portfolio liquidity to satisfy large
redemptions and any margin calls. The Fund may also invest in exchange-traded
funds (ETFs) for additional exposure to relevant markets. This strategy is
intended to reduce the potential volatility of the Fund's investment performance
and may limit the Fund's ability to benefit from rising markets while protecting
the Fund in declining markets. The Fund may pursue this strategy by investing
directly or indirectly through unregistered investment pools that are managed by
either the Manager, affiliates of the Manager, or unaffiliated investment
managers.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in value of the
investment held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund is not a deposit of 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
* VALUE STOCKS RISK Value investing emphasizes stocks of undervalued companies
whose characteristics may lead to improved valuations. Value stocks may lose
favor with investors, or their valuations may not improve as anticipated.
* INTEREST RATE RISK Debt securities held by the Fund may decline in value due
to rising interest rates.
* CREDIT RISK The failure of the issuer of a debt security to pay interest or
repay principal in a timely manner or at all may have an adverse impact on the
Fund's earnings.
* SECURITY QUALITY RISK The Fund may invest in high yield, high risk debt
securities, which may be subject to higher levels of credit and liquidity risk
than higher quality debt securities. Security quality risk is sometimes known
as "high yield risk" or "junk bond risk."
* LIQUIDITY RISK An investment that is difficult to purchase or sell may have
an adverse affect on the Fund's returns.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a
number of risks, such as fluctuations in currency values, adverse political,
social or economic developments, and differences in social and economic
developments or policies.
* EMERGING MARKETS RISK Emerging markets may have less developed or more
volatile trading markets, less developed legal and accounting systems, and
greater likelihood of government restrictions, nationalization, or
confiscation than developed countries.
* CURRENCY RISK Investing in securities that trade in and receive revenues in
foreign currencies creates risk because foreign currencies may decline
relative to the U.S. dollar, resulting in a potential loss to the Fund. In
the case of hedging positions, the U.S. dollar may decline in value relative
to the currency that has been hedged.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
30
FUND SUMMARIES AZL[R] FRANKLIN SMALL CAP VALUE FUND
* CONVERTIBLE SECURITIES RISK The value of convertible securities may be
affected by interest rates, default by the issuer on principal or interest
payments, and the value of the underlying stock into which the securities may
be converted.
* SPECIAL SITUATIONS RISK The Fund may use investment strategies that are
intended to take advantage of mergers, reorganizations, or other unusual
events. If the change or event does not occur, the Fund may not receive the
anticipated benefit or may incur a loss.
* INDUSTRY SECTOR RISK Investing in a single industry or sector, or
concentrating investments in a limited number of industries or sectors, tends
to increase the risk that economic, political, or regulatory developments
affecting certain industries or sectors will have a large impact on the value
of the Fund's portfolio.
* CAPITALIZATION RISK Investing in small to midsized companies creates risk
because smaller companies may have unpredictable or limited earnings, and
their securities may be less liquid or experience more volatile prices than
those of large companies.
* INCOME RISK Falling interest rates may cause the Fund's income to decline.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Investing for long-term goals, such as retirement
* Seeking capital appreciation and are willing to accept the volatility
associated with investing in foreign stocks and bonds
* Seeking income and growth of capital
PERFORMANCE INFORMATION
Performance information is not presented because the Fund has not had a full
calendar year of operations.
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
Since the Fund's inception, Jeffrey W. Kletti, President of the Manager, has
been primarily responsible for determining allocations to each strategy.
MUTUAL SHARES STRATEGY:
Franklin Mutual Advisers, LLC serves as the subadviser to the Fund for the
Mutual Shares Strategy.
The portfolio managers for the Mutual Shares Strategy, since inception, are:
Peter A. Langerman, Chairman, President and Chief Executive Officer; F.
David Segal, CFA, Portfolio Manager; and Deborah A. Turner, CFA, Assistant
Portfolio Manager.
FRANKLIN INCOME STRATEGY:
Franklin Advisers Inc. serves as the subadviser to the Fund for the Franklin
Income Strategy.
The portfolio managers for the Franklin Income Strategy, since inception,
are: Charles B. Johnson, Chairman; Matt Quinlin, Research Analyst; Edward
D. Perks, CFA, Senior Vice President; and Alex W. Peters, CFA, Vice
President.
TEMPLETON GLOBAL BOND STRATEGY:
Franklin Advisers Inc. serves as the subadviser to the Fund for the
Templeton Global Bond Strategy.
The portfolio manager for the Templeton Global Bond Strategy, since
inception, is Michael Hasenstab, Ph.D., Senior Vice President, Portfolio
Manager.
TEMPLETON GROWTH STRATEGY:
Templeton Global Advisers Limited serves as the subadviser to the Fund for
the Templeton Growth Strategy.
The portfolio managers for the Templeton Growth Strategy, since inception,
are: Cynthia L. Sweeting, CFA, Director of Portfolio Management; Lisa F.
Myers, CFA, Executive Vice President, Portfolio Manager/Research Analyst;
and Tucker Scott, CFA, Executive Vice President, Lead Portfolio
Manager/Research Analyst.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
31
FUND SUMMARIES AZL[R] FRANKLIN SMALL CAP VALUE FUND
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
32
FUND SUMMARIES AZL[R] GATEWAY FUND
AZL[R] GATEWAY FUND
INVESTMENT OBJECTIVE
The Fund seeks to capture the majority of the returns associated with equity
market investments, while exposing investors to less risk than other equity
investments.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.80%
Distribution (12b-1) Fees 0.25%
Other Expenses[(1)] 0.20%
Total Annual Fund Operating Expenses 1.25%
(1)Other Expenses are based on estimated amounts for the current fiscal year.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS
$127 $397
PORTFOLIO TURNOVER
The 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.
The Fund commenced operations April 30, 2010; therefore, portfolio turnover is
not presented.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
Under normal circumstances, the Fund invests in a broadly diversified portfolio
of common stocks, while also selling index call options. The Fund also buys
index put options, which can protect the Fund from a significant market decline
that may occur over a short period of time. The combination of the diversified
stock portfolio, the cash flow from the sale of index call options and the
downside protection from index put options is intended to provide the Fund with
the majority of the returns associated with equity market investments while
exposing investors to less risk than other equity investments. The Fund may
invest in companies with small, medium or large market capitalizations. Equity
securities purchased by the Fund may include U.S.-exchange-listed common stocks,
American Depositary Receipts (ADRs), and interests in real estate investment
trusts (REITs).
From time to time, the Fund may reduce its holdings of put options, resulting in
an increased exposure to a market decline. The Fund may invest in foreign
securities traded in U.S. markets (through ADRs or stocks traded in U.S.
dollars). The Fund may also invest in other investment companies, including
money market funds, to the extent permitted by the Investment Company Act of
1940. The Fund may enter into repurchase agreements and/or hold cash and cash
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
33
FUND SUMMARIES AZL[R] GATEWAY FUND
equivalents. The Fund may purchase U.S. government securities, certificates of
deposit, commercial paper, bankers' acceptance, and/or repurchase agreements or
hold cash (U.S. Dollars, foreign currencies or multinational currency units) for
temporary defensive purposes in response to adverse market, economic or
political conditions, or, under normal circumstances, for purposes of liquidity.
These investments may prevent the Fund from achieving its investment objective.
The Fund not only strives for the majority of the returns associated with equity
market investments, but also returns in excess of those available from other
investments comparable in volatility. With its core investment in equities, the
Fund is significantly less vulnerable to fluctuations in value caused by
interest rate volatility, a risk factor present in both fixed income and hybrid
investments, although the Fund expects to generally have lower long-term returns
than a portfolio consisting solely of equity securities. The Fund intends that
its index option-based risk management strategy will limit the volatility
inherent in equities while sacrificing less of the higher equity returns than
hybrid investments.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in the value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the Fund will produce the desired
results.
* CORRELATION RISK The effectiveness of the Fund's index option-based risk
management strategy may be reduced if the performance of the Fund's equity
portfolio does not correlate to the index underlying its option positions.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a number
of risks, such as fluctuations in currency values, adverse political, social
or economic developments, and differences in social and economic developments
or policies.
* OPTIONS RISK The value of the Fund's positions in index options fluctuates in
response to changes in the value of the underlying index. Writing index call
options reduces the risk of owning stocks, but it limits the opportunity to
profit from an increase in the market value of stocks in exchange for up-front
cash at the time of selling the call option. The Fund also risks losing all or
part of the cash paid for purchasing index put options. Unusual market
conditions or the lack of a ready market for any particular option at a
specific time may reduce the effectiveness of the Fund's option strategies,
and for these and other reasons the Fund's option strategies may not reduce
the Fund's volatility to the extent desired. From time to time, the Fund may
reduce its holdings of put options, resulting in an increased exposure to a
market decline.
* REAL ESTATE INVESTMENTS RISK The performance of investments in real estate
depends on the overall strength of the real estate market, the management of
real estate investments trusts (REITs), and property management, all of which
can be affected by a variety of factors, including national and regional
economic conditions.
PERFORMANCE INFORMATION
Performance information is not presented because the Fund has not had a full
calendar year of operations.
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
Gateway Investment Advisers, LLC serves as the subadviser to the Fund.
The portfolio managers for the Fund, since inception, are J. Patrick Rogers,
president and chief executive officer of Gateway, Paul R. Stewart, senior vice
president and chief investment officer of Gateway, and Michael T. Buckius, a
senior vice president of Gateway.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
34
FUND SUMMARIES AZL[R] GATEWAY FUND
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
35
FUND SUMMARIES AZL[R] INTERNATIONAL INDEX FUND
AZL[R] INTERNATIONAL INDEX FUND
INVESTMENT OBJECTIVE
The Fund seeks to match the performance of the Morgan Stanley Capital
International Europe, Australasia and Far East Index ("MSCI
EAFE[R] Index") as closely as possible.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. Other Expenses are estimated. The Fund is offered
exclusively as an investment option for certain Contracts. The table below
reflects only Fund expenses and does not reflect Contract fees and expenses.
Please refer to the Contract prospectus for a description of those fees and
expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.35%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.31%
Total Annual Fund Operating Expenses 0.91%
Expense Reimbursement[(1)] -0.21%
Total Annual Fund Operating Expenses After Expense Reimbursement[(1)] 0.70%
(1)The Manager and the Fund have entered into a written contract limiting
operating expenses, excluding certain expenses (such as interest expense), to
.70% through April 30, 2011. After April 30, 2011, the Manager may terminate
the contract for any reason on 30 days written notice to the Fund.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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 reflects the expense reimbursement arrangement for the first
year. It does not reflect any Contract fees. If Contract fees were included, the
costs shown would be higher. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$72 $269 $483 $1,100
PORTFOLIO TURNOVER
The 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.
From May 1, 2009 through December 31, 2009, the Fund's portfolio turnover rate
was 22.90% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
The Fund employs a passive management approach, investing in a portfolio of
assets whose performance is expected to match approximately the performance of
the MSCI EAFE Index before the deduction of Fund expenses. Under normal
circumstances, the Fund invests at least 80% of the value of its net assets in a
statistically selected sampling of equity securities of companies included in
the MSCI EAFE Index and in derivative instruments linked to the MSCI EAFE Index,
primarily futures contracts.
The MSCI EAFE Index is a market-weighted index composed 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
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
36
FUND SUMMARIES AZL[R] INTERNATIONAL INDEX FUND
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 MSCI EAFE Index.
The Fund does not necessarily invest in all of the securities in the MSCI EAFE
Index, or in the same weightings as 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 those of the MSCI EAFE Index as a whole.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in the value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a
number of risks, such as fluctuations in currency values, adverse political,
social or economic developments, and differences in social and economic
developments or policies.
* INDEX FUND RISK The Fund does not attempt to manage market volatility or
reduce the effects of poor stock performance. In addition, factors such as
Fund expenses, selection of a representative portfolio, changes in the
composition of the index, or the timing of purchases or redemptions of Fund
shares may affect the correlation between the performance of the index and the
Fund's performance.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
* CURRENCY RISK Investing in securities that trade in and receive revenues in
foreign currencies creates risk because foreign currencies may decline
relative to the U.S. dollar, resulting in a potential loss to the Fund. In
the case of hedging positions, the U.S. dollar may decline in value relative
to the currency that has been hedged.
PERFORMANCE INFORMATION
Performance information is not presented because the Fund has not had a full
calendar year of operations.
MANAGEMENT
Allianz Investment Management LLC (the "Manager") serves as the investment
manager to the Fund.
BlackRock Investment Management, LLC serves as the subadviser to the Fund.
The portfolio managers for the Fund, since inception and December 2009,
respectively, are: Debra Jelilian, Managing Director, and Edward Corallo,
Managing Director.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
37
FUND SUMMARIES AZL[R] INVESCO INTERNATIONAL EQUITY FUND
AZL[R] INVESCO INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide long-term growth of capital.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.90%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.17%
Acquired Fund Fees and Expenses[(1)] 0.02%
Total Annual Fund Operating Expenses 1.34%
(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.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$136 $425 $734 $1,613
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was
34.63% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
The Fund normally invests at least 80% of its net assets, plus any borrowings
for investment purposes, in a diversified portfolio of international equity
securities whose issuers are considered by the Fund's subadviser to have strong
earnings growth. The Fund invests in marketable equity securities of foreign
companies that are listed on a recognized foreign or U.S. securities exchange or
traded in a foreign or U.S. over-the-counter market. The Fund will normally
invest in companies located in at least three countries outside of the United
States, emphasizing investment in companies in the developed countries of
Western Europe and the Pacific Basin.
At the present time, the Fund's subadviser intends to invest no more than 20% of
the Fund's total assets in foreign companies located in developing countries,
i.e., those that are in the initial stages of their industrial cycles. The Fund
may invest up to 20% of its total assets in securities exchangeable for or
convertible into marketable equity securities of foreign issuers. The Fund may
also invest up to 20% of its total assets in high-grade short-term securities
and debt
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
38
FUND SUMMARIES AZL[R] INVESCO INTERNATIONAL EQUITY FUND
securities, including U.S. Government obligations, investment grade corporate
bonds, or taxable municipal securities, whether denominated in U.S. dollars or
foreign currencies.
The subadviser employs a disciplined investment strategy that emphasizes
fundamental research, supported by quantitative analysis and portfolio
construction techniques. The strategy primarily focuses on identifying quality
companies that have experienced, or exhibit the potential for, accelerating or
above average earnings growth but whose prices do not fully reflect these
attributes. Investments for the portfolio are selected "bottom-up" on a stock-
by-stock basis. The focus is on the strengths of individual companies, rather
than sector or country trends. The subadviser may consider selling a security
for several reasons, including when (1) its fundamentals deteriorate or it posts
disappointing earnings, (2) its stock price appears to be overvalued, or (3) a
more attractive opportunity is identified.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
* GROWTH STOCKS RISK Returns on growth stocks may not move in tandem with
returns on other categories of stocks or the market as a whole. Growth stocks
may be susceptible to rapid price swings or to adverse developments in certain
sectors of the market.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a number
of risks, such as fluctuations in currency values, adverse political, social
or economic developments, and differences in social and economic developments
or policies.
* EMERGING MARKETS RISK Emerging markets may have less developed or more
volatile trading markets, less developed legal and accounting systems, and
greater likelihood of government restrictions, nationalization, or
confiscation than developed countries.
* CURRENCY RISK Investing in securities that trade in and receive revenues in
foreign currencies creates risk because foreign currencies may decline
relative to the U.S. dollar, resulting in a potential loss to the Fund. In
the case of hedging positions, the U.S. dollar may decline in value relative
to the currency that has been hedged.
* INTEREST RATE RISK Debt securities held by the Fund may decline in value due
to rising interest rates.
* CONVERTIBLE SECURITIES RISK The value of convertible securities may be
affected by interest rates, default by the issuer on principal or interest
payments, and the value of the underlying stock into which the securities may
be converted.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Investing for long-term goals, such as retirement
* Seeking to add an international stock investment to your portfolio
* Seeking capital appreciation and are willing to accept the higher volatility
associated with investing in foreign stocks
PERFORMANCE INFORMATION
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 since its inception compare with those of a broad measure of market
performance.
Both the bar chart and the table assume reinvestment of dividends and
distributions.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
39
FUND SUMMARIES AZL[R] INVESCO INTERNATIONAL EQUITY FUND
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 variable annuity contract or variable life insurance policy.
If they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future. Prior to April 30, 2010, the
Fund was known as the AZL AIM International Equity Fund.
PERFORMANCE BAR CHART AND TABLE
[BAR CHART GRAPHIC - 2003: 27.14%, 2004: 22.13%, 2005: 16.36%, 2006: 27.04%,
2007: 14.62%, 2008: -41.51%, 2009: 34.33%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q2, 2009) 18.20%
Lowest (Q4, 2008) -20.57%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED DECEMBER FIVE YEARS ENDED DECEMBER SINCE INCEPTION
31, 2009 31, 2009 (5/1/2002)
AZL Invesco International Equity Fund 34.33% 5.89% 7.06%
MSCI EAFE Index (reflects no deduction for fees, expenses, 31.78% 3.54% 7.13%
or taxes)
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
Invesco Advisers, Inc. serves as the subadviser to the Fund.
The Fund's portfolio managers are: Shuxin Cao, Senior Portfolio Manager, since
2003; Jason T. Holzer, Senior Portfolio Manager, since inception; Clas G.
Olsson, Senior Portfolio Manager, since inception; Barrett K. Sides, Senior
Portfolio Manager, since inception; Matthew W. Dennis, Portfolio Manager, since
2003.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
40
FUND SUMMARIES AZL[R] JPMORGAN U.S. EQUITY FUND, CLASS 2
AZL[R] JPMORGAN U.S. EQUITY FUND, CLASS 2
INVESTMENT OBJECTIVE
The Fund seeks to provide high total return from a portfolio of selected equity
securities.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.80%
Distribution (12b-1) Fees 0.25%
Other Expenses[(1)] 0.15%
Total Annual Fund Operating Expenses 1.20%
(1)Other Expenses includes reimbursements paid to the Manager for management
fees previously waived and/or the cost of expenses previously paid by the
Manager pursuant to a written contract between the Fund and the Manager
limiting operating expenses.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$122 $381 $660 $1,455
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was
103.19% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
Under normal market conditions, the Fund invests at least 80% of its net assets,
plus any borrowings for investment purposes, in equity securities of U.S.
companies. The Fund primarily invests in large- and medium-capitalization U.S.
companies. Market capitalization is the total market value of a company's
shares. Sector by sector, the Fund's weightings are similar to those of the S&P
500 Index. The Fund's subadviser may moderately underweight or overweight
sectors when it believes doing so will benefit performance.
Within each sector, the Fund focuses on those equity securities that the
subadviser considers most undervalued and seeks to outperform the S&P 500
through superior stock selection. By emphasizing undervalued equity securities,
the subadviser seeks to produce returns that exceed those of the S&P 500 Index.
At the same time, by controlling the sector weightings of the S&P 500 Index, the
subadviser seeks to limit the Fund's volatility to that of the overall market,
as represented by this index.
Equity securities in which the Fund primarily invests include common stocks,
depositary receipts, exchange-traded funds (ETFs), and real estate investment
trusts (REITs). An ETF is a registered investment company that seeks to track
the
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
41
FUND SUMMARIES AZL[R] JPMORGAN U.S. EQUITY FUND, CLASS 2
performance of a particular market index. These indexes include not only broad
market indexes, but also more specific indexes as well, including those relating
to particular sectors, markets, regions, and industries. REITs are pooled
investment vehicles which invest primarily in income-producing real estate or
loans relate to real estate.
Derivatives, which are instruments that have a value based on another
instrument, exchange rate, or index, may be used as substitutes for securities
in which the Fund can invest. The subadviser may use futures contracts, options,
swaps, and other derivatives as tools in the management of portfolio assets. The
subadviser may use derivatives to hedge various investments and for risk
management.
In managing the Fund, the subadviser employs a three-step process that combines
research, valuation, and stock selection.
The subadviser takes an in-depth look at company prospects over a relatively
long period - often as much as five years - rather than focusing on near-term
expectations. This approach is designed to provide insight into a company's real
growth potential.
The research findings allow the subadviser to rank the companies in each sector
group according to their relative value. The greater a company's estimated worth
compared to the current market price of its stock, the more undervalued the
company. The valuation rankings are produced using a variety of models that
quantify the research team's findings.
The subadviser then buys and sells equity securities for the Fund according to
its own policies, using the research and valuation rankings as a basis. In
general, the subadviser buys equity securities that are identified as
undervalued and considers selling them when they appear to be overvalued. Along
with attractive valuation, the subadviser often considers a number of other
criteria:
* Catalysts that could trigger a rise in a stock's price;
* High potential reward compared to potential risk; and
* Temporary mispricings cause by apparent market overreactions.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
* CAPITALIZATION RISK Investing in small to midsized companies creates risk
because smaller companies may have unpredictable or limited earnings, and
their securities may be less liquid or experience more volatile prices than
those of large companies.
* VALUE STOCKS RISK Value investing emphasizes stocks of undervalued companies
whose characteristics may lead to improved valuations. Value stocks may lose
favor with investors, or their valuations may not improve as anticipated.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a
number of risks, such as fluctuations in currency values, adverse political,
social or economic developments, and differences in social and economic
developments or policies.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
* REAL ESTATE INVESTMENTS RISK The performance of investments in real estate
depends on the overall strength of the real estate market, the management of
real estate investments trusts (REITs), and property management, all of which
can be affected by a variety of factors, including national and regional
economic conditions.
* ETF AND INVESTMENT COMPANY RISK Investing in an exchange-traded fund (ETF)
or another mutual fund exposes the Fund to all the risks of that ETF or mutual
fund and also to a pro rata portion of its expenses.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
42
FUND SUMMARIES AZL[R] JPMORGAN U.S. EQUITY FUND, CLASS 2
* PORTFOLIO TURNOVER The Fund may trade its portfolio securities frequently,
which could result in higher transaction costs and could adversely affect the
Fund's performance.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Investing for long-term goals, such as retirement
* Seeking growth of capital
* Willing to accept the risks associated with investing in mid to large cap
growth stocks
PERFORMANCE INFORMATION
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 since its inception compare with those of a broad measure of market
performance.
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 variable annuity contract or variable life insurance policy.
If they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future.
PERFORMANCE BAR CHART AND TABLE
[BAR CHART GRAPHIC - 2005: 5.45%, 2006: 14.59%, 2007:3.80%, 2008: -38.68%,
2009: 33.71%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q2, 2009) 16.84%
Lowest (Q4, 2008) -22.09%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS ENDED DECEMBER SINCE
ENDED 31, 2009 INCEPTION (5/3/2004)
DECEMBER
31, 2009
AZL JPMorgan U.S. Equity Fund 33.71% 0.56% 1.97%
S&P 500[R] Index (reflects no deduction for fees, expenses, 26.46% 0.42% 2.04%
or taxes)
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
43
FUND SUMMARIES AZL[R] JPMORGAN U.S. EQUITY FUND, CLASS 2
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
J.P. Morgan Investment Management Inc. serves as the subadviser to the Fund.
The portfolio managers of the Fund, since 2009, are Thomas Luddy, Managing
Director, and Susan Bao, Managing Director.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
44
FUND SUMMARIES AZL[R] MFS INVESTORS TRUST FUND
AZL[R] MFS INVESTORS TRUST FUND
INVESTMENT OBJECTIVE
The Fund seeks capital appreciation.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.75%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.10%
Total Annual Fund Operating Expenses 1.10%
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$112 $350 $606 $1,340
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was
193.49% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
Massachusetts Financial Services Company ("MFS"), the Fund's subadviser,
normally invests the Fund's assets primarily in equity securities. Equity
securities include common stocks, preferred stocks, securities convertible into
stocks, and depositary receipts for these securities.
In selecting investments for the Fund, MFS is not constrained to any particular
investment style. MFS may invest the Fund's assets in the stocks of companies it
believes to have above average earnings growth potential compared to other
companies (growth companies), in the stocks of companies it believes are
undervalued compared to their perceived worth (value companies), or in a
combination of growth and value companies.
While MFS may invest the Fund's assets in companies of any size, MFS generally
focuses on companies with large capitalizations.
MFS may invest the Fund's assets in foreign securities.
MFS may use derivatives for any investment purpose, including to earn income and
enhance returns, to increase or decrease exposure to a particular market, to
manage or adjust the risk profile of the Fund, or as alternatives to direct
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
45
FUND SUMMARIES AZL[R] MFS INVESTORS TRUST FUND
investments. Derivatives include futures, forward contracts, options,
structured securities, inverse floating rate instruments, swaps, caps, floors
and collars.
MFS uses a bottom-up investment approach to buying and selling investments for
the Fund. Investments are selected primarily based on fundamental analysis of
issuers and their potential in light of their current financial condition and
industry position, and market, economic, political, and regulatory conditions.
Factors considered may include analysis of earnings, cash flows, competitive
position, and management ability. Quantitative models that systematically
evaluate these and other factors may also be considered.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
o MARKET RISK The market value of portfolio securities may go up or
down, sometimes rapidly and unpredictably.
o GROWTH STOCKS RISK Returns on growth stocks may not move in tandem
with returns on other categories of stocks or the market as a whole.
Growth stocks may be susceptible to rapid price swings or to adverse
developments in certain sectors of the market.
o VALUE STOCKS RISK Value investing emphasizes stocks of undervalued
companies whose characteristics may lead to improved valuations. Value
stocks may lose favor with investors, or their valuations may not improve
as anticipated.
o ISSUER RISK The value of a security may decline for a number of
reasons directly related to the issuer of the security.
o SELECTION RISK Because this Fund is actively managed, there can be
no guarantee that investment decisions made for the fund will produce the
desired results.
o FOREIGN RISK Investing in the securities of non-U.S. issuers
involves a number of risks, such as fluctuations in currency values,
adverse political, social or economic developments, and differences in
social and economic developments or policies.
o CURRENCY RISK Investing in securities that trade in and receive
revenues in foreign currencies creates risk because foreign currencies may
decline relative to the U.S. dollar, resulting in a potential loss to the
Fund. In the case of hedging positions, the U.S. dollar may decline in
value relative to the currency that has been hedged.
o DERIVATIVES RISK Investing in derivative instruments involves risks
that may be different from or greater than the risks associated with
investing directly in securities or other traditional investments.
o LEVERAGING RISK The Fund may engage in certain kinds of
transactions, including the use of derivatives, that may give rise to a
form of leverage. The use of leverage may require the Fund to liquidate a
portfolio position at a disadvantageous time or may exaggerate the effect
of any increase or decrease in the value of the Fund's portfolio
securities.
o LIQUIDITY RISK An investment that is difficult to purchase or sell
may have an adverse affect on the Fund's returns.
o PORTFOLIO TURNOVER The Fund may trade its portfolio securities
frequently, which could result in higher transaction costs and could
adversely affect the Fund's performance.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Investing for long-term goals, such as retirement
* Seeking capital appreciation
* Able to withstand volatility in the value of your investment
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
46
FUND SUMMARIES AZL[R] MFS INVESTORS TRUST FUND
PERFORMANCE INFORMATION
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 measure of market performance.
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 variable annuity contract or variable life insurance policy.
If they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future. Prior to October 26, 2009, the
Fund was subadvised by Jennison Associates LLC and was known as the AZL Jennison
20/20 Focus Fund.
PERFORMANCE BAR CHART AND TABLE
[BAR CHART GRAPHIC - 2006: 12.79%, 2007: 10.73%, 2008: -40.11%, 2009: 51.80%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q2, 2009) 21.27%
Lowest (Q4, 2008) -25.31%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED DECEMBER 31, 2009 SINCE INCEPTION (4/29/2005)
AZL MFS Investors Trust Fund 51.80% 7.52%
S&P 500 Index (reflects no deduction for fees, expenses, or taxes) 26.46% 1.33%
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
Massachusetts Financial Services Company ("MFS") serves as the subadviser to the
Fund.
T. Kevin Beatty and Nicole M. Zatlyn, both Investment Officers of MFS, have been
portfolio managers for the Fund since October 26, 2009.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
47
FUND SUMMARIES AZL[R] MID CAP INDEX FUND
AZL[R] MID CAP INDEX FUND
INVESTMENT OBJECTIVE
The Fund seeks to match the performance of the Standard & Poor's MidCap
400[R] Index ("S&P 400 Index") as closely as possible.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.25%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.16%
Acquired Fund Fees and Expenses[(1)] 0.01%
Total Annual Fund Operating Expenses 0.67%
Expense Reimbursement[(2)] -0.06%
Total Annual Fund Operating Expenses After Expense Reimbursement[ (2)] 0.61%
(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.
(2)The Manager and the Fund have entered into a written contract limiting
operating expenses, excluding certain expenses (such as interest expense and
Acquired Fund Fees and Expenses), to .60% through April 30, 2011. After April
30, 2011, the Manager may terminate the contract for any reason on 30 days
written notice to the Fund.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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 reflects the expense reimbursement arrangement for the first
year. It does not reflect any Contract fees. If Contract fees were included, the
costs shown would be higher. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$62 $208 $367 $829
PORTFOLIO TURNOVER
The 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.
From May 1 through December 31, 2009, the Fund's portfolio turnover rate was
27.28% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
The Fund employs a passive management approach, investing in a portfolio of
assets whose performance is expected to match approximately the performance of
the S&P 400 Index before the deduction of Fund expenses. Under normal
circumstances, the Fund invests at least 80% of the value 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 S&P 400 Index,
primarily futures contracts.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
48
FUND SUMMARIES AZL[R] MID CAP INDEX FUND
The S&P 400 Index is a market-weighted index composed of approximately 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, 2008, the market capitalizations of companies in the S&P 400
Index ranged from $87 million to $4.7 billion.
The Fund does not necessarily invest in all of the securities in the S&P 400
Index or in the same weightings as 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.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in the value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* CAPITALIZATION RISK Investing in small to midsized companies creates risk
because smaller companies may have unpredictable or limited earnings, and
their securities may be less liquid or experience more volatile prices than
those of large companies.
* INDEX FUND RISK The Fund does not attempt to manage market volatility or
reduce the effects of poor stock performance. In addition, factors such as
Fund expenses, selection of a representative portfolio, changes in the
composition of the index, or the timing of purchases or redemptions of Fund
shares may affect the correlation between the performance of the index and the
Fund's performance.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
PERFORMANCE INFORMATION
Performance information is not presented because the Fund has not had a full
calendar year of operations.
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
BlackRock Investment Management, LLC serves as the subadviser to the Fund.
The portfolio managers for the Fund, since inception and December 2009,
respectively, are: Debra Jelilian, Managing Director, and Edward Corallo,
Managing Director.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
49
FUND SUMMARIES AZL[R] MONEY MARKET FUND
AZL[R] MONEY MARKET FUND
INVESTMENT OBJECTIVE
The Fund seeks current income consistent with stability of principal.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.35%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.09%
Total Annual Fund Operating Expenses 0.69%
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$70 $221 $384 $859
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
In pursuit of its goal, the Fund invests in a broad range of short-term, high-
quality U.S. dollar-denominated money market instruments, including government,
U.S. and foreign bank, commercial and other obligations. Under normal market
conditions, at least 25% of the Fund's total assets will be invested in
obligations of issuers in the financial services industry or in obligations,
such as repurchase agreements, secured by such obligations.
Specifically, the Fund may invest in:
1)U.S. dollar-denominated obligations issued or supported by the credit of U.S.
or foreign banks or savings institutions with total assets of more than $1
billion (including obligations of foreign branches of such banks).
2)High quality commercial paper and other obligations issued or guaranteed by
U.S. and foreign corporations and other issuers rated (at the time of
purchase) A-2 or higher by Standard and Poor's, Prime-2 or higher by Moody's
or F-2 or higher by Fitch, as well as high quality corporate bonds rated A or
higher at the time of purchase by those rating agencies.
3)Unrated notes, paper and other instruments that are determined by the
subadviser to be of comparable quality to the instruments described above.
4)Asset-backed securities (including interests in pools of assets such as
mortgages, installment purchase obligations and credit card receivables).
5)Securities issued or guaranteed by the U.S. Government or by its agencies or
authorities.
6)Dollar-denominated securities issued or guaranteed by foreign governments or
their political subdivisions, agencies or authorities.
7)Repurchase agreements relating to the above instruments.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
50
FUND SUMMARIES AZL[R] MONEY MARKET FUND
8)Funding agreements, state and local debt issues, and municipal securities
guaranteed by the U.S. government.
The Fund will invest at least 97% of its total assets in the securities of
issuers with the highest credit rating, with the remainder invested in
securities with the second-highest credit rating.
The Fund seeks to maintain a net asset value of $1.00 per share.
PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund. During
extended periods of low interest rates, and due in part to Contract fees and
expenses, the yield of the Fund may become extremely low and possibly negative.
* INTEREST RATE RISK Debt securities held by the Fund may decline in value due
to rising interest rates.
* CREDIT RISK The failure of the issuer of a debt security to pay interest or
repay principal in a timely manner may have an adverse impact on the Fund's
earnings.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* INCOME RISK Falling interest rates may cause the Fund's income to decline.
* INDUSTRY SECTOR RISK Investing in a single industry or sector, or
concentrating investments in a limited number of industries or sectors, tends
to increase the risk that economic, political, or regulatory developments
affecting certain industries or sectors will have a large impact on the value
of the Fund's portfolio.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a
number of risks, such as fluctuations in currency values, adverse political,
social or economic developments, and differences in social and economic
developments or policies.
* LIQUIDITY RISK An investment that is difficult to purchase or sell may have
an adverse affect on the Fund's returns.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU:
* Are seeking preservation of capital
* Have a low risk tolerance
* Have a short term investing horizon or goal
PERFORMANCE INFORMATION
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 since its inception compare with those of a broad measure of market
performance.
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 variable annuity contract or variable life insurance policy.
If they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
51
FUND SUMMARIES AZL[R] MONEY MARKET FUND
PERFORMANCE BAR CHART AND TABLE
[BAR CHART GRAPHIC - 2001: 3.27%, 2002: 0.84%, 2003: 0.34%, 2004: 0.67%,
2005: 2.57%, 2006: 4.43%, 2007: 4.79%, 2008: 2.44%,
2009: 0.22%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q1, 2001) 1.24%
Lowest (Q4, 2009) 0.00%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED FIVE YEARS ENDED SINCE
DECEMBER 31, 2009 DECEMBER 31, 2009 INCEPTION
(2/1/2000)
AZL Money Market Fund 0.22% 2.88% 2.48%
Three-Month U.S. Treasury Bill Index (reflects no deduction for fees, 0.15% 2.72% 2.67%
expenses, or taxes)
The seven-day yield for the period ended December 31, 2009 was 0.00%. For the
Fund's current 7-day yield, telephone 877-833-7113 toll-free.
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
BlackRock Institutional Management Corporation serves as the subadviser to the
Fund.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
52
FUND SUMMARIES AZL[R] NACM INTERNATIONAL GROWTH FUND
AZL[R] NACM INTERNATIONAL GROWTH FUND
INVESTMENT OBJECTIVE
The Fund seeks maximum long-term capital appreciation.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.90%
Distribution (12b-1) Fees 0.25%
Other Expenses[(1)] 0.30%
Acquired Fund Fees and Expenses[(2)] 0.03%
Total Annual Fund Operating Expenses 1.48%
(1)Other Expenses are based on estimated amounts for the current fiscal year.
(2)Acquired Fund Fees and Expenses are based on estimated amounts for the
current fiscal year. Because these fees and expenses are not included in the
Fund's Financial Highlights, the Fund's total annual fund operating expenses
do not correlate to the ratios of expenses to average net assets shown in the
Financial Highlights table.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS
$151 $468
PORTFOLIO TURNOVER
The 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.
From October 23, 2009 through December 31, 2009, the Fund's portfolio turnover
rate was 12.75% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
The Fund seeks to achieve its investment objective by investing primarily in
companies with above average earnings growth and positioned in strong growth
areas, typically in greater than 10 countries outside of the U.S. The Fund's
investments are not limited with respect to the capitalization size of issuers.
The Fund normally invests at least 75% of its net assets in common stock. In
addition, the Fund spreads its investments among countries, with at least 80% of
its net assets invested in the securities of companies that are tied
economically to a number of different foreign countries throughout the world.
The Fund's subadviser focuses on a "bottom up" analysis on the financial
conditions and competitiveness of individual companies worldwide. The subadviser
allocates the Fund's assets among securities of countries that are expected to
provide the best opportunities for meeting the Fund's investment objective. In
analyzing specific companies for possible
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
53
FUND SUMMARIES AZL[R] NACM INTERNATIONAL GROWTH FUND
investment, the subadviser ordinarily looks for several of the following
characteristics: above-average per share earnings growth; high return on
invested capital; a healthy balance sheet; sound financial and accounting
policies and overall financial strength; strong competitive advantages;
effective research and product development and marketing; development of new
technologies; efficient service; pricing flexibility; strong management; and
general operating characteristics that will enable the companies to compete
successfully in their respective markets. The subadviser considers whether to
sell a particular security when any of those factors materially changes.
When in the opinion of the subadviser greater investment opportunities exist,
the Fund may also invest in companies located in countries with emerging
securities markets and in the securities or issuers with smaller market
capitalizations. The Fund may invest up to 20% of its assets in U.S. companies.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in the value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a
number of risks, such as fluctuations in currency values, adverse political,
social or economic developments, and differences in social and economic
developments or policies.
* EMERGING MARKETS RISK Emerging markets may have less developed or more
volatile trading markets, less developed legal and accounting systems, and
greater likelihood of government restrictions, nationalization, or
confiscation than developed countries.
* CURRENCY RISK Investing in securities that trade in and receive revenues in
foreign currencies creates risk because foreign currencies may decline
relative to the U.S. dollar, resulting in a potential loss to the Fund. In
the case of hedging positions, the U.S. dollar may decline in value relative
to the currency that has been hedged.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
* CAPITALIZATION RISK Investing in small to midsized companies creates risk
because smaller companies may have unpredictable or limited earnings, and
their securities may be less liquid or experience more volatile prices than
those of large companies.
* PORTFOLIO TURNOVER The Fund may trade its portfolio securities frequently,
which could result in higher transaction costs and could adversely affect the
Fund's performance.
PERFORMANCE INFORMATION
Performance information is not presented because the Fund has not had a full
calendar year of operations.
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
Nicholas-Applegate Capital Management LLC serves as the subadviser to the Fund.
The portfolio managers for the Fund, since inception, are: Horacio A. Valeiras,
CFA, Managing Director and the Chief Investment Officer, and Pedro V. Marcal,
Senior Vice President.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
54
FUND SUMMARIES AZL[R] NFJ INTERNATIONAL VALUE FUND
AZL[R] NFJ INTERNATIONAL VALUE FUND
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital and income.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.90%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.18%
Total Annual Fund Operating Expenses 1.33%
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$135 $421 $729 $1,601
PORTFOLIO TURNOVER
The 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.
From May 1 through December 31, 2009, the Fund's portfolio turnover rate was
25.28% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
The Fund seeks to achieve its investment objective by investing normally at
least 65% of its net assets, plus any borrowings for investment purposes, in
equity securities of non-U.S. companies with market capitalizations greater than
$1 billion. The Fund normally invests a significant portion of its assets in
equity securities that the Fund's subadviser expects will generate income by
paying dividends. The Fund may invest up to 50% of its assets in emerging market
securities. The Fund typically achieves its exposure to equity securities
through investing in American Depositary Receipts (ADRs), but is not limited to
investments in ADRs.
The Fund's subadviser uses a value investing style focusing on equity securities
of companies whose stocks the Fund's portfolio managers believe have low
valuations. The portfolio managers use quantitative factors to screen the Fund's
initial selection universe. To further narrow the universe, the portfolio
managers analyze factors such as price momentum (changes in stock price relative
to changes in overall market prices), earnings estimate revisions (changes in
analysts' earnings-per-share estimates), and fundamental changes. The portfolio
managers also classify the Fund's selection universe by industry and then
identify what they believe to be undervalued stocks in each industry to
determine potential holdings for the Fund representing a broad range of industry
groups. After still further narrowing the universe through a combination of
qualitative analysis and fundamental research, the portfolio managers select
approximately 40 to 60 stocks
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
55
FUND SUMMARIES AZL[R] NFJ INTERNATIONAL VALUE FUND
for the Fund. The portfolio managers consider selling a stock when any of the
factors leading to its purchase materially changes or when a more attractive
candidate is identified, including when an alternative stock with strong
fundamentals demonstrates a lower price-to-earnings ratio, a higher dividend
yield, or other favorable qualitative metrics.
The Fund may utilize foreign currency exchange contracts, options, stock index
futures contracts, and other derivative instruments.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in the value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
* VALUE STOCKS RISK Value investing emphasizes stocks of undervalued companies
whose characteristics may lead to improved valuations. Value stocks may lose
favor with investors, or their valuations may not improve as anticipated.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a
number of risks, such as fluctuations in currency values, adverse political,
social or economic developments, and differences in social and economic
developments or policies.
* EMERGING MARKETS RISK Emerging markets may have less developed or more
volatile trading markets, less developed legal and accounting systems, and
greater likelihood of government restrictions, nationalization, or
confiscation than developed countries.
* CAPITALIZATION RISK Investing in small to midsized companies creates risk
because smaller companies may have unpredictable or limited earnings, and
their securities may be less liquid or experience more volatile prices than
those of large companies.
* FOCUSED INVESTMENT RISK Investing in a relatively small number of issuers,
industries, or regions involves added risk. Changes in the value of a single
security or a single economic, political, or regulatory event may have a large
impact on the value of the Fund's portfolio.
* CREDIT RISK The failure of the issuer of a debt security to pay interest or
repay principal in a timely manner may have an adverse impact on the Fund's
earnings.
* CURRENCY RISK Investing in securities that trade in and receive revenues in
foreign currencies creates risk because foreign currencies may decline
relative to the U.S. dollar, resulting in a potential loss to the Fund. In
the case of hedging positions, the U.S. dollar may decline in value relative
to the currency that has been hedged.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
* LEVERAGING RISK The Fund may engage in certain kinds of transactions,
including the use of derivatives, that may give rise to a form of leverage.
The use of leverage may require the Fund to liquidate a portfolio position at
a disadvantageous time or may exaggerate the effect of any increase or
decrease in the value of the Fund's portfolio securities.
* LIQUIDITY RISK An investment that is difficult to purchase or sell may have
an adverse affect on the Fund's returns.
* PORTFOLIO TURNOVER The Fund may trade its portfolio securities frequently,
which could result in higher transaction costs and could adversely affect the
Fund's performance.
PERFORMANCE INFORMATION
Performance information is not presented because the Fund has not had a full
calendar year of operations.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
56
FUND SUMMARIES AZL[R] NFJ INTERNATIONAL VALUE FUND
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
NFJ Investment Group LLC serves as the subadviser to the Fund.
The portfolio managers for the Fund, since inception, are: Ben Fischer,
CFA, Portfolio Manager/Analyst, Managing Director; Paul
Magnuson, Portfolio Manager/Analyst, Managing Director; Thomas
Oliver, CPA, Portfolio Manager/Analyst; R. Burns McKinney,
CFA, Portfolio Manager/Analyst; and L. Baxter Hines, Portfolio
Manager.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
57
FUND SUMMARIES AZL[R] OCC GROWTH FUND
AZL[R] OCC GROWTH FUND
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital, with income as an incidental
consideration.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.75%
Distribution (12b-1) Fees 0.25%
Other Expenses[(1)] 0.20%
Acquired Fund Fees and Expenses[(2)] 0.04%
Total Annual Fund Operating Expenses 1.24%
(1)Other Expenses are based on estimated amounts for the current fiscal year.
(2)Acquired Fund Fees and Expenses are based on estimated amounts for the
current fiscal year. Because these fees and expenses are not included in the
Fund's Financial Highlights, the Fund's total annual fund operating expenses
do not correlate to the ratios of expenses to average net assets shown in the
Financial Highlights table.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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 reflects the expense reimbursement arrangement for the first
year. It does not reflect any Contract fees. If Contract fees were included, the
costs shown would be higher. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 YEARS
$126 $393
PORTFOLIO TURNOVER
The 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.
From October 23 through December 31, 2009, the Fund's portfolio turnover rate
was 16.82% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
The Fund seeks to achieve its investment objective by normally investing (at the
time of purchase) at least 65% of its assets in common stocks of "growth"
companies with market capitalizations of at least $5 billion.
The Fund's portfolio managers consider "growth" companies to include companies
they believe to have above-average growth prospects relative to companies in the
same industry or the market as a whole. In seeking to identify these companies,
the portfolio managers consider fundamental characteristics such as revenue
growth, volume and pricing trends, profit margin behavior, margin expansion
opportunities, financial strength, and earnings growth. In addition, through
fundamental research, the portfolio managers seek to identify companies that
possess a sustainable competitive advantage by virtue of having a proprietary
product or process, superior information technology or distribution
capabilities, or a dominant position within their industry. The portfolio
managers typically select approximately 40 to 60
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
58
FUND SUMMARIES AZL[R] OCC GROWTH FUND
stocks for the Fund. The Fund will consider selling a stock if the portfolio
managers believe that the company's fundamentals have deteriorated and/or an
alternative investment is more attractive.
In addition to investing in common stocks, the Fund may also invest in other
kinds of equity securities, such as preferred stocks, convertible securities,
and warrants. The Fund may also invest in real estate investment trusts (REITs).
The Fund may invest up to 15% (at the time of purchase) of its assets in non-
U.S. securities, except that it may invest without limit in American Depositary
Receipts (ADRs).
The Fund may utilize foreign currency exchange contracts, options, stock index
futures contracts, and other derivative instruments.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in the value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
* GROWTH STOCKS RISK Returns on growth stocks may not move in tandem with
returns on other categories of stocks or the market as a whole. Growth stocks
may be susceptible to rapid price swings or to adverse developments in certain
sectors of the market.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a
number of risks, such as fluctuations in currency values, adverse political,
social or economic developments, and differences in social and economic
developments or policies.
* FOCUSED INVESTMENT RISK Investing in a relatively small number of issuers,
industries, or regions involves added risk. Changes in the value of a single
security or a single economic, political, or regulatory event may have a large
impact on the value of the Fund's portfolio.
* LEVERAGING RISK The Fund may engage in certain kinds of transactions,
including the use of derivatives, that may give rise to a form of leverage.
The use of leverage may require the Fund to liquidate a portfolio position at
a disadvantageous time or may exaggerate the effect of any increase or
decrease in the value of the Fund's portfolio securities.
* REAL ESTATE INVESTMENTS RISK The performance of investments in real estate
depends on the overall strength of the real estate market, the management of
real estate investments trusts (REITs), and property management, all of which
can be affected by a variety of factors, including national and regional
economic conditions.
* CREDIT RISK The failure of the issuer of a debt security to pay interest or
repay principal in a timely manner may have an adverse impact on the Fund's
earnings.
* CURRENCY RISK Investing in securities that trade in and receive revenues in
foreign currencies creates risk because foreign currencies may decline
relative to the U.S. dollar, resulting in a potential loss to the Fund. In
the case of hedging positions, the U.S. dollar may decline in value relative
to the currency that has been hedged.
* LIQUIDITY RISK An investment that is difficult to purchase or sell may have
an adverse affect on the Fund's returns.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
* CONVERTIBLE SECURITIES RISK The value of convertible securities may be
affected by interest rates, default by the issuer on principal or interest
payments, and the value of the underlying stock into which the securities may
be converted.
* PORTFOLIO TURNOVER The Fund may trade its portfolio securities frequently,
which could result in higher transaction costs and could adversely affect the
Fund's performance.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
59
FUND SUMMARIES AZL[R] OCC GROWTH FUND
PERFORMANCE INFORMATION
Performance information is not presented because the Fund has not had a full
calendar year of operations.
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
Oppenheimer Capital LLC serves as the subadviser to the Fund.
The portfolio managers for the Fund are: Jeff Parker, CFA, Managing Director,
since inception, and William Sandow, Vice President, since January 2010.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
60
FUND SUMMARIES AZL[R] OCC OPPORTUNITY FUND
AZL[R] OCC OPPORTUNITY FUND
INVESTMENT OBJECTIVE
The Fund seeks capital appreciation.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.85%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.13%
Total Annual Fund Operating Expenses 1.23%
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$125 $390 $676 $1,489
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was
162.87% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
The Fund seeks to achieve its investment objective by normally investing at
least 65% of its assets in common stocks of "growth" companies with market
capitalizations of less than $2 billion at the time of investment.
The portfolio manager's investment process focuses on bottom-up, fundamental
analysis. The portfolio manager considers "growth" companies to include
companies that they believe to have above-average growth prospects (relative to
companies in the same industry or the market as a whole). In seeking to identify
these companies, the portfolio manager will consider fundamental characteristics
such as revenue growth, volume and pricing trends, profit margin behavior,
margin expansion opportunities, financial strength, cash flow growth, asset
value growth and earnings growth. Through extensive, in-depth proprietary
research, the portfolio manager searches for non-consensus information regarding
the growth prospects for small-capitalization companies. The investment process
includes both quantitative and qualitative analysis aimed at identifying
candidate securities. The portfolio manager generates investment ideas from
numerous sources, including proprietary research, Wall Street research,
investment publications, and quantitative data. Once a potential investment is
identified, the portfolio manager conducts a quantitative analysis to determine
if the stock is reasonably priced with respect to its peer group on a historical
and current basis. Then fundamental research is conducted, focusing on a review
of financial statements and third-party research. The portfolio manager may
interview company
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
61
FUND SUMMARIES AZL[R] OCC OPPORTUNITY FUND
management, competitors and other industry experts to gauge the company's
business model, future prospects, and financial outlook. For new investments,
the portfolio manager generally begins with making a relatively small investment
in a company, which may be increased based upon potential upside performance and
conviction in the company. Industry weightings are periodically evaluated versus
the benchmark; the portfolio manager may trim positions in industries that
become significantly overweight relative to the Fund's benchmark. The portfolio
manager seeks to diversify the portfolio among different industries.
The Fund may invest to a limited degree in other kinds of equity securities,
including preferred stocks and convertible securities. The Fund may invest up to
15% of its assets in foreign securities, except that it may invest without limit
in American Depository Receipts (ADRs). The Fund may invest a substantial
portion of its assets in securities issued in initial public offerings (IPOs).
The Fund has in the past invested a significant portion of its assets in
technology or technology-related companies, although there is no assurance that
it will continue to do so in the future. The Fund may utilize foreign currency
exchange contracts, options, and other derivative instruments (for example,
forward currency exchange contracts and stock index future contracts).
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
* GROWTH STOCKS RISK Returns on growth stocks may not move in tandem with
returns on other categories of stocks or the market as a whole. Growth stocks
may be susceptible to rapid price swings or to adverse developments in certain
sectors of the market.
* CAPITALIZATION RISK Investing in small to midsized companies creates risk
because smaller companies may have unpredictable or limited earnings, and
their securities may be less liquid or experience more volatile prices than
those of large companies.
* INITIAL PUBLIC OFFERINGS RISK Securities purchased in initial public
offerings (IPOs) may be issued by companies with limited operating histories
or companies that are undercapitalized. The trading market for these
securities may be limited.
* LIQUIDITY RISK An investment that is difficult to purchase or sell may have
an adverse affect on the Fund's returns.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a
number of risks, such as fluctuations in currency values, adverse political,
social or economic developments, and differences in social and economic
developments or policies.
* CURRENCY RISK Investing in securities that trade in and receive revenues in
foreign currencies creates risk because foreign currencies may decline
relative to the U.S. dollar, resulting in a potential loss to the Fund. In
the case of hedging positions, the U.S. dollar may decline in value relative
to the currency that has been hedged.
* INDUSTRY SECTOR RISK Investing in a single industry or sector, or
concentrating investments in a limited number of industries or sectors, tends
to increase the risk that economic, political, or regulatory developments
affecting certain industries or sectors will have a large impact on the value
of the Fund's portfolio.
* CREDIT RISK The failure of the issuer of a debt security to pay interest or
repay principal in a timely manner may have an adverse impact on the Fund's
earnings.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
62
FUND SUMMARIES AZL[R] OCC OPPORTUNITY FUND
* CONVERTIBLE SECURITIES RISK The value of convertible securities may be
affected by interest rates, default by the issuer on principal or interest
payments, and the value of the underlying stock into which the securities may
be converted.
* PORTFOLIO TURNOVER The Fund may trade its portfolio securities frequently,
which could result in higher transaction costs and could adversely affect the
Fund's performance.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Investing for long-term goals, such as retirement
* Seeking to add an aggressive growth component to your portfolio
* Seeking capital appreciation and are willing to accept the higher volatility
associated with investing in small- and micro-cap growth stocks
PERFORMANCE INFORMATION
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 since its inception compare with those of a broad measure of market
performance.
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 variable annuity contract or variable life insurance policy.
If they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future.
PERFORMANCE BAR CHART AND TABLE
[BAR CHART GRAPHIC - 2003: 62.03%, 2004: 7.76%, 2005: 5.08%, 2006: 11.68%,
2007: 8.89%, 2008: -47.15%, 2009: 58.11%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q2, 2009) 33.97%
Lowest (Q4, 2008) -29.67%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS ENDED DECEMBER SINCE
ENDED 31, 2009 INCEPTION (5/1/2002)
DECEMBER
31, 2009
AZL OCC Opportunity Fund 58.11% 1.32% 5.50%
Russell 2000 Growth Index (reflects no deduction for fees, expenses, or 34.47% 0.87% 3.40%
taxes)
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
63
FUND SUMMARIES AZL[R] OCC OPPORTUNITY FUND
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
Oppenheimer Capital LLC serves as the subadviser to the Fund.
The portfolio managers for the Fund, since inception, are Michael Corelli,
Managing Director, and Eric Sartorius, Senior Vice President.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
64
FUND SUMMARIES AZL[R] RUSSELL 1000 GROWTH INDEX FUND
AZL RUSSELL 1000 GROWTH INDEX FUND
INVESTMENT OBJECTIVE
The Fund seeks to match the total return of the Russell 1000 Growth Index.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.44%
Distribution (12b-1) Fees 0.25%
Other Expenses[(1)] 0.15%
Total Annual Fund Operating Expenses 0.84%
(1)Other Expenses are based on estimated amounts for the current fiscal year.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS
$86 $268
PORTFOLIO TURNOVER
The 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.
The Fund commenced operations April 30, 2010; therefore, portfolio turnover is
not presented.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
The Fund normally invests in all stocks in the Russell 1000R
Growth Index (the "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 Index is an unmanaged index composed of companies on the Russell
1000R Index which exhibit higher price-to-book ratios and higher
forecasted growth values. The Russell 1000R Index is itself
composed of approximately 1,000 of the largest securities on the Russell
3000R Index, based on a combination of their market cap and
current index membership. The Index is constructed to provide a comprehensive
and unbiased barometer for the large-cap growth segment. The Index is completely
reconstituted annually to ensure new and growing equities are included and that
the represented companies continue to reflect growth characteristics.
In seeking to match the performance of the Index, the subadviser uses a passive
management approach and purchases all or a representative sample of the stocks
comprising the Index. The subadviser also may use stock index futures as a
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
65
FUND SUMMARIES AZL[R] RUSSELL 1000 GROWTH INDEX FUND
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.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in the value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* GROWTH STOCKS RISK Returns on growth stocks may not move in tandem with
returns on other categories of stocks or the market as a whole. Growth stocks
may be susceptible to rapid price swings or to adverse developments in certain
sectors of the market.
* INDEX FUND RISK The Fund does not attempt to manage market volatility or
reduce the effects of poor stock performance. In addition, factors such as
Fund expenses, changes in the composition of the index, or the timing of
purchases or redemptions of Fund shares may affect the correlation between the
performance of the index and the Fund's performance.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
* REAL ESTATE INVESTMENTS RISK The performance of investments in real estate
depends on the overall strength of the real estate market, the management of
real estate investments trusts (REITs), and property management, all of which
can be affected by a variety of factors, including national and regional
economic conditions.
PERFORMANCE INFORMATION
Performance information is not presented because the Fund has not had a full
calendar year of operations.
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
BlackRock Investment Management, LLC serves as the subadviser to the Fund.
The portfolio managers for the Fund, since inception, are: Debra Jelilian,
Managing Director, and Edward Corallo, Managing Director.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
66
FUND SUMMARIES AZL[R] RUSSELL 1000 VALUE INDEX FUND
AZL RUSSELL 1000 VALUE INDEX FUND
INVESTMENT OBJECTIVE
The Fund seeks to match the total return of the Russell 1000 Value Index.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.44%
Distribution (12b-1) Fees 0.25%
Other Expenses[(1)] 0.15%
Total Annual Fund Operating Expenses 0.84%
(1)Other Expenses are based on estimated amounts for the current fiscal year.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS
$86 $268
PORTFOLIO TURNOVER
The 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.
The Fund commenced operations April 30, 2010; therefore, portfolio turnover is
not presented.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
The Fund normally invests in all stocks in the Russell 1000R
Value Index (the "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 Index is an unmanaged index composed of companies on the Russell
1000R Index which exhibit lower price-to-book ratios and lower
expected growth values. The Russell 1000R Index is itself
composed of approximately 1,000 of the largest securities on the Russell
3000R Index, based on a combination of their market cap and
current index membership. The Index is constructed to provide a comprehensive
and unbiased barometer for the large-cap value segment. The Index is completely
reconstituted annually to ensure new and growing equities are included and that
the represented companies continue to reflect value characteristics.
In seeking to match the performance of the Index, the subadviser uses a passive
management approach and purchases all or a representative sample of the stocks
comprising the Index. The subadviser also may use stock index futures as a
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
67
FUND SUMMARIES AZL[R] RUSSELL 1000 VALUE INDEX FUND
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.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in the value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* VALUE STOCKS RISK Value investing emphasizes stocks of undervalued companies
whose characteristics may lead to improved valuations. Value stocks may lose
favor with investors, or their valuations may not improve as anticipated.
* INDEX FUND RISK The Fund does not attempt to manage market volatility or
reduce the effects of poor stock performance. In addition, factors such as
Fund expenses, changes in the composition of the index, or the timing of
purchases or redemptions of Fund shares may affect the correlation between the
performance of the index and the Fund's performance.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
* REAL ESTATE INVESTMENTS RISK The performance of investments in real estate
depends on the overall strength of the real estate market, the management of
real estate investments trusts (REITs), and property management, all of which
can be affected by a variety of factors, including national and regional
economic conditions.
PERFORMANCE INFORMATION
Performance information is not presented because the Fund has not had a full
calendar year of operations.
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
BlackRock Investment Management, LLC serves as the subadviser to the Fund.
The portfolio managers for the Fund, since inception, are: Debra Jelilian,
Managing Director, and Edward Corallo, Managing Director.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
68
FUND SUMMARIESAZL[R] S&P 500 INDEX FUND, CLASS 1 AND CLASS 2
AZL[R] S&P 500 INDEX FUND, CLASS 1 AND CLASS 2
INVESTMENT OBJECTIVE
The Fund seeks to match the total return of the Standard & Poor's 500 Composite
Stock Price Index (S&P 500[R]).
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
CLASS 1 CLASS 2
Management Fee 0.17% 0.17%
Distribution (12b-1) Fees 0.00% 0.25%[(1)]
Other Expenses 0.12% 0.12%
Total Annual Fund Operating Expenses 0.29% 0.54%
Expense Reimbursement[(1)] -0.05% -0.05%
Total Annual Fund Operating Expenses After Expense Reimbursement[ (1)] 0.24% 0.49%
(1)The Manager and the Fund have entered into a written contract limiting
operating expenses, excluding certain expenses (such as interest expense), to
0.24% for Class 1 and 0.49% for Class 2 through April 30, 2011. After April
30, 2011, the Manager may terminate the contract for any reason on 30 days
written notice to the Fund.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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 reflects the expense reimbursement arrangement for the first
year. It does not reflect any Contract fees. If Contract fees were included, the
costs shown would be higher. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS 1 $25 $88 $158 $363
CLASS 2 $50 $168 $297 $672
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was
16.19% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
The subadviser normally invests in all 500 stocks in the S&P
500[R] in proportion to their weighting in the index.
The subadviser attempts to have a correlation between the Fund's performance and
that of the S&P 500[R] 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[R] 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. S&P[R] 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
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
69
FUND SUMMARIESAZL[R] S&P 500 INDEX FUND, CLASS 1 AND CLASS 2
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 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.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in the value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* INDEX FUND RISK The Fund does not attempt to manage market volatility or
reduce the effects of poor stock performance. In addition, factors such as
Fund expenses, changes in the composition of the index, or the timing of
purchases or redemptions of Fund shares may affect the correlation between the
performance of the index and the Fund's performance.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
* REAL ESTATE INVESTMENTS RISK The performance of investments in real estate
depends on the overall strength of the real estate market, the management of
real estate investments trusts (REITs), and property management, all of which
can be affected by a variety of factors, including national and regional
economic conditions.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Investing for long-term goals, such as retirement
* Seeking long-term growth of capital through broad exposure to better
established U.S. companies
PERFORMANCE INFORMATION
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 measure of market performance.
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 variable annuity contract or variable life insurance policy.
If they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future. Prior to October 26, 2009, the
Fund was subadvised by The Dreyfus Corporation.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
70
FUND SUMMARIESAZL[R] S&P 500 INDEX FUND, CLASS 1 AND CLASS 2
PERFORMANCE BAR CHART AND TABLE (CLASS 2)
[Bar Chart Graphic - 2008: -37.62%, 2009: 25.36%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q2, 2009) 15.75%
Lowest (Q4, 2008) -22.35%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED SINCE
DECEMBER 31, INCEPTION (CLASS 1 - 5/14/2007 AND CLASS 2 -
2009 5/1/2007_
AZL S&P 500 Index Fund (Class 1) 25.69% -9.25%
AZL S&P 500 Index Fund (Class 2) 25.36% -8.88%
S&P 500 Index (reflects no deduction for fees, expenses, or 26.46% -8.14%
taxes)
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
BlackRock Investment Management, LLC serves as the subadviser to the Fund.
The portfolio managers for the Fund, since October 26, 2009 and December 2009,
respectively, are: Debra Jelilian, Managing Director, and Edward Corallo,
Managing Director.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
71
FUND SUMMARIESAZL[R] S&P 500 INDEX FUND, CLASS 1 AND CLASS 2
AZL[R] SCHRODER EMERGING MARKETS EQUITY FUND, CLASS 1 AND CLASS 2
INVESTMENT OBJECTIVE
The Fund seeks capital appreciation.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
CLASS 1 CLASS 2
Management Fee 1.23% 1.23%
Distribution (12b-1) Fees 0.00% 0.25%
Other Expenses[(1)] 0.31% 0.31%
Total Annual Fund Operating Expenses 1.54% 1.79%
Expense Reimbursement[(2)] -0.14% -0.14%
Total Annual Fund Operating Expenses After Expense Reimbursement[ (2)] 1.40% 1.65%
(1)Other Expenses includes reimbursements paid to the Manager for management
fees previously waived and/or the cost of expenses previously paid by the
Manager pursuant to a written contract between the Fund and the Manager
limiting operating expenses.
(2)The Manager and the Fund have entered into a written contract limiting
operating expenses, excluding certain expenses (such as interest expense), to
1.40% for Class 1 and 1.65% for Class 2 through April 30, 2011. After April
30, 2011, the Manager may terminate the contract for any reason on 30 days
written notice to the Fund.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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 reflects the expense reimbursement arrangement for the first
year. It does not reflect any Contract fees. If Contract fees were included, the
costs shown would be higher. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CLASS 1 $143 $473 $826 $1,823
CLASS 2 $168 $550 $957 $2,094
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was
99.85% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
Under normal circumstances, the Fund invests at least 80% of its net assets,
plus any borrowings for investment purposes, in equity securities of companies
the Fund's subadviser believes to be "emerging market" issuers. The Fund may use
derivatives for purposes of complying with this policy. The Fund may invest the
remainder of its assets in securities of issuers located anywhere in the world.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
72
FUND SUMMARIES AZL[R] S&P 500 INDEX FUND, CLASS 1 AND CLASS 2
The Fund may invest in common and preferred stocks, securities convertible into
common and preferred stocks, warrants to purchase common and preferred stocks,
and index-linked warrants. The Fund may also invest in sponsored or unsponsored
American Depositary Receipts, Global Depository Receipts, European Depository
Receipts or other similar securities representing ownership of foreign
securities. The Fund may also invest in securities of closed-end investment
companies and exchange-traded funds ("ETFs"), including securities of emerging
market issuers. An investment in a domestic closed-end fund or ETF that has a
policy that it will normally invest at least 80% of its net assets in equity
securities of emerging market issuers, and has "emerging market" or the
equivalent in its name, or foreign funds with similar investment policies, will
be treated as an investment in equity securities of emerging market issuers for
purposes of determining if the Fund has invested at least 80% of its net assets
in such securities.
The Fund invests in equity securities of issuers domiciled or doing business in
"emerging market" countries in regions such as Asia, Latin America, Eastern
Europe, the Middle East and Africa. The Fund's subadviser currently considers
"emerging market" issuers to be issuers domiciled in or deriving a substantial
portion of their revenues from countries not included at the time of investment
in the Morgan Stanley Capital World Index. Countries currently in this Index
include: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany,
Greece, Hong Kong SAR, Ireland, Italy, Japan, the Netherlands, New Zealand,
Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and
the United States. At times, the Fund's subadviser may determine based on its
own analysis that an economy included in the Index should nonetheless be
considered an emerging market country, in which case that country would
constitute an emerging market country for purposes of the Fund's investments.
The Fund's subadviser has determined that Chinese companies listed in Hong Kong
will be considered emerging market issuers for this purpose. There is no limit
on the amount of the Fund's assets that may be invested in securities of issuers
domiciled in any one emerging market country, although the Fund will typically
seek to allocate its investments among a number of different emerging market
countries.
The Fund invests in issuers and countries that its subadviser believes offer the
potential for capital growth. In identifying investments for the Fund, the
Fund's subadviser considers a variety of factors, including the issuer's
likelihood of above average earnings growth, the securities' attractive relative
valuation, and whether the issuer enjoys proprietary advantages. The Fund may
invest in securities of companies of any size, including companies with large,
medium, and small market capitalizations, including micro-cap companies. The
Fund may also purchase securities issued in initial public offerings. In
addition, the Fund's subadviser considers the risk of local political and/or
economic instability associated with particular countries and regions and the
liquidity of local markets. The Fund generally sells securities when the Fund's
subadviser believes they are fully priced or to take advantage of other
investments the Fund's subadviser considers more attractive.
The Fund may purchase or sell structured notes, or enter into swap transactions,
for hedging or as an alternative to purchasing or selling securities. The Fund's
subadviser may hedge some of the Fund's foreign currency exposure back into the
U.S. dollar, although it does not normally expect to do so. The Fund may also
purchase or sell futures on indices, including country specific or overall
emerging market indices. The Fund may use derivatives to gain long or short
exposure to securities or market sectors as a substitute for cash investments
(not for leverage) or pending the sale of securities by the Fund and
reinvestment of the proceeds.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
73
FUND SUMMARIES AZL[R] S&P 500 INDEX FUND, CLASS 1 AND CLASS 2
* CAPITALIZATION RISK Investing in small to midsized companies creates risk
because smaller companies may have unpredictable or limited earnings, and
their securities may be less liquid or experience more volatile prices than
those of large companies.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a
number of risks, such as fluctuations in currency values, adverse political,
social or economic developments, and differences in social and economic
developments or policies.
* EMERGING MARKETS RISK Emerging markets may have less developed or more
volatile trading markets, less developed legal and accounting systems, and
greater likelihood of government restrictions, nationalization, or
confiscation than developed countries.
* CURRENCY RISK Investing in securities that trade in and receive revenues in
foreign currencies creates risk because foreign currencies may decline
relative to the U.S. dollar, resulting in a potential loss to the Fund. In
the case of hedging positions, the U.S. dollar may decline in value relative
to the currency that has been hedged.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
* CONVERTIBLE SECURITIES RISK The value of convertible securities may be
affected by interest rates, default by the issuer on principal or interest
payments, and the value of the underlying stock into which the securities may
be converted.
* ETF AND INVESTMENT COMPANY RISK Investing in an exchange-traded fund (ETF)
or another mutual fund exposes the Fund to all the risks of that ETF or mutual
fund and also to a pro rata portion of its expenses.
* LIQUIDITY RISK An investment that is difficult to purchase or sell may have
an adverse affect on the Fund's returns.
* INITIAL PUBLIC OFFERINGS RISK Securities purchased in initial public
offerings (IPOs) may be issued by companies with limited operating histories
or companies that are undercapitalized. The trading market for these
securities may be limited.
* PORTFOLIO TURNOVER The Fund may trade its portfolio securities frequently,
which could result in higher transaction costs and could adversely affect the
Fund's performance.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Investing for long-term goals, such as retirement
* Seeking long-term capital growth from foreign investments
* Willing to assume the greater risks of share price fluctuations and losses
that are typical of an aggressive fund focusing on growth stock instruments
* Willing to assume the risks of investing in emerging foreign countries
PERFORMANCE INFORMATION
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 measure of market performance.
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 variable annuity contract or variable life insurance policy.
If they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
74
FUND SUMMARIES AZL[R] S&P 500 INDEX FUND, CLASS 1 AND CLASS 2
PERFORMANCE BAR CHART AND TABLE (CLASS 2)
[BAR CHART GRAPHIC: 2007: 30.32%, 2008: -51.89%, 2009: 71.78%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q2, 2009) 31.94%
Lowest (Q3, 2008) -27.35%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR SINCE
ENDED INCEPTION (CLASS 1 - 5/6/2007 AND CLASS 2 -
DECEMBER 5/1/2006)
31, 2009
AZL Schroder Emerging Markets Equity Fund (Class 1) 72.46% -0.35%
AZL Schroder Emerging Markets Equity Fund (Class 2) 71.78% 3.60%
MSCI Emerging Markets Index (reflects no deduction for fees, expenses, or 79.02% 7.15%
taxes)
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
Schroder Investment Management North America Inc. serves as the subadviser to
the Fund.
The portfolio managers for the Fund, since inception, are: Allan Conway, Head
of Emerging Market Equities; Robert Davy, Fund Manager, Equities; James Gotto
Fund Manager, Equities; and Waj Hashmi, Fund Manager, Equities.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
75
FUND SUMMARIES AZL[R] SMALL CAP STOCK INDEX FUND
AZL[R] SMALL CAP STOCK INDEX FUND
INVESTMENT OBJECTIVE
The Fund seeks to match the performance of the Standard & Poor's (S&P) SmallCap
600 Index[R].
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.26%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.16%
Total Annual Fund Operating Expenses 0.67%
Expense Reimbursement[(1)] -0.09%
Total Annual Fund Operating Expenses After Expense Reimbursement[ (1)] 0.58%
(1)The Manager and the Fund have entered into a written contract limiting
operating expenses, excluding certain expenses (such as interest expense), to
0.58% through April 30, 2011. After April 30, 2011, the Manager may terminate
the contract for any reason on 30 days written notice to the Fund.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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 reflects the expense reimbursement arrangement for the first
year. It does not reflect any Contract fees. If Contract fees were included, the
costs shown would be higher. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$59 $205 $364 $826
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was
24.67% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
The subadviser invests in a representative sample of stocks included in the S&P
SmallCap 600 Index[R] and in futures whose performance is related
to the index, rather than attempting to replicate 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 subadviser selects the Fund's investments using a "sampling" process based
on market capitalization, industry representation, and other means. Using this
sampling process, the Fund typically will not invest in all 600 stocks in the
S&P SmallCap 600 Index[R]. However, at times, the Fund may be
fully invested in all the stocks that comprise the index. Under these
circumstances, the Fund maintains approximately the same weighting for each
stock as the index does.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
76
FUND SUMMARIES AZL[R] SMALL CAP STOCK INDEX FUND
The S&P SmallCap 600 Index[R] is composed of 600 domestic stocks
with market capitalizations ranging between approximately $300 million and $2.0
billion, depending on index composition. S&P[R] 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 purchases all or a representative sample of the stocks
comprising the benchmark index. The subadviser also may use stock index futures
as a substitute for the sale or purchase of securities.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* INDEX FUND RISK The Fund does not attempt to manage market volatility or
reduce the effects of poor stock performance. In addition, factors such as
Fund expenses, selection of a representative portfolio, changes in the
composition of the index, or the timing of purchases or redemptions of Fund
shares may affect the correlation between the performance of the index and the
Fund's performance.
* CAPITALIZATION RISK Investing in small to midsized companies creates risk
because smaller companies may have unpredictable or limited earnings, and
their securities may be less liquid or experience more volatile prices than
those of large companies.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Investing for long-term goals, such as retirement
* Seeking long term growth of capital from broad exposure to equities of smaller
companies
* Willing to accept the risk associated with securities of smaller, less-
established companies
PERFORMANCE INFORMATION
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 measure of market performance.
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 variable annuity contract or variable life insurance policy.
If they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future. Prior to October 26, 2009, the
Fund was subadvised by The Dreyfus Corporation.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
77
FUND SUMMARIES AZL[R] SMALL CAP STOCK INDEX FUND
PERFORMANCE BAR CHART AND TABLE
[Bar Chart Graphic - 2008: -30.94%, 24.84%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q2, 2009) 20.83%
Lowest (Q4, 2008) -25.21%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED SINCE
DECEMBER 31, 2009 INCEPTION (5/1/2007)
AZL Small Cap Stock Index Fund 24.84% -7.50%
S&P SmallCap 600 Index (reflects no deduction for fees, expenses, or taxes) 25.57% -7.26%
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
BlackRock Investment Management, LLC serves as the subadviser to the Fund.
The portfolio managers for the Fund, since October 26, 2009 and December 2009,
respectively, are: Debra Jelilian, Managing Director, and Edward Corallo,
Managing Director.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
78
FUND SUMMARIESAZL[R] TURNER QUANTITATIVE SMALL CAP GROWTH FUND
AZL[R] TURNER QUANTITATIVE SMALL CAP GROWTH FUND
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.85%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.14%
Total Annual Fund Operating Expenses 1.24%
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$126 $393 $681 $1,500
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was
172.64% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
Under normal circumstances, the Fund invests at least 80% of its net assets,
plus any borrowings for investment purposes, in common stocks and other equity
securities of U.S. companies with small market capitalizations. Small
capitalization companies are defined for this purpose as companies with market
capitalizations at the time of purchase in the range of the market
capitalizations of companies included in the Russell 2000 Growth Index. These
securities may be traded over the counter or listed on an exchange.
The subadviser selects securities for the Fund's portfolio that it believes,
based on a quantitative model, have strong earnings growth potential. The Fund's
investment strategy is to invest in companies that receive high rankings from
the subadviser's proprietary quantitative model. The model seeks to identify
attractive small cap growth securities based on such growth characteristics as
superior earnings prospects, reasonable valuations, and other fundamental
characteristics believed to have predictive value. The subadviser will seek to
maintain sector weightings that approximate those of the Russell 2000 Growth
Index, the Fund's benchmark.
Generally, the subadviser sells securities when a stock's ranking declines
relative to its peers.
The Fund may invest in foreign securities listed on U.S. exchanges and in
initial public offerings.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
79
FUND SUMMARIESAZL[R] TURNER QUANTITATIVE SMALL CAP GROWTH FUND
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
* CAPITALIZATION RISK Investing in small to midsized companies creates risk
because smaller companies may have unpredictable or limited earnings, and
their securities may be less liquid or experience more volatile prices than
those of large companies.
* GROWTH STOCKS RISK Returns on growth stocks may not move in tandem with
returns on other categories of stocks or the market as a whole. Growth stocks
may be susceptible to rapid price swings or to adverse developments in certain
sectors of the market.
* INITIAL PUBLIC OFFERINGS RISK Securities purchased in initial public
offerings (IPOs) may be issued by companies with limited operating histories
or companies that are undercapitalized. The trading market for these
securities may be limited.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a
number of risks, such as fluctuations in currency values, adverse political,
social or economic developments, and differences in social and economic
developments or policies.
* PORTFOLIO TURNOVER The Fund may trade its portfolio securities frequently,
which could result in higher transaction costs and could adversely affect the
Fund's performance.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Investing for long-term goals, such as retirement
* Seeking long-term growth of capital
* Willing to accept the risk of investing in smaller capitalization stocks for
the potential reward of greater capital
PERFORMANCE INFORMATION
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 measure of market performance.
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 variable annuity contract or variable life insurance policy.
If they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
80
FUND SUMMARIESAZL[R] TURNER QUANTITATIVE SMALL CAP GROWTH FUND
PERFORMANCE BAR CHART AND TABLE
[Bar Chart Graphic - 2006: 11.31%, 2007: 6.07%, 2008: -43.35%, 2009: 31.40%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q2, 2009) 20.27%
Lowest (Q4, 2008) -26.57%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED SINCE
DECEMBER 31, 2009 INCEPTION (4/29/2005)
AZL Turner Quantitative Small Cap Growth Fund 31.40% -0.28%
Russell 2000 Growth Index (reflects no deduction for fees, expenses, or taxes) 34.47% 3.93%
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
Turner Investment Partners, Inc. serves as the subadviser to the Fund.
The portfolio managers for the Funds are: David Kovacs, CFA, Chief Investment
Officer of Quantitative Strategies (since 2007), and Jennifer C. Boden,
Quantitative Analyst/Portfolio Manager (since 2007).
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
81
FUND SUMMARIES AZL[R] VAN KAMPEN EQUITY AND INCOME FUND
AZL[R] VAN KAMPEN EQUITY AND INCOME FUND
INVESTMENT OBJECTIVE
The Fund seeks the highest possible income consistent with safety of principal,
with long-term growth of capital as an important secondary objective.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.75%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.13%
Acquired Fund Fees and Expenses[(1)] 0.01%
Total Annual Fund Operating Expenses 1.14%
(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.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$116 $362 $628 $1,386
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was
68.56% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
Under normal market conditions, the Fund invests at least 65% of its total
assets in income-producing equity securities. The subadviser seeks to achieve
the Fund's investment objectives by investing primarily in income-producing
equity instruments (including common stocks, preferred stocks and convertible
securities) and investment grade quality debt securities.
The Fund emphasizes a value style of investing, seeking well-established,
undervalued companies that the Fund's subadviser believes offer the potential
for income with safety of principal and long-term growth of capital. At times,
the subadviser may emphasize certain sectors. Portfolio securities are typically
sold when the assessments of the Fund's subadviser of the income or growth
potential of such securities materially change.
The Fund may invest up to 15% of its total assets in REITs and up to 25% of its
total assets in securities of foreign issuers, including emerging market
securities. The Fund may purchase and sell certain derivative instruments, such
as
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
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FUND SUMMARIES AZL[R] VAN KAMPEN EQUITY AND INCOME FUND
options, futures contracts and options on futures contracts, for various
portfolio management purposes, including to earn income, facilitate portfolio
management and mitigate risks.
The Fund may also allocate up to 5% of its respective net assets to (a) index
futures, other futures contracts, options, and other similar securities and (b)
cash, money market equivalents, short-term debt instruments, money market funds,
and short-term debt funds to satisfy all applicable margin requirements and to
provide additional portfolio liquidity to satisfy large redemptions and any
margin calls. The Fund may also invest in exchange-traded funds (ETFs) for
additional exposure to relevant markets. This strategy is intended to reduce
the potential volatility of the Fund's investment performance.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
* VALUE STOCKS RISK Value investing emphasizes stocks of undervalued companies
whose characteristics may lead to improved valuations. Value stocks may lose
favor with investors, or their valuations may not improve as anticipated.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a
number of risks, such as fluctuations in currency values, adverse political,
social or economic developments, and differences in social and economic
developments or policies.
* EMERGING MARKETS RISK Emerging markets may have less developed or more
volatile trading markets, less developed legal and accounting systems, and
greater likelihood of government restrictions, nationalization, or
confiscation than developed countries.
* CURRENCY RISK Investing in securities that trade in and receive revenues in
foreign currencies creates risk because foreign currencies may decline
relative to the U.S. dollar, resulting in a potential loss to the Fund. In
the case of hedging positions, the U.S. dollar may decline in value relative
to the currency that has been hedged.
* CONVERTIBLE SECURITIES RISK The value of convertible securities may be
affected by interest rates, default by the issuer on principal or interest
payments, and the value of the underlying stock into which the securities may
be converted.
* CREDIT RISK The failure of the issuer of a debt security to pay interest or
repay principal in a timely manner may have an adverse impact on the Fund's
earnings.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
* MORTGAGE-RELATED AND OTHER ASSET-BACKED RISK Investing in mortgage-related or
other asset-backed securities involves a variety of risks associated with the
credit markets, such as rising or falling interest rates, increases in the
rate of defaults or prepayments, and the quality of the pool of mortgages
(subprime risk) or other assets that backs the security.
* INCOME RISK Falling interest rates may cause the Fund's income to decline.
* CALL RISK If interest rates fall, issuers of callable debt securities are more
likely to prepay prior to the maturity date. The Fund may not be able to
reinvest the proceeds from the prepayment in investments that will generate
the same level of income.
* INDUSTRY SECTOR RISK Investing in a single industry or sector, or
concentrating investments in a limited number of industries or sectors, tends
to increase the risk that economic, political, or regulatory developments
affecting certain industries or sectors will have a large impact on the value
of the Fund's portfolio.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
83
FUND SUMMARIES AZL[R] VAN KAMPEN EQUITY AND INCOME FUND
* REAL ESTATE INVESTMENTS RISK The performance of investments in real estate
depends on the overall strength of the real estate market, the management of
real estate investments trusts (REITs), and property management, all of which
can be affected by a variety of factors, including national and regional
economic conditions.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Seeking a high level of income
* Seeking to grow your capital over the long-term
* Able to withstand volatility in the value of the shares of the Fund
* Looking for a fund that emphasizes a value style of investing and invests
primarily in income-producing equity instruments and debt securities
PERFORMANCE INFORMATION
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 since its inception compare with those of a broad measure of market
performance, the S&P 500R Index. The Fund's performance is also
compared to the Barclays Capital 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.
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 variable annuity contract or variable life insurance policy.
If they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future.
PERFORMANCE BAR CHART AND TABLE
[BAR CHART GRAPHIC - 2005: 6.75%, 2006: 12.52%, 2007: 3.07%, 2008: -23.92%,
2009: 22.85%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q3, 2009) 16.83%
Lowest (Q4, 2008) -13.29%
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
84
FUND SUMMARIES AZL[R] VAN KAMPEN EQUITY AND INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR FIVE YEARS ENDED SINCE
ENDED DECEMBER 31, 2009 INCEPTION (5/3/2004)
DECEMBER
31, 2009
AZL Van Kampen Equity and Income Fund 22.85% 2.96% 4.20%
S&P 500 Index(reflects no deduction for fees, expenses, or taxes) 26.46% 0.42% 2.04%
Barclays Capital U.S. Aggregate Bond Index (reflects no deduction for fees, 5.93% 4.97% 5.17%
expenses, or taxes)
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
Van Kampen Asset Management serves as the subadviser to the Fund.
The portfolio managers of the Fund, since inception, are: Thomas B. Bastian,
Mary Jayne Maly, James O. Roeder, and Sanjay Verma, each a Managing Director,
and Mark J. Laskin and Sergio Marcheli, each an Executive Director.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
85
FUND SUMMARIES AZL[R] VAN KAMPEN GLOBAL REAL ESTATE FUND
AZL[R] VAN KAMPEN GLOBAL REAL ESTATE FUND
INVESTMENT OBJECTIVE
The Fund seeks to provide income and capital appreciation.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.90%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.25%
Total Annual Fund Operating Expenses 1.40%
Expense Reimbursement[(1)] -0.05%
Total Annual Fund Operating Expenses After Expense Reimbursement[ (1)] 1.35%
(1)The Manager and the Fund have entered into a written contract limiting
operating expenses, excluding certain expenses (such as interest expense), to
1.35% through April 30, 2011. After April 30, 2011, the Manager may terminate
the contract for any reason on 30 days written notice to the Fund.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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 reflects the expense reimbursement arrangement for the first
year. It does not reflect any Contract fees. If Contract fees were included, the
costs shown would be higher. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$137 $438 $761 $1,675
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was
47.65% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
The subadviser seeks a combination of current income and capital appreciation by
investing primarily in equity securities of companies in the real estate
industry located throughout the world, including real estate operating companies
(REOCs), REITs and similar entities established outside the United States
(foreign real estate companies). The Fund will invest primarily in companies
located in the developed countries of North America, Europe and Asia, but may
also invest in emerging markets. The subadviser's approach emphasizes a bottom-
up driven stock selection with a top-down global allocation.
The subadviser actively manages the Fund using a combination of top-down and
bottom-up methodologies. The top-down global allocation overweighs and
underweighs of each of the regions contained in the FTSE/EPRA/NAREIT Developed
Real Estate Index by focusing on key regional criteria, which include relative
valuation, underlying real estate
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
86
FUND SUMMARIES AZL[R] VAN KAMPEN GLOBAL REAL ESTATE FUND
fundamentals, and demographic and macroeconomic considerations (for example,
population, employment, household information and income). The subadviser
employs a value-driven approach to bottom-up security selection, which
emphasizes underlying asset values, values per square foot and property yields.
In seeking an optimal matrix of regional and property market exposure, the
subadviser considers broad demographic and macroeconomic factors as well as
criteria such as space demand, new construction and rental patterns. The
subadviser generally considers selling a portfolio holding when it determines
that the holding is less attractive based on a number of factors, including
changes in the holding's share price, earnings prospects relative to its peers
and/or business prospects.
Under normal circumstances, at least 80% of the Fund's assets , plus any
borrowings for investment purposes, will be invested in equity securities of
companies in the real estate industry, including REOCs, REITs, and foreign real
estate companies.
A company is considered to be in the real estate industry if it (i) derives at
least 50% of its revenues or profits from the ownership, construction,
management, financing or sale of residential, commercial or industrial real
estate or (ii) has at least 50% of the fair market value of its assets invested
in residential, commercial or industrial real estate.
PRINCIPAL INVESTMENT RISKS
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
* REAL ESTATE INVESTMENTS RISK The performance of investments in real estate
depends on the overall strength of the real estate market, the management of
real estate investments trusts (REITs), and property management, all of which
can be affected by a variety of factors, including national and regional
economic conditions.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a
number of risks, such as fluctuations in currency values, adverse political,
social or economic developments, and differences in social and economic
developments or policies.
* EMERGING MARKETS RISK Emerging markets may have less developed or more
volatile trading markets, less developed legal and accounting systems, and
greater likelihood of government restrictions, nationalization, or
confiscation than developed countries.
* CURRENCY RISK Investing in securities that trade in and receive revenues in
foreign currencies creates risk because foreign currencies may decline
relative to the U.S. dollar, resulting in a potential loss to the Fund. In
the case of hedging positions, the U.S. dollar may decline in value relative
to the currency that has been hedged.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Seeking capital growth over the long-term
* Willing to take on the increased risks of an investment concentrated in
securities of companies that operate within the same industry
* Able to withstand volatility in the value of their shares of the Fund
* Wishing to add to their investment portfolio a fund that invests primarily in
companies operating in the real estate industry.
PERFORMANCE INFORMATION
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 measure of market performance.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
87
FUND SUMMARIES AZL[R] VAN KAMPEN GLOBAL REAL ESTATE 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 variable annuity contract or variable life insurance policy.
If they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future.
PERFORMANCE BAR CHART AND TABLE
[Bar Chart Graphic - 2007: -8.68%, 2008: -45.83%, 2009: 40.19%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q2, 2009) 38.85%
Lowest (Q4, 2008) -30.62%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED SINCE
DECEMBER 31, INCEPTION (5/1/2006)
2009
AZL Van Kampen Global Real Estate Fund 40.19% -4.53%
FTSE EPRA/NAREIT Developed Real Estate Index (reflects no deduction for fees, expenses, or 38.25% -4.43%
taxes)
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
Van Kampen Asset Management serves as the subadviser to the Fund.
The portfolio managers of the Fund, since inception, are: Theodore R. Bigman,
Michael te Paske, Sven van Kemenade and Angeline Ho, each a Managing Director.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
88
FUND SUMMARIES AZL[R] VAN KAMPEN GROWTH AND INCOME FUND
AZL[R] VAN KAMPEN GROWTH AND INCOME FUND
INVESTMENT OBJECTIVE
The Fund seeks income and long-term growth of capital.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.76%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.12%
Acquired Fund Fees and Expenses[(1)] 0.01%
Total Annual Fund Operating Expenses 1.14%
(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.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$116 $362 $628 $1,386
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was
53.84% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
The Fund normally invests at least 65% of its total assets in income-producing
equity securities, including common stocks and convertible securities although
investments are also made in non-convertible preferred stocks and debt
securities rated "investment grade," which are securities rated within the four
highest grades assigned by S&P[R] or by Moody's.
In selecting securities for investment the Fund will focus primarily on the
security's potential for income and capital growth. The Fund's subadviser may
focus on larger capitalization companies which it believes possess
characteristics for improved valuation. The Fund's subadviser looks for
catalysts for change that may positively impact a company, such as new
management, industry development or regulatory change. The aim is to uncover
these catalysts for change, and then benefit from potential stock price
appreciation of the change taking place at the company. Although focusing on
larger capitalization companies, the Fund may invest in securities of small- or
medium-sized companies.
The Fund may dispose of a security whenever, in the opinion of the Fund's
subadviser, factors indicate it is desirable to do so. Such factors include
change in economic or market factors in general or with respect to a particular
industry, a change in the market trend or other factors affecting an individual
security, changes in the relative market performance or
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
89
FUND SUMMARIES AZL[R] VAN KAMPEN GROWTH AND INCOME FUND
appreciation possibilities offered by individual securities and other
circumstances bearing on the desirability of a given investment.
The Fund may invest up to 15% of its total assets in REITs and up to 25% of its
total assets in securities of foreign issuers, including emerging market
securities. The Fund may purchase and sell certain derivative instruments, such
as options, futures and options on futures, for hedging and cash management
purposes.
PRINCIPAL INVESTMENT RISKS
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
* CAPITALIZATION RISK Investing in small to midsized companies creates risk
because smaller companies may have unpredictable or limited earnings, and
their securities may be less liquid or experience more volatile prices than
those of large companies.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a
number of risks, such as fluctuations in currency values, adverse political,
social or economic developments, and differences in social and economic
developments or policies.
* EMERGING MARKETS RISK Emerging markets may have less developed or more
volatile trading markets, less developed legal and accounting systems, and
greater likelihood of government restrictions, nationalization, or
confiscation than developed countries.
* CURRENCY RISK Investing in securities that trade in and receive revenues in
foreign currencies creates risk because foreign currencies may decline
relative to the U.S. dollar, resulting in a potential loss to the Fund. In
the case of hedging positions, the U.S. dollar may decline in value relative
to the currency that has been hedged.
* CREDIT RISK The failure of the issuer of a debt security to pay interest or
repay principal in a timely manner may have an adverse impact on the Fund's
earnings.
* INTEREST RATE RISK Debt securities held by the Fund may decline in value due
to rising interest rates.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
* REAL ESTATE INVESTMENTS RISK The performance of investments in real estate
depends on the overall strength of the real estate market, the management of
real estate investments trusts (REITs), and property management, all of which
can be affected by a variety of factors, including national and regional
economic conditions.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Investing for long-term goals, such as retirement
* Seeking income and growth of capital
* Pursuing a balanced approach to investments in both growth and income
producing securities
PERFORMANCE INFORMATION
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 since its inception compare with those of a broad measure of market
performance.
Both the bar chart and the table assume reinvestment of dividends and
distributions.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
90
FUND SUMMARIES AZL[R] VAN KAMPEN GROWTH AND INCOME FUND
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 variable annuity contract or variable life insurance policy.
If they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future.
PERFORMANCE BAR CHART AND TABLE
[BAR CHART GRAPHIC - 2002: -14.71%, 2003: 27.46%, 2004: 13.82%, 2005: 9.24%,
2006: 15.90%, 2007: 2.64%, 2008: -32.86%, 2009: 23.64%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q3, 2009) 21.78%
Lowest (Q4, 2008) -20.18%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED FIVE YEARS ENDED SINCE INCEPTION
DECEMBER 31, 2009 DECEMBER 31, 2009 (5/1/2001)
AZL Van Kampen Growth and Income Fund 23.64% 1.53% 3.10%
Russell 1000 Value Index (reflects no deduction for fees, expenses, 19.69% -0.25% 2.20%
or taxes)
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
Van Kampen Asset Management serves as the subadviser to the Fund.
The portfolio managers of the Fund, since inception, are: Thomas B. Bastian,
Mary Jayne Maly, and James O. Roeder, each a Managing Director, and Mark J.
Laskin and Sergio Marcheli, each an Executive Director.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
91
FUND SUMMARIES AZL[R] VAN KAMPEN INTERNATIONAL EQUITY FUND
AZL[R] VAN KAMPEN INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE
The Fund seeks long-term capital appreciation.
FEES AND EXPENSES
FEES AND EXPENSES OF THE FUND
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.95%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.13%
Total Annual Fund Operating Expenses 1.33%
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$135 $421 $729 $1,601
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was
29.56% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
The Fund's sub-subadvisers, Morgan Stanley Investment Management Limited and
Morgan Stanley Investment Management Company, both affiliates of the subadviser,
seek to maintain a diversified portfolio of equity securities of non-U.S.
issuers based on individual stock selection. The sub-subadvisers emphasize a
bottom-up approach to investing that seeks to identify securities of issuers
they believe are undervalued. The sub-subadvisers focus on developed markets,
but they may invest in emerging markets.
The sub-subadvisers select issuers from a universe comprised of approximately
1,200 companies in non-U.S. markets. The investment process is value driven and
based on individual stock selection. In assessing investment opportunities, the
sub-subadvisers consider value criteria with an emphasis on cash flow and the
intrinsic value of company assets. Securities which appear undervalued according
to these criteria are then subjected to in-depth fundamental analysis. The sub-
subadvisers conduct a thorough investigation of the issuer's balance sheet, cash
flow and income statement and assess the company's business franchise, including
product competitiveness, market positioning and industry structure. Meetings
with senior company management are integral to the investment process. The sub-
subadvisers generally consider selling a portfolio holding when they determine
that the holding has reached its fair value target.
The Allianz Variable Insurance Products Trust - Prospectus
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92
FUND SUMMARIES AZL[R] VAN KAMPEN INTERNATIONAL EQUITY FUND
Under normal circumstances, at least 80% of the Fund's assets will be invested
in equity securities. Derivative instruments used by the Fund will be counted
toward the 80% policy discussed above to the extent they have economic
characteristics similar to the securities included within that policy.
PRINCIPAL INVESTMENT RISKS
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER Risk The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a
number of risks, such as fluctuations in currency values, adverse political,
social or economic developments, and differences in social and economic
developments or policies.
* EMERGING MARKETS RISK Emerging markets may have less developed or more
volatile trading markets, less developed legal and accounting systems, and
greater likelihood of government restrictions, nationalization, or
confiscation than developed countries.
* VALUE STOCKS RISK Value investing emphasizes stocks of undervalued companies
whose characteristics may lead to improved valuations. Value stocks may lose
favor with investors, or their valuations may not improve as anticipated.
* CURRENCY RISK Investing in securities that trade in and receive revenues in
foreign currencies creates risk because foreign currencies may decline
relative to the U.S. dollar, resulting in a potential loss to the Fund. In the
case of hedging positions, the U.S. dollar may decline in value relative to
the currency that has been hedged.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
* INDUSTRY SECTOR RISK Investing in a single industry or sector, or
concentrating investments in a limited number of industries or sectors, tends
to increase the risk that economic, political, or regulatory developments
affecting certain industries or sectors will have a large impact on the value
of the Fund's portfolio.
* COUNTRY/REGIONAL RISK Political events, financial troubles, or natural
disasters may have an adverse affect on the securities markets of a country or
region.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Seeking capital appreciation over the long-term
* Are willing to accept the risks and uncertainties of investing in a portfolio
of equity securities of foreign issuers, including in emerging market
countries
* Can withstand the volatility in the value of your shares in the Fund
* Investing for long-term goals, such as retirement
PERFORMANCE INFORMATION
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 since its inception compare with those of a broad measure of market
performance.
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 variable annuity contract or variable life insurance policy.
If they were included, performance would be reduced. Past performance does not
indicate how the Fund will perform in the future. Prior to October 26, 2009, the
Fund was known as the AZL Van Kampen Global Franchise Fund.
The Allianz Variable Insurance Products Trust - Prospectus
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93
FUND SUMMARIES AZL[R] VAN KAMPEN INTERNATIONAL EQUITY FUND
PERFORMANCE BAR CHART AND TABLE
[BAR CHART GRAPHIC - 2004: 12.21%, 2005: 11.64%, 2006: 21.25%, 2007: 9.82%,
2008: -28.56%, 2009: 26.32%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q2, 2009) 18.13%
Lowest (Q4, 2008) -13.07%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED DECEMBER FIVE YEARS ENDED DECEMBER SINCE INCEPTION
31, 2009 31, 2009 (5/1/2003)
AZL Van Kampen International Equity Fund 26.32% 6.05% 9.80%
MSCI World Index (reflects no deduction for fees, expenses, 30.79% 2.57% 8.16%
or taxes)
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
Van Kampen Asset Management serves as the subadviser to the Fund.
The portfoilio managers for the Fund, since October 26, 2009, are William D.
Lock, Walter B. Riddell and Peter J. Wright, each a Managing Director, and John
S. Goodacre and Christian Derold, each an Executive Director.
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
94
FUND SUMMARIES AZL[R] VAN KAMPEN MID CAP GROWTH FUND
AZL[R] VAN KAMPEN MID CAP GROWTH FUND
INVESTMENT OBJECTIVE
The Fund seeks capital growth.
FEES AND EXPENSES
ANNUAL FUND OPERATING EXPENSES
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund. The Fund is offered exclusively as an investment
option for certain Contracts. The table below reflects only Fund expenses and
does not reflect Contract fees and expenses. Please refer to the Contract
prospectus for a description of those fees and expenses.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
Management Fee 0.81%
Distribution (12b-1) Fees 0.25%
Other Expenses 0.11%
Acquired Fund Fees and Expenses[(1)] 0.01%
Total Annual Fund Operating Expenses 1.18%
(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.
EXAMPLE
This example is intended to help you compare the cost of investing in the 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. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$120 $375 $649 $1,432
PORTFOLIO TURNOVER
The 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, the Fund's portfolio turnover rate was
39.79% of the average value of its portfolio.
INVESTMENTS, RISKS, AND PERFORMANCE
PRINCIPAL INVESTMENT STRATEGIES OF THE FUND
The Fund's sub-subadvisers, Morgan Stanley Investment Management Limited and
Morgan Stanley Investment Management Company, both affiliates of the subadviser,
seek to maintain a diversified portfolio of equity securities of non-U.S.
issuers based on individual stock selection. The sub-subadvisers emphasize a
bottom-up approach to investing that seeks to identify securities of issuers
they believe are undervalued. The sub-subadvisers focus on developed markets,
but they may invest in emerging markets.
The Fund normally invests at least 80% of its net assets plus any borrowings for
investment purposes in common stocks and other equity securities of mid
capitalization growth companies. The Fund considers mid capitalization companies
to be those that, at the time of purchase, have market capitalizations within
the range of the Russell Midcap Growth Index. At February 28, 2009, the median
market cap of the Russell Midcap Growth Index was $2.2 billion. The Fund may
also invest in preferred stocks and securities convertible into common stocks or
other equity securities.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
95
FUND SUMMARIES AZL[R] VAN KAMPEN MID CAP GROWTH FUND
The Fund seeks to invest in high quality companies it believes have sustainable
competitive advantages and the ability to redeploy capital at high rates of
return. The Fund typically favors companies with rising returns on invested
capital, above average business visibility, strong free cash flow generation and
attractive risk/reward. The Fund generally considers selling an investment when
it determines the company no longer satisfies its investment criteria.
The Fund may purchase and sell certain derivative instruments, such as options,
futures and options on futures, for hedging and cash management purposes. In
addition, the Fund may enter into various currency transactions, such as
currency forward contracts and currency futures contracts.
The Fund may invest up to 25% of its total assets in securities of foreign
companies, including emerging market securities, primarily through ownership of
depositary receipts.
The Fund may invest up to 10% of its total assets in real estate investment
trusts (REITs).
PRINCIPAL INVESTMENT RISKS
The price per share of the Fund will fluctuate with changes in value of the
investments held by the Fund. You may lose money by investing in the Fund. An
investment in the Fund 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 Fund will achieve its objective.
The following is a summary of the principal risks to which the Fund's portfolio
as a whole is subject. As changes occur in a Fund's portfolio holdings, the
extent to which the portfolio is subject to each of these risks may also change.
* MARKET RISK The market value of portfolio securities may go up or down,
sometimes rapidly and unpredictably.
* ISSUER RISK The value of a security may decline for a number of reasons
directly related to the issuer of the security.
* SELECTION RISK Because this Fund is actively managed, there can be no
guarantee that investment decisions made for the fund will produce the desired
results.
* GROWTH STOCKS RISK Returns on growth stocks may not move in tandem with
returns on other categories of stocks or the market as a whole. Growth stocks
may be susceptible to rapid price swings or to adverse developments in certain
sectors of the market.
* CAPITALIZATION RISK Investing in small to midsized companies creates risk
because smaller companies may have unpredictable or limited earnings, and
their securities may be less liquid or experience more volatile prices than
those of large companies.
* FOREIGN RISK Investing in the securities of non-U.S. issuers involves a
number of risks, such as fluctuations in currency values, adverse political,
social or economic developments, and differences in social and economic
developments or policies.
* EMERGING MARKETS RISK Emerging markets may have less developed or more
volatile trading markets, less developed legal and accounting systems, and
greater likelihood of government restrictions, nationalization, or
confiscation than developed countries.
* CONVERTIBLE SECURITIES RISK The value of convertible securities may be
affected by interest rates, default by the issuer on principal or interest
payments, and the value of the underlying stock into which the securities may
be converted.
* REAL ESTATE INVESTMENTS RISK The performance of investments in real estate
depends on the overall strength of the real estate market, the management of
real estate investments trusts (REITs), and property management, all of which
can be affected by a variety of factors, including national and regional
economic conditions.
* DERIVATIVES RISK Investing in derivative instruments involves risks that may
be different from or greater than the risks associated with investing directly
in securities or other traditional investments.
* CURRENCY RISK Investing in securities that trade in and receive revenues in
foreign currencies creates risk because foreign currencies may decline
relative to the U.S. dollar, resulting in a potential loss to the Fund. In
the case of hedging positions, the U.S. dollar may decline in value relative
to the currency that has been hedged.
WHO MAY WANT TO INVEST?
CONSIDER INVESTING IN THIS FUND IF YOU ARE:
* Seeking capital growth over the long-term
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
96
FUND SUMMARIES AZL[R] VAN KAMPEN MID CAP GROWTH FUND
* Not seeking current income from their investment
* Able to withstand substantial volatility in the value of their shares of the
Fund
* Wishing to add to their investment portfolio a fund that emphasizes a growth
style of investing in common stocks and other equity securities
PERFORMANCE INFORMATION
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 since its inception compare with those of a broad measure of market
performance.
Both the bar chart and the table assume reinvestment of dividends and
distributions.
The Fund's performance does not reflect the cost of insurance and separate
account charges which are imposed under your variable annuity contract or
variable life insurance policy. If they were included, performance would be
reduced. Past performance does not indicate how the Fund will perform in the
future.
PERFORMANCE BAR CHART AND TABLE
[BAR CHART GRAPHIC - 2002: -24.25%, 2003: 28,43%, 2004: 21.23%, 2005: 17.54%,
2006: 9.21%, 2007: 22.19%, 2008: -48.52%, 2009: 57.66%]
HIGHEST AND LOWEST QUARTER RETURNS (FOR PERIODS SHOWN IN THE BAR CHART)
Highest (Q2, 2009) 25.30%
Lowest (Q4, 2008) -28.50%
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR ENDED DECEMBER FIVE YEARS ENDED DECEMBER SINCE INCEPTION
31, 2009 31, 2009 (5/1/2001)
AZL Van Kampen Mid Cap Growth Fund 57.66% 4.95% 4.32%
Russell MidCap Growth Index (reflects no deduction for fees and 46.29% 2.40% 2.42%
expenses)
MANAGEMENT
Allianz Investment Management LLC serves as the investment adviser to the Fund.
Van Kampen Asset Management serves as the subadviser to the Fund.
The portfolio managers for the Fund, are: Dennis P. Lynch, since 2003, David S.
Cohen, since 2003, and Sam G. Chainani, since 2004, Managing Directors, and
Alexander T. Norton, since 2005, Jason C. Yeung, since 9/2007, and Armistead B.
Nash, since 9/2008, Executive Directors.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
97
FUND SUMMARIES AZL[R] VAN KAMPEN MID CAP GROWTH FUND
For important information about tax information and financial intermediary
compensation, please turn to the sections "Tax Information" and "Financial
Intermediary Compensation" at page 99 in this prospectus.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
98
FUND SUMMARIES TAX INFORMATION AND FINANCIAL INTERMEDIARY COMPENSATION
TAX INFORMATION
Shares of the Funds 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 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 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 Funds 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 Funds 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 Funds and related
services. When received by an insurance company, such payments may be a factor
that the insurance companies consider in including a 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.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
99
MORE ABOUT THE FUNDS OVERVIEW
MORE ABOUT THE FUNDS
OVERVIEW
The Allianz Variable Insurance Products Trust (the "VIP Trust") consists of 31
separate investment portfolios (together, the "Funds," "VIP Funds" or "Allianz
VIP Funds," and each individually, a "Fund," "VIP Fund," or "Allianz VIP Fund").
Each Fund is a diversified open-end fund and a series of the VIP Trust. Within
the scope of an investment program approved by the Board of Trustees to the VIP
Funds (the "Board" the "Trustees" or the "Board of Trustees"), the Funds are
managed by Allianz Investment Management LLC (the "Manager"), which in turn has
retained certain asset management firms (the "subadvisers") to make investment
decisions on behalf of the Funds. The Manager selected each subadviser based on
the subadviser's experience with the investment strategy for which it was
selected. The VIP Trust provides investment vehicles for variable annuity
contracts and variable life insurance policies (the "Contracts") offered by the
separate accounts of various life insurance companies affiliated with the
Manager. The separate accounts buy, and own, shares of the Funds on behalf of
Contract owners who direct purchase payments to subaccounts of the separate
accounts that invest in the Funds. Therefore, you cannot directly purchase, nor
will you directly own, shares of the Funds.
This prospectus is designed to help you make informed decisions about certain
investment options available under your Contract. You will find details about
how your Contract works in the related Contract prospectus.
This prospectus summarizes key information about the Funds, including
information regarding the investment objectives, strategies and risks and
performance and fees for all the Funds. "You" and "your" refer to both direct
shareholders (including the insurance company separate accounts that invest
assets on behalf of their contract holders) and contract holders who invest in
the Funds indirectly through the Contracts.
The Funds have the flexibility to make portfolio investments and engage in
investment techniques that differ from the strategies discussed in this
prospectus.
Unless otherwise indicated, any percentage limitation on a Fund's holdings set
forth in the summaries above is applied only when that particular type of
security is purchased.
Investors should carefully consider their investment goals and willingness to
tolerate investment risk before allocating their investment to a Fund.
Certain of the Funds may have names, investment objectives, strategies,
portfolio manager(s), and characteristics that are substantially similar to
other mutual funds managed by the subadvisers. However, the asset size,
portfolio composition, fees, and expenses of a Fund may be different from those
of any similar fund, and performance may be better or worse. No representation
is made that the Funds will perform in an equivalent manner to the similar
funds. Funds may be added or removed from the VIP Trust from time to time.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
100
MORE ABOUT THE FUNDS OVERVIEW
The following Funds have names that suggest a focus on a particular type of
investment:
AZL Columbia Mid Cap Value Fund
AZL Columbia Small Cap Value Fund
AZL Dreyfus Equity Growth Fund
AZL Eaton Vance Large Cap Value Fund
AZL Enhanced Bond Index
AZL Franklin Small Cap Value Fund
AZL Invesco International Equity Fund
AZL JPMorgan U.S. Equity Fund
AZL Mid Cap Index Fund
AZL Schroder Emerging Markets Equity Fund
AZL Small Cap Stock Index Fund
AZL Turner Quantitative Small Cap Growth Fund
AZL Van Kampen Global Real Estate Fund
AZL Van Kampen International Equity Fund
AZL Van Kampen Mid Cap Growth Fund
In accordance with Rule 35d-1 under the Investment Company Act of 1940 (the
"1940 Act"), each of these funds has adopted a policy that it will, under normal
circumstances, invest at least 80% of its assets (exclusive of collateral
received in connection with securities lending) in investments of the type
suggested by its name. For this policy, "assets" means net assets plus the
amount of any borrowings for investment purposes. In addition, in appropriate
circumstances, synthetic investments may be included in the 80% basket. A Fund's
policy to invest at least 80% of its assets in such a manner is not a
"fundamental" policy, which means that it may be changed without the vote of a
majority of a Fund's outstanding shares as defined in the 1940 Act. The name of
each of these Funds may be changed at any time by a vote of the Trustees.
However, Rule 35d-1 also requires that shareholders be given written notice at
least 60 days prior to any change by a Fund of its 80% investment policy.
THE INVESTMENT OBJECTIVE OF EACH FUND, EXCEPT THE AZL MONEY MARKET FUND, MAY BE
CHANGED BY THE TRUSTEES WITHOUT SHAREHOLDER APPROVAL.
The Allianz Variable Insurance Products Trust - Prospectus
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MORE ABOUT THE FUNDS OVERVIEW
The following chart identifies each Fund, its subadviser(s), and certain
affiliates of the subadvisers:
FUND SUBADVISER
AZL BlackRock BlackRock Capital Management, Inc. (affiliated with BlackRock Financial Management, Inc., BlackRock Institutional
Capital Management Corporation, and BlackRock Investment Management, LLC)
Appreciation
Fund
AZL Columbia Columbia Management Investment Advisers, LLC
Mid Cap Value
Fund
AZL Columbia Columbia Management Investment Advisers, LLC
Small Cap
Value Fund
AZL Davis NY Davis Selected Advisers, L.P.
Venture Fund
AZL Dreyfus The Dreyfus Corporation (affilated with the Custodian)
Equity Growth
Fund
AZL Eaton Eaton Vance Management
Vance Large
Cap Value Fund
AZL Enhanced BlackRock Financial Management, Inc. (affiliated with BlackRock Capital Management, Inc., BlackRock Institutional
Bond Index Management Corporation and BlackRock Investment Management, LLC)
Fund
AZL Franklin Franklin Advisory Services, LLC (affiliated with, Franklin Advisers, Inc., Franklin Mutual Advisers, LLC, and
Small Cap Templeton Global Advisors Limited)
Value Fund
AZL Franklin Franklin Mutual Advisers, LLC (Mutual Shares)/ Templeton Global Advisors Limited (Templeton Growth)/ Franklin
Templeton Advisers, Inc. (Franklin Income Securities and Templeton Global Bond) (affiliated with Franklin Advisory Services,
Founding LLC)
Strategy Plus
Fund
AZL Gateway Gateway Investment Advisers, LLC
Fund
AZL BlackRock Investment Management, LLC (affiliated with BlackRock Capital Management, Inc., BlackRock Financial
International Management, Inc., and BlackRock Institutional Management Corporation)
Index Fund
AZL Invesco Invesco Advisers, Inc.
International
Equity Fund
AZL JPMorgan J.P. Morgan Investment Management Inc.
U.S. Equity
Fund
AZL MFS Massachusetts Financial Services Company
Investors
Trust Fund
AZL Mid Cap BlackRock Investment Management, LLC (affiliated with BlackRock Capital Management, Inc., BlackRock Financial
Index Fund Management, Inc., and BlackRock Institutional Management Corporation)
AZL Money BlackRock Institutional Management Corporation (affiliated with BlackRock Capital Management, Inc., BlackRock
Market Fund Financial Management, Inc., and BlackRock Investment Management, LLC )
AZL NACM Nicholas-Applegate Capital Management LLC (affiliated with the Manager, Oppenheimer Capital LLC, and NFJ Investment
International Group LLC)
Growth Fund
AZL NFJ NFJ Investment Group LLC (affiliated with the Manager, Nicholas-Applegate Capital Management LLC, and Oppenheimer
International Capital LLC)
Value Fund
AZL OCC Growth Oppenheimer Capital LLC (affiliated with the Manager, Nicholas-Applegate Capital Management LLC, and NFJ Investment
Fund Group LLC)
AZL OCC Oppenheimer Capital LLC (affiliated with the Manager, Nicholas-Applegate Capital Management LLC, and NFJ Investment
Opportunity Group LLC)
Fund
AZL Russell BlackRock Investment Management, LLC (affiliated with BlackRock Capital Management, Inc., BlackRock Financial
1000 Growth Management, Inc., and BlackRock Institutional Management Corporation)
Index Fund
AZL Russell BlackRock Investment Management, LLC (affiliated with BlackRock Capital Management, Inc., BlackRock Financial
1000 Value Management, Inc., and BlackRock Institutional Management Corporation)
Index Fund
AZL S&P 500 BlackRock Investment Management, LLC (affiliated with BlackRock Capital Management, Inc., BlackRock Financial
Index Fund Management, Inc., and BlackRock Institutional Management Corporation)
AZL Schroder Schroder Investment Management North America Inc.
Emerging
Markets Equity
Fund
AZL Small Cap BlackRock Investment Management, LLC (affiliated with BlackRock Capital Management, Inc., BlackRock Financial
Stock Index Management, Inc., and BlackRock Institutional Management Corporation)
Fund
AZL Turner Turner Investment Partners, Inc.
Quantitative
Small Cap
Growth Fund
AZL Van Kampen Van Kampen Asset Management
Equity and
Income Fund
AZL Van Kampen Van Kampen Asset Management
Global Real
Estate Fund
AZL Van Kampen Van Kampen Asset Management
Growth and
Income Fund
AZL Van Kampen Van Kampen Asset Management
International
Equity Fund
AZL Van Kampen Van Kampen Asset Management
Mid Cap Growth
Fund
The Allianz Variable Insurance Products Trust - Prospectus
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MORE ABOUT THE FUNDS OVERVIEW
The following chart identifies Funds which have changed name or subadvisers
during the last year:
DATE CURRENT FUND NAME (SUBADVISER) PREVIOUS FUND NAME (SUBADVISER)
September 1, 2009 AZL Dreyfus Equity Growth Fund AZL Dreyfus Equity Growth Fund
(The Dreyfus Corporation) (Founders Asset Management LLC)
October 26, 2009 AZL Eaton Vance Large Cap Value Fund AZL Van Kampen Comstock Fund
(Eaton Vance Management) (Van Kampen Asset Management)
October 26, 2009 AZL MFS Investors Trust Fund AZL Jennison 20/20 Focus Fund
(Massachusetts Financial Services Company) (Jennison Associates LLC)
October 26, 2009 AZL S&P 500 Index Fund AZL S&P 500 Index Fund
(BlackRock Investment Management, LLC) (The Dreyfus Corporation)
October 26, 2009 AZL Small Cap Stock Index Fund AZL Small Cap Stock Index Fund
(BlackRock Investment Management, LLC) (The Dreyfus Corporation)
October 26, 2009 AZL Van Kampen International Equity Fund AZL Van Kampen Global Franchise Fund
(Van Kampen Asset Management) (Van Kampen Asset Management)
April 30, 2010 AZL Columbia Mid Cap Value Fund AZL Columbia Mid Cap Value Fund
AZL Columbia Small Cap Value Fund AZL Columbia Small Cap Value Fund
(Columbia Management Investment Advisors, LLC) (Columbia Management Advisors, LLC)
April 30, 2010 AZL Invesco International Equity Fund AZL AIM International Equity Fund
(Invesco Advisers, Inc.) (Invesco Advisers, Inc.)
At a Special Meeting of Shareholders held on October 21, 2009, shareholders of
each of the Acquired Funds in the following table approved an Agreement and
Plan of Reorganization (the "Plan") between each Acquired Fund and its
corresponding Acquiring Fund. Under the Plan, effective October 26, 2009, a
"Reorganization" was completed whereby each Acquiring Fund has acquired all of
the assets and assumed all of the liabilities of its corresponding Acquired
Fund in exchange for shares of the Acquiring Fund. Shares of each Acquiring
Fund have been distributed proportionately to the shareholders of the
corresponding Acquired Fund in complete liquidation of the Acquired Fund and
the assumption of the Acquired Fund's liabilities. As a result of the
Reorganizations, the Acquired Funds are no longer available.
Acquired Funds Acquiring Funds
AZL BlackRock Growth Fund AZL BlackRock Capital Appreciation Fund
AZL Columbia Technology Fund AZL BlackRock Capital Appreciation Fund
AZL First Trust Target Double Play Fund AZL S&P 500 Index Fund
AZL JPMorgan Large Cap Equity Fund AZL JPMorgan U.S. Equity Fund
AZL NACM International Fund AZL International Index Fund
AZL Oppenheimer Global Fund AZL Van Kampen International Equity Fund (formerly AZL Van Kampen Global Franchise
Fund)
AZL Oppenheimer International Growth Fund AZL Invesco International Equity Fund
AZL PIMCO Fundamental IndexPLUS Total Return AZL S&P 500 Index Fund
Fund
AZL Schroder International Small Cap Fund AZL International Index Fund
AZL TargetPLUS Balanced Fund AZL Balanced Index Strategy Fund (1)
AZL TargetPLUS Equity Fund AZL S&P 500 Index Fund
AZL TargetPLUS Growth Fund AZL Growth Index Strategy Fund (1)
AZL TargetPLUS Moderate Fund AZL Growth Index Strategy Fund (1)
(1) The AZL Balanced Index Strategy Fund and the AZL Growth Index Strategy Fund
are series of the Allianz Variable Insurance Products Fund of Funds Trust and
are offered by the prospectus for that Trust dated April 30, 2010.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
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MORE ABOUT THE FUNDS OVERVIEW
FUND OPERATING EXPENSE LIMITATION AGREEMENTS
The Manager and each of the following Funds have entered into a written
agreement, through April 30, 2011, limiting the operating expenses of the Fund,
excluding certain expenses (such as interest expense, acquired fund fees, cash
overdraft fees, taxes, brokerage commissions, other expenditures which are
capitalized in accordance with generally accepted accounting principles, and
other extraordinary expenses not incurred in the ordinary course of the Fund's
business), to the amount set forth below. After April 30, 2011, the Manager may
terminate the agreement for any reason on 30 days written notice to the Fund.
Each Fund is authorized to reimburse the Manager for management fees previously
waived and/or for the cost of expenses previously paid by the Manager pursuant
to this agreement, provided that such reimbursement will not cause the Fund to
exceed any limits in effect at the time of such reimbursement. The Fund's
ability to reimburse the Manager in this manner only applies to fees paid or
reimbursements made by the Manager within the three fiscal years prior to the
date of such reimbursement. To the extent that a Fund makes such reimbursements
to the Manager, the amount of the reimbursements will be reflected in the
financial statements in the Fund's shareholder reports and in Other Expenses
under Fees and Expenses of the Fund.
NAME OF FUND OPERATING EXPENSE LIMITATION (THROUGH APRIL 30, 2011)
CLASS 1 CLASS 2
BlackRock Capital Appreciation Fund N/A 1.20%
Columbia Mid Cap Value Fund N/A 1.30%
Columbia Small Cap Value Fund 1.10% 1.35%
Davis NY Venture Fund 0.95% 1.20%
Dreyfus Equity Growth Fund N/A 1.20%
Eaton Vance Large Cap Value Fund N/A 1.20%
Enhanced Bond Index Fund N/A 0.70%
Franklin Small Cap Value N/A 1.35%
Franklin Templeton Founding Strategy Fund N/A 1.20%
Gateway Fund N/A 1.25%
International Index Fund N/A 0.70%
Invesco International Equity Fund N/A 1.45%
JPMorgan U.S. Equity Fund 0.95% 1.20%
MFS Investors Trust Fund N/A 1.20%
Mid Cap Index Fund N/A 0.60%
Money Market Fund N/A 0.87%
NACM International Growth Fund N/A 1.45%
NJF International Value Fund N/A 1.45%
OCC Growth Fund N/A 1.20%
OCC Opportunity Fund N/A 1.35%
Russell 1000 Growth Fund N/A 0.84%
Russell 1000 Value Fund N/A 0.84%
Schroder Emerging Markets Equity Fund 1.40% 1.65%
S&P 500 Index Fund 0.24% 0.49%
Small Cap Stock Index Fund N/A 0.58%
Turner Quantitative Small Cap Growth Fund N/A 1.35%
VK Equity and Income Fund N/A 1.20%
VK Global Real Estate Fund N/A 1.35%
VK Growth and Income Fund N/A 1.20%
VK International Equity Fund N/A 1.39%
VK Mid Cap Growth Fund N/A 1.30%
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MORE ABOUT THE FUNDS INVESTMENT STRATEGIES
INVESTMENT STRATEGIES
TEMPORARY DEFENSIVE POSITIONS
For temporary defensive purposes or when cash is temporarily available, each of
the Funds may invest in investment grade, short term debt instruments, including
government, corporate, and money market securities. If a Fund invests
substantially in such instruments, it may not be pursuing its principal
investment strategies and may not achieve its investment objective.
FREQUENT TRADING
Each of the following Funds may engage in frequent trading in order to achieve
its investment objectives. Frequent trading may result in higher transaction
costs, which adversely affects a Fund's performance.
o AZL Dreyfus Equity Growth Fund
o AZL Eaton Vance Large Cap Value Fund
o AZL JPMorgan U.S. Equity Fund
o AZL MFS Investors Trust Fund
o AZL NACM International Growth Fund
o AZL NFJ International Value Fund
o AZL OCC Growth Fund
o AZL OCC Opportunity Fund
o AZL Schroder Emerging Markets Equity Fund
o AZL Turner Quantitative Small Cap Growth Fund
AZL FRANKLIN TEMPLETON FOUNDING STRATEGY PLUS FUND
The following briefly describes the investment goals and strategies of the four
strategies currently utilized by the Fund. The Manager may recommend additional
or different strategies for investment, without seeking the approval of
shareholders.
Mutual Shares Strategy
The investment objective of the Mutual Shares Strategy is capital appreciation,
with income as a secondary goal. Under normal market conditions, the strategy
invests primarily in equity securities, including securities convertible into,
or that the strategy's subadviser expects to be exchanged for, common or
preferred stock, of U.S. and foreign companies that the subadviser believes are
available at market prices less than their value based on certain recognized or
objective criteria (intrinsic value). Following this value-oriented strategy,
under normal market conditions, the Mutual Shares Strategy invests primarily in
undervalued securities and, to a lesser extent, in risk arbitrage securities and
distressed companies. It invests the equity portion of its portfolio primarily
in companies with market capitalization values greater than $5 billion. It also
may invest a significant amount of its assets in small capitalization companies.
While the strategy generally purchases securities for investment purposes, the
subadviser may seek to influence or control management, or invest in other
companies that do so, when the subadviser believes the strategy may benefit. The
strategy may invest significantly (up to 35%) in foreign investments, which may
include sovereign debt and participations in foreign government debt. The
strategy may attempt, from time to time, to hedge (protect) against currency
risks, largely using forward foreign currency exchange contracts when, in the
subadviser's opinion, it would be advantageous to the strategy to do so. The
strategy may also, from time to time, attempt to hedge against market risk using
a variety of derivatives. The strategy may also engage from time to time in an
"arbitrage" strategy (generally by buying one security while at the same time
selling short another security).
Templeton Growth Strategy
The investment objective of the Templeton Growth Strategy is long-term capital
growth. Under normal market conditions, the strategy invests primarily in the
equity securities of companies located anywhere in the world, including those in
the U.S. and emerging markets and in depositary receipts. It may from time to
time have significant investments in particular countries or in particular
sectors. In addition to its main investments, depending upon current market
conditions, the strategy may invest up to 25% of its total assets in debt
securities of companies and governments located anywhere in the world. In
selecting equity investments, the strategy's subadviser applies a "bottom up,"
value-oriented,
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MORE ABOUT THE FUNDS INVESTMENT STRATEGIES
long-term approach, focusing on the market price of a company's securities
relative to the subadviser's evaluation of the company's long-term earnings,
asset value, and cash flow potential. The subadviser also considers a company's
price/earnings ratio, profit margins, and liquidation value.
Franklin Income Strategy
The investment objective of the Franklin Income Strategy is to maximize income
while maintaining prospects for capital appreciation. Under normal market
conditions, the strategy invests in a diversified portfolio of debt and equity
securities. The strategy seeks income by selecting investments such as
corporate, foreign, and U.S. Treasury bonds, as well as stocks with dividend
yields the strategy's subadviser believes are attractive. In its search for
growth opportunities, the strategy maintains the flexibility to invest in common
stocks of companies from a variety of industries, such as utilities, financials,
energy, healthcare and telecommunications. The strategy may also invest in
convertible securities, including enhanced convertible securities and synthetic
convertible securities. It may invest up to 100% of its assets in debt
securities that are either rated below investment grade or, if unrated,
determined by the subadviser to be of comparable quality, either directly or
through depositary receipts, and may invest in forward currency contracts. The
strategy may invest up to 25% of its assets in foreign securities, either
directly or through depositary receipts. The strategy's subadviser searches for
undervalued or out-of-favor securities it believes offer opportunities for
income today and significant growth tomorrow.
Templeton Global Bond Strategy
The investment objective of the Templeton Global Bond Strategy is current income
with capital appreciation and growth of income. Under normal market conditions,
the strategy invests at least 80% of its net assets in debt securities of any
maturity, such as bonds, notes, bills, and debentures. In addition, the
strategy's assets will be invested in issuers located in at least three
countries, including the U.S. The strategy predominantly invests in bonds issued
by companies, government, and government agencies located anywhere in the word.
The strategy may also invest without limit in emerging markets. Although the
strategy may buy bonds rated in any category, it focuses on investment grade
bonds. These are issues rated in the top four rating categories by independent
rating agencies, such as S&P or Moody's, or, if unrated, determined by the
subadviser to be comparable. The strategy may invest up to 25% of its total
assets in bonds that are rated below investment grade. For purposes of pursuing
its investment objective, the strategy may enter into currency-related
transactions involving certain derivative instruments , including currency and
cross currency forwards, options on currencies (as purchaser of such options),
currency and currency index futures contracts. The strategy may also enter into
various other transactions involving derivatives, including financial and index
futures contracts (such as interest rate or bond futures) and options on such
contracts, swap agreements (which may include interest rate and credit default
swaps). The strategy may use any of the foregoing currency techniques or other
derivative transactions for the purposes of enhancing strategy returns,
increasing liquidity, gaining exposure to particular instruments in more
efficient or less expensive ways and/or hedging risks relating to changes in
interest rates and other market factors.
AZL GATEWAY FUND
The following is additional information regarding the Fund's investment
strategies.
Writing index call options reduces the Fund's volatility, provides a steady cash
flow and is an important source of the Fund's return, although it also reduces
the Fund's ability to profit from increases in the value of its equity
portfolio. The value of an index put option generally increases as the prices of
stocks constituting the index decrease and decreases as those stocks increase in
price.
Because the Fund writes index call options and purchases index put options in
addition to investing in equity securities, the Fund's volatility is expected to
be closer to intermediate- to long-term fixed income investments (intermediate-
term are those with approximately five-year maturities and long-term are those
with maturities of ten or more years) and hybrid investments (blends of equity
and short-term fixed income securities) than to equity investments.
The Fund seeks to provide an efficient trade-off between risk and reward where
risk is characterized by volatility or fluctuations in value over time.
Purchasing Stocks
The Fund invests in a diversified stock portfolio, generally consisting of
approximately 200 to 400 stocks, designed to support the Fund's index option-
based risk management strategy as efficiently as possible while seeking to
enhance the
The Allianz Variable Insurance Products Trust - Prospectus
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MORE ABOUT THE FUNDS INVESTMENT STRATEGIES
Fund's total return. The subadviser uses a multi-factor quantitative model to
construct the stock portfolio. The model evaluates approximately 9,000 equity
securities to construct a portfolio of U.S.-exchange-traded equities that meets
criteria and constraints established by the subadviser. Generally, the
subadviser tries to minimize the difference between the performance of the stock
portfolio and that of the index or indexes underlying the Fund's option
strategies while also considering other factors, such as predicted dividend
yield. The subadviser monitors this difference and the other factors, and
rebalances and adjusts the stock portfolio from time to time, by purchasing and
selling stocks. The subadviser expects the portfolio to generally represent the
broad U.S. equity market.
Writing Index Call Options
The Fund continuously writes index call options, typically on broad-based
securities market indices, on the full value of its broadly diversified stock
portfolio. As the seller of the index call option, the Fund receives cash (the
"premium") from the purchaser. The purchaser of an index call option has the
right to any appreciation in the value of the index over a fixed price (the
"exercise price") on a certain date in the future (the "expiration date"). If
the purchaser does not exercise the option, the Fund retains the premium. If the
purchaser exercises the option, the Fund pays the purchaser the difference
between the value of the index and the exercise price of the option. The
premium, the exercise price and the value of the index determine the gain or
loss realized by the Fund as the seller of the index call option. The Fund can
also repurchase the call option prior to the expiration date, ending its
obligation. In this case, the difference between the cost of repurchasing the
option and the premium received will determine the gain or loss realized by the
Fund.
Purchasing Index Put Options
The Fund may buy index put options in an attempt to protect the Fund from a
significant market decline that may occur over a short period of time. The value
of an index put option generally increases as stock prices (and the value of the
index) decrease and decreases as those stocks (and the index) increase in price.
The Fund may not spend at any time more than 5% of its assets to purchase index
put options.
Other Investments
The Fund may invest in foreign securities traded in U.S. markets (through ADRs
or stocks traded in U.S. dollars). The Fund may also invest in other investment
companies, including money market funds, to the extent permitted by the 1940
Act. The Fund may enter into repurchase agreements and/or hold cash and cash
equivalents.
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MORE ABOUT THE FUNDS INVESTMENT RISKS
INVESTMENT RISKS
The following provides additional information regarding the principal risks of
investing in the Funds:
CALL RISK
* AZL If interest rates fall, it is possible that issuers of callable securities held by the Fund will call or prepay their
Enhanced securities before their maturity dates. In this event, the proceeds from the called securities would most likely be
Bond reinvested by the Fund in securities bearing the new, lower interest rates, resulting in a possible decline in the
Index Fund's income and distributions to shareholders and termination of any conversion option on convertible securities.
Fund
* AZL Van
Kampen
Equity
and
Income
Fund
CAPITALIZATION RISK
* AZL BlackRock To the extent the Fund invests significantly in small and/or mid-capitalization companies, it may have
Capital capitalization risk. These companies may present additional risk because they have less predictable earnings or no
Appreciation earnings, more volatile share prices and less liquid securities than large capitalization companies. These
Fund securities may fluctuate in value more than those of larger, more established companies and, as a group, may suffer
* AZL Columbia more severe price declines during periods of generally declining stock prices. The shares of smaller companies tend
Mid Cap Value to trade less frequently than those of larger, more established companies, which can adversely affect the price of
Fund smaller companies' securities and the Fund's ability to sell them when the portfolio manager deems it appropriate.
* AZL Columbia These companies may have limited product lines, markets, or financial resources, or may depend on a limited
Small Cap management group. The value of some of the Fund's investments will rise and fall based on investor perception
Value Fund rather than economic factors.
* AZL Franklin
Small Cap
Value Fund
* AZL Franklin
Templeton
Founding
Strategy Plus
Fund
* AZL JPMorgan
U.S. Equity
Fund
* AZL Mid Cap
Index Fund
* AZL NACM
International
Growth Fund
* AZL NFJ
International
Value Fund
* AZL OCC
Opportunity
Fund
* AZL Schroder
Emerging
Markets Equity
Fund
* AZL Small Cap
Stock Index
Fund
* AZL Turner
Quantitative
Small Cap
Growth Fund
* AZL Van Kampen
Growth and
Income Fund
* AZL Van Kampen
Mid Cap Growth
Fund
CONVERTIBLE SECURITIES RISK
* AZL BlackRock The values of the convertible securities in which the Fund may invest also will be affected by market interest
Capital rates, the risk that the issuer may default on interest or principal payments and the value of the underlying
Appreciation common stock into which these securities may be converted. Specifically, since these types of convertible
Fund securities pay fixed interest and dividends, their values may fall if market interest rates rise, and rise if
* AZL Eaton market interest rates fall. Additionally, an issuer may have the right to buy back certain of the convertible
Vance Large securities at a time and at a price that is unfavorable to the Fund.
Cap Value Fund
* AZL Franklin
Templeton
Founding
Strategy Plus
Fund
* AZL Invesco
International
Equity Fund
* AZL OCC Growth
Fund
* AZL OCC
Opportunity
Fund
* AZL Schroder
Emerging
Markets Equity
Fund
* AZL Van Kampen
Equity and
Income Fund
* AZL Van Kampen
Mid Cap Growth
Fund
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108
MORE ABOUT THE FUNDS INVESTMENT RISKS
CORRELATION RISK
* AZL The effectiveness of the Fund's index option-based risk management strategy may be reduced if the Fund's equity portfolio
Gateway does not correlate to the index underlying its option positions.
Fund
COUNTRY/ REGIONAL RISK
* AZL Van Kampen Local events, such as political upheaval, financial troubles, or natural disasters, may weaken a country's or a
International region's securities markets. Because the Fund may invest a large portion of its assets in securities of companies
Equity Fund located in any one country or region, its performance may be hurt disproportionately by the poor performance of its
investments in that area. Country/regional risk is especially high in emerging markets.
CREDIT RISK
* AZL BlackRock Credit risk is the chance that the issuer of a debt security will fail to repay interest and principal in a timely
Capital manner, reducing the Fund's return. Also, an issuer may suffer adverse changes in financial condition that could
Appreciation lower the credit quality and liquidity of a security, leading to greater volatility in the price of the security
Fund and the Fund's shares.
* AZL Eaton
Vance Large
Cap Value Fund
* AZL Enhanced
Bond Index
Fund
* AZL Franklin
Templeton
Founding
Strategy Plus
Fund
* AZL NFJ
International
Value Fund
* AZL OCC Growth
Fund
* AZL OCC
Opportunity
Fund
* AZL Van Kampen
Equity and
Income Fund
* AZL Van Kampen
Growth and
Income Fund
* AZL Money Although credit risk is low because the Fund invests only in high quality obligations, if an issuer fails to pay
Market Fund interest or repay principal, the value of the Fund's assets could decline.
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MORE ABOUT THE FUNDS INVESTMENT RISKS
CURRENCY RISK
* AZL Davis NY Funds that invest in securities that trade in, and receive revenues in, foreign currencies are subject to the risk
Venture Fund that those currencies will decline in value relative to the U.S. dollar, or, in the case of hedging positions, that
* AZL Dreyfus the U.S. dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries
Equity Growth may fluctuate significantly over short periods of time for a number of reasons, including changes in interest
Fund rates, intervention (or failure to intervene) by the U.S. or foreign governments, central banks, or supranational
* AZL Eaton authorities, such as the International Monetary Fund, or by the imposition of currency controls or other political
Vance Large developments in the U.S. or abroad. As a result, the Fund's investments with exposure to foreign currency
Cap Value Fund fluctuations may decline in value (in terms of the U.S. dollar) and reduce the returns of the Fund.
* AZL Franklin
Small Cap
Value Fund
* AZL Franklin
Templeton
Founding
Strategy Plus
Fund
* AZL
International
Index Fund
* AZL Invesco
International
Equity Fund
* AZL MFS
Investors
Trust Fund
* AZL NACM
International
Growth Fund
* AZL NFJ
International
Value Fund
* AZL OCC Growth
Fund
* AZL OCC
Opportunity
Fund
* AZL Schroder
Emerging
Markets Equity
Fund
* AZL Van Kampen
Equity and
Income Fund
* AZL Van Kampen
Global Real
Estate Fund
* AZL Van Kampen
Growth and
Income Fund
* AZL Van Kampen
International
Equity Fund
* AZL Van Kampen
Mid Cap Growth
Fund
DERIVATIVES RISK
* AZL BlackRock The Funds listed may invest in derivatives. A derivative is a financial contract whose value depends on, or is
Capital derived from, the value of an underlying asset, reference rate, or risk. Funds typically use derivatives as a
Appreciation substitute for taking a position in the underlying asset and/or as part of a strategy designed to reduce exposure
Fund to other risks, such as interest rate or currency risk. Funds may also use derivatives for leverage, in which case
* AZL Dreyfus their use would involve leveraging risk. Use of derivative instruments involves risks different from, or possibly
Equity Growth greater than, the risks associated with investing directly in securities and other traditional investments.
Fund Derivatives are subject to a number of other risks, such as liquidity risk, interest rate risk, market risk, credit
* AZL Eaton risk, and selection risk. Derivatives also involve the risk of mispricing or improper valuation and the risk that
Vance Large changes in the value may not correlate perfectly with the underlying asset, rate, or index. Using derivatives may
Cap Value Fund result in losses, possibly in excess of the principal amount invested. Also, suitable derivative transactions may
* AZL Enhanced not be available in all circumstances. The counterparty to a derivatives contract could default. As required by
Bond Index applicable law, any Fund that invests derivatives segregates cash or liquid securities, or both, to the extent that
Fund its obligations under the instrument (for example, forward contracts and futures that are required to "cash
* AZL Franklin settle") are not covered through ownership of the underlying security, financial instrument, or currency. For more
Templeton information, see "Additional Information on Portfolio Instruments and Investment Policies - Derivative Instruments"
Founding in the Funds' Statement of Additional Information.
Strategy Plus
Fund
* AZL
International
Index Fund
* AZL JPMorgan
U.S. Equity
Fund
* AZL MFS
Investors
Trust Fund
* AZL Mid Cap
Index Fund
* AZL NACM
International
Growth Fund
* AZL NFJ
International
Value Fund
* AZL OCC Growth
Fund
* AZL OCC
Opportunity
Fund
* AZL Russell
1000 Growth
Index Fund
* AZL Russell
1000 Value
Index Fund
* AZL S&P 500
Index Fund
* AZL Schroder
Emerging
Markets Equity
Fund
* AZL Small Cap
Stock Index
Fund
* AZL Van Kampen
Equity and
Income Fund
* AZL Van Kampen
Growth and
Income Fund
* AZL Van Kampen
International
Equity Fund
* AZL Van Kampen
Mid Cap Growth
Fund
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MORE ABOUT THE FUNDS INVESTMENT RISKS
DIVIDEND RISK
* AZL There is no guarantee that the issuers of the stocks held by the Fund will declare dividends in the future or that if
Dreyfus declared, they will either remain at current levels or increase over time.
Equity
Growth
Fund
* AZL
Eaton
Vance
Large
Cap
Value
Fund
EMERGING MARKETS RISK
* AZL Davis NY In addition to the risks described under "Foreign Risk", issuers in emerging markets may present greater risk than
Venture Fund investing in foreign issuers generally. Emerging markets may have less developed trading markets and exchanges
* AZL Eaton which may make it more difficult to sell securities at an acceptable price and their prices may be more volatile
Vance Large than securities of companies in more developed markets. Settlements of trades may be subject to greater delays so
Cap Value Fund that the Fund may not receive the proceeds of a sale of a security on a timely basis. Emerging countries may also
* AZL Franklin have less developed legal and accounting systems and investments may be subject to greater risks of government
Small Cap restrictions, nationalization, or confiscation.
Value Fund
* AZL Franklin
Templeton
Founding
Strategy Plus
Fund
* AZL Invesco
International
Equity Fund
* AZL NACM
International
Growth Fund
* AZL NFJ
International
Value Fund
* AZL Van Kampen
Equity and
Income Fund
* AZL Van Kampen
Global Real
Estate Fund
* AZL Van Kampen
Growth and
Income Fund
* AZL Van Kampen
International
Equity Fund
* AZL Van Kampen
Mid Cap Growth
Fund
* AZL Schroder Emerging markets may have less developed trading markets and exchanges. Emerging countries may have less developed
Emerging legal and accounting systems and investments may be subject to greater risks of government restrictions of
Markets Equity withdrawing the sales proceeds of securities from the country. Economies of developing countries may be more
Fund dependent on relatively few industries that may be highly vulnerable to local and global changes. Governments may
be more unstable and present greater risks of nationalization or restrictions on foreign ownership of stocks of
local companies. These investments may be substantially more volatile than stocks of issuers in the U.S. and other
developed countries and may be very speculative.
ETF AND INVESTMENT COMPANY RISK
* AZL The Fund may invest in ETFs or shares of open-end or closed-end investment companies, including single country funds.
JPMorgan Investing in another investment company exposes the Fund to all the risks of that investment company and, in general,
U.S. subjects it to a pro rata portion of the other investment company's fees and expenses.
Equity
Fund
* AZL
Schroder
Emerging
Markets
Equity
Fund
EXTENSION RISK
* AZL When interest rates rise, certain bond obligations will be paid in full by the issuer more slowly than anticipated,
Enhanced cause the value of the securities to fall.
Bond
Index
Fund
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MORE ABOUT THE FUNDS INVESTMENT RISKS
FOCUSED INVESTMENT RISK
* AZL NFJ Focusing investments in a small number of issuers, industries, or regions increases risk. Funds that invest in a
International relatively small number of issuers may have more risk because changes in the value of a single security or the
Value Fund impact of a single economic, political, or regulatory occurrence may have a greater impact on the Fund's net asset
* AZL OCC Growth value. Some of those issuers also may present substantial credit or other risks. The Fund may from time to time
Fund have greater risk if it invests a substantial portion of its assets in companies in related industries, such as
technology or financial and business services, that may share common characteristics and are often subject to
similar business risks and regulatory burdens. The securities of companies in similar industries may react
similarly to economic, market, political, or other developments.
FOREIGN RISK
* AZL Columbia Because the Fund invests in securities of foreign issuers, it may be subject to risks not usually associated with
Mid Cap Value owning securities of U.S. issuers. These risks include, among others, adverse fluctuations in foreign currency
Fund values as well as adverse political, social and economic developments affecting a foreign country, including the
* AZL Columbia risk of nationalization, expropriation or confiscatory taxation. In addition, foreign investing involves less
Small Cap publicly available information, and more volatile or less liquid securities markets. Investments in foreign
Value Fund countries could be affected by factors not present in the U.S., such as restrictions on receiving the investment
* AZL Davis NY proceeds from a foreign country, confiscatory foreign tax laws, and potential difficulties in enforcing contractual
Venture Fund obligations. Transactions in foreign securities may be subject to less efficient settlement practices, including
* AZL Dreyfus extended clearance and settlement periods. Foreign accounting may be less revealing than U.S. accounting practices.
Equity Growth Foreign regulation may be inadequate or irregular. Owning foreign securities could cause the Fund's performance to
Fund fluctuate more than if it held only U.S. securities.
* AZL Eaton
Vance Large
Cap Value Fund
* AZL Enhanced
Bond Index
Fund
* AZL Franklin
Small Cap
Value Fund
* AZL Franklin
Templeton
Founding
Strategy Plus
Fund
* AZL Gateway
Fund
* AZL
International
Index Fund
* AZL Invesco
International
Equity Fund
* AZL JPMorgan
U.S. Equity
Fund
* AZL MFS
Investors
Trust Fund
* AZL NACM
International
Growth Fund
* AZL NFJ
International
Value Fund
* AZL OCC Growth
Fund
* AZL OCC
Opportunity
Fund
* AZL Schroder
Emerging
Markets Equity
Fund
* AZL Turner
Quantitative
Small Cap
Growth Fund
* AZL Van Kampen
Equity and
Income Fund
* AZL Van Kampen
Global Real
Estate Fund
* AZL Van Kampen
Growth and
Income Fund
* AZL Van Kampen
International
Equity Fund
* AZL Van Kampen
Mid Cap Growth
Fund
* AZL Money The Fund may invest in obligations of foreign banks and other foreign issuers that involve certain risks in
Market Fund addition to those of domestic issuers, including higher transaction costs, less complete financial information,
political and economic instability, less stringent regulatory requirements and less market liquidity.
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MORE ABOUT THE FUNDS INVESTMENT RISKS
GROWTH STOCKS RISK
* AZL BlackRock The returns on growth stocks may or may not move in tandem with the returns on other categories of stocks, or the
Capital stock market as a whole. Growth stocks may be particularly susceptible to rapid price swings during periods of
Appreciation economic uncertainty or in the event of earnings disappointments. Further, growth stocks typically have little or
Fund no dividend income to cushion the effect of adverse market conditions. To the extent a growth style of investing
* AZL Dreyfus emphasizes certain sectors of the market, such investments will be more sensitive to market, political, regulatory
Equity Growth and economic factors affecting those sectors.
Fund
* AZL Invesco
International
Equity Fund
* AZL MFS
Investors
Trust Fund
* AZL OCC Growth
Fund
* AZL OCC
Opportunity
Fund
* AZL Russell
1000 Growth
Index Fund
* AZL Turner
Quantitative
Small Cap
Growth Fund
* AZL Van Kampen
Mid Cap Growth
Fund
HEADLINE RISK
* AZL The subadviser seeks to acquire companies with expanding earnings at value prices. They may make such investments when a
Davis NY company becomes the center of controversy after receiving adverse media attention. The company may be involved in
Venture litigation, the company's financial reports or corporate governance may be challenged, the company's annual report may
Fund disclose a weakness in internal controls, investors may question the company's published financial reports, greater
government regulation may be contemplated, or other adverse events may threaten the company's future. While the
subadviser researches companies subject to such contingencies, it cannot be correct every time, and the company's stock
may never recover.
INCOME RISK
* AZL Franklin Income risk is the chance that falling interest rates will cause the Fund's income to decline. Income risk is
Templeton generally higher for short-term bonds.
Founding
Strategy Plus
Fund
* AZL Money
Market Fund
* AZL Van Kampen
Equity and
Income Fund
INDEX FUND RISK
* AZL Enhanced The Fund uses an indexing strategy. It does not attempt to manage market volatility, use defensive strategies, or
Bond Index reduce the effects of any long-term periods of poor stock performance. The correlation between the performance of
Fund the Fund and the performance of the index may be affected by the Fund's expenses, changes in securities markets,
* AZL selection of certain securities for the portfolio to represent the index, changes in the composition of the index,
International and the timing of purchases and redemptions of Fund shares.
Index Fund
* AZL Mid Cap
Index Fund
* AZL Russell
1000 Growth
Index Fund
* AZL Russell
1000 Value
Index Fund
* AZL S&P 500
Index Fund
* AZL Small Cap
Stock Index
Fund
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MORE ABOUT THE FUNDS INVESTMENT RISKS
INDUSTRY SECTOR RISK
* AZL OCC The value of the Fund's shares is particularly vulnerable to risks affecting technology companies and/or companies
Opportunity having investments in technology. The technology sector historically has had greater stock price fluctuation as
Fund compared to the general market. By focusing on the technology sector of the stock market rather than a broad
spectrum of companies, the Fund's share price will be particularly sensitive to market and economic events that
affect those technology companies. The stock prices of technology companies during the past few years have been
highly volatile, largely due to the rapid pace of product change and development within this sector. This
phenomenon may also result in future stock price volatility. In addition, technologies that are dependent on
consumer demand may be more sensitive to changes in consumer spending patterns. Technology companies focusing on
the information and telecommunications sectors may also be subject to international, federal and state regulations
and may be adversely affected by changes in those regulations.
* AZL Davis NY At times, the Fund may invest a significant portion of its assets in the securities of companies involved in the
Venture Fund financial services sector. By focusing on a particular sector from time to time, the Fund carries greater risk of
* AZL Franklin adverse developments in a sector than a fund that always invests in a wide variety of sectors. Financial services
Small Cap companies are subject to extensive government regulation, which may affect their profitability in many ways,
Value Fund including by limiting the amount and types of loans and other commitments they can make, and the interest rates and
* AZL Van Kampen fees they can charge. A financial services company's profitability, and therefore its stock price is especially
Equity and sensitive to interest rate changes throughout the world, as well as the ability of borrowers to repay their loans.
Income Fund Changing regulations, continuing consolidations, and development of new products and structures are all likely to
have a significant impact on financial services companies.
* AZL Columbia At times, the Fund may increase the relative emphasis of its investments in a particular industry. Stocks of
Small Cap issuers in a particular industry are subject to changes in economic conditions, government regulations,
Value Fund availability of basic resources or supplies, or other events that affect that industry more than others. To the
* AZL Dreyfus extent that the Fund has greater emphasis on investments in a particular industry, its share values may fluctuate
Equity Growth in response to events affecting that industry.
Fund
* AZL Franklin
Templeton
Founding
Strategy Plus
Fund
* AZL Van Kampen
International
Equity Fund
* AZL Money Because of its concentration in the financial services industry, the fund will be exposed to a large extent to the
Market Fund risks associated with that industry, such as government regulation, the availability and cost of capital funds,
consolidation and general economic conditions. Financial services companies are also exposed to losses if borrowers
and other counter-parties experience financial problems and/or cannot repay their obligations.
The Allianz Variable Insurance Products Trust - Prospectus
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114
MORE ABOUT THE FUNDS INVESTMENT RISKS
INITIAL PUBLIC OFFERINGS RISK
* AZL OCC The Fund may invest in initial public offerings (IPOs). By definition, securities issued in IPOs have not traded
Opportunity publicly until the time of their offerings. There may be only a limited number of shares available for trading, the
Fund market for those securities may be unseasoned, and the issuer may have a limited operating history. These factors
* AZL Schroder may contribute to price volatility. The limited number of shares available for trading in some IPOs may also make it
Emerging more difficult for the Fund to buy or sell significant amounts of shares without an unfavorable impact on prevailing
Markets prices. In addition, some companies initially offering their shares publicly are involved in relatively new
Equity Fund industries or lines of business, which may not be widely understood by investors. Some of the companies involved in
* AZL Turner new industries may be regarded as developmental stage companies, without revenues or operating income, or the near-
Quantitative term prospects of them. Many IPOs are by small- or micro-cap companies that are undercapitalized.
Small Cap
Growth Fund
INTEREST RATE RISK
* AZL BlackRock Interest rate risk is the chance that the value of the bonds the Fund holds will decline due to rising interest
Capital rates. When interest rates rise, the price of most bonds goes down. The price of a bond is also affected by its
Appreciation maturity. Bonds with longer maturities generally have greater sensitivity to changes in interest rates.
Fund
* AZL Eaton
Vance Large
Cap Value Fund
* AZL Invesco
International
Equity Fund
* AZL Van Kampen
Growth and
Income Fund
* AZL Money This is the risk that changes in nominal interest rates, which consist of a real interest rate and the expected
Market Fund rate of inflation, will affect the value of the Fund's investments in income-producing or debt securities. Although
the value of money market investments is less sensitive to interest rate risk than longer-term securities,
increases in nominal interest rates may cause the value of the Fund's investments to decline.
* AZL Enhanced As nominal interest rates rise, the value of fixed income securities held by a Fund is likely to decrease.
Bond Index Securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more
Fund volatile than securities with shorter durations. A nominal interest rate can be described as the sum of a real
* AZL Franklin interest rate and an expected inflation rate. Inflation-indexed securities, including Treasury Inflation-Protected
Templeton Securities ("TIPS"), decline in value when real interest rates rise. In certain interest rate environments, such as
Founding when real interest rates are rising faster than nominal interest rates, inflation-indexed securities may experience
Strategy Plus greater losses than other fixed income securities with similar durations.
Fund
ISSUER RISK
The value of a security may decline for a number of reasons that directly relate to the issuer, such as management
* All performance, financial leverage, and reduced demand for the issuer's products or services.
of
the
Funds
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
115
MORE ABOUT THE FUNDS INVESTMENT RISKS
LEVERAGING RISK
* AZL BlackRock Certain transactions may give rise to a form of leverage. Such transactions may include, among others, reverse
Capital repurchase agreements, loans of portfolio securities, and the use of when-issued, delayed delivery, or forward
Appreciation commitment transaction. The use of derivatives may also create leveraging risk. To mitigate leveraging risk, the
Fund Fund will segregate or "earmark" liquid assets or otherwise cover transactions that may give rise to such risk. The
* AZL Eaton use of leverage may cause a Fund to liquidate portfolio positions when it may not be advantageous to do so to
Vance Large satisfy its obligations or to meet segregation requirements. In addition, leverage, including borrowing, may
Cap Value Fund exaggerate the effect of any increase or decrease in the value of a Fund's portfolio securities.
* AZL MFS
Investors
Trust Fund
* AZL NFJ
International
Value Fund
* AZL OCC Growth
Fund
LIQUIDITY RISK
* AZL Eaton Liquidity risk exists when particular investments are difficult to purchase or sell. Investments in illiquid
Vance Large securities may reduce the returns of the Fund because it may be unable to sell the illiquid securities at an
Cap Value Fund advantageous time or price. Restricted securities may be subject to liquidity risk because they may have terms that
* AZL Enhanced limit their resale to other investors or may require registration under applicable securities laws before they may
Bond Index be sold publicly. Funds with principal investment strategies that involve restricted securities, foreign
Fund securities, derivatives, companies with small market capitalization or securities with substantial market and/or
* AZL Franklin credit risk tend to have the greatest exposure to liquidity risk.
Small Cap
Value Fund
* AZL Franklin
Templeton
Founding
Strategy Plus
Fund
* AZL MFS
Investors
Trust Fund
* AZL NFJ
International
Value Fund
* AZL OCC Growth
Fund
* AZL OCC
Opportunity
Fund
* AZL Schroder
Emerging
Markets Equity
Fund
* AZL Money The Fund may purchase variable and floating rate instruments. The absence of an active market for these securities
Market Fund could make it difficult for the Fund to dispose of them if the issuer defaults.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
116
MORE ABOUT THE FUNDS INVESTMENT RISKS
MARKET RISK
* All The market price of securities owned by the Fund may go up or down, sometimes rapidly and unpredictably. Securities may
of decline in value due to factors affecting securities markets generally or particular industries represented in the
the securities markets. The value of a security may decline due to general market conditions that are not specifically related
Funds 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 Fund's portfolio may fluctuate to a greater or lesser degree than fluctuations of the
general stock market. For those Funds that invest in stocks of foreign companies, the value of the 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.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
117
MORE ABOUT THE FUNDS INVESTMENT RISKS
MORTGAGE-RELATED AND OTHER ASSET-BACKED RISK
* AZL The Fund may invest in a variety of mortgage-related and other asset-backed securities, which are subject to certain
Enhanced additional risks. Generally, rising interest rates tend to extend the duration of fixed rate mortgage-related
Bond securities, making them more sensitive to changes in interest rates. As a result, in a period of rising interest rates,
Index a Fund that holds mortgage-related securities may exhibit additional volatility. This is known as extension risk. In
Fund addition, adjustable and fixed rate mortgage-related securities are subject to call risk. When interest rates decline,
* AZL Van borrowers may pay off their mortgages sooner than expected. This can reduce the returns of a Fund because the Fund will
Kampen have to reinvest that money at the lower prevailing interest rates. If a Fund purchases mortgage-backed or asset-backed
Equity securities that are subordinated to other interests in the same mortgage pool, the Fund may receive payments only after
and the pool's obligations to other investors have been satisfied. An unexpectedly high rate of defaults on the mortgages
Income held by a mortgage pool may limit substantially the pool's ability to make payments of principal or interest to the Fund
Fund as a holder of such subordinated securities, reducing the values of those securities or in some cases rendering them
worthless. The risk of such defaults is generally higher in the case of mortgage pools that include so-called "subprime"
mortgages. An unexpectedly high or low rate of prepayments on a pool's underlying mortgages may have a similar effect on
subordinated securities. A mortgage pool may issue securities subject to various levels of subordination. The risk of
non-payment affects securities at each level, although the risk is greater in the case of more highly subordinated
securities. A Fund's investments in other asset-backed securities are subject to risks similar to those associated with
mortgage-related securities, as well as additional risks associated with the nature of the assets and the servicing of
those assets.
OPTIONS RISK
* AZL The value of the Fund's positions in index options fluctuates in response to changes in the value of the underlying
Gateway index. Writing index call options reduces the risk of owning stocks, but it limits the opportunity to profit from an
Fund increase in the market value of stocks in exchange for up-front cash at the time of selling the call option. The Fund
also risks losing all or part of the cash paid for purchasing index put options. Unusual market conditions or the lack of
a ready market for any particular option at a specific time may reduce the effectiveness of the Fund's option strategies,
and for these and other reasons the Fund's option strategies may not reduce the Fund's volatility to the extent desired.
From time to time, the Fund may reduce its holdings of put options, resulting in an increased exposure to a market
decline.
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- April 30, 2010
118
MORE ABOUT THE FUNDS INVESTMENT RISKS
PORTFOLIO TURNOVER
* AZL Dreyfus The Fund may actively and frequently trade its portfolio securities or may turn over a significant portion of its
Equity Growth portfolio securities in a single year. High portfolio turnover (100% or more) results in higher transaction costs
Fund and can adversely affect the Fund's performance.
* AZL Eaton
Vance Large
Cap Value Fund
* AZL JPMorgan
U.S. Equity
Fund
* AZL MFS
Investors
Trust Fund
* AZL NACM
International
Growth Fund
* AZL NFJ
International
Value Fund
* AZL OCC Growth
Fund
* AZL OCC
Opportunity
Fund
* AZL Schroder
Emerging
Markets Equity
Fund
* AZL Turner
Quantitative
Small Cap
Growth Fund
REAL ESTATE INVESTMENTS RISK
* AZL The performance of real estate investments (REITs) depends on the strength of real estate markets, REIT management and
Columbia property management which can be affected by many factors, including national and regional economic conditions.
Mid Cap
Value
Fund
* AZL Eaton
Vance
Large Cap
Value
Fund
* AZL
Gateway
Fund
* AZL
JPMorgan
U.S.
Equity
Fund
* AZL OCC
Growth
Fund
* AZL
Russell
1000
Growth
Index
Fund
* AZL
Russell
1000
Value
Index
Fund
* AZL S&P
500 Index
Fund
* AZL Van
Kampen
Equity
and
Income
Fund
* AZL Van
Kampen
Growth
and
Income
Fund
* AZL Van
Kampen
Mid Cap
Growth
Fund
* AZL Van Because of the Fund's policy of concentrating its investments in securities of companies operating in the real estate
Kampen industry, the Fund is more susceptible to the risks of investing in real estate directly. Real estate is a cyclical
Global Real business, highly sensitive to general and local economic developments and characterized by intense competition and
Estate Fund periodic overbuilding. Real estate income and values may also be greatly affected by demographic trends, such as
population shifts or changing tastes and values. Government actions, such as tax increases, zoning law changes or
environmental regulations, may also have a major impact on real estate. Changing interest rates and credit quality
requirements will also affect the cash flow of real estate companies and their ability to meet capital needs. Investing
in companies operating in the real estate industry also exposes investors to the way in which these real estate
companies are organized and operated. In addition to investing directly in real estate, these companies may engage
directly in real estate management or development activities. Operating these companies requires specialized management
skills and the Fund indirectly bears the management expenses of these companies along with the direct expenses of the
Fund. Individual real estate companies may own a limited number of properties and may concentrate in a particular region
or property type.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
119
MORE ABOUT THE FUNDS INVESTMENT RISKS
SECURITY QUALITY RISK (ALSO KNOWN AS "HIGH YIELD RISK")
* AZL Eaton The Fund may invest in high yield, high risk debt securities and unrated securities of similar credit quality
Vance (commonly known as "junk bonds") may be subject to greater levels of credit and liquidity risk than funds that do not
Large Cap invest in such securities. These securities are considered predominately speculative with respect to the issuer's
Value Fund continuing ability to make principal and interest payments. An economic downturn or period of rising interest rates
* AZL could adversely affect the market for these securities and reduce the Fund's ability to sell these securities
Franklin (liquidity risk). If the issuer of a security is in default with respect to interest or principal payments, the Fund
Templeton may lose the value of its entire investment.
Founding
Strategy
Plus Fund
SELECTION RISK
* AZL BlackRock The Fund is an actively managed investment portfolio. The portfolio manager(s) make investment decisions for the
Capital Fund's assets. The investment approach of some Funds emphasizes buying and holding securities, even through adverse
Appreciation markets, while the investment approach of other Funds emphasizes frequent trading in order to take advantage of
Fund short-term market movements. However, there can be no guarantee they will produce the desired results and poor
* AZL Columbia security selection may cause the Fund to underperform its benchmark index or other funds with similar investment
Mid Cap Value objectives.
Fund
* AZL Columbia
Small Cap
Value Fund
* AZL Davis NY
Venture Fund
* AZL Dreyfus
Equity Growth
Fund
* AZL Eaton
Vance Large
Cap Value Fund
* AZL Franklin
Small Cap
Value Fund
* AZL Franklin
Templeton
Founding
Strategy Plus
Fund
* AZL Gateway
Fund
* AZL Invesco
International
Equity Fund
* AZL JPMorgan
U.S. Equity
Fund
* AZL MFS
Investors
Trust Fund
* AZL NACM
International
Growth Fund
* AZL NFJ
International
Value Fund
* AZL OCC Growth
Fund
* AZL OCC
Opportunity
Fund
* AZL Schroder
Emerging
Markets Equity
Fund
* AZL Turner
Quantitative
Small Cap
Growth Fund
* AZL Van Kampen
Equity and
Income Fund
* AZL Van Kampen
Global Real
Estate Fund
* AZL Van Kampen
Growth and
Income Fund
* AZL Van Kampen
International
Equity Fund
* AZL Van Kampen
Mid Cap Growth
Fund
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
120
MORE ABOUT THE FUNDS INVESTMENT RISKS
SPECIAL SITUATIONS RISK
* AZL Periodically, the Fund might use aggressive investment techniques. These might include seeking to benefit from what the
Franklin subadviser perceives to be "special situations", such as mergers, reorganizations, restructurings or other unusual
Templeton events expected to affect a particular issuer. However, there is a risk that the change or event might not occur, which
Founding could have a negative impact on the price of the issuer's securities. The Fund's investment might not produce the
Strategy expected gains or could incur a loss for the portfolio.
Plus Fund
VALUE STOCKS RISK
The value style of investing emphasizes stocks of undervalued companies whose characteristics may lead to improved
* AZL Columbia valuations. These stocks may remain undervalued because value stocks, as a category, may lose favor with investors
Mid Cap Value compared to other categories of stocks or because the valuations of these stocks do not improve in response to
Fund changing market or economic conditions.
* AZL Columbia
Small Cap
Value Fund
* AZL Davis NY
Venture Fund
* AZL Eaton
Vance Large
Cap Value Fund
* AZL Franklin
Small Cap
Value Fund
* AZL Franklin
Templeton
Founding
Strategy Plus
Fund
* AZL JPMorgan
U.S. Equity
Fund
* AZL MFS
Investors
Trust Fund
* AZL NFJ
International
Value Fund
* AZL Russell
1000 Value
Index Fund
* AZL Van Kampen
Equity and
Income Fund
* AZL Van Kampen
International
Equity Fund
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
121
FUND MANAGEMENT
FUND MANAGEMENT
THE MANAGER
Allianz Investment Management LLC serves as the Manager for the Funds pursuant
to the terms of an investment management agreement. The Manager has signed
subadvisory agreements or portfolio management agreements ("Subadvisory
Agreements") with various subadvisers for portfolio management functions for the
Funds. The subadvisers manage the portfolio securities of the 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. A discussion of the Board of Trustees' basis for
approving the Funds' Investment Management Agreement with the Manager and the
Subadvisory Agreements with the subadvisers is available in the Funds' Annual
Reports for the year ended December 31, 2009, and will be available in the
Funds' Semi-Annual Reports for the six-month period ended June 30, 2010 for the
AZL Gateway Fund, AZL Russell 1000 Growth Index Fund and the AZL Russell 1000
Value Index Fund.
The Manager was established as an investment adviser by Allianz Life Insurance
Company of North America in April 2001. The Manager evaluates and selects
subadvisers for the Trust, subject to the oversight of the Board of Trustees,
and to a more limited extent, provides investment advice with regard to
selection of individual portfolio securities. In addition, the Manager
constantly evaluates possible additional or alternative subadvisers for the
Trust. The Manager currently acts as Manager of all of the Funds of the Trust.
The Manager's other clients are the Allianz Variable Insurance Products Fund of
Funds Trust and three unregistered investment pools. As of December 31, 2009,
the Manager had aggregate assets under management of $8.07 billion. The Manager
monitors and reviews the activities of each of the subadvisers.
Jeffrey W. Kletti is the president of the Trust and ultimately responsibility
for evaluating and selecting subadvisers for the Trust. Mr. Kletti is a
Chartered Financial Analyst and joined Allianz Life Insurance Company of North
America (Allianz Life), the parent of the Manager, in 2000. Mr. Kletti served
as senior vice president of the Manager from its inception in 2001 until he was
elected its president in 2005. Previously, Mr. Kletti held positions with
Fortis Financial Group, IAI Mutual Funds, and Kemper Financial Services.
The Manager's address is 5701 Golden Hills Drive, Minneapolis, Minnesota 55416.
THE SUBADVISERS OF THE FUNDS
SUBADVISER FUND(S)
BLACKROCK CAPITAL MANAGEMENT, INC. ("BLACKROCK CAPITAL") was organized in 1994 to perform advisory services for AZL BlackRock
investment companies and has its principal offices at 100 Bellevue Parkway, Wilmington, DE 19809. BlackRock Capital is Capital
a wholly-owned, indirect subsidiary of BlackRock, Inc. BlackRock, Inc., one of the largest publicly traded investment Appreciation
management firms in the United States having, together with its affiliates, approximately $3.35 trillion in investment Fund
company and other assets under management as of December 31, 2009. BlackRock, Inc. is an affiliate of The PNC
Financial Services Group, Inc.
BLACKROCK FINANCIAL MANAGEMENT, INC. ("BLACKROCK FINANCIAL") has its principal offices at 800 Scudders Mill Road, AZL Enhanced
Plainsboro, NJ 08536. BlackRock Financial is a wholly-owned, indirect subsidiary of BlackRock, Inc., one of the Bond Index
largest publicly traded investment management firms in the United States having, together with its affiliates, Fund
approximately $3.35 trillion in investment company and other assets under management as of December 31, 2009.
BlackRock, Inc. is an affiliate of The PNC Financial Services Group, Inc.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
122
FUND MANAGEMENT
BLACKROCK INSTITUTIONAL MANAGEMENT CORPORATION ("BLACKROCK INSTITUTIONAL") was organized in 1977 to perform advisory AZL Money
services for investment companies and has its principal offices at 100 Bellevue Parkway, Wilmington, DE 19809. Market Fund
BlackRock Institutional is a wholly-owned, indirect subsidiary of BlackRock, Inc., one of the largest publicly traded
investment management firms in the United States having, together with its affiliates, approximately $3.35 trillion
in investment company and other assets under management as of December 31, 2009. BlackRock, Inc. is an affiliate of
The PNC Financial Services Group, Inc.
BLACKROCK INVESTMENT MANAGEMENT, LLC ("BLACKROCK INVESTMENT") has its principal offices at 800 Scudders Mill Road, AZL
Plainsboro, NJ 08536. BlackRock Investment is a wholly-owned, indirect subsidiary of BlackRock, Inc., one of the International
largest publicly traded investment management firms in the United States having, together with its affiliates, Index Fund
approximately $3.35 trillion in investment company and other assets under management as of December 31, 2009. AZL Mid Cap
BlackRock, Inc. is an affiliate of The PNC Financial Services Group, Inc. Index Fund
AZL S&P 500
Index Fund
AZL Small Cap
Index Fund
AZL Russell
1000 Growth
Index Fund
AZL Russell
1000 Value
Index Fund
COLUMBIA MANAGEMENT INVESTMENT ADVISERS, LLC (CMIA) (formerly known as RiverSource Investments, LLC) is located at AZL Columbia
100 Federal Street, Boston, MA 02110. CMIA acts as investment manager for individuals, corporations, private Mid Cap Value
investment companies and financial institutions. CMIA is registered as an investment advisor with the SEC and is an Fund
indirect, wholly-owned subsidiary of Ameriprise Financial, Inc. As of December 31, 2009, CMIA managed over $292.9 AZL Columbia
billion in assets. Small Cap
Value Fund
DAVIS SELECTED ADVISERS, L.P. ("DAVIS") is located at 2949 East Elvira Road, Suite 101, Tucson, Arizona 85756. Davis AZL Davis NY
is controlled by its general partner, Davis Investments, LLC. Davis Investments, LLC is a holding company with no Venture Fund
business operations. Davis Investments, LLC is controlled by Christopher Davis as sole member. Christopher Davis's
principal business over the last five years has been portfolio manager. Davis has been providing investment advice
since 1969. As of December 31, 2009, Davis managed over $73 billion in assets.
THE DREYFUS CORPORATION ("DREYFUS") is located at 200 Park Avenue, New York, NY 10166. Founded in 1947, Dreyfus AZL Dreyfus
manages approximately $310 billion in 189 mutual fund portfolios. Dreyfus is the primary mutual fund business of The Equity Growth
Bank of New York Mellon Corporation (BNY Mellon), a global financial services company focused on helping clients move Fund
and manage their finacial assets, operating 34 countries and serving more than 100 markets. BNY Mellon is a leading
provider of financial services for institutions, corporations and high-net-worth individuals, providing asset and
wealth management, asset servicing, issuer services, and treasury services through a worldwide client-focused team.
BNY Mellon has more than $22.2 trillion in assets under custody and administration and $1.1 trillion in assets under
management, and it services more than $12.0 trillion in outstanding debt.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
123
FUND MANAGEMENT
EATON VANCE MANAGEMENT ("EATON VANCE") is located at Two International Place, Boston, MA 02110. Eaton Vance has been AZL Eaton
managing assets since 1924 and managing mutual funds since 1931. Eaton Vance and its affiliates manage over $160 Vance Large
billion on behalf of mutual funds, institutional clients and individuals, as of December 31, 2009. Cap Value Fund
FRANKLIN ADVISERS, INC. ("ADVISORS") is located at One Franklin Parkway, San Mateo, CA 94403-1906. Together, Advisors AZL Franklin
and its affiliates manage over $643 billion in assets. Templeton
Founding
Strategy Plus
Fund (Franklin
Income
Strategy and
Templeton
Global Bond
Strategy)
FRANKLIN ADVISORY SERVICES, LLC ("FRANKLIN") is located at One Parker Plaza, Ninth Floor, Fort Lee, New Jersey 07024, AZL Franklin
is the Fund's investment subadviser, and was founded in 1947. Together, as of January 31, 2010, Franklin and its Small Cap
affiliates had $377.6 billion in assets under management. Value Fund
FRANKLIN MUTUAL ADVISERS, LLC ("FRANKLIN MUTUAL") is located at 101 John F. Kennedy Parkway, Short Hills, NJ 07078. AZL Franklin
Together, Franklin Mutual and its affiliates manage over $600 billion in assets. Templeton
Founding
Strategy Plus
Fund (Mutual
Shares
Strategy)
GATEWAY INVESTMENT ADVISERS, LLC ("GATEWAY") is located at 312 Walnut Street, 35[th] Floor, Cincinnati, OH 45202, AZL Gateway
serves as the subadvisor of the Fund. Gateway is a subsidiary of Natixis US. Gateway had over $7 billion in assets Fund
under management at December 31, 2009.
INVESCO ADVISERS, INC. ("INVESCO") is located at1555 Peachtree, N.E., Atlanta, GA 30309, is the Adviser to the AZL AZL Invesco
Invesco International Equity Fund. Invesco, as successor in interest to multiple investment advisers, has been an International
investment adviser since 1976. Today, Invesco advises or manages investment portfolios, including the Fund, Equity Fund
encompassing a broad range of investment objectives. Invesco is an indirect wholly owned subsidiary of Invesco Ltd.,
Atlanta, GA. Total net assets under the management of Invesco Ltd. And its affilates was approximantely $423.1
billion as of December 31, 2009.
J.P. MORGAN INVESTMENT MANAGEMENT INC. ("JPMIM") is a wholly-owned subsidiary of J.P. Morgan Asset Management AZL JPMorgan
Holdings Inc., which is a wholly-owned subsidiary of JPMorgan Chase & Co., a bank holding company. JPMIM is located U.S. Equity
at 570 Washington Boulevard, 6[th] Floor, Jersey City, NJ 07310. At December 31, 200, JPMIM and its affiliates had Fund
$1.2 trillion in assets under management.
MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS") is located at 500 Boylston Street, Boston, Massachusetts. MFS is AZL MFS
America's oldest mutual fund organization. MFS and its predecessor organizations have a history of money management Investors
dating from 1924 and the founding of the first mutual fund, Massachusetts Investors Trust. MFS is a subsidiary of Sun Trust Fund
Life of Canada (U.S.) Financial Services Holdings, Inc., which in turn is an indirect majority owned subsidiary of
Sun Life Financial Services, Inc. (a diversified financial services organization). Net assets under the management of
the MFS organization were approximately $183 billion as of December 31, 2009.
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NFJ INVESTMENT GROUP LLC ("NFJ") is a Delaware limited liability company and is a registered investment adviser under AZL NFJ
the Advisers Act. Its principal place of business is 2100 Ross Avenue, Suite 700, Dallas, Texas 75201. As of International
December 31, 2009, NFJ had aggregate assets under management of $30 billion. NFJ is affiliated with the Manager. Value Fund
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT LLC ("NACM"), organized under the laws of Delaware, is located at 600 West AZL NACM
Broadway, Suite 2900, San Diego, California 92101. NACM was founded in 1984 and as of December 31, 2009 managed International
approximately $9.9 billion in discretionary assets for numerous clients, including employee benefit plans, Growth Fund
corporations, public retirement systems and unions, university endowments, foundations, and other institutional
investors and individuals. NACM is affiliated with the Manager.
OPPENHEIMER CAPITAL LLC ("OPPENHEIMER CAPITAL") is a Delaware limited liability company and is a registered AZL OCC Growth
investment adviser under the Advisers Act. Its principal place of business is 1345 Avenue of the Americas, 48th Fund
Floor, New York, New York 10105. As of December 31, 2009, Oppenheimer Capital had aggregate assets under management AZL OCC
of $8.5 billion. Oppenheimer Capital is affiliated with the Manager. Opportunity
Fund
SCHRODER INVESTMENT MANAGEMENT NORTH AMERICA INC. ("SCHRODER"), 875 Third Avenue, 22nd Floor, New York, NY 10022- AZL Schroder
6225, has been a registered investment advisor, together with its predecessor, since 1968, and is part of a worldwide Emerging
group of financial services companies that are together known as Schroder. Schroder currently serves as investment Markets Equity
advisor to other mutual funds, and a broad range of institutional investors. At December 31, 2009, Schroder, together Fund
with its affiliated companies, managed approximately $239.6 billion in assets. Schroder Investment Management North
America Ltd (Schroder Ltd), an affiliate of Schroder with headquarters located at 31 Gresham Street, London EC2V 7QA,
England, serves as the sub-subadviser to the Fund and is responsible for day-to-day management of the Fund's assets.
TEMPLETON GLOBAL ADVISORS LIMITED ("GLOBAL ADVISORS") is located in Lyford Cay, Nassau, Bahamas. Together, as of AZL Franklin
January 31, 2010, Global Advisors and its affiliates had $377.6 billion in assets under management. Templeton
Founding
Strategy Plus
Fund
(Templeton
Growth
Strategy)
TURNER INVESTMENT PARTNERS, INC. ("TURNER"), 1205 Westlakes Drive, Suite 100, Berwyn, Pennsylvania 19312, is an AZL Turner
employee-owned investment management firm founded by Robert E. Turner, Mark D. Turner and Christopher K. McHugh. Quantitative
Turner began managing assets, including institutional assets, in 1990. Turner offers a variety of growth, Small Cap
quantitative, and core/value equity investment strategies across all market capitalizations, totaling approximately Growth Fund
$17.7 billion in assets under management as of December 31, 2009.
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VAN KAMPEN ASSET MANAGEMENT ("VKAM") is a wholly-owned subsidiary of Van Kampen Investments Inc. ("Van Kampen") and AZL Van Kampen
was founded in 1927. Van Kampen, together with its affiliated asset management companies, had approximately $395.3 Equity and
billion under management or supervision as of December 31, 2009. Van Kampen is a wholly-owned subsidiary of MSAM Income Fund
Holdings II, Inc. which is a wholly-owned subsidiary of Morgan Stanley. The offices of Van Kampen Asset Management AZL Van Kampen
are located at 522 Fifth Avenue, New York, NY 10036. The following affiliates of VKAM serve as sub-subadvisers to the Global Real
AZL Van Kampen International Equity Fund and the AZL Van Kampen Global Real Estate Fund and are responsible for day- Estate Fund
to-day management of the Funds' assets: (i) Morgan Stanley Investment Management Limited, with headquarters located AZL Van Kampen
at 25 Cabot Square, Canary Wharf, London E144QA, England, and (ii) Morgan Stanley Investment Management Company, with Growth and
headquarters located at 23 Church Street, #16-01 Capital Square, Singapore 049481. Income Fund
On October 19, 2009, Invesco Ltd. announced that it entered into a definitive agreement to acquire substantially all AZL Van Kampen
of the retail asset management business of Morgan Stanley Investment Management Inc. The transaction includes a sale International
of the part of the asset management business that subadvises AZL Van Kampen Equity and Income Fund and AZL Van Kampen Equity Fund
Growth and Income Fund. The transaction is subject to certain approvals and other conditions to closing, and is AZL Van Kampen
currently expected to close in mid-2010. Upon closing, all subadvisory agreements between the Manager and VKAM are Mid Cap Growth
expected to terminate. It is anticipated that, upon a closing, new subadvisory agreements will be entered into (i) Fund
with Invesco Advisors, Inc. with respect to AZL Van Kampen Equity and Income Fund and AZL Van Kampen Growth and
Income Fund, and (ii) with an affiliate of Morgan Stanley with respect to AZL Van Kampen Global Real Estate Fund, AZL
Van Kampen International Equity Fund and AZL Van Kampen Mid Cap Growth Fund.
THE PORTFOLIO MANAGERS OF THE FUNDS
AZL BLACKROCK CAPITAL APPRECIATION FUND
The fund management team is led by Jeffrey R. Lindsey, CFA, Managing Director at
BlackRock Capital Management, Inc. (BlackRock Capital), and Edward P. Dowd,
Managing Director at BlackRock Capital. Mr. Lindsey and Mr. Dowd also lead the
portfolio management team of the BlackRock Exchange Fund.
Mr. Lindsey and Mr. Dowd joined BlackRock following the merger with State Street
Research & Management Company (SSRM) in 2005. Mr. Lindsey is head of BlackRock
Capital's Large Cap Growth equity team. He is primarily responsible for the
financials and health care sectors. Mr. Lindsey, as Managing Director at SSRM,
headed the Mid- and Large-Cap Growth Teams. He joined SSRM in 2002 and was
promoted to Chief Investment Officer-Growth in 2003. He was responsible for
overseeing all of the firm's growth and core products. He was the co-portfolio
manager of the State Street Legacy Fund and the firm's large cap growth
institutional portfolios. Prior to joining SSRM, he spent eight years at Putnam
Investments, most recently as Managing Director and Director of Concentrated
Growth Products.
Mr. Dowd joined BlackRock Capital as a Director following the SSRM merger, and
was promoted to Managing Director in 2006. He is primarily responsible for the
technology and energy sectors. Prior to joining BlackRock Capital, Mr. Dowd was
a Vice President at SSRM. He was employed by SSRM beginning in 2002 and was a
co-portfolio manager of the SSR Legacy Fund. During the prior five years, he
also served as a Senior Vice President and Technology Sector Leader for
Independence Investment LLC and as an equity research associate at Donaldson,
Lufkin & Jenrette.
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AZL COLUMBIA MID CAP VALUE FUND
David I. Hoffman is co-manager of the Fund. He has been in the investment
industry since 1986. He is a Portfolio Manager of CMIA and has been associated
with Columbia Management Advisors, LLC (CMA), the Fund's previous sub-advisor,
or its predecessors since 2001 as an investment professional.
Diane L. Sobin, CFA, is co-manager of the Fund. She has been in the investment
industry since 1983. She is a Portfolio Manager of CMIA. Prior to joining CMIA
in May 2010, she was associated with CMA or its predecessors since 2001 as an
investment professional.
Lori J. Ensinger, CFA, is co-manager of the Fund. She has been in the investment
industry since 1983. She is a Portfolio Manager of CMIA. Prior to joining CMIA
in May 2010, she was associated with CMA or its predecessors since 2001 as an
investment professional.
Noah J. Petrucci, CFA, is co-manager of the Fund. He has been in the investment
industry since 1993. He is a Portfolio Manager of CMIA. Prior to joining CMIA in
May 2010, he was associated with CMA or its predecessors since 2002 as an
investment professional.
AZL COLUMBIA SMALL CAP VALUE FUND
Stephen D. Barbaro, CFA, is the Fund's lead manager. He has been in the
investment industry since 1971. He is a Managing Director of CMIA. Prior to
joining CMIA in May 2010, he was associated with CMA or its predecessors since
1976.
Jeremy Javidi, CFA, is the Fund's co-manager. He has been in the investment
industry since 2000. He is a Portfolio Manager of CMIA. Prior to joining CMIA in
May 2010, he was associated with CMA or its predecessors since 2000.
AZL DAVIS NY VENTURE FUND
The portfolio managers of the Fund are Christopher C. Davis and Kenneth C.
Feinberg, who together serve as portfolio manager for a number of large cap
value equity portfolios managed by the subadviser. They are the persons
primarily responsible for investing the Fund's assets on a daily basis. Mr.
Davis has over 20 years experience in investment management and securities
research. He joined the subadviser in 1989. Mr. Feinberg joined the subadviser
in 1994.
AZL DREYFUS EQUITY GROWTH FUND
Elizabeth Slover has been the portfolio manager of the Fund since January 2009.
Ms. Slover is Managing Director at The Boston Company Asset Management, LLC
("The Boston Company"), an affiliate of The Dreyfus Corporation, and is the
director of The Boston Company's core research team. Ms. Slover has been a dual
employee of Dreyfus and The Boston Company since September 2003.
AZL EATON VANCE LARGE CAP VALUE FUND
The Fund is managed by a team of portfolio managers led by Michael R. Mach, CFA.
Mr. Mach manages other Eaton Vance portfolios, has been an Eaton Vance portfolio
manager for more than five years and is a Vice President of Eaton Vance. The
other members of the portfolio management team are Matthew F. Beaudry, John D.
Crowley and Stephen J. Kaszynski, CFA (all since December 2009). Mr. Beaudry has
been managing other Eaton Vance portfolios since July 2006. Prior to joining
Eaton Vance in July 2006, he was Senior Vice President and Senior Portfolio
Manager at AllianceBernstein Investment Research and Management Company (May
2000 - June 2006). He is a Vice President of Eaton Vance. Mr. Crowley has been
managing other Eaton Vance portfolios for more than five years and is a Vice
President of Eaton Vance. Mr. Kaszynski has been managing other Eaton Vance
portfolios since September 2008. Prior to joining Eaton Vance in 2008, he was
Managing Director and Head of U.S. Equities for Credit Suisse Asset Management,
as well as the lead portfolio manager of a Credit Suisse fund (January 2004 -
January 2007). He is a Vice President of Eaton Vance.
AZL ENHANCED BOND INDEX FUND
Curtis Arledge , Managing Director and portfolio manager, is Chief Investment
Officer of Fixed Income, Fundamental Portfolios. Prior to rejoining BlackRock in
2008, Mr. Arledge was with Wachovia Corporation for 12 years, most recently as
Global Head of the Fixed Income Division and a member of the Corporate and
Investment Bank's (CIB) Executive and CIB Risk/Return Committees. He had
oversight for various business lines in the United States, Europe and Asia,
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FUND MANAGEMENT
including Leveraged Finance, Investment Grade, Global Rates, Structured
Products, Corporate Loan and Commercial Real Estate Portfolios and Financial
Institutions Investment Banking. Before serving in this role, Mr. Arledge was
head of Fixed Income Trading and, prior to that, head of Structured Products
Trading. He joined Wachovia's proprietary trading desk in 1996. Mr. Arledge was
a founding member of Mariner Investment Group in 1993, involved in fixed income
arbitrage trading. From 1988 to 1993, he was a fixed income portfolio manager
with BlackRock. He began his career as an analyst with Salomon Brothers in 1987.
Mr. Arledge earned a BS degree in electrical engineering from Princeton
University in 1987.
Matthew Marra, Managing Director and portfolio manager, is a member of
BlackRock's Fixed Income Portfolio Management Group. He is a senior portfolio
manager for Core Strategies. Mr. Marra helps lead the effort to oversee the
consistent implementation of investment strategies across all total return
accounts and is Chairman of the monthly Account Review Meeting, which examines
performance, compliance, and operations for all client portfolios. Mr. Marra
became part of the Portfolio Management Group in 1997. He joined BlackRock in
1995 as an analyst in the Portfolio Analytics Group. Mr. Marra has served on the
Lehman Brothers Index Advisory Council since 2001. He earned a BA degree in
economics from Trinity College in 1995.
AZL FRANKLIN SMALL CAP VALUE FUND
William J. Lippman has primary responsibility for the investments of the Fund.
Mr. Lippman is President and portfolio manager of the subadviser. He joined
Franklin in 1988 and currently manages several retail and insurance funds. He is
a member of the Franklin Institutional Small Cap Value Equity Management team.
In addition, he is President and Trustee of Franklin Managed Trust and President
of Franklin Advisory Services, LLC.
Y. Dogan Sahin, CFA, is a backup portfolio manager of the Fund and is part of a
research team for other funds managed by Franklin Advisory Services. Mr. Sahin
joined Franklin Advisory Services in September 2003. Prior to his current
position, Mr. Sahin was a research analyst working primarily with the Franklin
Small Cap Value Fund. Before joining Franklin Advisory Services, Mr. Sahin was a
research analyst in Franklin's San Mateo, California office, where he provided
industry-specific equity research of specialty retail companies. Mr. Sahin
joined Franklin Templeton in July, 2001. Mr. Sahin earned a B.A. in chemistry
and biology from Carleton College and an M.A. in molecular and cell biology from
U.C. Berkeley. He is a Chartered Financial Analyst (CFA) Charterholder.
Bruce Baughman, CPA, is backup portfolio manager of the Fund. He is senior vice
president and portfolio manager of the subadviser. He joined Franklin in 1988.
Mr. Baughman is part of a team that manages several equity funds, including
Franklin Balance Sheet Investment Fund and Franklin MicroCap Value Fund, where
he is Lead Manager. He is also a member of the Franklin Institutional Small Cap
Value Equity Team.
Margaret McGee is backup portfolio manager of the Fund. She is Vice President
and portfolio manager of the subadviser. Ms. McGee joined Franklin in 1988 and
currently co-manages several mutual funds. She is a member of the Franklin
Institutional Small Cap Value Equity Team.
Don Taylor, CPA, is backup portfolio manager of the Fund. He is senior vice
president and portfolio manager of the subadviser. Mr. Taylor joined Franklin in
1996. He is part of a team that manages several equity funds, including Franklin
Rising Dividends Fund and Franklin Rising Dividends Securities Fund, where he is
Lead Manager. Mr. Taylor is also a member of the Franklin Institutional Small
Cap Value Equity Team.
AZL FRANKLIN TEMPLETON FOUNDING STRATEGY PLUS FUND
MUTUAL SHARES STRATEGY:
Peter A. Langerman, President and Chief Executive Officer of Franklin
Mutual, Mr. Langerman rejoined Franklin Templeton Investments in 2005 and
assumed the duties of lead portfolio manager of the Mutual Shares Fund in
2005. He joined Franklin Templeton in 1996, serving in various capacities,
including President and Chief Executive Officer of Franklin Mutual and
member of the management team of the Funds, including Mutual Shares Fund,
before leaving in 2002 and serving as director of New Jersey's Division of
Investment, overseeing employee pension funds. Between 1986 and 1996, he
was employed at Heine Securities Corporation, the Funds' former manager.
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F. David Segal, CFA, Portfolio Manager of Franklin Mutual, Mr. Segal has
been a portfolio manager for Mutual Shares Fund since 2005 and assumed the
duties of lead portfolio manager in 2007. He joined Franklin Templeton
Investments in 2002. Previously, he was an analyst in the Structured
Finance Group of MetLife for the period 1999 - 2002.
Deborah A. Turner, CFA, Portfolio Manager of Franklin Mutual, Ms. Turner has
been a portfolio manager for Mutual Shares Fund since 2001. She joined
Franklin Templeton Investments in 1996. Between 1993 and 1996, she was
employed at Heine Securities Corporation, the Funds' former manager.
FRANKLIN INCOME STRATEGY:
Charles B. Johnson, Chairman of Franklin Resources, Inc., Mr. Johnson has
been a portfolio manager of the Fund since 1957. He joined Franklin
Templeton Investments in 1957.
Matt Quinlin, Research Analyst of Franklin Advisers, Inc., Mr. Quinlan is a
research analyst for Franklin Global Advisers focusing on retail and
consumer products sectors. He joined Franklin Templeton Investments in
2005.
Edward D. Perks, CFA, Senior Vice President of Franklin Advisers, Mr. Perks
has been a portfolio manager of the Fund since 2002. He joined Franklin
Templeton Investments in 1992.
Alex W. Peters, CFA, Vice President of Franklin Advisers, Inc., Mr. Peters
is a portfolio manager of the Fund.
TEMPLETON GLOBAL BOND STRATEGY:
Michael Hasenstab Ph.D., Senior Vice President of Franklin Advisers, Dr.
Hasenstab has been a lead portfolio manager of the Fund since 2001. He has
primary responsibility for the investments of the Fund. He has final
authority over all aspects of the Fund's investment portfolio, including but
not limited to, purchases and sales of individual securities, portfolio risk
assessment, and the management of daily cash balances in accordance with
anticipated management requirements. The degree to which he may perform
these functions, and the nature of these functions, may change from time to
time. Dr. Hasenstab first joined Franklin Templeton Investments in 1995,
rejoining again in 2001 after a three-year leave to obtain his Ph.D.
TEMPLETON GROWTH STRATEGY:
Cynthia L. Sweeting CFA, President and Chairman of Global Advisors, Ms.
Sweeting has been lead portfolio manager of the Fund since 2007. She has
primary responsibility for the investments of the Fund. She has final
authority over all aspects of the Fund's investment portfolio, including but
not limited to, purchases and sales of individual securities, portfolio risk
assessment, and the management of daily cash balances in accordance with
anticipated management requirements. The degree to which she may perform
these functions, and the nature of these functions, may change from time to
time. She joined Franklin Templeton Investments in 1997.
Lisa F. Myers, J.D., CFA, Executive Vice President of Global Advisors, Ms.
Myers has been a portfolio manager of the Fund since 2003 providing research
and advice on the purchases and sales of individual securities, and
portfolio risk assessment. She joined Franklin Templeton Investments in
1996.
Tucker Scott, CFA, Executive Vice President of Global Advisors, Mr. Scott
has been a portfolio manager of the Fund since 2007, providing research and
advice on the purchases and sales of individual securities, and portfolio
risk assessment. He joined Franklin Templeton Investments in 1996.
AZL GATEWAY FUND
The portfolio managers for the Fund, since inception, are J. Patrick Rogers,
president and chief executive officer of Gateway, Paul R. Stewart, senior vice
president and chief investment officer of Gateway, and Michael T. Buckius, a
senior vice president of Gateway.
AZL INTERNATIONAL INDEX FUND
Debra Jelilian, Managing Director and portfolio manager, is a member of
BlackRock's Quantitative Investments and Transition Management teams. She is
responsible for index strategies and transition management. Ms. Jelilian's
service with the firm dates back to 1999, including her years with Merrill Lynch
Investment Managers (MLIM), which merged with BlackRock in 2006. At MLIM, she
was a member of the Quantitative Investments team, responsible for the
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management of MLIM's equity index portfolios and leading MLIM's transition
management efforts in the Americas. She was also a member of the Quantitative
Investment Committee. Prior to joining MLIM in 1999, she worked as a U.S. index
fund manager for Bankers Trust, where she handled Bankers Trust's index fund
transition management. Ms. Jelilian earned a BA degree in romance languages from
Manhattanville College in 1990.
Edward Corallo, Managing Director, is a member of BlackRock's Institutional
Index Equity team. Mr. Corallo's service with the firm dates back to 1997,
including his years with Barclays Global Investors (BGI), which merged with
BlackRock in 2009. At BGI, he was head of the Institutional Indexing Group. He
started his career at BGI in 1997 as manager of the Financial Planning and
Analysis Group in the Controller's Office and made the transition to portfolio
management in 1999. Prior to joining BGI, he was a finance manager at California
Federal Bank. Mr. Corallo earned a BS degree in finance from San Diego State
University in 1989, and an MBA degree from the University of San Diego.
AZL INVESCO INTERNATIONAL EQUITY FUND
The following individuals are jointly and primarily responsible for the day-to-
day management of the Fund: Shuxin Cao, Senior Portfolio Manager, has been
responsible for the Fund since 2003 and has been associated with Invesco and/or
its affiliates since 1997. Jason T. Holzer, Senior Portfolio Manager, has been
responsible for the Fund since 1999 and has been associated with Invesco and/or
its affiliates since 1996. Clas G. Olsson, (lead portfolio manager with respect
to the Fund's investments in Europe and Canada), Senior Portfolio Manager, has
been responsible for the Fund since 1997 and has been associated with Invesco
and/or its affiliates since 1994. Barrett K. Sides, (lead portfolio manager with
respect to the Fund's investments in Asia Pacific and Latin America), Senior
Portfolio Manager, has been responsible for the Fund since 2002 and has been
associated with Invesco and/or its affiliates since 1990. Matthew W. Dennis,
Portfolio Manager, has been responsible for the Fund since 2003 and has been
associated with Invesco and/or its affiliates since 2000.
The lead managers generally have final authority over all aspects of the Fund's
investment portfolio, including but not limited to, purchases and sales of
individual securities, portfolio construction techniques, portfolio risk
assessment, and the management of daily cash flows in accordance with portfolio
holdings. The degree to which the lead managers may perform these functions, and
the nature of these functions, may change from time to time.
They are assisted by Invesco's Asia Pacific/Latin America and Europe/Canada
Teams which are comprised of portfolio managers and research analysts. Team
members provide research support and make securities recommendations with
respect to the Fund but do not have any day-to-day management responsibilities
with respect to the Fund. Members of the team may change from time to time.
AZL JPMORGAN U.S. EQUITY FUND
The portfolio management team is led by Thomas Luddy, Managing Director of JPMIM
and a CFA charterholder, and Susan Bao, Managing Director of JPMIM and a CFA
charterholder. Mr. Luddy has held numerous key positions in the firm, including
Global Head of Equity, Head of Equity Research, and Chief Investment Officer. He
began as an equity research analyst, becoming a portfolio manager in 1982. Ms.
Bao has been a portfolio manager in the U.S. Equity Group since 2002 and has
been employed by the firm since 1997.
AZL MID CAP INDEX FUND
Debra Jelilian, Managing Director and portfolio manager, is a member of
BlackRock's Quantitative Investments and Transition Management teams. She is
responsible for index strategies and transition management. Ms. Jelilian's
service with the firm dates back to 1999, including her years with Merrill Lynch
Investment Managers (MLIM), which merged with BlackRock in 2006. At MLIM, she
was a member of the Quantitative Investments team, responsible for the
management of MLIM's equity index portfolios and leading MLIM's transition
management efforts in the Americas. She was also a member of the Quantitative
Investment Committee. Prior to joining MLIM in 1999, she worked as a U.S. index
fund manager for Bankers Trust, where she handled Bankers Trust's index fund
transition management. Ms. Jelilian earned a BA degree in romance languages from
Manhattanville College in 1990.
Edward Corallo, Managing Director, is a member of BlackRock's Institutional
Index Equity team. Mr. Corallo's service with the firm dates back to 1997,
including his years with Barclays Global Investors (BGI), which merged with
BlackRock in 2009. At BGI, he was head of the Institutional Indexing Group. He
started his career at BGI in 1997 as manager of the Financial Planning and
Analysis Group in the Controller's Office and made the transition to portfolio
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management in 1999. Prior to joining BGI, he was a finance manager at California
Federal Bank. Mr. Corallo earned a BS degree in finance from San Diego State
University in 1989, and an MBA degree from the University of San Diego.
AZL MFS INVESTORS TRUST FUND
T. Kevin Beatty and Nicole M. Zatlyn are the portfolio managers for the Fund and
are primarily responsible for the day-to-day management of the Fund. Mr. Beatty,
an Investment Officer of MFS, has been employed in the investment area of MFS
since 2002. Ms. Zatlyn, an Investment Officer of MFS, has been employed in the
investment area of MFS since 2001.
AZL NACM INTERNATIONAL GROWTH FUND
Horacio A. Valeiras, CFA, Managing Director and the Chief Investment Officer for
Nicholas-Applegate, is responsible for overseeing all investment and trading
functions within the firm. He is also the portfolio manager for the
International Growth portfolios and a member of the Executive Committee. Horacio
is also the CIO of AGI Management Partners. Prior to joining Nicholas-Applegate
in 2002, he was a managing director of Morgan Stanley Investment Management,
London, responsible for developing and overseeing their Global Core Equity and
European tactical asset allocation programs. Horacio was previously head of
International Equity and asset allocation programs with Philadelphia-based
Miller Anderson & Sherrerd. He started in the investment management industry
with Credit Suisse First Boston, where he became the director and chief
international investment strategist based in their London office. Horacio serves
on the Board of Directors of The Bishop's School and the Virginia Tech
Foundation. He earned his M.B.A. with an emphasis on finance from the University
of California, Berkeley and his master's degree from Massachusetts Institute of
Technology, where he became an instructor in their graduate school program. He
earned a B.S. in chemical engineering from Virginia Tech. He has over 20 years
of investment management experience.
Pedro V. Marcal, Senior Vice President has portfolio management and research
responsibilities for the International Equities team. Pedro also serves on the
firm's asset allocation committee. He was previously a portfolio manager on the
firm's Global Select team, as well as the Emerging Countries team where he led a
nine-person team in California, Singapore and Hong Kong. Pedro was responsible
for the Emerging Countries, Emerging Countries Small Cap, and China portfolios.
Prior to joining the firm in 1994, Pedro spent five years as an economist at A.
B. Laffer, V. A. Canto & Associates, a global economic consulting firm. Pedro
was also a trader at A-Mark Precious Metals, a commodities firm. He holds an
M.B.A. from The UCLA Anderson School of Management and a B.A. from the
University of California, San Diego. As part of his undergrad degree, Pedro
spent a year studying development economics at London University. He has 20
years of investment industry experience.
AZL NFJ INTERNATIONAL VALUE FUND
The NFJ Investment Group L.P. ("NFJ") portfolio managers work
collaboratively on a team basis. Each team supports one of NFJ's investment
strategies and is led by a portfolio manager acting as team leader. Each of the
portfolio managers on the NFJ investment team participates in the investment
decision process, serving as both a portfolio manager and a securities analyst.
This structure assures the seamless transfer of critically important investment
information.
The International Value team is led by Ben J. Fischer, CFA, Managing Director.
Ben Fischer, CFA, Portfolio Manager/Analyst, Managing Director, is
a founding partner of NFJ Investment Group. He has over 44 years
experience in portfolio management, investment analysis and research. Prior to
founding NFJ in 1989, he was chief investment officer (institutional and fixed
income), senior vice president and senior portfolio manager at NationsBank which
he joined in 1971. Prior to joining NationsBank, Mr. Fischer was a securities
analyst at Chase Manhattan Bank and Clark, Dodge. He received his BA degree in
Economics and a JD degree from Oklahoma University, and an MBA from New York
University.
Paul Magnuson, Portfolio Manager/Analyst, Managing Director,
joined NFJ in 1992. He is a senior research analyst and a portfolio manager
with over 24 years of experience in equity analysis and portfolio
management. He currently manages the Small Cap Value strategy and oversees NFJ
investment processes. Prior to joining NFJ Investment Group in 1992, Mr.
Magnuson was an assistant vice president at NationsBank which he joined in 1985.
Within the trust investment quantitative services group, he managed structured
investment strategies and performed qualitative equity risk analysis on domestic
and international portfolios. Mr. Magnuson received his BBA degree in Finance
from the University of Nebraska in 1984.
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Thomas Oliver, CPA, Portfolio Manager/Analyst, has over
14 years of experience in accounting, reporting, and financial analysis.
Prior to joining NFJ Investment Group in 2005, Mr. Oliver was a manager of
corporate reporting at Perot Systems Corporation which he joined in 1999. He
began his career as an auditor with Deloitte & Touche in 1995. Mr. Oliver
received his BBA and MBA degrees from the University of Texas in 1995 and 2005,
respectively.
R. Burns McKinney, CFA, Portfolio Manager/Analyst, has 13
years of experience in equity research, financial analysis, and investment
banking. Prior to joining NFJ Investment Group in 2006, Mr. McKinney was an
equity analyst covering the energy sector for Evergreen Investments in Boston.
He began his career as an investment banking analyst at Alex. Brown & Sons in
1996. Prior to attending business school, he served as a Vice President in
equity research at Merrill Lynch in New York, and also worked as an equity
analyst at Morgan Stanley. Mr. McKinney received his BA in Economics from
Dartmouth College in 1996 and his MBA from the Wharton School of Business in
2003.
L. Baxter Hines, Portfolio Manager, has over 5 years of experience
in equity research and investment consulting. Prior to joining NFJ Investment
Group in 2008, Mr. Hines attended the University of Texas where he completed an
MBA from the McCombs School of Business. During business school, he studied
finance and accounting and worked with the Teacher Retirement System of Texas.
Before attending graduate school, Mr. Hines worked as a market data specialist
for Reuters. Mr. Hines received his BA degree in Economics from the University
of Virginia in 2001.
AZL OCC GROWTH FUND
Jeff Parker, Managing Director and Portfolio Manager for Oppenheimer Capital's
Mid and Large Cap Growth strategies, has been a manager of the Fund since 2009
and is the Lead Portfolio Manager. Prior to joining the firm in 1999, he was
assistant portfolio manager at Eagle Asset Management. Mr. Parker is a CFA
charterholder, holds an MBA from Vanderbilt University and a BBA from the
University of Miami.
William Sandow, Senior Vice President and Portfolio Manager for Oppenheimer
Capital's, Mid and Large Cap Growth strategies, has managed the Fund since 2010.
Prior to joining the firm in 2005, he was a senior healthcare analyst and
portfolio manager at ExisCapital, a multi-strategy hedge fund. He was also an
analyst and co-manager of a healthcare-focused mutual fund at RCM Capital
Management. Mr. Sandow holds an MBA from Indiana University's Kelley School of
Business and a BS in Accounting from Boston College.
AZL OCC OPPORTUNITY FUND
Michael Corelli, Managing Director and Portfolio Manager for Oppenheimer
Capital's Small Cap Growth team, is the co-portfolio manager of the AZL OCC
Opportunity Fund. Prior to joining the firm in 1999 as a research analyst, he
spent six years at Bankers Trust as an analyst in the small and mid cap growth
group. Mr. Corelli earned a BA from Bucknell University.
Eric Sartorius, Vice President and Portfolio Manager for Oppenheimer Capital's
Small Cap Growth team, is the co-portfolio manager of the AZL OCC Opportunity
Fund. He specializes in researching the information technology, medical
technology and health care sectors of the small-cap equity market. Prior to
joining the firm in 2001, he spent two years as a research associate covering
the technology sector at Fred Alger Management. He is a CFA charterholder and
holds a B.A. from Williams College.
AZL RUSSELL 1000 GROWTH INDEX FUND, AZL RUSSELL 1000 VALUE INDEX FUND, AZL S&P
500 INDEX FUND AND AZL SMALL CAP STOCK INDEX FUND
The Funds are managed by Debra L. Jelilian a member of BlackRock Investment's
Quantitative Index Management Team, and Ms. Jelilian is responsible for the day-
to-day management of each Fund's portfolio and each is responsible for the
selection of each Fund's investments. Ms. Jelilian is a Director of BlackRock
Investment, which she joined in 2006. Prior to joining BlackRock Investment, Ms.
Jelilian was a Director of Fund Asset Management, L.P. from 1999 to 2006. Ms.
Jelilian has 13 years' experience in investing and in managing index
investments.
Edward Corallo a member of BlackRock's Institutional Index Equity team, and Mr.
Corallo is Managing Director of BlackRock. Mr. Corallo's service with the firm
dates back to 1997, including his years with Barclays Global Investors (BGI),
which merged with BlackRock in 2009. At BGI, he was head of the Institutional
Indexing Group. He started his career at BGI in 1997 as manager of the Financial
Planning and Analysis Group in the Controller's Office and made the transition
to portfolio management in 1999. Prior to joining BGI, he was a finance manager
at California Federal Bank.
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Mr. Corallo earned a BS degree in finance from San Diego State University in
1989, and an MBA degree from the University of San Diego.
AZL SCHRODER EMERGING MARKETS EQUITY FUND
The Fund is managed on a team basis and is co-led by Allan Conway and Robert
Davy. The Emerging Markets Equity Team has overall responsibility for the
management of the Fund and also includes portfolio managers James Gotto and Waj
Hashmi.
Mr. Conway has been an employee of Schroder Ltd. since 2004, prior to that, he
was head of global emerging markets, West LB Asset Management and Chief
Executive Officer of WestAM (UK) Ltd. Mr. Davy has been an employee of Schroder
Ltd. since 1986. Mr. Gotto has been am employee of Schroder Ltd. since 1991. Mr.
Hashmi has been an employee of Schroder Ltd. since 2005.
AZL TURNER QUANTITATIVE SMALL CAP GROWTH FUND
David Kovacs, CFA, is Senior Portfolio Manager for the Fund. Mr. Kovacs is the
Chief Investment Officer of Quantitative Strategies and lead portfolio manager
of all the quantitative portfolios. Mr. Kovacs developed the quantitative
research model that is currently used by Turner. He has worked at Turner since
1998 and has 20 years of investment experience. Prior to joining Turner
Investment Partners, Mr. Kovacs was Director of Quantitative Research at Pilgrim
Baxter & Associates. He also served as a senior financial analyst at The West
Company. He began his career as a research analyst at Allied Signal, Inc. Mr.
Kovacs received his MBA from the University of Notre Dame. Mr. Kovacs is a
member of CFA Institute and CFA Society of Philadelphia.
Jennifer C. Boden, is a Quantitative Analyst and Co-Portfolio Manager for the
Fund. Ms. Boden has worked at Turner since 2006 and has eight years of
investment experience. Prior to joining Turner Investment Partners, Ms. Boden
was an Actuarial Analyst at ACE USA. Ms. Boden received her BS in mathematics
with a concentration in actuarial science from Pennsylvania State University.
She is an affiliate member of CFA Institute and CFA Society of Philadelphia.
AZL VAN KAMPEN EQUITY AND INCOME FUND
The Fund is managed by members of the subadviser's Equity Income and Taxable
Fixed Income teams. The Equity Income and Taxable Fixed Income teams consist of
portfolio managers and analysts. Current members of the teams jointly and
primarily responsible for the day-to-day management of the Fund's portfolio are
Thomas B. Bastian, Mary Jayne Maly, and Sanjay Verma, each a Managing Director
of the subadviser, and James O. Roeder, Mark J. Laskin, and Sergio Marcheli,
each an Executive Director of the subadviser.
Mr. Bastian is the lead portfolio manager of the Fund. Messrs. Roeder and
Laskin, and Ms. Maly assist Mr. Bastian in the management of the equity holdings
in the Fund. Mr. Verma is responsible for the management of the fixed income
holdings in the Fund. Mr. Marcheli manages the cash position in the Fund,
submits trades, and aids in providing research. Mr. Bastian is responsible for
the execution of the overall strategy of the Fund.
The composition of the team may change without notice from time to time. See
below for more information about the portfolio managers.
AZL VAN KAMPEN GLOBAL REAL ESTATE FUND
The Fund's assets are managed within the Real Estate Team. The members of the
team who are currently responsible for the day-to-day management of the Fund are
Theodore R. Bigman, Michael te Paske, Sven van Kemenade and Angeline Ho, each a
Managing Director of the subadviser. Together, the team determines the
investment strategy, establishes asset-allocation frameworks and directs the
implementation of investment strategy.
See below for more information about the portfolio managers.
AZL VAN KAMPEN GROWTH AND INCOME FUND
The Fund is managed by members of the subadviser's Equity Income team. The
Equity Income team consists of portfolio managers and analysts. Current members
of the team jointly and primarily responsible for the day-to-day management of
the Fund's portfolio are Thomas B. Bastian, Mary Jayne Maly, and James O.
Roeder, each a Managing Director of the subadviser, and James O. Roeder, Mark J.
Laskin, and Sergio Marcheli, each an Executive Director of the subadviser.
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Mr. Bastian is the lead portfolio manager of the Fund. Messrs. Roeder and
Laskin, and Ms. Maly assist Mr. Bastian in the management of the Fund. Mr.
Marcheli manages the cash position in the Fund, submits trades, and aids in
providing research. Mr. Bastian is responsible for the execution of the overall
strategy of the Fund.
The composition of the team may change without notice from time to time. See
below for more information about the portfolio managers.
AZL VAN KAMPEN INTERNATIONAL EQUITY FUND
The Fund is managed within the subadviser's International Equity team. The team
consists of portfolio managers and analysts. Current members of the team jointly
and primarily responsible for the day-to-day management of the Fund are William
D. Lock and Walter B. Riddell, each a Managing Director of MSIM Limited, Peter
J. Wright, a Managing Director of MSIM Company, and John S. Goodacre and
Christian Derold, each an Executive Director of MSIM Limited.
Each member of the team has both global sector research responsibilities and
makes investment management decisions for the Fund. Messrs. Lock, Wright,
Riddell, Goodacre and Derold have day-to-day portfolio administration
responsibilities as well.
See below for more information about the portfolio managers.
AZL VAN KAMPEN MID CAP GROWTH FUND
The Fund's portfolio is managed within the subadviser's Growth Team. The Current
members of the team include Dennis P. Lynch, David S. Cohen, and Sam G.
Chainani, Managing Directors of the subadviser, and Alexander T. Norton, Jason
C. Yeung, and Armistead B. Nash Executive Directors of the subadviser.
Dennis P. Lynch is the lead portfolio manager of the Fund. David S. Cohen, Sam
G. Chainani, Alexander T. Norton, Jason C. Yeung and Armistead B. Nash are co-
portfolio managers. Members of the team collaborate to manage the assets of the
Fund. The team manages their funds in 5 primary strategies.
The composition of the team may change without notice from time to time. See
below for more information about the portfolio managers.
THE VAN KAMPEN PORTFOLIO MANAGERS:
* Thomas Bastian has worked for the subadviser since 2003 and joined the team
managing the AZL Van Kampen Equity and Income Fund in 2004 and has managed the
AZL Van Kampen Growth and Income Fund since 2003.
* Theodore R. Bigman has worked for the subadviser since 1995 and has been
managing the AZL Van Kampen Global Real Estate Fund since 2006.
* Sam G. Chainani has worked for the subadviser since 1996 and has managed the
AZL Van Kampen Mid Cap Growth since 2004.
* David S. Cohen has worked for the subadviser since 1993 and has managed the
AZL Van Kampen Mid Cap Growth Fund since 2003.
* Mr. Derold has been associated with MSIM Limited in an investment management
capacity since May 2006 and has been managing the AZL Van Kampen International
Equity Fund (formerly, the AZL Van Kampen Global Franchise Fund) since June
2009. Prior to May 2006, Mr. Derold was a consultant at DCFN Research and
Head of Research at Millgate Capital Inc.
* Mr. Goodacre has been associated with MSIM Limited in an investment management
capacity since 2003 and has been managing the AZL Van Kampen International
Equity Fund (formerly, the AZL Van Kampen Global Franchise Fund) since June
2009.
* Angeline Ho has worked for the subadviser since 1997 and has been managing the
AZL Van Kampen Global Real Estate Fund since 2006.
* Sven van Kemenade has worked for the subadviser since 1997 and has been
managing the AZL Van Kampen Global Real Estate Fund since 2006.
* Mark Laskin has worked for the subadviser since October 2000 and began
managing both the AZL Van Kampen Equity and Income Fund and the AZL Van Kampen
Growth and Income Fund in January 2007.
* Mr. Lock has been associated with MSIM Limited in an investment management
capacity since 1994 and has been managing the AZL Van Kampen International
Equity Fund (formerly, the AZL Van Kampen Global Franchise Fund) since June
2009.
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* Dennis P. Lynch, who is the Fund's lead portfolio manager, has worked for the
subadviser since 1998 and has managed the AZL Van Kampen Mid Cap Growth Fund
since 2003.
* Sergio Marcheli has worked for the subadviser since 2002 and has managed the
AZL Van Kampen Equity and Income Fund since 2004 and has managed the AZL Van
Kampen Growth and Income Fund since 2003
* Armistead B. Nash has worked for the subadviser since 2002 and has managed the
AZL Van Kampen Mid Cap Growth Fund since September 2008.
* Alexander T. Norton has worked for the subadviser since 2000 and has managed
the AZL Van Kampen Mid Cap Growth Fund since July 2005.
* Michael te Paske has worked for the subadviser since 1997 and has been
managing the AZL Van Kampen Global Real Estate Fund since 2006.
* Mr. Riddell has been associated with MSIM Limited in an investment management
capacity since 1995 and has been managing the AZL Van Kampen International
Equity Fund (formerly, the AZL Van Kampen Global Franchise Fund) since June
2009.
* James O. Roeder has worked for the subadviser since 1999 and has managed the
AZL Van Kampen Equity and Income Fund since 2004 and has managed the AZL Van
Kampen Growth and Income Fund since 2001.
* Mr. Wright has been associated with MSIM Company or its affiliates in an
investment management capacity since 1996 and has been managing the AZL Van
Kampen International Equity Fund (formerly, the AZL Van Kampen Global
Franchise Fund) since June 2009.
* Jason C. Yeung has worked for the subadviser since 2002 and has managed the
AZL Van Kampen Mid Cap Growth Fund since September 2007.
* Ms. Maly has been associated with the subadviser in an investment management
capacity since 2003 and has been managing the AZL Van Kampen Equity and Income
Fund and the AZL Van Kampen Growth and Income Fund since July 2008.
* Mr. Verma has been associated with the subadviser in an investment management
capacity since April 2008 and has been managing the AZL Van Kampen Equity and
Income Fund since December 2008. Prior to April 2008, Mr. Verma was the co-
head of Rates Trading for Morgan Stanley from 2003 to 2008.
MORE INFORMATION ABOUT FUND MANAGEMENT
The Manager, Oppenheimer Capital LLC, NFJ Investment Group LLC., and Nicholas-
Applegate Capital Management LLC are subsidiaries 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, 2009, Allianz SE had third-party assets under management of
$1.73 trillion. In North America, Allianz SE subsidiaries are engaged in the
life insurance, property/casualty insurance, broker-dealer, banking, investment
adviser, and mutual fund businesses.
The SAI has more detailed information about the Manager, the subadvisers and
other service providers. The SAI also provides additional information about the
portfolio managers' compensation, other accounts managed by the portfolio
managers, and the portfolio managers' ownership of securities in the Funds.
DUTIES OF THE MANAGER AND SUBADVISERS
Within the scope of an investment program approved by the Board of Trustees, the
Manager oversees the AZL Funds and the selection of subadvisers and advises on
the Funds' investment policies. The subadvisers determine which securities are
bought and sold, and in what amounts. The Manager is also responsible for
allocation of assets among the four strategies in the AZL Franklin Templeton
Founding Strategy Plus Fund. However, the subadvisers determine which securities
are bought and sold, and in what amounts, for each of those strategies. The
Manager continuously monitors the performance of various investment management
organizations, including the subadvisers, and generally oversees the services
provided to Allianz VIP Funds by its administrator, custodian and other service
providers. Further information about the subadvisers is included in the SAI.
The Manager is paid a fee as set forth under "Fees" below, by the Fund for its
services, which includes any fee paid to the subadviser.
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FUND MANAGEMENT
Each of these Funds and the Manager, under an order received from the Securities
and Exchange Commission ("SEC") on September 17, 2002, may enter into and
materially amend agreements with subadvisers without obtaining shareholder
approval. This type of structure is commonly known as a "Manager of Managers"
structure. For any Fund that is relying on the order, the Manager may:
* hire one or more subadvisers;
* change subadvisers; and
* reallocate management fees between itself and subadvisers.
The Manager continues to have the ultimate responsibility for the investment
performance of these Funds due to its responsibility to oversee subadvisers and
recommend their hiring, termination and replacement. No Fund will rely on the
order until it receives approval from:
* its shareholders; or
* the Fund's sole initial shareholder before the Fund is available to the
public, and the Fund states in its prospectus that it intends to rely on the
order. The Manager will not enter into an agreement with an affiliated
subadviser without that agreement, including the compensation to be paid under
it, being similarly approved except as may be permitted by applicable law.
PAYMENTS TO AFFILIATED INSURANCE COMPANIES
Currently, the Funds are available as underlying investment options of Contracts
offered by Allianz Life Insurance Company of North America and its affiliates
(the "Affiliated Insurance Companies"), which are also affiliates of the
Manager. In addition to the Funds, these Contracts include other funds for which
the Manager is not the investment manager (the "Nonproprietary Funds"). The
Affiliated Insurance Companies may receive payments from the sponsors of the
Nonproprietary Funds as a result of including them as investment options in the
Contracts. Similarly, the Affiliated Insurance Companies are allocated
resources, including revenue earned by the Manager for providing investment
management and other services to the Funds, as a result of including the Funds
in the Contracts. The amount of payments from Nonproprietary Funds or
allocations of resources from the Manager varies, and may be significant and may
create an incentive for the Affiliated Insurance Companies regarding its
decision of which funds to include in the Contracts.
OTHER ADMINISTRATIVE SERVICES
The Affiliated Insurance Companies provide administrative and other services to
Contract owners on behalf of the funds, including the Funds and the
Nonproprietary Funds, that are available under the Contracts. The Affiliated
Insurance Companies may receive payment for these services.
TRANSFER SUPPORTED FEATURES OF CERTAIN ANNUITY CONTRACTS
The Funds may be offered under certain variable annuities that have guaranteed
value or benefit features that are supported by automatic transfers between
investment choices available under the product (the "Transfer Supported
Features"). If the Transfer Supported Features are available to you, they are
described in the prospectus for your Contract. These features may be known as
the Guaranteed Account Value Benefit, Guaranteed Principal Value Benefit, the
PRIME Plus Benefit, the Lifetime Plus Benefit, the Lifetime Plus II Benefit,
Target Date Retirement Benefit, Income Protector, Investment Protector, or
another name. Under the Transfer Supported Features, contract values may be
rebalanced periodically. This rebalancing can cause a fund, including the Funds,
to incur transactional expenses as it buys or sells securities to manage asset
inflows or outflows. During periods of market volatility, brokerage fees
resulting from such transfers could increase substantially. Also, large outflows
from a fund may increase expenses attributable to the assets remaining in the
fund. These increased expenses can have an adverse impact on the performance of
an affected fund and on contract or policy owners who have assets allocated to
it. Even if you do not participate in the Transfer Supported Programs you may be
impacted if you allocate assets to a fund, including the Funds, that is affected
by transfers under the Transfer Supported Features.
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FUND MANAGEMENT
MANAGEMENT FEES
Each Fund paid the Manager a fee for advisory services (including subadvisory
fees) during 2009 at the annual rate shown on the following table, before and
after fee waivers:
PERCENTAGE OF AVERAGE PERCENTAGE OF AVERAGE
NET ASSETS FOR THE PERIOD ENDED 12/31/09 NET ASSETS FOR THE PERIOD ENDED 12/31/09
BEFORE FEE WAIVERS AFTER FEE WAIVERS
AZL BlackRock Capital Appreciation Fund 0.80% 0.72%
AZL Columbia Mid Cap Value Fund 0.75% 0.75%
AZL Columbia Small Cap Value Fund** 0.90% 0.88%
AZL Davis NY Venture Fund 0.75% 0.71%
AZL Dreyfus Equity Growth Fund 0.78% 0.70%
AZL Eaton Vance Large Cap Value Fund 0.75% 0.71%
AZL Enhanced Bond Index Fund 0.35% 0.29%
AZL Franklin Small Cap Value Fund 0.75% 0.75%
AZL Franklin Templeton Founding Strategy Plus Fund 0.70% 0.69%
AZL Gateway Fund* NA NA
AZL International Index Fund 0.35% 0.14%
AZL Invesco International Equity Fund 0.90% 0.86%
AZL JPMorgan U.S. Equity Fund** 0.80% 0.77%
AZL MFS Investors Trust Fund 0.75% 0.72%
AZL Mid Cap Index Fund 0.25% 0.19%
AZL Money Market Fund 0.35% 0.25%
AZL NACM International Growth Fund 0.90% 0.19%
AZL NFJ International Value Fund 0.90% 0.80%
AZL OCC Growth Fund 0.75% 0.27%
AZL OCC Opportunity Fund 0.85% 0.85%
AZL Russell 1000 Growth Index Fund* NA NA
AZL Russell 1000 Value Index Fund* NA NA
AZL Schroder Emerging Markets Equity Fund 1.23% 1.00%
AZL S&P 500 Index Fund 0.17% 0.12%
AZL Small Cap Stock Index Fund 0.26% 0.16%
AZL Turner Quantitative Small Cap Growth Fund 0.85% 0.85%
AZL Van Kampen Equity and Income Fund 0.75% 0.69%
AZL Van Kampen Global Real Estate Fund 0.90% 0.84%
AZL Van Kampen Growth and Income Fund 0.76% 0.66%
AZL Van Kampen International Equity Fund 0.95% 0.89%
AZL Van Kampen Mid Cap Growth Fund 0.81% 0.77%
*Fund had not commenced operations during fiscal year 2009.
**The percentage shown for the Fund reflects recoupment of the fee waiver.
AZL MONEY MARKET FUND
The Manager has voluntarily undertaken to waive, reimburse, or pay the Fund's
expenses to the extent necessary in order to maintain a minimum daily net
investment income for the Fund of 0.00%. The Distributor may waive its Rule 12b-
1 fees. The amount waived, reimbursed, or paid by the Manager and/or the
Distributor will be repaid to the Manager and/or the Distributor subject to the
following limitations:
(1) the repayments will not cause the Fund's net investment income to fall below
0.00%;
(2) the repayments must be made no later than three years after the end of the
fiscal year in which the waiver, reimbursement, or payment took place; and
(3) any expense recovery paid by the Fund will not cause its expense ratio to
exceed 0.87%.
The ability of the Manager and/or the Distributor to receive such payments could
negatively affect the Fund's future yield.
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FUND MANAGEMENT
LEGAL PROCEEDINGS
As of April 30, 2010 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 Funds, the Manager or the principal
underwriter is a party. However, some of the subadvisers currently are the
subject of investigations or proceedings which relate to their management of
other mutual funds. Brief descriptions thereof are set forth below. Terms that
are defined in the following legal proceedings apply only to the sections in
which they appear. Such proceedings would be material only to the extent that
they are likely to have a material adverse effect on the ability of the
subadviser to perform its agreement with the Manager.
BLACKROCK CAPITAL MANAGEMENT, INC.
BlackRock Capital Management, Inc. is not the subject of any litigation that is
currently expected to be material to its business or have a material impact on
the services BlackRock Capital Management, Inc. provides to its clients.
BLACKROCK FINANCIAL MANAGEMENT, INC.
BlackRock Financial Management, Inc. is not the subject of any litigation that
is currently expected to be material to its business or have a material impact
on the services BlackRock Financial Management, Inc. provides to its clients.
BLACKROCK INSTITUTIONAL MANAGEMENT CORPORATION
BlackRock Institutional Management Corporation is not the subject of any
litigation that is currently expected to be material to its business or have a
material impact on the services BlackRock Institutional Management Corporation
provides to its clients.
BLACKROCK INVESTMENT MANAGEMENT, LLC
BlackRock Investment Management, LLC is not the subject of any litigation that
is currently expected to be material to its business or have a material impact
on the services BlackRock Investment Management, Inc. provides to its clients.
COLUMBIA MANAGEMENT INVESTMENT ADVISORS, LLC
To the best of its knowledge, the subadviser is not a party to any material
pending legal proceedings, other than ordinary routine litigation incidental to
the business.
DAVIS SELECTED ADVISERS, L.P.
To the best of its knowledge, the subadviser is not a party to any material
pending legal proceedings, other than ordinary routine litigation incidental to
the business.
THE DREYFUS CORPORATION
To the best of its knowledge, the subadviser is not a party to any material
pending legal proceedings, other than ordinary routine litigation incidental to
the business.
EATON VANCE
To the best of its knowledge, the subadviser is not a party to any material
pending legal proceedings, other than ordinary routine litigation incidental to
the business.
FRANKLIN ADVISERS, INC.
FRANKLIN ADVISORY SERVICES, LLC
FRANKLIN MUTUAL ADVISERS, LLC
In 2003 and 2004 multiple lawsuits were filed against Franklin Resources, Inc.,
and certain of its investment adviser subsidiaries, among other defendants,
alleging violations of federal securities and state laws and seeking, among
other relief, monetary damages, restitution, removal of fund trustees,
directors, investment managers, administrators, and distributors, rescission of
management contracts and 12b-1 plans, and/or attorneys' fees and costs.
Specifically, the lawsuits claim breach of duty with respect to alleged
arrangements to permit market timing and/or late trading activity, or breach of
duty with respect to the valuation of the portfolio securities of certain
Templeton funds managed by Franklin Resources, Inc. subsidiaries, allegedly
resulting in market timing activity. The lawsuits are styled as class actions or
derivative actions on behalf of either the named funds or Franklin Resources,
Inc. and have been consolidated for pretrial
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FUND MANAGEMENT
purposes along with hundreds of other similar lawsuits against other mutual fund
companies. All of the Franklin Templeton Investments mutual funds that were
named in the litigation as defendants have since been dismissed, as have the
independent trustees to those funds.
Franklin Resources, Inc. previously disclosed these private lawsuits in its
regulatory filings and on its public website. Any material updates regarding
these matters will be disclosed in Franklin Resources, Inc.'s Form 10-Q or Form
10-K filings with the U. S. Securities and Exchange Commission.
GATEWAY INVESTMENT ADVISERS, LLC
To the best of its knowledge, the subadviser is not a party to any material
pending legal proceedings.
INVESCO ADVISERS, INC.
Settled Enforcement Actions Related to Market Timing
On October 8, 2004, INVESCO Funds Group, Inc. (IFG) (the former investment
adviser to certain AIM Funds), Invesco Advisers, Inc. (Invesco), successor by
merger to Invesco Aim Advisors, Inc. and Invesco Aim Distributors reached final
settlements with certain regulators, including the SEC, the New York Attorney
General and the Colorado Attorney General, to resolve civil enforcement actions
and/or investigations related to market timing and related activity in the AIM
Funds, including those formerly advised by IFG. As part of the settlements, a
$325 million fair fund ($110 million of which is civil penalties) was created to
compensate shareholders harmed by market timing and related activity in funds
formerly advised by IFG. Additionally, Invesco and Invesco Aim Distributors
created a $50 million fair fund ($30 million of which is civil penalties) to
compensate shareholders harmed by market timing and related activity in funds
advised by Invesco, which was done pursuant to the terms of the settlements.
The methodology of the fair funds distributions was determined by Invesco's
independent distribution consultant (IDC Plan), in consultation with Invesco and
the independent trustees of the AIM Funds, and approved by the staff of the SEC.
Further details regarding the IDC Plan and distributions thereunder are
available under the "About Us - Legal Information - SEC Settlement" section of
Invesco's Web site, available at http://www.invescoaim.com. Invesco's Web site
is not a part of this Statement of Additional Information or the prospectus of
any AIM Fund.
Regulatory Action Alleging Market Timing
On August 30, 2005, the West Virginia Office of the State Auditor -
Securities Commission (WVASC) issued a Summary Order to Cease and Desist and
Notice of Right to Hearing to Invesco and Invesco Aim Distributors (Order No.
05-1318). The WVASC makes findings of fact that Invesco and Invesco Aim
Distributors entered into certain arrangements permitting market timing of the
AIM Funds and failed to disclose these arrangements in the prospectuses for such
Funds, and conclusions of law to the effect that Invesco and Invesco Aim
Distributors violated the West Virginia securities laws. The WVASC orders
Invesco and Invesco Aim Distributors to cease any further violations and seeks
to impose monetary sanctions, including restitution to affected investors,
disgorgement of fees, reimbursement of investigatory, administrative and legal
costs and an "administrative assessment," to be determined by the Commissioner.
Initial research indicates that these damages could be limited or capped by
statute. By agreement with the Commissioner of Securities, Invesco's time to
respond to that Order has been indefinitely suspended.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, Invesco, Invesco Aim Management and
certain related entities, certain of their current and former officers and/or
certain unrelated third parties) based on allegations of improper market timing,
and related activity in the AIM Funds. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of the Employee Retirement Income Security Act of 1974, as amended
(ERISA); (iii) breach of fiduciary duty; and/or (iv) breach of contract. These
lawsuits were initiated in both Federal and state courts and seek such remedies
as compensatory damages; restitution; injunctive relief; disgorgement of
management fees; imposition of a constructive trust; removal of certain
directors and/or employees; various corrective measures under ERISA; rescission
of certain Funds' advisory agreements; interest; and attorneys' and experts'
fees. All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for
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the District of Maryland (the MDL Court) for consolidated or coordinated pre-
trial proceedings. Pursuant to an Order of the MDL Court, plaintiffs in these
lawsuits consolidated their claims for pre-trial purposes into three amended
complaints against various Invesco - and IFG-related parties. The parties in
the amended complaints have agreed in principle to settle the actions. A list
identifying the amended complaints in the MDL Court and details of the
settlements are included in Appendix A-1.
APPENDIX A-1
PENDING LITIGATION ALLEGING MARKET TIMING
Pursuant to an Order of the MDL Court, plaintiffs in related lawsuits,
including purported class action and shareholder derivative suits, consolidated
their claims for pre-trial purposes into three amended complaints against,
depending on the lawsuit, various Invesco - and IFG-related parties: (i) a
Consolidated Amended Class Action Complaint purportedly brought on behalf of
shareholders of the AIM Funds (the Lepera lawsuit discussed below); (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants (the Essenmacher lawsuit discussed below);
and (iii) an Amended Class Action Complaint for Violations ERISA purportedly
brought on behalf of participants in Invesco's 401(k) plan (the Calderon lawsuit
discussed below).
RICHARD LEPERA, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED
(LEAD PLAINTIFF: CITY OF CHICAGO DEFERRED COMPENSATION PLAN), V. INVESCO
FUNDS GROUP, INC., AMVESCAP, PLC, AIM INVESTMENTS, AIM ADVISORS, INC.,
INVESCO INSTITUTIONAL (N.A.), INC., INVESCO ASSETS MANAGEMENT LIMITED,
INVESCO GLOBAL ASSETS MANAGEMENT (N.A.), AIM STOCK FUNDS, AIM MUTUAL FUNDS,
AIM COMBINATION STOCK & BOND FUNDS, AIM SECTOR FUNDS, AIM TREASURER'S SERIES
TRUST, INVESCO DISTRIBUTORS, INC., AIM DISTRIBUTORS, INC., RAYMOND R.
CUNNINGHAM, TIMOTHY J. MILLER, THOMAS A. KOLBE, MICHAEL D. LEGOSKI, MICHAEL
K. BRUGMAN, MARK WILLIAMSON, EDWARD J. STERN, CANARY CAPITAL PARTNERS, LLC,
CANARY INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., RYAN
GOLDBERG, MICHAEL GRADY, CITIGROUP, INC., CITIGROUP GLOBAL MARKETS HOLDINGS,
INC., SALOMON SMITH BARNEY, INC., MORGAN STANLEY DW, ANNA BRUGMAN, ANB
CONSULTING, LLC, KAPLAN & CO. SECURITIES INC., SECURITY TRUST COMPANY, N.A.,
GRANT D. SEEGER, JB OXFORD HOLDINGS, INC., NATIONAL CLEARING CORPORATION,
JAMES G. LEWIS, KRAIG L. KIBBLE, JAMES Y. LIN, BANK OF AMERICA CORPORATION,
BANC OF AMERICA SECURITIES LLC, THEODORE C. SIHPOL, III, BEAR STEARNS & CO.,
INC., BEAR STEARNS SECURITIES CORP., CHARLES SCHWAB & CO., CREDIT SUISSE
FIRST BOSTON (USA) INC., PRUDENTIAL FINANCIAL, INC., PRUDENTIAL SECURITIES,
INC., CANADIAN IMPERIAL BANK OF COMMERCE, JP MORGAN CHASE AND CO., AND JOHN
DOE DEFENDANTS 1-100, in the MDL Court (Case No. 04-MD-15864; No. 04-CV-
00814-JFM) (originally in the United States District Court for the District
of Colorado), filed on September 29, 2004. This lawsuit alleges violations
of Sections 11, 12(a) (2), and 15 of the Securities Act of 1933 (the
Securities Act); Section 10(b) of the Securities Exchange Act of 1934 (the
Exchange Act) and Rule 10b-5 promulgated thereunder; Section 20(a) of the
Exchange Act; Sections 34(b), 36(a), 36(b) and 48(a) of the Investment
Company Act of 1940 (the Investment Company Act); breach of fiduciary
duty/constructive fraud; aiding and abetting breach of fiduciary duty; and
unjust enrichment. The plaintiffs in this lawsuit are seeking: compensatory
damages, including interest; and other costs and expenses, including counsel
and expert fees.
CYNTHIA ESSENMACHER, SILVANA G. DELLA CAMERA, FELICIA BERNSTEIN AS CUSTODIAN
FOR DANIELLE BROOKE BERNSTEIN, EDWARD CASEY, TINA CASEY, SIMON DENENBERG,
GEORGE L. GORSUCH, PAT B. GORSUCH, L. SCOTT KARLIN, HENRY KRAMER, JOHN E.
MORRISEY, HARRY SCHIPPER, BERTY KREISLER, GERSON SMITH, CYNTHIA PULEO,
ZACHARY ALAN STARR, JOSHUA GUTTMAN, AND AMY SUGIN, DERIVATIVELY ON BEHALF OF
THE MUTUAL FUNDS, TRUSTS AND CORPORATIONS COMPRISING THE INVESCO AND AIM
FAMILY OF MUTUAL FUNDS V. AMVESCAP, PLC, INVESCO FUNDS GROUP, INC., INVESCO
DISTRIBUTORS, INC., INVESCO INSTITUTIONAL (N.A.), INC., INVESCO ASSETS
MANAGEMENT LIMITED, INVESCO GLOBAL ASSETS MANAGEMENT (N.A.), AIM MANAGEMENT
GROUP, INC., AIM ADVISORS, INC., AIM INVESTMENT SERVICES, INC., AIM
DISTRIBUTORS, INC., FUND MANAGEMENT COMPANY, MARK H. WILLIAMSON,
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RAYMOND R. CUNNINGHAM, TIMOTHY MILLER, THOMAS KOLBE, MICHAEL LEGOSKI, MICHAEL
BRUGMAN, FRED A. DEERING, VICTOR L. ANDREWS, BOB R. BAKER, LAWRENCE H.
BUDNER, JAMES T. BUNCH, GERALD J. LEWIS, JOHN W. MCINTYRE, LARRY SOLL, RONALD
L. GROOMS, WILLIAM J. GALVIN, JR., ROBERT H. GRAHAM, FRANK S. BAYLEY, BRUCE
L. CROCKETT, ALBERT R. DOWDEN, EDWARD K. DUNN, JACK M. FIELDS, CARL
FRISCHILING, PREMA MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH H. QUIGLEY, LOUIS S.
SKLAR, OWEN DALY II, AURUM SECURITIES CORP., AURUM CAPITAL MANAGEMENT CORP.,
GOLDEN GATE FINANCIAL GROUP, LLC, BANK OF AMERICA CORP., BANC OF AMERICA
SECURITIES LLC, BANK OF AMERICA, N.A., BEAR STEARNS & CO., INC., CANARY
CAPITAL PARTNERS, LLC, CANARY CAPITAL PARTNERS, LTD., CANARY INVESTMENT
MANAGEMENT, LLC, EDWARD J. STERN, CANADIAN IMPERIAL BANK OF COMMERCE, CIRCLE
TRUST COMPANY, RYAN GOLDBERG, MICHAEL GRADY, KAPLAN & CO. SECURITIES, INC.,
JP MORGAN CHASE & CO., OPPENHEIMER & CO., INC., PRITCHARD CAPITAL PARTNERS
LLC, TIJA MANAGEMENT, TRAUTMAN WASSERMAN & COMPANY, INC., DEFENDANTS, AND THE
INVESCO FUNDS AND THE AIM FUNDS AND ALL TRUSTS AND CORPORATIONS THAT COMPRISE
THE INVESCO FUNDS AND AIM FUNDS THAT WERE MANAGED BY INVESCO AND AIM, NOMINAL
DEFENDANTS, in the MDL Court (Case No. 04-MD-15864-FPS; No. 04-819), filed on
September 29, 2004. This lawsuit alleges violations of Sections 206 and 215
of the Investment Advisers Act of 1940, as amended (the Advisers Act);
Sections 36(a), 36(b) and 47 of the Investment Company Act; control person
liability under Section 48 of the Investment Company Act; breach of fiduciary
duty; aiding and abetting breach of fiduciary duty; breach of contract;
unjust enrichment; interference with contract; and civil conspiracy. The
plaintiffs in this lawsuit are seeking: removal of director defendants;
removal of adviser, sub-adviser and distributor defendants; rescission of
management and other contracts between the Funds and defendants; rescission
of 12b-1 plans; disgorgement of management fees and other
compensation/profits paid to adviser defendants; compensatory and punitive
damages; and fees and expenses, including attorney and expert fees.
MIRIAM CALDERON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
V. AVZ, INC., AMVESCAP RETIREMENT, INC., AMVESCAP NATIONAL TRUST COMPANY,
INVESCO FUNDS GROUP, INC., AMVESCAP, ROBERT F. MCCULLOUGH, GORDON NEBEKER,
JEFFREY G. CALLAHAN, AND RAYMOND R. CUNNINGHAM, in the MDL Court (Case No.
1:04-MD-15864-FPS), filed on September 29, 2004. This lawsuit alleges
violations of ERISA Sections 404, 405 and 406. The plaintiffs in this
lawsuit are seeking: declaratory judgment; restoration of losses suffered by
the plan; disgorgement of profits; imposition of a constructive trust;
injunctive relief; compensatory damages; costs and attorneys' fees; and
equitable restitution.
On January 5, 2008, the parties reached an agreement in principle to settle
both the class action (Lepera) and the derivative (Essenmacher) lawsuits,
subject to the MDL Court approval. Individual class members have the right to
object.
On December 15, 2008, the parties reached an agreement in principle to settle
the ERISA (Calderon) lawsuit, subject to the MDL Court approval. Individual
class members have the right to object. No payments are required under the
settlement; however, the parties agreed that certain limited changes to benefit
plans and participants' accounts would be made.
APPENDIX A-2
OTHER ACTIONS INVOLVING AIM FLOATING RATE FUND
AIM Floating Rate Fund has been named as a defendant in a private civil
action based on its position as a creditor to a certain entity that has filed a
petition in bankruptcy court. Set forth below is a brief description of the
civil lawsuit in this category that either has been served or has had service of
process waived.
ADELPHIA COMMUNICATIONS CORP. AND ITS AFFILIATE DEBTORS IN POSSESSION AND
OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF ADELPHIA COMMUNICATIONS CORP. V.
BANK OF AMERICA, INDIVIDUALLY AND AS AGENT FOR VARIOUS BANKS PARTY TO CREDIT
AGREEMENTS, AIM FLOATING RATE FUND, ET AL., in the United States Bankruptcy
Court for the Southern District of New York, Case No. 02-41729, filed July 6,
2003. This is an adversary proceeding by Adelphia Communications Corp.
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(Adelphia) and related parties, along with its Official Committee of
Unsecured Creditors, against more than 360 banks, financial services
companies, insurance companies, investment banks, mutual funds and other
parties that had arranged for the sale of, or purchased the bank debt of,
Adelphia or its related parties. Named defendants include AIM Floating Rate
Fund as a purchaser of this bank debt. The Complaint alleges that the
purchasers of this bank debt knew, or should have known, that the loan
proceeds would not benefit Adelphia, but instead would be used to enrich
Adelphia insiders. It seeks avoidance of the loans and recovery of
intentionally fraudulent transfers. AIM Floating Rate Fund and similarly
situated non-agent bank lenders have negotiated a resolution to their claims
as creditors in the Adelphia bankruptcy; however, this adversary proceeding
will continue. On June 11, 2007, the judge in this adversary proceeding
ruled on the Agent Banks' Motions to Dismiss and dismissed some of the claims
but left most of the suit intact. Plaintiffs filed their Amended Complaint
against almost 700 defendants on October 19, 2007; but made no new
allegations against AIM Floating Rate Fund. This latest Amended Complaint
adds hundreds of new defendants, and makes materially different claims and is
much more than a repleading of the prior Complaint's allegations. AIM
Floating Rate Fund is still the only Invesco-related party named as a
defendant. On June 17, 2008, the Court granted, in its entirety, the Motion
to Dismiss filed by a group of defendants that includes AIM Floating Rate
Fund and dismissed all of Adelphia's claims against it. On July 17, 2008,
the AIM Floating Rate Fund's group of defendants filed a Motion to make the
Dismissal a Final Judgment, which the court granted. Adelphia appealed the
ruling, and the appeal is pending.]
J.P. MORGAN INVESTMENT MANAGEMENT INC.
J.P. Morgan Investment Management Inc. is not the subject of any litigation that
is currently expected to be material to its business or have a material impact
on the services J.P. Morgan Investment Management provides to its clients.
MASSACHUSETTS FINANCIAL SERVICES COMPANY
Massachusetts Financial Services Company ("MFS") is not a party to any pending
legal proceedings that are currently expected to have a material adverse effect
on the AZL MFS Investors Trust Fund or on the ability of MFS to perform services
to the AZL MFS Investors Trust Fund.
NFJ INVESTMENT GROUP LLC
To the best of its knowledge, the subadviser is not a party to any material
pending legal proceedings, other than ordinary routine litigation incidental to
the business.
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT LLC
To the best of its knowledge, the subadviser is not a party to any material
pending legal proceedings, other than ordinary routine litigation incidental to
the business.
OPPENHEIMER CAPITAL LLC
To the best of its knowledge, the subadviser is not a party to any material
pending legal proceedings, other than ordinary routine litigation incidental to
the business.
SCHRODER INVESTMENT MANAGEMENT NORTH AMERICA INC.
To the best of its knowledge, the subadviser is not a party to any material
pending legal proceedings, other than ordinary routine litigation incidental to
the business.
TEMPLETON GLOBAL ADVISORS LIMITED
In 2003 and 2004 multiple lawsuits were filed against Franklin Resources, Inc.,
and certain of its investment adviser subsidiaries, among other defendants,
alleging violations of federal securities and state laws and seeking, among
other relief, monetary damages, restitution, removal of fund trustees,
directors, investment managers, administrators, and distributors, rescission of
management contracts and 12b- 1 plans, and/or attorneys' fees and costs.
Specifically, the lawsuits claim breach of duty with respect to alleged
arrangements to permit market timing and/or late trading activity, or breach of
duty with respect to the valuation of the portfolio securities of certain
Templeton funds managed by Franklin Resources, Inc. subsidiaries, allegedly
resulting in market timing activity. The lawsuits are styled as class actions or
derivative actions on behalf of either the named funds or Franklin Resources,
Inc. and have been consolidated for pretrial purposes along with hundreds of
other similar lawsuits against other mutual fund companies. All of the Franklin
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Templeton Investments mutual funds that were named in the litigation as
defendants have since been dismissed, as have the independent trustees to those
funds.
Franklin Resources, Inc. previously disclosed these private lawsuits in its
regulatory filings and on its public website. Any material updates regarding
these matters will be disclosed in Franklin Resources, Inc.'s Form 10-Q or Form
10-K filings with the U. S. Securities and Exchange Commission.
TURNER INVESTMENT PARTNERS, INC.
To the best of its knowledge, the subadviser is not a party to any material
pending legal proceedings, other than ordinary routine litigation incidental to
the business.
VAN KAMPEN ASSET MANAGEMENT (MORGAN STANLEY)
Morgan Stanley discloses pending litigation that it believes is or may be
material in its filings on Form 10-K and Forms 10-Q made with the U.S.
Securities and Exchange Commission (the "Commission"). For information regarding
such litigation, please refer to the information under Part I, Item 3 in Morgan
Stanley's Form 10-K (File No. 1-11758) with respect to the fiscal year ended
December 31, 2009, as filed with the Commission.
With respect to Van Kampen, no material items were reported on Morgan Stanley's
Form 10-K for the fiscal year ended December 31, 2009.
THE ADMINISTRATOR
Citi Fund Services Ohio, Inc. ("CFSO"), whose address is 3435 Stelzer Road,
Columbus, Ohio 43219-3035, serves as the Funds' administrator, transfer agent
and fund accountant. Administrative services of CFSO include providing office
space, equipment and clerical personnel to the Funds and supervising custodial,
auditing, valuation, bookkeeping, legal and dividend disbursing services.
THE DISTRIBUTOR
Allianz Life Financial Services, LLC ("ALFS"), whose address is 5701 Golden
Hills Drive, Minneapolis, Minnesota 55416, serves as the Funds' distributor.
ALFS is affiliated with the Manager.
OTHER DISTRIBUTION SERVICES
The Affiliated Insurance Companies may make payments for distribution services
to other companies, including their affiliates, to provide certain distribution
related services for the Funds. The companies that receive such payments may in
turn, pay any or all of these fees to their registered representatives who have
provided distribution services. The payments made for distribution services
under these agreements are paid by the Affiliated Insurance Companies and are
not paid out of Fund assets.
THE CUSTODIAN
The Bank of New York Mellon ("BNY Mellon"), whose address is One Wall Street,
New York, New York 10286, serves as custodian of the Fund. BNY Mellon. BNY
Mellon is paid certain fees and reimbursed for certain out-of-pocket expenses
for its services. Fees paid by the Fund for these services are included under
"Other Expenses" in the Fees and Expenses table for each Fund. BNY Mellon is
affiliated with The Dreyfus Corporation.
The SAI provides additional information about the services provided to the
Funds.
LICENSING ARRANGEMENTS
AZL S&P 500 INDEX FUND AND AZL SMALL CAP STOCK INDEX FUND (THE "AZL INDEX
FUNDS")
The AZL S&P 500 Index Fund and AZL Small Cap Stock Index Fund (the "AZL Index
Funds") are not sponsored, endorsed, sold or promoted by Standard & Poor's, a
division of The McGraw-Hill Companies, Inc. ("S&P"). S&P makes no representation
or warranty, express or implied, to the owners of the AZL Index Funds or any
member of the public regarding the advisability of investing in securities
generally or in the AZL Index Funds particularly or the ability of the S&P 500
Index and the S&P SmallCap 600 Index to track general stock market performance.
S&P's only relationship to the Manager (the "Licensee") is the licensing of
certain trademarks and trade names of S&P and of the S&P 500 Index
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and the S&P SmallCap 600 Index which is determined, composed and calculated by
S&P without regard to the Licensee or the AZL Index Funds. S&P has no obligation
to take the needs of the Licensee or the owners of the AZL Index Funds into
consideration in determining, composing or calculating the S&P 500 Index and the
S&P SmallCap 600 Index. S&P is not responsible for and has not participated in
the determination of the prices and amount of the AZL Index Funds or the timing
of the issuance or sale of the AZL Index Funds or in the determination or
calculation of the equation by which the AZL Index Funds is to be converted into
cash. S&P has no obligation or liability in connection with the administration,
marketing or trading of the AZL Index Funds.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX, THE S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL
HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES
NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE,
OWNERS OF THE AZL INDEX FUNDS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
S&P 500 INDEX, THE S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN. S&P
MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO
THE S&P 500 INDEX, THE S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY
FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
AZL RUSSELL 1000 GROWTH INDEX FUND AND AZL RUSSELL 1000 VALUE INDEX FUND (THE
"AZL RUSSELL INDEX FUNDS")
Russell Investment Group is the source and owner of the trademarks, service
marks and copyrights related to the Russell Indexes. Russell[R] is
a trademark of Russell Investment Group.
The AZL Russell Index Funds are not promoted, sponsored or endorsed by, nor in
any way affiliated with Russell Investments ("Russell"). Russell is not
responsible for and has not reviewed the AZL Russell Index Funds nor any
associated literature or publications and Russell makes no representation or
warranty, express or implied, as to their accuracy, or completeness, or
otherwise.
Russell reserves the right, at any time and without notice, to alter, amend,
terminate or in any way change the Russell Indexes. Russell has no obligation
to take the needs of any particular fund or its participants or any other
product or person into consideration in determining, composing or calculating
any of the Russell Indexes.
Russell's publication of the Russell Indexes in no way suggests or implies an
opinion by Russell as to the attractiveness or appropriateness of investment in
any or all securities upon which the Russell Indexes are based. RUSSELL MAKES
NO REPRESENTATION, WARRANTY, OR GUARANTEE AS TO THE ACCURACY, COMPLETENESS,
RELIABILITY, OR OTHERWISE OF THE RUSSELL INDEXES OR ANY DATA INCLUDED IN THE
RUSSELL INDEXES. RUSSELL MAKES NO REPRESENTATION, WARRANTY OR GUARANTEE
REGARDING THE USE, OR THE RESULTS OF USE, OF THE RUSSELL INDEXES OR ANY DATA
INCLUDED THEREIN, OR ANY SECURITY (OR COMBINATION THEREOF) COMPRISING THE
RUSSELL INDEXES. RUSSELL MAKES NO OTHER EXPRESS OR IMPLIED WARRANTY, AND
EXPRESSLY DISCLAIMS ANY WARRANTY, OF ANY KIND, INCLUDING WITHOUT LIMITATION, ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO
THE RUSSELL INDEX(ES) OR ANY DATA OR ANY SECURITY (OR COMBINATION THEREOF)
INCLUDED THEREIN.
DISCLOSURE OF PORTFOLIO HOLDINGS
A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio holdings is included in the SAI.
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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. The NAV is calculated by adding
the total value of a Fund's investments and other assets, subtracting its
liabilities, and then dividing that figure by the number of outstanding shares
of the Fund:
NAV = (Total Assets - Liabilities) {divide} Number of Shares Outstanding
Per share NAV for each Fund, other than the Money Market Fund, is determined and
its shares are priced at the close of regular trading on the New York Stock
Exchange, normally at 4:00 p.m. Eastern Time, on days the NYSE is open.
The securities (other than short-term debt securities) of the Funds, with the
exception of the AZL Money Market Fund, are generally valued at current market
prices. The AZL Money Market Fund values its securities at amortized cost (see
below). Also, if market quotations are not available, or if an event occurs
after the pricing of a security has been established that 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 Funds' Trustees.
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 trading on the principal exchange. The close of
trading for some options exchanges may occur later than the 4:00 p.m. closing of
the NYSE, but is not expected to occur later than 4:15 p.m. Eastern Time. This
means that a Fund holding options may not determine its NAV until 4:15 p.m.
Eastern Time. 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.
Foreign securities held by the Funds are valued on a daily basis using a fair
valuation program approved by the Funds' Trustees. The fair valuation program
includes processes administered by an independent pricing agent (based upon
changes in certain markets, indices, and/or securities, if applicable) that may
result in a value different from the last closing price of such foreign security
on its principal overseas market or exchange.
The effect of using fair value pricing is that the Fund's NAV will be subject to
the judgment of the Board of Trustees or its designees instead of being
determined by the market. In addition, foreign securities acquired by a Fund may
be valued in foreign markets on days when the Fund's NAV is not calculated. In
such cases, the NAV of a Fund may be significantly affected on days when
investors cannot buy or sell shares.
MONEY MARKET FUND
The Money Market Fund's NAV, the offering price, is expected to be constant at
$1.00 per share although this value is not guaranteed. The NAV is determined as
of the close of trading on the NYSE (generally 4:00 p.m. Eastern Time) that day.
The Money Market Fund values its securities at its amortized cost. The amortized
cost method values a portfolio security initially at its cost on the date of the
purchase and thereafter assuming a constant amortization to maturity of the
difference between the principal amount due at maturity and initial cost.
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.
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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 and redemption 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.
The Funds currently do not foresee any disadvantages to investors if the Funds
serve as an investment medium for both variable annuity contracts and variable
life insurance policies. However, it is theoretically possible that the interest
of owners of annuity contracts and insurance policies for which the Funds serve
as an investment medium might at some time be in conflict due to differences in
tax treatment or other considerations. The Board of Trustees and each
participating insurance company would be required to monitor events to identify
any material conflicts between variable annuity contract owners and variable
life insurance policy owners, and would have to determine what action, if any,
should be taken in the event of such a conflict. If such a conflict occurred, an
insurance company investing in a Fund might be required to redeem the investment
of one or more of its separate accounts from the Fund, which might force the
Fund to sell securities at disadvantageous prices.
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 Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
146
SHAREHOLDER INFORMATION
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.
DISTRIBUTION (12B-1) FEES
Each Fund has adopted a plan under Rule 12b-1 of the Investment Company Act of
1940. Distribution fees ("12b-1 fees") under the plan compensate the Distributor
and affiliates of Allianz Life Insurance Company of North America for services
and expenses relating to the distribution of the Funds' shares in connection
with the variable products through which Fund shares are sold. 12b-1 fees are
paid from Fund assets on an ongoing basis. Over time these fees will increase
the cost of your investment and may cost you more than paying other types of
sales charges.
Each of the Funds (except Class 1 shares of the Multi-Class Funds as identified
below) pays an annual 12b-1 fee in the maximum amount of 0.25% of their average
daily net assets.
The Trustees have authorized the Trust to issue two classes of shares, Class 1
and Class 2, for the following Funds: AZL Davis NY Venture Fund, AZL Columbia
Small Cap Value Fund, AZL JPMorgan U.S. Equity Fund, AZL S&P 500 Index Fund, and
AZL Schroder Emerging Markets Equity Fund (the "Multi-Class Funds"). Class 1 and
Class 2 shares of the Multi-Class Funds are substantially identical, except that
Class 1 shares are not subject to a 12b-1 distribution fee, while Class 2 shares
are subject to a 12b-1 distribution fee in the amount of 0.25% of average daily
net assets attributable to Class 2 shares. Class 1 shares of the AZL S&P 500
Index Fund and AZL Schroder Emerging Markets Equity Fund are available as an
investment option only for certain Contracts. Currently, only Class 2 shares of
the AZL Davis NY Venture Fund, AZL Columbia Small Cap Value Fund, and AZL
JPMorgan U.S. Equity Fund are available; Class 1 shares are not available.
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. Income dividends on the
AZL Money Market Fund are usually paid monthly. 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.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
147
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
financial performance of the Funds 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 report, along with the
Funds' 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. Copies of such
Annual Report are available without charge upon written request from the Funds
at 3435 Stelzer Road, Columbus, Ohio 43219, or by calling toll free 1-877-833
7113.
Financial highlights are not presented for AZL Gateway Fund, AZL Russell 1000
Growth Index Fund and AZL Russell 1000 Value Index Fund because those Funds had
not commenced operations as of December 31, 2009.
The Allianz Variable Insurance Products Trust - Prospectus
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FINANCIAL HIGHLIGHTS
AZL AIM INTERNATIONAL EQUITY FUND (NOW KNOWN AS AZL INVESCO INTERNATIONAL EQUITY
FUND)
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31,
2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.31 $ 19.95 $ 18.27 $ 14.57 $ 12.64
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss)........ 0.08 0.28 0.13 0.05 0.02
Net Realized and Unrealized Gains/(Losses) on Investments 3.45 (8.16) 2.51 3.86 2.04
Total from Investment Activities.... 3.53 (7.88) 2.64 3.91 2.06
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income............... (0.23) (0.08) (0.11) (0.03) (0.03)
Net Realized Gains - (1.68) (0.85) (0.18) (0.10)
Total Dividends (0.23) (1.76) (0.96) (0.21) (0.13)
NET ASSET VALUE, END OF PERIOD...... $ 13.61 $ 10.31 $ 19.95 $ 18.27 $ 14.57
TOTAL RETURN(A) 34.33% (41.51)% 14.62% 27.04% 16.36%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's).. $ 405,230 $ 176,746 $ 373,047 $ 317,614 $ 169,997
Net Investment Income/(Loss)........ 1.09% 1.66% 0.61% 0.44% 0.52%
Expenses Before Reductions(b)....... 1.32% 1.37% 1.35% 1.45% 1.50%
Expenses Net of Reductions.......... 1.28% 1.37% 1.35% 1.45% 1.43%
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) 1.28% 1.37% 1.35% 1.45% 1.45%
Portfolio Turnover Rate............. 34.63%(d) 43.70% 41.62% 47.75% 34.54%
(a) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(b) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(c) Expenses net of reductions excludes expenses paid indirectly, pursuant to a "commission recapture" program, under which brokers
remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial
Statements.
(d) Costs of purchases and proceeds from sales of portfolio securities incurred to realign the Fund's portfolio after a fund merger
are excluded from the portfolio turnover rate. If such amounts had not been excluded, the portfolio turnover rate would have
been 77.09%.
AZL BLACKROCK CAPITAL APPRECIATION FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31, APRIL 29, 2005 TO
DECEMBER 31,
2009 2008 2007 2006 2005(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.66 $ 13.61 $ 12.27 $ 12.08 $ 10.00
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss)........ 0.01 0.01 (0.01) (0.02) (0.01)
Net Realized and Unrealized Gains/(Losses) on Investments 3.06 (4.96) 1.35 0.21 2.09
Total from Investment Activities.... 3.07 (4.95) 1.34 0.19 2.08
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income............... -(b) - - - -
Total Dividends -(b) - - - -
NET ASSET VALUE, END OF PERIOD...... $ 11.73 $ 8.66 $ 13.61 $ 12.27 $ 12.08
TOTAL RETURN(C) (D) 35.46% (36.37)% 10.92% 1.57% 20.80%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD ($000'S).. $ 489,930 $ 99,344 $ 62,264 $ 49,384 $ 36,577
Net Investment Income/(Loss)(e)..... 0.11% 0.08% (0.11)% (0.22)% (0.45)%
Expenses Before Reductions(e) (f)... 1.15% 1.20% 1.18% 1.19% 1.29%
Expenses Net of Reductions(e)....... 1.07% 1.16% 1.16% 1.18% 1.20%
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(e) (g) 1.07% 1.19% 1.18% 1.19% N/A
Portfolio Turnover Rate(d).......... 80.26%(h) 175.17% 75.74% 88.02% 24.31%
(a) Period from commencement of operations.
(b) Represents less than $0.005.
(c) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(d) Not annualized for periods less than one year.
(e) Annualized for periods less than one year.
(f) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(g) Expenses net of reductions excludes expenses paid indirectly, pursuant to a "commission recapture" program, under which brokers
remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial
Statements.
(h) Costs of purchases and proceeds from sales of portfolio securities incurred to realign the Fund's portfolio after a fund merger
are excluded from the portfolio turnover rate. If such amounts had not been excluded, the portfolio turnover rate would have
been 102.12%.
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FINANCIAL HIGHLIGHTS
AZL COLUMBIA MID CAP VALUE FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31, MAY 1, 2006 TO
DECEMBER 31,
2009 2008 2007 2006(A)
NET ASSET VALUE, BEGINNING OF PERIOD............ $ 5.01 $ 10.53 $ 10.14 $ 10.00
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss).................... 0.03 0.06 0.05 0.03
Net Realized and Unrealized Gains/(Losses) on Investments 1.59 (5.53) 0.34 0.14
Total from Investment Activities................ 1.62 (5.47) 0.39 0.17
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income........................... (0.05) (0.05) -(b) (0.03)
Total Dividends (0.05) (0.05) -(b) (0.03)
NET ASSET VALUE, END OF PERIOD.................. $ 6.58 $ 5.01 $ 10.53 $ 10.14
TOTAL RETURN(C) (D) 32.30% (52.15)% 3.85% 1.72%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's).............. $ 100,908 $ 52,313 $ 94,377 $ 65,535
Net Investment Income/(Loss)(e)................. 0.98% 0.74% 0.50% 0.59%
Expenses Before Reductions(e) (f)............... 1.13% 1.13% 1.10% 1.14%
Expenses Net of Reductions(e)................... 1.07% 1.10% 1.07% 1.12%
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(e) (g) 1.13% 1.13% 1.10% 1.14%
Portfolio Turnover Rate(d)...................... 67.46% 98.79% 62.98% 16.03%
(a) Period from commencement of operations.
(b) Represents less than $0.005.
(c) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(d) Not annualized for periods less than one year.
(e) Annualized for periods less than one year.
(f) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(g) Expenses net of reductions excludes expenses paid indirectly, pursuant to a "commission recapture" program, under which brokers
remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial
Statements.
AZL COLUMBIA SMALL CAP VALUE FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31,
2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING OF PERIOD...... $ 6.97 $ 11.29 $ 13.20 $ 12.30 $ 12.06
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss).............. 0.02 0.04 0.05 0.03 0.01
Net Realized and Unrealized Gains/(Losses) on Investments 1.70 (3.43) (1.09) 1.57 0.40
Total from Investment Activities.......... 1.72 (3.39) (1.04) 1.60 0.41
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income..................... (0.02) (0.05) (0.03) (0.01) -
Net Realized Gains - (0.88) (0.84) (0.69) (0.17)
Total Dividends (0.02) (0.93) (0.87) (0.70) (0.17)
NET ASSET VALUE, END OF PERIOD............ $ 8.67 $ 6.97 $ 11.29 $ 13.20 $ 12.30
TOTAL RETURN(A) 24.69% (32.09)% (8.24)% 13.40% 3.39%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD ($000'S)........ $ 87,683 $ 36,420 $ 59,468 $ 73,914 $ 56,954
Net Investment Income/(Loss).............. 0.60% 0.52% 0.33% 0.28% 0.10%
Expenses Before Reductions(b)............. 1.40% 1.49% 1.29% 1.35% 1.41%
Expenses Net of Reductions................ 1.30% 1.37% 1.23% 1.31% 1.35%
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) 1.35% 1.37% 1.24% 1.31% N/A
Portfolio Turnover Rate................... 45.74% 214.25% 60.22% 90.10% 111.78%
(a) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(b) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(c) Expenses net of reductions excludes expenses paid indirectly, pursuant to a "commission recapture" program, under which brokers
remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial
Statements.
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FINANCIAL HIGHLIGHTS
AZL DAVIS NY VENTURE FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31,
2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING OF PERIOD.. $ 8.09 $ 14.13 $ 13.61 $ 11.99 $ 11.13
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss).......... 0.16 0.07 0.11 0.06 0.03
Net Realized and Unrealized Gains/(Losses) on Investments 2.41 (5.70) 0.47 1.59 1.04
Total from Investment Activities...... 2.57 (5.63) 0.58 1.65 1.07
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income................. (0.07) (0.11) (0.06) (0.03) (0.01)
Net Realized Gains - (0.30) - - (0.20)
Total Dividends (0.07) (0.41) (0.06) (0.03) (0.21)
NET ASSET VALUE, END OF PERIOD........ $ 10.59 $ 8.09 $ 14.13 $ 13.61 $ 11.99
TOTAL RETURN(A) 31.83% (40.50)% 4.15% 13.91% 9.68%
RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's).... $ 573,305 $ 451,995 $ 572,298 $ 538,315 $ 348,036
Net Investment Income/(Loss).......... 1.72% 0.83% 0.82% 0.61% 0.54%
Expenses Before Reductions(b)......... 1.11% 1.12% 1.09% 1.12% 1.20%
Expenses Net of Reductions............ 1.06% 1.07% 1.09% 1.12% 1.20%
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) 1.06% 1.08% 1.09% 1.12% 1.20%
Portfolio Turnover Rate............... 23.29% 25.95% 14.67% 8.49% 3.62%
(a) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(b) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(c) Expenses net of reductions excludes expenses paid indirectly, pursuant to a "commission recapture" program, under which brokers
remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial
Statements.
AZL DREYFUS EQUITY GROWTH FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31,
2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING OF PERIOD.. $ 5.86 $ 11.05 $ 10.52 $ 9.84 $ 9.77
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss).......... 0.04 0.04 0.02 0.01 -(a)
Net Realized and Unrealized Gains/(Losses) on Investments 1.99 (4.40) 0.89 1.22 0.44
Total from Investment Activities...... 2.03 (4.36) 0.91 1.23 0.44
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income................. (0.03) (0.03) (0.01) -(a) (0.03)
Net Realized Gains - (0.80) (0.37) (0.55) (0.34)
Total Dividends (0.03) (0.83) (0.38) (0.55) (0.37)
NET ASSET VALUE, END OF PERIOD........ $ 7.86 $ 5.86 $ 11.05 $ 10.52 $ 9.84
TOTAL RETURN(B) 34.76% (41.63)% 8.75% 12.93% 4.56%
RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's).... $ 154,388 $ 124,602 $ 292,684 $ 120,849 $ 88,325
Net Investment Income/(Loss).......... 0.49% 0.33% 0.34% 0.12% 0.00%
Expenses Before Reductions(c)......... 1.12% 1.10% 1.23% 1.19% 1.22%
Expenses Net of Reductions............ 0.97% 0.98% 1.17% 1.19% 1.19%
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(d) 1.05% 1.03% 1.20% 1.19% 1.20%
Portfolio Turnover Rate............... 164.97% 127.46% 73.29% 117.91% 134.74%
(a) Amount less than $0.005.
(b) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(c) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(d) Expenses net of reductions excludes expenses paid indirectly, pursuant to a "commission recapture" program, under which brokers
remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial
Statements.
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FINANCIAL HIGHLIGHTS
AZL EATON VANCE LARGE CAP VALUE FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31,
2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING OF PERIOD.. $ 6.17 $ 11.21 $ 12.00 $ 11.15 $ 11.23
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss).......... 0.10 0.22 0.19 0.18 0.11
Net Realized and Unrealized Gains/(Losses) on Investments 1.53 (3.95) (0.43) 1.52 0.31
Total from Investment Activities...... 1.63 (3.73) (0.24) 1.70 0.42
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income................. (0.21) (0.20) (0.20) (0.13) (0.04)
Net Realized Gains - (1.11) (0.35) (0.72) (0.46)
Total Dividends (0.21) (1.31) (0.55) (0.85) (0.50)
NET ASSET VALUE, END OF PERIOD........ $ 7.59 $ 6.17 $ 11.21 $ 12.00 $ 11.15
TOTAL RETURN(A) 26.53% (36.18)% (2.22)% 15.76% 3.92%
RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's).... $ 408,379 $ 345,769 $ 754,496 $ 705,155 $ 559,933
Net Investment Income/(Loss).......... 1.36% 2.00% 1.58% 1.71% 1.44%
Expenses Before Reductions(b)......... 1.10% 1.07% 1.08% 1.08% 1.19%
Expenses Net of Reductions............ 1.05% 1.01% 1.05% 1.05% 1.18%
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) 1.07% 1.03% 1.05% 1.05% 1.19%
Portfolio Turnover Rate............... 118.17% 25.81% 22.75% 28.14% 30.83%
(a) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(b) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(c) Expenses net of reductions excludes expenses paid indirectly, pursuant to a "commission recapture" program, under which brokers
remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial
Statements.
AZL ENHANCED BOND INDEX FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIOD INDICATED)
JULY 10, 2009 TO
DECEMBER 31,
2009(A)
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 10.00
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss)............................................. 0.03
Net Realized and Unrealized Gains/(Losses) on Investments................ 0.01(b)
Total from Investment Activities......................................... 0.04
NET ASSET VALUE, END OF PERIOD........................................... $ 10.04
TOTAL RETURN(C) (D) 0.40%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's)....................................... $ 127,833
Net Investment Income/(Loss)(e).......................................... 1.34%
Expenses Before Reductions(e) (f)........................................ 0.76%
Expenses Net of Reductions(e)............................................ 0.70%
Portfolio Turnover Rate(d)............................................... 365.51%
(a) Period from commencement of operations.
(b) The amount shown for a share outstanding throughout the period does not accord with the change in aggregate gains and losses in
the portfolio of securities during the period because of the timing of sales and purchases of Fund shares in relation to
fluctuating fair values during the period.
(c) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(d) Not annualized for periods less than one year.
(e) Annualized for periods less than one year.
(f) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
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FINANCIAL HIGHLIGHTS
AZL FRANKLIN SMALL CAP VALUE FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31,
2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING OF PERIOD. $ 10.31 $ 16.47 $ 17.96 $ 16.54 $ 15.63
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss)......... 0.15 0.18 0.14 0.17 0.08(a)
Net Realized and Unrealized Gains/(Losses) on Investments 3.01 (5.47) (0.88) 2.29 1.02
Total from Investment Activities..... 3.16 (5.29) (0.74) 2.46 1.10
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income................ (0.20) (0.17) (0.10) (0.05) (0.08)
Net Realized Gains - (0.70) (0.65) (0.99) (0.11)
Total Dividends (0.20) (0.87) (0.75) (1.04) (0.19)
NET ASSET VALUE, END OF PERIOD....... $ 13.27 $ 10.31 $ 16.47 $ 17.96 $ 16.54
TOTAL RETURN(B) 30.61% (33.73)% (4.37)% 15.41% 7.03%
RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's)... $ 187,475 $ 181,941 $ 361,804 $ 394,073 $ 269,237
Net Investment Income/(Loss)......... 0.96% 1.00% 0.75% 0.62% 0.49%
Expenses Before Reductions........... 1.12% 1.12% 1.11% 1.09% 1.15%
Expenses Net of Reductions........... 1.12% 1.12% 1.11% 1.09% 1.15%
Portfolio Turnover Rate.............. 9.98% 19.61% 23.76% 14.71% 85.56%
(a) Average shares method used in calculation.
(b) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
AZL FRANKLIN TEMPLETON FOUNDING STRATEGY PLUS FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIOD INDICATED)
OCTOBER 23,2009 TO
DECEMBER 31, 2009(A)
NET ASSET VALUE, BEGINNING OF PERIOD....................................... $ 10.00
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss)............................................... 0.04
Net Realized and Unrealized Gains/(Losses) on Investments.................. 0.21
Total from Investment Activities........................................... 0.25
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income...................................................... (0.05)
Total Dividends (0.05)
NET ASSET VALUE, END OF PERIOD............................................. $ 10.20
TOTAL RETURN(B) (C) 2.45%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's)......................................... $ 54,952
Net Investment Income/(Loss)(d)............................................ 2.11%
Expenses Before Reductions(d) (e).......................................... 1.20%
Expenses Net of Reductions(d).............................................. 1.20%
Portfolio Turnover Rate(c)................................................. 1.99%
(a) Period from commencement of operations.
(b) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(c) Not annualized for periods less than one year.
(d) Annualized for periods less than one year.
(e) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
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FINANCIAL HIGHLIGHTS
AZL INTERNATIONAL INDEX FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIOD INDICATED)
MAY 1,2009 TO
DECEMBER 31, 2009(A)
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 10.00
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss)............................................. 0.10
Net Realized and Unrealized Gains/(Losses) on Investments................ 3.21
Total from Investment Activities......................................... 3.31
NET ASSET VALUE, END OF PERIOD........................................... $ 13.31
TOTAL RETURN(B)(C) 33.10%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's)....................................... $ 161,184
Net Investment Income/(Loss)(d).......................................... 1.79%
Expenses Before Reductions(d) (e)........................................ 0.91%
Expenses Net of Reductions(d)............................................ 0.70%
Portfolio Turnover Rate(c)............................................... 22.90%(f)
(a) Period from commencement of operations.
(b) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(c) Not annualized for periods less than one year.
(d) Annualized for periods less than one year.
(e) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(f) Costs of purchases and proceeds from sales of portfolio securities incurred to realign the Fund's portfolio after a fund merger
are excluded from the portfolio turnover rate. If such amounts had not been excluded, the portfolio turnover rate would have
been 41.93%
AZL JPMORGAN U.S. EQUITY FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31,
2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.35 $ 12.42 $ 12.68 $ 11.36 $ 10.79
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss)....... (0.00)(a) 0.10 0.09 0.06 0.07
Net Realized and Unrealized Gains/(Losses) on Investments 2.14 (4.51) 0.41 1.57 0.51
Total from Investment Activities... 2.14 (4.41) 0.50 1.63 0.58
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income.............. (0.03) (0.11) (0.07) (0.06) -
Net Realized Gains - (1.55) (0.69) (0.25) (0.01)
Total Dividends (0.03) (1.66) (0.76) (0.31) (0.01)
NET ASSET VALUE, END OF PERIOD..... $ 8.46 $ 6.35 $ 12.42 $ 12.68 $ 11.36
TOTAL RETURN(B) 33.71% (38.68)% 3.80%(c) 14.59% 5.45%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's). $ 301,111 $ 63,203 $ 139,593 $ 129,416 $ 99,016
Net Investment Income/(Loss)....... 0.97% 0.79% 0.72% 0.66% 0.70%
Expenses Before Reductions(d)...... 1.20% 1.30% 1.25% 1.22% 1.28%
Expenses Net of Reductions......... 1.15% 1.22% 1.20% 1.19% 1.19%
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(e) 1.15% 1.22% 1.20% 1.19% 1.20%
Portfolio Turnover Rate............ 103.19% 125.06% 126.24% 105.81% 80.76%
(a) Represents less than $0.005.
(b) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(c) During the year ended December 31, 2007, OppenheimerFunds, Inc. reimbursed $51,744 to the Fund related to violations of certain
investment policies and limitations. The corresponding impact to the total return was 0.04%.
(d) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(e) Expenses net of reductions excludes expenses paid indirectly, pursuant to a "commission recapture" program, under which brokers
remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial
Statements.
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FINANCIAL HIGHLIGHTS
AZL MFS INVESTORS TRUST FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31, APRIL 29, 2005 TO
DECEMBER 31,
2009 2008 2007 2006 2005(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.44 $ 14.85 $ 13.92 $ 12.35 $ 10.00
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss)....... 0.02 -(b) 0.02 0.03 0.01
Net Realized and Unrealized Gains/(Losses) on Investments 4.35 (5.77) 1.45 1.55 2.35
Total from Investment Activities... 4.37 (5.77) 1.47 1.58 2.36
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income.............. -(b) (0.01) (0.03) - (0.01)
Net Realized Gains - (0.63) (0.51) (0.01) -
Total Dividends -(b) (0.64) (0.54) (0.01) (0.01)
NET ASSET VALUE, END OF PERIOD..... $ 12.81 $ 8.44 $ 14.85 $ 13.92 $ 12.35
TOTAL RETURN(C) (D) 51.80% (40.11)% 10.73% 12.79% 23.61%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's). $ 354,622 $ 272,746 $ 383,239 $ 314,449 $ 146,054
Net Investment Income/(Loss)(e).... 0.15% 0.02% 0.11% 0.28% 0.28%
Expenses Before Reductions(e) (f).. 1.10% 1.11% 1.12% 1.15% 1.23%
Expenses Net of Reductions(e)...... 1.04% 1.03% 1.04% 1.08% 1.20%
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(e) (g) 1.07% 1.08% 1.07% 1.11% N/A
Portfolio Turnover Rate(d)......... 193.49% 144.26% 119.80% 129.27% 59.04%
(a) Period from commencement of operations.
(b) Amount less than $0.005.
(c) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(d) Not annualized for periods less than one year.
(e) Annualized for periods less than one year.
(f) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(g) Expenses net of reductions excludes expenses paid indirectly, pursuant to a "commission recapture" program, under which brokers
remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial
Statements.
AZL MID CAP INDEX FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIOD INDICATED)
MAY 1, 2009 TO
DECEMBER 31, 2009(A)
NET ASSET VALUE, BEGINNING OF PERIOD...................................... $10.00
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss).............................................. 0.06
Net Realized and Unrealized Gains/(Losses) on Investments................. 3.03
Total from Investment Activities.......................................... 3.09
NET ASSET VALUE, END OF PERIOD............................................ $13.09
TOTAL RETURN(B) (C) 30.90%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's)........................................ $65,210
Net Investment Income/(Loss)(d)........................................... 1.12%
Expenses Before Reductions(d) (e)......................................... 0.66%
Expenses Net of Reductions(d)............................................. 0.60%
Portfolio Turnover Rate(c)................................................ 27.28%
(a) Period from commencement of operations.
(b) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(c) Not annualized for periods less than one year.
(d) Annualized for periods less than one year.
(e) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
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FINANCIAL HIGHLIGHTS
AZL MONEY MARKET FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31,
2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss)...... -(a) 0.02 0.05 0.04 0.03
Net Realized and Unrealized Gains/(Losses) on Investments -(a) -(a) -(a) -(a) -(a)
Total from Investment Activities.. -(a) 0.02 0.05 0.04 0.03
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income............. -(a) (0.02) (0.05) (0.04) (0.03)
Net Realized Gains -(a) - - - -
Total Dividends -(a) (0.02) (0.05) (0.04) (0.03)
NET ASSET VALUE, END OF PERIOD.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 0.22% 2.44% 4.79% 4.43% 2.57%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's) $ 901,771 $ 1,029,286 $ 596,861 $ 404,406 $ 330,910
Net Investment Income/(Loss)...... 0.22% 2.36% 4.66% 4.41% 2.58%
Expenses Before Reductions(c)..... 0.69% 0.69% 0.69% 0.69% 0.74%
Expenses Net of Reductions........ 0.59% 0.69% 0.69% 0.69% 0.74%
(a) Amount less than $0.005.
(b) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(c) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
AZL NACM INTERNATIONAL GROWTH FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIOD INDICATED)
OCTOBER 23,2009 TO DECEMBER 31,2009(A)
NET ASSET VALUE, BEGINNING OF PERIOD....................................... $ 10.00
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss)............................................... (0.00)(b)
Net Realized and Unrealized Gains/(Losses) on Investments.................. 0.16
Total from Investment Activities........................................... 0.16
NET ASSET VALUE, END OF PERIOD............................................. $ 10.16
TOTAL RETURN(C)(D) 1.60%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's)......................................... $ 5,383
Net Investment Income/(Loss) (e)........................................... (0.07)%
Expenses Before Reductions(e) (f).......................................... 2.16%
Expenses Net of Reductions(e).............................................. 1.45%
Portfolio Turnover Rate(d)................................................. 12.75%
(a) Period from commencement of operations.
(b) Represents less than $0.005.
(c) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(d) Not annualized for periods less than one year.
(e) Annualized for periods less than one year.
(f) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
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FINANCIAL HIGHLIGHTS
AZL NFJ INTERNATIONAL VALUE FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIOD INDICATED)
MAY 1, 2009 TO
DECEMBER 31, 2009(A)
NET ASSET VALUE, BEGINNING OF PERIOD...................................... $10.00
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss).............................................. 0.16
Net Realized and Unrealized Gains/(Losses) on Investments................. 3.54
Total from Investment Activities.......................................... 3.70
NET ASSET VALUE, END OF PERIOD............................................ $13.70
TOTAL RETURN(B) (C) 37.00%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's)........................................ $78,308
Net Investment Income/(Loss)(d)........................................... 2.01%
Expenses Before Reductions(d) (e)......................................... 1.33%
Expenses Net of Reductions(d)............................................. 1.20%
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(d) (f)..... 1.23%
Portfolio Turnover Rate(c)................................................ 25.28%
(a) Period from commencement of operations.
(b) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(c) Not annualized for periods less than one year.
(d) Annualized for periods less than one year.
(e) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(f) Expenses net of reductions excludes expenses paid indirectly, pursuant to a "commission recapture" program, under which brokers
remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial
Statements.
AZL OCC GROWTH FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIOD INDICATED)
OCTOBER 23,2009 TO
DECEMBER 31, 2009(A)
NET ASSET VALUE, BEGINNING OF PERIOD....................................... $10.00
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss)............................................... -(b)
Net Realized and Unrealized Gains/(Losses) on Investments.................. 0.40
Total from Investment Activities........................................... 0.40
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income...................................................... -(b)
Total Dividends -(b)
NET ASSET VALUE, END OF PERIOD............................................. $10.40
TOTAL RETURN(C) (D) 4.05%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's)......................................... $4,317
Net Investment Income/(Loss)(e)............................................ 0.03%
Expenses Before Reductions(e) (f).......................................... 1.68%
Expenses Net of Reductions(e).............................................. 1.20%
Portfolio Turnover Rate(d)................................................. 16.82%
(a) Period from commencement of operations.
(b) Amount less than $0.005.
(c) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(d) Not annualized for periods less than one year.
(e) Annualized for periods less than one year.
(f) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
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- April 30, 2010
157
FINANCIAL HIGHLIGHTS
AZL OCC OPPORTUNITY FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31,
2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING OF PERIOD. $ 6.97 $ 14.97 $ 15.84 $ 14.69 $ 13.98
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss)......... (0.07) (0.04) (0.07) (0.14) (0.14)
Net Realized and Unrealized Gains/ (Losses) on Investments 4.11 (6.60) 1.49 1.80 0.85
Total from Investment Activities..... 4.04 (6.64) 1.42 1.66 0.71
DIVIDENDS TO SHAREHOLDERS FROM:
Net Realized Gains - (1.36) (2.29) (0.51) -
Total Dividends - (1.36) (2.29) (0.51) -
NET ASSET VALUE, END OF PERIOD....... $ 11.01 $ 6.97 $ 14.97 $ 15.84 $ 14.69
TOTAL RETURN(A) 58.11% (47.15)% 8.89% 11.68% 5.08%
RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's)... $ 151,180 $ 87,046 $ 195,330 $ 158,687 $ 132,560
Net Investment Income/(Loss)......... (0.81)% (0.38)% (0.47)% (0.92)% (1.06)%
Expenses Before Reductions(b)........ 1.23% 1.25% 1.21% 1.22% 1.35%
Expenses Net of Reductions........... 1.08% 1.06% 1.10% 1.20% 1.35%
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) 1.23% 1.25% 1.21% 1.22% N/A
Portfolio Turnover Rate.............. 162.87% 202.73% 183.55% 269.47% 193.67%
(a) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(b) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(c) Expenses net of reductions excludes expenses paid indirectly, pursuant to a "commission recapture" program, under which brokers
remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial
Statements.
AZL S&P 500 INDEX FUND, CLASS 1
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31, MAY 14, 2007 TO
DECEMBER 31,
2009 2008 2007(A)
CLASS 1
Net Asset Value, Beginning of Period................. $ 6.16 $ 9.86 $ 10.14
INVESTMENT ACTIVITIES:
Net Investment Income................................ 0.13(b) 0.18(b) 0.11
Net Realized and Unrealized Gains (Losses) on Investments 1.45 (3.87) (0.26)
Total from Investment Activities..................... 1.58 (3.69) (0.15)
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income................................ (0.03) (0.01) (0.11)
Net Realized Gains - -(c) (0.02)
Total Dividends (0.03) (0.01) (0.13)
NET ASSET VALUE, END OF PERIOD....................... $ 7.71 $ 6.16 $ 9.86
TOTAL RETURN(D) (E) 25.69% (37.46)% (1.48)%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets at End of Period (000's).................. $ 14,462 $ 11,158 $ 411
Net Investment Income(f)............................. 2.06% 2.67% 1.81%
Expenses Before Reductions(f) (g).................... 0.30% 0.37% 0.53%
Expenses Net of Reductions(f)........................ 0.24% 0.26% 0.24%
Portfolio Turnover Rate(e)(h)........................ 16.19%(i) 81.71% 15.95%
(a) Period from commencement of operations.
(b) Average shares method used in a calculation.
(c) Amount less than $0.005.
(d) 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.
(e) Not annualized for periods less than one year.
(f) Annualized for periods less than one year.
(g) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(h) Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares
issued.
(i) Costs of purchases and proceeds from sales of portfolio securities incurred to realign the Fund's portfolio after a fund merger
are excluded from the portfolio turnover rate. If such amounts had not been excluded, the portfolio turnover rate would have
been 36.67%.
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158
FINANCIAL HIGHLIGHTS
AZL S&P 500 INDEX FUND, CLASS 2
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31,
2009 2008 MAY 1, 2007 TODECEMBER 31, 2007(A)
CLASS 2
Net Asset Value, Beginning of Period................ $ 6.15 $ 9.86 $10.00
INVESTMENT ACTIVITIES:
Net investment income............................... 0.12(b) 0.16(b) 0.09
Net realized and unrealized gains (losses) on investments 1.44 (3.87) (0.12)
Total from Investment Activities.................... 1.56 (3.71) (0.03)
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income............................... (0.03) -(c) (0.09)
Net Realized Gains - -(c) (0.02)
Total Dividends (0.03) -(c) (0.11)
NET ASSET VALUE, END OF PERIOD...................... $ 7.68 $ 6.15 $9.86
TOTAL RETURN(D) (E) 25.36% (37.62)% (0.25)%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets at End of Period (000's)................. $ 707,448 $ 245,652 $27,614
Net Investment Income(f)............................ 1.78% 2.29% 1.60%
Expenses Before Reductions(f)(g).................... 0.54% 0.65% 0.73%
Expenses Net of Reductions(f)....................... 0.49% 0.51% 0.49%
Portfolio Turnover Rate(d)(h)....................... 16.19%(i) 81.71% 15.95%
(a) Period from commencement of operations.
(b) Average shares method used in a calculation.
(c) Represents less than $0.005.
(d) Not annualized for periods less than one year.
(e) 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.
(f) Annualized for periods less than one year.
(g) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(h) Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares
issued.
(i) Costs of purchases and proceeds from sales of portfolio securities incurred to realign the Fund's portfolio after a fund merger
are excluded from the portfolio turnover rate. If such amounts had not been excluded, the portfolio turnover rate would have
been 36.67%.
AZL SCHRODER EMERGING MARKETS EQUITY FUND, CLASS 1
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31, MAY 6, 2007 TO DECEMBER 31,
2009 2008 2007(A)
CLASS 1
Net Asset Value, Beginning of Period................... $4.56 $13.77 $11.64
INVESTMENT ACTIVITIES:
Net Investment Income.................................. 0.06(b) 0.03 0.04
Net Realized and Unrealized Gains (Losses) on Investments 3.24 (6.38) 2.10
Total from Investment Activities....................... 3.30 (6.35) 2.14
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income.................................. (0.02) (0.04) (0.01)
Net Realized Gains - (2.82) -
Total Dividends (0.02) (2.86) (0.01)
NET ASSET VALUE, END OF PERIOD......................... $7.84 $4.56 $13.77
TOTAL RETURN(C) (D) 72.46% (51.82)% 19.23%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets at End of Period (000's).................... $49,392 $34,118 $359
Net Investment Income(e)............................... 0.99% 0.78% 0.32%
Expenses Before Reductions(e).......................... 1.54% 1.70% 1.69%
Expenses Net of Reductions(e)(f)....................... 1.26% 1.41% 1.40%
Expenses Net of Reductions After, Excluding Expenses Paid Indirectly(e)(g) 1.26% 1.42% 1.40%
Portfolio Turnover Rate(d)(h).......................... 99.85% 158.76% 192.53%
(a) Period from commencement of operations.
(b) Average shares method used in a calculation.
(c) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(d) Not annualized for periods less than one year.
(e) Annualized for periods less than one year.
(f) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(g) Expenses net of reductions excludes expenses paid indirectly, pursuant to a "commission recapture" program, under which brokers
remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial
Statements.
(h) Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares
issued.
AZL SCHRODER EMERGING MARKETS EQUITY FUND, CLASS 2
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31, MAY 1, 2006 TO
DECEMBER 31,
2009 2008 2007 2006(A)
CLASS 2
Net Asset Value, Beginning of Period........... $ 4.56 $ 13.76 $ 10.56 $ 10.00
INVESTMENT ACTIVITIES:
Net investment income.......................... 0.04(b) 0.02 0.03 0.02
Net realized and unrealized gains (losses) on investments 3.23 (6.38) 3.17 0.55
Total from Investment Activities............... 3.27 (6.36) 3.20 0.57
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income.......................... (0.01) (0.02) -(c) (0.01)
Net Realized Gains - (2.82) - -
Total Dividends (0.01) (2.84) -(c) (0.01)
NET ASSET VALUE, END OF PERIOD................. $ 7.82 $ 4.56 $ 13.76 $ 10.56
TOTAL RETURN(D)(E) 71.78% (51.89)% 30.32% 5.70%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets at End of Period (000's)............ $ 373,541 $ 187,058 $ 249,236 $ 93,712
Net Investment Income(f)....................... 0.68% 0.86% 0.40% 0.32%
Expenses Before Reductions(f)(g)............... 1.79% 1.95% 1.96% 2.53%
Expenses Net of Reductions(f).................. 1.51% 1.66% 1.65% 1.55%
Expenses Net of Reductions, Excluding Expense Paid Indirectly(f)(h) 1.51% 1.67% 1.65% 1.55%
Portfolio Turnover Rate(e)(i).................. 99.85% 158.76% 192.53% 36.16%
(a) Period from commencement of operations.
(b) Average shares method used in calculation.
(c) Amount less than $0.005.
(d) 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.
(e) Not annualized for periods less than one year.
(f) Annualized for periods less than one year.
(g) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(h) Expenses net of reductions excludes expenses paid indirectly, pursuant to a "commission recapture" program, under which brokers
remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial
Statements.
(i) Portfolio turnover rate is calculated on the basis of the Fund as a whole without distinguishing between classes of shares
issued.
AZL SMALL CAP STOCK INDEX FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31, MAY 1, 2007 TO
DECEMBER 31,
2009 2008 2007(A)
NET ASSET VALUE, BEGINNING OF PERIOD................ $6.36 $9.27 $ 10.00
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss)........................ 0.04 0.03 0.04
Net Realized and Unrealized Gains/(Losses) on Investments 1.54 (2.90) (0.63)
Total from Investment Activities.................... 1.58 (2.87) (0.59)
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income............................... - (0.03) (0.05)
Net Realized Gains - (0.01) (0.09)
Total Dividends - (0.04) (0.14)
NET ASSET VALUE, END OF PERIOD...................... $7.94 $6.36 $ 9.27
TOTAL RETURN(B) (C) 24.84% (30.94)% (5.83)%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's).................. $193,665 $119,265 $ 22,061
Net Investment Income/(Loss)(d)..................... 0.68% 1.09% 0.73%
Expenses Before Reductions(d) (e)................... 0.67% 0.77% 0.87%
Expenses Net of Reductions(d)....................... 0.58% 0.60% 0.58%
Portfolio Turnover Rate(c).......................... 24.67% 89.22% 19.08%
(a) Period from commencement of operations.
(b) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(c) Not annualized for periods less than one year.
(d) Annualized for periods less than one year.
(e) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
159
FINANCIAL HIGHLIGHTS
AZL TURNER QUANTITATIVE SMALL CAP GROWTH FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
APRIL 29, 2005 TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
2009 2008 2007 2006 2005(A)
NET ASSET VALUE, BEGINNING OF PERIOD.. $ 5.86 $ 12.90 $ 12.50 $ 11.23 $ 10.00
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss).......... (0.02) (0.04) (0.08) (0.03) (0.01)
Net Realized and Unrealized Gains/(Losses) on Investments 1.86 (4.96) 0.83 1.30 1.24
Total from Investment Activities...... 1.84 (5.00) 0.75 1.27 1.23
DIVIDENDS TO SHAREHOLDERS FROM:
Net Realized Gains - (2.04) (0.35) - -
Total Dividends - (2.04) (0.35) - -
NET ASSET VALUE, END OF PERIOD........ $ 7.70 $ 5.86 $ 12.90 $ 12.50 $ 11.23
TOTAL RETURN(B) (C) 31.40% (43.35)% 6.07% 11.31% 12.30%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's).... $ 47,457 $ 36,237 $ 62,425 $ 94,669 $ 45,548
Net Investment Income/(Loss)(d)....... (0.23)% (0.54)% (0.47)% (0.23)% (0.22)%
Expenses Before Reductions(d) (e)..... 1.24% 1.26% 1.23% 1.24% 1.35%
Expenses Net of Reductions(d)......... 1.24% 1.26% 1.23% 1.23% 1.35%
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(d) (f) 1.24% 1.26% 1.23% 1.24% N/A
Portfolio Turnover Rate(c)............ 172.64% 225.56% 239.53% 94.34% 83.87%
(a) Period from commencement of operations.
(b) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(c) Not annualized for periods less than one year.
(d) Annualized for periods less than one year.
(e) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(f) Expenses net of reductions excludes expenses paid indirectly, pursuant to a "commission recapture" program, under which brokers
remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial
Statements.
AZL VAN KAMPEN EQUITY AND INCOME FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31,
2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING OF PERIOD.. $ 9.00 $ 12.57 $ 12.68 $ 11.58 $ 10.86
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss).......... 0.07 0.34 0.26 0.19 0.14
Net Realized and Unrealized Gains/(Losses) on Investments 1.98 (3.25) 0.13 1.24 0.59
Total from Investment Activities...... 2.05 (2.91) 0.39 1.43 0.73
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income................. (0.22) (0.30) (0.20) (0.12) -
Net Realized Gains - (0.36) (0.30) (0.21) (0.01)
Total Dividends (0.22) (0.66) (0.50) (0.33) (0.01)
NET ASSET VALUE, END OF PERIOD........ $ 10.83 $ 9.00 $ 12.57 $ 12.68 $ 11.58
TOTAL RETURN(a) 22.85% (23.92)% 3.07% 12.52% 6.75%
RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's).... $ 242,485 $ 135,765 $ 244,193 $ 224,971 $ 162,671
Net Investment Income/(Loss).......... 1.80% 2.37% 2.05% 2.00% 1.55%
Expenses Before Reductions(b)......... 1.13% 1.13% 1.11% 1.11% 1.18%
Expenses Net of Reductions............ 1.07% 1.07% 1.06% 1.08% 1.18%
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) 1.07% N/A N/A N/A N/A
Portfolio Turnover Rate............... 68.56% 59.48% 69.49% 55.05% 46.94%
(a) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(b) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(c) Expenses net of reductions excludes expenses paid indirectly, pursuant to a "commission recapture" program, under which brokers
remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial
Statements.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
160
FINANCIAL HIGHLIGHTS
AZL VAN KAMPEN GLOBAL REAL ESTATE FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
MAY 1, 2006 TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
2009 2008 2007 2006(A)
NET ASSET VALUE, BEGINNING OF PERIOD........... $ 5.46 $ 10.93 $ 12.08 $ 10.00
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss)................... 0.11 0.13 0.13 0.05
Net Realized and Unrealized Gains/(Losses) on Investments 2.08 (4.91) (1.17) 2.12
Total from Investment Activities............... 2.19 (4.78) (1.04) 2.17
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income.......................... (0.08) (0.16) (0.06) (0.07)
Net Realized Gains - (0.53) (0.05) (0.02)
Total Dividends (0.08) (0.69) (0.11) (0.09)
NET ASSET VALUE, END OF PERIOD................. $ 7.57 $ 5.46 $ 10.93 $ 12.08
TOTAL RETURN(B) (C) 40.19% (45.83)% (8.68)% 21.66%
RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's)............. $ 144,909 $ 88,600 $ 157,039 $ 134,713
Net Investment Income/(Loss)(d)................ 2.08% 1.70% 1.07% 1.00%
Expenses Before Reductions(d) (e).............. 1.40% 1.43% 1.37% 1.45%
Expenses Net of Reductions(d).................. 1.34% 1.36% 1.35% 1.33%
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(d) (f) 1.35% N/A N/A N/A
Portfolio Turnover Rate(c)..................... 47.65% 45.59% 46.22% 10.75%
(a) Period from commencement of operations.
(b) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(c) Not annualized for periods less than one year.
(d) Annualized for periods less than one year.
(e) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(f) Expenses net of reductions excludes expenses paid indirectly, pursuant to a "commission recapture" program, under which brokers
remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial
Statements.
AZL VAN KAMPEN GROWTH AND INCOME FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31,
2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING OF PERIOD.. $ 7.95 $ 12.95 $ 13.37 $ 12.36 $ 11.76
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss).......... 0.12 0.24 0.22 0.15 0.10
Net Realized and Unrealized Gains/(Losses) on Investments 1.75 (4.31) 0.14 1.74 0.98
Total from Investment Activities...... 1.87 (4.07) 0.36 1.89 1.08
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income................. (0.21) (0.24) (0.18) (0.10) (0.04)
Net Realized Gains - (0.69) (0.60) (0.78) (0.44)
Total Dividends (0.21) (0.93) (0.78) (0.88) (0.48)
NET ASSET VALUE, END OF PERIOD........ $ 9.61 $ 7.95 $ 12.95 $ 13.37 $ 12.36
TOTAL RETURN(A) 23.64% (32.86)% 2.64% 15.90% 9.24%
RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's).... $ 183,359 $ 159,898 $ 327,862 $ 370,723 $ 315,538
Net Investment Income/(Loss).......... 1.32% 1.71% 1.39% 1.34% 1.02%
Expenses Before Reductions(b)......... 1.13% 1.12% 1.09% 1.16% 1.20%
Expenses Net of Reductions............ 1.00% 1.00% 0.99% 1.09% 1.18%
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) 1.03% 1.03% 1.00% 1.10% 1.20%
Portfolio Turnover Rate............... 53.84% 39.96% 25.25% 29.83% 40.15%
(a) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(b) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(c) Expenses net of reductions excludes expenses paid indirectly, pursuant to a "commission recapture" program, under which brokers
remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial
Statements.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
161
FINANCIAL HIGHLIGHTS
AZL VAN KAMPEN INTERNATIONAL EQUITY FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31,
2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.77 $ 19.57 $ 18.14 $ 15.46 $ 13.88
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss)........ 0.26 0.46 0.35 0.16 0.08
Net Realized and Unrealized Gains/(Losses) on Investments 3.06 (5.80) 1.42 3.09 1.54
Total from Investment Activities.... 3.32 (5.34) 1.77 3.25 1.62
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income............... (1.19) (0.34) - (0.25) -
Realized Gains - (1.12) (0.34) (0.32) (0.04)
Total Dividends (1.19) (1.46) (0.34) (0.57) (0.04)
NET ASSET VALUE, END OF PERIOD...... $ 14.90 $ 12.77 $ 19.57 $ 18.14 $ 15.46
TOTAL RETURN(A) 26.32% (28.56)% 9.82% 21.25% 11.64%
RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's).. $ 362,547 $ 207,351 $ 413,382 $ 391,610 $ 255,583
Net Investment Income/(Loss)........ 1.51% 2.31% 1.71% 1.31% 1.19%
Expenses Before Reductions(b)....... 1.33% 1.35% 1.32% 1.32% 1.42%
Expenses Net of Reductions.......... 1.26% 1.29% 1.32% 1.32% 1.42%
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(c) 1.26% 1.30% 1.32% 1.32% 1.42%
Portfolio Turnover Rate............. 29.56%(d) 27.13% 31.26% 19.43% 16.33%
(a) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(b) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(c) Expenses net of reductions excludes expenses paid indirectly, pursuant to a "commission recapture" program, under which brokers
remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial
Statements.
(d) Costs of purchases and proceeds from sales of portfolio securities incurred to realign the Fund's portfolio after a fund merger
are excluded from the portfolio turnover rate. If such amounts had not been excluded, the portfolio turnover rate would have
been 153.46%.
AZL VAN KAMPEN MID CAP GROWTH FUND
(SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT THE
PERIODS INDICATED)
YEAR ENDED DECEMBER 31,
2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.85 $ 15.59 $ 13.48 $ 12.75 $ 10.95
INVESTMENT ACTIVITIES:
Net Investment Income/(Loss)....... (0.02) -(a) 0.03 -(a) (0.05)
Net Realized and Unrealized Gains/(Losses) on Investments 3.97 (7.01) 2.89 1.14 1.97
Total from Investment Activities... 3.95 (7.01) 2.92 1.14 1.92
DIVIDENDS TO SHAREHOLDERS FROM:
Net Investment Income.............. - (0.03) -(a) - -
Net Realized Gains - (1.69) (0.81) (0.41) (0.12)
Return of Capital - (0.01) - - -
Total Dividends - (1.73) (0.81) (0.41) (0.12)
NET ASSET VALUE, END OF PERIOD..... $ 10.80 $ 6.85 $ 15.59 $ 13.48 $ 12.75
TOTAL RETURN(B) 57.66% (48.52)% 22.19% 9.21% 17.54%
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Net Assets, End of Period ($000's). $ 354,846 $ 229,647 $ 559,566 $ 305,006 $ 228,828
Net Investment Income/(Loss)....... (0.18)% (0.07)% 0.31% 0.04% (0.63)%
Expenses Before Reductions(c)...... 1.17% 1.15% 1.18% 1.21% 1.30%
Expenses Net of Reductions......... 1.11% 1.10% 1.12% 1.16% 1.24%
Expenses Net of Reductions, Excluding Expenses Paid Indirectly(d) 1.13% 1.11% 1.14% 1.18% 1.30%
Portfolio Turnover Rate............ 39.79% 41.17% 72.41% 70.25% 83.78%
(a) Amount less than $0.005.
(b) The returns include reinvested dividends and fund level expenses, but exclude insurance contract charges. If these charges were
included, the returns would have been lower.
(c) During the period, certain fees were reduced. If such fee reductions had not occurred, the ratios would have been as indicated.
(d) Expenses net of reductions excludes expenses paid indirectly, pursuant to a "commission recapture" program, under which brokers
remit a portion of the brokerage commission which is used to pay certain Fund expenses. See note 2 in the Notes to the Financial
Statements.
The Allianz Variable Insurance Products Trust - Prospectus
- April 30, 2010
162
THIS PROSPECTUS IS INTENDED FOR USE ONLY WHEN ACCOMPANIED OR PRECEDED
BY A VARIABLE PRODUCT PROSPECTUS.
FOR MORE INFORMATION ABOUT THE FUNDS, THE FOLLOWING DOCUMENTS ARE AVAILABLE FREE
UPON REQUEST:
ANNUAL/SEMI-ANNUAL REPORTS (SHAREHOLDER REPORTS):
Each Fund's annual and semi-annual reports to shareholders contain additional
information about the Funds' investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected each Fund's performance, except the AZL Money Market Fund, during its
last fiscal year.
PROXY VOTING RECORDS
Information regarding how the Funds voted proxies relating to portfolio
securities during the most recent 12 month period ended June 30 is available
without charge.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Funds, including their
respective operations and investment policies. It is incorporated by reference
and is legally considered a part of this Prospectus.
YOUR REQUEST FOR FREE DOCUMENTS MAY BE MADE IN THE FOLLOWING WAYS:
SHAREHOLDER Contact a broker or investment adviser that Contact Access the Allianz Life website at:
REPORTS AND sells products that offer the Funds. the Funds WWW.ALLIANZLIFE.COM/GETINFORMED/VARIABLEINVESTMENTOPTIONS.ASPX
THE SAI at: (for the SAI)
3435 WWW.ALLIANZLIFE.COM/PERFORMANCECENTER/SHAREHOLDERREPORTS.ASPX
STELZER (for the shareholder reports)
ROAD,
COLUMBUS,
OHIO 43219
(TOLL-
FREE) 1-
877-833-
7113
PROXY VOTING Access the Allianz Life website at: WWW.ALLIANZLIFE.COM/GETINFORMED/VARIABLEINVESTMENTOPTIONS.ASPX
RECORDS
INFORMATION FROM THE SECURITIES AND EXCHANGE COMMISSION:
You can review information about the Funds (including the SAI), and obtain
copies, after paying a duplicating fee, from the SEC as follows:
IN PERSON:
Public Reference Room in Washington, D.C. (For their hours of operation, call 1-
202-551-8090.)
BY MAIL:
Securities and Exchange Commission
Public Reference Section
100 F Street NE
Washington, D.C. 20549-0102
ON THE EDGAR DATABASE VIA THE INTERNET:
www.sec.gov
BY ELECTRONIC REQUEST:
publicinfo@sec.gov.
The SEC charges a fee to copy any documents.
Investment Company Act file no. 811-09491
PART B - SAI
_____________________
STATEMENT OF ADDITIONAL INFORMATION
AZL[R ]BLACKROCK CAPITAL APPRECIATION FUND
AZL[R] COLUMBIA MID CAP VALUE FUND
AZL[R] COLUMBIA SMALL CAP VALUE FUND, CLASS 2
AZL[R] DAVIS NY VENTURE FUND, CLASS 2
AZL[R] DREYFUS EQUITY GROWTH FUND
(FORMERLY AZL[R] DREYFUS FOUNDERS EQUITY GROWTH FUND)
AZL[R] EATON VANCE LARGE CAP VALUE FUND
(FORMERLY AZL[R ]VAN KAMPEN COMSTOCK FUND)
AZL[R] ENHANCED BOND INDEX FUND
AZL[R] FRANKLIN SMALL CAP VALUE FUND
AZL[R] FRANKLIN TEMPLETON FOUNDING STRATEGY PLUS FUND
AZL[R ]GATEWAY FUND
AZL[R] INTERNATIONAL INDEX FUND
AZL[R] INVESCO INTERNATIONAL EQUITY FUND
(FORMERLY AZL[R] AIM INTERNATIONAL EQUITY FUND)
AZL[R] JPMORGAN U.S. EQUITY FUND, CLASS 2
AZL[R] MFS INVESTORS TRUST FUND
(FORMERLY AZL[R] JENNISON 20/20 FOCUS FUND)
AZL[R] MID CAP INDEX FUND
AZL[R] MONEY MARKET FUND
AZL[R] NACM INTERNATIONAL GROWTH FUND
AZL[R] NFJ INTERNATIONAL VALUE FUND
AZL[R] OCC GROWTH FUND
AZL[R] OCC OPPORTUNITY FUND
AZL[R ]RUSSELL 1000 GROWTH INDEX FUND
AZL[R ]RUSSELL 1000 VALUE INDEX FUND
AZL[R] S&P 500 INDEX FUND, CLASS 1 AND CLASS 2
AZL[R] SCHRODER EMERGING MARKETS EQUITY FUND, CLASS 1 AND CLASS 2
AZL[R] SMALL CAP STOCK INDEX FUND
AZL[R] TURNER QUANTITATIVE SMALL CAP GROWTH FUND
AZL[R] VAN KAMPEN EQUITY AND INCOME FUND
AZL[R] VAN KAMPEN GLOBAL REAL ESTATE FUND
AZL[R] VAN KAMPEN GROWTH AND INCOME FUND
AZL[R] VAN KAMPEN INTERNATIONAL EQUITY FUND
(FORMERLY AZL[R ]VAN KAMPEN GLOBAL FRANCHISE FUND)
AZLR VAN KAMPEN MID CAP GROWTH FUND
EACH A "FUND" OF
ALLIANZ VARIABLE INSURANCE PRODUCTS TRUST (THE "TRUST")
APRIL 30, 2010
This Statement of Additional Information is not a prospectus, but should be read
in conjunction with the Prospectus for the Trust dated April 30, 2010, which may
be supplemented from time to time. This Statement of Additional Information is
incorporated by reference in its entirety into the Prospectus. Copies of the
Prospectus and Shareholder Reports may be obtained without charge, upon
request, by writing the Trust at 3435 Stelzer Road, Columbus, Ohio 43219, or by
calling toll free 1-877-833-7113.
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
TABLE OF CONTENTS
HISTORY OF THE TRUST......................................................4
INVESTMENT STRATEGIES AND POLICIES........................................5
The Funds...............................................................5
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES...9
Alternative Strategies and Unregistered Investment Pools................9
Bank Obligations........................................................9
Commercial Paper.......................................................10
Common Stocks..........................................................10
Convertible Securities.................................................10
Corporate Debt Securities..............................................10
Delayed Funding Loans and Revolving Credit Facilities..................12
Derivative Instruments.................................................12
Event-Linked Exposure..................................................13
Foreign Currency Options and Futures Transactions......................14
Foreign Securities.....................................................14
Forward Foreign Currency Exchange Contracts............................16
Futures................................................................17
Futures and Options Investment Risks...................................17
Guaranteed Investment Contracts........................................18
Illiquid Securities....................................................18
Initial Public Offerings...............................................18
Investment Company Securities..........................................18
Lending of Portfolio Securities........................................19
Loan Participations and Assignments....................................20
Mortgage - Related Securities..........................................20
Options................................................................22
Preferred Stocks.......................................................23
Real Estate Investment Trusts (REITs)..................................23
Repurchase Agreements..................................................23
Reverse Repurchase Agreements and Dollar Roll Agreements...............24
Risks of Techniques Involving Leverage.................................24
Short Sales Against the Box............................................25
Small Company Stocks...................................................25
Special Situation Companies............................................25
Structured Notes.......................................................26
Swap Agreements........................................................26
Taxable and Tax Exempt Municipal Securities............................27
U.S. Government Obligations............................................28
Variable and Floating Rate Demand and Master Demand Notes..............28
Warrants and Rights....................................................28
When-Issued and Delayed Delivery Securities............................28
Zero Coupon and Pay-In-Kind Securities.................................29
INVESTMENT RESTRICTIONS..................................................30
Portfolio Turnover.....................................................31
OTHER FUND POLICIES......................................................32
Disclosure of Portfolio Holdings.......................................32
Additional Purchase and Redemption Information.........................33
Net Asset Value........................................................33
Valuation of the Money Market Fund.....................................33
Valuation of the Non-Money Market Funds................................34
Redemption in Kind.....................................................35
MANAGEMENT OF THE TRUST..................................................36
Trustees and Officers..................................................36
Trustee Holdings.......................................................42
Control Persons and Principal Holders of Securities....................43
The Manager............................................................44
The Subadvisers........................................................49
BlackRock Capital Management, Inc......................................53
BlackRock Financial Management, Inc....................................54
BlackRock Institutional Management Corporation.........................54
BlackRock Investment Management, LLC...................................54
Columbia Management Investment Advisers, LLC...........................54
Davis Selected Advisers. L.P...........................................54
The Dreyfus Corporation................................................54
Eaton Vance Management.................................................54
Franklin Advisers, Inc.................................................55
Franklin Advisory Services, LLC........................................55
Franklin Mutual Advisers, LLC..........................................55
Gateway Investment Advisers, LLC.......................................55
Invesco Advisers, Inc..................................................55
J.P. Morgan Investment Management Inc..................................55
Massachusetts Financial Services Company...............................55
NFJ Investment Group LLC...............................................55
Nicholas-Applegate Capital Management LLC..............................55
Oppenheimer Capital LLC................................................56
Schroder Investment Management North America Inc.......................56
Templeton Global Advisors Limited......................................56
Turner Investment Partners, Inc........................................56
Van Kampen Asset Management............................................56
Other Managed Accounts.................................................56
Potential Material Conflicts of Interest...............................62
Portfolio Manager Compensation.........................................63
Portfolio Manager Ownership of Securities in the Funds.................78
Affiliated Persons.....................................................78
Portfolio Transactions.................................................78
Affiliated Brokers.....................................................79
Administrator, Transfer Agent, and Fund Accountant.....................81
Distributor............................................................83
Custodian..............................................................86
Independent Registered Public Accounting Firm..........................86
Legal Counsel..........................................................87
Codes of Ethics........................................................87
Licensing Arrangements.................................................87
ADDITIONAL INFORMATION...................................................89
Description of Shares..................................................89
Vote of a Majority of the Outstanding Shares...........................90
Additional Tax Information.............................................90
Performance Information................................................95
Yields of the Money Market Fund........................................95
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The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
Yields of the Non-Money Market Funds...................................96
Calculation of Total Return............................................96
Miscellaneous..........................................................96
Financial Statements...................................................97
Proxy Voting Policies and Procedures...................................97
APPENDIX A...............................................................98
Commercial Paper Ratings...............................................98
Corporate and Long-Term Debt Ratings..................................100
APPENDIX B - PROXY VOTING POLICIES......................................103
Allianz Variable Insurance Products Trust.............................103
Allianz Investment Management LLC.....................................106
BlackRock.............................................................110
Columbia Management Investment Advisors, LLC..........................117
Davis Selected Advisers, LP...........................................132
Dreyfus Corporation - Mellon Financial Corporation....................147
Eaton Vance Management................................................149
Franklin Templeton....................................................154
Gateway Investment Advisers, LLC......................................161
Invesco advisers, Inc.................................................163
JPMorgan Asset Management.............................................168
Massachusetts Financial Services Company..............................182
Nicholas-Applegate Capital Management LLC.............................191
NFJ Investment Group LLC..............................................201
Oppenheimer Capital LLC...............................................204
Schroder Investment Management North America, Inc.....................208
Turner Investment Partners, Inc.......................................216
Morgan Stanley Investment Management..................................219
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The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
HISTORY OF THE TRUST
The Trust is an open-end investment management company organized in July 1999 as
a Delaware business trust comprised of 31 separate investment portfolios, which
are classified as "diversified" within the meaning of the 1940 Act. The Trust
currently offers 30 variable net asset value funds and one money market fund.
The following Funds (Subadvisers) changed effective on the following dates:
DATE CURRENT FUND NAME (SUBADVISOR) PREVIOUS FUND NAME (SUBERVISOR)
September 1, 2009 AZL Dreyfus Equity Growth Fund AZL Dreyfus Equity Growth Fund
(The Dreyfus Corporation) (Founders Asset Management LLC)
October 26, 2009 AZL Eaton Vance Large Cap Value Fund AZL Van Kampen Comstock Fund
(Eaton Vance Management) (Van Kampen Asset Management)
October 26, 2009 AZL MFS Investors Trust Fund AZL Jennison 20/20 Focus Fund
(Massachusetts Financial Services Company) (Jennison Associates LLC)
October 26, 2009 AZL S&P 500 Index Fund AZL S&P 500 Index Fund
(BlackRock Investment Management, LLC) (The Dreyfus Corporation)
October 26, 2009 AZL Small Cap Stock Index Fund AZL Small Cap Stock Index Fund
(BlackRock Investment Management, LLC) (The Dreyfus Corporation)
October 26, 2009 AZL Van Kampen International Equity Fund AZL Van Kampen Global Franchise Fund
(Van Kampen Asset Management) (Van Kampen Asset Management)
March 31, 2010 AZL Columbia Mid Cap Value Fund AZL Columbia Mid Cap Value Fund
AZL Columbia Small Cap Value Fund AZL Columbia Small Cap Value Fund
(Columbia Management Investment Advisors, LLC) (Columbia Management Advisors, LLC)
April 30, 2010 AZL Invesco International Equity Fund AZL AIM International Equity Fund
(Invesco Advisers, Inc.) (Invesco Advisers, Inc.)
At a Special Meeting of Shareholders held on October 21, 2009, shareholders of
each of the Acquired Funds in the following table approved an Agreement and Plan
of Reorganization (the "Plan") between each Acquired Fund and its corresponding
Acquiring Fund. Under the Plan, effective October 26, 2009, a "Reorganization"
was completed whereby each Acquiring Fund has acquired all of the assets and
assumed all of the liabilities of its corresponding Acquired Fund in exchange
for shares of the Acquiring Fund. Shares of each Acquiring Fund have been
distributed proportionately to the shareholders of the corresponding Acquired
Fund in complete liquidation of the Acquired Fund and the assumption of the
Acquired Fund's liabilities. As a result of the Reorganizations, the Acquired
Funds are no longer available.
Acquired Funds Acquiring Funds
AZL BlackRock Growth Fund AZL BlackRock Capital Appreciation Fund
AZL Columbia Technology Fund AZL BlackRock Capital Appreciation Fund
AZL First Trust Target Double Play Fund AZL S&P 500 Index Fund
AZL JPMorgan Large Cap Equity Fund AZL JPMorgan U.S. Equity Fund
AZL NACM International Fund AZL International Index Fund
AZL Oppenheimer Global Fund AZL Van Kampen International Equity Fund (formerlyAZL Van Kampen Global Franchise
Fund)
AZL Oppenheimer International Growth Fund AZL AIM International Equity Fund
AZL PIMCO Fundamental IndexPLUS Total Return AZL S&P 500 Index Fund
Fund
AZL Schroder International Small Cap Fund AZL International Index Fund
AZL TargetPLUS Balanced Fund AZL Balanced Index Strategy Fund[(1)]
AZL TargetPLUS Equity Fund AZL S&P 500 Index Fund
AZL TargetPLUS Growth Fund AZL Growth Index Strategy Fund[(1)]
AZL TargetPLUS Moderate Fund AZL Growth Index Strategy Fund[(1)]
(1)The AZL Balanced Index Strategy Fund and the AZL Moderate Index Strategy
Fund are series of the Allianz Variable Insurance Products Fund of Funds
Trust and are offered by the prospectus for that Trust dated April 30,
2010.
The Trust is established exclusively for the purpose of providing an investment
vehicle for variable annuity contracts and variable life insurance policies
offered by the separate accounts of various life insurance companies (the
"Participating Insurance Companies"). Shares of the Trust are not offered to the
general public but solely to such separate accounts (the "Separate Accounts").
Much of the information contained in this Statement of Additional Information
("SAI") expands upon subjects discussed in the Prospectus of the Trust described
above. Capitalized terms not defined herein are defined in the Prospectus. No
investment in shares of a Fund should be made without first reading the Trust's
Prospectus.
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The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
INVESTMENT STRATEGIES AND POLICIES
THE FUNDS
AZL BlackRock Capital Appreciation Fund ("BlackRock Capital Appreciation Fund")
AZL Columbia Mid Cap Value Fund ("Columbia Mid Cap Value Fund")
AZL Columbia Small Cap Value Fund ("Columbia Small Cap Value Fund")
AZL Davis NY Venture Fund ("Davis NY Venture Fund")
AZL Dreyfus Equity Growth Fund ("Dreyfus Equity Growth Fund")
AZL Eaton Vance Large Cap Value Fund ("Eaton Vance Large Cap Value Fund")
AZL Enhanced Bond Index Fund ("Enhanced Bond Index Fund")
AZL Franklin Small Cap Value Fund ("Franklin Small Cap Value Fund")
AZL Franklin Templeton Founding Strategy Plus Fund ("Franklin Templeton Founding
Strategy Plus Fund")
AZL Gateway Fund ("Gateway Fund")
AZL International Index Fund ("International Index Fund")
AZL Invesco International Equity Fund ("Invesco International Equity Fund")
AZL JPMorgan U.S. Equity Fund ("JPMorgan U.S. Equity Fund")
AZL MFS Investors Trust Fund ("MFS Investors Trust Fund")
AZL Mid Cap Index Fund ("Mid Cap Index Fund")
AZL Money Market Fund ("Money Market Fund")
AZL NACM International Growth Fund ("NACM International Growth Fund")
AZL NJF International Value Fund ("NFJ International Value Fund")
AZL OCC Growth Fund ("OCC Growth Fund")
AZL OCC Opportunity Fund ("OCC Opportunity Fund")
AZL Russell 1000 Growth Index Fund ("Russell 1000 Growth Index Fund")
AZL Russell 1000 Value Index Fund ("Russell 1000 Value Index Fund")
AZL S&P 500 Index Fund ("S&P 500 Index Fund")
AZL Schroder Emerging Markets Equity Fund ("Schroder Emerging Markets Equity
Fund")
AZL Small Cap Stock Index Fund ("Small Cap Stock Index Fund")
AZL Turner Quantitative Small Cap Growth Fund ("Turner Quantitative Small Cap
Growth Fund")
AZL Van Kampen Equity and Income Fund ("VK Equity and Income Fund")
AZL Van Kampen Global Real Estate Fund ("VK Global Real Estate Fund")
AZL Van Kampen Growth and Income Fund ("VK Growth and Income Fund")
AZL Van Kampen International Equity Fund ("VK International Equity Fund")
AZL Van Kampen Mid Cap Growth Fund ("VK Mid Cap Growth Fund")
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The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
TEMPORARY, DEFENSIVE INVESTMENTS
As described in the Prospectus, each Fund, except the Money Market Fund, may
hold uninvested cash reserves or invest without limit in money market
instruments (i.e., short term debt instruments) for temporary defensive purposes
when the Subadviser has determined that market or economic conditions so
warrant.
These debt obligations may include U.S. Government securities; certificates of
deposit, bankers' acceptances and other short-term debt obligations of banks
with total assets of at least $100,000,000; debt obligations of corporations
(corporate bonds, debentures, notes and other similar corporate debt
instruments); variable and floating rate demand and master demand notes;
commercial paper; and repurchase agreements with respect to securities in which
the Fund is authorized to invest. (See "Additional Information on Portfolio
Instruments and Investment Policies - Bank Obligations," "- Commercial Paper,"
"- Variable and Floating Rate Demand and Master Demand Notes," "- U.S.
Government Obligations," "- Corporate Debt Securities" and "- Repurchase
Agreements").
SPECIFIC NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
In addition to the information shown under "Additional Information on Portfolio
Instruments and Investment Policies" and the information in the section
"Investment Restrictions" in this SAI, the following sets forth specific non-
fundamental investment restrictions for certain Funds.
BLACKROCK CAPITAL APPRECIATION FUND. The Fund may invest up to 20% of its net
assets in securities that are not issued by mid- or large-sized companies,
including debt securities and stocks issued by small-sized companies.
COLUMBIA SMALL CAP VALUE FUND. The Fund may invest up to 20% of its total assets
in equity securities of foreign issuers.
DAVIS NY VENTURE FUND. The Fund may not sell short more than 5% of its total
assets. The Fund may not invest 25% or more of its investments in the securities
of issuers primarily engaged in any particular industry group. The Fund will not
purchase debt securities rated BB or Ba or lower if the securities are in
default at the time of purchase or if such purchase would then cause more than
35% of the Fund's net assets to be invested in such lower-rated securities. The
Fund will not purchase an option if the purchase would cause the total premiums
(at market) of all options then owned to exceed 5% of the Fund's total assets.
The Fund will not sell covered calls if the transaction would cause the total
premiums (at market) of all covered calls then written to exceed 25% of the
Fund's total assets. The fund will not engage in a futures transaction if the
transaction would cause the nominal value of futures contracts then purchased or
sold to exceed 25% of the Fund's total assets.
DREYFUS EQUITY GROWTH FUND. The Fund may invest up to 30% of its total assets in
foreign securities. The Fund will not invest more than 5% of its total assets in
bonds, debentures, convertible securities, and corporate obligations rated below
investment grade, either at the time of purchase or as a result of a rating
reduction after purchase, or in unrated securities believed to be equivalent in
quality to securities rated below investment grade; this 5% limitation does not
apply to preferred stocks.
FRANKLIN SMALL CAP VALUE FUND. The Fund may not invest in any company for the
purpose of exercising control or management, except that all or substantially
all of the assets of the Fund may be invested in another registered investment
company having the same investment goal and policies of the Fund. The Fund may
not purchase securities on margin, except that the Fund may make margin payments
in connection with futures, options, and currency transactions. The Fund may not
buy securities of open-end or closed-end investment companies, except that the
Fund may: (i) buy securities of open-end or closed-end investment companies in
compliance with the 1940 Act; (ii) invest all or substantially all of its assets
in another registered investment company having the same investment goal and
policies as the Fund; or (iii) invest in shares of one or more money market
funds managed by the manager or its affiliates, to the extent permitted by
exemptions granted under the 1940 Act. The Fund may not invest more than 5% of
its assets in securities of issuers with less than three years' continuous
operation, including the operations of any predecessor companies. The Fund may
not hold or purchase the securities of any issuer if, as a result, in the
aggregate, more than 15% of the value of the Fund's net assets would be invested
in (i) securities that are not readily marketable or (ii) repurchase agreements
maturing in more than seven days. The Fund may, however, invest in registered
investment companies as described in above.
INVESCO INTERNATIONAL EQUITY FUND. The Fund may invest in equity and debt
securities issued by REITs. The Fund's investment in REITs will not exceed 15%
of the total assets of the Fund. The Fund may pledge no more than 10% of its
total assets as collateral for short sales against the box. The Fund will not
write options if, immediately after such sale, the aggregate value of securities
or obligations underlying the outstanding options exceeds 20% of the Fund's
total assets.
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The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
The Fund will not purchase options if, at any time of the investment, the
aggregate premiums paid for the options will exceed 5% of the Fund's total
assets.
MONEY MARKET FUND. The Money Market Fund may invest in a broad range of short-
term, high quality, U.S. Dollar-denominated instruments, such as government,
bank, commercial and other obligations that are available in the money markets.
In particular, the Fund may invest in: (a) U.S. dollar-denominated obligations
issued or supported by the credit of U.S. or non-U.S. banks or savings
institutions with total assets in excess of $1 billion (including obligations of
non-U.S. branches of such banks); (b) high quality commercial paper and other
obligations issued or guaranteed by U.S. and non-U.S. corporations and other
issuers rated (at the time of purchase) A-2 or higher by S&P, Prime-2 or higher
by Moody's or F-2 or higher by Fitch Investors Service, Inc. ("Fitch"), as well
as high quality corporate bonds rated (at the time of purchase) A or higher by
those rating agencies; (c) unrated notes, paper and other instruments that are
of comparable quality to the instruments described in (b) above as determined by
the Fund's Subadviser; (d) asset-backed securities (including interests in pools
of assets such as mortgages, installment purchase obligations and credit card
receivables); (e) securities issued or guaranteed as to principal and interest
by the U.S. Government or by its agencies or authorities and related custodial
receipts; (f) dollar-denominated securities issued or guaranteed by non-U.S.
governments or their political subdivisions, agencies or authorities; (g)
funding agreements issued by highly-rated U.S. insurance companies; (h)
securities issued or guaranteed by state or local governmental bodies; (i)
repurchase agreements relating to the above instruments; and (j) municipal bonds
and notes whose principal and interest payments are guaranteed by the U.S.
Government or one of its agencies or authorities or which otherwise depend on
the credit of the United States.
All securities acquired by the Fund will be determined at the time of purchase
by the Funds' Subadviser, under guidelines established by the Fund's Board of
Trustees, to present minimal credit risks and will be "Eligible Securities" as
defined by the SEC. Eligible Securities are (a) securities that either (i) have
short-term debt ratings at the time of purchase in the two highest rating
categories by at least two unaffiliated nationally recognized statistical rating
organizations ("NRSROs") (or one NRSRO if the security is rated by only one
NRSRO), or (ii) are comparable in priority and security with an instrument
issued by an issuer which has such ratings, and (b) securities that are unrated
(including securities of issuers that have long-term but not short-term ratings)
but are of comparable quality as determined in accordance with guidelines
approved by the Board of Trustees.
S&P 500 INDEX FUND. The Fund may not: (i) engage in arbitrage transactions, (ii)
purchase warrants (other than those acquired by the Fund in units or attached to
securities), (iii) sell securities short, but may sell securities short against
the box, or (iv) invest more than 10% of its total assets in the securities of
any single issuer or hold more than 20% of the voting securities of any single
issuer.
SMALL CAP STOCK INDEX FUND. The Fund may not: (i) engage in arbitrage
transactions, (ii) purchase warrants (other than those acquired by the Fund in
units or attached to securities), (iii) sell securities short, but may sell
securities short against the box, or (iv) invest more than 10% of its total
assets in the securities of any single issuer or hold more than 20% of the
voting securities of any single issuer.
TURNER QUANTITATIVE SMALL CAP GROWTH FUND. The Fund may invest up to 20% of its
net assets for investment purposes in equity securities of companies whose
market capitalizations exceed the market capitalization of companies included in
the Russell 2000 Growth Index. The Fund may invest up to 15% of its total assets
in equity securities of foreign issuers.
VK EQUITY AND INCOME FUND. The Fund may invest up to 10% of its net assets in
illiquid and certain restricted securities. The Fund may not borrow money except
for a temporary purpose and then not in excess of 10% of its net assets. The
Fund may not purchase securities on margin, sell securities short, purchase or
sell commodities or commodities futures contracts, or make loans to any
individual. The Fund may not purchase a restricted security or a security for
which market quotations are not readily available if as a result of such
purchase more than 5% of the Fund's assets would be invested in such securities.
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The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
VK GLOBAL REAL ESTATE FUND. The Fund shall not concentrate its investment in
any one industry, except that the Fund will invest more than 25% of its total
assets in the real estate industry and except that the Fund may purchase
securities of other investment companies to the extent permitted by (i) the 1940
Act, (ii) the rules and regulations promulgated by the SEC under the 1940 Act,
or (iii) an exemption or other relief from the provisions of the 1940 Act, as
amended from time to time. The Fund shall not write, purchase or sell puts,
calls or combinations thereof, except that the Fund may (a) write covered or
fully collateralized call options, write secured put options, and enter into
closing or offsetting purchase transactions with respect to such options, (b)
purchase and sell options to the extent that the premiums paid for all such
options owned at any time do not exceed 10% of its total assets and (c) engage
in transactions in futures contracts and options on futures contracts
transactions provided that such transactions are entered into for bona fide
hedging purposes (or meet certain conditions as specified in regulations of the
Commodities Futures Trading Commission), and provided further that the aggregate
initial margin and premiums do not exceed 5% of the fair market value of the
Fund's total assets. The Fund may not make short sales of securities, unless at
the time of the sale it owns or has the right to acquire an equal amount of such
securities; provided that this prohibition does not apply to the writing of
options or the sale of forward contracts, futures contracts, foreign currency
futures contracts or related options.
VK INTERNATIONAL EQUITY FUND. The VK International Equity Fund may invest up to
5% of its assets in convertible securities that have been rated below investment
grade (see "Additional Information on Portfolio Instruments and Investment
Policies - Convertible Securities").
8
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS AND
INVESTMENT POLICIES
The Funds invest in a variety of securities and employ a number of investment
techniques that involve certain risks. The Prospectus for the Funds highlights
the principal investment strategies, investment techniques, and risks for each
Fund. As noted in the Prospectus, the Funds may also employ other investment
practices and may be subject to other risks, which are described below. Because
the following is a combined description of the investment strategies of all of
the Funds, certain matters described in this section may not apply to your Fund
or Funds. Unless a strategy or policy described below is specifically
prohibited or limited by the investment restrictions discussed in the Prospectus
or in this SAI, or by applicable law, the Fund may engage in each of the
practices described below without limit.
ALTERNATIVE STRATEGIES AND UNREGISTERED INVESTMENT POOLS
The Funds are authorized to invest in certain unregistered investment pools.
The Manager may allocate up to 5% of the Funds' respective net assets to (a)
index futures, other futures contracts, options, and other similar securities
and (b) cash, money market equivalents, short-term debt instruments, money
market funds, and short-term debt funds to satisfy all applicable margin
requirements and to provide additional portfolio liquidity to satisfy large
redemptions and any margin calls. The Funds may also invest in exchange-traded
funds (ETFs) for additional exposure to relevant markets. This strategy is
intended to reduce the potential volatility of the Funds' investment performance
and may limit the Funds' ability to benefit from rising markets while protecting
the Funds in declining markets. The Manager may pursue this strategy by
investing directly or indirectly through unregistered investment pools that are
managed by either the Manager, affiliates of the Manager, or unaffiliated
investment managers.
BANK OBLIGATIONS
Certain Funds may invest in bank obligations consisting of bankers' acceptances,
certificates of deposit and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange typically drawn
by an importer or exporter to pay for specific merchandise which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Bankers' acceptances invested in by
the Funds will be those guaranteed by domestic and foreign banks having, at the
time of investment, capital, surplus and undivided profits in excess of
$100,000,000 (as of the date of their most recently published financial
statements).
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return. Certificates of deposit and time
deposits will be those of domestic and foreign banks and savings and loan
associations if (a) at the time of investment, the depository or institution has
capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements), or (b) the principal
amount of the instrument is insured in full by the Federal Deposit Insurance
Corporation.
Certain Funds may also invest in Eurodollar certificates of deposit ("Euro
CDs"), which are U.S. dollar-denominated certificates of deposit issued by
offices of foreign and domestic banks located outside the United States; Yankee
certificates of deposit ("Yankee CDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States; Eurodollar time deposits ("ETDs") which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or foreign bank;
and Canadian time deposits, which are basically the same as ETDs, except they
are issued by Canadian offices of major Canadian banks.
Eurodollar and Yankee bank obligations are subject to the same risks that
pertain to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a limited extent, Yankee) bank obligations are
subject to certain sovereign risks. One such risk is the possibility that a
sovereign country might prevent capital, in the form of dollars, from flowing
across their borders. Other risks include: adverse political and economic
developments; the extent and quality of government regulation of financial
markets and institutions; the imposition of foreign withholding taxes, and the
expropriation or nationalization of foreign issues.
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The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
COMMERCIAL PAPER
Commercial paper consists of unsecured promissory notes issued by corporations.
Except as noted below with respect to variable amount master demand notes,
issues of commercial paper normally have maturities of less than nine months and
fixed rates of return.
Certain Funds may invest in commercial paper rated in any rating category or not
rated by an NRSRO. In general, investment in lower-rated instruments is more
risky than investment in instruments in higher-rated categories. For a
description of the rating symbols of each NRSRO, see Appendix A. The Funds may
also invest in U.S. dollar denominated commercial paper, including U.S. dollar
denominated commercial paper issued by a foreign corporation.
COMMON STOCKS
Certain Funds may invest in equity securities including common stocks. Common
stocks are the most prevalent type of equity security. Common stockholders
receive the residual value of the issuer's earnings and assets after the issuer
pays its creditors and any preferred stockholders. As a result, changes in an
issuer's earnings directly influence the value of its common stock.
CONVERTIBLE SECURITIES
Certain Funds may invest in convertible securities. Convertible securities give
the holder the right to exchange the security for a specific number of shares of
common stock, the cash value of common stock or some other equity security.
Convertible securities include convertible preferred stocks, convertible bonds,
notes and debentures, and other securities. Convertible securities typically
involve less credit risk than common stock of the same issuer because
convertible securities are "senior" to common stock - i.e., they have a prior
claim against the issuer's assets. Convertible securities generally pay lower
dividends or interest than non-convertible securities of similar quality. They
may also reflect changes in the value of the underlying common stock.
Certain Funds may invest in "synthetic" convertible securities, which are
derivative positions composed of two or more different securities whose
investment characteristics, taken together, resemble those of convertible
securities. For example, a Fund may purchase a non-convertible debt security and
a warrant or option, which enables the Fund to have a convertible-like position
with respect to a company, group of companies or stock index. Synthetic
convertible securities are typically offered by financial institutions and
investment banks in private placement transactions. Upon conversion, the Fund
generally receives an amount in cash equal to the difference between the
conversion price and the then current value of the underlying security. Unlike a
true convertible security, a synthetic convertible comprises two or more
separate securities, each with its own market value. Therefore, the market value
of a synthetic convertible is the sum of the values of its fixed-income
component and its convertible component. For this reason, the values of a
synthetic convertible and a true convertible security may respond differently to
market fluctuations. A Fund will invest in synthetic convertibles only with
respect to companies whose corporate debt securities are rated "A" or higher by
Moody's or "A" or higher by S&P and will not invest more than 15% of its net
assets in such synthetic securities and other illiquid securities.
CORPORATE DEBT SECURITIES
Depending upon the prevailing market conditions, the Subadviser may purchase
debt securities at a discount from face value, which produces a yield greater
than the coupon rate. Conversely, if debt securities are purchased at a premium
over face value the yield will be lower than the coupon rate. Such obligations,
in the case of debentures will represent unsecured promises to pay, and in the
case of notes and bonds, may be secured by mortgages on real property or
security interests in personal property and will in most cases differ in their
interest rates, maturities and times of issuance.
Certain Funds may invest in securities which are rated the fourth highest rating
group assigned by an NRSRO (e.g., securities rated BBB by S&P or Baa by Moody's)
or, if not rated, are of comparable quality as determined by the Subadviser
("Medium-Grade Securities"). After purchase by a Fund, a security may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event will require a sale of such security by the Fund. A
split rated security, i.e., rated in the fourth highest category by one NRSRO
and also rated below the fourth highest category by another NRSRO, will not be
considered a "medium grade security."
As with other fixed-income securities, Medium-Grade Securities are subject to
credit risk and market risk. Market risk relates to changes in a security's
value as a result of changes in interest rates. Credit risk relates to the
ability of an issuer
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The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
to make payments of principal and interest. Medium-Grade Securities are
considered by Moody's to have speculative characteristics.
Certain Funds may invest in lower rated securities. Fixed income securities with
ratings below Baa (Moody's) or BBB (S&P) are considered below investment grade
and are commonly referred to as "junk" bonds ("Lower Rated Securities").
These Lower Rated Securities generally offer higher interest payments because
the company that issues the bond - the issuer - is at greater risk of default
(failure to repay the bond). This may be because the issuer is small or new to
the market, the issuer has financial difficulties, or the issuer has a greater
amount of debt.
Some risks of investing in lower rated securities include:
o Greater credit risk - Because of their more precarious financial
position, issuers of high yield bonds may be more vulnerable to changes in the
economy or to interest rate changes that might affect their ability to repay
debt.
o Reduced liquidity - There are fewer investors willing to buy high yield
bonds than there are for higher rated, investment grade securities. Therefore,
it may be more difficult to sell these securities or to receive a fair market
price for them.
o Lack of historical data - Because high yield bonds are a relatively new
type of security, there is little data to indicate how such bonds will behave
in a prolonged economic downturn. However, there is a risk that such an
economic downturn would negatively affect the ability of issuers to repay
their debts, leading to increased defaults and overall losses to the Fund.
Particular types of Medium-Grade and Lower Rated Securities may present special
concerns. The prices of payment-in-kind or zero-coupon securities react more
strongly to changes in interest rates than the prices of other Medium-Grade or
Lower Rated Securities. Some Medium-Grade Securities and some Lower Rated
Securities in which a Fund may invest may be subject to redemption or call
provisions that may limit increases in market value that might otherwise result
from lower interest rates while increasing the risk that such Fund may be
required to reinvest redemption or call proceeds during a period of relatively
low interest rates.
The credit ratings issued by Moody's and S&P are subject to various limitations.
For example, while such ratings evaluate credit risk, they ordinarily do not
evaluate the market risk of Medium-Grade or Lower Rated Securities. In certain
circumstances, the ratings may not reflect in a timely fashion adverse
developments affecting an issuer. For these reasons, the Subadviser conducts its
own independent credit analysis of Medium-Grade and Lower Rated Securities.
COLLATERALIZED DEBT OBLIGATIONS. The Funds may invest in collateralized debt
obligations ("CDOs"), which includes collateralized bond obligations ("CBOs"),
collateralized loan obligations ("CLOs") and other similarly structured
securities. CBOs and CLOs are types of asset-backed securities. A CBO is a trust
which is backed by a diversified pools of high risk, below investment grade
fixed income securities. A CLO is a trust typically collateralized by a pool of
loans, which may include, among others, domestic and foreign senior secured
loans, senior unsecured loans, and subordinate corporate loans, including loans
that may be rated below investment grade or equivalent unrated loans. CDOs may
charge management fees and administrative expenses. Collateralized mortgage
obligations ("CMOs") are another type of CDO in which some Funds may invest. For
more information on CMOs, see the discussion under "Mortgage-Related Securities"
later in this section.
For both CBOs and CLOs, the cash flows from the trust are split into two or more
portions, called tranches, varying in risk and yield. The riskiest portion is
the "equity" tranche which bears the bulk of defaults from the bonds or loans in
the trust and serves to protect the other, more senior tranches from default in
all but the most severe circumstances. Since it is partially protected from
defaults, a senior tranche from a CBO trust or CLO trust typically have higher
ratings and lower yields than their underlying securities, and can be rated
investment grade. Despite the protection from the equity tranche, CBO or CLO
tranches can experience substantial losses due to actual defaults, increased
sensitivity to defaults due to collateral default and disappearance of
protecting tranches, market anticipation of defaults, as well as aversion to CBO
or CLO securities as a class.
The risks of an investment in a CDO depend largely on the type of the collateral
securities and the class of the CDO in which a Fund invests. Normally, CBOs,
CLOs and other CDOs are privately offered and sold, and thus, are not registered
under the securities laws. As a result, investments in CDOs may be characterized
by the Funds as illiquid securities, however an active dealer market may exist
for CDOs allowing a CDO to qualify for Rule 144A transactions. In addition to
the normal risks associated with fixed income securities discussed elsewhere in
this Statement of Additional Information, CDOs carry additional risks including,
but are not limited to: (i) the possibility that distributions from collateral
securities will not be adequate to make interest or other payments; (ii) the
quality of the collateral may decline
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in value or default; (iii) the Funds may invest in CDOs that are subordinate to
other classes; and (iv) the complex structure of the security may not be fully
understood at the time of investment and may produce disputes with the issuer or
unexpected investment results.
DELAYED FUNDING LOANS AND REVOLVING CREDIT FACILITIES
Certain Funds may enter into, or acquire participations in, delayed funding
loans and revolving credit facilities. Delayed funding loans and revolving
credit facilities are borrowing arrangements in which the lender agrees to make
loans up to a maximum amount upon demand by the borrower during a specified
term. A revolving credit facility differs from a delayed funding loan in that as
the borrower repays the loan, an amount equal to the repayment may be borrowed
again during the term of the revolving credit facility. Delayed funding loans
and revolving credit facilities usually provide for floating or variable rates
of interest. These commitments may have the effect of requiring a Fund to
increase its investment in a company at a time when it might not otherwise
decide to do so (including at a time when the company's financial condition
makes it unlikely that such amounts will be repaid). To the extent that a Fund
is committed to advance additional funds, it will at all times segregate or
"earmark" assets, determined to be liquid in accordance with procedures
established by the Board of Trustees, in an amount sufficient to meet such
commitments.
Certain Funds may invest in delayed funding loans and revolving credit
facilities with credit quality comparable to that of issuers of its securities
investments. Delayed funding loans and revolving credit facilities may be
subject to restrictions on transfer, and only limited opportunities may exist to
resell such instruments. As a result, a Fund may be unable to sell such
investments at an opportune time or may have to resell them at less than fair
market value. The Funds currently intend to treat delayed funding loans and
revolving credit facilities for which there is no readily available market as
illiquid for purposes of the Funds' limitation on illiquid investments. For a
further discussion of the risks involved in investing in Loan Participations and
other forms of direct indebtedness see "Loan Participations and Assignments."
Participation interests in revolving credit facilities will be subject to the
limitations discussed in "Loan Participations and Assignments." Delayed funding
loans and revolving credit facilities are considered to be debt obligations for
purposes of the Trust's investment restriction relating to the lending of funds
or assets by a Portfolio.
DERIVATIVE INSTRUMENTS
Certain Funds (other than the Money Market Fund) may use a variety of derivative
instruments, including options, futures contracts (sometimes referred to as
"futures"), options on futures contracts, stock index options, forward currency
contracts and swaps, to hedge a Fund's portfolio or for risk management or for
any other permissible purposes consistent with that Fund's investment objective.
Derivative instruments are securities or agreements whose value is based on the
value of some underlying asset (e.g., a security, currency or index) or the
level of a reference index.
Derivatives generally have investment characteristics that are based upon either
forward contracts (under which one party is obligated to buy and the other party
is obligated to sell an underlying asset at a specific price on a specified
date) or option contracts (under which the holder of the option has the right
but not the obligation to buy or sell an underlying asset at a specified price
on or before a specified date). Consequently, the change in value of a
forward-based derivative generally is roughly proportional to the change in
value of the underlying asset. In contrast, the buyer of an option-based
derivative generally will benefit from favorable movements in the price of the
underlying asset but is not exposed to the corresponding losses that result from
adverse movements in the value of the underlying asset. The seller (writer) of
an option-based derivative generally will receive fees or premiums but generally
is exposed to losses resulting from changes in the value of the underlying
asset. Derivative transactions may include elements of leverage and,
accordingly, the fluctuation of the value of the derivative transaction in
relation to the underlying asset may be magnified.
Generally, any Fund that invests in derivative instruments is required to
segregate cash and/or liquid securities to the extent that its obligations under
the instrument are not otherwise "covered" through ownership of the underlying
security, financial instrument, or currency. As an investment company
registered with the SEC, the Trust is subject to the federal securities laws,
the 1940 Act, related regulations, and published positions of the SEC and the
staff of the SEC. Further, in accordance with these positions, with respect to
certain kinds of derivatives, the Trust must "set aside" (sometimes referred to
as "asset segregation") liquid assets or engage in other SEC or SEC staff
approved measures while the derivative contracts are still open. For example,
with respect to forward contracts and futures that are not legally required to
"cash settle," the Trust must cover the open position by setting aside liquid
assets in an amount equal to the contract's full notional value. With respect
to forward contracts and futures that are required to "cash settle," however,
the Trust is permitted to set aside liquid assets in an amount equal to the
Trust's daily marked to market (net) obligation, if any, (in other words, the
Trust's daily net liability, if any) rather than the notional value.
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Hybrid instruments: A hybrid instrument is a type of potentially high-risk
derivative that combines a traditional stock, bond, or commodity with an option
or forward contract. Generally, the principal amount, amount payable upon
maturity or redemption, or interest rate of a hybrid is tied (positively or
negatively) to the price of some commodity, currency or securities index or
another interest rate or some other economic factor (each a "benchmark"). The
interest rate or (unlike most fixed income securities) the principal amount
payable at maturity of a hybrid security may be increased or decreased,
depending on changes in the value of the benchmark. An example of a hybrid could
be a bond issued by an oil company that pays a small base level of interest with
additional interest that accrues in correlation to the extent to which oil
prices exceed a certain predetermined level. Such a hybrid instrument would be a
combination of a bond and a call option on oil.
Hybrids can be used as an efficient means of pursuing a variety of investment
goals, including currency hedging, duration management, and increased total
return. Hybrids may not bear interest or pay dividends. The value of a hybrid or
its interest rate may be a multiple of a benchmark and, as a result, may be
leveraged and move (up or down) more steeply and rapidly than the benchmark.
These benchmarks may be sensitive to economic and political events, such as
commodity shortages and currency devaluations, which cannot be readily foreseen
by the purchaser of a hybrid. Under certain conditions, the redemption value of
a hybrid could be zero. Thus, an investment in a hybrid may entail significant
market risks that are not associated with a similar investment in a traditional,
U.S. dollar-denominated bond that has a fixed principal amount and pays a fixed
rate or floating rate of interest. The purchase of hybrids also exposes a Fund
to the credit risk of the issuer of the hybrids. These risks may cause
significant fluctuations in the net asset value of the Fund. Each Fund that
invests in hybrid instruments will not invest more than 5% of its total assets
in hybrid instruments.
Certain hybrid instruments may provide exposure to the commodities markets.
These are derivative securities with one or more commodity-linked components
that have payment features similar to commodity futures contracts, commodity
options, or similar instruments. Commodity-linked hybrid instruments may be
either equity or debt securities, and are considered hybrid instruments because
they have both security and commodity-like characteristics. A portion of the
value of these instruments may be derived from the value of a commodity, futures
contract, index or other economic variable. Certain Funds will invest only in
commodity-linked hybrid instruments that qualify under applicable rules of the
CFTC for an exemption from the provisions of the Commodity Exchange Act.
Certain issuers of structured products such as hybrid instruments may be deemed
to be investment companies as defined in the 1940 Act. As a result, the Funds'
investments in these products may be subject to limits applicable to investments
in investment companies and may be subject to restrictions contained in the 1940
Act.
EVENT-LINKED EXPOSURE
Certain Funds may obtain event-linked exposure by investing in "event-linked
bonds" or "event-linked swaps," or implement "event-linked strategies." Event-
linked exposure results in gains that typically are contingent on the
nonoccurrence of a specific "trigger" event, such as a hurricane, earthquake, or
other physical or weather-related phenomena. Some event-linked bonds are
commonly referred to as "catastrophe bonds." They may be issued by government
agencies, insurance companies, reinsurers, special purpose corporations or other
on-shore or off-shore entities (such special purpose entities are created to
accomplish a narrow and well-defined objective, such as the issuance of a note
in connection with a reinsurance transaction). If a trigger event causes losses
exceeding a specific amount in the geographic region and time period specified
in a bond, a Fund investing in the bond may lose a portion or all of its
principal invested in the bond. If no trigger event occurs, the Fund will
recover its principal plus interest. For some event-linked bonds, the trigger
event or losses may be based on company-wide losses, index-portfolio losses,
industry indices, or readings of scientific instruments rather than specified
actual losses. Often the event-linked bonds provide for extensions of maturity
that are mandatory, or optional at the discretion of the issuer, in order to
process and audit loss claims in those cases where a trigger event has, or
possibly has, occurred. An extension of maturity may increase volatility. In
addition to the specified trigger events, event-linked bonds may also expose the
Fund to certain unanticipated risks including but not limited to issuer risk,
credit risk, counterparty risk, adverse regulatory or jurisdictional
interpretations, and adverse tax consequences. Event-linked bonds are a
relatively new type of financial instrument. As such, there is no significant
trading history of these securities, and there can be no assurance that a liquid
market in these instruments will develop. Lack of a liquid market may impose the
risk of higher transaction costs and the possibility that a Fund may be forced
to liquidate positions when it would not be advantageous to do so. Event-linked
bonds are typically rated, and a Fund will only invest in catastrophe bonds that
meet the credit quality requirements for the Fund.
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FOREIGN CURRENCY OPTIONS AND FUTURES TRANSACTIONS
Certain Funds may invest in foreign currency options. A foreign currency option
provides the option buyer with the right to buy or sell a stated amount of
foreign currency at the exercise price at a specified date or during the option
period. A call option gives its owner the right, but not the obligation, to buy
the currency while a put option gives its owner the right, but not the
obligation, to sell the currency. The option seller (writer) is obligated to
fulfill the terms of an option sold if it is exercised. However, either seller
or buyer may close its position during the option period in the secondary market
for such options at any time prior to expiration.
A call rises in value if the underlying currency appreciates. Conversely, a put
rises in value if the underlying currency depreciates. While purchasing a
foreign currency option can protect the Fund against an adverse movement in the
value of a foreign currency, it does not limit the gain which might result from
a favorable movement in the value of such currency. For example, if a Fund were
holding securities denominated in an appreciating foreign currency and had
purchased a foreign currency put to hedge against the decline of the value of
the currency, it would not have to exercise its put. Similarly, if a Fund has
entered into a contract to purchase a security denominated in a foreign currency
and had purchased a foreign currency call to hedge against a rise in the value
of the currency but instead the currency had depreciated in value between the
date of the purchase and the settlement date, the Fund would not have to
exercise its call, but could acquire in the spot market the amount of foreign
currency needed for settlement.
Certain Funds may invest in foreign currency futures transactions. As part of
its financial futures transactions, the Fund may use foreign currency futures
contracts and options on such futures contracts. Through the purchase or sale of
such contracts, the Fund may be able to achieve many of the same objectives it
may achieve through forward foreign currency exchange contracts more effectively
and possibly at a lower cost. Unlike forward foreign currency exchange
contracts, foreign currency futures contracts and options on foreign currency
futures contracts are standardized as to amount and delivery, and may be traded
on boards of trade and commodities exchanges or directly with a dealer which
makes a market in such contracts and options. It is anticipated that such
contracts may provide greater liquidity and lower cost than forward foreign
currency exchange contracts.
FOREIGN SECURITIES
Certain Funds may invest in securities of foreign issuers. Investing in foreign
securities (including through the use of depository receipts) involves certain
special considerations which are not typically associated with investing in
United States securities. Since investments in foreign companies will frequently
involve currencies of foreign countries, and since a Fund may hold securities
and funds in foreign currencies, a Fund may be affected favorably or unfavorably
by changes in currency rates and in exchange control regulations, if any, and
may incur costs in connection with conversions between various currencies. Most
foreign stock markets, while growing in volume of trading activity, have less
volume than the New York Stock Exchange, and securities of some foreign
companies are less liquid and more volatile than securities of comparable
domestic companies. Similarly, volume and liquidity in most foreign bond markets
are less than in the United States and, at times, volatility of price can be
greater than in the United States. Fixed commissions on foreign securities
exchanges are generally higher than negotiated commissions on United States
exchanges, although each Fund endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed companies
in foreign countries than in the United States. In addition, with respect to
certain foreign countries, there is the possibility of exchange control
restrictions, expropriation or confiscatory taxation, and political, economic or
social instability, which could affect investments in those countries. Foreign
securities, such as those purchased by a Fund, may be subject to foreign
government taxes, higher custodian fees, higher brokerage costs and dividend
collection fees which could reduce the yield on such securities.
Foreign economies may differ favorably or unfavorably from the U.S. economy in
various respects, including growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency, and balance of payments positions. Many foreign securities are
less liquid and their prices more volatile than comparable U.S. securities. From
time to time, foreign securities may be difficult to liquidate rapidly without
adverse price effects.
Many European countries have adopted a single European currency, commonly
referred to as the "euro." The long-term consequences of the euro conversion on
foreign exchange rates, interest rates and the value of European securities, all
of which may adversely affect the Fund(s), are still uncertain.
Securities of companies with a foreign jurisdiction of legal organization may be
deemed domestic securities if they are either headquartered in the U.S., their
equity securities (or ADRs) trade primarily in the U.S., or their total revenues
are derived primarily from the U.S.
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INVESTMENT IN COMPANIES IN DEVELOPING COUNTRIES/EMERGING MARKETS
Certain Funds may invest from time to time in companies in developing countries
as well as in developed countries. Although there is no universally accepted
definition, a developing country is generally considered to be a country which
is in the initial stages of industrialization.
Shareholders should be aware that investing in the equity and fixed income
markets of developing countries involves exposure to unstable governments,
economies based on only a few industries, and securities markets which trade a
small number of securities. Securities markets of developing countries tend to
be more volatile than the markets of developed countries; however, such markets
have in the past provided the opportunity for higher rates of return to
investors.
The value and liquidity of investments in developing countries may be affected
favorably or unfavorably by political, economic, fiscal, regulatory or other
developments in the particular countries or neighboring regions. The extent of
economic development, political stability and market depth of different
countries varies widely. For example, certain countries, including, China,
Indonesia, Malaysia, the Philippines, Thailand, and Vietnam are either
comparatively underdeveloped or are in the process of becoming developed. Such
investments typically involve greater potential for gain or loss than
investments in securities of issuers in developed countries.
The securities markets in developing countries are substantially smaller, less
liquid and more volatile than the major securities markets in the United States.
A high proportion of the shares of many issuers may be held by a limited number
of persons and financial institutions, which may limit the number of shares
available for investment by a Fund. Similarly, volume and liquidity in the bond
markets in developing countries are less than in the United States and, at
times, price volatility can be greater than in the United States. A limited
number of issuers in developing countries' securities markets may represent a
disproportionately large percentage of market capitalization and trading volume.
The limited liquidity of securities markets in developing countries may also
affect the Fund's ability to acquire or dispose of securities at the price and
time it wishes to do so. Accordingly, during periods of rising securities prices
in the more illiquid securities markets, the Fund's ability to participate fully
in such price increases may be limited by its investment policy of investing not
more than 15% (10% for certain Funds) of its net assets in illiquid securities.
Conversely, the Fund's inability to dispose fully and promptly of positions in
declining markets will cause the Fund's net asset value to decline as the value
of the unsold positions is marked to lower prices. In addition, securities
markets in developing countries are susceptible to being influenced by large
investors trading significant blocks of securities.
Political and economic structures in many such countries may be undergoing
significant evolution and rapid development, and such countries may lack the
social, political and economic stability characteristic of the United States.
Certain of such countries have in the past failed to recognize private property
rights and have at times nationalized or expropriated the assets of private
companies. As a result, the risks described above, including the risks of
nationalization or expropriation of assets, may be heightened. In addition,
unanticipated political or social developments may affect the value of the
Fund's investments in those countries and the availability to the Fund of
additional investments in those countries. In addition, developing countries may
have or enact restrictions on the right of foreign investors to repatriate their
capital and to remit profits abroad.
Economies of developing countries may differ favorably or unfavorably from the
United States' economy in such respects as rate of growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
Certain developing countries do not have comprehensive systems of laws, although
substantial changes have occurred in many such countries in this regard in
recent years. Laws regarding fiduciary duties of officers and directors and the
protection of shareholders may not be well developed. Even where adequate law
exists in such developing countries, it may be impossible to obtain swift and
equitable enforcement of such law, or to obtain enforcement of the judgment by a
court of another jurisdiction.
Trading in futures contracts on foreign commodity exchanges may be subject to
the same or similar risks as trading in foreign securities.
DEPOSITARY RECEIPTS
For many foreign securities, U.S. dollar-denominated ADRs, which are traded in
the United States on exchanges or over-the-counter, are issued by domestic
banks. ADRs represent an interest in the securities of a foreign issuer
deposited in a domestic bank or a correspondent bank. ADRs do not eliminate all
of the risk inherent in investing in the securities of foreign issuers. However,
by investing in ADRs rather than directly in foreign issuers' stock, a Fund can
avoid currency
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risks during the settlement period for either purchases or sales. In general,
there is a large liquid market in the United States for many ADRs. Certain Funds
may also invest in EDRs and GDRs which are receipts evidencing an arrangement
with European and other banks similar to that for ADRs and are designed for use
in European and other securities markets. EDRs and GDRs are not necessarily
denominated in the currency of the underlying security.
Certain depositary receipts, typically those categorized as unsponsored, require
the holders to bear most of the costs of such facilities while issuers of
sponsored facilities normally pay more of the costs. The depository of an
unsponsored facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited securities or to pass
through the voting rights to facility holders with respect to the deposited
securities, whereas the depository of a sponsored facility typically distributes
shareholder communications and passes through the voting rights.
FOREIGN SOVEREIGN DEBT
Certain Funds may invest in sovereign debt obligations issued by foreign
governments. To the extent that a Fund invests in obligations issued by
developing or emerging markets, these investments involve additional risks.
Sovereign obligors in developing and emerging market countries are among the
world's largest debtors to commercial banks, other governments, international
financial organizations and other financial institutions. These obligors have in
the past experienced substantial difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by
negotiation, new or amended credit agreements or converting outstanding
principal and unpaid interest to Brady Bonds, and obtaining new credit for
finance interest payments. Holders of certain foreign sovereign debt securities
may be requested to participate in the restructuring of such obligations and to
extend further loans to their issuers. There can be no assurance that the
foreign sovereign debt securities in which a Fund may invest will not be subject
to similar restructuring arrangements or to requests for new credit which may
adversely affect the Fund's holdings. Furthermore, certain participants in the
secondary market for such debt may be directly involved in negotiating the terms
of these arrangements and may therefore have access to information not available
to other market participants.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Certain Funds may invest in forward foreign currency exchange contracts. A Fund
will conduct its foreign currency exchange transactions either on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or through forward contracts to purchase or sell foreign currencies. A forward
foreign currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded directly between currency traders
(usually large commercial banks) and their customers.
The Funds may enter into forward currency contracts in order to hedge against
adverse movements in exchange rates between currencies. For example, when a Fund
enters into a contract for the purchase or sale of a security denominated in a
foreign currency, it may want to establish the United States dollar cost or
proceeds, as the case may be. By entering into a forward currency contract in
United States dollars for the purchase or sale of the amount of foreign currency
involved in an underlying security transaction, such Fund is able to protect
itself against a possible loss between trade and settlement dates resulting from
an adverse change in the relationship between the United States dollar and such
foreign currency. Additionally, for example, when a Fund believes that a foreign
currency may suffer a substantial decline against the U.S. dollar, it may enter
into a forward currency sale contract to sell an amount of that foreign currency
approximating the value of some or all of that Fund's portfolio securities or
other assets denominated in such foreign currency. Alternatively, when a Fund
believes a foreign currency will increase in value relative to the U.S. dollar,
it may enter into a forward currency purchase contract to buy that foreign
currency for a fixed U.S. dollar amount; however, this tends to limit potential
gains which might result from a positive change in such currency relationships.
The Subadvisers believe that it is important to have the flexibility to enter
into such forward contracts when they determine that to do so is in the best
interests of a Fund. They may use foreign currency options and forward contracts
to increase exposure to a foreign currency or to shift exposure to foreign
currency fluctuations from one country to another. A Fund may use currency
exchange contracts in the normal course of business to lock in an exchange rate
in connection with purchases and sales of securities denominated in foreign
currencies (transaction hedge) or to lock in the U.S. dollar value of portfolio
positions (position hedge). In addition, the Funds may cross hedge currencies by
entering into a transaction to purchase or sell one or more currencies that are
expected to decline in value relative to other currencies to which a Fund has or
expects to have portfolio exposure. The Funds may also engage in proxy hedging
which is defined as
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entering into positions in one currency to hedge investments denominated in
another currency, where the two currencies are economically linked. A Fund's
entry into forward foreign currency exchange contract, as well as any use of
cross or proxy hedging techniques will generally require the Fund to earmark or
hold liquid securities or cash equal to the Fund's obligations in a segregated
account throughout the duration of the contract. To the extent that the
currency is not being used for hedging purposes, the Fund will segregate or
"earmark" cash or assets determined to be liquid in an amount not less than the
value of the Fund's total assets committed to forward foreign currency exchange
contracts entered into for the purchase of a foreign security. If the value of
the segregated securities declines, the Fund will add additional assets so that
the amount is not less than the Fund's commitments under the Contracts.
If the Fund retains the portfolio security and engages in an offsetting
transaction, such Fund will incur a gain or a loss to the extent that there has
been a movement in forward currency contract prices. If the Fund engages in an
offsetting transaction it may subsequently enter into a new forward currency
contract to sell the foreign currency. If forward prices decline during the
period between which a Fund enters into a forward currency contract for the sale
of foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, such Fund would realize a gain to the extent
the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. The Funds will have to convert their
holdings of foreign currencies into United States dollars from time to time.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies.
FUTURES
Certain Funds (other than the Money Market Fund) may enter into futures
contracts. This investment technique is designed primarily to hedge against
anticipated future changes in market conditions or foreign exchange rates which
otherwise might adversely affect the value of securities which a Fund holds or
intends to purchase. For example, when interest rates are expected to rise or
market values of portfolio securities are expected to fall, a Fund can seek
through the sale of futures contracts to offset a decline in the value of its
portfolio securities. When interest rates are expected to fall or market values
are expected to rise, a Fund, through the purchase of such contract, can attempt
to secure better rates or prices for the Fund than might later be available in
the market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will, respectively,
give a Fund the right (but not the obligation), for a specified price to sell or
to purchase the underlying futures contract, upon exercising the option any time
during the option period.
Futures transactions involve broker costs and require a Fund to segregate liquid
assets, such as cash, U.S. government securities or other liquid high-grade debt
obligations to cover its performance under such contracts. A Fund may lose the
expected benefit of futures contracts if interest rates, securities or foreign
exchange rates move in an unanticipated manner. Such unanticipated changes may
also result in poorer overall performance than if the Fund had not entered into
any futures transactions. In addition, the value of a Fund's futures positions
may not prove to be perfectly or even highly correlated with its portfolio
securities and foreign currencies, limiting the Fund's ability to hedge
effectively against interest rate, foreign exchange rate and/or market risk and
giving rise to additional risks. There is no assurance of liquidity in the
secondary market for purposes of closing out futures positions.
FUTURES AND OPTIONS INVESTMENT RISKS
A Fund will incur brokerage fees in connection with its futures and options
transactions, and it will be required to segregate funds for the benefit of
brokers as margin to guarantee performance of its futures and options contracts.
In addition, while such contracts will be entered into to reduce certain risks,
trading in these contracts entails certain other risks. Thus, while a Fund may
benefit from the use of futures contracts and related options, unanticipated
changes in interest rates may result in a poorer overall performance for that
Fund than if it had not entered into any such contracts. Additionally, the
skills required to invest successfully in futures and options may differ from
skills required for managing other assets in the Fund's portfolio.
Pursuant to a claim for exemption filed with the Commodity Futures Trading
Commission ("CFTC") on behalf of the Funds, neither the Trust nor the Funds are
deemed to be a "commodity pool" or "commodity pool operator" under the Commodity
Exchange Act ("CEA"), and they are not subject to registration or regulation as
such under the CEA. The Manager is not deemed to be a "commodity pool operator"
with respect to its service as investment adviser to the Funds.
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GUARANTEED INVESTMENT CONTRACTS
A Guaranteed Investment Contract ("GIC") is a pure investment product in which a
life insurance company agrees, for a single premium, to pay the principal amount
of a predetermined annual crediting (interest) rate over the life of the
investment, all of which is paid at the maturity date. GICs typically guarantee
the interest rate paid but not the principal.
ILLIQUID SECURITIES
Securities in which each of the Funds may invest include securities issued by
corporations without registration under the Securities Act of 1933, as amended
(the "1933 Act"), in reliance on the so-called "private placement" exemption
from registration which is afforded by Section 4(2) of the 1933 Act ("Section
4(2) Securities"). Section 4(2) Securities are restricted as to disposition
under the federal securities laws, and generally are sold to institutional
investors, such as the Funds, who agree that they are purchasing the securities
for investment and not with a view to public distribution. Any resale must also
generally be made in an exempt transaction. Section 4(2) Securities are normally
resold to other institutional investors through or with the assistance of the
issuer or investment dealers who make a market in such Section 4(2) Securities,
thus providing liquidity. The Trust's Board of Trustees has delegated to the
Subadvisers the day-to-day authority to determine whether a particular issue of
Section 4(2) Securities that are eligible for resale under Rule 144A under the
1933 Act should be treated as liquid. Rule 144A provides a safe-harbor exemption
from the registration requirements of the 1933 Act for resales to "qualified
institutional buyers" as defined in the Rule. With the exception of registered
broker-dealers, a qualified institutional buyer must generally own and invest on
a discretionary basis at least $100 million in securities.
The Subadvisers may deem Section 4(2) Securities liquid if they believe that,
based on the trading markets for such security, such security can be disposed of
within seven (7) days in the ordinary course of business at approximately the
amount at which a Fund has valued the security. In making such determination,
the Subadvisers generally consider any and all factors that they deem relevant,
which may include: (i) the credit quality of the issuer; (ii) the frequency of
trades and quotes for the security; (iii) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers; (iv)
dealer undertakings to make a market in the security; and (v) the nature of the
security and the nature of market-place trades.
Subject to the limitations described above, the Funds may acquire investments
that are illiquid or of limited liquidity, such as private placements or
investments that are not registered under the 1933 Act. An illiquid investment
is any investment that cannot be disposed of within seven days in the normal
course of business at approximately the amount at which it is valued by a Fund.
The price a Fund pays for illiquid securities or receives upon resale may be
lower than the price paid or received for similar securities with a more liquid
market. Accordingly, the valuation of these securities will reflect any
limitations on their liquidity. A Fund may not invest in illiquid securities if,
as a result, more than 15% (10% in the case of the Money Market Fund) of the
market value of its net assets would be invested in illiquid securities.
Treatment of Section 4(2) Securities as liquid could have the effect of
decreasing the level of a Fund's liquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities.
INITIAL PUBLIC OFFERINGS
A Fund may invest in initial public offerings (IPOs) of common stock or other
primary or secondary syndicated offerings of equity or debt securities issued by
a corporate issuer. A purchase of IPO securities often involves higher
transaction costs than those associated with the purchase of securities already
traded on exchanges or markets. IPO securities are subject to market risk and
liquidity risk. The market value of recently issued IPO securities may
fluctuate considerably due to factors such as the absence of a prior public
market, unseasoned trading and speculation, a potentially small number of
securities available for trading, and limited information about the issuer. A
Fund may hold IPO securities for a period of time or may sell them soon after
the purchase. Investments in IPOs could have an increased impact, either
positive or negative, on a Fund's performance if the Fund's assets are
relatively small. The impact of an IPO on a Fund's performance may tend to
diminish as the Fund grows. In circumstances where investments in IPOs make a
significant contribution to a Fund's performance, there can be no assurance that
similar contributions from IPOs will continue in the future.
INVESTMENT COMPANY SECURITIES
The Funds may not invest in shares of other mutual funds in reliance on Section
12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act. However, as permitted by the 1940
Act, a Fund may invest in securities issued by other investment companies, so
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that, as determined immediately after a securities purchase is made: (a) not
more than 5% of the value of a Fund's total assets will be invested in the
securities of any one investment company; (b) not more than 10% of the value of
a Fund's total assets will be invested in the securities of investment companies
as a group; and (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by a Fund. The foregoing restrictions do not
apply to investments by the Funds in investment companies that are money market
funds, including the Money Market Fund or another money market fund that has an
affiliate of the Manager as an investment adviser. As a shareholder of another
investment company, a Fund would indirectly bear, along with other shareholders,
its pro rata portion of that company's expenses, including advisory fees. These
expenses would be in addition to the advisory and other expenses that the Fund
bears directly in connection with its own operations. Investment companies in
which a Fund may invest may also impose a sales or distribution charge in
connection with the purchase or redemption of their shares and other types of
commissions or charges. Such charges will be payable by the Fund and, therefore,
will be borne indirectly by shareholders.
EXCHANGE TRADED FUNDS
The Funds may invest in investment companies in the form of various exchange
traded funds ("ETFs"), subject to the Fund's investment objectives, policies,
and strategies as described in the Prospectus. ETFs are baskets of securities
that, like stocks, trade on exchanges such as the American Stock Exchange and
the New York Stock Exchange. ETFs are priced continuously and trade throughout
the day. ETFs may track a securities index, a particular market sector, or a
particular segment of a securities index or market sector. Some types of ETFs
include:
o "SPDRs" (S&P's Depositary Receipts), which are securities that represent
ownership in a long-term unit investment trust that holds a portfolio of
common stocks designed to track the performance of an S&P Index. Holders of
SPDRs are entitled to receive proportionate quarterly cash distributions
corresponding to the dividends that accrue to the stocks in the S&P Index's
underlying investment portfolio, less any trust expenses.
o "Qubes" (QQQ), which invest in the stocks of the Nasdaq 100 Index, a
modified capitalization weighted index that includes the stocks of 100 of the
largest and most actively traded non-financial companies quoted through
Nasdaq. Qubes use a unit investment trust structure that allows immediate
reinvestment of dividends.
o "iShares" which are securities that represent ownership in a long-term
unit investment trust that holds a portfolio of common stocks designed to
track the performance of specific indexes.
o "HOLDRs" (Holding Company Depositary Receipts), which are trust-issued
receipts that represent beneficial ownership in a specified group of 20 or
more stocks. Unlike other ETFs, a Fund can hold the group of stocks as one
asset or unbundle the stocks and trade them separately, according to the
Fund's investment strategies.
ETFs can experience many of the same risks associated with individual stocks.
ETFs are subject to market risk where the market as a whole, or that specific
sector, may decline. ETFs that invest in volatile stock sectors, such as foreign
issuers, smaller companies, or technology, are subject to the additional risks
to which those sectors are subject. ETFs may trade at a discount to the
aggregate value of the underlying securities. The underlying securities in an
ETF may not follow the price movements of an entire industry, sector or index.
Trading in an ETF may be halted if the trading in one or more of the ETF's
underlying securities is halted. Although expense ratios for ETFs are generally
low, frequent trading of ETFs by a Fund can generate brokerage expenses.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Funds may, from time to time, lend
up to 33 1/3% of their portfolio securities to broker-dealers, banks or
institutional borrowers of securities. A Fund must receive initial collateral
equal to 102% (105% for foreign securities) of the market value of domestic
securities and 100% thereafter (or current percentage consistent with applicable
legal or regulatory limitations) in the form of cash or U.S. government
securities. This collateral must be valued daily by the Fund and, should the
market value of the loaned securities increase, the borrower must furnish
additional collateral to the Fund. During the time portfolio securities are on
loan, the borrower pays the Fund any dividends or interest paid on such
securities. Loans are subject to termination by the Fund or the borrower at any
time. While the Fund does not have the right to vote securities on loan, it
intends to terminate the loan and regain the right to vote if that is considered
important with respect to the investment. In the event the borrower defaults in
its obligation to a Fund, the Fund bears the risk of delay in the recovery of
its portfolio securities and the risk of loss of rights in the collateral. The
Fund will only enter into loan arrangements with broker-dealers, banks or other
institutions determined to be creditworthy by the Manager.
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LOAN PARTICIPATIONS AND ASSIGNMENTS
Loans, loan participations and interests in securitized loan pools are interests
in amounts owed by a corporate, governmental or other borrower to a lender or
consortium of lenders (typically banks, insurance companies, investment banks,
government agencies or international agencies). Loans involve a risk of loss in
case of default or insolvency of the borrower and may offer less legal
protection to an investor in the event of fraud or misrepresentation.
Investments in loans through a direct assignment of the financial institution's
interests with respect to the loan may involve additional risks. For example, if
a loan is foreclosed, a Fund could become part owner of any collateral, and
would bear the costs and liabilities associated with owning and disposing of the
collateral. In addition, it is conceivable that under emerging legal theories of
lender liability, a Fund could be held liable as co-lender. It is unclear
whether loans and other forms of direct indebtedness offer securities law
protections against fraud and misrepresentation. In the absence of definitive
regulatory guidance, the Fund relies on its Subadviser's research in an attempt
to avoid situations where fraud or misrepresentation could adversely affect the
Fund.
MORTGAGE - RELATED SECURITIES
Certain Funds may, consistent with their investment objective and policies,
invest in mortgage-related securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities. In addition, certain Funds may
invest in mortgage-related securities issued by non-governmental entities,
including collateralized mortgage obligations structured as pools of mortgage
pass-through certificates or mortgage loans, subject to the rating limitations
described in the Prospectus.
Mortgage-related securities, for purposes of the Prospectus and this SAI,
represent pools of mortgage loans assembled for sale to investors by various
governmental agencies such as GNMA and government-related organizations such as
FNMA and the FHLMC, as well as by non-governmental issuers such as commercial
banks, savings and loan institutions, mortgage bankers and private mortgage
insurance companies. Although certain mortgage-related securities are guaranteed
by a third party or are otherwise similarly secured, the market value of the
security, which may fluctuate, is not so secured. Accelerated prepayments have
an adverse impact on yields for pass-through securities purchased at a premium
(i.e., a price in excess of principal amount) and may involve additional risk of
loss of principal because the premium may not have been fully amortized at the
time the obligation is prepaid. The opposite is true for pass-through securities
purchased at a discount. The Funds may purchase mortgage-related securities at a
premium or at a discount. If a Fund purchases a mortgage-related security at a
premium, that portion may be lost if there is a decline in the market value of
the security whether resulting from changes in interest rates or prepayments in
the underlying mortgage collateral. As with other interest-bearing securities,
the prices of such securities are inversely affected by changes in interest
rates. However, though the value of a mortgage-related security may decline when
interest rates rise, the converse is not necessarily true, since in periods of
declining interest rates the mortgages underlying the securities are prone to
prepayment, thereby shortening the life of the security and shortening the
period of time over which income at the higher rate is received. When interest
rates are rising, though, the rate of prepayment tends to decrease, thereby
lengthening the period of time over which income at the lower rate is received.
For these and other reasons, a mortgage-related security's average maturity may
be shortened or lengthened as a result of interest rate fluctuations and,
therefore, it is not possible to predict accurately the security's return to the
Funds. In addition, regular payments received in respect of mortgage-related
securities include both interest and principal. No assurance can be given as to
the return the Funds will receive when these amounts are reinvested.
If a Fund purchases mortgage-backed or asset-backed securities that are
subordinated to other interests in the same mortgage pool, the Fund may receive
payments only after the pool's obligations to other investors have been
satisfied. An unexpectedly high rate of defaults on the mortgages held by a
mortgage pool may limit substantially the pool's ability to make payments of
principal or interest to the Fund as a holder of such subordinated securities,
reducing the values of those securities or in some cases rendering them
worthless. The risk of such defaults is generally higher in the case of
mortgage pools that include so-called "subprime" mortgages. An unexpectedly
high or low rate of prepayments on a pool's underlying mortgages may have a
similar effect on subordinated securities. A mortgage pool may issue securities
subject to various levels of subordination. The risk of non-payment affects
securities at each level, although the risk is greater in the case of more
highly subordinated securities.
There are a number of important differences among the agencies and the
instrumentalities of the U.S. government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the
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timely payment of principal and interest by GNMA and such guaranty is backed by
the full-faith and credit of the United States. GNMA is a wholly-owned U.S.
government corporation within the Department of Housing and Urban Development.
GNMA certificates are also supported by the authority of the GNMA to borrow
funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by FNMA include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of FNMA and are not backed by or entitled to the full faith and
credit of the United States. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of the principal and interest by FNMA. Mortgage-related securities
issued by FHLMC include FHLMC mortgage participation certificates (also known as
"Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of the United
States, organized pursuant to an Act of Congress, which is owned entirely by the
Federal Home Loan banks. Freddie Macs are not guaranteed by the United States or
by any Federal Home Loan banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan bank. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by the FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
COLLATERALIZED MORTGAGE OBLIGATIONS
Mortgage-related securities in which the Funds may invest may also include
collateralized mortgage obligations ("CMOs"). CMOs are debt obligations issued
generally by finance subsidiaries or trusts that are secured by mortgage-backed
certificates, including, in many cases, certificates issued by
government-related guarantors, including GNMA, FNMA and FHLMC, together with
certain funds and other collateral. Although payment of the principal of and
interest on the mortgage-backed certificates pledged to secure the CMOs may be
guaranteed by GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FHLMC, FNMA or any other
governmental agency, or by any other person or entity. The issuers of the CMOs
typically have no significant assets other than those pledged as collateral for
the obligations.
CMOS ARE ISSUED IN MULTIPLE CLASSES. Each class of CMOs, often referred to as a
"tranche," is issued at a specific adjustable or fixed interest rate and must be
fully retired no later than its final distribution date. Principal prepayments
on the mortgage loans or the mortgage assets underlying the CMOs may cause some
or all of the classes of CMOs to be retired substantially earlier than their
final distribution dates. Generally, interest is paid or accrues on all classes
of CMOs on a monthly basis.
The principal of and interest on the mortgage assets may be allocated among the
several classes of CMOs in various ways. In certain structures (known as
"sequential pay" CMOs), payments of principal, including any principal
prepayments, on the mortgage assets generally are applied to the classes of CMOs
in the order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs include, among others, "parallel pay" CMOs.
Parallel pay CMOs are those which are structured to apply principal payments and
prepayments of the mortgage assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
STRIPPED MORTGAGE SECURITIES
Certain Funds may invest in stripped mortgage securities. Stripped mortgage
securities are derivative multiclass mortgage securities. Stripped mortgage
securities may be issued by agencies or instrumentalities of the U.S.
government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Stripped
mortgage securities have greater volatility than other types of mortgage
securities. Although stripped mortgage securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, the market for such securities has not yet been fully
developed. Accordingly, stripped mortgage securities are generally illiquid.
Stripped mortgage securities are structured with two or more classes of
securities that receive different proportions of the interest and principal
distributions on a pool of mortgage assets. A common type of stripped mortgage
security will have at least one class receiving only a small portion of the
interest and a larger portion of the principal from the mortgage assets, while
the other class will receive primarily interest and only a small portion of the
principal. In the most extreme
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case, one class will receive all of the interest ("IO" or interest-only), while
the other class will receive all of the principal ("PO" or principal-only
class). The yield to maturity on IOs, POs and other mortgage-backed securities
that are purchased at a substantial premium or discount generally are extremely
sensitive not only to changes in prevailing interest rates but also to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on such securities' yield to maturity. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, the Fund may fail
to fully recoup its initial investment in these securities even if the
securities have received the highest rating by an NRSRO.
In addition to the stripped mortgage securities described above, certain Funds
may invest in similar securities such as Super POs and Levered IOs which are
more volatile than POs, IOs and IOettes. Risks associated with instruments such
as Super POs are similar in nature to those risks related to investments in POs.
IOettes represent the right to receive interest payments on an underlying pool
of mortgages with similar risks as those associated with IOs. Unlike IOs, the
owner also has the right to receive a very small portion of the principal. Risks
connected with Levered IOs and IOettes are similar in nature to those associated
with IOs. Such Funds may also invest in other similar instruments developed in
the future that are deemed consistent with its investment objective, policies
and restrictions. POs may generate taxable income from the current accrual of
original issue discount, without a corresponding distribution of cash to the
Fund.
Certain Funds may also purchase stripped mortgage-backed securities for hedging
purposes to protect the Fund against interest rate fluctuations. For example,
since an IO will tend to increase in value as interest rates rise, it may be
utilized to hedge against a decrease in value of other fixed-income securities
in a rising interest rate environment. With respect to IOs, if the underlying
mortgage securities experience greater than anticipated prepayments of
principal, the Fund may fail to recoup fully its initial investment in these
securities even if the securities are rated in the highest rating category by an
NRSRO. Stripped mortgage-backed securities may exhibit greater price volatility
than ordinary debt securities because of the manner in which their principal and
interest are returned to investors. The market value of the class consisting
entirely of principal payments can be extremely volatile in response to changes
in interest rates. The yields on stripped mortgage-backed securities that
receive all or most of the interest are generally higher than prevailing market
yields on other mortgage-backed obligations because their cash flow patterns are
also volatile and there is a greater risk that the initial investment will not
be fully recouped. The market for CMOs and other stripped mortgage-backed
securities may be less liquid if these securities lose their value as a result
of changes in interest rates; in that case, a Fund may have difficulty in
selling such securities.
OPTIONS
Certain Funds (other than the Money Market Fund) may write (or sell) put and
call options on the securities that the Fund is authorized to buy or already
holds in its portfolio. These option contracts may be listed for trading on a
national securities exchange or traded over-the-counter. Certain Funds may also
purchase put and call options.
A call option gives the purchaser of the option the right to buy, and the writer
has the obligation to sell, the underlying security or foreign currency at the
stated exercise price at any time prior to the expiration of the option,
regardless of the market price or exchange rate of the security or foreign
currency, as the case may be. The premium paid to the writer is consideration
for undertaking the obligations under the option contract. A put option gives
the purchaser the right to sell the underlying security or foreign currency at
the stated exercise price at any time prior to the expiration date of the
option, regardless of the market price or exchange rate of the security or
foreign currency, as the case may be.
When a Fund writes an option, an amount equal to the net premium (the premium
less the commission) received by the Fund is included in the liability section
of the Fund's statement of assets and liabilities as a deferred credit. The
amount of the deferred credit will be subsequently marked-to-market to reflect
the current value of the option written. If an option expires on the stipulated
expiration date or if the Fund enters into a closing purchase transaction, it
will realize a gain (or a loss if the cost of a closing purchase transaction
exceeds the net premium received when the option is sold) and the deferred
credit related to such option will be eliminated. If an option is exercised, the
Fund may deliver the underlying security in the open market. In either event,
the proceeds of the sale will be increased by the net premium originally
received and the Fund will realize a gain or loss.
In order to close out a call option it has written, the Fund will enter into a
"closing purchase transaction" (the purchase of a call option on the same
security or currency with the same exercise price and expiration date as the
call option which such Fund previously has written). When the portfolio security
or currency subject to a call option is sold, the Fund will effect a closing
purchase transaction to close out an existing call option on that security or
currency. If such Fund is unable to effect a closing purchase transaction, it
will not be able to sell the underlying security or currency until the
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option expires or that Fund delivers the underlying security or currency upon
exercise. In addition, upon the exercise of a call option by the option holder,
the Fund will forego the potential benefit represented by market depreciation
over the exercise price.
A Fund may sell "covered" put and call options as a means of hedging the price
risk of securities in the Fund's portfolio. The sale of a call option against an
amount of cash equal to the put's potential liability constitutes a "covered
put."
Over-the-counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and there is a risk of non-performance by the dealer. OTC
options are available for a greater variety of securities and for a wider range
of expiration dates and exercise prices than exchange-traded options. Because
OTC options are not traded on an exchange, pricing is normally done by reference
to information from a market marker. This information is carefully monitored by
the Subadviser and verified in appropriate cases. OTC options are subject to the
Funds' 15% (or 10% for certain Funds) limit on investments in securities which
are illiquid or not readily marketable (see "Investment Restrictions"), provided
that OTC option transactions by a Fund with a primary U.S. Government securities
dealer which has given the Fund an absolute right to repurchase according to a
"repurchase formula" will not be subject to such 15% limit.
Certain Funds (other than the Money Market Fund) may also purchase or sell index
options. Index options (or options on securities indices) are similar in many
respects to options on securities except that an index option gives the holder
the right to receive, upon exercise, cash instead of securities, if the closing
level of the securities index upon which the option is based is greater than, in
the case of a call, or less than, in the case of a put, the exercise price of
the option.
Because index options are settled in cash, a call writer cannot determine the
amount of its settlement obligations in advance and, unlike call writing on
specific securities, cannot provide in advance for, or cover, its potential
settlement obligations by acquiring and holding the underlying securities. A
Fund may be required to segregate assets or provide an initial margin to cover
index options that would require it to pay cash upon exercise.
PREFERRED STOCKS
Shareholders of preferred stocks normally have the right to receive dividends at
a fixed rate, when and as declared by the issuer's board of directors, but do
not participate in other amounts available for distribution by the issuing
corporation. Dividends on the preferred stock may be cumulative, and all
cumulative dividends usually must be paid prior to common shareholders receiving
any dividends. Because preferred stock dividends must be paid before common
stock dividends, preferred stocks generally entail less risk than common stocks.
Upon liquidation, preferred stocks are entitled to a specified liquidation
preference, which is generally the same as the par or stated value, and are
senior in right of payment to common stock. Preferred stocks are, however,
equity securities in the sense that they do not represent a liability of the
issuer and, therefore, do not offer as great a degree of protection of capital
or assurance of continued income as investments in corporate debt securities.
Preferred stocks are generally subordinated in right of payment to all debt
obligations and creditors of the issuer, and convertible preferred stocks may be
subordinated to other preferred stock of the same issuer.
REAL ESTATE INVESTMENT TRUSTS (REITS)
Certain Funds may invest in equity or debt REITs. Equity REITs are trusts that
sell shares to investors and use the proceeds to invest in real estate or
interests in real estate. Debt REITs invest in obligations secured by mortgages
on real property or interests in real property. A REIT may focus on particular
types of projects, such as apartment complexes or shopping centers, or on
particular geographic regions, or both. An investment in a REIT may be subject
to certain risks similar to those associated with direct ownership of real
estate, including: declines in the value of real estate; risks related to
general and local economic conditions, overbuilding and competition; increases
in property taxes and operating expenses; and variations in rental income. Also,
REITs may not be diversified. A REIT may fail to qualify for pass-through tax
treatment of its income under the Internal Revenue Code of 1986, as amended (the
"Code") and may also fail to maintain its exemption from registration under the
1940 Act. Also, REITs (particularly equity REITs) may be dependent upon
management skill and face risks of failing to obtain adequate financing on
favorable terms.
REPURCHASE AGREEMENTS
Securities held by certain Funds may be subject to repurchase agreements. Under
the terms of a repurchase agreement, a Fund would acquire securities from member
banks of the Federal Deposit Insurance Corporation and registered broker-dealers
which a Subadviser deems creditworthy, subject to the seller's agreement to
repurchase such securities at a mutually agreed upon date and price. The
repurchase price would generally equal the price paid by a Fund plus interest
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negotiated on the basis of current short-term rates, which may be more or less
than the rate on the underlying portfolio securities. The seller under a
repurchase agreement will be required to maintain at all times the value of
collateral held pursuant to the agreement at not less than the repurchase price
(including accrued interest). If the seller were to default on its repurchase
obligations or become insolvent, the Fund holding such obligation would suffer a
loss to the extent that the proceeds from the sale of the underlying portfolio
securities were less than the repurchase price under the agreement, or to the
extent that the disposition of such securities by the Fund were delayed pending
court action. Additionally, there is no controlling legal precedent confirming
that a Fund would be entitled, as against the claim by such seller or its
receiver or trustee in bankruptcy, to retain the underlying securities, although
the Board of Trustees believes that, under the regular procedures normally in
effect for the custody of a Fund's securities subject to repurchase agreements,
and under federal laws, a court of competent jurisdiction would rule in favor of
the Trust if presented with the question. Securities subject to repurchase
agreements will be held by the Trust's Custodian or another qualified custodian
or in the Federal Reserve/Treasury book-entry system. Repurchase agreements are
considered to be loans by a Fund under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL AGREEMENTS
Certain Funds may borrow money by entering into reverse repurchase agreements or
dollar roll agreements in accordance with that Fund's investment restrictions.
Pursuant to such agreements, a Fund would sell portfolio securities to financial
institutions, such as banks and broker-dealers, and agree to repurchase the
securities, or substantially similar securities in the case of a dollar roll
agreement, at a mutually agreed-upon date and price. A dollar roll agreement is
identical to a reverse repurchase agreement except for the fact that
substantially similar securities may be repurchased under a dollar roll
agreement. The Funds do not consider a TBA (to be announced) trade, which is a
forward mortgage-backed securities trade, to be a dollar roll since a TBA is a
commitment to make a future purchase and does not involve deliverable
securities. At the time a Fund enters into a reverse repurchase agreement or a
dollar roll agreement, it will segregate assets such as U.S. government
securities or other liquid high-grade debt securities consistent with the Fund's
investment restrictions having a value equal to the Fund's obligation. Reverse
repurchase agreements and dollar roll agreements involve the risk that the
market value of the securities sold by a Fund may decline below the price at
which a Fund is obligated to repurchase the securities. Although reverse
repurchase agreements and dollar roll agreements are excluded from the Funds'
fundamental restriction against borrowing, they may, to some extent, involve the
risk of leverage. See "Risks of Techniques Involving Leverage" below. A Fund
may experience a negative impact on its net asset value if interest rates rise
during the term of a reverse repurchase agreement or dollar roll agreement. A
Fund generally will invest the proceeds of such borrowings only when such
borrowings will enhance a Fund's liquidity or when the Fund reasonably expects
that the interest income to be earned from the investment of the proceeds is
greater than the interest expense of the transaction.
RISKS OF TECHNIQUES INVOLVING LEVERAGE
Use of leveraging involves special risks and may involve speculative investment
techniques. Certain Funds may borrow for other than temporary or emergency
purposes, lend their securities, enter into reverse repurchase agreements or
dollar roll agreements, and purchase securities on a when issued or forward
commitment basis. In addition, certain Funds may engage in dollar roll
transactions. Each of these transactions involve the use of "leverage" when cash
made available to the Fund through the investment technique is used to make
additional portfolio investments. The Funds use these investment techniques only
when the Subadvisers, as applicable, believe that the leveraging and the returns
available to the Fund from investing the cash will provide shareholders a
potentially higher return.
Leverage exists when a Fund achieves the right to a return on a capital base
that exceeds the investment the Fund has invested. Leverage creates the risk of
magnified capital losses which occur when losses affect an asset base, enlarged
by borrowings or the creation of liabilities, that exceeds the equity base of
the Fund. Leverage may involve the creation of a liability that requires the
Fund to pay interest (for instance, reverse repurchase agreements) or the
creation of a liability that does not entail any interest costs (for instance,
forward commitment transactions).
The risks of leverage include a higher volatility of the net asset value of a
Fund's shares and the relatively greater effect on the net asset value of the
shares caused by favorable or adverse market movements or changes in the cost of
cash obtained by leveraging and the yield obtained from investing the cash. So
long as a Fund is able to realize a net return on its investment portfolio that
is higher than interest expense incurred, if any, leverage will result in higher
current net investment income being realized by such Fund than if the Fund were
not leveraged. On the other hand, interest rates change from time to time as
does their relationship to each other depending upon such factors as supply and
demand, monetary and tax policies and investor expectations. Changes in such
factors could cause the relationship between the cost of leveraging and the
yield to change so that rates involved in the leveraging arrangement may
substantially increase
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relative to the yield on the obligations in which the proceeds of the leveraging
have been invested. To the extent that the interest expense involved in
leveraging approaches the net return on a Fund's investment portfolio, the
benefit of leveraging will be reduced, and, if the interest expense on
borrowings were to exceed the net return to shareholders, such Fund's use of
leverage would result in a lower rate of return than if the Fund were not
leveraged. Similarly, the effect of leverage in a declining market could be a
greater decrease in net asset value per share than if a Fund were not leveraged.
In an extreme case, if a Fund's current investment income were not sufficient to
meet the interest expense of leveraging, it could be necessary for such Fund to
liquidate certain of its investments at an inappropriate time. The use of
leverage may be considered speculative.
SHORT SALES AGAINST THE BOX
Certain Funds may engage in short sales against the box. In a short sale, the
Fund sells a borrowed security and has a corresponding obligation to the lender
to return the identical security. The seller does not immediately deliver the
securities sold and is said to have a short position in those securities until
delivery occurs. A Fund may engage in a short sale if at the time of the short
sale the Fund owns or has the right to obtain without additional cost an equal
amount of the security being sold short. This investment technique is known as a
short sale "against the box." It may be entered into by a Fund to, for example,
lock in a sale price for a security the Fund does not wish to sell immediately.
If a Fund engages in a short sale, the proceeds of the short sale are retained
by the broker pursuant to applicable margin rules. Additionally, the Fund will
segregate or "earmark" cash or assets determined to be liquid equal to the
amount of the commitment. The segregated assets are pledged to the selling
broker pursuant to applicable margin rules. If the broker were to become
bankrupt, a Fund could experience losses or delays in recovering gains on short
sales. To minimize this risk, a Fund will enter into short sales against the box
only with brokers deemed by the Subadviser to be creditworthy. No more than 10%
of the Fund's net assets (taken at current value) may be held as collateral for
short sales against the box at any one time.
The Fund may make a short sale as a hedge, when it believes that the price of a
security may decline, causing a decline in the value of a security owned by the
Fund (or a security convertible or exchangeable for such security). In such
case, any future losses in the Fund's long position should be offset by a gain
in the short position and, conversely, any gain in the long position should be
reduced by a loss in the short position. The extent to which such gains or
losses are reduced will depend upon the amount of the security sold short
relative to the amount the Fund owns. There will be certain additional
transaction costs associated with short sales against the box, but the Fund will
endeavor to offset these costs with the income from the investment of the cash
proceeds of short sales.
If the Fund effects a short sale of securities at a time when it has an
unrealized gain on the securities, it may be required to recognize that gain as
if it had actually sold the securities (as a "constructive sale") on the date it
effects the short sale. However, such constructive sale treatment may not apply
if the Fund closes out the short sale with securities other than the appreciated
securities held at the time of the short sale and if certain other conditions
are satisfied. Uncertainty regarding the tax consequences of effecting short
sales may limit the extent to which the Fund may effect short sales.
SMALL COMPANY STOCKS
Funds that invest significantly in securities issued by small-cap companies are
subject to capitalization risk. These securities may present additional risk
because they have less predictable earnings or no earnings, more volatile share
prices and are less liquid than securities issued by large-cap companies. These
securities may also fluctuate in value more than those of larger, more
established companies and, as a group, may suffer more severe price declines
during periods of generally declining stock prices.
SPECIAL SITUATION COMPANIES
Certain Funds may invest in "special situation companies." Special situation
companies include those involved in an actual or prospective acquisition or
consolidation; reorganization; recapitalization; merger, liquidation or
distribution of cash, securities or other assets; a tender or exchange offer; a
breakup or workout of a holding company; or litigation which, if resolved
favorably, would improve the value of the company's stock. If the actual or
prospective situation does not materialize as anticipated, the market price of
the securities of a "special situation company" may decline significantly.
Therefore, an investment in a Fund that invests a significant portion of its
assets in these securities may involve a greater degree of risk than an
investment in other mutual funds that seek long-term growth of capital by
investing in better-known, larger companies. The Subadviser of such a Fund
believes, however, that if it analyzes "special situation companies" carefully
and invests in the securities of these companies at the appropriate time, the
Fund may achieve capital growth. There can be no assurance however, that a
special situation that exists at the time the Fund makes its investment will be
consummated under the terms and within the time period contemplated, if it is
consummated at all.
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STRUCTURED NOTES
Structured notes are derivative debt securities, the interest rate or principal
of which is determined by an unrelated indicator. Indexed securities include
structured notes as well as securities other than debt securities, the interest
rate or principal of which is determined by an unrelated indicator. Indexed
securities may include a multiplier that multiplies the indexed element by a
specified factor and, therefore, the value of such securities may be very
volatile. The terms of the structured and indexed securities may provide that in
certain circumstances no principal is due at maturity and therefore, may result
in a loss of invested capital. Structured and indexed securities may be
positively or negatively indexed, so that appreciation of the reference may
produce an increase or a decrease in the interest rate or the value of the
structured or indexed security at maturity may be calculated as a specified
multiple of the change in the value of the reference; therefore, the value of
such security may be very volatile. Structured and indexed securities may entail
a greater degree of market risk than other types of debt securities because the
investor bears the risk of the reference. Structured or indexed securities may
also be more volatile, less liquid, and more difficult to accurately price than
less complex securities or more traditional debt securities. To the extent a
Fund invests in these securities, they will be analyzed in the overall
assessment of the effective duration of the Fund's portfolio in an effort to
monitor the Fund's interest rate risk.
SWAP AGREEMENTS
Certain Funds may enter into swap agreements for the purpose of attempting to
obtain a particular desired return at a lower cost to the Fund than if the Fund
had invested directly in a security that yielded or produced that desired
return. These instruments also may be used for tax and/or cash management
purposes. Swap agreements are two-party contracts entered into primarily by
institutional investors for periods ranging from a few weeks to more than one
year. In a standard "swap" transaction, two parties agree to exchange the
returns (or differentials in rates of return) earned or realized on particular
predetermined investments or instruments. The gross returns to be exchanged or
"swapped" between the parties are calculated with respect to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested in a particular security, or at a particular interest rate, in a
particular foreign currency, or in a "basket" of securities representing a
particular index. The "notional amount" of the swap agreement is only a
fictitious basis on which to calculate the obligations which the parties to a
swap agreement have agreed to exchange. The Fund's obligations (or rights) under
a swap agreement will generally be equal only to the net amount to be paid or
received under the agreement based on the relative values of the positions held
by each party to the agreement. The Fund's obligations under a swap agreement
will be accrued daily (offset against any amounts owing to the Fund) and any
accrued but unpaid net amounts owed to a swap counterparty will be covered by
the maintenance of a segregated account consisting of cash or cash equivalents
(such as U.S government securities, or high grade debt obligations), to limit
any potential leveraging of the Fund's portfolio.
Credit Default Swaps: Certain Funds may also enter into credit default swap
agreements. The credit default swap agreement may have as reference obligations
one or more securities that are not currently held by the Fund. The protection
"buyer" in a credit default contract is generally obligated to pay the
protection "seller" an upfront or a periodic stream of payments over the term of
the contract provided that no credit event, such as a default, on a reference
obligation has occurred. If a credit event occurs, the seller generally must pay
the buyer the "par value" (full notional value) of the swap in exchange for an
equal face amount of deliverable obligations of the reference entity described
in the swap, or the seller may be required to deliver the related net cash
amount, if the swap is cash settled. A Fund may be either the buyer or seller in
the transaction. If the Fund is a buyer and no credit event occurs, the Fund may
recover nothing if the swap is held through its termination date. However, if a
credit event occurs, the buyer generally may elect to receive the full notional
value of the swap in exchange for an equal face amount of deliverable
obligations of the reference entity whose value may have significantly
decreased. As a seller, a Fund generally receives an upfront payment or a fixed
rate of income throughout the term of the swap provided that there is no credit
event. As the seller, a Fund would effectively add leverage to its portfolio
because, in addition to its total net assets, a Fund would be subject to
investment exposure on the notional amount of the swap.
Credit default swap agreements involve greater risks than if a Fund had invested
in the reference obligation directly since, in addition to general market risks,
credit default swaps are subject to illiquidity risk, counterparty risk and
credit risk. A Fund will enter into credit default swap agreements only with
counterparties that meet certain standards of creditworthiness. A buyer
generally also will lose its investment and recover nothing should no credit
event occur and the swap is held to its termination date. If a credit event were
to occur, the value of any deliverable obligation received by the seller,
coupled with the upfront or periodic payments previously received, may be less
than the full notional value it pays to the buyer, resulting in a loss of value
to the seller. The Fund's obligations under a credit default swap agreement will
be
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accrued daily (offset against any amounts owing to the Fund). In connection with
credit default swaps in which a Fund is the buyer, the Fund will segregate or
"earmark" cash or assets determined to be liquid, or enter into certain
offsetting positions, with a value at least equal to the Fund's exposure (any
accrued but unpaid net amounts owed by the Fund to any counterparty), on a
marked-to-market basis. In connection with credit default swaps in which a Fund
is the seller, the Fund will segregate or "earmark" cash or assets determined to
be liquid, or enter into offsetting positions, with a value at least equal to
the full notional amount of the swap (minus any amounts owed to the Fund). Such
segregation or "earmarking" will ensure that the Fund has assets available to
satisfy its obligations with respect to the transaction and will limit any
potential leveraging of the Fund's portfolio. Such segregation or "earmarking"
will not limit the Fund's exposure to loss.
Whether a Fund's use of swap agreements will be successful in furthering its
investment objective will depend on the ability of the Subadviser correctly to
predict whether certain types of investments are likely to produce greater
returns than other investments. Because they are two-party contracts and may
have terms of greater than seven days, swap agreements may be considered to be
illiquid. Moreover, the Fund bears the risk of loss of the amount expected to be
received under a swap agreement in the event of the default or bankruptcy of a
swap agreement counterparty. The Subadviser will cause the Fund to enter into
swap agreements only with counterparties that would be eligible for
consideration as repurchase agreement counterparties under the Fund's repurchase
agreement guidelines. Certain positions adopted by the Internal Revenue Service
may limit the Fund's ability to use swap agreements in a desired tax strategy.
The swap market is a relatively new market and is largely unregulated. It is
possible that developments in the swap market and the laws relating to swaps,
including potential government regulation, could adversely affect the Fund's
ability to terminate existing swap agreements, to realize amounts to be received
under such agreements, or to enter into swap agreements, or could have adverse
tax consequences.
TAXABLE AND TAX EXEMPT MUNICIPAL SECURITIES
Certain Funds may invest in municipal securities. Municipal securities include
debt obligations issued by governmental entities to obtain funds for various
public purposes, such as the construction of a wide range of public facilities,
the refunding of outstanding obligations, the payment of general operating
expenses, and the extension of loans to other public institutions and
facilities. Private activity bonds that are issued by or on behalf of public
authorities to finance various privately-operated facilities are included within
the term municipal securities, only if the interest paid thereon is exempt from
federal taxes.
Other types of municipal securities include short-term General Obligation Notes,
Tax Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes,
Project Notes, Tax-Exempt Commercial Paper, Construction Loan Notes and other
forms of short-term tax-exempt loans. Such instruments are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds of
bond placements or other revenues.
Project Notes are issued by a state or local housing agency and are sold by the
Department of Housing and Urban Development. While the issuing agency has the
primary obligation with respect to its Project Notes, they are also secured by
the full faith and credit of the United States through agreements with the
issuing authority which provide that, if required, the federal government will
lend the issuer an amount equal to the principal of and interest on the Project
Notes.
The two principal classifications of municipal securities consist of "general
obligation" and "revenue" issues. There are, of course, variations in the
quality of municipal securities, both within a particular classification and
between classifications, and the yields on municipal securities depend upon a
variety of factors, including the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. Ratings represent the
opinions of an NRSRO as to the quality of municipal securities. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality, and municipal securities with the same maturity, interest rate and
rating may have different yields, while municipal securities of the same
maturity and interest rate with different ratings may have the same yield.
Subsequent to purchase, an issue of municipal securities may cease to be rated
or its rating may be reduced below the minimum rating required for purchase. The
Subadviser will consider such an event in determining whether the Fund should
continue to hold the obligation.
An issuer's obligations under its municipal securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the federal bankruptcy code, and laws, if any,
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
the enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power
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or ability of an issuer to meet its obligations for the payment of interest on
and principal of its municipal securities may be materially adversely affected
by litigation or other conditions.
U.S. GOVERNMENT OBLIGATIONS
Certain Funds may invest in obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities, including bills, notes and
bonds issued by the U.S. Treasury.
Obligations of certain agencies and instrumentalities of the U.S. government,
such as the Government National Mortgage Association ("GNMA"), are supported by
the full faith and credit of the U.S. Treasury; others, such as those of Fannie
Mae ("FNMA"), are supported by the right of the issuer to borrow from the
Treasury; still others, such as those of the Federal Farm Credit Banks or the
Federal Home Loan Mortgage Corporation ("FHLMC"), are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
government would provide financial support to U.S. government-sponsored agencies
or instrumentalities, such as FNMA, or the FHLMC, since it is not obligated to
do so by law. These agencies or instrumentalities are supported by the issuer's
right to borrow specific amounts from the U.S. Treasury, the discretionary
authority of the U.S. government to purchase certain obligations from such
agencies or instrumentalities, or the credit of the agency or instrumentality.
VARIABLE AND FLOATING RATE DEMAND AND MASTER DEMAND NOTES
Certain Funds may, from time to time, buy variable rate demand notes issued by
corporations, bank holding companies and financial institutions and similar
taxable and tax-exempt instruments issued by government agencies and
instrumentalities. These securities will typically have a maturity in the 5 to
20 year range but carry with them the right of the holder to put the securities
to a remarketing agent or other entity on short notice, typically seven days or
less. The obligation of the issuer of the put to repurchase the securities is
backed up by a letter of credit or other obligation issued by a financial
institution. The purchase price is ordinarily par plus accrued and unpaid
interest. Ordinarily, the remarketing agent will adjust the interest rate every
seven days (or at other intervals corresponding to the notice period for the
put), in order to maintain the interest rate at the prevailing rate for
securities with a seven-day maturity.
Variable amount master demand notes in which certain Funds may invest are
unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic adjustments in the interest rate according to the terms of
the instrument. Because master demand notes are direct lending arrangements
between a Fund and the issuer, they are not normally traded. Although there is
no secondary market in the notes, a Fund may demand payment of principal and
accrued interest at any time. While the notes are not rated by credit rating
agencies, issuers of variable amount master demand notes (which are normally
manufacturing, retail, financial and other business concerns) must satisfy the
same criteria set forth above for commercial paper. The Subadviser will consider
the earning power, cash flow, and other liquidity ratios of such notes and will
continuously monitor the financial status and ability to make payment on demand.
In determining dollar weighted average maturity, a variable amount master demand
note will be deemed to have a maturity equal to the longer of the period of time
remaining until the next interest rate adjustment or the period of time
remaining until the principal amount can be recovered from the issuer through
demand.
WARRANTS AND RIGHTS
Certain Funds may, from time to time, invest in warrants. Warrants are, in
effect, longer-term call options. They give the holder the right to purchase a
given number of shares of a particular company at specified prices within
certain periods of time. The purchaser of a warrant expects that the market
price of the security will exceed the purchase price of the warrant plus the
exercise price of the warrant, thus giving him a profit. Of course, since the
market price may never exceed the exercise price before the expiration date of
the warrant, the purchaser of the warrant risks the loss of the entire purchase
price of the warrant. Warrants generally trade in the open market and may be
sold rather than exercised. Warrants are sometimes sold in unit form with other
securities of an issuer. Units of warrants and common stock may be employed in
financing young, unseasoned companies. The purchase price of a warrant varies
with the exercise price of a warrant, the current market value of the underlying
security, the life of the warrant and various other investment factors.
Rights are similar to warrants in they represent the right to buy common shares,
however, in contrast, rights have a subscription price lower than the current
market of the common stock and a life of two to four weeks.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Certain Funds may purchase securities on a "when-issued" or "delayed delivery"
basis. A Fund will engage in when-issued and delayed delivery transactions only
for the purpose of acquiring portfolio securities consistent with its
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investment objectives and policies, not for investment leverage, although such
transactions represent a form of leveraging. When-issued securities are
securities purchased for delivery beyond the normal settlement date at a stated
price and yield and thereby involve risk that the yield obtained in the
transaction will be less than that available in the market when the delivery
takes place. A Fund will not pay for such securities or start earning interest
on them until they are received. When a Fund agrees to purchase securities on a
"when-issued" or "delayed delivery" basis, the Fund will segregate or "earmark"
cash or assets determined to be liquid equal to the amount of the commitment.
Securities purchased on a when-issued basis are recorded as an asset and are
subject to changes in the value based upon changes in the general level of
interest rates. In when-issued and delayed delivery transactions, a Fund relies
on the seller to complete the transaction; the seller's failure to do so may
cause such Fund to miss a price or yield considered to be advantageous. If a
Fund sells a "when-issued" or "delayed delivery" security before a delivery, any
gain would be taxable.
ZERO COUPON AND PAY-IN-KIND SECURITIES
Certain Funds may invest in zero coupon bonds and pay-in-kind securities. Zero
coupon bonds (which do not pay interest until maturity) and pay-in-kind
securities (which pay interest in the form of additional securities) may be more
speculative and may fluctuate more in value than securities which pay income
periodically and in cash. In addition, although a Fund receives no periodic cash
payments from such investments, applicable tax rules require the Fund to accrue
and pay out its income from such securities annually as income dividends.
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INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS
The investment objective of any Fund, except the Money Market Fund, may be
changed by the Board of Trustees without shareholder approval. The investment
objective of the Money Market Fund may not be changed without a vote of the
holders of a majority of the Fund's outstanding shares. In addition, the
following fundamental investment restrictions may be changed with respect to a
particular Fund only by the vote of a majority of the outstanding shares of that
Fund (as defined under "Additional Information - Vote of a Majority of the
Outstanding Shares" in this Statement of Additional Information). All other
investment restrictions described in the Prospectus or this Statement of
Additional Information may be changed by the Board of Trustees.
No Fund may:
1.Act as an underwriter of securities within the meaning of the 1933 Act except
insofar as it might be deemed to be an underwriter upon the disposition of
portfolio securities acquired within the limitation on purchases of illiquid
securities and except to the extent that the purchase of obligations directly
from the issuer thereof in accordance with its investment objective, policies
and limitations may be deemed to be underwriting.
2.Invest in commodities, including commodity contracts, except that as
consistent with its investment objective and policies the Fund may: (a)
purchase and sell options, forward contracts, futures contracts, including
without limitation those relating to indices; (b) purchase and sell options on
futures contracts or indices; and (c) purchase publicly traded securities of
companies engaging in whole or in part in such activities. This restriction
shall not prohibit the funds, subject to restrictions described in the
Prospectuses and elsewhere in this Statement of Additional Information, from
purchasing, selling or entering into foreign currency forward contracts,
foreign currency options, or any interest rate, securities-related or foreign
currency-related hedging instrument, including swap agreements and other
derivative instruments, subject to compliance with any applicable provisions
of the federal securities or commodities laws.
3.Purchase or sell real estate, except that it may purchase securities of
issuers which deal in real estate and may purchase securities which are
secured by interests in real estate (including REITs).
4.Purchase any securities which would cause 25% or more of the value of its
total assets at the time of purchase to be invested in the securities of one
or more issuers conducting their principal business activities in the same
industry, provided that the VK Global Real Estate Fund may concentrate in
equity securities of companies in the real estate industry, and with respect
to all other Funds:
(a)there is no limitation with respect to obligations issued or guaranteed by
the U.S. government, any state, territory or possession of the United
States, the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions, and repurchase agreements
secured by such instruments;
(b)wholly-owned finance companies will be considered to be in the industries
of their parents if their activities are primarily related to financing the
activities of the parents;
(c)utilities will be divided according to their services, for example, gas,
gas transmission, electric and gas, electric, and telephone will each be
considered a separate industry; and
(d)personal credit and business credit businesses will be considered separate
industries.
5.Purchase securities of any one issuer, other than securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities and
securities issued by other investment companies, if, immediately after such
purchase, more than 5% of the value of the Fund's total assets would be
invested in such issuer, except as permitted by Rule 2a-7 under the 1940 Act,
or the Fund would hold more than 10% of any class of securities of the issuer
or more than 10% of the outstanding voting securities of the issuer, except
that up to 25% of the value of the Fund's total assets may be invested without
regard to such limitations.
NOTE: The VK Global Real Estate Fund technically is not subject to these
limitations since it was classified at inception as a non-diversified
investment company. However, because the Fund in fact has been operated in a
manner consistent with these limitations, it is the position of the SEC staff
that it must continue to operate consistent with these limitations until
shareholders of the Fund vote to return the Fund to a non-diversified status.
6.Make loans, except that a Fund may purchase and hold debt instruments and
enter into repurchase agreements in accordance with its investment objective
and polices and may lend portfolio securities in an amount not exceeding one-
third of its assets.
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7.Issue senior securities except to the extent permitted under the 1940 Act or
any rule, order or interpretation thereunder.
8.a) Borrow money (not including reverse repurchase agreements or dollar roll
agreements), except that a Fund may borrow from banks for temporary or
emergency purposes, and then only up to 30% of its total assets at the time
of borrowing, and provided that such bank borrowings and reverse repurchase
agreements and dollar roll agreements do not exceed in the aggregate one-
third of the Fund's total assets less liabilities other than the
obligations represented by the bank borrowings, reverse repurchase
agreements and dollar roll agreements at the time of borrowing.
b) Mortgage, pledge, hypothecate, or remove any assets except in connection
with a bank borrowing in amounts not to exceed 30% of the Fund's net
assets.
As a non-fundamental policy, the following funds have more restrictive
limits as follows:
Money Market Fund 10% (with respect to 8a only)
VK Equity and Income Fund 5%
VK Global Real Estate Fund10% (with respect to 8b only)
NOTE: As a non-fundamental policy which may be changed without the vote of
shareholders, no Fund will purchase securities while its outstanding
borrowings (including reverse repurchase agreements) are in excess of 5% of
its total assets. Securities which are segregated, held in escrow, or in
separate accounts in connection with a Fund's investment practices
described in the Funds' Prospectus or Statement of Additional Information
are not deemed to be pledged for purposes of this limitation.
For purposes of the above investment restrictions, the Funds treat all
supranational organizations as a single industry and each foreign
government (all of its agencies) as a separate industry. In addition, a
security is considered to be issued by the government entity (or entities)
whose assets and revenues back the security.
NON-FUNDAMENTAL RESTRICTIONS
In addition, the Funds are subject to the following non-fundamental limitations,
which may be changed without the vote of shareholders. No Fund may:
1.Write or sell put options, call options, straddles, spreads, or any
combination thereof, except as consistent with a Fund's investment objective
and policies for transactions in options on securities or indices of
securities, futures contracts and options on futures contracts and in similar
investments.
2.Purchase securities on margin, make short sales of securities or maintain a
short position, except that, as consistent with a Fund's investment objective
and policies, (a) this investment limitation shall not apply to the Fund's
transactions in futures contracts and related options, options on securities
or indices of securities and similar instruments, (b) it may obtain short-term
credit as may be necessary for the clearance of purchases and sales of
portfolio securities and (c) the Funds identified as being permitted to engage
in short sales against the box in the preceding table labeled Type of
Investment or Technique.
3.Purchase securities of companies for the purpose of exercising control.
4.Except as noted otherwise elsewhere in this SAI, invest more than 15% (10%
with respect to the Money Market Fund, JPMorgan U.S. Equity Fund, and VK
Equity and Income Fund) of its net assets in illiquid securities.
5.Invest in shares of other mutual funds in reliance on Section 12(d)(1)(F) or
12(d)(1)(G) of the 1940 Act.
Except for the Funds' policy on illiquid securities and borrowing, if a
percentage limitation is satisfied at the time of investment, a later increase
or decrease in such percentage resulting from a change in the value of a Fund's
portfolio securities will not constitute a violation of such limitation for
purposes of the 1940 Act.
PORTFOLIO TURNOVER
The portfolio turnover rate for each of the Funds is calculated by dividing the
lesser of a Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the securities. The SEC requires that the
calculation exclude all securities whose maturities at the time of acquisition
are one year or less. The portfolio turnover rates for the Funds of the Trust
may vary greatly from year to year as well as within a particular year, and may
also be affected by cash requirements for redemption of shares. High portfolio
turnover rates will generally result in higher transaction costs to a Fund,
including brokerage commissions. Portfolio turnover rates are set forth in the
Financial Highlights of the Prospectus.
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The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
If a particular Fund changes subadvisers in any given year, the fund may
experience a significant variation in the turnover rate due to the replacement
of existing holdings by the new subadviser. For the year ended December 31,
2009, as reflected in the Financial Highlights section of the prospectus, (i)
Eaton Vance Large Cap Value Fund, MFS Investors Trust Fund, and JPMorgan U.S.
Equity Fund experienced significant variation in their turnover rates due to
subadviser changes and/or a fund merger which took place on October 26, 2009;
(ii) OCC Opportunity Fund experienced significant variation in turnover rates
because the Fund takes advantage of the volatility of the market place to adjust
positions actively based upon price targets in order to maximize risk/reward and
alpha generation over the long term; (iii) Davis NY Venture Fund experienced
significant variation in turnover rates due to repositioning of the Fund's
portfolio; (iv) Enhanced Bond Index Fund experienced significant variation in
turnover rates due to the nature of a bond fund which include bond maturities
and repurchases; and (v) Turner Quantitative Small Cap Growth Fund experienced
significant variation in turnover rates because the fund portfolio utilizes a
quantitative approach that in volatile markets seeks to buy stocks which rank
highly within the model and sell those which rank poorly.
OTHER FUND POLICIES
DISCLOSURE OF PORTFOLIO HOLDINGS
The Board has adopted policies and procedures regarding the disclosure of
portfolio holdings in order to assist the Funds in preventing the misuse of
material nonpublic information and to ensure that shareholders and other
interested parties continue to receive portfolio information on a uniform basis.
The chief compliance officer of the Trust oversees application of the policies
and provides the Board with periodic reports regarding the Funds' compliance
with the policies.
In general, the Trust has instructed all third-party service providers and
Allianz Investment Management LLC its investment adviser, that no information
regarding portfolio holdings may be disclosed to any unaffiliated third party
except as follows.
Complete portfolio holdings will be included in the Funds' annual and semi-
annual reports. The annual and semi-annual reports are mailed to all
shareholders, and are filed with the SEC. The Funds file their complete
portfolio holdings with the SEC within 60 days after the end of their first and
third quarters on Form N-Q. Copies of the Funds' annual and semi-annual reports
and Forms N-Q are available: 1) free on the EDGAR Database on the SEC's website
at www.sec.gov; 2) for review or copying, copies subject to a duplication fee,
at the SEC's Public Reference Room in Washington, D.C.; 3) by e-mailing your
request to publicinfo@sec.gov; or 4) by writing the SEC's Public Reference
Section, 100 F Street NE, Washington, D.C. 20549. Information on the operation
of the SEC's Public Reference Room may be obtained by calling the SEC at 1-202-
551-8090.
Approximately 21 to 45 days after the end of each quarter, the Funds'
distributor posts on the Funds' website (www.allianzlife.com) and publishes a
fact sheet on each of the Funds which lists the Fund's top holdings (generally,
the top 10 to 15 holdings) at quarter-end. Information concerning the Funds'
portfolio holdings that is more current than that in reports or other filings
filed electronically with the SEC may be disclosed in certain printed materials,
provided that the information is posted on the Funds' website one day prior to
the use of such printed materials.
The Funds may disclose their portfolio holdings to mutual fund databases and
rating services (such as Lipper and Morningstar) on a quarterly basis, but no
sooner than 30 days after the end of the relevant quarter. The disclosure of
portfolio holdings to databases and rating services is generally made for the
purpose of obtaining ratings for the Funds and making available to the public
the same portfolio holdings information as is typically provided for other rated
mutual funds. Any disclosure to mutual fund databases and rating services shall
be made subject to a confidentiality agreement or provisions limiting the use of
such information to the approved purposes.
In order to assure that any disclosure of portfolio holdings is in the best
interests of shareholders, and to prevent any conflicts of interest between the
Funds' shareholders, investment adviser, principal underwriter, or any
affiliated person of the Funds, the Funds' policies regarding the disclosure of
portfolio holdings include the provision that the Funds' investment adviser
(Allianz Investment Management LLC) and affiliates have access to portfolio
composition and performance on a real-time basis, but only for legitimate
business purposes. Any recipient of such information is subject to a duty of
confidentiality, including a duty not to trade on the non-public information.
The Funds' administrator, fund accountant, transfer agent, custodian, proxy
voting service, and certain consultants and providers of software used to
analyze portfolio performance may be given access to portfolio information, on a
current basis, in connection with
32
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
services provided by them. All of these latter entities are subject to
confidentiality and non-use agreements and may not disclose (or use information
on) portfolio holdings without the express written approval of the Chief
Compliance Officer of the Trust. The Fund's independent registered public
accountant, KPMG LLP, also has access from time to time to the Fund's portfolio
holdings in connection with performing the audit and related functions. In
addition, the President of the Trust, in consultation with the Chief Compliance
Officer of the Trust, may authorize the release of information regarding
portfolio holdings upon a determination that such release is in the best
interests of the shareholders of the relevant Fund or Funds.
Set forth below is a list of those parties with whom the Funds have authorized
ongoing arrangements that include the release of portfolio holdings information,
as well as the frequency of the release under such arrangements, and the length
of the lag, if any, between the date of the information and the date on which
the information is disclosed.
RECIPIENT (HOLDINGS) FREQUENCY DELAY BEFORE DISSEMINATION
The Bank of New York Mellon (Fund Custodian) Daily None
Citi Fund Services Ohio, Inc. (Fund Accountant, Administrator and Transfer Daily None
Agent)
Institutional Shareholder Services (proxy voting services) As necessary None
Factset Daily 1 day
Bloomberg Quarterly 31 Calendar days after quarter
end
Lipper Quarterly 31 Calendar days after quarter
end
S&P Quarterly 31 Calendar days after quarter
end
Morningstar Associates, LLC Monthly 61 Calendar days after month
end
Thomson/Vestek Daily 31 Calendar days after quarter
end
No compensation or any other consideration is received by the Funds, the
Manager, or any other party in connection with disclosure of portfolio holdings.
On a quarterly basis, the Board will receive a report of portfolio holdings
disclosures and will monitor such disclosures to ascertain that no conflicts
exist and that any disclosures of information about portfolio holdings are in
the best interests of Fund shareholders.
There is no assurance that the Funds' policies on holdings information will
protect the fund from the potential misuse of holdings by individuals or firms
in possession of that information.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The shares of the Trust's Funds are sold on a continuous basis by the Trust's
distributor, Allianz Life Financial Services, LLC (the "Distributor "or "ALFS"),
an affiliate of the Manager, and the Distributor has agreed to use appropriate
efforts to solicit all purchase orders.
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each class of each Fund
is determined and the shares of each Fund are priced as of the valuation times
defined in the Prospectus (see "Shareholder Information - Pricing of Fund
Shares") on each Business Day of the Trust. A "Business Day" is a day on which
the New York Stock Exchange (the "NYSE") is open for trading. Currently, the
NYSE will not be open in observance of the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
VALUATION OF THE MONEY MARKET FUND
The Money Market Fund has elected to use the amortized cost method of valuation
pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an instrument at
its cost initially and thereafter assuming a constant amortization to maturity
of any discount or premium, regardless of the impact of fluctuating interest
rates on the market value of the instrument. This method may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price a Fund would receive if it sold the instrument. The value of securities in
the Money Market Fund can be expected to vary inversely with changes in
prevailing interest rates.
Pursuant to Rule 2a-7, the Money Market Fund will maintain a dollar weighted
average maturity appropriate to the Fund's objective of maintaining a stable net
asset value per share, provided that the Fund will not purchase any security
33
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
with a remaining maturity of more than 397 days (thirteen months) or less from
the date of purchase in the case of securities in the NRSROs' highest short-term
rating categories, and that mature in 45 calendar days or less from the date of
purchase in the case of securities in the NRSROs' second highest short-term
rating categories. Prior to June 30, 2010, the Money Market Fund must also
maintain an average weighted maturity of 90 days or less. Effective June 30,
2010, the Money Market Fund must maintain an average weighted maturity of 60
days or less and a weighted average life of 120 days or less.
The Money Market Fund must also hold at least 10% of its total assets in "daily
liquid assets" and at least 30% of its total assets in "weekly liquid assets."
Daily liquid assets are limited to cash, direct obligations of the U.S.
Government, and other securities payable within one business day. Weekly liquid
assets are limited to cash, direct obligations of the U.S. Government, direct
discount obligations of federal government agencies and government-sponsored
enterprises with a remaining maturity date of 60 days or less from the date of
purchase, and other securities payable within five business days. In addition,
the Money Market Fund is required to hold securities that are sufficiently
liquid to meet reasonably foreseeable shareholder redemptions. This general
liquidity obligation may require the Money Market Fund to maintain greater
liquidity than would be required by the daily and weekly minimum liquidity
requirements described above.
The Money Market Fund's board of trustees has also undertaken to establish
procedures reasonably designed, taking into account current market conditions
and the investment objective of the Fund, to stabilize the net asset value per
share of the Fund for purposes of sales and redemptions at $1.00. These
procedures include review by the trustees, at such intervals as they deem
appropriate, to determine the extent, if any, to which the net asset value per
share of the Fund calculated by using available market quotations deviates from
$1.00 per share. In the event such deviation exceeds 0.5%, Rule 2a-7 requires
that the board of trustees promptly consider what action, if any, should be
initiated. If the trustees believe that the extent of any deviation from the
Money Market Fund's $1.00 amortized cost price per share may result in material
dilution or other unfair results to new or existing investors, they will take
such steps as they consider appropriate to eliminate or reduce, to the extent
reasonably practicable, any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity, shortening the dollar
weighted average maturity, withholding or reducing dividends, reducing the
number of the Fund's outstanding shares without monetary consideration, or
utilizing a net asset value per share determined by using available market
quotations.
VALUATION OF THE NON-MONEY MARKET FUNDS
Portfolio securities, the principal market for which is a securities exchange,
will be valued at the closing sales price on that exchange on the day of
computation or, if there have been no sales during such day, at the latest bid
quotation. Portfolio securities, the principal market for which is not a
securities exchange, will be valued at their latest bid quotation in such
principal market. In either case, if no such bid price is available then such
securities will be valued in good faith at their respective fair market values
using methods by or under the supervision of the Board of Trustees. Portfolio
securities of sufficient credit quality with a remaining maturity of 60 days or
less will be valued either at amortized cost or original cost plus accrued
interest, which approximates current value.
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 trading on the principal exchange. The close of
trading for some options exchanges may occur later than the 4:00 p.m. closing of
the NYSE, but is not expected to occur later than 4:15 p.m. Eastern Time. This
means that a Fund holding options may not determine its NAV until 4:15 p.m.
Eastern Time. 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.
Portfolio securities which are primarily traded on foreign exchanges are
generally valued with the assistance of a pricing service and are generally
valued at the preceding closing values of such securities on their respective
exchanges, except that when an occurrence subsequent to the time a foreign
security is valued is likely to have changed such value, then the fair value of
those securities may be determined by consideration of other factors by or under
the direction of the Board of Trustees. Over-the-counter securities are valued
on the basis of the bid price at the close of business on each business day;
however securities that are traded on NASDAQ are valued at the official closing
price reported by NASDAQ. Notwithstanding the above, bonds and other
fixed-income securities are valued by using market quotations and may be valued
on the basis of prices provided by a pricing service approved by the Board of
Trustees. All assets and liabilities initially expressed in foreign currencies
will be converted into U.S. dollars at the mean between the bid and asked prices
of such currencies against U.S. dollars as last quoted by any major bank.
All other assets and securities, including securities for which market
quotations are not readily available, will be valued at their fair value as
determined in good faith under the general supervision of the Board of Trustees.
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The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
REDEMPTION IN KIND
Although the Funds intend to pay share redemptions in cash, the Funds reserve
the right to make payment in whole or in part in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(for example, more than $250,000 or 1% of a 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.
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The Allianz Variable Insurance Products Trust - SAI -
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MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
Overall responsibility for management of the Trust rests with its Board of
Trustees, who are elected by the shareholders of the Trust. In addition to
serving on the Board of Trustees of the VIP Trust, each Trustee serves on the
Board of the Allianz Variable Insurance Products Fund of Funds Trust ("FOF
Trust"). The Trustees elect the officers of the Trust to supervise its
day-to-day operations. Subject to the provisions of the Declaration of Trust,
the Board of Trustees manages the business of the Trust and the Trustees have
all powers necessary or convenient to carry out this responsibility including
the power to engage in transactions of all kinds on behalf of the Trust. The
Board of Trustees is responsible for oversight of the officers and may elect and
remove, with or without cause, such officers as they consider appropriate.
The chairman of the Board of Trustees is Jeffrey Kletti who is an "interested
person" of the Trust, as defined under the 1940 Act, by virtue of his employment
with Allianz. The Trust does not have a lead independent (non-"interested")
trustee. The Board of Trustees has not found it necessary to create a lead
independent trustee because the members of the Board of Trustees, including the
independent trustees, have been satisfied with the effectiveness of the existing
structure of the Board of Trustees. The independent trustees believe that they
have adequate control and influence over the governance of the Board and the
Trust.
The Board of Trustees presently is composed of nine members, seven of whom are
independent. As described further below, each of the independent trustees is
sophisticated and experienced in business matters. Each has prior senior
management or board experience. Many of the independent trustees have
significant prior experience in the financial services industry. All of the
independent trustees have served on the Board of Trustees for at least three
years; two independent trustees have served for over ten years.
As reflected below, the chairs and membership of the Audit, Investment and
Nominating and Corporate Governance Committees are composed entirely of
independent trustees. Through these committees, the independent trustees have
direct oversight of accounting, auditing and financial matters affecting the
Trust, the evaluation and supervision of the Trust's Manager and subadvisers and
the selection and nomination of candidates to the Board of Trustees.
The independent trustees regularly communicate with Mr. Kletti regarding matters
of interest or concern to them, and the independent trustees participate in
developing agenda items for Board meetings. The Board of Trustees meets in
person approximately five times each year and by telephone at other times. At
each in-person meeting, the Board holds one or more executive sessions at which
the independent trustees are free to discuss any matter of interest or concern
to them and obtain information directly from officers, employees and other
agents of the Trust.
The Board of Trustees is actively involved in the risk oversight of the Trust.
The Board, as a whole and through its Audit and Investment committees,
supervises the Trust's accounting and audit functions, as well as other
financial matters affecting the Trust, and evaluates and supervises the Trust's
Manager and subadvisers. The Board of Trustees regularly receives detailed
reports from, and has opportunity to question representatives of, the Trust's
Chief Compliance Officer, the Trust's independent audit firm, and the Trust's
administrator. The Chief Compliance Officer's reports include a quarterly risk
assessment outlining all identified compliance risks, all identified exceptions
and their resolution. The Board of Trustees also periodically receives reports,
in person or by telephone, from various subadvisers.
The Board of Trustees has established certain standing committees to assist in
the oversight of the Trust.
o The Audit Committee, made up of Mr. Burnim, Ms. Ettestad, Mr.
Gelfenbien, Ms. Leonardi, Mr. Lewis, Mr. McClean and Mr. Reeds, met four times
during the last fiscal year. Mr. Reeds serves as chairman of the Audit
Committee. The functions of the Audit Committee include advising the full
Board of Trustees with respect to accounting, auditing and financial matters
affecting the Trust.
o The Investment Committee, made up of Mr. Burnim, Ms. Ettestad, Mr.
Gelfenbien, Ms. Leonardi, Mr. Lewis, Mr. McClean and Mr. Reeds, met four times
during the last fiscal year. Mr. Gelfenbien and Mr. McLean serve as co-
chairmen of the Nominating and Corporate Governance Committee. The functions
of the Investment Committee include evaluating and supervising the Manager and
Subadvisers to the various investment portfolios of the Trust.
o The Nominating and Corporate Governance Committee, made up of Mr.
Burnim, Ms. Ettestad, Mr. Gelfenbien, Ms. Leonardi, Mr. Lewis, Mr. McClean and
Mr. Reeds, met four times during the last fiscal year. Ms. Ettestad and Ms.
Leonardi serve as co-chairpersons of the Investment Committee. The Nominating
and Corporate Governance Committee advises the Board of Trustees with respect
to the selection and nomination of candidates for election to the
36
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
Board of Trustees. The Nominating Committee does not consider nominees
recommended by shareholders of the Trust.
o The Valuation and Investment Policy Committee, made up of Mr. Kletti,
Darin Egbert, Brian Muench, Michael J. Tanski, Bradley K. Quello, Jeremy Smith
and David Teske met 12 times during the last fiscal year. The Valuation and
Investment Policy Committee monitors the valuation of portfolio securities and
other investments of the Funds and, when the Board is not in session, the
Pricing Subcommittee of the Valuation and Investment Policy Committee
determines the fair value of illiquid and other holdings.
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The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
The Trust is managed by the Trustees in accordance with the laws of the state of
Delaware governing business trusts. There are currently nine Trustees, two of
whom are "interested persons" of the Trust within the meaning of that term under
the 1940 Act. The Trustees and Officers of the Trust, their addresses, ages,
their positions held with the Trust, their terms of office with the Trust and
length of time served, their principal occupation(s) during the past five years,
the number of portfolios in the Trust they oversee, and their other
directorships held during the past five years are as follows:
NON-INTERESTED TRUSTEES[(1)]
NAME, POSITIONS TERM OF PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS NUMBER OF OTHER
ADDRESS, AND HELD WITH OFFICE[(2)]/ PORTFOLIOS DIRECTORSHIPS
AGE ALLIANZ LENGTH OF OVERSEEN HELD OUTSIDE
VIP AND TIME SERVED FOR ALLIANZ THE
VIP FOF VIP AND VIP FUND COMPLEX
TRUST FOF TRUST DURING PAST 5
YEARS
Peter R. Trustee Since 2/07 Managing Director iQ Venture Partners, Inc.; EVP Northstar 39 HFH Fund
Burnim, Companies 2002-2005; Senior Officer Citibank and Citicorp for over Boards, Argus
Age 635701 25 years. Sterling Centrecorp, Inc. Board; Highland Financial International
Golden Hills Holdings Boards. Life Boards
Drive
Minneapolis,
MN 55416
Peggy L. Trustee Since 2/07 Managing Director, Red Canoe Management Consulting LLC, Senior 39 None
Ettestad, Age Managing Director, Residential Capital LLC 2003-2008; Chief
525701 Golden Operations Officer, Transamerica Reinsurance 2002-2003
Hills Drive
Minneapolis,
MN 55416
Roger Trustee Since 10/99 Retired; Partner of Accenture from 1983 to August 1999. 39 Phoenix
Gelfenbien, Companies,
Age 665701 Edge Series
Golden Hills Mutual Funds
Drive (32 Funds)
Minneapolis,
MN 55416
Claire R. Trustee Since 2/04 General Partner of Fairview Capital, L.P., a venture capital fund- 39 University of
Leonardi, Age of-funds, 9/94 to present. CT Health
545701 Golden Center,
Hills Drive Adirondack
Minneapolis, North Country
MN 55416 Association,
Natural
History Museum
of the
Adirondacks
Dickson W. Trustee Since 2/04 General Manager, Canada - Lifetouch National School Studios, 2006 39 Board of
Lewis, Age to present. Vice President/ General Manager of Jostens, Inc., a Education,
615701 Golden manufacturer of school products, 2001 to 2006; Senior Vice Orono, MN
Hills Drive President of Fortis Group, a Life insurance and Securities
Minneapolis, company, 1997 to 2001; Consultant to Hartford Insurance Co., 2001.
MN 55416
Peter W. Trustee Since 2/04 Retired; President and CEO of Measurisk, LLC, a market risk 39 Cyrus
McClean, Age information company, 2001 to 2003; Chief Risk Management Officer Reinsurrance,
665701 Golden at Bank Of Bermuda Ltd., April 1996 to August 2001. PNMAC Mortgage
Hills Drive Opportunity
Minneapolis, Fund LLC,
MN 55416 Energy
Capital, LLC
Advisory
Board, Family
Health
International
Arthur C. Trustee Since 10/99 Retired Senior Investment Officer, Hartford Foundation for Public 39 Connecticut
Reeds III, Giving from September 2000 to January, 2003; Chairman, Chief Water Service,
Age 665701 Executive and President of Conning Corp., a money manager, from Inc.
Golden Hills September 1999 to March 2000; Investment Consultant from 1997 to
Drive September 1999.
Minneapolis,
MN 55416
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The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
INTERESTED TRUSTEES[(3)]
NAME, POSITIONS TERM OF PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS NUMBER OF OTHER
ADDRESS, AND HELD WITH OFFICE[(2)]/ PORTFOLIOS DIRECTORSHIPS
AGE ALLIANZ LENGTH OF OVERSEEN HELD OUTSIDE
VIP AND TIME SERVED FOR ALLIANZ THE
VIP FOF VIP AND VIP FUND COMPLEX
TRUST FOF TRUST DURING PAST 5
YEARS
Jeffrey Chairman Since 2/04 President, Allianz Investment Management LLC, 2005 to present; 39 None
Kletti, Age of the formerly Senior Vice President, 2000 to 2005.
445701 Golden Board and
Hills Drive President
Minneapolis,
MN 55416
Robert Trustee Since 3/08 President, Allianz Life Financial Services, LLC, March 2007 to 39 None
DeChellis, present, formerly Sr VP of Marketing and Product Innovation July
Age 435701 2006 to March 2007; Executive Vice President, Travelers Life from
Golden Hills October 2004 to December 2005; Executive Vice President, Jackson
Drive National Life Distributors, Inc. from August 2002 to October 2004.
Minneapolis,
MN 55416
The following briefly describes specific experiences, qualifications, attributes
or skills each trustee brings to his or her service on the Board of Trustees of
the Trust:
MR. BURNIM brings to the Board of Trustees nearly 40 years of experience in
management and director positions in the financial services industry. Mr.
Burnim's management experience includes over 25 years in various senior
management positions for Citibank/Citicorp's Corporate and Investment banking
sectors and approximately ten years as Managing Director or Executive Vice
President at various privately owned investment firms. Mr. Burnim also has
substantial prior board experience, including service on the boards of The Bank
of Bermuda and various hedge funds and insurance companies, as well as various
nonprofits. Mr. Burnim offers the Board of Trustees his considerable knowledge
of the securities and insurance industries in which the Trust functions and in
Board governance matters.
MS. ETTESTAD brings to the Board of Trustees nearly 20 years of senior
management experience, including over ten years of experience in senior
management positions specifically at insurance providers and other financial
service firms. Ms. Ettestad's subject matter expertise includes creation and
analysis of financial systems and design and implementation of Sarbanes Oxley
compliance and control processes, both directly applicable to the Board's
supervision of the Trust's finance and compliance functions.
MR. GELFENBIEN brings to the Board of Trustees nearly 20 years of experience as
partner and managing partner at Anderson Consulting (now Accenture), where his
clients included governments, insurance companies and banks. Mr. Gelfenbien also
has substantial board experience, including service on the boards of the Phoenix
Companies, Edge Series Mutual Funds, and Webster Bank, as well as on the
University of Connecticut Board of Trustees. Mr. Gelfenbien therefore brings to
the Board of Trustees his considerable knowledgeable of the mutual fund and
insurance industries in which the Trust functions and his knowledge of Board
governance matters.
MS. LEONARDI brings to the Board of Trustees nearly 30 years of senior
management experience, including over 15 years of experience as senior vice
president, managing director or general partner of two private equity fund-of-
funds managers and experience launching a new insurance subsidiary of Phoenix
Home Life Mutual Insurance Co. Ms. Leonardi has substantial prior board
experience, including service on the boards of the University of Connecticut
Health Center (14 years), the University of Connecticut (10 years) and the
Connecticut Children's Medical Center (3 years). Ms. Leonardi therefore brings
considerable knowledgeable of the securities and insurance industries in which
the Trust functions and in Board governance matters.
MR. LEWIS brings to the Board of Trustees over 35 years of management experience
at various companies, including nearly 10 years in senior management positions
at Fortis Financial Group and IDS Financial Services, Inc. Mr. Lewis brings to
the Board of Trustees considerable experience in a variety of business
functions, including sales and marketing, strategic planning, new product
development and financial management. Mr. Lewis also has significant prior board
experience with for profit and nonprofit organizations, including 15 years on
the Orono, Minnesota Board of Education. Mr. Lewis therefore also brings
considerable knowledgeable of Board governance matters.
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The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
MR. MCCLEAN brings to the Board of Trustees nearly 30 years of experience in
senior management positions at various companies, including, most recently,
approximately seven years as Managing Director at a private firm providing risk
management and strategic planning advice to clients, including major financial
services firms. Mr. McClean also has significant prior board experience with a
variety of companies, including Cyrus Reinsurance, PNMAC Mortgage Opportunity
Fund LLC and Energy Capital, LLC. Mr. McClean therefore brings considerable
knowledgeable of Board governance matters.
MR. REEDS brings to the Board of Trustees over 30 years of experience in the
investment department of CIGNA (and its predecessors), including nine years as
Chief Investment Officer. Mr. Reeds also served as Chief Executive Officer of
Conning Corporation (an investment bank) for the six months before its sale to
Metropolitan Life. Mr. Reeds' prior board service includes Conning Corporation,
Connecticut Water Service and Lyme Academy College of Fine Arts. Mr. Reeds
therefore brings to the Board, and to his role as the Board's audit committee
financial expert, considerable experience in the securities industry and Board
governance matters and considerable knowledge in investments.
MR. KLETTI has been employed by the Trust's Manager for ten years as President
and, previously, Senior Vice President. Mr. Kletti brings to the Board of
Trustees not only his significant expertise in investment management, but also
his day-to-day working knowledge of the strategic direction of the Trust and the
performance of the various funds and subadvisers of the Trust.
MR. DECHELLIS has been employed for nearly four years as President and,
previously, as a Senior Vice President of the Trust's distributor, which is also
the distributor of the Allianz Life variable insurance products through which
the Trust is offered and sold. Mr. DeChellis has served in senior management
positions for several years at various other insurance companies. Mr. DeChellis
brings to the Board of Trustees not only his significant expertise in variable
insurance product and mutual fund distribution, but also his day-to-day working
knowledge of the strategic direction of Allianz Life and its variable insurance
products.
OFFICERS
NAME, ADDRESS, AND POSITIONS HELD TERM OF PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
AGE WITH ALLIANZ VIP OFFICE[(2)]/
AND VIP FOF LENGTH OF
TRUST TIME SERVED
Michael Radmer, Age Secretary Since 2/02 Partner, Dorsey and Whitney LLP since 1976.
65Dorsey & Whitney
LLP,Suite 150050
South Sixth
StreetMinneapolis,
MN 55402-1498
Ty Edwards, Treasurer, Since 4/10 Senior Vice President, Financial Administration, Citi Fund Services Ohio, Inc.,
Age 43Citi Fund Principal December 2009 to present; Director, Product Management, Columbia Management,
Services Ohio, Accounting April 2007 to April 2009; Deputy Treasurer, Columbia Funds and Director, Fund
Inc.3435 Stelzer Officer and Administration, Columbia Management, January 2006 to April 2007; Vice President,
RoadColumbus, OH Principal Fund Administration, Columbia Management, July 2002 to December 2005.
43219 Financial
Officer
Stephen G. Simon, Chief Compliance Since 11/06 Chief Compliance Officer, Allianz Investment Management LLC, July 2004 to
Age 415701 Golden Officer[(4)] and present; President, Simon Compliance Consulting Ltd, May 2004 to July 2004;
Hills Drive Anti- Compliance Counsel, Advantus Capital Management, Inc., January 2002 to May 2004.
Minneapolis, MN MoneyLaundering
55416 Compliance
Officer
Brian Muench, Age Vice President Since 2/06 Vice President, Allianz Investment Management LLC from December 2005 to present;
39 Assistant Vice President, Investments, Allianz Life from February 2002 to
5701 Golden Hills November 2005.
Drive Minneapolis,
MN 55416
(1)Member of the Audit Committee.
(2)Indefinite.
(3)Is an "interested person", as defined by the 1940 Act, due to employment by
Allianz.
(4)The Manager and the Trust are parties to a Chief Compliance Officer Agreement
under which the Manager is compensated by the Trust for providing an employee
of the Manager or one of its affiliates to act as the Trust's Chief Compliance
Officer. The Chief Compliance Officer and Anti-Money Laundering Compliance
Officer is not considered a corporate officer or executive employee of the
Trust.
40
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
The following table sets forth the dollar range of equity securities
beneficially owned by each Trustee as of December 31, 2009.
NAME OF DIRECTOR DOLLAR AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED INVESTMENT COMPANIES OVERSEEN BY
RANGE OF TRUSTEE IN FAMILY OF INVESTMENT COMPANIES
EQUITY
SECURITIES
IN EACH
FUND
Peter R. Burnim None None
5701 Golden Hills
DriveMinneapolis, MN
55416
Peggy L. Ettestad None None
5701 Golden Hills
DriveMinneapolis, MN
55416
Roger A. Gelfenbien5701 None None
Golden Hills
DriveMinneapolis, MN
55416
Jeffrey Kletti5701 None None
Golden Hills
DriveMinneapolis, MN
55416
Claire R. Leonardi5701 None None
Golden Hills
DriveMinneapolis, MN
55416
Dickson W. Lewis5701 None None
Golden Hills
DriveMinneapolis, MN
55416
Peter W. McClean5701 None None
Golden Hills
DriveMinneapolis, MN
55416
Arthur C. Reeds III5701 None None
Golden Hills
DriveMinneapolis, MN
55416
Robert DeChellis5701 None None
Golden Hills Drive
Minneapolis, MN 55416
The following table sets forth any ownership by a non-interested Trustee or
their immediate family members as to each class of securities of an investment
advisor or principal underwriter of the Trust, or a person directly or
indirectly controlling, controlled by, or under common control with an
investment advisor or principal underwriter of the Trust as of December 31,
2009.
NAME NAME OF OWNERS AND RELATIONSHIPS TO DIRECTOR COMPANY TITLE OF CLASS VALUE OF SECURITIES PERCENT OF CLASS
Peter R. Burnim N/A N/A None N/A N/A
Peggy L. Ettestad N/A N/A None N/A N/A
Roger A. Gelfenbien N/A N/A None N/A N/A
Arthur C. Reeds III N/A N/A None N/A N/A
Claire R. Leonardi N/A N/A None N/A N/A
Dickson W. Lewis N/A N/A None N/A N/A
Peter W. McClean N/A N/A None N/A N/A
41
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
The following table sets forth total compensation paid to Trustees for the
fiscal year ended December 31, 2009. Except as disclosed below, no executive
officer or person affiliated with the Trust received compensation from the Trust
for the fiscal year ended December 31, 2009, in excess of $120,000. Trustees who
are affiliated with the Distributor or the Manager do not receive compensation
from the Trust but all Trustees are reimbursed for all out-of-pocket expenses
relating to attendance at meetings.
COMPENSATION TABLE 1/1/2009 THROUGH 12/31/2009
NAME OF AGGREGATE PENSION OR RETIREMENT BENEFITS ACCRUED AS PART OF THE ESTIMATED ANNUAL BENEFITS TOTAL COMPENSATION
TRUSTEE COMPENSATION FROM THE TRUST'S EXPENSES UPON RETIREMENT FROM THE TRUSTS
TRUST
NON-INTERESTED TRUSTEES
Peter R. $71,316 $0 N/A $93,500
Burnim
Peggy L. $71,665 $0 N/A $93,500
Ettestad
Roger A. $71,316 $0 N/A $93,500
Gelfenbien
Arthur C. $71,665 $0 N/A $93,500
Reeds III
Peter W. $71,665 $0 N/A $93,500
McClean
Claire R. $71,665 $0 N/A $93,500
Leonardi
Dickson W. $71,665 $0 N/A $93,500
Lewis
INTERESTED TRUSTEE
Jeffrey $0 $0 N/A $0
Kletti
Robert $0 $0 N/A $0
DeChellis
TRUSTEE HOLDINGS
As of March 31, 2010, the Trustees and Officers of the Trust, individually and
as a group, owned none of the shares of any Fund of the Trust.
42
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of March 31, 2010, the following persons were known by the Trust to own
beneficially, 5% or more shares of the Funds:
FUND/SHAREHOLDER PERCENT OF THE CLASS TOTAL ASSETS HELD BY ALLIANZ LIFE PERCENT OF THE CLASS TOTAL ASSETS HELD BY ALLIANZ LIFE
INSURANCE COMPANY OF NORTH AMERICA* INSURANCE COMPANY OF NEW YORK**
BlackRock 96.03% -
Capital
Appreciation
Fund............................................
Columbia Mid Cap 95.03% -
Value Fund......................................
Columbia Small 94.86% 5.14%
Cap Value Fund..................................
Davis NY Venture 96.11% -
Fund............................................
Dreyfus Equity 97.04% -
Growth Fund.....................................
Eaton Vance 97.43% -
Large Cap Value
Fund............................................
Enhanced Bond 100.00% -
Index Fund......................................
Franklin Small 94.73% 5.26%
Cap Value Fund..................................
Franklin 90.88% 9.12%
Templeton
Founding
Strategy Plus
Fund............................................
Gateway Fund***................................. - -
International 93.96% 6.04%
Index Fund......................................
Invesco 96.25% -
International
Equity Fund.....................................
JPMorgan U.S. 95.28% -
Equity Fund.....................................
Mid Cap Index 100.00% -
Fund............................................
Money Market 93.67% 6.10%
Fund............................................
MFS Investors 96.65% -
Trust Fund......................................
NACM 100.00% -
International
Growth Fund.....................................
NFJ 100.00% -
International
Value Fund......................................
OCC Growth Fund................................. 51.32% 8.68%
OCC Opportunity 96.57% -
Fund............................................
Russell 1000 - -
Growth Index
Fund***.........................................
Russell 1000 - -
Value Index
Fund***.........................................
S&P 500 Index 96.50% -
Fund............................................
Schroder 93.46% -
Emerging Markets
Equity Fund
(Class 1).......................................
Schroder 96.15% -
Emerging Markets
Equity Fund
(Class 2).......................................
Small Cap Stock 96.76% -
Index Fund......................................
Turner 94.42% 5.58%
Quantitative
Small Cap Growth
Fund............................................
VK Equity And 96.35% -
Income Fund.....................................
VK Global Real 96.00% -
Estate Fund.....................................
VK Growth and 97.65% -
Income Fund.....................................
VK International 96.25% -
Equity Fund.....................................
VK Midcap Growth 96.46% -
Fund............................................
* Allianz Life Insurance Company of North America (Allianz Life Variable Account
B), 5701 Golden Hills Drive, Minneapolis, MN 55440
**Allianz Life Insurance Company of New York (Allianz Life of NY Variable
Account C), One Chase Manhattan Plaza, 37[th] Floor, New York, NY 10005-1423
***As of March 31, 2010, this fund had not commenced operations.
The Manager may be presumed to control both the Trust and each of the Funds
because it and its affiliates possess or share investment or voting power with
respect to more than 25% of the total shares outstanding of the Trust and
substantially all of the Funds. All of the outstanding shares of the Funds are
owned by Allianz Life Variable Account A, Allianz Life Variable Account B, and
Allianz Life of NY Variable Account C (the "Separate Accounts") or otherwise by
Allianz Life Insurance Company of North America or Allianz Life Insurance
Company of New York. As a result, the Manager may have the ability to elect the
Trustees, approve the investment management agreement and the distribution
agreement for each of the Funds and to control any other matters submitted to
the shareholders of the Funds for their approval or ratification, subject to any
pass-through voting rights of owners of variable insurance Contracts with an
investment in a Fund.
43
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
THE MANAGER
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with each Fund's investment objectives and restrictions, investment
advisory services are provided to the Funds by the Manager. The Manager manages
each Fund pursuant to an Investment Management Agreement (the "Management
Agreement") with the Trust in respect of each such Fund, and subject to the
investment policies described herein and in the Prospectus for the Funds.
The Manager is a registered investment adviser and a Minnesota limited liability
company located at 5701 Golden Hills Drive, Minneapolis, MN 55416. Allianz Life
Insurance Company of North America ("Allianz Life") is the sole owner of the
Manager.
For the services provided and the expenses assumed pursuant to the Management
Agreement each of the Trust's Funds pays a fee, computed daily and paid monthly,
at an annual rate calculated as a percentage of the average daily net assets of
that Fund according to the following schedule:
NAME OF FUND GROSS MANAGEMENT FEE
BlackRock Capital Appreciation Fund 0.80%
Columbia Mid Cap Value Fund 0.75%
Columbia Small Cap Value Fund 0.90%
Davis NY Venture Fund 0.75%
Dreyfus Equity Growth Fund (1)
Eaton Vance Large Cap Value Fund (2)
Enhanced Bond Index Fund 0.35%
Franklin Small Cap Value Fund 0.75%
Franklin Templeton Founding Strategy Plus Fund 0.70%
Gateway Fund 0.80%
International Index Fund 0.35%
Invesco International Equity Fund 0.90%
JPMorgan U.S. Equity Fund 0.80%
MFS Investors Trust Fund 0.75%
Mid Cap Index Fund 0.25%
Money Market Fund 0.35%
NACM International Growth Fund 0.90%
NFJ International Value Fund 0.90%
OCC Growth Fund 0.75%
OCC Opportunity Fund 0.85%
Russell 1000 Growth Index Fund 0.44%
Russell 1000 Value Index Fund 0.44%
S&P 500 Index Fund 0.17%
Schroder Emerging Markets Equity Fund 1.23%
Small Cap Stock Index Fund 0.26%
Turner Quantitative Small Cap Growth Fund 0.85%
VK Equity and Income Fund 0.75%
VK Global Real Estate Fund 0.90%
VK Growth and Income Fund (2)
VK International Equity Fund 0.95%
VK Mid Cap Growth Fund (2)
(1) AVERAGE NET ASSETS IN MILLIONS (M)
UP TO $10M $10M TO $20M
Dreyfus Equity Growth Fund 1.000% 0.875% $20M AND MORE
0.750%
44
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
(2) AVERAGE NET ASSETS IN MILLIONS (M)
UP TO $100M $100M TO $250M $250M TO $500M $500M AND MORE
Eaton Vance Large Cap Value Fund 0.775% 0.750% 0.725% 0.675%
VK Growth and Income Fund 0.775% 0.750% 0.725% 0.675%
VK Mid Cap Growth Fund 0.850% 0.800% 0.775% 0.750%
45
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
The Manager and the Funds listed below have entered into a written agreement
whereby the Manager has voluntarily reduced the management fee to the rates
shown below. These reductions may be terminated at any time.
NAME OF FUND MANAGEMENT FEE
BlackRock Capital 0.70% on the first $200 million of assets and 0.65% on assets above $200 million
Appreciation Fund.........
Columbia Small Cap Value 0.85% on all assets
Fund......................
Davis NY Venture Fund..... 0.75% on the first $100 million of assets, 0.70% on the next $400 million, and 0.65% on assets above
$400 million
Dreyfus Equity Growth Fund 0.70% on all assets
Eaton Vance Large Cap Value 0.75% on the first $100 million of assets, 0.70% on the next $400 million, and 0.65% on assets above
Fund...................... $400 million
Invesco International 0.80% on the first $200 million of assets and 0.75% on assets above $200 million
Equity Fund...............
JPMorgan U.S. Equity Fund. 0.75% on all assets
MFS Investors TrustFund... 0.75% on the first $100 million of assets and 0.70% on assets above $100 million
NACM International Growth 0.80% on all assets
Fund......................
NFJ International Value 0.80% on all assets
Fund......................
OCC Growth Fund........... 0.65% on all assets
Schroder Emerging Markets 0.95% on all assets
Equity Fund...............
VK Equity and Income Fund. 0.70% on the first $100 million of assets, 0.675% on the next $100 million, and 0.65% on assets above
$200 million
VK Growth and Income Fund. 0.675% on the first $100 million of assets and 0.65% on assets above $100 million
VK International Equity 0.80% on all assets
Fund......................
VK Mid Cap Growth Fund.... 0.80% on the first $100 million of assets and 0.75% on assets above $100 million
The Manager may periodically elect to voluntarily reduce all or a portion of its
fee with respect to any Fund in order to increase the net income of one or more
of the Funds available for distribution as dividends. In this regard, the
Manager has entered into an expense limitation agreement with certain of the
Funds (each an "Expense Limitation Agreement"). Pursuant to the Expense
Limitation Agreements, the Manager has agreed to waive or limit its fees and to
assume other expenses to the extent necessary to limit the total annual
operating expenses of each Fund to the limits described below. The operating
expenses covered by the Expense Limitation Agreement includes fees deducted from
Fund assets such as audit fees and payments to independent trustees but does not
include the operating expenses of other investment companies in which the Funds
may invest ("acquired fund fees and expenses"). Please note that the waiver of
such fees will cause the total return and yield of a fund to be higher than they
would otherwise be in the absence of such a waiver.
The Manager may request and receive reimbursement ("recoupment") from the Fund
for expenses previously paid by the Manager, which may include waived management
fees, provided that such reimbursement will not cause the Fund to exceed any
limits in effect at the time of such reimbursement. The Fund's ability to
reimburse the Manager in this manner only applies to expenses paid by the
Manager within the three fiscal years prior to the date of such reimbursement.
Except as provided for in the Expense Limitation Agreement, reimbursement of
amounts previously waived or assumed by the Manager is not permitted.
46
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
The Manager has contractually agreed to pay fund expenses, which may include
waiving management fees, through April 30, 2011, in order to limit annual fund
operating expenses for certain of the Funds of the Trust as follows:
NAME OF FUND EXPENSE LIMITATION FOR FUND
CLASS 1 CLASS 2
BlackRock Capital Appreciation Fund N/A 1.20%
Columbia Mid Cap Value Fund N/A 1.30%
Columbia Small Cap Value Fund 1.10% 1.35%
Davis NY Venture Fund 0.95% 1.20%
Dreyfus Equity Growth Fund N/A 1.20%
Eaton Vance Large Cap Value Fund N/A 1.20%
Enhanced Bond Index Fund N/A 0.70%
Franklin Small Cap Value N/A 1.35%
Franklin Templeton Founding Strategy Fund N/A 1.20%
Gateway Fund N/A 1.25%
International Index Fund N/A 0.70%
Invesco International Equity Fund N/A 1.45%
JPMorgan U.S. Equity Fund 0.95% 1.20%
MFS Investors Trust Fund N/A 1.20%
Mid Cap Index Fund N/A 0.60%
Money Market Fund N/A 0.87%
NACM International Growth Fund N/A 1.45%
NJF International Value Fund N/A 1.45%
OCC Growth Fund N/A 1.20%
OCC Opportunity Fund N/A 1.35%
Russell 1000 Growth Fund N/A 0.84%
Russell 1000 Value Fund N/A 0.84%
Schroder Emerging Markets Equity Fund 1.40% 1.65%
S&P 500 Index Fund 0.24% 0.49%
Small Cap Stock Index Fund N/A 0.58%
Turner Quantitative Small Cap Growth Fund N/A 1.35%
VK Equity and Income Fund N/A 1.20%
VK Global Real Estate Fund N/A 1.35%
VK Growth and Income Fund N/A 1.20%
VK International Equity Fund N/A 1.39%
VK Mid Cap Growth Fund N/A 1.30%
Pursuant to the Management Agreement, the Funds will pay all expenses not
assumed by the Manager. Among other expenses, each Fund pays its taxes (if any),
brokerage commissions on portfolio transactions, interest, the cost of transfer
and dividend disbursement, administration of shareholder accounts, custodial
fees, expenses of registering and qualifying shares for sale after the initial
registration, auditing and legal expenses, fees and expenses of unaffiliated
trustees, and costs of shareholder meetings.
Unless sooner terminated, the Management Agreement continues in effect as to a
particular Fund for an initial period of two years and thereafter for successive
one-year periods if such continuance is approved at least annually (i) by the
Trust's Board of Trustees or by vote of a majority of the outstanding voting
securities of such Fund and (ii) by vote of a majority of the Trustees who are
not parties to the Management Agreement, or interested persons (as defined in
the 1940 Act) of any such party, cast in person at a meeting called for such
purpose. The Management Agreement is terminable as to a particular Fund at any
time on 60 days' prior written notice without penalty by the Trustees, by vote
of a majority of outstanding shares of that Fund, or by the Manager as
applicable. The Agreement also terminates automatically in the event of any
assignment, as defined in the 1940 Act.
The Management Agreement provides that the Manager shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the performance of its duties, except a loss suffered by a Fund
resulting from a breach of fiduciary duty with respect to its receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Manager as applicable in the
performance of its duties, or from reckless disregard of its duties and
obligations thereunder.
47
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
The Funds' management fees for the last 3 fiscal years that were earned,
recouped, and waived were as follows:
PERIOD ENDED DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007
FUND MANAGEMENT RECOUPMENT* MANAGEMENT MANAGEMENT RECOUPMENT* MANAGEMENT MANAGEMENT RECOUPMENT* MANAGEMENT
FEES EARNED FEES WAIVED FEES EARNED FEES WAIVED FEES EARNED FEES WAIVED
BlackRock Capital 1,796,800 0 181,066 477,169 - 4,848 426,006 7,086 -
Appreciation Fund
Columbia Mid Cap Value 521,782 0 0 596,235 - - 665,007 - -
Fund
Columbia Small Cap Value 573,331 21,682 31,853 437,069 - 54,087 655,886 - 36,439
Fund
Davis NY Venture Fund 3,690,670 0 206,495 3,569,812 - 187,834 4,329,309 - 20,102
Dreyfus Equity Growth 1,044,673 0 104,648 1,597,458 8,882 141,495 1,368,602 68,572 57,974
Fund
Eaton Vance Large Cap 2,671,299 0 126,598 4,070,824 - 176,460 5,255,560 - 218,603
Value Fund
Enhanced Bond Index Fund 106,341 0 17,058 NA NA NA NA NA NA
Franklin Templeton 69,499 0 509 NA NA NA NA NA NA
Founding Strategy Fund
Franklin Small Cap Value 1,291,594 0 0 2,120,405 - - 3,100,620 - -
Fund
Gateway Fund NA NA NA
International Index Fund 233,849 0 138,328 NA NA NA NA NA NA
Invesco International 2,099,934 0 90,265 2,518,022 - - 3,129,382 86,330 -
Equity Fund
JPMorgan U.S. Equity 1,354,569 31,893 84,663 788,315 - 81,162 1,098,981 70,722 68,688
Fund
MFS Investors Trust Fund 2,272,466 0 101,501 2,560,884 - 120,724 2,721,053 - 166,040
Mid Cap Index Fund 70,684 0 17,584 NA NA NA NA NA NA
Money Market Fund 3,742,371 0 1,064,636 2,715,163 - - 1,886,762 - -
NACM International 8,828 0 6,995 NA NA NA NA NA NA
Growth Fund
NFJ International Value 405,552 0 45,061 NA NA NA NA NA NA
Fund
OCC Growth Fund 5,195 0 3,302 NA NA NA NA NA NA
OCC Opportunity Fund 1,003,793 0 0 1,184,225 - - 1,543,736 - -
Russell 1000 Growth NA NA NA
Index Fund
Russell 1000 Value Index NA NA NA
Fund
Schroder Emerging 3,843,845 151,744 876,014 163,325 524,273 1,944,571 - 495,364
Markets Equity Fund 2,306,918
S&P 500 Index Fund 711,803 0 222,765 136,767 - 109,374 28,363 - 39,552
Small Cap Stock Index 380,969 0 139,199 127,787 - 81,134 38,486 - 42.556
Fund
Turner Quantitative 342,401 0 0 431,975 - - 670,144 - -
Small Cap Growth Fund
VK Equity and Income 1,428,433 0 120,816 1,429,151 - 119,909 1,849,241 - 127,350
Fund
VK Global Real Estate 1,036,488 0 62,970 1,181,508 - 94,313 1,504,206 - 27,734
Fund
VK Growth and Income 1,246,284 0 162,836 1,825,553 - 236,959 2,761,580 - 339,129
Fund
VK International Equity 2,245,128 0 149,166 2,970,244 - 162,826 4,101,846 - 22,517
Fund
VK Mid Cap Growth Fund 2,308,108 0 131,518 3,181,605 - 159,512 3,215,123 - 158,650
*Recoupment of prior expenses reimbursed by the Manager is included in the
amount shown under Management Fees Earned.
48
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
Pursuant to separate agreements effective November 1, 2006 between the Funds and
the Manager, the Manager provides a Chief Compliance Officer ("CCO") and certain
compliance oversight and filing services to the Trust. Under these agreements,
the Manager is entitled to an amount equal to a portion of the compensation and
certain other expenses related to the individuals performing the CCO and
compliance oversight services, as well as $75.00 per hour for time incurred in
connection with the preparation and filing of certain documents with the SEC.
The fees are paid to the Operations as "Administrative and compliance service
fees" in the Funds' annual and semiannual reports.
The Manager and the Funds have also entered into an administrative services
agreement whereby the Manager provides certain compliance oversight services and
certain services in connection with the filing of documents with the SEC on
behalf of the Funds. The fees paid to the Manager for the compliance oversight
services are based on the Manager's expenses for personnel who provide these
services. The fees for the filing services are calculated on an hourly rate.
THE SUBADVISERS
The Manager has entered into agreements (the "Subadvisory Agreements") with
various Subadvisers with respect to each Fund managed by the Manager.
Subadvisers are selected through a rigorous portfolio manager selection process
which includes researching each potential Subadviser's asset class, track
record, organizational structure, management team, compliance philosophy and
operational structure, consistency of performance, and assets under management.
The Manager chooses a small group of potential Subadvisers it considers to be
most qualified based on its evaluation, including a quantitative and qualitative
analysis. Out of the small group of potential Subadvisers, the Manager then
selects the firm it determines to be the most qualified. The Manager's selection
is then subject to approval by the Board of Trustees, including a majority of
the Trustees who are not "interested persons" of the Trust.
Each Subadviser's performance on behalf of a Fund is monitored by the Manager,
taking into consideration investment objectives and policies and level of risk.
The Manager brings comprehensive monitoring and control to the investment
management process.
The Trust and the Manager were issued an exemptive order from the Securities and
Exchange Commission in September 2002 which permits the Funds to obtain the
services of one or more subadvisers without investor or shareholder approval.
The exemptive order also permits the terms of Subadvisory Agreements to be
changed and the employment of subadvisers to be continued after events that
would otherwise cause an automatic termination of a Subadvisory Agreement, in
each case without shareholder approval if those changes or continuation are
approved by the Trust's Board of Trustees. If a subadviser were added or changed
without shareholder approval, the Prospectus would be revised and shareholders
notified.
Highly disciplined manager evaluation on both a quantitative and qualitative
basis is an ongoing process. The Manager's investment committee gathers and
analyzes performance data. Performance attribution, risk/return ratios and
purchase/sale assessments are prepared monthly and, each quarter, a more
comprehensive review is completed which consists of subadviser visits,
fundamental analysis and statistical analysis. Extensive quarterly analysis is
conducted to ensure that the Fund is being managed in line with the stated
objectives. Semiannually, the investment committee reviews the back-up
subadviser selection, regression analysis and universe comparisons. In addition
to ongoing compliance monitoring, the Manager's compliance team performs
quarterly compliance reviews and a more extensive annual compliance examination,
including an on-site compliance visit. A number of "red flags" signal a more
extensive and frequent manager review. These red flags consist of returns
inconsistent with the investment objective, changes in leadership, ownership or
portfolio managers, large changes in assets under management, changes to or
deficiencies in compliance policies, practices or procedures, and changes in
philosophy or discipline. The immediate response to any red flag is to assess
the potential impact on the Subadviser's ability to meet investment objectives.
The Manager monitors "back-up" subadvisers for each investment class so that,
should a subadviser change be warranted, the transition can be effected on a
timely basis.
Under the Subadvisory Agreements, each Subadviser agrees to assume the
obligations of the Manager to provide day-to-day investment decisions and other
advisory services for a specific Fund or a portion of the assets of a specific
Fund, as allocated by the Manager, if there is more than one Subadviser. For the
VK Global Real Estate Fund and VK International Equity Fund only, Van Kampen
Asset Management has delegated some of its duties under the Subadvisory
Agreement to certain of its affiliates. For the Schroder Emerging Markets Equity
Fund only, Schroder Investment Management North America has delegated some of
its duties under the Subadvisory Agreement to certain of its affiliates.
49
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
The following table shows each Fund, its Subadviser and the rate paid based on
average daily net assets of each Fund for such subadvisory services during the
last fiscal period ended December 31, 2009.
FUND SUBADVISER Subadvisory Fee*
BlackRock Capital Appreciation BlackRock Capital Management, Inc. .37%
Fund
Columbia Mid Cap Value Fund Columbia Management Investment Advisors, LLC .45%
Columbia Small Cap Value Fund Columbia Management Investment Advisors, LLC .49%
Davis NY Venture Fund Davis Selected Advisers, L.P. .41%
Dreyfus Equity Growth Fund The Dreyfus Corporation .41%
Eaton Vance Large Cap Value Eaton Vance Management .38%
Fund
Enhanced Bond Index Fund BlackRock Financial Management, LLC 14%
Franklin Small Cap Value Fund Franklin Advisory Services, LLC .64%
Franklin Templeton Founding Franklin Advisers, Inc., Franklin Mutual Advisers, LLC, and Templeton Global .08%
Strategy Fund Advisors Limited
Gateway Fund Gateway Investment Advisers, LLC N/A
International Index Fund BlackRock Investment Management, LLC .25%
Invesco International Equity Invesco Advisers, Inc. .54%
Fund
JPMorgan U.S. Equity Fund J.P. Morgan Investment Management Inc. .36%
MFS Investors Trust Fund Massachusetts Financial Services Company .49%
Mid Cap Index Fund BlackRock Investment Management, LLC .09%
Money Market Fund BlackRock Institutional Management Corporation .08%
NACM International Growth Fund Nicholas-Applegate Capital Management LLC(affiliated with the Manager) .10%
NFJ International Value Fund NFJ Investment Goup LLC .41%
OCC Growth Fund Oppenheimer Capital LLC (affiliated with the Manager) .10%
OCC Opportunity Fund Oppenheimer Capital LLC (affiliated with the Manager) .58%
Russell 1000 Growth Index Fund BlackRock Investment Management, LLC N/A
Russell 1000 Value Index Fund BlackRock Investment Management, LLC N/A
Schroder Emerging Markets Schroder Investment Management North America Inc. .64%
Equity Fund
S&P 500 Index Fund BlackRock Investment Management, LLC .14%
Small Cap Stock Index Fund BlackRock Investment Management, LLC .05%
Turner Quantitative Small Cap Turner Investment Partners, Inc. .54%
Growth Fund
VK Equity and Income Fund Van Kampen Asset Management .45%
VK Global Real Estate Fund Van Kampen Asset Management. .64%
VK Growth and Income Fund Van Kampen Asset Management .42%
VK International Equity Fund Van Kampen Asset Management. .56%
VK Mid Cap Growth Fund Van Kampen Asset Management .47%
* The Subadvisory Fee represents the annual fee based on the net asset value of
the Fund and is accrued daily and payable monthly.
The Subadvisory Fee rates for the Funds are listed below. For those Funds with
multiple rates, when average daily net assets exceed the first breakpoint,
multiple rates will apply, resulting in a blended rate. For example, if a rate
of 0.50% applies to the first $500 million, and a rate of 0.45% applies
thereafter, and a fund had $600 million in average daily net assets, then 0.50%
would apply to the first $500 million and 0.45% would apply to the remaining
$100 million in assets.
50
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
FUND RATE
AVERAGE DAILY NET ASSETS (FOR BREAKPOINTS)
First $300 million Next $700 million Thereafter
BlackRock Capital Appreciation Fund 0.40% 0.35% 0.30%
All Assets
Columbia Mid Cap Value FundFund. 0.500%
All Assets
Columbia Small Cap Value Fund... 0.600%
First $100 million Thereafter
Davis NY Venture Fund........... 0.450% 0.400%
First $50 million Next $50 million Thereafter
Dreyfus Equity Growth Fund...... 0.500% 0.400% 0.300%
First $250 million Thereafter
Eaton Vance Large Cap Value Fund 0.30% 0.25%
First $200 million Next $300 million Thereafter
Franklin Small Cap Value Fund... 0.600% 0.520% 0.500%
First $500 million Next $500 million Thereafter
Gateway Fund.................... 0.45% 0.425% 0.400%
First $500 million Next $500 million Thereafter
Invesco International Equity Fund 0.45% 0.40% 0.35%
First $10 million Next $90 million Thereafter
JPMorgan U.S. Equity FundFund... 0.500% 0.450% 0.400%
First $250 million Next $250 million Thereafter
MFS Investors Trust Fund........ 0.375% 0.35% 0.325%
All Assets
Money Market Fund............... 0.250%
First $50 million Next $200 million Thereafter
OCC Opportunity Fund............ 0.600% 0.550% 0.500%
First $300 million Thereafter
Russell 1000 Growth Index Fund.. 0.04% 0.02%
First $300 million Thereafter
Russell 1000 Value Index Fund... 0.04% 0.02%
All Assets
Schroder Emerging Markets Equiity Fund 0.650%
First $300 million Thereafter
S&P 500 Index Fund & Small Cap Stock Index Fund 0.04% 0.02%
First $50 million Next $50 million Thereafter
Turner Quantitative Small Cap Growth Fund 0.500% 0.400% 0.350%
All Assets
VK Equity and Income Fund....... 0.450%
All Assets
VK Global Real Estate Fund...... 0.650%
First $100 million Next $150 million Next $250 million Thereafter
VK Growth and Income Fund+...... 0.425% 0.400% 0.375% 0.325%
51
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
First $250 million Next $250 million Thereafter
VK International Equity Fund+... 0.47% 0.40% 0.315%
First $100 million Next $150 million Next $250 million Thereafter
VK Mid Cap Growth Fund+......... 0.500% 0.450% 0.425% 0.400%
[+]The minimum fee payable per Fund is $100,000 per calendar year, commencing
January 1, 2002.
52
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
The table below presents the subadvisory fees earned by each of the funds for
the last 3 fiscal years.
FOR THE FISCAL YEAR OR PERIOD ENDED: DECEMBER 31, 2009 DECEMBER 31, 2008 DECEMBER 31, 2007
FUND SUBADVISORY SUBADVISORY SUBADVISORY
FEES EARNED FEES EARNED FEES EARNED
BlackRock Capital Appreciation Fund $1,584,496 $313,575 $293,100
Columbia Mid Cap Value Fund 313,842 394,489 443,669
Columbia Small Cap Value Fund 350,841 285,247 437,024
Davis NY Venture Fund 2,010,317 3,253,539 5,050,283
Dreyfus Equity Growth Fund 553,104 772,230 1,379,022
Eaton Vance Large Cap Value Fund[(1)] 1,330,693 2,120,644 3,357,727
Enhanced Bond Index Fund 318,032 NA NA
Franklin Small Cap Value Fund 1,033,916 1,621,934 2,308,885
Franklin Templeton Founding Strategy Fund 41,450 NA NA
Gateway Fund NA NA NA
International Index Fund 497,563 NA NA
Invesco International Equity Fund 1,945,498 1,814,164 2,262,181
JPMorgan U.S. Equity Fund 941,880 443,133 604,683
MFS Investors Trust Fund[(2)] 1,386,039 1,637,058 1,700,448
Mid Cap Index Fund 72,043 NA NA
Money Market Fund 839,843 644,069 925,447
NACM International Growth Fund 5,333 NA NA
NFJ International Value Fund 248,331 NA NA
OCC Growth Fund 3,148 NA NA
OCC Opportunity Fund 675,576 789,295 1,023,938
Russell 1000 Growth Index Fund NA NA NA
Russell 1000 Value Index Fund NA NA NA
S&P 500 Index Fund[(3)] 868,699 37,934 8,267
Schroder Emerging Markets Equity Fund 2,034,176 1,222,017 1,098,434
Small Cap Stock Index Fund[(3)] 96,799 25,143 7,406
Turner Quantitative Small Cap Growth Fund 208,166 249,107 431,906
VK Equity and Income Fund 858,730 855,422 1,109,776
VK Global Real Estate Fund 749,695 851,795 1,086,911
VK Growth and Income Fund 676,567 981,315 1,469,882
VK International Equity Fund[(4)] 1,928,477 2,148,392 2,890,788
VK Mid Cap Growth Fund 1,317,407 1,790,570 2,238,400
(1)In the fiscal year ended, Eaton Vance Large Cap Value Fund (formerly AZL Van
Kampen Comstock Fund) was subadvised by Van Kampen Asset Management. The
current subadviser change was effective as of October 26, 2009.
(2)In the fiscal year ended, MFS Investors Trust Fund (formerly AZL Jennison
20/20 Focus Fund) was subadvised by Jennison Associates LLC. The current
subadviser change was as effective as of October 26, 2009.
(3)In the fiscal year ended, S&P 500 Index Fund and Small Cap Stock Index Fund
were subadvised by The Dreyfus Corporation. The current subadviser change was
as effective as of October 26, 2009.
(4)In the fiscal year ended, VK International Equity Fund was known as AZL Van
Kampen Global Franchise Fund. The current name change was effective as of
October 26, 2009.
BLACKROCK CAPITAL MANAGEMENT, INC.
BlackRock Capital Management, Inc. ("BlackRock Capital") was organized in 1994
to perform advisory services for investment companies and has its principal
offices at 100 Bellevue Parkway, Wilmington, DE 19809. BlackRock Capital is a
wholly-owned, indirect subsidiary of BlackRock, Inc. BlackRock, Inc., one of the
largest publicly traded investment management firms in the United States having,
together with its affiliates, approximately $3.35 trillion in investment company
and other assets under management as of December 31, 2009. BlackRock, Inc. is an
affiliate of The PNC Financial Services Group, Inc.
53
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
BLACKROCK FINANCIAL MANAGEMENT, INC.
BlackRock Financial Management, Inc. ("BlackRock Financial") has its principal
offices at 800 Scudders Mill Road, Plainsboro, NJ 08536. BlackRock Financial is
a wholly-owned, indirect subsidiary of BlackRock, Inc., one of the largest
publicly traded investment management firms in the United States having,
together with its affiliates, approximately $3.35 trillion in investment company
and other assets under management as of December 31, 2009. BlackRock, Inc. is an
affiliate of The PNC Financial Services Group, Inc.
BLACKROCK INSTITUTIONAL MANAGEMENT CORPORATION
BlackRock Institutional Management Corporation ("BlackRock Institutional") was
organized in 1977 to perform advisory services for investment companies and has
its principal offices at 100 Bellevue Parkway, Wilmington, DE 19809. BlackRock
Institutional is a wholly-owned, indirect subsidiary of BlackRock, Inc., one of
the largest publicly traded investment management firms in the United States
having, together with its affiliates, approximately $3.35 trillion in investment
company and other assets under management as of December 31, 2009. BlackRock,
Inc. is an affiliate of The PNC Financial Services Group, Inc.
BLACKROCK INVESTMENT MANAGEMENT, LLC
BlackRock Investment Management, LLC ("BlackRock Investment") has its principal
offices at 800 Scudders Mill Road, Plainsboro, NJ 08536. BlackRock Investment is
a wholly-owned, indirect subsidiary of BlackRock, Inc., one of the largest
publicly traded investment management firms in the United States having,
together with its affiliates, approximately $3.35 trillion in investment company
and other assets under management as of December 31, 2009. BlackRock, Inc. is an
affiliate of The PNC Financial Services Group, Inc.
COLUMBIA MANAGEMENT INVESTMENT ADVISERS, LLC
Columbia Management Investment Advisers, LLC (CMIA) (formerly known as
RiverSource Investments, LLC) is located at 100 Federal Street, Boston, MA
02110. CMIA acts as investment manager for individuals, corporations, private
investment companies and financial institutions. CMIA is registered as an
investment advisor with the SEC and is an indirect, wholly-owned subsidiary of
Ameriprise Financial, Inc. As of December 31, 2009, CMIA managed over $292.9
billion in assets.
DAVIS SELECTED ADVISERS. L.P.
Davis Selected Advisers, L.P. ("Davis"), is located at 2949 East Elvira Road,
Suite 101, Tucson, Arizona 85756. Davis is controlled by its general partner,
Davis Investments, LLC. Davis Investments, LLC is a holding company with no
business operations. Davis Investments, LLC is controlled by Christopher Davis
as sole member. Christopher Davis' principal business over the last five years
has been portfolio manager. Davis has been providing investment advice since
1969. At December 31, 2009, Davis managed over $73 billion in assets.
THE DREYFUS CORPORATION
The Dreyfus Corporation ("Dreyfus") is located at 200 Park Avenue, New York, NY
10166. Founded in 1947, Dreyfus manages approximately $310 billion in 189 mutual
fund portfolios. Dreyfus is the primary mutual fund business of The Bank of New
York Mellon Corporation (BNY Mellon), a global financial services company
focused on helping clients move and manage their finacial assets, operating 34
countries and serving more than 100 markets. BNY Mellon is a leading provider
of financial services for institutions, corporations and high-net-worth
individuals, providing asset and wealth management, asset servicing, issuer
services, and treasury services through a worldwide client-focused team. BNY
Mellon has more than $22.2 trillion in assets under custody and administration
and $1.1 trillion in assets under management, and it services more than $12.0
trillion in outstanding debt.
EATON VANCE MANAGEMENT
Eaton Vance Management ("Eaton Vance"), a wholly-owned subsidiary of Eaton Vance
Corp., is located at Two International Place, Boston, MA 02110. Eaton Vance has
been managing assets since 1924 and managing mutual funds since 1931. Eaton
Vance and its affiliates manage over $160 billion on behalf of mutual funds,
institutional clients and individuals, as of December 31, 2009.
54
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
FRANKLIN ADVISERS, INC.
Franklin Advisers, Inc. ("Advisors") is located at One Franklin Parkway, San
Mateo, CA 94403-1906. Together, Advisors and its affiliates manage over $643
billion in assets.
FRANKLIN ADVISORY SERVICES, LLC
Franklin Advisory Services, LLC ("Franklin"), One Parker Plaza, Ninth Floor,
Fort Lee, New Jersey 07024, is the Fund's investment Subadviser, and was founded
in 1947. Together, at January, Franklin and its affiliates had over $643 billion
in assets under management.
FRANKLIN MUTUAL ADVISERS, LLC
Franklin Mutual Advisers, LLC ("Franklin Mutual") is located at 101 John F.
Kennedy Parkway, Short Hills, NJ 07078. Together, Franklin Mutual and its
affiliates manage over $643 billion in assets.
GATEWAY INVESTMENT ADVISERS, LLC
Gateway Investment Advisers, LLC ("Gateway") is located at 312 Walnut Street,
35[th] Floor, Cincinnati, OH 45202, serves as the subadvisor of the Fund.
Gateway is a subsidiary of Natixis US. Gateway had over $7 billion in assets
under management at December 31, 2009.
INVESCO ADVISERS, INC.
Invesco Advisers, Inc. ("Invesco") is located at1555 Peachtree, N.E., Atlanta,
GA 30309, is the Adviser to the AZL Invesco International Equity Fund. Invesco,
as successor in interest to multiple investment advisers, has been an investment
adviser since 1976. Today, Invesco advises or manages investment portfolios,
including the Fund, encompassing a broad range of investment objectives.
Invesco is an indirect wholly owned subsidiary of Invesco Ltd., Atlanta, GA.
Total net assets under the management of Invesco Ltd. and its affilates was
approximantely $423.1 billion as of December 31, 2009.
J.P. MORGAN INVESTMENT MANAGEMENT INC.
J.P. Morgan Investment Management Inc. ("JPMIM") is a wholly-owned subsidiary of
J.P. Morgan Asset Management Holdings Inc., which is a wholly-owned subsidiary
of JPMorgan Chase & Co., a bank holding company. JPMIM is located at 245 Park
Avenue, New York, NY 10167. As of December 31, 2009, JPMIM and its affiliates
had $1.2 trillion in assets under management.
MASSACHUSETTS FINANCIAL SERVICES COMPANY
Massachusetts Financial Services Company ("MFS") is located at 500 Boylston
Street, Boston, Massachusetts. MFS is America's oldest mutual fund organization.
MFS and its predecessor organizations have a history of money management dating
from 1924 and the founding of the first mutual fund, Massachusetts Investors
Trust. MFS is a subsidiary of Sun Life of Canada (U.S.) Financial Services
Holdings, Inc., which in turn is a indirect majority owned subsidiary of Sun
Life Financial Services Inc. (a diversified financial services organization).
Net assets under the management of the MFS organization were approximately $183
billion as of December 31, 2009.
NFJ INVESTMENT GROUP LLC
NFJ Investment Group LLC ("NFJ") is a Delaware limited liability company and is
a registered investment adviser under the Advisers Act. Its principal place of
business is 2100 Ross Avenue, Suite 700, Dallas, Texas 75201. As of December 31,
2009, NFJ had aggregate assets under management of $ 30 billion. NFJ is
affiliated with the Manager.
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT LLC
Nicholas-Applegate Capital Management LLC ("NACM"), organized under the laws of
Delaware, is located at 600 West Broadway, Suite 2900, San Diego, California
92101. NACM was founded in 1984 and as of December 31, 2009 managed
approximately $9.9 billion in discretionary assets for numerous clients,
including employee benefit plans, corporations, public retirement systems and
unions, university endowments, foundations, and other institutional investors
and individuals. NACM is affiliated with the Manager.
55
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
OPPENHEIMER CAPITAL LLC
Oppenheimer Capital LLC ("Oppenheimer Capital") is a wholly-owned subsidiary of
Allianz Global Investors NY Holdings LLC, which is a wholly-owned subsidiary of
Allianz Global Investors Management Partners LLC. Allianz Global Investors
Management Partners LLC is a wholly-owned subsidiary of Allianz Global Investors
of America L.P. Oppenheimer Capital is a Delaware limited liability company and
is a registered investment adviser under the Advisers Act. Its principal place
of business is 1345 Avenue of the Americas, 48[th] Floor, New York, New York
10105. At December 31, 2009 Oppenheimer Capital had aggregate assets under
management of $8.5 billion. Oppenheimer Capital is affiliated with the Manager.
SCHRODER INVESTMENT MANAGEMENT NORTH AMERICA INC.
Schroder Investment Management North America Inc. ("Schroder"), 875 Third
Avenue, 22[nd] Floor, New York, NY 10022-6225, has been a registered investment
advisor, together with its predecessor, since 1968, and is part of a worldwide
group of financial services companies that are together known as Schroder.
Schroder currently serves as investment advisor to other mutual funds, and a
broad range of institutional investors. At December 31, 2009, Schroder,
together with its affiliated companies, managed approximately $239.6 billion in
assets. Schroder Investment Management North America Ltd (Schroder Ltd), an
affiliate of Schroder with headquarters located at 31 Gresham Street, London
EC2V 7QA, England, serves as the sub-subadviser to the Fund and is responsible
for day-to-day management of the Fund's assets.
TEMPLETON GLOBAL ADVISORS LIMITED
Templeton Global Advisors Limited ("Global Advisors") is located in Lyford Cay,
Nassau, Bahamas. Together, Global Advisors and its affiliates manage over $404
billion in assets.
TURNER INVESTMENT PARTNERS, INC.
Turner Investment Partners, Inc. ("Turner"), located at 1205 Westlakes Drive,
Suite 100, Berwyn, Pennsylvania 19312, is an employee-owned investment
management firm founded by Robert E. Turner, Mark D. Turner and Christopher K.
McHugh. Turner began managing assets, including institutional assets, in 1990.
Turner offers a variety of growth, quantitative, and core/value equity
investment strategies across all market capitalizations, totaling approximately
$17.7 billion in assets under management at December 31, 2009.
VAN KAMPEN ASSET MANAGEMENT
Van Kampen Asset Management ("VKAM") is a wholly-owned subsidiary of Van Kampen
Investments Inc. ("Van Kampen") and was founded in 1927. Van Kampen, together
with its affiliated asset management companies, had approximately $395.3 billion
under management or supervision as of December 31, 2009. Van Kampen is a wholly-
owned subsidiary of MSAM Holdings II, Inc. which is a wholly-owned subsidiary of
Morgan Stanley. The offices of Van Kampen Asset Management are located at 522
Fifth Avenue, New York, NY 10036. The following affiliates of VKAM serve as sub-
subadvisers to the AZL Van Kampen International Equity Fund and the AZL Van
Kampen Global Real Estate Fund and are responsible for day-to-day management of
the Funds' assets: (i) Morgan Stanley Investment Management Limited, with
headquarters located at 25 Cabot Square, Canary Wharf, London E144QA, England,
and (ii) Morgan Stanley Investment Management Company, with headquarters located
at 13 Church Street, #16-01 Capital Square, Singapore 049481.
On October 19, 2009, Invesco Ltd. announced that it entered into a definitive
agreement to acquire substantially all of the retail asset management business
of Morgan Stanley Investment Management Inc. The transaction includes a sale of
the part of the asset management business that subadvises AZL Van Kampen Equity
and Income Fund and AZL Van Kampen Growth and Income Fund. The transaction is
subject to certain approvals and other conditions to closing, and is currently
expected to close early summer 2010. Upon closing, all subadvisory agreements
between the Manager and VKAM are expected to terminate. It is anticipated that,
upon a closing, new subadvisory agreements will be entered into (i) with Invesco
Advisers, Inc. with respect to AZL Van Kampen Equity and Income Fund and AZL Van
Kampen Growth and Income Fund, and (ii) with an affiliate of Morgan Stanley with
respect to AZL Van Kampen Global Real Estate Fund, AZL Van Kampen International
Equity Fund and AZL Van Kampen Mid Cap Growth Fund.
56
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
OTHER MANAGED ACCOUNTS
Jeffrey W. Kletti, President of the Manager, is primarily responsible for
evaluation and selecting the subadvisers of the Trust, and for the day-to-day
management of the Allianz Variable Insurance Products Fund of Funds Trust (the
"FOF Trust"), and two unregistered investment pools. As of December 31, 2009,
aggregate assets under management in the FOF Trust (net of assets invested in
the Funds and the two unregistered investment pools) and in the two unregistered
investment pools were $0 and $41 million, respectively.
The following chart reflects information at December 31, 2009, regarding
accounts other than the listed Fund for which each portfolio manager employed by
the Fund's subadviser has day-to-day management responsibilities. Accounts are
grouped into three categories: (i) registered investment companies, (ii) other
pooled investment vehicles, and (iii) other accounts. To the extent that any of
these accounts pay advisory fees that are based on account performance
("performance-based fees"), information on those accounts is specifically broken
out. In addition, any assets denominated in foreign currencies have been
converted into U.S. dollars using the exchange rate as of the applicable date.
FUND PORTFOLIO OTHER REGISTERED INVESTMENT OTHER POOLED OTHER ACCOUNTS/ASSETS UNDER MANAGEMENT
MANAGER COMPANY ACCOUNTS/ASSETS UNDER INVESTMENT
MANAGEMENT VEHICLES/ASSETS UNDER
MANAGEMENT
Jeffrey R. 12 / $4.03 billion 9 / $811.4 million 11 / $1.51 billion
Lindsey
Edward P. 12 / $4.03 billion 9 / $811.4 million 11 / $1.51 billion
Dowd
David I. 11 / $7.6 billion 2 / $388.6 million 4,741 / $2.6 billion
Hoffman
Columbia Mid Diane L. 11 / $7.6 billion 2 / $388.6 million 4,746 / $2.6 billion
Cap Value Sobin
Fund
Lori J. 11 / $7.6 billion 2 / $388.6 million 4,735 / $2.6 billion
Ensiger
Noah J. 11 / $7.6 billion 2 / $388.6 million 4,741 / $2.6 billion
Petrucci
Steven D. 5 / $1.77 billion 1 / $33 million 16 / $700 million
Barboro
Jeremy 5 / $1.77 billion 1 / $33 million 12 / $600 million
Javidi
Christopher 27 / $58 billion 14 / $1.3 billion 118 / $9 billion Managed Money/Wrap accounts
Davis have been counted at the sponser level
Kenneth 25 / $58 billion 13 / $1.2 billion 109 / $8 billion Managed Money/Wrap accounts
Feinberg have been counted at the sponser level
Dreyfus Elizabeth 5 / $899 million 0 /$0 0 /$0
Equity Growth Slover
Fund
Michael R. 13 / $21.1 billion 8 / $990 million 73 / $4.5 billion[(1)]
Mach
Eaton Vance Matthew R. 11 / $20.8 billion 8 / $990 million 72 / $4.5 billion[(1)]
Large Cap Beaudry
Value Fund
John D. 12 / $ 21.1 billion 8 / $990 million 73 / $4.5 billion[(1)]
Crowley
Stephen J. 11 / $20.8 billion 8 / $990 million 72 / $4.5 billion[(1)]
Kaszynski
57
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
Curtis 31 / 5 / $3.85 billion 2 / $975.3 million additional account with performance based
Arledge $20.32 Performance Based fees: 1 / $204.8 million
billion fees: 2 / $2.69
billion
Matthew 32 / 1 / $317.2 million 8 / $2.23 billion additional account with performance based
Marra $21.34 fees: 1 / $629.1 million
billion
Y. Dogan 2 / 0 / $0 0 / $0
Sahin $2.4
billion
Franklin Small Cap Value Bruce 14 / 1 / $198 million 0 / $0
Fund Baughman, $15.1
CPA billion
Margaret 14 / 0 / $0 0 / $0
McGee $9.8
billion
Don 14 / 1 / $198 million 0 / $0
Taylor, $9.8
CPA billion
Peter A. 11 / 6 / $3.2 billion 0 / $0
Langerman $40.5
billion
Mutual Shares Portfolio F. David 7 / 2 / $1.1 billion 0 / $0
of: Segal $22.9
Franklin Templeton billion
Founding Strategy Plus
Fund
Deborah A. 6 / 3 / $1.2 billion 0 / $0
Turner $22.1
billion
Edward D. 10 / 2 / $501 million 0 /$0
Perks $62
billion
Income Fund Portfolio of: Charles B. 5 / $59 2 / $500 million 0 /$0
Franklin Templeton Johnsom billion
Founding Strategy Plus
Fund
Alex W. 1 / 5 / $658 million 6 / $178 million
Peters $432
million
Matt 0 / $0 0 / $0 0 / $0
Quinlin
Cynthia L. 19 7 / $8.7 billion 16 / $3.7 billion
Sweeting /$48.7
billion
Templeton Growth Lisa F. 0 / $0 0 / $0 0 / $0
Portfolio of: Myers
Franklin Templeton
Founding Strategy Plus
Fund
Tucker 0 / $0 0 / $0 0 / $0
Scott
Global Bond Portfolio of: Michael 14 / 24 / $78 billion 8 / $636 million
Franklin Templeton Hasenstab $31
Founding Strategy Plus billion
Fund
J. Patrick 5 / 2 / $86 million 38 / $458 million
Rogers $6.6
billion
Gateway Fund Paul R. 1 / 1 / $48 million 41 / $454 million
Stewart $4.7
billion
Michael T. 3 / 3 / $108 million 16 / $108 million
Buckius $5.4
billion
58
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
Debra L. 42 / 32 / $20.35 billion 38 / $51.96 billion additional accounts with performance based
Jelilian $30.63 fees: 2 / $1.34 billion
billion
Edward 40 / 158 / $394.8 billion performance 42 / $102.3 billion additional accounts with performance based
Corallo $32.12 based fees: 7 / $6.07 billion fees: 5 / $13.07 billion
billion
Shuxin 12 / 2 / $268.9million 4,289 / $895.2 million
Cao $5.70
billion
Matthew 9 6 /$284.4 million 4,289 /$895.2 million
W. /$5.01
Dennis billion
Invesco Jason T. 12 12 /$2.71 billion 4,289 /$895.2 million
International Holzer /$5.72
Equity Fund billion
Clas G. 10 13 /$2.63 billion 4,289 /$895.2 million
Olsson /$5.08
billion
Barrett 10 5 /$354.5 million 4,289 /$895.2 million
K.Sides /$4.66
billion
Thomas 7 / 5 / $1.3 billion 44 / $3.8 billion
Luddy $8.5 performance Based fees: 3 / $6.4 performance Based fees: 2 / $910 million
billion bllion
Susan 9 / 6/ $2 billion 64/ $16 billion
Bao $9.2 performance Based fees: 2 / $5.7 performance Based fees: 2 / $910 million
billion bllion
T. Kevin 3 / 0 / N/A 2 / $14.2 million
Beatty $3.9
billion
Nicole 3 / 0 / N/A 1 / $0.8 million
M. $3.9
Zatlyn billion
Debra L. 42 / 32 / $20.35 billion 38 / $51.96 billion additional accounts with performance based
Jelilian $30.63 fees: 2 / $1.34 billion
billion
Edward 40 / 158 / $394.8 billion performance 42 / $102.3 billion additional accounts with performance based
Corallo $32.12 based fees: 7 / $6.07 billion fees: 5 / $13.07 billion
billion
Horacio 2/ 0 / $ 0 4 / $682.6 million
A. $36.8
Valeiras million
Pedro 4 / 0 / $ 0 4 / $682.6 million
Marcal $213.6
million
Ben 22 / 3 / $97 million 56 / $10 billion
Fischer $18
billion
NFJ Investment Paul 18 / 3 / $97 million 51 / $9 billion
Value Fund Magnuson $18
billion
Thomas 16 / 1 / $8 million 45 / $9 billion
Oliver $10
billion
59
The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
R. Burns 13 / 3 / $97 million 45 / $8 billion
McKinney $17
billion
L. Baxter 0 / $0 0 / $0 0 / $0
Hines
Robert 4 / 0 / $0 5 / $29.1 million
Urquhart $471.1
million
Jeff 2 / 0 / $0 3 / $179.9 million
Parker $402.9
million
Michael 5 / 0 / $0 11 / $322.9 million
Corelli $519.8
million
Eric 4 / 0 / $0 11 / $322.9 million
Sartorius $443.9
million
Debra L. 42 / 32 / $20.35 billion 38 / $51.96 billion additional accounts with performance based
Jelilian $30.63 fees: 2 / $1.34 billion
billion
Edward 40 / 158 / $394.8 billion performance 42 / $102.3 billion additional accounts with performance based
Corallo $32.12 based fees: 7 / $6.07 billion fees: 5 / $13.07 billion
billion
Debra L. 42 / 32 / $20.35 billion 38 / $51.96 billion additional accounts with performance based
Jelilian $30.63 fees: 2 / $1.34 billion
billion
Edward 40 / 158 / $394.8 billion performance 42 / $102.3 billion additional accounts with performance based
Corallo $32.12 based fees: 7 / $6.07 billion fees: 5 / $13.07 billion
billion
Allan 1 / 18 / $8.0 billion 14 / $2.4 billion
Conway $17.4 Accounts subject to performance fees:2 / $294.1 million
million
Schroder Robert 1 / 9 / $1.73 billion 8 / $775.9 million
Emerging Davy $17.4
Markets million
Equity Fund
James 1 / 8 / $1.71 billion 7 / $775.9 million
Gotto $17.4
million
Waj 1 / 9 / $6.45 billion 9 / $1.14 billion
Hashmi $17.4
million
Debra L. 42 / 32 / $20.35 billion 38 / $51.96 billion additional accounts with performance based
Jelilian $30.63 fees: 2 / $1.34 billion
billion
Edward 40 / 158 / $394.8 billion performance 42 / $102.3 billion additional accounts with performance based
Corallo $32.12 based fees: 7 / $6.07 billion fees: 5 / $13.07 billion
billion
Debra L. 42 / 32 / $20.35 billion 38 / $51.96 billion additional accounts with performance based
Jelilian $30.63 fees: 2 / $1.34 billion
billion
Edward 40 / 158 / $394.8 billion performance 42 / $102.3 billion additional accounts with performance based
Corallo $32.12 based fees: 7 / $6.07 billion fees: 5 / $13.07 billion
billion
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The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
David 3 / 9 / $91 million 7 / $242 million
Kovacs $234 performance based
million fees: 1 / $1 million
Jennifer 4 / 11 / $100 million 7 / $242 million
Boden $256 performance based
million fees: 2 / $9 million
Theodore 12 / 12 / $2.27 billion 454 / $7.89 billion
R. Bigman $4.09 seperate accounts with performance based fees: 13
billion / $650.8 million
VK Global Real Estate Fund Michiel te 4 / 9 / $1.10 billion 50 / $5.95 billion
Paske $1.61 seperate accounts with performance based fees: 7 /
billion $176.2 million
Sven van 4 / 9 / $1.10 billion 50 / $5.95 billion
Kemenade $1.61 seperate accounts with performance based fees: 7 /
billion $176.2 million
Angeline 4 / 8 / $1.67 billion 47 / $5.79 billion
Ho $1.61 seperate accounts with performance based fees: 6 /
billion $138.7 million
Mary Jayne 19 / 0 / $0 2 / $13.4 million
Maly $24.52
billion
James 19 / 0 / $0 2 / $13.4 million
Roeder $24.52
billion
VK Growth and Income Fund & VK Equity Mark 19 / 0 / $0 2 / $13.4 million
and Income Fund Laskin $24.52
billion
Thomas 19 / 0 / $0 2 / $13.4 million
Bastian $24.52
billion
Sergio 19 / 0 / $0 2 / $13.4 million
Marcheli $24.52
billion
VK Equity and Income Fund Sanjay 21 / 2 / $594.2 million 50 / $5.95 billion
Verna $18.77 seperate accounts with performance based fees: 3 /
billion $1.27 billion
Dennis P. 35 / 4 / $1.38 billion 3,268 / $1.24 billion
Lynch $19.36
billion
David S. 35 / 4 / $1.38 billion 3,268 / $1.24 billion
Cohen $19.36
billion
VK Mid-Cap Growth Fund Sam G. 35 / 4 / $1.38 billion 3,268 / $1.24 billion
Chainani $19.36
billion
Alexander 35 / 4 / $1.38 billion 3,268 / $1.24 billion
T. Norton $19.36
billion
Jason C. 35 / 4 / $1.38 billion 3,268 / $1.24 billion
Yeung $19.36
billion
Armistead 35 / 4 / $1.38 billion 3,268 / $1.24 billion
B. Nash $19.36
billion
Christian 8 / 10 / $6.62 billion 54 / $10.99 billion
Derold $7.06 seperate account with performance based fees: 1 /
billion $316.8 million
John S. 8 / 10 / $6.62 billion 54 / $10.99 billion
Goodacre $7.06 seperate account with performance based fees: 1 /
billion $316.8 million
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The Allianz Variable Insurance Products Trust - SAI -
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William D. Lock 8 / $7.06 billion 10 / $6.62 billion 54 / $10.99 billion
seperate account with performance based fees: 1 / $316.8 million
Walter B. Riddell 8 / $7.06 billion 10 / $6.62 billion 54 / $10.99 billion
seperate account with performance based fees: 1 / $316.8 million
Peter J. Wright 4 / $4.97 billion 5 / $4.94 billion 28 / $8.34 billion
seperate account with performance based fees: 1 / $316.8 million
(1)For "Other Accounts" that are part of a wrap account program, the number of
accounts cited includes the number of sponsors for which the portfolio manager
provides management services rather than the number of individual accounts
within each wrap account program.
(3)Of these other accounts, one account with a total of approximately $280.1
million in assets had performance-based fees
POTENTIAL MATERIAL CONFLICTS OF INTEREST
Actual or apparent conflicts of interest may arise when a portfolio manager has
day-to-day management responsibilities with respect to more than one Fund or
other account. More specifically, portfolio managers who manage multiple Funds
and/or other accounts may be presented with one or more of the following
potential conflicts:
o Time and attention. The management of multiple Funds and/or other
accounts may result in a portfolio manager devoting unequal time and attention
to the management of each Fund and/or other account. The Subadvisers seek to
manage such competing interests for the time and attention of portfolio
managers by having most portfolio managers focus on a particular investment
discipline. Most other accounts managed by a portfolio manager are managed
using the same investment models that are used in connection with the
management of the Funds.
o Limited investment opportunities. If a portfolio manager identifies a
limited investment opportunity which may be suitable for more than one Fund or
other account, a Fund may not be able to take full advantage of that
opportunity due to an allocation of filled purchase or sale orders across all
eligible Funds and other accounts. To deal with these situations, the
Subadvisers have adopted procedures for allocating portfolio transactions
across multiple accounts.
o Brokerage allocation. With respect to securities transactions for the
Funds, the Subadvisers determine which broker to use to execute each order,
consistent with their duty to seek best execution of the transaction. However,
with respect to certain other accounts (such as mutual funds for which a
Subadviser or an affiliate of a Subadviser acts as Subadviser, other pooled
investment vehicles that are not registered mutual funds, and other accounts
managed for organizations and individuals), the Subadvisers may be limited by
the client with respect to the selection of brokers or may be instructed to
direct trades through a particular broker. In these cases, trades for a Fund
in a particular security may be placed separately from, rather than aggregated
with, such other accounts. Having separate transactions with respect to a
security may temporarily affect the market price of the security or the
execution of the transaction, or both, to the possible detriment of the Fund
or other account(s) involved.
o Pursuit of differing strategies. At times, a portfolio manager may
determine that an investment opportunity may be appropriate for only some of
the funds and/or accounts for which he or she exercises investment
responsibility, or may decide that certain of the funds and/or accounts should
take differing, including potentially opposite, positions with respect to a
particular security. In these cases, the portfolio manager may place separate
transactions for one or more funds and/or accounts which may affect the market
price of the security or the execution of the transaction, or both, to the
detriment or benefit of one or more other funds and/or accounts.
o Variation in compensation. Finally, the appearance of a conflict of
interest may arise where a Subadviser has an incentive, such as a performance-
based management fee, which relates to the management of one Fund or account
but not all Funds and accounts with respect to which a portfolio manager has
day-to-day management responsibilities.
The Subadvisers have adopted certain compliance procedures which are designed to
address these types of conflicts. However, there is no guarantee that such
procedures will detect each and every situation in which a conflict arises.
PORTFOLIO MANAGER COMPENSATION
The following section includes portfolio manager compensation information as of
December 31, 2009, for the Manager and each of the Subadvisers.
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The Allianz Variable Insurance Products Trust - SAI -
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THE MANAGER
ALLIANZ INVESTMENT MANAGEMENT LLC ("AZIM")
The portfolio manager's cash compensation consists of a market-based salary plus
incentive compensation in the form of a bonus and a phantom equity plan. The
amount of the bonus is determined by the overall financial performance of AZIM
relative to its business goals for the fiscal year. The phantom equity plan
provides awards based on the target earnings of AZIM over a three-year period.
Awards vest three years after they are made, at which time the exact amount of
the award is determined based on AZIM's actual earnings for the prior three-year
period. In addition, the portfolio manager is eligible to participate in a non-
qualified deferred compensation plan, which offers participants the tax benefits
of deferring the receipt of a portion of their cash compensation until such time
as designated under the plan.
THE SUBADVISERS
BLACKROCK CAPITAL MANAGEMENT, INC.
BLACKROCK FINANCIAL MANAGEMENT, INC.
BLACKROCK INSTITUTIONAL MANAGEMENT CORPORATION
BLACKROCK INVESTMENT MANAGEMENT, LLC
BlackRock's financial arrangements with its portfolio managers, its competitive
compensation and its career path emphasis at all levels reflect the value senior
management places on key resources. Compensation may include a variety of
components and may vary from year to year based on a number of factors. The
principal components of compensation include a base salary, a performance-based
discretionary bonus, participation in various benefits programs and one or more
of the incentive compensation programs established by BlackRock such as its
Long-Term Retention and Incentive Plan and Restricted Stock Program.
Base compensation. Generally, portfolio managers receive base compensation
based on their seniority and/or their position with the firm. Senior portfolio
managers who perform additional management functions within the portfolio
management group or within BlackRock may receive additional compensation for
serving in these other capacities.
DISCRETIONARY INCENTIVE COMPENSATION
1.BlackRock Capital Appreciation Fund
Discretionary incentive compensation is based on a formulaic compensation
program. BlackRock's formulaic portfolio manager compensation program includes:
pre-tax investment performance relative to appropriate competitors or benchmarks
over 1-, 3- and 5-year performance periods and a measure of operational
efficiency or team revenue component. If a portfolio manager's tenure is less
than five years, performance periods will reflect time in position. In most
cases, including for the portfolio managers of the Fund, these benchmarks are
the same as the benchmark or benchmarks against which the performance of the
Fund or other accounts managed by the portfolio managers are measured.
BlackRock's Chief Investment Officers determine the benchmarks against which the
performance of funds and other accounts managed by each portfolio manager is
compared and the period of time over which performance is evaluated. With
respect to the portfolio managers, such benchmarks for each fund include the
following:
PORTFOLIO MANAGER FUNDS MANAGED BENCHMARKS APPLICABLE TO EACH MANAGER
Jeffrey Lindsey BlackRock Capital Appreciation Fund Lipper Large-Cap Growth Funds classification
Edward Dowd
Portfolio managers who meet relative investment performance and financial
management objectives during a specified performance time period are eligible to
receive an additional bonus which may or may not be a large part of their
overall compensation. A smaller element of portfolio manager discretionary
compensation may include consideration of: financial results, expense control,
profit margins, strategic planning and implementation, quality of client
service, market share, corporate reputation, capital allocation, compliance and
risk control, leadership, workforce diversity, supervision, technology and
innovation. All factors are considered collectively by BlackRock management.
2.Enhanced Bond Index Fund
Discretionary incentive compensation is a function of several components: the
performance of BlackRock, Inc., the performance of the portfolio manager's group
within BlackRock, the investment performance, including risk-adjusted returns,
of the firm's assets under management or supervision by that portfolio manager
relative to predetermined benchmarks, and the individual's seniority, role
within the portfolio management team, teamwork and contribution to the overall
performance of these portfolios and BlackRock. In most cases, including for the
portfolio managers of the Fund,
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The Allianz Variable Insurance Products Trust - SAI -
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these benchmarks are the same as the benchmark or benchmarks against which the
performance of the Fund or other accounts managed by the portfolio managers are
measured. BlackRock's Chief Investment Officers determine the benchmarks
against which the performance of funds and other accounts managed by each
portfolio manager is compared and the period of time over which performance is
evaluated. With respect to the portfolio managers, such benchmarks include the
following:
PORTFOLIO MANAGER FUNDS MANAGED BENCHMARKS APPLICABLE TO EACH MANAGER
Curtis Arledge Enhanced Bond A combination of market-based indices (e.g., Barclays Capital Aggregate Index, Barclays Capital
Matthew Marra Index Fund Universal Index, Barclays Capital Intermediate Government/Credit Index), certain customized indices
and certain fund industry peer groups.
3.International Index Fund, Mid Cap Index Fund, S&P 500 Index Fund and Small Cap
Stock Index Fund
Discretionary incentive compensation is a function of several components: the
performance of BlackRock, Inc., the performance of the portfolio manager's group
within BlackRock, the investment performance, including risk-adjusted returns,
of the firm's assets under management or supervision by that portfolio manager
relative to predetermined benchmarks, and the individual's seniority, role
within the portfolio management team, teamwork and contribution to the overall
performance of these portfolios and BlackRock. In most cases, including for Ms.
Jelilian, these benchmarks are the same as the benchmark or benchmarks against
which the performance of the Fund or other accounts managed by the portfolio
managers are measured. BlackRock's Chief Investment Officers determine the
benchmarks against which the performance of funds and other accounts managed by
each portfolio manager is compared and the period of time over which performance
is evaluated. With respect to Ms. Jelilian, such benchmarks include the
following:
PORTFOLIO MANAGER FUNDS MANAGED BENCHMARKS APPLICABLE TO EACH MANAGER
Debra L. Jelilian International Index Fund MSCI EAFE Index
Debra L. Jelilian Mid Cap Index Fund S&P 400 Index
Debra L. Jelilian S&P 500 Index Fund S&P 500 Index
Debra L. Jelilian Small Cap Stock Index Fund Russell 2000 Index
BlackRock's Chief Investment Officers make a subjective determination with
respect to the portfolio managers' compensation based on the performance of the
funds and other accounts managed by each portfolio manager relative to the
various benchmarks noted above. Performance of fixed-income funds is measured
on both a pre-tax and after-tax basis over various time periods including 1, 3,
5 and 10-year periods, as applicable. Performance of equity funds is measured on
a pre-tax basis over various time periods including 1, 3 and 5-year periods, as
applicable.
Distribution of Discretionary Incentive Compensation
Discretionary incentive compensation is distributed to portfolio managers in a
combination of cash and BlackRock, Inc. restricted stock units which vest
ratably over a number of years. The BlackRock, Inc. restricted stock units, if
properly vested, will be settled in BlackRock, Inc. common stock. Typically,
the cash bonus, when combined with base salary, represents more than 60% of
total compensation for the portfolio managers. Paying a portion of annual
bonuses in stock puts compensation earned by a portfolio manager for a given
year "at risk" based on BlackRock's ability to sustain and improve its
performance over future periods.
Long-Term Retention and Incentive Plan ("LTIP") - From time to time long-term
incentive equity awards are granted to certain key employees to aid in retention
align their interests with long-term shareholder interests and motivate
performance. Equity awards are generally granted in the form of BlackRock, Inc.
restricted stock units that, once vested, settle in BlackRock, Inc. common
stock. Messrs. Arledge, Corallo, Dowd, Lindsey, Marra and Ms. Jelilian have each
received awards under the LTIP.
Deferred Compensation Program - A portion of the compensation paid to eligible
BlackRock employees may be voluntarily deferred into an account that tracks the
performance of certain of the firm's investment products. Each participant in
the deferred compensation program is permitted to allocate his deferred amounts
among the various investment options. Messrs. Amero, Dowd, Lindsey, Marra,
Phillips and Ms. Jelilian have each participated in the deferred compensation
program.
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Other compensation benefits. In addition to base compensation and discretionary
incentive compensation, portfolio managers may be eligible to receive or
participate in one or more of the following:
Incentive Savings Plans - BlackRock, Inc. has created a variety of incentive
savings plans in which BlackRock employees are eligible to participate,
including a 401(k) plan, the BlackRock Retirement Savings Plan (RSP), and the
BlackRock Employee Stock Purchase Plan (ESPP). The employer contribution
components of the RSP include a company match equal to 50% of the first 6% of
eligible pay contributed to the plan capped at $4,000 per year, and a company
retirement contribution equal to 3-5% of eligible compensation. The RSP offers
a range of investment options, including registered investment companies managed
by the firm. BlackRock contributions follow the investment direction set by
participants for their own contributions or, absent employee investment
direction, are invested into a balanced portfolio. The ESPP allows for
investment in BlackRock common stock at a 5% discount on the fair market value
of the stock on the purchase date. Annual participation in the ESPP is limited
to the purchase of 1,000 shares or a dollar value of $25,000. Each portfolio
manager is eligible to participate in these plans.
Potential Material Conflicts of Interest
BlackRock has built a professional working environment, firm-wide compliance
culture and compliance procedures and systems designed to protect against
potential incentives that may favor one account over another. BlackRock has
adopted policies and procedures that address the allocation of investment
opportunities, execution of portfolio transactions, personal trading by
employees and other potential conflicts of interest that are designed to ensure
that all client accounts are treated equitably over time. Nevertheless,
BlackRock furnishes investment management and advisory services to numerous
clients in addition to the Fund, and BlackRock may, consistent with applicable
law, make investment recommendations to other clients or accounts (including
accounts which are hedge funds or have performance or higher fees paid to
BlackRock, or in which portfolio managers have a personal interest in the
receipt of such fees), which may be the same as or different from those made to
the Funds. In addition, BlackRock, its affiliates and significant shareholders
and any officer, director, stockholder or employee may or may not have an
interest in the securities whose purchase and sale BlackRock recommends to the
Fund. BlackRock, or any of its affiliates or significant shareholders, or any
officer, director, stockholder, employee or any member of their families may
take different actions than those recommended to the Fund by BlackRock with
respect to the same securities. Moreover, BlackRock may refrain from rendering
any advice or services concerning securities of companies of which any of
BlackRock's (or its affiliates' or significant shareholders') officers,
directors or employees are directors or officers, or companies as to which
BlackRock or any of its affiliates or significant shareholders or the officers,
directors and employees of any of them has any substantial economic interest or
possesses material non-public information. Each portfolio manager also may
manage accounts whose investment strategies may at times be opposed to the
strategy utilized for a fund. In this connection, it should be noted that
Messrs. Arledge, Corallo, Marra, and Ms. Jelilian currently manage certain
accounts that are subject to performance fees. In addition, a portfolio manager
may assist in managing certain hedge funds and may be entitled to receive a
portion of any incentive fees earned on such funds and a portion of such
incentive fees may be voluntarily or involuntarily deferred. Additional
portfolio managers may in the future manage other such accounts or funds and may
be entitled to receive incentive fees.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and must treat
each client fairly. When BlackRock purchases or sells securities for more than
one account, the trades must be allocated in a manner consistent with its
fiduciary duties. BlackRock attempts to allocate investments in a fair and
equitable manner among client accounts, with no account receiving preferential
treatment. To this end, BlackRock has adopted a policy that is intended to
ensure that investment opportunities are allocated fairly and equitably among
client accounts over time. This policy also seeks to achieve reasonable
efficiency in client transactions and provide BlackRock with sufficient
flexibility to allocate investments in a manner that is consistent with the
particular investment discipline and client base.
COLUMBIA MANAGEMENT INVESTMENT ADVISERS, LLC ("CMIA")
CMIA's portfolio manager responsible for the Funds receive all of his
compensation in the form of salary, bonus, stock options, restricted stock and
notional investments through an incentive plan, the value of which is measured
by reference to the performance of the Columbia Funds in which the account is
invested. His bonus is variable and is generally based on (1) an evaluation of
the manager's investment performance and (2) the results of a peer and/or
management review of such individual, which takes into account skills and
attributes such as team participation, investment process, communication and
professionalism. In evaluating investment performance, CMIA generally considers
the one-, three- and five-year performance of mutual funds and other accounts
under the portfolio manager's oversight relative to selected benchmarks and peer
groups noted below, emphasizing the manager's three- and five-year performance.
CMIA may also
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The Allianz Variable Insurance Products Trust - SAI -
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consider a portfolio manager's performance in managing client assets in sectors
and industries assigned to the manager as part of his or her investment team
responsibilities, where applicable. For portfolio managers who also have group
management responsibilities, another factor in their evaluation is an assessment
of the group's overall investment performance.
Portfolio Manager Primary Benchmark(s) Peer Group
David I. Hoffman Russell Mid Cap Value Index Lipper Mid Cap Value
Diane L. Sobin Russell Mid Cap Value Index Lipper Mid Cap Value
Lori J. Ensinger Russell Mid Cap Value Index Lipper Mid Cap Value
Noah J. Petrucci Russell Mid Cap Value Index Lipper Mid Cap Value
Jeremy Javidi Russell 2000 Value Index Lipper Small Cap Value
Stephen D. Barbaro Russell 2000 Value Index Lipper Small Cap Value
The size of the overall bonus pool each year depends in part on levels of
compensation generally in the investment management industry (based on market
compensation data) and CMIA's profitability for the year, which is largely
determined by assets under management.
DAVIS SELECTED ADVISERS, L.P.
Kenneth Feinberg's compensation as a Davis Advisors employee consists of (i) a
base salary, (ii) an annual bonus equal to a percentage of growth in Davis
Advisors' profits, (iii) awards of equity ("Units") in Davis Advisors including
Units, options on Units, and/or phantom Units, and (iv) an incentive plan
whereby Davis Advisors purchases shares in selected funds managed by Davis
Advisors. At the end of specified periods, generally five-years following the
date of purchase, some, all, or none of the fund shares will be registered in
the employee's name based on fund performance, after expenses on a pre-tax
basis, versus the S&P 500 Index, and versus peer groups as defined by
Morningstar or Lipper. Davis Advisors' portfolio managers are provided benefits
packages including life insurance, health insurance, and participation in
company 401(k) plan comparable to that received by other company employees.
Christopher Davis' annual compensation as an employee of Davis Advisors consists
of a base salary. Davis Advisors' portfolio managers are provided benefits
packages including life insurance, health insurance, and participation in
company 401(k) plan comparable to that received by other company employees.
Material Conflicts of Interest
Actual or apparent conflicts of interest may arise when a portfolio manager has
day-to-day management responsibilities with respect to more than one portfolio
or other account. More specifically, portfolio managers who manage multiple
portfolios and/or other accounts are presented with the following potential
conflicts:
1) The management of multiple portfolios and/or other accounts may result in a
portfolio manager devoting unequal time and attention to the management of each
portfolio and/or other account. Davis seeks to manage such competing interests
for the time and attention of portfolio managers by having portfolio managers
focus on a particular investment discipline. Most other accounts managed by a
portfolio manager are managed using the same investment models that are used in
connection with the management of the portfolios.
2) If a portfolio manager identifies a limited investment opportunity which may
be suitable for more than one portfolio or other account, a portfolio may not be
able to take full advantage of that opportunity due to an allocation of filled
purchase or sale orders across all eligible portfolios and other accounts. To
deal with these situations, Davis has adopted procedures for allocating
portfolio transactions across multiple accounts.
3) With respect to securities transactions for the portfolios, Davis determines
which broker to use to execute each order, consistent with its duty to seek best
execution of the transaction. However, with respect to certain other accounts
(such as mutual funds, other pooled investment vehicles that are not registered
mutual funds, and other accounts managed for organizations and individuals),
Davis may be limited by the client with respect to the selection of brokers or
may be instructed to direct trades through a particular broker. In these cases,
Davis may place separate, non-simultaneous transactions for a portfolio and
another account which may temporarily affect the market price of the security or
the execution of the transaction, or both, to the detriment of the portfolio or
the other account.
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4) Finally, substantial investment of Davis or Davis family assets in certain
mutual funds may lead to conflicts of interest. To mitigate these potential
conflicts of interest, Davis has adopted policies and procedures intended to
ensure that all clients are treated fairly over time. Davis does not receive an
incentive-based fee on any account.
THE DREYFUS CORPORATION
Portfolio Manager Compensation. Ms. Slover is a dual employee of Dreyfus and
The Boston Company, and is subject to The Boston Company's compensation
structure. With the exception of the most senior portfolio managers of TBCAM
(described separately below), the portfolio managers' cash compensation is
comprised primarily of a market-based salary and incentive compensation,
including both annual and long-term retention incentive awards. Portfolio
managers are eligible to receive annual cash bonus awards from the Annual
Incentive Plan, and annual incentive opportunities are pre-established for each
individual based upon competitive industry compensation benchmarks. Actual
individual awards are determined based on TBCAM's financial performance,
individual investment performance, individual contribution and other qualitative
factors.
Select senior portfolio managers. Select senior portfolio managers
participate in a more formal structured compensation plan. This plan is designed
to compensate our top investment professionals for superior investment
performance and business results. It is a two stage model: an opportunity range
is determined based on level of current business (assets under management,
revenue) and an assessment of long term business value (growth, retention,
development). A significant portion of the opportunity awarded is structured
and based upon the one-year, three-year, and five-year (three-year and five-year
weighted more heavily) pre-tax performance of the portfolio manager's accounts
relative to the performance of the appropriate peer groups. Other factors
considered in determining the award are individual qualitative performance based
on seven discretionary factors (e.g. leadership, teamwork, etc.), and the asset
size and revenue growth or retention of the products managed. In addition,
awards for portfolio managers that manage alternative strategies are partially
based on a portion of the fund's realized performance fee.
Long Term Retention Incentive Plan: All portfolio managers and analysts are
also eligible to participate in TBCAM's Long Term Retention Incentive Plan.
This plan provides for an annual award, payable in cash and/or BNY Mellon
restricted stock (three-year cliff vesting period for both). The value of the
cash portion of the award earns interest during the vesting period based upon
the growth in TBCAM's net income (capped at 20% and with a minimum payout of The
Bank of New York Mellon 3-year CD rate).
Incentive compensation awards are generally subject to management discretion
and pool funding availability. Funding for TBCAM's Annual Incentive Plan and
Long Term Retention Incentive Plan is through a pre-determined fixed percentage
of overall TBCAM's profitability. Awards are paid in cash on an annual basis.
However, some portfolio managers may receive a portion of their annual incentive
award in deferred vehicles.
Conflicts of Interest. Portfolio managers may manage multiple accounts for a
diverse client base, including mutual funds, separate accounts (assets managed
on behalf of institutions such as pension funds, insurance companies and
foundations), bank common trust accounts and wrap fee programs ("Other
Accounts").
Potential conflicts of interest may arise because of Dreyfus' management of
the Fund and Other Accounts. For example, conflicts of interest may arise with
both the aggregation and allocation of securities transactions and allocation of
limited investment opportunities, as Dreyfus may be perceived as causing
accounts it manages to participate in an offering to increase Dreyfus' overall
allocation of securities in that offering, or to increase Dreyfus' ability to
participate in future offerings by the same underwriter or issuer. Allocations
of bunched trades, particularly trade orders that were only partially filled due
to limited availability, and allocation of investment opportunities generally,
could raise a potential conflict of interest, as Dreyfus may have an incentive
to allocate securities that are expected to increase in value to preferred
accounts. Initial public offerings, in particular, are frequently of very
limited availability. Additionally, portfolio managers may be perceived to have
a conflict of interest if there are a large number of Other Accounts, in
addition to the Fund, that they are managing on behalf of Dreyfus. Dreyfus
periodically reviews each portfolio manager's overall responsibilities to ensure
that he or she is able to allocate the necessary time and resources to
effectively manage the Fund. In addition, Dreyfus could be viewed as having a
conflict of interest to the extent that Dreyfus or its affiliates and/or
portfolio managers have a materially larger investment in Other Accounts than
their investment in the Fund.
Other Accounts may have investment objectives, strategies and risks that
differ from those of the Fund. For these or other reasons, the portfolio
manager may purchase different securities for the Fund and the Other Accounts,
and the performance of securities purchased for the Fund may vary from the
performance of securities purchased for Other Accounts. The portfolio manager
may place transactions on behalf of Other Accounts that are directly or
indirectly
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contrary to investment decisions made for the Fund, which could have the
potential to adversely impact the Fund, depending on market conditions.
A potential conflict of interest may be perceived to arise if transactions in
one account closely follow related transactions in another account, such as when
a purchase increases the value of securities previously purchased by the other
account, or when a sale in one account lowers the sale price received in a sale
by a second account.
Conflicts of interest similar to those described above arise when portfolio
managers are employed by a sub-investment adviser or are dual employees of the
Manager and an affiliated entity and such portfolio managers also manage Other
Accounts.
Dreyfus' goal is to provide high quality investment services to all of its
clients, while meeting Dreyfus' fiduciary obligation to treat all clients
fairly. Dreyfus has adopted and implemented policies and procedures, including
brokerage and trade allocation policies and procedures, that it believes address
the conflicts associated with managing multiple accounts for multiple clients.
In addition, Dreyfus monitors a variety of areas, including compliance with Fund
guidelines, the allocation of IPOs, and compliance with Dreyfus' Code of
Ethics. Furthermore, senior investment and business personnel at Dreyfus
periodically review the performance of the portfolio managers for Dreyfus-
managed funds.
BNY Mellon and its affiliates, including Dreyfus and others involved in the
management, sales, investment activities, business operations or distribution of
the Fund, are engaged in businesses and have interests other than that of
managing the Fund. These activities and interests include potential multiple
advisory, transactional, financial and other interests in securities,
instruments and companies that may be directly or indirectly purchased or sold
by the Fund and the Fund's service providers, which may cause conflicts that
could disadvantage the Fund.
BNY Mellon and its affiliates may have deposit, loan and commercial banking or
other relationships with the issuers of securities purchased by the Fund. BNY
Mellon has no obligation to provide to Dreyfus or the Fund, or effect
transactions on behalf of the Fund in accordance with, any market or other
information, analysis, or research in its possession. Consequently, BNY Mellon
(including, but not limited to, BNY Mellon's central Risk Management Department)
may have information that could be material to the management of the Fund and
may not share that information with relevant personnel of Dreyfus. Accordingly,
Dreyfus has informed management of the Fund that in making investment decisions
it does not obtain or use material inside information that BNY Mellon or its
affiliates may possess with respect to such issuers.
Dreyfus will make investment decisions for the Fund as it believes is in the
best interests of the Fund. Investment decisions made for the Fund may differ
from, and may conflict with, investment decisions made for other investment
companies and accounts advised by Dreyfus or BNY Mellon and its other
affiliates. Actions taken with respect to such other investment companies or
accounts may adversely impact the Fund, and actions taken by the Fund may
benefit BNY Mellon or other investment companies or accounts (including the
Fund) advised by Dreyfus or BNY Mellon and its other affiliates. Regulatory
restrictions (including, but not limited to, those related to the aggregation of
positions among different other investment companies and accounts) and internal
BNY Mellon policies, guidance or limitations (including, but not limited to,
those related to the aggregation of positions among all fiduciary accounts
managed or advised buy BNY Mellon and all its affiliates (including Dreyfus) and
the aggregated exposure of such accounts) may restrict investment activities of
the Fund. While the allocation of investment opportunities among the Fund and
other investment companies and accounts advised by Dreyfus or BNY Mellon and its
other affiliates may raise potential conflicts because of financial, investment
or other interests of BNY Mellon or its personnel, Dreyfus will make allocation
decisions consistent with the interests of the Fund and the other investment
companies and accounts and not solely based on such other interests.
EATON VANCE MANAGEMENT
Compensation Structure for Eaton Vance. Compensation of the subadviser's
portfolio managers and other investment professionals has three primary
components: (1) a base salary, (2) an annual cash bonus, and (3) annual stock-
based compensation consisting of options to purchase shares of Eaton Vance
Corp.'s ("EVC") nonvoting common stock and restricted shares of EVC's nonvoting
common stock. The subadviser's investment professionals also receive certain
retirement, insurance and other benefits that are broadly available to the
subadviser's employees. Compensation of the subadviser's investment
professionals is reviewed primarily on an annual basis. Cash bonuses, stock-
based compensation awards, and adjustments in base salary are typically paid or
put into effect at or shortly after the October 31st fiscal year end of EVC.
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Method to Determine Compensation. The subadviser compensates its portfolio
managers based primarily on the scale and complexity of their portfolio
responsibilities and the total return performance of managed funds and accounts
versus the benchmark(s) stated in the prospectus, as well as an appropriate peer
group (a described below). In addition to rankings within peer groups of funds
on the basis of absolute performance, consideration may also be given to
relative risk-adjusted performance. Risk-adjusted performance measures include,
but are not limited to, the Sharpe Ratio. Performance is normally based on
periods ending on the September 30th preceding fiscal year end. Fund performance
is normally evaluated primarily versus peer groups of funds as determined by
Lipper Inc. and/or Morningstar, Inc. When a fund's peer group as determined by
Lipper or Morningstar is deemed by the subadviser's management not to provide a
fair comparison, performance may instead be evaluated primarily against a custom
peer group. In evaluating the performance of a fund and its manager, primary
emphasis is normally placed on three-year performance, with secondary
consideration of performance over longer and shorter periods. For funds that are
tax-managed or otherwise have an objective of after-tax returns, performance is
measured net of taxes. For other funds, performance is evaluated on a pre-tax
basis. For funds with an investment objective other than total return (such as
current income), consideration will also be given to the fund's success in
achieving its objective. For managers responsible for multiple funds and
accounts, investment performance is evaluated on an aggregate basis, based on
averages or weighted averages among managed funds and accounts. Funds and
accounts that have performance-based advisory fees are not accorded
disproportionate weightings in measuring aggregate portfolio manager
performance.
The compensation of portfolio managers with other job responsibilities (such as
heading an investment group or providing analytical support to other portfolios)
will include consideration of the scope of such responsibilities and the
managers' performance in meeting them.
The subadviser seeks to compensate portfolio managers commensurate with their
responsibilities and performance, and competitive with other firms within the
investment management industry. The subadviser participates in investment-
industry compensation surveys and utilizes survey data as a factor in
determining salary, bonus and stock-based compensation levels for portfolio
managers and other investment professionals. Salaries, bonuses and stock-based
compensation are also influenced by the operating performance of the subadviser
and its parent company. The overall annual cash bonus pool is based on a
substantially fixed percentage of pre-bonus operating income. While the salaries
of the subadviser's portfolio managers are comparatively fixed, cash bonuses and
stock-based compensation may fluctuate significantly from year to year, based on
changes in manager performance and other factors as described herein. For a high
performing portfolio manager, cash bonuses and stock-based compensation may
represent a substantial portion of total compensation.
Conflicts of Interest. It is possible that conflicts of interest may arise in
connection with the portfolio manager's management of the Fund's investments on
the one hand and the investments of other accounts for which the portfolio
manager is responsible on the other. For example, a portfolio manager may have
conflicts of interest in allocating management time, resources and investment
opportunities among the Fund and other accounts he or she advises. In addition,
due to differences in the investment strategies or restrictions between the Fund
and the other accounts, a portfolio manager may take action with respect to
another account that differs from the action taken with respect to the Fund. In
some cases, another account managed by a portfolio manager may compensate the
investment adviser based on the performance of the securities held by that
account. The existence of such a performance based fee may create additional
conflicts of interest for the portfolio manager in the allocation of management
time, resources and investment opportunities. Whenever conflicts of interest
arise, the portfolio manager will endeavor to exercise his or her discretion in
a manner that he or she believes is equitable to all interested persons. Eaton
Vance has adopted several policies and procedures designed to address these
potential conflicts including a code of ethics and policies which govern Eaton
Vance's trading practices, including among other things the aggregation and
allocation of trades among clients, brokerage allocation, cross trades and best
execution.
FRANKLIN ADVISERS, INC.
FRANKLIN ADVISORY SERVICES, LLC
FRANKLIN MUTUAL ADVISERS, LLC
TEMPLETON GLOBAL ADVISORS LIMITED
COMPENSATION. Franklin Advisory Services seeks to maintain a compensation
program that is competitively positioned to attract, retain and motivate top-
quality investment professionals. Portfolio managers receive a base salary, a
cash incentive bonus opportunity, an equity compensation opportunity, and a
benefits package. Portfolio manager compensation is reviewed annually and the
level of compensation is based on individual performance, the salary range for a
portfolio manager's level of responsibility and Franklin Templeton guidelines.
Portfolio managers are provided no
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financial incentive to favor one fund or account over another. Each portfolio
manager's compensation consists of the following three elements:
BASE SALARY - Each portfolio manager is paid a base salary.
ANNUAL BONUS - Annual bonuses are structured to align the interests of the
portfolio manager with those of the Fund's shareholders. Each portfolio
manager is eligible to receive an annual bonus. Bonuses generally are split
between cash (50% to 65%) and restricted shares of Franklin Resources stock
(17.5% to 25%) and mutual fund shares (17.5% to 25%). The deferred equity-
based compensation is intended to build a vested interest of the portfolio
manager in the financial performance of both Franklin Resources and mutual
funds advised by the manager. The bonus plan is intended to provide a
competitive level of annual bonus compensation that is tied to the portfolio
manager achieving consistently strong investment performance, which aligns the
financial incentives of the portfolio manager and Fund shareholders. The
Chief Investment Officer of the manager and/or other officers of the manager,
with responsibility for the Fund, have discretion in the granting of annual
bonuses to portfolio managers in accordance with Franklin Templeton
guidelines. The following factors are generally used in determining bonuses
under the plan:
o Investment performance. Primary consideration is given to the
historic investment performance over the 1, 3 and 5 preceding years of all
accounts managed by the portfolio manager. The pre-tax performance of each
fund managed is measured relative to a relevant peer group and/or
applicable benchmark as appropriate (the Russell 2000 Value Index is the
benchmark index for the AZL Franklin Small Cap Value Fund).
o Non-investment performance. The more qualitative contributions of a
portfolio manager to the manager's business and the investment management
team, including professional knowledge, productivity, responsiveness to
client needs and communication, are evaluated in determining the amount of
any bonus award.
o Responsibilities. The characteristics and complexity of funds managed
by the portfolio manager are factored in the manager's appraisal.
ADDITIONAL LONG-TERM EQUITY-BASED COMPENSATION - Portfolio managers may also
be awarded restricted shares or units of Franklin Resources stock or
restricted shares or units of one or more mutual funds, and options to
purchase common shares of Franklin Resources stock. Awards of such deferred
equity-based compensation typically vest over time, so as to create incentives
to retain key talent.
Portfolio managers also participate in benefit plans and programs available
generally to all employees of the manager.
GATEWAY INVESTMENT ADVISERS, LLC
The compensation of Messrs. Rogers, Stewart, and Buckius (the "Portfolio
Managers") is composed of two parts: base salary and incentive compensation
related to the financial results of Gateway Investment Adviser, LLC ("Gateway")
(and not based on the investment performance of the Fund or any other managed
account, either absolutely or in relation to any benchmark), and a retirement
plan. The incentive compensation component is anticipated to be larger than the
base salary component. Mr. Rogers' and Mr. Stewart's employment agreements have
initial terms ending December 31, 2012 and Mr. Buckius' employment agreement has
an initial term ending December 31, 2011. Each of the employment agreements
provides for automatic renewals for successive one-year periods and, among other
things, a specified base salary and certain undertakings not to compete with
Gateway or solicit its clients. For Mr. Rogers, those undertakings will expire
the later of February 15, 2016 or three years from the termination of Mr.
Rogers' employment. For Mr. Stewart and Mr. Buckius, the noncompetition and non
solicitation undertakings will expire the later of February 15, 2011, one year
from the termination of employment, or one year after the period during which
severance payments are made pursuant to the agreement. The profit sharing plan,
applicable to the Portfolio Managers, provides for both a long-term incentive
pool and a short-term incentive pool, the sizes of which will be determined
based on profitability of the business.
INVESCO ADVISERS, INC.
Invesco seeks to maintain a compensation program that is competitively
positioned to attract and retain high-caliber investment professionals.
Portfolio managers receive a base salary, an incentive bonus opportunity and an
equity compensation opportunity. Portfolio manager compensation is reviewed and
may be modified each year as appropriate to reflect changes in the market, as
well as to adjust the factors used to determine bonuses to promote good
sustained fund performance. Invesco evaluates competitive market compensation by
reviewing compensation survey results conducted by an independent third party of
investment industry compensation. Each portfolio manager's compensation consists
of the following three elements:
o Base salary. Each portfolio manager is paid a base salary. In setting
the base salary, Invesco's intention is to be competitive in light of the
particular portfolio manager's experience and responsibilities.
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o Annual bonus. The portfolio managers are eligible, along with other
employees of Invesco, to participate in a discretionary year-end bonus pool.
The Compensation Committee of Invesco reviews and approves the amount of the
bonus pool available for Invesco's investment centers. The Compensation
Committee considers investment performance and financial results in its
review. In addition, while having no direct impact on individual bonuses,
assets under management are considered when determining the starting bonus
funding levels. Each portfolio manager is eligible to receive an annual cash
bonus which is based on quantitative (i.e. investment performance) and non-
quantitative factors (which may include, but are not limited to, individual
performance, risk management and teamwork).
Each portfolio manager's compensation is linked to the pre-tax investment
performance of the funds/accounts managed by the portfolio manager as
described in Table 1 below.
TABLE 1
----------------------------------------------------------------------------
|SUBADVISER|PERFORMANCE TIME PERIOD[1] |
----------------------------------------------------------------------------
|Invesco[2]|One-, Three- and Five-year performance against Fund peer group.|
----------------------------------------------------------------------------
1 Rolling time periods based on calendar year end.
2 Portfolio Managers may be granted a short-term award that vests on a pro-
rata basis over a three year period and final payments are based on the
performance of eligible funds selected by the manager at the time the award
is granted.
High investment performance (against applicable peer group) would deliver
compensation generally associated with top pay in the industry (determined by
reference to the third-party provided compensation survey information) and poor
investment performance (versus applicable peer group) would result in low bonus
compared to the applicable peer group or no bonus at all. These decisions are
reviewed and approved collectively by senior leadership which has responsibility
for executing the compensation approach across the organization.
o Equity-based compensation. Portfolio managers may be awarded options to
purchase common shares and/or granted restricted shares of Invesco Ltd.
(Invesco) stock from pools determined from time to time by the Compensation
Committee of the Invesco Board of Directors. Awards of equity-based
compensation typically vest over time, so as to create incentives to retain
key talent.
Portfolio managers also participate in benefit plans and programs available
generally to all employees.
J.P. MORGAN INVESTMENT MANAGEMENT INC.
J.P. Morgan Investment Management Inc. (JP Morgan)'s Portfolio managers
participate in a competitive compensation program that is designed to attract
and retain outstanding people and closely link the performance of investment
professionals to client investment objectives. The total compensation program
includes a base salary fixed from year to year and a variable performance bonus
consisting of cash incentives and restricted stock and may include mandatory
notional investments (as described below) in selected mutual funds advised by JP
Morgan. These elements reflect individual performance and the performance of JP
Morgan's business as a whole.
Each portfolio manager's performance is formally evaluated annually based on a
variety of factors including the aggregate size and blended performance of the
portfolios such portfolio manager manages. Individual contribution relative to
client goals carries the highest impact. Portfolio manager compensation is
primarily driven by meeting or exceeding clients' risk and return objectives,
relative performance to competitors or competitive indices and compliance with
firm policies and regulatory requirements. In evaluating each portfolio
manager's performance with respect to the mutual funds he or she manages, the
funds' pre-tax performance is compared to the appropriate market peer group and
to each fund's benchmark index listed in the fund's prospectus over one, three
and five year periods (or such shorter time as the portfolio manager has managed
the fund). Investment performance is generally more heavily weighted to the long
term.
Awards of restricted stock are granted as part of an employee's annual
performance bonus and comprise from 0% to 40% of a portfolio manager's total
bonus. As the level of incentive compensation increases, the percentage of
compensation awarded in restricted stock also increases. Up to 50% of the
restricted stock portion of a portfolio manager's bonus may instead be subject
to a mandatory notional investment in selected mutual funds advised by JP Morgan
or its affiliates. When these awards vest over time, the portfolio manager
receives cash equal to the market value of the notional investment in the
selected mutual funds.
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MASSACHUSETTS FINANCIAL SERVICES COMPANY ("MFS")
Portfolio manager total cash compensation at MFS is a combination of base salary
and performance bonus:
Base Salary - Base salary represents a smaller percentage of portfolio manager
total cash compensation than performance bonus.
Performance Bonus - Generally, the performance bonus represents more than a
majority of portfolio manager total cash compensation.
The performance bonus is based on a combination of quantitative and qualitative
factors, with more weight given to the former and less weight given to the
latter.
The quantitative portion is based on the pre-tax performance of assets managed
by the portfolio manager over one-, three-, and five-year periods relative to
peer group universes and/or indices ("benchmarks"). As of December 31, 2009, the
following benchmarks were used:
Kevin T. Beatty Standard & Poor's 500 Stock Index
Lipper Large Cap Core Funds
Lipper Variable Annuity Large Cap Core Funds
Nicole M. Zatlyn Lipper Large-Cap Core Funds
Standard & Poor's 500 Stock Index
Lipper Variable Annuity Large Cap Core Funds
Additional or different benchmarks, including versions of indices and custom
indices may also be used. Primary weight is given to portfolio performance over
a three-year time period with lesser consideration given to portfolio
performance over one-year and five-year periods (adjusted as appropriate if the
portfolio manager has served for less than five years).
The qualitative portion is based on the results of an annual internal peer
review process (conducted by other portfolio managers, analysts, and traders)
and management's assessment of overall portfolio manager contributions to
investor relations and the investment process (distinct from fund and other
account performance).
Portfolio managers also typically benefit from the opportunity to participate in
the MFS Equity Plan. Equity interests and/or options to acquire equity interests
in MFS or its parent company are awarded by management, on a discretionary
basis, taking into account tenure at MFS, contribution to the investment
process, and other factors.
Finally, portfolio managers are provided with a benefits package including a
defined contribution plan, health coverage and other insurance, which are
available to other employees of MFS on substantially similar terms. The
percentage such benefits represent of any portfolio manager's compensation
depends upon the length of the individual's tenure at MFS and salary level, as
well as other factors.
NFJ INVESTMENT GROUP LLC
COMPENSATION
NFJ Investment Group believes that competitive compensation is essential to
retaining top industry talent. With that in mind, the firm continually
reevaluates its compensation policies against industry benchmarks. Its goal is
to offer portfolio managers and analysts compensation and benefits in the top
quartile for comparable performance, as measured by industry benchmarks.
NFJ Investment Group's compensation policy features both short-term and long-
term components. Compensation is aligned to customer interests through
individual performance and the success of the Firm.
SHORT-TERM INCENTIVE COMPONENTS
The Firm offers competitive base salaries and a variable bonus. Additionally
investment persons may participate in a revenue sharing vehicle which is in part
affected by the performance of the investment styles. Typically, an investment
professional's compensation is comprised of a base salary and a bonus and may or
may not include a long term compensation component.
LONG-TERM INCENTIVE PLAN
A Long-term Incentive Plan provides rewards to certain key staff and executive
of NJF Investment Group and the other Allianz Global Investors companies to
promote long-term growth and profitability. The Plan provides awards that are
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based on the Firm's operating earnings growth. The Plan provides a link between
longer-term company performance and participant pay, further motivating
participants to make a long-term commitment to the Firm's success.
EQUITY OWNERSHIP
Effective January 2010, Allianz Global Investors introduced an equity ownership
plan for key employees of NFJ Investment Group. NFJ believes this plan is
important in retaining and recruiting key investment professional, as well as
providing ongoing incentives for employees.
POTENTIAL CONFLICTS OF INTEREST
Like other investment professionals with multiple clients, a portfolio manager
for a Fund may face certain potential conflicts of interest in connection with
managing both the Fund and other accounts at the same time. The paragraphs below
describe some of these potential conflicts, which NFJ believes are faced by
investment professionals at most major financial firms. NFJ has adopted
compliance policies and procedures that attempt to address certain of these
potential conflicts. The management of accounts with different advisory fee
rates and/or fee structures, including accounts that pay advisory fees based on
account performance ("performance fee accounts"), may raise potential conflicts
of interest by creating an incentive to favor higher-fee accounts. These
potential conflicts may include, among others:
* The most attractive investments could be allocated to higher-fee accounts or
performance fee accounts.
* The trading of higher-fee accounts could be favored as to timing and/or
execution price. For example, higher fee accounts could be permitted to sell
securities earlier than other accounts when a prompt sale is desirable or to
buy securities at an earlier and more opportune time.
* The investment management team could focus their time and efforts primarily on
higher-fee accounts due to a personal stake in compensation.
A potential conflict of interest may arise when a Fund and other accounts
purchase or sell the same securities. On occasions when a portfolio manager
considers the purchase or sale of a security to be in the best interest of a
Fund as well as other accounts, the NFJ's trading desk may, to the extent by
applicable laws and regulations, aggregate the securities to be sold or
purchased in order to obtain the best execution and lower brokerage commissions,
if any. Aggregation of trades may create the potential for unfairness to a Fund
or another account if one account is favored over another in allocating
securities purchased or sold - for example, by allocating a disproportionate
amount of a security that is likely to increase in value to a favored account.
Another potential conflict of interest may arise based on the different
investment objectives and strategies of a Fund and other accounts. For example,
another account may have a shorter-term investment horizon or different
investment objective, policies or restrictions than a Fund. Depending on another
account's objectives or other factors, a portfolio manager may give advice and
make decisions that may differ from advice given, or the timing or nature of
decision made, with respect to a Fund. In addition, investment decisions are the
product of many factors in addition to basic suitability for the particular
account involved. Thus, a particular security may be bought or sold for certain
accounts even though it could have been bought or sold for other accounts at the
same time. More rarely, a particular security may be bought for one or more
accounts managed by a portfolio manager when one or more other accounts are
selling the security. There may be circumstances when purchased or sales of
portfolio securities for one or more accounts may have an adverse effect on
other accounts.
A Fund's portfolio manager who is responsible for managing multiple funds and/or
accounts may allocate unequal time and attention to the management of those
funds and/or accounts. As a result, the portfolio manager may not be able to
formulate as complete a strategy or identify equally attractive investment
opportunities for each of those accounts as might be the case if he or she were
to devote substantially more attention to the management of a single fund. The
effects of this potential conflict may be more pronounced where funds and/or
accounts overseen by a particular portfolio manager have different investment
strategies.
A Fund's portfolio managers may be able to select or influence the selection of
the brokers and dealers that are used to execute securities transactions for the
Funds. In addition to executing trades, some brokers and dealers provide
portfolio managers with brokerage an research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934), which may
result in the payment of higher brokerage fees than might have otherwise been
available. These services may be more beneficial to certain funs or accounts
than to others. Although the payment of brokerage commissions is subject to the
requirement that the portfolio manager determine in good faith and the
commissions are reasonable in relation to the value of the brokerage and
research services provided to the Fund and NFJ's other clients, a
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portfolio manager's decision as to the selection of brokers and dealers could
yield disproportionate costs and benefits among the funds and/or accounts that
he or she managers.
A Fund's portfolio managers may also face other potential conflicts of interest
in managing a Fund, and the description above is not complete description of
every conflict that could be deemed to exist in managing both the Funds and
other accounts. In addition, a Fund's portfolio manger may also manage other
accounts (including their personal assets or the assets of family members) in
their personal capacity. The management of these accounts may also involve
certain of the potential conflicts described above. Front-running could also
exist if a portfolio manager transacted in his own account prior to placing an
order for a Fund or other clients. NFJ's investment personnel, including each
Fund's portfolio manager, are subject to restrictions on engaging in personal
securities transactions, pursuant to a Code of Ethics adopted by NFJ, which
contain provisions and requirements designed to identify and address certain
conflicts of interest between personal investments activities and the interest
of the Funds.
As part of NFJ's Compliance Program, NFJ has established a Compliance Committee,
a Best Execution Committee, a Proxy Voting Committee and a Pricing Committee to
help develop policies and procedures that help NFJ avoid, mitigate, monitor and
oversee areas that could present potential conflicts of interest.
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT LLC ("NACM")
Nicholas-Applegate believes that competitive compensation is essential to
retaining top industry talent. With that in mind, the firm continually
reevaluates its compensation policies against industry benchmarks. Its goal is
to offer portfolio managers and analysts compensation and benefits in the top
quartile for comparable experience, as measured by industry benchmarks surveyed
by McLagan and ECS (Watson Wyatt Data Services).
Nicholas-Applegate's compensation policy features both short-term and long-term
components. The firm offers competitive base salaries and bonuses, profit-
sharing and generous retirement plans. Investment professionals' annual
compensation is directly affected by the performance of their portfolios, their
performance as individuals and the success of the firm. Typically, an investment
professional's compensation is comprised of a base salary and a bonus.
Investment professionals are awarded bonuses based primarily on product
performance. A 360-degree qualitative review is also considered. As part of the
360-degree review, analysts and portfolio managers are reviewed by the portfolio
manager who is responsible for the team's final investment decisions and other
portfolio managers to whose portfolios they contribute. Portfolio managers
responsible for final investment decisions are reviewed by the Chief Investment
Officer, who evaluates performance both quantitatively versus benchmarks and
peer universes, as well as qualitatively.
Compensation and Account Performance
Compensation pools for investment teams are directly related to the size of the
business and the performance of the products. Approximately half of the pool is
based on one, three and five year performance relative to benchmarks and peers.
The team pools are then subjectively allocated to team members based on
individual contributions to client accounts. We believe our compensation system
clearly aligns the interests of clients with our people and keeps our
compensation competitive with industry norms.
Long-Term Incentive Plan
A Long-Term Incentive Plan provides rewards to certain key staff and executives
of Nicholas-Applegate and the other Allianz Global Investors companies to
promote long-term growth and profitability. The Plan provides awards that are
based on Nicholas-Applegate's operating earnings growth. The plan provides a
link between longer term company performance and participant pay, further
motivating participants to make a long-term commitment to the company's success.
Equity Ownership
In September 2006, Allianz SE approved an equity ownership plan for key
employees of Nicholas-Applegate. The plan was implemented as of January 31,
2007. Nicholas-Applegate believes this plan is important in retaining and
recruiting key investment professionals, as well as providing ongoing incentives
for Nicholas-Applegate employees.
OPPENHEIMER CAPITAL LLC
Oppenheimer Capital believes that competitive compensation is essential to
retaining top industry talent. With that in mind, we continually reevaluate our
compensation policies against industry benchmarks. Our goal is to offer
portfolio
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managers and analysts' compensation and benefits in the top quartile for top
performance, as measured by industry benchmarks.
Oppenheimer Capital's compensation policy features both short-term and long-term
components. Our Firm offers competitive base salaries and bonuses, profit-
sharing and generous retirement plans. Investment professionals' annual
compensation is directly affected by the performance of their portfolios, their
performance as individuals, and the success of the Firm. Typically, an
investment professional's cash compensation comprises a base salary and a bonus,
plus long-term equity-like incentive units.
Investment professionals are awarded bonuses primarily based on product
performance. A 360-degree qualitative review is also considered. As part of
the 360-degree review, analysts and portfolio managers are reviewed by the
portfolio manager who is responsible for the team's final investment decisions
and other portfolio managers to whose portfolios they contribute. Portfolio
managers responsible for final investment decisions are reviewed by the Chief
Investment Officer, who evaluates performance both quantitatively versus
benchmarks and peer universes, as well as qualitatively.
Compensation and Account Performance - Compensation pools for investment teams
are directly related to the size of the business and the performance of the
products. Approximately half of the pool is based on one, three and five year
performance relative to benchmarks and peers. The team pools are then
subjectively allocated to team members based on individual contributions to
client accounts. We believe our compensation system clearly aligns the
interests of clients with our people and keeps our structure competitive with
industry norms.
Long-Term Incentive Plan - A Long-Term Incentive Plan provides rewards to key
staff based on AGI Management Partners' operating earnings growth. The Plan
provides a link between the Firm's longer-term performance and employee pay,
further motivating participants to make a long-term commitment to the company's
success.
Equity Ownership - Effective January 2010, Oppenheimer Capital's Managing
Directors participate in an equity ownership plan in AGI Management Partners.
We believe this plan is important in retaining and recruiting key investment
professionals, as well as in providing ongoing incentives.
SCHRODER INVESTMENT MANAGEMENT NORTH AMERICA INC. ("SCHRODER")
All fund managers at Schroders are fully accountable for the performance of
their client portfolios, and all portfolios are closely monitored. Comparisons
are made with all other salient portfolios and/or with broad market indices
where appropriate. Any portfolios whose performance or tracking error is not
within a specified target range are reviewed by the head of the relevant
investment team and business head.
For the Emerging Market Equities team, 77.5% of a Global Emerging Markets fund
manager's assessment is determined by quantitative measures of the performance
of the portfolios to which they contribute. The remaining 22.5% depends on
qualitative measures, such as their level of participation in meetings and how
well they perform against Schroders' core values.
Analysts are expected to rank at least 75% of the market cap of each country and
are also incentivised to identify and cover attractive non-core stocks. 40% of
an analyst's assessment is based on how well their rankings perform independent
of the portfolio. In this part of the calculation, as a measure to encourage
conviction in analysts' views, the contribution of stocks which they grade 2 or
3 is capped at 10% of out / underperformance, whereas they can benefit from the
full out / underperformance of stocks which they grade 1 or 4 (stocks are graded
1 to 4; 1 represents a high conviction that a stock will outperform the relevant
country index and 4 a high conviction that it will underperform).
A further 45% of an analyst's assessment depends on how well actual portfolios
perform, so they are also incentivised to communicate with fund managers to
ensure their very best ideas are included in the portfolio.
The remaining 15% of an analyst's assessment is determined using a qualitative
measurement looking at the quality and flow of information, as well as their
level of participation in meetings and how they perform against Schroders' core
values.
Please refer to the following table for a detailed breakdown of the factors on
which the members of the emerging markets team are assessed.
------------------------------------------------------------------------------
| |GLOBAL FUND MANAGER (%)|REGIONAL HEAD (%)|ANALYST (%)|
------------------------------------------------------------------------------
|STOCK RANKINGS | 0.0 | 0.0 | 40.0 |
------------------------------------------------------------------------------
|GLOBAL GEM PERFORMANCE| 27.5 | 15.0 | 10.0 |
------------------------------------------------------------------------------
|REGIONAL PERFORMANCE | 0.0 | 45.0 | 10.0 |
------------------------------------------------------------------------------
|COUNTRIES WITHIN GEM | 50.0 | 0.0 | 12.5 |
------------------------------------------------------------------------------
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-------------------------------------------------------
|EMEA/LAT AM COUNTRIES WITHIN GEM| 0.0 | 10.0 | 0.0 |
-------------------------------------------------------
|COUNTRIES WITHIN REGIONAL | 0.0 | 0.0 | 12.5 |
-------------------------------------------------------
|PARTICIPATION | 10.0 | 10.0 | 5.0 |
-------------------------------------------------------
|MARKETING | 7.5 | 7.5 | 0.0 |
-------------------------------------------------------
|MARKET COVERAGE | 0.0 | 0.0 | 10.0 |
-------------------------------------------------------
|MANAGE TEAM | 0.0 | 10.0 | 0.0 |
-------------------------------------------------------
|OTHER | 5.0 | 2.5 | 0.0 |
-------------------------------------------------------
|TOTAL |100.00|100.00|100.00|
-------------------------------------------------------
| | | | |
-------------------------------------------------------
|QUANT | 77.5 | 70.0 | 85.0 |
-------------------------------------------------------
|NON-QUANT | 22.5 | 30.0 | 15.0 |
-------------------------------------------------------
The relevant Benchmarks for the Funds that are subadvised by Schroder are as
follows: S&P/Citigroup Extended Markets EuroPacific Index; Schroders Emerging
Markets Equity Fund -- MSCI Emerging Markets Index.
TURNER INVESTMENT PARTNERS, INC.
Investment professionals receive a base salary commensurate with their level of
experience. Turner's goal is to maintain competitive base salaries through
review of industry standards, market conditions, and salary surveys.
Compensation for investment professionals is tied to the performance of all
accounts within the relevant composite. Turner evaluates investment
professionals' performance over multiple time frames, including 1, 3, 5 year and
since inception, relative to appropriate market benchmarks. In addition, each
employee is eligible for equity awards. Turner believes this compensation
provides incentive to attract and retain highly qualified people.
The objective performance criteria noted above accounts for 90% of the bonus
calculation. The remaining 10% is based upon subjective, "good will" factors
including teamwork, interpersonal relations, the individual's contribution to
overall success of the firm, media and client relations, presentation skills,
and professional development. Portfolio managers/analysts are reviewed on an
annual basis. Robert E. Turner, CFA, chairman and chief investment officer, and
David Kovacs, CFA, chief investment officer, quantitative strategies, are
responsible for setting base salaries, bonus targets, and making all subjective
judgments related to the compensation for Turner's Quantitative Equity Team
members.
VAN KAMPEN ASSET MANAGEMENT
PORTFOLIO MANAGER COMPENSATION STRUCTURE
Portfolio managers receive a combination of base compensation and discretionary
compensation, comprising a cash bonus and several deferred compensation programs
described below. The methodology used to determine portfolio manager
compensation is applied across all funds/accounts managed by the portfolio
managers.
BASE SALARY COMPENSATION. Generally, portfolio managers receive base salary
compensation based on the level of their position with the Investment Adviser
and/or Sub-Advisers.
DISCRETIONARY COMPENSATION. In addition to base compensation, portfolio managers
may receive discretionary compensation.
Discretionary compensation can include:
* Cash Bonus.
* Morgan Stanley's Long Term Incentive Compensation awards-a mandatory program
that defers a portion of discretionary year-end compensation into restricted
stock units or other awards based on Morgan Stanley common stock or other
investments that are subject to vesting and other conditions.
* Investment Management Alignment Plan (IMAP) awards-a mandatory program that
defers a portion of discretionary year-end compensation and notionally invests
it in designated funds advised by the Investment Adviser and/or Sub-Advisers or
their affiliates. The award is subject to vesting and other conditions.
Portfolio managers must notionally invest a minimum of 25% to a maximum of 100%
of their IMAP deferral account into a combination of the designated funds they
manage that are included in the IMAP fund menu, which may or may not include the
Fund. For 2008 awards, a clawback provision was implemented that could be
triggered if the individual engages in conduct detrimental to the
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The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
Investment Adviser and/or Sub-Advisers or their affiliates. For 2009 awards,
this provision was further strengthened to allow the Firm to clawback
compensation if the Firm realizes losses on certain trading position,
investments or holdings.
* Voluntary Deferred Compensation Plans-voluntary programs that permit certain
employees to elect to defer a portion of their discretionary year-end
compensation and notionally invest the deferred amount across a range of
designated investment funds, including funds advised by the Investment Adviser
and/or Sub-Advisers or their affiliates.
Several factors determine discretionary compensation, which can vary by
portfolio management team and circumstances. In order of relative importance,
these factors include:
* Investment performance. A portfolio manager's compensation is linked to the
pre-tax investment performance of the funds/accounts managed by the portfolio
manager. Investment performance is calculated for one-, three- , five- and ten-
year periods measured against a fund's/account's primary benchmark (as set forth
in the fund's prospectus), indices and/or peer groups where applicable.
Generally, the greatest weight is placed on the three- and five-year periods.
* Revenues generated by the investment companies, pooled investment vehicles and
other accounts managed by the portfolio manager.
* Contribution to the business objectives of the Investment Adviser and/or Sub-
Advisers.
* The dollar amount of assets managed by the portfolio manager.
* Market compensation survey research by independent third parties.
* Other qualitative factors, such as contributions to client objectives.
* Performance of Morgan Stanley and Morgan Stanley Investment Management, and
the overall performance of the investment team(s) of which the portfolio manager
is a member.
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PORTFOLIO MANAGER OWNERSHIP OF SECURITIES IN THE FUNDS
At December 31, 2009, none of the Portfolio Managers for any of the Funds
beneficially owned shares of any Fund.
AFFILIATED PERSONS
The following table lists persons who are affiliated with the Trust and who are
also affiliated persons of the Manager.
NAME POSITION WITH TRUST POSITION WITH ADVISER
Jeffrey Kletti Trustee; President Director; President
Brian Muench Vice President Vice President
Stephen G. Simon Chief Compliance Officer and Anti-Money Laundering Compliance Officer Chief Compliance Officer
Michael Tanski Vice President of Operations of the Trust Vice President - Operations
PORTFOLIO TRANSACTIONS
Purchases and sales of portfolio securities which are debt securities usually
are principal transactions in which portfolio securities are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. Purchases from underwriters of portfolio securities generally
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers may include the spread between
the bid and asked prices. Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. Transactions in the over-the-counter market
are generally principal transactions with dealers. With respect to the
over-the-counter market, the Trust, where possible will deal directly with the
dealers who make a market in the securities involved except under those
circumstances where better price and execution are available elsewhere.
In distributing brokerage business arising out of the placement of orders for
the purchase and sale of securities for any Fund, the objective of the Fund's
Manager or Subadviser is to obtain the best overall terms. Allocation of
transactions, including their frequency, to various brokers and dealers is
determined by the Manager or Subadviser, in its best judgment and in the manner
deemed fair and reasonable to shareholders. The primary consideration is prompt
execution of orders in an effective manner at the most favorable price. Subject
to this consideration, brokers and dealers who provide supplemental investment
research to the Manager or Subadviser may receive orders for transactions on
behalf of the Trust. The types of research services the Manager or Subadviser
may receive includes economic analysis and forecasts, financial market analysis
and forecasts, industry and company specific analysis, performance monitoring,
interest rate forecasts, arbitrage relative valuation analysis of various debt
securities, analyses of U.S. Treasury securities, research-dedicated computer
hardware and software and related consulting services and other services that
assist in the investment decision-making process. Research services are received
primarily in the form of written reports, computer-generated services, telephone
contacts and personal meetings with security analysts. Research services may
also be provided in the form of meetings arranged with corporate and industry
spokespersons or may be generated by third parties but are provided to the
Manager or Subadvisers by, or through, broker-dealers. Research so received is
in addition to and not in lieu of services required to be performed by the
Manager or Subadviser and does not reduce the fees payable to such adviser by
the Trust. Such information may be useful to the Manager or Subadviser in
serving both the Trust and other clients and, conversely supplemental
information obtained by the placement of business of other clients may be useful
to the Manager or Subadviser in carrying out its obligations to the Trust.
Consistent with achieving best execution, a Fund may participate in so-called
"commission recapture" programs, under which brokers or dealers used by the Fund
remit a portion of brokerage commissions to the particular Fund from which they
were generated. Subject to oversight by the Fund's Board of Directors, either
the Fund's Manager or Subadviser, is responsible for the selection of brokers or
dealers and for ensuring that a Fund receives best execution in connection with
its portfolio brokerage transactions. Participation in such programs may have
the effect of reducing overall expenses and increasing overall returns for
certain Funds
While the Manager or Subadviser generally seeks competitive commissions, the
Trust may not necessarily pay the lowest commission available on each brokerage
transaction for the reasons discussed above. Thus, a Fund may pay a higher
brokerage commission in connection with a given portfolio transaction than it
would have paid another broker for the same transaction in recognition of the
value of brokerage or research services provided by the executing broker. The
total brokerage commissions paid by each Fund for the last 3 fiscal years are
listed in the following table.
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FUND TOTAL BROKERAGE COMMISSION PAID FOR TOTAL BROKERAGE COMMISSION PAID FOR TOTAL BROKERAGE COMMISSION PAID FOR
THE FISCAL YEAR ENDED DECEMBER 31, THE FISCAL YEAR ENDED DECEMBER 31, THE FISCAL YEAR ENDED DECEMBER 31,
2009 2008 2007
BlackRock 526,167 136,819 68,752
Capital
Appreciation
Fund
Columbia Mid 152,735 162,485 170,292
Cap Value Fund
Columbia Small 163,590 206,457 127,828
Cap Value Fund
Davis NY 212,793 935,707* 137,602
Venture Fund
Dreyfus Equity 570,768 449,697 281,349
Growth Fund
Eaton Vance 421,106 479,077 287,771
Large Cap
Value Fund
Enhanced Bond 3,083 NA NA
Index Fund
Franklin Small 93,443 195,578 147,408
Cap Value Fund
Franklin 17,015 NA NA
Templeton
Found
StrategyPlus
Fund
International 83,894 NA NA
Index Fund
Invesco $327,684 $491,657 $508,628
International
Equity Fund
MFS Investor 855,483 988,079 849,768
Trust
JPMorgan U.S. 366,876 85,980 156,930
Equity Fund
Mid Cap Index 25,671 NA NA
Fund
Money Market 0 0 0
Fund
NACM 5,785 NA NA
International
Growth Fund
NFJ 84,481 NA NA
International
Value Fund
OCC Growth 972 NA NA
Fund
OCC 675,432 933,622 840,295
Opportunity
Fund
Schroder 1,123,653 891,501 841,088
Emerging
Markets Equity
Fund
S&P 500 Index 188,676 96,761 6,963
Fund
Small Cap 47,834 52,922 10,200
Stock Index
Fund
Turner 116,859 132,905 272,941
Quantitative
Small Cap
Growth Fund
VK Equity and 202,278 142,998 84,695
Income Fund
VK Global Real 177,744 213,149 259,690
Estate Fund
VK Growth and 227,977 251,745 169,981
Income Fund
VK 443,167 236,894 178,573
International
Equity Fund
VK Mid Cap 254,707 352,268 507,460
Growth Fund
Brokerage commissions paid by a Fund may vary significantly from year to year as
a result of a variety of factors, including changing asset levels through the
year, changes in portfolio turnover rates, varying market conditions, and
changes in investment strategies and processes.
AFFILIATED BROKERS
The following table lists the amount of brokerage commissions paid during the
last three years to any broker that is affiliated with the Trust, the Manager,
or any Subadviser. All of the brokers listed are affiliates of the Manager or a
Subadvisor.
NAME OF AGGREGATE DOLLAR AMOUNT OF BROKERAGE AGGREGATE DOLLAR AMOUNT OF BROKERAGE AGGREGATE DOLLAR AMOUNT OF BROKERAGE
AFFILIATED COMMISSIONS PAID FOR THE FISCAL YEAR COMMISSIONS PAID FOR THE FISCAL YEAR COMMISSIONS PAID FOR THE FISCAL YEAR
BROKER ENDED DECEMBER 31, 2009 ENDED DECEMBER 31, 2008 ENDED DECEMBER 31, 2007
Morgan $ 13,046 $ 19,837 $ 21,631
Stanley
Wachovia $ 6,568 $ 11,265 $ 9,716
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The following table shows the percentage of aggregate brokerage commissions paid
to the affiliated broker and the percentage of the aggregate dollar amount of
transactions involving the payment of commissions effected through the
affiliated broker during the fiscal year ended December 31, 2009.
NAME OF PERCENTAGE OF AGGREGATE BROKERAGE PERCENTAGE OF AGGREGATE DOLLAR AMOUNT OF TRANSACTIONS INVOLVING THE PAYOUT OF
AFFILIATED COMMISSIONS PAID FOR FISCAL YEAR ENDED COMMISSIONS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
BROKER DECEMBER 31, 2009
Morgan 1.23% 0.14%
Stanley
Wachovia 0.94% 0.62%
Except as permitted by applicable rules under the 1940 Act, the Trust will not
acquire portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with the Manager or Subadviser or
the Distributor, or their affiliates. Subject to the requirements of the 1940
Act and the oversight of the Board of Trustees, the Funds may borrow from the
Manager or Subadviser for temporary or emergency purposes in order to meet
unanticipated redemptions or to meet payment obligations when a portfolio
transaction "fails" due to circumstances beyond a Fund's control.
At December 31, 2009, the Funds listed below held the following securities of
issuers, each of which derived more than 15% of its gross revenues from the
business of a broker, dealer, underwriter, or an investment:
FUND NAME OF BROKER OR APPROXIMATE AGGREGATE VALUE OF ISSUER SECURITIES OWNED BY THE FUND AT
DEALER 12/31/09
AZL BlackRock Capital Appreciation Fund Morgan Stanley $ 5,106,000
AZL Davis NY Venture Fund Bank of New York 15,772,283
Mellon Corp.
AZL Davis NY Venture Fund Goldman Sachs Group, 3,278,873
Inc.
AZL Eaton Vance Large Cap Value Fund Goldman Sachs Group, 8,740,340
Inc.
AZL Enhanced Bond Index Fund Bank of New York 131,558
Mellon Corp.
AZL Enhanced Bond Index Fund Goldman Sachs Group, 597,577
Inc.
AZL Enhanced Bond Index Fund Morgan Stanley 944,443
AZL Franklin Templeton Founding Strategy Bank of New York 48,947
Plus Fund Mellon Corp.
AZL Franklin Templeton Founding Strategy Morgan Stanley 82,584
Plus Fund
AZL International Index Fund Credit Suisse 873,237
AZL JPMorgan U.S. Equity Fund Bank of New York 1,355,790
Mellon Corp.
AZL JPMorgan U.S. Equity Fund Goldman Sachs 7,035,056
AZL JPMorgan U.S. Equity Fund Morgan Stanley 3,152,370
AZL JPMorgan U.S. Equity Fund State Street Bank 929,753
AZL MFS Investors Trust Fund Bank of New York 5,164,688
Mellon Corp.
AZL MFS Investors Trust Fund Goldman Sachs Group, 4,806,706
Inc.
AZL MFS Investors Trust Fund State Street Bank 5,302,127
AZL NACM International Growth Fund Credit Suisse 92,319
AZL OCC Growth Fund Morgan Stanley 53,280
AZL S&P 500 Index Fund Bank of New York 2,339,411
Mellon Corp.
AZL S&P 500 Index Fund Goldman Sachs Group, 6,152,529
Inc.
AZL S&P 500 Index Fund Morgan Stanley 2,815,434
AZL S&P 500 Index Fund State Street Bank 1,508,138
AZL Van Kampen Equity and Income Fund Credit Suisse 218,555
AZL Van Kampen Equity and Income Fund State Street Bank 892,570
AZL Van Kampen Growth and Income Fund State Street Bank 1,023,190
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Investment decisions for each Fund of the Trust are made independently from
those made for the other Funds or any other portfolio investment company or
account managed by the Manager or Subadviser. Any such other portfolio,
investment company or account may also invest in the same securities as the
Trust. When a purchase or sale of the same security is made at substantially the
same time on behalf of a Fund and another Fund, portfolio, investment company or
account, the transaction will be averaged as to price, and available investments
will be allocated as to amount, in a manner which the Manager or Subadviser
believes to be equitable to the Fund(s) and such other portfolio, investment
company, or account. In some instances, this investment procedure may adversely
affect the price paid or received by a Fund or the size of the position obtained
by the Fund. To the extent permitted by law, the Manager or Subadviser may
aggregate the securities to be sold or purchased for a Fund with those to be
sold or purchased for other Funds or for other portfolios, investment companies,
or accounts in order to obtain best execution. In making investment
recommendations for the Trust, the Manager or Subadviser will not inquire or
take into consideration whether an issuer of securities proposed for purchase or
sale by the Trust is a customer of the Manager, its parent, affiliates, or a
Subadviser and, in dealing with its customers, the Manager, its parent and
affiliates or a Subadviser will not inquire or take into consideration whether
securities of such customers are held by the Trust.
ADMINISTRATOR, TRANSFER AGENT, AND FUND ACCOUNTANT
Citi Fund Services Ohio, Inc. ("CFSO"), whose principal location of business is
3435 Stelzer Road, Columbus, Ohio 43219, serves as the administrator (the
"Administrator"), transfer agent (the "Transfer Agent") and fund accountant (the
"Fund Accountant") to the Trust pursuant to an Amended and Restated Services
Agreement dated November 1, 2006 (the "Services Agreement").
As Administrator, CFSO has agreed to maintain office facilities for the Trust;
furnish statistical and research data, clerical and certain bookkeeping services
and stationery and office supplies; prepare the periodic reports to the SEC on
Form N-SAR and N-CSR or any comparable or replacement forms thereof; compile
data for, prepare for execution by the Funds and file certain federal and state
tax returns and required tax filings; prepare compliance filings pursuant to
state securities laws with the advice of the Trust's counsel; keep and maintain
the financial accounts and records of the Funds, including calculation of daily
expense accruals; and generally assist in all aspects of the Trust's operations
other than those performed by the Manager under the Investment Management
Agreement, the Subadvisers under the Subadvisory Agreements, or by the Custodian
under the Custody Agreement. Under the Services Agreement, the Administrator may
delegate all or any part of its responsibilities thereunder.
As Transfer Agent, CFSO performs the following services in connection with each
Fund's shareholders of record: maintains shareholder records; processes
shareholder purchase and redemption orders; processes transfers and exchanges of
shares of the Funds on the shareholder files and records; processes dividend
payments and reinvestments; and assists in the mailing of shareholder reports
and proxy solicitations.
As Fund Accountant, CFSO maintains the accounting books and records for the
Funds, including journals containing an itemized daily record of all purchases
and sales of portfolio securities, all receipts and disbursements of cash and
all other debits and credits, general and auxiliary ledgers reflecting all
asset, liability, reserve, capital, income and expense accounts, including
interest accrued and interest received and other required separate ledger
accounts; maintains a monthly trial balance of all ledger accounts; performs
certain accounting services for the Funds, including calculation of the net
asset value per share, calculation of the dividend and capital gain
distributions, if any, and of yield, reconciliation of cash movements with
Trust's custodian, affirmation to the Trust's custodian of all portfolio trades
and cash settlements, verification and reconciliation with the Trust's custodian
of all daily trade activities; provides certain reports; obtains dealer
quotations, prices from a pricing service matrix prices, or where necessary,
fair value pricing information or adjustment factors from independent fair value
pricing sources on all portfolio securities in order to mark the portfolio to
the market; and prepares an interim balance sheet, statement of income and
expense, and statement of changes in net assets for the Funds.
Under the terms of the Services Agreement CFSO also provides a variety of
compliance services utilized by the Chief Compliance Officer of the Trust.
CFSO receives a fee from each Fund for its services as Administrator, Transfer
Agent and Fund Accountant and is reimbursed for certain expenses assumed
pursuant to the Services Agreement, aggregated and paid monthly, including (a) a
minimum annual base fee of $1,250,000, (b) an asset-based fee, calculated daily
and paid monthly, at the annual rate of 0.06% of the combined average daily net
assets of the Funds from $550 million to $2 billion; 0.045% of the combined
average daily net assets of the Funds from $2 billion to $3 billion; 0.03% of
the combined average daily net assets of the
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The Allianz Variable Insurance Products Trust - SAI -
April 30, 2010
Funds from $3 billion to $5 billion; and 0.01% of the combined average daily net
assets of the Funds over $5 billion; and (c) a fee of either $5,000 or $7,500
per Fund (depending on the number of securities held by the Fund) for fair value
support services. The fees under (b) above are subject to a minimum fee of
$50,000 per year for each Fund. From time to time, CFSO may waive all or a
portion of the administration fee payable to it by the Funds, either voluntarily
or pursuant to applicable statutory expense limitations. In addition, CFSO
receives an annual fee of $85,000 from the Trust for compliance services
provided under the terms of the Services Agreement.
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For the fiscal year ended December 31, 2009, CFSO was entitled to receive and
waived administration fees from the Funds as follows:
FUND SERVICE FEES EARNED SERVICE FEES WAIVED